Dell steams ahead - Is Dell unstoppable? for ur week-end read
Excellent article from today WSJ - Dell getting into low-cost pcs $1200 ----
May 21, 1998
Dell Steams Ahead as Rivals Seek
To Streamline Operations to Compete
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL
Is Dell Computer Corp. unstoppable?
The company again blew by its competitors in the personal-computer business in its fiscal
first quarter, continuing the tremendous sales and profit growth that has pushed its stock
to six times its value at the start of 1997. In revenue, the company just passed
International Business Machines Corp.'s PC division to become the world's
second-largest PC seller.
CEO Dell on Quarter
Michael Dell wants Dell growth to outstrip industry growth, and says any effort by the
government to slow down innovation is wrong.
Of course, the company has a way to go to catch market leader Compaq Computer
Corp., which is twice Dell's size and growing larger by acquiring Digital Equipment Corp.
But Dell, more than any other PC company, is in a position to take advantage of the
forces now shaping the industry: accelerating declines in component prices, the pulling
together of service and hardware, and close contact with customers.
Dell's top competitors -- Compaq, IBM and Hewlett-Packard Co. -- are trying to
streamline themselves to match Dell's build-to-order and direct-selling efficiencies. But,
says Charles Wolf, PC analyst at Credit Suisse First Boston, "The playing field is not
getting more level. It's getting more tilted in favor of Dell."
Not Immune From Trouble
Despite its first-quarter strength and a bullish outlook for its second period, Dell's stock
fell $2.8438 to $91.75 in Nasdaq Stock Market trading Wednesday. Technology stocks
broadly fell after poor results and a sour outlook from chip maker Analog Devices Inc. In
addition, investors had built up inflated earnings expectations, anticipating Dell might beat
forecasted profit of 42 cents a share by as much as five cents. Instead, Dell on Tuesday
said it earned 44 cents a diluted share, or $305 million, in the quarter ended May 3.
Revenue grew 52% to $3.92 billion.
Dell Computer Profit Rises 54% On Exceptionally Strong Sales (May 20)
Company Profile: Dell Computer
Indeed, Dell isn't immune from trouble. The Round Rock, Texas, company stumbled
before, during a period of hypergrowth in 1993. At that time, sales were more than
doubling but the company botched a move into the retail market, had troubles overseas
and misjudged demand in notebook PCs, which forced it to leave that business for a year
while it redesigned products.
It has fixed those problems and become the industry leader in keeping costs down. But
some wonder whether Dell can wring any more savings out of its North American
factories, which produce about half its products. The company now carries just eight
days' inventory, down from 34 days three years ago. While some gains are still possible
overseas, Dell executives say it will be difficult to become much more efficient overall.
Plans for Lower-Priced PCs
Meanwhile, Dell will soon be broadening its line to include lower-priced PCs that may
erode its profit margin. Dell reported a 9% drop in average sales price to $2,500 during
the most recent period, and chipmaker Intel Corp. and others have indicated half of the
PC market is now in computers selling for less than $1,500. Dell plans a machine with
Intel's Celeron chip that will sell for about $1,200. "This is the critical issue two or three
quarters from now," says analyst Jim Poyner of CIBC Oppenheimer.
But while challenges are ahead, Dell's chief weapon remains its popular direct-sales
method, which allows customers to order PCs by component and to pay only for the
power and software they need. Only Dell, Gateway 2000 Inc. and Micron Electronics
Inc. have perfected the direct sales and build-to-order structure on a large scale.
Though Dell's market share in the U.S. is about 12% and growing, it has more room to
expand overseas, where direct sales are still relatively novel. World-wide, its market
share is only 7%, and the company's fastest growth, as it has been for several quarters,
is in Europe. But Dell's sales even grew 35% in Asia last quarter, despite a decline in the
overall PC market there. Executives estimate that if the company's market share in
Europe and Asia were the same as in the U.S. last year, revenue would have been $17.1
billion, instead of the $12.3 billion it experienced.
Strength in Former Laggards
In products, Dell has showed new strength in areas where it previously lagged. In
notebooks, for instance, Dell moved into third place in U.S. sales and fifth world-wide
during the latest quarter. And it jumped to second place in sales of higher-margin
products like servers and Windows NT-based workstations.
Michael Dell, chairman and chief executive officer, expects even stronger gains this year
in so-called enterprise systems because the company is rolling out systems at the leading
edge of technology, where profits tend to be greatest. It also just jumped into the market
for data-storage equipment through a partnership with Data General Corp.
Compaq's enterprise products, meanwhile, are showing signs of the pressure. At its
recent annual meeting, Compaq executives said they will set a lower gross profit margin
target after the Digital Equipment acquisition closes, but said they wouldn't be able to
sustain previously high margins in enterprise systems.
Less Proven Than Compaq
But competitors aren't backing down. They could regain momentum from changing how
they make and distribute computers in an effort to be more flexible and closer to their
customers. Dell is less proven than Compaq and Hewlett-Packard in integrating the
newest chips from Intel, and Intel's new Merced chip is on the way in the second half of
1999.
Further, Compaq CEO Eckhard Pfeiffer is counting on Digital Equipment to expand
Compaq's product line with a variety of powerful workstations as well as more services
for big customers. "We will reposition Dell as a PC-only company vs. Compaq as a
global enterprise computing company," Mr. Pfeiffer said.
Mr. Dell, characteristically, is ready for that battle. "They'd better move a little faster," he
says. That full-service business "is a huge focus for us." |
