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MICHAEL DELL INTERVIEW


Few people can lay claim to have reinvented an industry and created a new business model. Even fewer can claim to have done by the time they were in the late twenties. Michael Dell can.
The chairman and CEO of Dell Computers speaks to Jorge Nascimento Rodrigues and João Ramos


The idea of assembling and selling computers directly to consumers came to you at university. How did this come about?

MICHAEL DELL - Actually, the idea came before that, before I went to college. After I got my first computer, when I was in high school, I took it apart to see how it worked. I also read a lot of computer trade magazines and learned what all the components were. The systems were much less complicated then. I quickly realized that the total price of all of the components of the systems was much less than what the stores were charging people. The distribution channel was adding a lot of unnecessary cost to customers without providing any value. So, I started enhancing my own computers and then started building them for other people. I think one of my first clients was the father of a high school friend of mine. His dad had his own business and I built some systems for him.

While many people were suspicious about the emergent Web, you decided to use this new platform to challenge the computer business.

Dell - I wouldn't say that we used the Internet to challenge the computer business as much as we used it to better serve our customers. We setup an FTP site in about 1994 to get support information to customers who wanted it. That site evolved, and a couple years later we started selling systems over Dell.com. We were actually the first company in our industry to have a Web site. The Internet is a very natural extension of our direct business model. It became one of our most important connections with customers very quickly. We do about half of our total business through the Internet. And beyond our Internet-based sales, we've put the Internet to work in nearly every aspect of our business - from support to many of our internal operations, like human resources functions to the management of our supply chain. The vast majority of our suppliers are online with Dell and we constantly share vital business information with them through the Internet. That's the key to putting the Internet to work for a business. It's not just a website. Businesses that want to enjoy the benefits of the Internet must integrate it very deeply and very broadly within their processes and relationships.

Do you think HP and Compaq will merge? What will be the impact on Dell's market share?

Dell - Well it certainly looks like they're determined to make it happen. Who knows if it will actually take place? It's interesting that the market hasn't given the deal a big vote of confidence. The combined value of the two companies has decreased by over $25 billion since the announcement. History proves that these types of big mergers are very difficult to make a success. Over the years, there have been many attempts: Sperry and Burroughs; HP and Apollo; AT&T and NCR; Silicon Graphics and Cray; Compaq and Tandem; Compaq and Digital.... None of these mergers created an industry leader. They just created many challenges for the companies involved and great opportunities for their competitors. I think that's the case here. This merger will create a lot of confusion for customers with all of these people and products and brands going away and new cultures and systems getting defined. In the meantime, Dell will be serving customers as we always have. It remains to be seen what this deal will do for Dell's market share, but Dell has been increasing market share for a long time, and I don't think that this will reverse that trend. In fact, if you look at the trajectories of Compaq and HP's combined market decline and our growth, it's pretty likely that Dell would have more market share than the combined company by the time this merger would be complete.

What will be the likely impact of the present economic downturn and bear stock market, plus the terrorist attacks in the US, on the computer business?

Dell - We're definitely going through a difficult period right now. Certainly not just in IT spending. This is a time when we all have to stay focused on getting back to business in the wake of September 11th and we all have to do our part in making sure that we all get back on solid ground. The technology industry has been facing a "triple whammy" of sorts - the decrease in demand after the huge spend in anticipation of Y2K, the dot-com bust, and the general economic slowdown. And now the terrorist attacks and military response create more uncertainty. But I would characterize this as a period of caution in terms of IT spending. We are constantly talking to our customers and many CIOs tell us that they have been postponing some of their spending, not canceling it. You can't cancel productivity; eventually you have to make those investments in the ongoing success of your business. We've seen difficult times before. After the recession in the US in the early '90's, IT spending rebounded sharply. Same thing after the European recession of '93 and after the Asian financial crisis in the late '90's. I anticipate we're going to see the same kind of a rebound here.

Do you think the new economy is dead?

Dell - If you mean the economy based on the global flow of information, virtually-integrated relationships, and real-time efficiencies - all of the great benefits of the Internet - then no. It's certainly not dead. But if you mean businesses created without regard for fundamentals like profits and cash flow, then yes. It's dead.

How do you see the future of the WINTEL platform in the PC segment? Do you think that free software platforms, such as Linux, could surpass the present dominant platform?

Dell - I see the Wintel platform continuing to dominate the computing market for years to come. But more importantly, I see industry and open standards, like Wintel and Linux, continuing to replace proprietary Unix architectures in increasingly powerful and complex systems. Superior price-for-performance in computing can only be achieved through industry-standard technologies. As standards like Intel-based architectures and Windows-based operating systems proliferate, products commoditize. And as products commoditize, prices come down and volume increases. Proprietary, one-vendor, architectures are plagued with high costs, high gross margins, and high prices, that over time will come under considerable pressure. In non-proprietary architectures, innovation is high and costs are low. The history of our industry is full of examples where standards-based companies like Dell have surpassed proprietary firms. DEC, Wang, Burroughs and Amdahl - to name a few. Standards-based systems win because they are easier to integrate into IT infrastructure, have tremendous cost advantages, and provide faster improvements in price-for-performance. Within the IT market as a whole, proprietary architectures are shrinking as a percentage of total units and revenues. We've seen this in dramatic fashion in the desktop, notebook, and workstation markets, and now we're seeing it in the server and storage markets. In March of this year (2001), a company named Netcraft conducted a machine-to-machine survey of web servers worldwide. Seven hundred thousand separate servers responded and identified their O/S and architecture. The results indicate that a vast majority of the Internet runs on standards - mostly Wintel - not on expensive proprietary architectures.

Do you intend to continue to focus Dell on its historical core business or do you plan to diversify into consulting or storage services for example?

Dell - Dell already has a quite strong services business. We do $3 billion per year in services, which represents about 10% of our total business. And it's growing at 34%, which is our fastest growing revenue line. We do everything from simple break-fix to complex installations through our Dell Technology Consulting Team. And by partnering with the top service organizations like CSC, Unisys, Cap Gemini Ernst & Young, Accenture, KPMG, and EDS, we're able to provide the full range of services with the largest team in the business and with the greatest value to customers. And I expect that this part of our business will continue to thrive.

Any plans to enter the PDAs market?

Dell - We are always evaluating opportunities, but right now that's not an attractive area for us. It's a matter of priorities. Dell focuses on large and profitable markets and the PDA market qualifies for neither.


Jorge Nascimento Rodrigues is the editor of www.janelanaweb.com and http://gurusonline.tv
João Ramos is editor of www.canalebiz.com.

Interview October 10, 2001

© Jorge Nascimento Rodrigues, www.janelanaweb.com and http://gurusonline.c3im.pt

 
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