5 tech turnarounds that actually workedFebruary 7, 2013: 1:48 PM ET
The club of technology companies that have been able to turn their flailing businesses around is very, very small.
By Verne Kopytoff, contributor
FORTUNE -- Michael Dell has his hands full trying to turnaround Dell, the company he founded and now plans to take private in a $24.4 billion buyout. Although still profitable, the business is slumping as customers shift to rival computer makers that offer cheaper prices. Dell's comeback plan—to push into business services and cloud computing—is still a work in progress.
If the turnaround effort is ultimately successful, Dell (DELL) will join a small club of technology companies that have been able to reverse their fortunes. It's a difficult feat. The technology industry moves at such a fast pace that staying still means being left behind. Companies that forget how to innovate usually have trouble relearning no matter how much executives tweak organizational charts, create new marketing slogans or "streamline" their workforce.
Apple (AAPL), on the brink of bankruptcy in the late-1990s, is the industry's biggest comeback story. (It is likely the biggest reversal of fortune in business history.) Steve Jobs, who had been purged in a boardroom dispute, returned and transformed the business into a money-making machine. I.B.M. (IBM) is another that reinvented itself, by refocusing on high-priced, high-margin products and services for corporate customers. Dell is essentially trying to follow I.B.M.'s example.
Of course, many technology companies try and fail in their comeback attempts—repeatedly, in some cases—like Yahoo (YHOO), AMD (AMD) and MySpace, the once-popular social network. Mismanagement, a lack of money and an unwillingness to adapt are typically to blame. Invariably, executives never lose hope. Investors have far less patience, however. Here's a recap of how some struggling technology companies, despite the odds, managed to make a comeback:
No. 1 Apple
Picturing Apple near bankruptcy is difficult given its strength today. But the company was indeed in trouble when Steve Jobs took over for a second time in 1997. Apple's computers no longer elicited the passion among consumers that they once did. Personal computers that relied on Microsoft (MSFT) Windows increasingly dominated the market. To cut costs and increase focus, Jobs eliminated a number of floundering products like the Newton personal digital assistant. More importantly, however, he pushed and prodded until Apple started innovating again with the iPod, iTunes, iPhone, MacBook and iPad. Consumers, of course, loved them all.
(For more, see Fortune's How Tim Cook is changing Apple.)
No. 2 IBM
When Lou Gerstner, a former chief executive for RJR Nabisco, took the reins at I.B.M. in 1993, the company was slumping. Like many in his position, he cut jobs, killed products and sold assets. More importantly, he pushed the company into technology services. Today, it is the company's biggest business. It wasn't easy, however. It required reversing his predecessor's plan to break the company into more autonomous individual units. Doing so, he figured, would make it impossible for I.B.M. to be a one-stop shop for business technology, as it is today. Since Gerstner left, I.B.M. executives have continued making wise decisions. Selling off the personal computer unit in 2005 is at the top of the list. Doing so allowed I.B.M. to avoid the problems Dell faces today with having to compete in a declining, commodity-driven business.
(For more, see Fortune's IBM's Ginni Rometty looks ahead.)
No. 3 Hewlett-Packard
Sometimes comebacks are short-lived, as Hewlett-Packard's (HPQ) proves it. For a few years, the company —a bastion of soap operatic drama and underachievement–operated smoothly. Mark Hurd, a cost cutting chief executive hired in 2005, lifted revenue and profits. H.P.'s shares more than doubled in value. Then five years into his tenure, the board pushed Hurd out following accusations of sexual harassment. Since then, the company has spiraled under two chief executives, two turnaround plans and a lot of finger pointing–in some cases back at Hurd, for, among other things, excessive cost-cutting that allegedly hurt the company in the long-term.
(For more, see Fortune's How Hewlett-Packard lost its way.)
No. 4 Priceline
Priceline (PCLN), the online travel site known for letting customers bid on tickets, rose in tandem with the Internet bubble of the late 1990s. Executives got so cocky that they experimented with selling groceries and gasoline. But the good times ended when the dot-com bust and the 9/11 attacks caused consumers to forego vacations. To save itself, Priceline eliminated booking fees, emphasized hotel reservations and expanded internationally. The plan worked. Its shares, once so low that they risked delisting from NASDAQ, now trade for nearly $700.
(For more, see Fortune's How Jeffery Boyd took Priceline from dot-bomb to highflier.)
No. 5 eBay
The question a few years ago wasn't whether eBay (EBAY) would survive. Rather, the issue was its trajectory. Growth in eBay's marketplace, where users sell everything from Gucci handbags to cars, had stalled amid intense competition from Amazon.com. John Donahoe, eBay's chief executive, responded by trying to remake the site into more of an outlet mall for retailers to unload out-of-season merchandise. He also cleaned up the site's annoyingly cluttered design and invested in mobile shopping. To a certain extent, the plan worked. Growth returned. But the real star was and still is PayPal, the online payment service. While the marketplace stumbled, online payments – particularly off of eBay – thrived. In a turnaround, it helps considerably to have one business that doesn't need fixing.
(For more, see Fortune's current cover story eBay is back!.)