Chairman insists that Dell's troubles are short-term setbacks

By New York Times Staff
The New York Times

Published: August 19, 2006, 6:58 AM PDT

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HONG KONG--You would have thought, in view of the week's events, that Michael Dell would show up at a greet-the-folks gathering here Friday looking like some whiter shade of pale.

Not a bit: Appearing in a packed hotel ballroom during a brief stopover, the founder and chairman of the computer maker Dell seemed to glow a sort of sun-drenched pink as he defended his company and his actions.

"There are a number of things a company might do in this situation--run and hide, wait for the regulators or claim it's not a problem," Dell told an audience convened by the local chamber of commerce. "We've exercised an abundance of caution. Beyond all the hysteria, we're doing the right thing for our customers, and they'll appreciate it in the long run."

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Dell arrived days after the company announced the largest safety-related recall in the history of the American consumer electronics industry. Earnings have plunged, and the company has been plagued by accounting questions, executive defections and an implicit acknowledgment that the innards of Dell's direct-to-you-and-me products are a touch behind the times.

Also, Hewlett-Packard, a principal rival, exceeded analysts' expectations in its earnings report Wednesday and looks set to overtake IBM to become the No. 1 technology company.

Dell announced on Monday that it would recall batteries--up to 4.1 million--that tend to overheat and explode. Analysts have estimated that Dell and Sony, which produced the faulty components, are looking at a damage-control bill of $85 million to $430 million, though on this point Mr. Dell went straight in to "no comment" mode Friday.

On the accounting front, the company disclosed Thursday that the Securities and Exchange Commission had scrutinizing its accounts for the last year. No allegations have been made, executives stressed from their head offices in Round Rock, Texas.

"People tend to focus too much on what happened in the last 24 hours," Dell said. "I like to look at the last 24 years."

Michael Dell

Dell, 41, founded his company in 1984 after tinkering with an early IBM PC in his dorm room. So not for Dell that odious "short termism" of quarterly earnings.

Dell announced Thursday that second-quarter earnings fell 51 percent, to $502 million, on a 5 percent increase in revenue, to $14.09 billion. It also disclosed that it would begin using processors made by Advanced Micro Devices in some of its computers.

(Dell's stockholders reacted aversely to the news, sending shares down almost 3 percent on Friday, to $22.16. In the last year, the stock has fallen 40 percent, reducing the value of Mr. Dell's own holdings in the company from $7.7 billion to $4.8 billion.)

Asia is a bright spot for Dell, as Mr. Dell said, showing dramatic growth in the last five years. "Go back and look at the reaction to Dell's entry into any market," he said. "What you'll see is conventional wisdom that the direct-sale model won't work. The fact is, no one sells more computer systems than we do."

This week, Dell lost two senior executives in one of its hottest and least-saturated markets. David Miller, who ran the China operation, defected to Lenovo, which bought out IBM's ThinkPad business last year. Dell's sales director in Japan, Sotaro Amano, is to become president of Lenovo Japan.

"I'm not going to tell you we want people to leave," Dell said. "But by and large we've been pretty successful in retaining the people we want to retain."

If his demeanor here was any guide, the company anticipated its problems--some of them, anyway--and is confident of addressing them.

"There've been many challenges, and many before these over the years," he said. "But come and see us in a couple of quarters."

Entire contents, Copyright © 2006 The New York Times. All rights reserved.

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