Dell Exec Staying Powered Up on PCs
Kevin Rollins runs a business that can make an unusual claim these days: It sells millions upon millions of personal computers -- and actually makes money doing so.
As president and chief operating officer of Dell Inc., Rollins is responsible for setting the strategy that has propelled the Round Rock, Texas-based company to the top of its market.
Dell sold nearly 21 million PCs worldwide last year, about 1 million fewer than archrival Hewlett-Packard Co. of Palo Alto, according to market research firm IDC. But Dell has held the No. 1 spot in the first two quarters of this year, and Rollins says he has no plans to relinquish it.
PCs are Dell’s bread and butter: About half of its $35 billion in annual revenue comes from desktop computers, and 30% from notebooks. Now that Dell is aiming to boost sales to $60 billion, it is branching into areas such as consumer electronics. Not surprisingly, the firm’s sights are set on being No. 1 in all its markets.
Rollins, 50, a onetime management consultant who joined Dell in 1996, sat down last week with reporters and editors from The Times to talk about the company, the computer business and the market opportunities Dell is chasing.
Question: Do you count on the PC becoming a higher-value product instead of a simple commodity?
Answer: Yes. The computer has become more than a “compute” device. In fact, it might be minimally a compute device at this point. We still call them computers, because that’s their name.
We believe the PC will be the center -- the heartbeat -- of the digital home with music, DVDs, pictures, printing, photographs, etc. Small and medium-size business, the education sector, the government sector and large corporate business -- they also have big needs for PCs and PC-related gear.
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Q: Your company recently changed its name from Dell Computer Corp. to Dell Inc. What does that move signify?
A: It’s been a number of years now that we’ve been selling products other than just computers. There are many other things beyond the traditional desktop or notebook computer -- servers and [data] storage and services, and then a line of consumer products and peripheral products. Those are probably the highest-growth areas for the company over the next several years.
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Q: It sounds a bit like the strategy at Gateway Inc., which is branching out from PCs and is selling a wide range of consumer electronics.
A: Gateway is quite a bit different because they don’t have any corporate business. They’re predominantly consumer. We do have products that are similar to what Gateway’s been doing. But Gateway has really been running away from the PC, whereas we still see the PC as the core. They’re highly profitable.
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Q: You’re one of the few companies that can say “PC” and “profitable” in the same breath.
A: [Laughing] I think we account for maybe 200% of the profit in the industry.
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Q: Other companies, such as Apple Computer Inc., have been trying to broaden the role computers play in life at home. Will you be getting more into devices related to music, TV and movies?
A: We intend to get into consumer electronics broadly, whether it’s music, video, printers or the whole photography arena.
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Q: Consumer electronics have extremely thin margins. Is there someplace for Dell to go where profit can be made?
A: There’s a lot of opportunity now in the audio arena. MP3 players is a particularly interesting category for us. Flat-panel TVs can be interesting. We now have a projector -- predominantly for the education and corporate market -- but it’s just a matter of time before that becomes a home theater.
You look at any of those categories that have moved into a chip-and-software business and it makes a lot of sense. Look at flat-panel televisions today -- they’re fundamentally the same flat panels we buy [for computer monitors]. We are the largest seller of flat-panel monitors in the world. The only difference between that and a television is a tuner.
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Q: Your competitors say that although Dell is a master of low-cost selling, you are overly dependent on PCs and spend too little on research and development to be considered a powerhouse technology company.
A: If you want to focus on satisfying engineers, I guess that’s a strategy you can implement. It’s not one that we plan to. One of the things our team never loses sight of is satisfying customers, and market share is a pretty good indicator of happy customers.
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Q: HP also likes to note that 70% of Dell’s revenue comes from the U.S. market, while HP has a more global base. Is that important?
A: It goes back to profitability. [HP] hasn’t made money in the PC space for a long time. And in the most recent quarter, they announced that their vaunted enterprise space [serving big corporate customers] lost money too. I don’t care how global they are. The customers are not voting on behalf of HP in the current environment.
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Q: A lot of big American companies are moving their manufacturing operations to China. What about Dell?
A: In China, we manufacture for the Chinese market and the Japanese market. In Malaysia, we manufacture for southern Asia. Ireland is for all of Europe, the Middle East and Africa. We manufacture for the U.S. in plants in Nashville and Austin. We are the only computer manufacturer that actually still makes computers in the United States.
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Q: Why do you make them here?
A: Because it’s most efficient. It’s very simple. We get the components in Asia and we ship them here and assemble them here because it costs too much to assemble them there and ship a big box from Asia. You might get cheaper labor, but the fuel, the airplanes and the boats still cost. The labor productivity does not make up for it.
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Q: Do you think other companies making other kinds of products can manufacture in the U.S. and make a profit too?
A: The simple answer is it depends. Intel Corp. still manufactures chips in the U.S.
For us, it’s the whole business model. It’s eliminating middlemen, it’s manufacturing, it’s the direct sales. The direct-to-the-customer business model allows us to have better information, so we forecast better and have lower inventories.
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Q: Do you see your business model continuing for 20 or 30 more years?
A: Our model suggests that as the molecular components of any product or service are standardizing, it’s a good opportunity for us to rush in, help bring costs down, simplify the offerings and then blow it out at huge volumes. That’s our contribution to the world.
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Q: Do you ever worry that any of your competitors will figure out the secret of your business model?
A: I think that’s unlikely. The elements of our business model are not unknowable. They are just undoable. They’ve been working at figuring out how to do the Dell thing since 1992. So far they haven’t, and it’s pretty clear why not. It’s the same reason why Kmart has not become Wal-Mart. It’s very difficult to change an entire culture -- an entire business model -- and get good at doing something. They’re not going to catch us.
