PROFILE : The PC whiz-kid comes of age
The mail-order computer king may be only 30 but he shows a veteran's instinct for corporate survival. Janet Robson spoke to him in New York
Sunday 09 April 1995
Dell has needed to think fast. The mail-order personal computer company he founded in 1984, at 20, has grown at a phenomenal rate. It turned over $3.5bn (£2.2bn) in its last financial year, to January 1995, though it has not all been plain sailing. After the company was named the fastest- growing Fortune 500 company in 1992, things started to go wrong. By mid- 1993, Dell was forced to write off $91.4m and crashed to a $35.8m loss for the financial year ending in 1994.
The company's venture into notebooks (industry-speak for portable computers) bombed, as Dell realised his product line was uncompetitive and pulled it from the market. Meanwhile, costs were rising and a damaging computer price war was in full swing. As if that was not enough, Dell had been investing in interest-rate derivatives and other short-term investments that resulted in write-downs of $32.5m in 1994.
But anyone who thought Michael Dell's days were numbered misjudged his business acumen. Over the past 18 months, he has strengthened the company's management, relaunched his notebook product line, sorted out his cost base, and got out of derivatives. After announcing net profits of $149.2m for 1995, Dell is in confident mood and back on the upward track. "I believe we can grow at 40 to 50 per cent a year for the next several years," he says. He owns 27 per cent of the company he founded. After dipping below $14 in 1993, the stock price is currently $44, valuing his personal stake around $473m. And he is still only 30.
He has been dubbed "the Bill Gates of hardware", and it is easy to see similarities between Dell and Microsoft's chief executive. They are both young, started their companies as students and then dropped out of college. A more important factor in their success is that both are computer "nerds" with brilliant business brains. The difference is that Gates looks like a nerd, whereas Dell looks like a businessman. Making a speech in New York last week, Dell was well-groomed and conservatively dressed in a dark suit and white shirt.
He is the youngest chief executive of a Fortune 500 company and has grown into the role. One Dell staffer says he has changed over the years. "He used to be really shy, always had his head stuck in a computer. But he's become much more outgoing." In conversation, he is a little stiff and seems more comfortable talking about semi-conductors than about himself. But he knows how to handle questions. Asked about his corporate ambitions, he replies carefully, wary of saying something that might mislead Wall Street analysts.
He can seem brash. Three years ago, asked by a journalist what was left to aim for, he replied: "Total world domination." He also has had his run-ins with executives and Wall Street analysts. But maybe marriage, and two young daughters, have calmed him down.
Computers were always his first love. When a high school kid in Houston, Texas, he pestered his orthodontist father to buy him one. Texas and computers go together; rivals Compaq and IBM both have factories there. Dell is firmly rooted in Texas, though to those whose ideas of Texas have been formed by Dallas, he doesn't fit the stereotype. He is dark, slight and soft-spoken, but a bundle of energy.
Competitors reckon what he is really good at is marketing. The opportunity to start a business building personal computers came for Dell in 1984 because IBM decided to allow other manufacturers to clone its PCs. You do not need to be a rocket scientist to build a PC; plenty of amateurs build their own, and Dell put his together in his student dorm at the University of Texas. His big idea was to sell them by mail-order, removing the middle man and undercutting competitors on price. According to Dell folklore, he had discovered the potential of mail-order at the age of 13, when he was profitably trading stamps.
As the company has grown, it has broadened its products to include notebooks as well as PCs. After a brief flirtation with retail distribution, it is now firmly back with its original direct-selling model. But it is no longer the only girl in town, as rival direct sellers, such as Gateway 2000, have sprung up. Despite the growth of home computing, Dell remains principally focused on the business market and on second-time buyers. The reason is simple - with PCs being replaced every three years on average, all users eventually become second-time buyers. They know what they want, whereas "the first-time consumer will usually buy the lowest-priced PC and requires a lot of support," he says.
Dell builds its computers to order, so its stock levels are among the lowest in the industry and its factories in Texas and Ireland among the most efficient. Such fashionable management concepts as benchmarking, quality management and supplier/customer integration trip off the tongues of Dell executives with ease.
Of course, none of this is any good if the product is not right and the fast-moving technologies in the computer industry make it intensely competitive. In notebooks, Dell got it wrong. Recognising that it was crucial for the company to get this rapidly growing product right, Michael Dell went for it. In a change of strategy, he put together an in-house design team, headed by John Medica, a former executive at Apple Computer, which had pioneered the notebook market with its Powerbook range. It was a gamble that has started to pay off. Dell's new notebooks were launched last August and have won a hatful of product awards. They are also selling: over the past three financial quarters, notebook revenues have climbed to 14 per cent of turnover.
Dell is committed to new-technology products, but does not necessarily want to be right on the leading edge. What he does want is to be first with volume, once a new technology is stable. He shrugs off the idea that it might be difficult to decide which technologies to go for. "It's actually really easy to avoid the wrong technology," he claims. He is dismissive of so-called PDAs (personal digital assistants), the small hand-held computers on which Apple took a tumble. "There is no market for them," he says. "I am not sure that people want to write to their computers."
But he does think people will want to talk to them, and he hopes that in another decade human voice and expression will be an alternative to the keyboard in entering data. In his future world computers will become more human-like. "PCs will anticipate your needs," he predicts. He is excited by the idea of "smart agents", software that will find, sort and customise information for the user. "This concept is much closer than people think," he says.
Dell believes talking to customers is the best way to find out what they want, or at least what problems they want solved. "We don't see ourselves as gods of technology. That's very dangerous."
Americans have not quite elevated him to god status, but they do love him. Wall Street seems to have forgiven him the rough patch (which he has dismissed as a "blip") because of the way he has come through it. They admire his entrepreneurial qualities, his risk-taking. The company may bear his name, but he also comes across as notably lacking in egocentricity. He uses "we" far more often than "I". He readily admits that as the company's growth outstripped its structure, he made a few mistakes.
As well as being the youngest, chief executive of a leading PC company, Michael Dell is also the longest-serving. The computer industry is precarious, and he has seen the fall of the heads of Compaq and Apple Computer.
After 11 years, he is still highly ambitious, but obviously believes time is on his side. At present Dell is the seventh largest PC company in the world. Does he want to be number one? He says sustainable growth is more important than size. "We could get to number one by doing the wrong kind of business, and we might be number one for a few nano-seconds, but we want to win the long-term race."
This is, of course, the reply of a veteran chief executive of a public company. Paradoxically, the media still portray him as a whizkid; it is hard to find any article about him that does not label him "wunderkind" in the first paragraph. "I guess that's all over now I'm 30," Dell quips.
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