Dell looks past week from hell

If Michael Dell had an inkling of the sort of week he had ahead of him, he wasn't letting on.

The man who founded the world's biggest PC company in his Texas university dorm room was in Sydney at the start of last week to talk to customers and conduct "a little operations review" of the Australian and New Zealand business - and give a press conference.

The two events which came later in the week were touched on by journalists' questions. But 41-year-old Dell batted them away.

By week's end, however, there was no ducking them.

Problems with overheating batteries in Dell laptop computers had been a talking point for some time after pictures of a blazing machine appeared on the internet. At his Sydney press conference, Dell said customer safety was the company's top priority and the reported incidents were being investigated so appropriate steps could be taken. "We'll keep you posted," Dell said.

The next day, the company began contacting the owners of more than four million laptops sold in the past two years advising them to stop using the lithium-ion batteries, made by Sony. Some reports put the cost of the product recall at up to $600 million.

If that wasn't bad enough, by the end of the week there was more gloomy news. The company's profit for the second quarter, which ended on August 4, was down 51 per cent on a year earlier, to US$502 million ($785 million). That was despite having sold 6 per cent more products and lifting revenue by 5 per cent, to US$14.16 billion.

The company also said that for the past year the US Securities and Exchange Commission had been conducting an informal investigation of revenue recognition and other accounting matters. In the course of providing information to the SEC, Dell executives had come across "a couple of issues" that warranted an independent probe by the company's audit committee.

More would be said at an appropriate time, Dell told US financial analysts in an audio conference last Thursday, but he didn't expect any "material impact" on the company's financial position for the periods being looked into. Dell's Sydney visit must have felt like a pleasure cruise as the rest of his week unfolded. But neither setback could be considered disastrous for a company that has tens of billions in the bank and which last year led the worldwide personal computer market, followed by Hewlett-Packard.

Yet investor faith in Dell has been hit, its shares losing almost a quarter of their value this year, while HP's have gained by just about that amount in the same period.

Dell remains upbeat. "Dell is a young company with what I believe is a bright future ahead of it," he said. The particular bright spots are increasingly powerful microprocessors and Microsoft's next Windows release, Vista, which is expected early next year.

PC-makers typically see sales jump on new Windows releases and Vista's had been planned for late this year. But Dell said the delay was "not a big issue".

"The most important thing for us is not when Vista comes but making sure it's a great product.

"We're pretty excited about what we're seeing with Vista. The interest from consumers looks quite high. The capabilities in terms of the visual experience are pretty fantastic when you combine that with widescreen machines and dual-core processors."

Dell is spending more - an additional US$150 million - on customer support as other PC companies emulate its success at selling direct to buyers via the internet. It is focusing on product quality, delivery times, repairs, getting orders right and making it easy to contact the company.

Australia and New Zealand managing director Joe Kramer, who hosted Dell in Sydney, said most callers to the company were asking when the products they had ordered would arrive. He says the news has improved considerably in the past 15 months with average delivery times in the Australasian market falling from about 14 days to half that.

Dell is confident the company can also create more good news for itself by increasing its share of the US$1.8 trillion worldwide computer industry, now about 3 per cent. "We still believe we have a lot of potential."