--- Computers ---
A new trend has Intel on the outside. The average selling price of a PC dropped by nearly 25% in 1998. Forty-five percent of the PCs sold in retail stores last year were priced below $1,000. That's opened a chink in the Intel Corp. monopoly. Only half of the sub-$1,000 PCs have "Intel inside" chips. The rest come from rivals Advanced Micro Devices and scrappy upstart Cyrix Corp. Robust growth in services—the fees hardware companies charge for installing and maintaining computers—are compensating for drops in hardware prices.
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The push for more user-friendly boxes
WELL, DELL DID IT AGAIN. It's getting almost monotonous. While the PC industry grew by a paltry 5% in 1998, Dell grew at a blistering pace of more than 50%. Dell outsells IBM and Hewlett-Packard Co. and looks ready to overtake the number one maker, archrival Compaq Computer Corp.
As most everyone knows, Michael Dell started the outfit in his dormitory room in his freshman year at the University of Texas in 1983, dropping out after hitting $80,000 in sales in one month. The kid (he's now all of 33) rewrote the rules of competition for the PC industry. Now IBM, Compaq and hp play by Dell's rules.
His bigger rivals thought victory would go to the company with the best-designed machine. Michael Dell understood from the start that the PC , pieced together with software from Microsoft Corp. and chips from Intel Corp., would soon be a commodity. With commodities, what matters is price and delivery. Maybe because he didn't know any better, Dell saw the quickest way to achieve both goals was to cut out the middleman.
Which he did by selling over the telephone and the Internet direct from the factory. "Our operating costs for the desktop PC division in the U.S. is 7% of revenue," Dell says. "Compaq will pay a dealer 6% of revenue as a subsidy."
Compaq has tiptoed lightly into direct sales for fear of riling retailers, who provide 90% of revenues. "Our competitors are still prisoners of their history," Dell says. "They're stuck with their dealers."
Michael Dell understands that his competitors will slowly erode the advantage he gained by eliminating the middleman. He's now concentrating on trying to produce more user-friendly boxes. "I'll be the first to admit computers have to get a lot easier to use," says Dell, who spent nearly $300 million on research and development last year. "If we don't improve our products enough, it's going to present an opportunity for someone else. That's how great companies go out of business."
Forbes Magazine, January 11, 1999
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