Dell's Little Hire

If I were saying the same things about my life that Michael Dell is saying about his company, I'd be forced into therapy. Quoting from Wednesday's press release announcing Michael R. Cannon, former CEO of Solectron (NYSE: SLR  ) , as Dell's (Nasdaq: DELL  ) new operations chief:

" ... It is important that we increase our ability, via the Direct Model, to manufacture close to our customer and fully integrate our supply chain into one global organization. This will allow us to drive for even greater excellence in quality, cycle time, and delivered cost. We will innovate and adapt our supply chain model to help drive differentiated product design, manufacturing, and distribution models."

Translation: We need to do more, faster and at a lower cost.

That sounds good. So good, in fact, that CNN praised the move by calling Cannon's addition a "big hire" in a screaming headline.

But both Dell and CNN are in denial. Cannon appears to be a perfectly capable operations executive. Look at his record while leading contract manufacturer Solectron from January 2003 till now:






Return on assets





Return on capital





Return on equity





Source: Capital IQ

Impressive. But even Cannon will only be able to do so much in his new role at Dell. Why? Because supply chain gains are, by their nature, incremental, and low-cost suppliers in Asia, such as Acer, are very likely to duplicate whatever pricing advantages Dell is able to produce.

In fact, they already have. Acer's Aspire 5670 is a Core Duo-powered laptop similar to Dell's XPS model, but it may be obtained for at least $199 less. My guess is that Acer, based in Taiwan, will do just about anything to keep that price advantage. So will China's Lenovo. And so will Gateway (NYSE: GTW  ) . Of the majors, I expect only Hewlett-Packard (NYSE: HPQ  ) and Apple (Nasdaq: AAPL  ) to resist a price war with Dell.

Which brings me back to the point I made two weeks ago. Dell 2.0, as Michael Dell calls it, could be a great company. But only if radical, margin-boosting changes are made. Fine-tuning operations, as good as that sounds, isn't enough.

Boot up your portfolio with related Foolishness:

Dell is a selection of both the Inside Value and Stock Advisor newsletter services. Try either of them free for 30 days -- there's no obligation to subscribe.

Fool contributor Tim Beyers, ranked 1,685 out of more than 22,700 in our Motley Fool CAPS investor intelligence database, didn't own shares in any of the companies mentioned in this story at the time of publication. All of Tim's holdings can be found at his Fool profile. His thoughts on tech stocks, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy is a smooth operator.

Read/Post Comments (0) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 522086, ~/Articles/ArticleHandler.aspx, 10/28/2016 7:51:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,161.19 -8.49 -0.05%
S&P 500 2,126.41 -6.63 -0.31%
NASD 5,190.10 -25.87 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
DELL.DL $0.00 Down +0.00 +0.00%
Dell CAPS Rating: *
AAPL $113.72 Down -0.76 -0.66%
Apple CAPS Rating: ****
HPQ $14.09 Up +0.10 +0.71%
HP CAPS Rating: ***