Dell's Market Maker is Out
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By Maureen O'Gara
<<Wednesday, May 9, 2001 - Dell senior VP Tom Meredith, its former CFO
and still its official envoy to Wall Street, the guy who has
shepherded the company's stock all these years, resigned reportedly
last Friday.
Dell PR has confirmed that Meredith is leaving in August and says he
informed his Dell Ventures team last week.
Friday would have been the day after Meredith appeared at a Merrill
Lynch conference Thursday saying Dell would be "ruthless" on costs.
Dell subsequently confirmed reports that it would terminate another
3,000-4,000 full-time workers, 8%-10% of its total, in a second
round of layoffs over the next two quarters and seriously streamline
its business by consolidating 21 groups, including the entities
responsible for 85% of its revenues, into 11. Middle management is
expected to take heavy losses. Vice-presidents are reportedly being
downgraded to directors and directors are being pushed out.
Insiders claim the layoffs could even run deeper. Dell's first round
of layoffs cost 1,700 full-time jobs.
According to sources, Meredith's purported resignation hints of
philosophical division in the Dell executive suite.
Meredith, who now carries the title of senior VP, business
development and strategy and is probably so rich he never has to
work again, is responsible for the job cuts.
Meredith, however, reportedly wants Dell to press on the more
profitable server and storage front.
Dell recently bloodied frontrunner Compaq by toppling Compaq off its
throne as king of servers in the US market for the first time in
history.
Dell's co-president and co-COO Kevin Rollins, on the other hand,
reportedly wants Dell to focus on bleeding its PC competition,
destroying houses such as tottering Gateway and amassing market
share at the cost of its margins.
Meredith has previously told colleagues that if he didn't get his
way, he "might not be there."
UBS Warburg's Don Young yesterday expressed doubts over the PC price
war. "It is not clear there are significant scale advantages after a
certain volume level is achieved. It is not clear that further
industry consolidation will benefit industry profitability (the
opposite has been the case for the last decade). It is not clear
that "purchased market share" will provide profitable upgrade
opportunities."
Young says Dell could end up with an operating margin of 3.5%.
Meanwhile, Kevin McCarthy at Credit Suisse has observed recently
that "while there's evidence that desktop unit shipments have
stabilized at lower levels, the principal threat now to industry
fundamentals is further margin erosion in the NT server market. The
stakes are higher: NT servers represent one-third of Dell's profits
and almost half of Compaq's."
Dell said a few weeks ago that 13% of its servers are going out with
Linux.
Meredith's departure should do nothing for Dell's stock, but it all
depends on how they play it. It is thought some of Dell's Wall
Street followers have already been tipped off.>> |
