Bad news keeps rolling on for Dell

By Stan Beer
Sunday, 20 August 2006 12:15

Strategy

Leading PC maker Dell has capped off the most forgettable quarter in its history with yet another couple of items of bad news, including a massive profit decline and a regulatory investigation into its accounting practices.

With second quarter earnings down 51% and a Federal Government accounting probe capping off a quarter of mishaps and negative events, the market punished Dell by pushing down the company's shares by 9.4% on Friday.

Dell's past few months have seen the company undergo a most unfortunate string of events just as the market for PCs was undergoing a slowdown.

It started when a laptop exploded into flames at a public exhibition in Osaka, Japan. Unfortunately for Dell, a picture of the infamous incident was circulated around the internet.

Reports of a number of further laptops catching fire prompted Dell to recall more than 4.1 million laptops worldwide, in order to replace the batteries which are being blamed for the fire hazard. Some estimates have put the expense of the massive recall operation at US$400 million.

In addition to its problems with exploding laptops and defective batteries, Dell managed to incur the wrath of consumers in China. An error by the PC maker saw Chinese consumers receive computers containing inferior chips to the ones advertised by Dell. The error was compounded by the fact that the chips supplied do not support virtualization, a major feature of the chips that were supposed to be supplied.

Dell founder and chairman, Michael Dell, has reportedly acknowledged publicly that the company's performance has been less satisfactory and promised that it will do better going forward.

The PC maker's performance this year must be especially concerning when taken in conjunction with an impressive turnaround in the fortunes of its major rival Hewlett-Packard, which has posted impressive financial results in the previous quarter.