Michael Dell smiles a lot but he doesn’t blink.
His close-set brown eyes can fasten a person like a bug on a pin. Behind his friendly grin is the steady gaze of a businessman who likes to make his competitors squirm.
No wonder he’s smiling.
The 37-year-old chairman and CEO of Dell Computer Corp. has turned the worst of times in the computing industry into the best of opportunities for the company he founded 18 years ago in his dorm at the University of Texas at Austin.
Some investors are betting there are tough days ahead for Michael Dell’s $31 billion-in-sales company, but first some history.
Dell Computer has been cutting prices in earnest since early last year on the electronic boxes it cranks out by the millions. The company squeezed profit margins–including Dell’s own–until competitors bled.
Price-cutting is a game Dell is uniquely equipped to play because few companies are better at using technology to strip out costs and respond to market shifts.
Dell schedules its production lines so tightly, a typical factory keeps five hours’ worth of components on hand. Its warehouses store five days’ worth of inventory, while competitors store 30 days’ worth or more.
If a component runs short and Dell’s suppliers can’t grab enough to meet orders, Dell turns to Dell.com to reduce demand by offering a promotion on an alternative item.
“Dell can take the latest components in the market and push them through to customers faster than any competitor,”says Gartner Inc. analyst Charles Smulders.
The Austin, Texas, company seized its price advantage when computer sales were roaring in the 1990s. When sales tanked, it launched a new price war to knock longtime market leader Compaq Computer Corp. off its perch.
From less than 6 percent of the global computer market in 1997, Dell zoomed to No. 1 last year, with 13 percent of the market in PCs, laptops and lower-priced servers.
Compaq, awash in red ink, turned for help to Hewlett-Packard Co., its partner in a hotly contested merger.
But the issue that’s troubling Dell investors now, with their shares stuck firmly in the mid-$20 range, is how the company will pick up its pace in a slow-growth market.
More to the point, how can Dell grow while continuing to cut prices?
Dell’s execs have been telling Wall Street they’re looking to double the company’s sales to $60 billion within four or five years–a daunting goal.
Not only is it hard to grow from a big base, but it’s tougher to keep profits rising when prices are falling and margins are shrinking.
Dell is counting on taking business away from competitors in computing markets with fatter margins, like the industrial-strength servers that run corporate data centers, and storage and networking devices.
It’s looking to sell more services, like installing equipment and implementing systems.
All these initiatives bring it head-on against the likes of Sun Microsystems Inc., IBM Corp. and EDS–no slouches in the computer world.
Dell also is looking to sell more computers in Europe and Asia, despite the fact that Dell’s direct sales model doesn’t always play as well outside the U.S.
Michael Dell, in town to make a speech and visit customers, doesn’t acknowledge any troubles abroad or any clouds on Dell’s horizon.
He patiently sketches out his company’s bright future while politely dissing a few competitors.
“Apple makes a very good product,” says the Texan with the steady gaze. “There’s nothing wrong with their product. It’s just not the most popular.”
Another Apple dig: “The question over time is [whether] the user gets good value from all this R&D that has to be amortized.”
As for his company’s future, he sees no problem conquering new markets or dominating the plodding PC world. “We’re 3 percent of a $1 trillion market” in higher-end computing machines, he says. “We’re 14 percent in PCs. We could be 40 percent or 50 percent or 60 percent.”
He wasn’t smiling when he said this.
And he didn’t blink.
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Contact berose@tribune.com
