Michael Dell Doubles Back - TheStreet

Michael Dell Doubles Back

He jumps back into the CEO spot amid another quarterly warning.
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Updated from 6:11 p.m. EST

With its business struggling,

Dell

(DELL) - Get Report

founder Michael Dell will jump back in the saddle as the PC maker's chief executive.

In an announcement after Wednesday's market close, Round Rock, Texas-based Dell announced that Kevin Rollins has resigned his duties as CEO and board member.

Shares of Dell climbed nearly 4% in recent after-hours trading to $25.14.

Dell also said it expects fourth-quarter results to be below the average Wall Street estimates, which call for $15.3 billion in sales with EPS of 32 cents.

"The board believes that Michael's vision and leadership are critical to building Dell's leadership in the technology industry for the long term, said Samuel Nunn, presiding director of Dell's board.

"There is no better person in the world to run Dell at this time than the man who created the Direct Model and who has built this company over the last 23 years," Nunn said.

The changing of the guard comes after a difficult year for Dell, in which sales have slowed and rival

Hewlett-Packard

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stole its spot as the world's No. 1 PC maker.

Not long ago, Dell was regularly growing its quarterly sales by 15% or more. The latest sales expectations, which Dell now says it will miss, would have entailed essentially flat revenue growth year over year.

The company's accounting methods are also under investigation by the

SEC

; this has in turn caused Dell to delay filing its quarterly financial reports, putting its stock at risk of getting delisted.

As the company continues to flounder, the notion that the return of the founder could bring back the glory days has gained currency on Wall Street, although the company has consistently said it was not considering such a course of action.

Daniel Morgan, a portfolio manager at Synovus Securites said Dell's return was not too much of a surprise, given the company's poor performance of late.

"It's like the old quarterback coming off the bench. He led you to the Super Bowl before, let's see whether he can do it again," said Morgan, whose firm does not currently have a position in Dell.

Apple

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, for instance, famously emerged from its funk after bringing back co-founder Steve Jobs in 1997.

But while Dell's change struck Morgan as encouraging, it isn't enough to get him involved in the stock.

"I would need to see more evidence of some sort of positive things happening before we start jumping on it. Right now, there's nothing there to grab hold of except for the name change," he said.

And while its tempting to lay the company's recent string of problems at Rollins' feet, the reality is a bit more complicated.

Dell relinquished the CEO role to Rollins in 2004 to become chairman. But Rollins has effectively co-managed the company alongside Dell for the past 10 years as a member of the firm's unusual "office of the CEO" structure.

Rollins, who made his entree into the company as a consultant with Bain & Co., is credited with successfully moving Dell's direct-business model to a global scale and pulling the company through the dot-com downturn. His responsibilities have generally focused on the PC maker's operations and business plans, whereas Michael Dell concentrates on technology-related trends and strategy, according to industry observers.

In other words, Rollins was at least as instrumental in Dell's success as he may have been in its recent failure.

From a stock price perspective, in any case, Rollins' tenure in the top job was hardly a success: Dell's stock is down 32% since Rollins became CEO.

Of course, Dell's new task of turning around the company he founded, and its share price, is no small feat.

The company needs to stem its market share losses, despite lingering questions about the viability of its direct sales model in emerging economies, where most of the PC growth is happening today.

Until now, Dell has appeared wed to the direct sales model. Whether he opens his mind to new approaches, or finds a way to make the direct approach work will be critical to the company's future.

And Dell needs to revamp its image, which has been bruised by things like poor customer service issues and the highly publicized recall of more than 4 million

Sony

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batteries used in its notebooks.

"It's going to be a longer haul then people realize," says Think Equity Partners analyst Eric Ross, who has a sell rating on Dell shares. "Certainly it's not going to happen in the first half of the year just because Dell is back," he said.

In a statement Wednesday, Michael Dell said he was enthusiastic about new initiatives undertaken by the company, such as Dell 2.0, "which includes our plan to provide the best customer experience, build a strong global services business and ensure our products deliver the best long-term customer value."

In addition to taking over as CEO, Dell will remain chairman.

"Kevin has been a great business partner and friend," Dell said in a statement. "He has made significant contributions to our business over the past 10 years. I wish him success in the future."

Meanwhile, Wednesday's warning that Dell's revenue and EPS will fall short of analyst expectations marks the third time in the past four quarters that Dell has negatively preannounced financial results.

While it's impossible to know the magnitude of Dell's miss, given the short sentence it devoted to the matter in its announcement, Think Equity's Ross reckons it could be as much as several pennies of EPS.