KEY POINTS:
Dell's disclosure that executives routinely adjusted accounts to meet financial goals raises questions about the role of founder Michael Dell.
Dell, who made his return as chief executive when he took over from Kevin Rollins in January, was chairman from 2002 through to early 2006, when "certain adjustments
appear to have been motivated by the objective of attaining financial targets", according to a Dell statement. He was also chief executive for three of the four years.
"From an investor standpoint, the risk that Michael Dell is involved is arguably one of the most significant risks remaining in this," said Clay Sumner, an analyst at Friedman, Billings, Ramsey, who has a "market perform" rating on shares of the No 2 personal computer maker.
"It is a risk that everyone is asking about," he said.
Dell said last week it would restate four years of financial results, reducing net income for the period by US$50 million ($73 million) to US$150 million. It will reduce revenue for each restated year by less than 1 per cent of the reported amounts.
An internal audit by Willkie Farr & Gallagher and KPMG uncovered adjustments to reserve and accrued-liability accounts, typically in the days after the end of a quarter, and other irregularities.
Sumner said Dell executives told him the founder was not implicated in the wrongdoing. "If we can take Dell at its official word, Michael Dell was not involved," he said.
Dell, 42, started the company in his University of Texas dorm room in 1984 with US$1000 and set out to bypass middlemen, selling computers directly, and for less money, to customers.
His direct-to-customer sales strategy helped Dell become the world's top PC maker in less than two decades, but it began to stumble two years ago as a resurgent Hewlett-Packard clawed back market share by selling printers and laptop computers in large retail chains and expanding overseas.
Many investors welcomed Dell's return as chief executive this year, as growth had slowed under Rollins. The Round Rock, Texas-based company had also replaced James Schneider as chief financial officer in December, when the audit was in its sixth month.
Dell spokesman Bob Pearson declined to comment on Michael Dell, but said, "The company's leadership team takes responsibility overall."
The company still faces investigations by the Securities and Exchange Commission and the US Attorney's office for the Southern District of New York.
"The SEC will want to hear testimony from Michael Dell," said Michael Piazza, former regional trial counsel for the SEC's Los Angeles office and now in private practice at Dorsey & Whitney.
"They don't want to be viewed as giving preferential treatment to corporate hotshots," Piazza said. "They will want to know what all the decision-makers knew and when they knew it, and how they reacted to it."
But Piazza added: "There's an understanding in the commission that the CEO cannot know everything everywhere."
The restatements affect Dell's fiscal 2003, 2004, 2005 and 2006 and the first quarter of fiscal 2007, which cover roughly the calendar period from 2002 through early 2006.
Dell said it was taking remedial measures including terminations, reassignments, reprimands and financial penalties. It did not name those disciplined or fired.
- Reuters
