Dell (NASDAQ: DELL) and Barnes & Noble (NYSE: BKS) each made what they considered important announcements yesterday. Neither piece of news addressed the core problems each company faces, which is that they have lost most of their relevance in their respective sectors, and they are beyond the point at which the can reverse it.
Barnes & Noble reported that its chairman and founder had settled a shareholder suit. The suit was meant to block a greedy play by Leonard Riggio and his wife to sell a college book store company to Barnes & Noble. The two agreed to a $22.75 million reduction in the $596 million buyout price. Nearly $150 million is still due Barnes & Noble in the form of a loan from Riggio. He agreed to forgo $6.3 million in interest payments on that loan. The deal was a brazen abuse of his power at the book store chain.
The settlement is nothing more than a distraction from the fact that Barnes & Noble remains largely trapped in its bricks-and-mortar store model. It has released its e-reader product — the Nook. But it has been pounded in the market by the Amazon.com (NASDAQ: AMZN) Kindle and by tablets, mostly marketed by Apple in form of its iPad line. Barnes & Noble has set an agreement with Microsoft (NASDAQ: MSFT) to gain market share in digital content. There is little reason to believe, though, that the Redmond company’s financial and software contributions will alter Barnes & Noble’s weak position in the sector.
Dell also made what its considers to be an important announcement about key plans to turn itself around. Two days after it said it would begin to pay a dividend, the PC firm announced it would reduce costs by $2 billion. That is a euphemism for layoffs. Dell, like Barnes & Noble, for some reason thinks a strategic retreat will make it successful again.
In reality, as nearly every business medium has already pointed out, Dell missed the windows onto the smartphone and tablet sectors. Dell has built and bought IT consulting and enterprise businesses; neither has changed its profits by much. Dell has moved aggressively into the server sector, but servers have become commodities sold by most large tech firms. Dell’s retreat is nothing more than an attempt to hold EPS at current levels for as long as possible.
Some large corporations cannot be fixed by any management. They have fallen too far behind their competition too quickly. In the cases of Dell and Barnes & Noble, that competition is formidable, which means their chances to recover are nil.
Douglas A. McIntyre