Dell Computer Looks To Hit A Home Run
Investors Business Daily, 8/20/98
Author: Nick Turner
Dell Computer Corp. is a favorite among corporate buyers. But can it be a household name?
The personal computer maker, which increasingly is targeting consumers, hopes so. So far, home buyers only represent about 10% of Dell's sales. But sales to consumers are rising at an annual clip of 90% - faster than Dell's current yearly growth rate of 59%.
Round Rock, Texas-based Dell attributes its recent overall market share gains to increases in consumer sales. Research firms say Dell is nearly tied with Compaq as the No. 1 U.S. PC maker.
Results reported on Tuesday showed Dell's income was $346 million for the second quarter ended Aug. 2, or 50 cents a share, up 72% from $214 billion, or 29 cents, for the same period a year ago. Revenue was $4.3 billion, up 54% from last year's $2.8 billion.
Dell uses unorthodox methods to attract home buyers. It eschews the retail channel and sells directly to consumers. It also hasn't embraced sub- $1,000 PCs. It says it gives buyers a better deal on higher-end systems.
David Hood, general manager of Dell Home Systems, spoke to IBD about the company's strategy.
IBD:
What kind of consumer is likely to buy a PC from Dell?
Hood:
We're consciously targeting the experienced users. We're targeting people who are on their second or third or greater PC, or have used a PC extensively at work and are now buying their first PC for the home. And they're typically people who really value a higher-performance machine. So they want the latest technologies and really see the computer as an integral part of their lives. We're calling them the''TechKnow'' generation. We found there are 31 million of these people, and they're all basically on their second, third or fourth PC.
IBD:
How are these buyers shopping for PCs, via the Internet or over the phone?
Hood:
It's still a combination. We've announced that Dell's doing about $6 million a day on its Web site. Of that, about half is for the consumer business. So we're getting a healthy number of consumers who are buying online. But we're also getting people who just call our 800 numbers. We're getting folks who are responding to print and TV ads.
IBD:
How do you market against retailers, which try to lure shoppers with sub-$1,000 or even sub-$800 PCs?
Hood:
We customize every PC that we build. We design it around (consumers') needs. In the retail environment, you just take what's on the shelf. We also, as a result of that process, can give the latest technology. For example, when Pentium II chips hit the notebook market, we were the first to offer that. And we offer better prices. We don't have any inventory, so we're able to pass those cost reductions immediately on to the end user.
IBD:
What else is helping you make inroads?
Hood:
Something that's really picking up is our consumer lease. We were the first to offer that last year, but we've changed the offer based on feedback from customers. We offer now, in addition to a 24-month lease, a 36-month lease. And we've changed it so . . . the whole process takes one phone call for less than five minutes. . . . Since the spring, we've doubled the penetration in our business of leasing as a result of all these changes.
IBD:
How does that compare with Gateway Inc.'s ''Your:)Ware'' plan? Does that compete closely with what you're trying to do?
Hood:
No, it doesn't. Our customers shop around, but they find that Your:)Ware doesn't really meet their needs. It's really a financing plan, not a lease.
IBD:
Are there any plans to reach out to first-time buyers?
Hood:
Not in the immediate future. We still see very healthy growth rates of people that are in that TechKnow generation. People who bought their first PC are graduating. A lot of the folks who have bought those sub-$1,000 (PCs) have said that when they buy their next PC, they're going to buy something more powerful. So we see a graduation phenomenon taking place. As people start to understand what a computer can do, and how meaningful it is to their everyday lives, they want to buy up.
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