The man who rewrote the book on PCs

By , Staff writer of The Christian Science Monitor

If imitation is the sincerest form of flattery, Michael Dell should be blushing.

His company is a fast-comer in the computer business, so fast some of the biggest and oldest names in the personal computer business - Compaq, Gateway, and now IBM - have rushed to imitate him.

They've succumbed to the Dell way of selling customized computers directly to customers via telephone or the Internet.

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The competitors' shift doesn't seem to bother Mr. Dell too much.

"Competition is what makes us all better," says the chief executive of Dell Computer Corp., the world's No. 2 maker of personal computers. "But the real challenge comes from somebody with something that is better - not just copying us."

Competitors have experimented with direct sales, in addition to sales through resellers and retailers, for several years.

"It's a very hard transition to make," says the multibillionaire.

Earlier this month, IBM announced it will offer its entire PC product line over the Internet and already racks up $38 million a day from its Web site. Most of that comes from sales of computer servers, memory chips, and networking gear.

Dell, based in Round Rock, Texas, sells $14 million a day through the internet and far more by catalogue and telephone sales. At Dell, 40 percent of consumer PC sales were made on-line during the holiday season, Dell notes.

His company's low-cost, low-price strategy has brought such rapid growth that Dell is the best-performing stock among companies in the Standard & Poor's 500 Index in the past 10 years.

In 1990, Dell shares, adjusted for stock splits, cost 23 cents and now trade around 37.

Dell founded the company in 1984 with $1,000 and a plan to bypass the middleman in computer sales. Revenues now exceed $18 billion a year.

After revenues fell short of Wall Street projections for the fourth quarter, ending Jan. 29, Dell shares plunged from 55 to 35.

Michael Dell's paper worth likely plunged more than $1 billion. But he shrugs if off, quoting another famed entrepreneur, Sam Walton: "You only lose if you sell."

"I don't worry about it very much," he says. "What happens over time is important to our shareholders."

Nor does he see much correlation in the short term between Dell share price and the company's performance, "We can have a great week at Dell, and the stock goes down," he says.

Dell was interviewed in Boston on a recent tour plugging his book, "Direct from Dell: Strategies that revolutionized an industry" (HarperBusiness, $25).

"It describes how business in general can deal with the changes the Internet represents," says Dell - how to manage a company, communicate with employees, and work with customers and suppliers.

Dell is more optimistic than many analysts about the computer market, expecting annual growth around 14 percent for several years.

"We will grow at a multiple of that," Dell adds. Profits jumped 50 percent last year to $1.5 billion.

But he warns that computer makers with the "wrong cost structure will face a tough business."

Dell prides itself on low costs and the highest profit rate in the industry.

As for those companies moving into direct sales, Dell says, "Trying to do both direct and indirect sales simultaneously is a very difficult thing to do." It involves design, manufacturing, sales, and service support.

Traditional PC makers, Dell says, are in "a state of crisis." IBM says it lost almost $1 billion on PC sales last year. Compaq has had trouble integrating Digital Equipment Corp., which it purchased for $9.6 billion. Hewlett-Packard is engaged in a major restructuring.

All computer makers face tumbling product prices, say analysts, as more consumers make choices of PCs based largely on price.

Dell disagrees and says service, performance, and brand also drive computer sales. "Businesses don't switch from one brand to another every day," he says.

And business accounts for 85 percent of Dell revenues.

CEO Dell sees the revolution in computers and communications as a force in the extraordinary economic performance of the US in the last few years. They both cut costs and boost productivity.

US homes, schools, and businesses have embraced computers more aggressively than has Europe, which uses relatively half as many PCs, he notes.

"There is something new afoot which has never occurred before," he says. "The United States leads in this area, and perhaps it's why this economy is healthier.

"There is change going on in the way Americans communicate. Parents are connected to schools. Computers develop communities of interest - social, religious, and so on. They ease communications across tremendous distances. They open so many avenues of communication that didn't exist."

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