It’s getting harder for Dell (DELL) to think outside of the box.
Shares of the PC maker opened sharply lower on Wednesday after posting disappointing financial results. For the fiscal quarter that ended earlier this month, earnings tumbled 33% on a 4% decline in revenue.You don’t need to dig deeper than that into Dell’s income statement to know that sales are soft and margins are contracting.It also doesn’t help that Dell’s outlook for the new quarter is equally uninspiring. By pointing out that results will be in line with “historical seasonal trends” in climbing 2% to 4% sequentially, Dell’s saying that the first quarter wasn’t a fluke.
“We need to execute better,” Dell’s CFO said about the report.

Oh, I think Dell’s doing a pretty good job of executing itself.

The People Have Spoken

Some segments at Dell are showing signs of life, but the company can’t escape the sharp 12% plunge in its consumer business.

This may be just a fifth of the company’s business, but Dell has fallen a long way since the “you’re getting a Dell, dude” ads were popular.

A lot of this is simply the handiwork of the public migrating to “good enough” computing devices. Folks don’t need to fire up their desktops whenever they want to fire off an email, surf the Web, or stream video. Smartphones and tablets will do the trick, and those are two categories that are growing at a time when PC sales have been stagnant.

Dell was slow to embrace the netbook craze two years ago, and it’s just out of touch when it comes to mobile devices and tablet computers.

The company’s trying, but it’s just not the same kind of force that it is in business-facing computers.

A Laggard Among Laggards

Dell isn’t making the most of a bad situation. It’s actually losing market share to rival Hewlett-Packard (HPQ) and market darling Apple (AAPL), and it’s not as if things are going so well at HP given the tens of thousands of layoffs that are looming there.

Investors knew that Dell was going to disappoint when industry tracker Gartner rolled out its latest quarterly read of PC sales in this country a few weeks ago.

Gartner estimates that 15.5 million PCs shipped during the quarter, a 3.5% decline from the first three months of last year. Worldwide PC shipments did inch 1.9% higher, but it seems as if Dell hasn’t been invited to that turnaround party.

Let’s take a closer look at the market share changes over the past year in this country.

	2012 Q1 Mkt. Share	2011 Q1 Mkt. Share	Unit Growth
HP	29.0%	26.2%	6.6%
Dell	22.3%	22.3%	(3.6%)
Apple	10.6%	9.8%	3.8%
Acer	9.1%	11.9%	(25.9%)
Toshiba	8.7%	10.4%	(19.2%)

Source: Gartner.Yes, Dell is still in full possession of its silver medal. It’s not hurting as badly as laptop-centric Acer and Toshiba. Even Apple posted a 1% decline in MacBook revenue in its latest quarter.However, something’s just not right at Dell.

The Turning Point

A dozen years ago, Dell was hailed as a model worth following. Leading companies in different industries would tour the Dell campus to see how it nailed the direct-selling business that began all the way back to Michael Dell assembling desktops in his University of Texas dorm room.

Even as Asian companies emerged with manufacturing cost advantages, Dell stood strong.However, in a move to improve its expenses, Dell opened a call center in Bangalore in 2001. Dell went on to expand its tech support outsourcing with other call centers in India, and that’s when customers began complaining. Whether the knocks of scripted responses or communication difficulties were fair, Dell was no longer perceived as an American role model.Dell temporarily retreated out of India a couple of years later, but the costs of handling all of its tech support closer to home proved to be unwieldy. It was also around this time that Dell dumped Ben “Steve the Dell Dude” Curtis after he was arrested for attempting to buy pot in New York City.

Nothing seems to have gone Dell’s way since.

Dell’s Bells

Dell was able to achieve some savings through cost cuts a couple of years ago, but there’s only so much more expense shaving that Dell can do now.

Following HP into making model-widening acquisitions and taking a page out of the IBM (IBM) playbook by throwing its hat into the ring of high-margin business services are just temporary solutions. Dell has a problem, and it’s in the box.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of International Business Machines and Apple. Motley Fool newsletter services have recommended buying shares of Dell and Apple, and creating a bull call spread position in Apple.