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Dell Advancing to the Championship Round

The Texas company moves aggressively to expand beyond PCs, with its sights set on big rivals HP and IBM.

June 01, 2003|Terril Yue Jones | Times Staff Writer

DALLAS — As the Dallas Mavericks battled the San Antonio Spurs here last week for the right to advance to the NBA finals, hot dogs sizzled in the concession stands, colorful ads flashed on electronic screens and spectators in the luxury suites logged on to the Internet.

Maverick guard Nick Van Exel and Spur forward Tim Duncan controlled the basketball on the floor of the American Airlines Center. But Dell Computer Corp. was in charge of just about everything else inside the sports arena.

Most consumers know Dell as an aggressive purveyor of custom-built, low-cost personal computers. In fact, it sells more PCs than any other in the world.

But those sales to individuals account for only 20% of Dell's business. The Round Rock, Texas-based company is moving aggressively to expand beyond its PC roots, offering products ranging from printers and digital cameras to data storage machines and server computers for running corporate networks.

Dell's sights are clearly set on its powerful rivals: Hewlett-Packard Co. and IBM Corp.

A poster displayed at the entrance of Dell's server plant, the Topfer Manufacturing Center, in a landscaped technology park in Round Rock sums it up: "Dell Does Domination." Still, Chief Executive Michael Dell portrays the company he launched 19 years ago in a University of Texas dorm room as an underdog trying to scrape out a niche against Silicon Valley stalwarts in the global information technology industry.

"If you look at the $800-billion market that we're in, we have about 4.5% market share," Dell said in a recent interview. "I'm not sure if that would qualify as dominant."

Some computer industry analysts, such as Martin Reynolds with the technology research firm Gartner Dataquest, warn that Dell's success in its core market may not be easy for it to replicate elsewhere. "It isn't clear that they can extend their model to the rest of the world," Reynolds said.

Some potentially big customers say Dell just doesn't have the scope to match heavyweights such as HP and IBM. "Dell is still not an international company. They just could not support us globally," said Tony Hoke, manager of global technology and procurement for the San Francisco-based law firm Morrison & Foerster, which dropped Dell servers two years ago.

But other customers are bullish, and so is Wall Street. While most of Dell's competitors have been losing money, market share or both, Dell's revenue has almost tripled since 1998, and profit has more than doubled.

To say Dell is a juggernaut "is not exaggeration," said Laura Conigliaro, a managing director of Goldman Sachs' investment research department. "They are an execution machine."

The company's goal is to find a way to make the rest of world as reliant on Dell machines as the American Airlines Center in downtown Dallas is.

An increasingly powerful force in the computing world, Dell has honed the art of producing custom-built computers quickly and inexpensively. Its vaunted production system keeps costs low, squeezing margins throughout the industry.

The Topfer factory in Round Rock, where Optiplex and PowerEdge servers are assembled, is a beehive of motion, with scores of conveyer belts and shelves shuffling parts in a hypnotic ballet. Even as the assembly line spits out sleek servers, the process is continuously being refined to increase efficiency.

"If you come back in a year, this will be a completely different operation," said Chris Cowger, director of production operations.

Dell keeps gaining market share while competitors falter. The company said total shipments in its fiscal first quarter rose 29%, while sales for the rest of the computer industry slipped slightly. Its 40% increase in server sales was more than four times the average increase of its competitors.

Last month Dell announced record first-quarter profit of $598 million. After achieving sales of $35.4 billion last year, analysts expect Dell to boost sales to at least $44 billion in 2005. Michael Dell's goal is to top $70 billion in sales by 2007.

About 80% of Dell's revenue comes from what are known as enterprise customers. These corporations, government agencies and universities buy Dell servers, storage, services, workstations and laptops. Altogether, they poured more than $28 billion into Dell's coffers last year.

Dell shipped more servers in the U.S. in the first quarter of this year than any of its competitors, with around 29% of the market, according to technology research firm IDC.

A visit to the American Airlines Center in Dallas reveals why customers are so enamored of Dell machines.

In a heavily air-conditioned room off the main concourse, 35 Dell PowerEdge servers control 300 Dell workstations, which are used to run the arena's day-to-day operations.

The servers also control the climate inside the 20,000-seat arena, which doubles as the home of the Dallas Stars of the National Hockey League. When the Stars play, the computers keep the ice frozen and the rink's temperature and humidity low.

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