Hi Sig:
OT OT
The news reported 110+ degrees in Dallas. I just know it is too hot and I am not going snake hunting. They can just stay where they are! Meanwhile, I will stay on the Dell train! :)Leigh
Dell fights its sobering midlife crisis
Dell is trying to recapture the fire of its upstart youth as growth slows amid a PC industry slump and its once-soaring stock glides toward earth.
By Gary McWilliams, WSJ Interactive Edition
September 3, 2000 11:20 AM PT
Last Wednesday night, Michael S. Dell was gearing up to don Western duds, strap on a six-shooter and act out a high-tech "High Noon" before 15,000 Dell Computer Corp. employees gathered at the University of Texas campus in Austin. Mr. Dell and his posse of key managers would face stand-ins for some of his biggest current and future rivals -- Compaq Computer Corp., Gateway Inc., Sun Microsystems Inc., and EMC Corp. According to the script, Mr. Dell and his gang would shoot down the competitors one by one.
In real life, the picture isn't so pretty for Dell (Nasdaq: DELL). It was the single best-performing stock of the 1990s, with a 97 percent average annual price increase. This year, its stock is down 22 percent. Powered by a revolutionary system for selling personal computers directly to consumers, it used to grow three or four times faster than the rest of the industry. For the quarter ended July 28, Dell's unit shipments of desktop PCs just squeaked past the industry's 12 percent rise. The quarter's 25 percent revenue gain was less than Wall Street's and Dell's projections, the third time in the past five quarters that it has fallen short of expectations.
For Dell, it all adds up to a sobering midlife crisis. A sharp, sudden slowdown in growth in the PC industry has hit Dell hard. Just as the company has become the biggest seller of PCs in the U.S., the PC market appears to be on the wane. The box that made Mr. Dell a billionaire has become a commodity product no longer technologically innovative and no longer in need of replacement every 18 months.
In response, Dell has an ambitious new strategy to regain its edge: a push into Internet server computers and high-end data storage. Both are largely terra incognita for Dell, bringing it a new set of powerful rivals.
The shift comes as Dell's management is changing, too. Since December, it has brought in a new chief financial officer and a new senior operations executive. Mr. Dell, the company's 35-year-old founder, has turned over most day-to-day oversight to the two vice chairmen, Kevin B. Rollins and James T. Vanderslice.
For Dell, it all adds up to a sobering midlife crisis. A sharp, sudden slowdown in growth in the PC industry has hit Dell hard.
Mr. Dell doesn't see much of a transformation. "We are doing the same things we have been doing for a long, long time," he says. "Picking our spots to focus our energies, and driving the organization behind them."
Yet life for Dell is clearly different. Slower PC growth hurts all companies, but maybe none more so than Dell. Its success over nearly two decades has come from using a steady rise in unit sales to drive down margins and gobble market share. Yet many rivals have folded or sold out, leaving the market with a few powerhouses that will be harder to unseat. Take away the volume gains and all that's left are razor-thin margins. Meanwhile, international sales have lagged, and the company has faltered in low-priced consumer PCs.
Investors certainly notice a difference. Mutual funds have trimmed their Dell holdings, dropping it from the 14th most widely held stock at the end of 1998 to 22nd at the end of June, according to Morningstar Inc. It had fallen to as low as 29th at the end of last year.
Dell's finances are still strong: Projected revenue this year of $33 billion would be a 30 percent increase. While the U.S. market is maturing, Dell is more like an adolescent in Europe and Asia, Mr. Rollins says. "Our opportunity and challenge is to grow each of those while managing them slightly differently," he says.
'The Kevin Rollins show'
Mr. Rollins and Mr. Vanderslice, a recent recruit from International Business Machines Corp. (NYSE: IBM), now jointly manage operations. Mr. Rollins, 47 years old, is widely seen as Mr. Dell's heir. "It's very much the Kevin Rollins show," says a former Dell executive.
A onetime Bain & Co. consultant to Dell and a classically trained violinist, Mr. Rollins is considered a brilliant if aloof strategist, responsible for hiving off growing divisions into dozens of smaller units. Under Mr. Dell's tutelage, he has assumed the challenge of keeping a company that has doubled in size in the past two years hewing to its low-cost model. "Our advantage is the same no matter where you go," he says.
Worries about desktop PC growth are misplaced, Mr. Dell argues, because corporations are shifting to notebook PCs, a business where Dell has recently grabbed the lead. Dell this year should add nearly $7.6 billion in new sales, he notes, more than the $7 billion last year and the $6 billion of two years ago. What's more, Wall Street estimates this year's profit will rise 38 percent, to $2.56 billion from $1.86 billion last year.
Mr. Dell is placing a big bet on the company's ability to drill deeper in the world of "big iron," or large systems and computers. He believes that the same low-margin, high-velocity strategy that propelled Dell's PC sales can work in high-end computing and data storage, a higher-margin, fast-growing world where Dell will have to battle Sun (Nasdaq: SUNW), Compaq (NYSE: CPQ) and EMC (NYSE: EMC) with more than just a six-shooter.
zdnet.com
zdnet.com
zdnet.com |
