Dell's Fraud Report Raises Questions about SarbOx, Earnings

from the just-a-few-pennies dept

This evening, Dell announced the preliminary results of a multi-month investigation into past accounting irregularities. As many had expected, the company revealed that management had deliberately massaged results to hit Wall Street targets. That being said, the total size of the fraud was not particularly significant. Overstating earnings between $50 million - $150 million between 2003-2006 is not all that big for a company as big as Dell. This doesn't excuse what the company did, but it does raise some questions about the incentives facing business managers. In the post-SarbOx era, these kinds of infractions can lead to serious penalties, and yet managers felt it was worthwhile to add a penny here and there in order to satisfy the Street's demands. Not only did SarbOx not do anything to prevent the fraud, but it didn't even prove to be a deterrent. The event should call into question the usefulness of the law, while also reigniting debate about the 'tyranny' of quarterly earnings, which pushes companies to make these choices.

Filed Under: fraud, sarbox
Companies: dell

Dell Spends $150 Million On Customer Service Improvements... And Its Customer Service Ranking Falls

from the ouch dept

Dell clearly had a pretty major reputation problem when it came to customer service for much of this budding century. Despite problems going back for many years, it took way too long for Dell to admit it had a problem that needed fixing. Unfortunately, whatever it's doing isn't exactly working. John Paczkowski notes that, despite spending $150 million to improve customer service, the latest customer satisfaction rankings from the American Customer Satisfaction Index show Dell dropping 5%. Ouch. While some are reasonably calling the methodology of these rankings into question, that still can't be what Dell hoped to see. Of course, much of the customer satisfaction ratings may be a hangover effect from earlier bad experiences, or the massive publicity around some high profile bad customer service experiences at Dell. If that's the case, though, Dell will probably need to go beyond just fixing its current customer service problems to getting the word out that it really has changed. That means admitting the mistakes of the past while making the changes quite transparent.

Filed Under: customer service
Companies: dell

For Now, Big PC Makers May Benefit From Lower Costs

from the fleeting-profits dept

Commoditization is always a threat to PC manufacturers like HP and Dell, although by most accounts HP has done a better job of differentiating its products than the competition. But there's also an upside to commodization for these companies: cheaper components. A new research note from a Wall Street analyst argues that both HP and Dell will realize meaningful benefits from cheaper components when they report their coming quarterly earnings. In addition to lower DRAM and LCD prices, the ongoing price war between Intel and AMD will prove particularly beneficial. Whether these companies are actually taking advantage of these savings or whether they've been forced to completely pass them on to consumers depends on the market dynamics. Between Dell and HP, they may have enough of a grip on the market to avoid an all-out price war themselves, but such a situation can only be temporary as they'll be forced to cut their own prices eventually.

Filed Under: chips, computers
Companies: amd, dell, hp, intel

Taiwanese Contract Manufacturers Set Sights On Brand-Name Prize

from the store-brand-soda dept

Despite manufacturing plenty of the most recognizable electronics products in the world, and making plenty of money, the names of most Taiwanese contract manufacturers aren't familiar to consumers. For instance, Hon Hai Precision Industry generated revenues of more than $26 billion last year by making products for Apple, Dell, HP and other companies. But the Taiwanese firms are increasingly trying to leverage their experience and expertise by establishing their own consumer brands and using them to boost their product margins. Contract manufacturing is a low-margin, volume based business: for instance, one analyst says contract manufacturers of laptops have 3-5% margins; compare that to the 40% or more Apple enjoys on iPods. But growing the brands can be a tricky proposition, and not just because the companies are looking to enter new and unfamiliar consumer markets. The problem is that these companies are looking to become competitors to their biggest customers: for instance High Tech Computer, which makes mobile phones for a variety of companies, is building up its HTC consumer brand, and competing with clients like HP and Palm in the process. Some are trying to get around this by splitting off their consumer operations from their contract-manufacturing businesses, such as Acer did successfully several years ago. Still, that's not the only obstacle. Getting the consumer marketing right remains a big issue -- particularly when the new consumer brands are competing against companies for which marketing, not manufacturing, is a specialty.

Filed Under: computers, contract manufacturing, electronics
Companies: apple, dell, hon hai, hp, htc, palm