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Sunday, Aug. 23, 1998
Texas computer whiz beats industry giants
Round Rock-based company edges out Compaq as No. 1 seller of desktop computers
By DAVID E. KALISH
Associated PressNEW YORK -- Michael S. Dell doesn't smile much. Just leans into a hotel-lobby couch and coolly explains how his computer company beat the daylights out of bigger rivals Compaq and IBM.
``It makes you wonder whether we're doing well because we're doing a good job or because our competitors aren't doing a good job,'' Dell says, his monotone blending with classical music from hidden speakers.
If Dell doesn't get too excited during a 45-minute interview at the Four Seasons Hotel here, perhaps it's because he doesn't have to.
At 33, Dell is the youngest and longest-serving chief of a big computer company, the most imitated U.S. technology manager and -- thanks to his holdings of Dell shares -- the world's 13th richest person, by Fortune magazine's reckoning. (Microsoft's Bill Gates, while No. 1, had amassed less at Dell's age.) And his company just edged out Compaq as the No. 1 seller of desktop computers, gaining valuable bragging rights.
Dell, in short, has a lot of superlatives going for him.
One after another his biggest competitors, IBM, Hewlett-Packard and Compaq, have gotten pummeled by price-cutting wars in the computer business, forcing profound changes in how they make and sell computers.
And if Dell Computer Corp. isn't doing much different, it's because they're all trying to copy Dell. The company's unconventional sales tactic has become an industry model: Selling most of its computers directly to customers and avoiding the middleman.
``Dell is the one everyone is gunning for,'' said Chris Goodhue, an industry analyst with the Gartner Group research and consulting firm, based in Stamford, Conn. ``Dell has a key structural advantage.''
Dell, which started out as a mail-order company, deploys a direct sales force to largely cut out the retailers, specialty stores and distributors who can drive up prices. Today, the nearly $13 billion company, based in Round Rock, is the nation's largest direct seller of computers, and one of the largest sellers of personal computers.
Because Dell Computer builds machines as customers order them, instead of stockpiling products for distributors, the company can buy parts like disk drives and memory chips at the last minute. This saves money, since component prices tend to fall many times throughout the year. Dell often splits the savings with its customers.
The personal attention to corporate clients has paid off in long-term customer loyalty and a legendary ability to win new accounts. Dell's army of hawkers aren't exactly Bible salespeople, but their devotion to selling Dell machines approaches religion -- with legendary 70-hour work weeks and six-figure incomes lavished on the sales performers who pull in the biggest accounts.
Continuing a recent trend, the company's sales grew 54 percent in the past three months, more than double the industry average, and profits rose 62 percent to beat Wall Street expectations. By focusing on higher-end machines with bigger margins, Dell has managed to post consistently strong income even as rivals' narrowed.
Although more than 40 percent of all desktops sold now cost under $1,000, Dell's lowest priced one is about $1,400, including the monitor.
``If you look at a lot of these low-priced machines, they might appear as a brilliant strategy to expand the market,'' Dell says. But, he adds, many of these machines are stockpiled older models that don't run a lot of new software.
Dell's seemingly bland persona fits with the image of a computer nerd who started his company from scratch, back in 1984. But it also belies his astute management of a business that has soared from humble beginnings.
A 19-year-old college freshman working out of his University of Texas dorm room, Dell began buying surplus PCs from dealers and beefing them up with graphics cards and other parts that appealed to computer-savvy buyers.
He sold $180,000 in computers in his first month of business. Dell hired a small staff and began hawking his machines over the phone and through the mail. He never showed up for his sophomore year. Shortly after his 23rd birthday, Dell took his company public.
Dell had some rough times in 1993, when the company briefly tried to sell computers through retail stores and unsuccessfully pushed its first laptops. But the company quickly refocused on its roots, hiring top industry managers to help run what had become a multibillion-dollar direct-sales business.
The intense focus on corporate customers enabled Dell to beat his fellow pioneer in direct sales, Theodore Waitt, the founder of Gateway.
Waitt, a 35-year-old college dropout whose story parallels Dell's in many ways, made the mistake of focusing on individual buyers instead of businesses. Gateway's growth recently has slowed in a price-conscious consumer market, with buyers shifting to cheaper machines from the pricier personal computers that were Gateway's specialty.
Last year, Dell's sales of $12.3 billion were nearly double Gateway's, and its profits of $944 million exceeded Gateway's by nearly nine times.
Dell's foray two years ago into selling more powerful business machines, servers that run networks of desktops, is handsomely paying off. The models took aim at machines already sold by Compaq, Hewlett-Packard and IBM, which all use off-the-shelf innards such as Intel Corp.'s Pentium II microprocessor and the Windows NT operating system from Microsoft Corp.
In the second quarter, the company was the No. 2 U.S. supplier of servers with 19.4 percent of the market, behind Compaq's 29.3 percent share, according to preliminary figures from International Data Corp.
And Dell was the No. 1 maker of desktops, with 14.4 percent, edging out Compaq at 14.3 percent, which was busily trying to sell stockpiles of unsold PCs instead of making new ones.
``You're seeing the results of the direct model, which is just a more efficient way of delivering systems to people,'' said Roger Kay, an industry analyst with International Data Corp., based in Framingham, Mass.
Dell's latest drive is boosting sales over the Internet. The company already is the biggest online seller of computers, with a brisk $6 million in daily business just two years after launching its Web store.
As part of an effort to continue growing, the company early this month undertook a program to reassure online customers worried about credit-card fraud that it would cover the $50 liability typically not covered by lenders should credit-card numbers be stolen over the Internet.
The company also is trying to help its name catch up with its booming sales. Cognizant its behind-the-scenes image may not be as familiar as IBM or Compaq, the direct-sales pioneer recently began a $70 million advertising campaign.
``We do see an opportunity to grow much faster in the market,'' Dell says. ``Our focus is on the possibility, not just revenues.''Post your comments about local news eventsFront Page || Main Index || News || Business || Texas || South Texas Outdoors || Birdwatching || Sports || Entertainment || Selena || Education || South Texas Attractions || World Wide Web