D-Day beckons for Dell - but how exactly did it all go wrong?

Dell, the world's biggest manufacturer of personal computers, faces a showdown with Wall Street as investors fret that the once-unbeatable company is losing market share.

Kevin Rollins, Dell's chief executive, stands accused of the worst of corporate sins: complacency. And the company's shares look set to be punished further this week if the latest quarterly results news is not accompanied by a convincing plan to wrest market share from a resurgent Hewlett-Packard.

The only trouble is that Wall Street's analysts are not entirely agreed on what has gone wrong at Dell.

The company's sales surged past H-P's in 2001 thanks to its strategy of selling PCs direct to consumers online, cutting out the retailer and allowing it to undercut its rivals' prices. That attracted additional sales that meant it could buy components in bulk and cut prices still further. Then, last year, its growth rate slowed sharply and a profits warning last week was the latest distress signal.

"We have no ready explanation for the implosion in the Dell story beginning in the second half of last year," Charlie Wolf, an analyst at Needham & Co, said. "And I don't know if we will get anything clarified on the earnings conference call on Thursday. It could be that the company doesn't understand it. It is like a mystery novel. Whodunnit?"

Mr Rollins gave two reasons as to why profits will fall short of forecast this year. The company is cutting prices for new PCs at the same time as it puts more money into after-sales services including customer call centres.

But the underlying ailment - the cause of its decline in market share, which has dipped below 30 per cent in the US - remains undiagnosed by the company. With zero growth in the US at the moment, and with H-P already having a stronger international presence thanks to its acquisition of the Europe-focused Compaq, Dell could lose the global No 1 position within 18 months.

Investors posit different explanations for the problem for different parts of the Dell business. In the home computer market, it seems the trend towards buying hardware over the internet might have gone as far as it can. With music, video and even television starting to be channelled through the personal computer, the purchase is more important than ever. More people are looking to try before they buy, and Dell's rivals, with better links to retailers, are winning these customers. At the same time, Dell's helplines, which are vital for those who have bought direct from the manufacturer, are getting a reputation for poor customer service.

H-P, since the bloody replacement of the chief executive Carly Fiorina with Mark Hurd last year, has got a grip on costs and assembles all its PCs in China. Together with cut-throat competition between computer retailers, there is no longer a vast difference in price between an online Dell store and a shop-bought rival.

The company has a market share approaching 45 per cent for sales of computers to large businesses, and the explanation for Dell's stagnation in this area also includes its decision to stick with Intel processors when H-P and others adopted the lower-cost AMD chips.

While rivals have closed the gap with Dell in the US, Mr Rollins has failed either to come up with ideas on how to react in the domestic market, or to switch the company's emphasis to overseas sales.

It has frustrated investors. Simon Clinch, the director of US equities at F&C Asset Management, said: "The pain is far from over. It would be a different case if Dell had been faster to recognise the cost disadvantage of sticking with the Intel chip architecture over AMD's, the rising competitiveness of Hewlett-Packard's products, and the importance of customer service and innovation in maintaining brand quality.

"We don't doubt Dell will recover in time, but until there is a change in management attitude, or a change in management, we feel the risk/reward is simply not balanced in the investor's favour."

Start your day with The Independent, sign up for daily news emails
Voices
Homeless Veterans charity auction: Cook with Angela Hartnett and Neil Borthwick at Merchants Tavern
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
News
Stacey Dooley was the only woman to be nominated in last month’s Grierson awards
mediaClare Balding and Davina McCall among those overlooked for Grierson awards
PROMOTED VIDEO
Voices
Joseph Kynaston Reeves arguing with Russell Brand outside the RBS’s London offices on Friday
voicesDJ Taylor: The great tradition of St Paul and Zola reached its nadir with a worker's rant to Russell Brand
News
Twitchers see things differently, depending on their gender
scienceNew study shows that birdwatching men have a lot in common with their feathered friends...
News
i100
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
News
Xander van der Burgt, at the Royal Botanic Gardens, Kew
scienceA Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick