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Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: stockman_scott who wrote (129491)	5/27/1999 9:08:00 PM
From: John	Read Replies (1) \| Respond to of 176387

New positive Dell article in Forbes Magazine online: forbes.com For years, Dell Computer turned up its nose at consumers. Now it wants to embrace them. PCs for the masses By Daniel Fisher Five years ago Dell Computer Corp. bailed out of its moneylosing retail PC business and returned exclusively to its mail-order roots, where it coins money selling PCs to corporations for $2,000 or more. Now, in a dramatic turnabout, Dell is targeting the home consumer once more, taking on the likes of Compaq and Gateway in the below-$1,000 PC market—a $6.5 billion business that is growing at more than 20% a year. What changed to make Dell want to jump back in? For one thing, it's not selling PCs through retail outlets like Best Buy or Wal-Mart as it did before. Who needs bricks and mortar when you've got the Internet? With sales through its Web site at $14 million a day and rising fast, Dell is rapidly transferring its business away from expensive, phone-based salespeople. Orders drop from the Internet right to the factory floor, where Dell can assemble and box a custom-configured PC in less than four hours. The Internet also helps Dell provide better and cheaper technical support with technology that allows buyers to log on to a Web site for instant answers and software fixes (see sidebar). Breathtaking declines of 60% a year in basic component costs over the past several years and Dell's own rising efficiency allow the company to make something close to a $200 gross profit on a $999 machine. "We were not in that position a few years back," says Paul Bell, 38, a former Bain & Co. consultant who runs the new consumer effort. He has already more than tripled Dell's ad budget to $30 million, including its first large-scale TV campaign. Some lucrative extras help, too. Through its on-line store, Dell also sells some 30,000 computer-related products including Hewlett-Packard printers and PalmPilot organizers. Dell also collects a bounty each time it convinces a consumer to buy Internet service from partners such as AT&T and U S West. "The ability to sell Internet service can add as many margin dollars as adding $500 to the price of the box," says Kurt King, an analyst at NationsBanc Montgomery Securities. Put it all together and Dell makes 38% of its gross profit in the consumer and small business division from "nonsystem revenues," up from 31% a year ago. Dell's sales to consumer and small-business hit an estimated $3 billion last year, up over 50% from 1997. "The only reason we're not growing faster than 80% a year is we can't hire talented people fast enough," Bell boasts. But in pushing below $1,000, Bell is heading into unfamiliar territory. Dell's average revenue per computer is still $2,350; the company says it controls 58% of the consumer market for PCs costing $2,500 to $2,999. It has less than 1% of the market for PCs below $1,499; meanwhile, low-overhead merchants like EMachines are flooding the market with ultracheap boxes (see "On the cheap"). Even stumbling rival Compaq is making a strong showing with its $599 Presario, the top-selling PC model for under $600. If Dell goes after that segment of the market, says Roger Kay, an analyst with International Data Corp., it will eventually be subject to the same margin squeeze as everybody else. Bell begs to differ. With its manufacturing efficiency and strong brand name, he says, Dell can defeat the cheap-PC guys just as it beat Packard Bell earlier in the decade. "Even if you stick us in an auction we're going to do fine," Bell says. "In this game, he who has the lowest cost wins."