Dell Still Doesn't Get What Consumers Want

I keep telling Dell (Nasdaq: DELL  ) to lose the consumer division. Eventually, the company will simply have to listen.

Another quarter is in the books, and once again, Dell's various lines of business-ready systems showed strong growth and profits while the consumer side of things dragged the company down. In the end, nearly flat growth in the low-margin retail segment led to lower-than-expected sales but higher earnings, which sounds like a trade-off any business manager would enjoy.

The small-business, enterprise-business, and public-contracts divisions all delivered 20% year-over-year sales growth or more, and their operating margins hovered around the 10% mark. What did consumer systems do? Try 4% sales growth and break-even income. And that's actually an improvement over prior quarters, partly thanks to efforts to consolidate Dell's sprawling lineup of consumer-level systems into just three product lines.

At last count, Dell had $1.3 billion of assets tied up in the consumer division, and it's dead money that doesn't generate any profits for the company. I still believe that Dell would be better off unloading the whole mess to one of its many rivals in order to unlock some value from the operation. Dell says it wants to lose the value-priced stigma it has in the consumer business today and refocus on higher margins and a stronger business, and what better way to do that than by unloading this perennial underperformer to Hewlett-Packard (NYSE: HPQ  ) -- antitrust reviews permitting -- or Lenovo? Those are the guys eating Dell's lunch anyway, in cahoots with Mac maker Apple (Nasdaq: AAPL  ) , which now commands more than 10% of the U.S. computer market share despite its premium pricing.

Dell is repeating this mantra about listening to its customers, but they're vociferous about not really wanting the retail systems Dell's selling -- and they sure don't want to pay more for them. Get back to business computing 101, guys.

Send Michael Dell a message by dropping down to the comments section below and telling him how right I am. You know you want to.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. Apple is a Motley Fool Stock Advisor pick. The Fool has written calls (bull call spread) on Cisco and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


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Comments from our Foolish Readers

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  • Report this Comment On November 20, 2010, at 3:28 PM, DefunctAcct wrote:

    I doubt anyone can tell Michael Dell what to do. He has been a visionary and innovative leader in the PC business since founding Dell. He started in the consumer market and did extremely well. So well that he advised Apple to close its doors and return all value to investors. Look at Dell and Apple PC shares today. Apple has only a toe-hold in the PC market share while Dell has a commanding lead.

    Apple should listen to Dell and does Apple investors a favor by closing down. Who are we to tell a visionary such as Michael Dell what to do with his market leading innovating company?

  • Report this Comment On November 20, 2010, at 6:03 PM, daveshouston wrote:

    Dell have never been a real computer company like Apple or IBM. They're an assembler of purchased parts. They buy their software from Microsoft. They've never had much ability to make product decisions. They simply have to adapt to whatever Microsoft tells them to do.

    On the plus side, Dell was good at cost control and direct sales to customers via their online web store.

    But Dell is no Apple. Dell is no HP. Dell is no IBM. Dell is an also ran when it comes to computer companies. When I think of Dell, I think of selling short.

  • Report this Comment On November 22, 2010, at 4:52 AM, runcody98 wrote:

    I don't trust Michael Dell, never have.

    His eyes are too close together!

    It is so satisfying that more than 10 years ago Michael Dell's short sighted and narrow minded arrogance for Steve Jobs n Co has come full circle to bite him in his Italian suited ass.

    Apple passing Dell in market cap.

    Apple blowing pass Dell in margins.

    Apple passing Dell in annual sales revenue.

    Apple going where no Dell has ever gone before.

    iTunes, ipod, iphone, ipad, OS Tiger, Leopard, Snow Leopard, Mac mini, i apps, iMacs, Mac Air, Aperture, iLife, iMovie, iDVD, garage band, iPhoto, Filemaker Pro, iPod ecosystem, firewire, quicktime, final cut studio, mobile me, iwork, logic express, keynote, logic studio, xsan, mighty mouse, wireless keyboard, magic mouse, magic trackpad.

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