Seeing a Future Beyond the PC

Times Staff Writer

The bread and butter of high tech is the personal computer, and no PC maker is on the rise as much as Dell Computer Corp.

The Round Rock, Texas-based company has been in a fierce battle with rival Hewlett-Packard Co. since Hewlett completed its acquisition of Compaq Computer Corp. last year. Reports released last week by two leading technology market research firms suggest that the companies ended 2002 in a dead heat in terms of worldwide market share at about 16% each. The company shipped more than 20 million PCs last year.

But Chief Executive Michael Dell is focused on a future that goes far beyond the PC. Dell is producing an array of computers, from hand-held personal digital assistants to powerful servers that can work together to tackle problems that used to require a supercomputer.

Dell talked with The Times at the recent International Consumer Electronics Show in Las Vegas about the outlook for his company and the rest of the technology sector.

Question: Every technology company is searching for the next application that will drive sales. What do you think the killer app will be this year?

Answer: I think wireless is a pretty killer app. Certainly DVD is everywhere. There's still plenty of businesses that have yet to fully take advantage of the Internet.

Consumers are increasingly using the PC as the center of the entertainment universe, so they're hooking up all sorts of things. The PC has become the center of the entertainment experience, with digital photographs, digital movies, DVDs, imaging.

Q: Apple Computer Inc. Chief Executive Steve Jobs said 2003 is the year of the laptop for that company. What would you say this is the year of for Dell?

A: We have been growing quite broadly in enterprise. Servers and storage and services are big areas of growth for Dell. Also software and peripherals, including things like PDAs and later this year, printers. And, of course, our consumer business.

Q: That puts you right up against Hewlett-Packard in all areas. Do you see them as your main competitor?

A: There's plenty of competitors. They would be one. There's another company on the East Coast with three letters that's our competitor.

Q: You recently introduced a hand-held personal digital assistant, but not a tablet computer. You don't think tablets are the way of the future in computing?

A: It remains to be seen how big of a market that is. The hypothesis is that there will be some 500,000 tablets sold in 2003. That's out of a computer market of roughly 130 million, so it's not necessarily a huge part of the market, if you know what I mean.

We don't think we're missing out on a massive near-term opportunity. It's pretty easy to enter the market. Developing the product is not the issue. The issue is, is there a volume market for the product?

Q: Do you want Dell to move toward mainframes?

A: You might be familiar with HPCCs -- high-performance computer clusters. These are basically hundreds of thousands of servers that are connected together that effectively become a supercomputer. At the State University of New York at Buffalo, we've installed 2,008 servers. It's effectively a supercomputer -- in fact it's listed among the top 500 supercomputers in the world. Dell is showing up more and more on that list.

We've kind of jumped on the scene in this HPCC world, which is an area of computing that ultimately I think could replace the supercomputer and the mainframe.

Q: Are you planning to open retail stores, like Apple and Gateway Inc.?

A: No. We have 57 kiosks, but that's a pretty small portion of our revenue. We were planning to use them around the back-to-school season and Thanksgiving-Christmas holiday season. They've worked so well that we're actually going to continue them beyond that.

These are not really what you'd call a big store. It's a little tiny thing, like in a mall. They're in the aisles. If it doesn't work, we put it in the back of the truck and we go on to the next one.

Q: So are you turning computers into impulse-purchase items?

A: Yeah, and more of a way to introduce Dell to more buyers. We don't have any inventory there. You can see the product and touch the product. You can actually order the product online at a kiosk, but you can't take it with you.

If you go back 10 years, the notion that you would buy your computer over the phone or over the Internet was a foreign concept for a lot of people. Turns out it's become the preferred way to buy. It's overwhelmingly the preferred way to buy for businesses.

Q: Your company is known for its intense focus on customer satisfaction and feedback. Is that something you developed as you built up the company?

A: It came to some extent as a function of the way I started the company. I was a customer to begin with, and I started the company because I was somewhat dissatisfied with the service and support I was getting from computer dealers. Also, the computers cost too much and it took too long for the technology to get to me as a customer. So I'm sitting here in my dorm room saying, "Hey, there's got to be a better way to do this."

There's also something about the direct interaction with customers. Unless you just completely ignore it -- which is very hard to do -- you're really constantly in contact with this feedback. It's an enormously valuable tool.

Q: What's an example of how feedback from a customer in Kalamazoo, Mich., could make its way back to your headquarters?

A: Let's say we have a brand-new product. We have millions and millions of calls coming in. Our engineers will often ... sit on the phone and listen in on the calls. They get kind of daily, weekly [reports] of problems.

Q: Do you believe you've perfected the art of customer service?

A: No, we haven't perfected anything. We believe we can continue to improve everything. I don't believe in perfection; I believe in continually improving.

Q: If President Bush's tax plan goes through, would you consider paying dividends?

A: Absolutely we would consider it. I think that having double taxation of dividends is a major deterrent for any company to even consider a dividend. We're going to follow it very closely and see what happens.

Q: Some in the tech industry say dividends are an anachronism. How do you feel about them?

A: I think it probably is very different company by company. Some companies have a much more predictable cash-flow generation capability. For example, if you look at our company, we have generated free cash flow in excess of 10% of revenue for each of the last five years. I don't know of any other company in our sector that's done that, with the exception of Microsoft.

Q: So, what worries you?

A: Well, we've got plenty to worry about. With all these new technologies, new competitors, we have to keep improving what we do to continue to deliver great value. There's plenty of guys out there chasing us, and we're going after new markets. There's no shortage of competition.

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