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TR: What’s the hype in computing, and what is real? Is the PC dead?
Dell: The industry tends to get fascinated with new concepts and ideas-and one of the biggest problems we see is technology in search of a problem. Take a very contemporary example. Bill Gates has been talking about tablet computers [portable devices with, ideally, the simplicity of a Palm Pilot but the computing power of a laptop-and between the two in size]. Now, maybe tablet computers will be successful this year or next year, maybe they won’t. But the idea of a tablet computer is not new. The pen computer industry was here 10 years ago, and there were trade shows and companies specifi-cally created for that. Didn’t work, wasn’t ready.

It’s a great example of technology push instead of customer pull. Another good example is the Internet appliance, which captured a lot of attention about a year ago. And here again, you had this fascination with something that’s new-sounds like a good idea, but maybe isn’t. So when you go back and look at the bone pile of things that might have been-the “almost famous” category of technologies-it’s a pretty big mess.

And that’s why we embrace this philosophy of time to volume. At Dell, we invest only in technology our customers want, rather than trying to guess what they might want. And we only manufacture what our customers ask us to make, when they ask us. Dell has five days of inventory, while at HP, they have 63 days of inventory. They also have something called a distribution channel. This is when you go to CompUSA and you look on the shelf and see all the computers stacked up. Those are monuments to the failed forecasts of what you didn’t want to buy. And in the distribution channel, there’s another 25 to 30 days of inventory, so you add that to the 63, and you get 85, 90 days of inventory compared to our five.

Now, what that means, first of all, is a time-to-market advantage. I can get you the freshest, latest, greatest Pentium 4 and all associated operating system, et cetera, 85 days faster than HP. It’s also a massive economic advantage, because the value of components and manufacturing materials declines about one percent per week. So the net of this is they’re all screwed up.

The other problem with a long feedback loop is the distortion in the signal. If you tell me what you want to buy and I hear it 90 days later, by the time I get the signal you want something else. This is another area where our business model has a big advantage.

TR: Still, PC sales have been slowing-increasing the need to find new growth areas. What was it that attracted you to servers and storage?
Dell: About five or six years ago, we saw that the application world was becoming increasingly server-centric-we couldn’t have anticipated Internet-centric, but that’s where it was ultimately going-and that more and more of the profit was shifting from the client [the PC] to the server. We also saw that our competitors, most notably at the time Compaq, were dramatically overcharging customers for those products.

TR: The same thing you’d seen in PCs?
Dell: Same phenomenon. Five years ago we had two percent market share in the U.S. server market; Compaq had 44 percent. Last quarter [the fiscal quarter that ended Jan. 31, 2001] we had 22 percent, and they had 26 percent. We’re growing four and a half times faster than the market, while they’re shrinking. Soon we’ll pass Compaq in the United States [this spring, Gartner Dataquest reported that Dell had indeed surpassed its rival in the U.S. server market], and at this point our U.S. server business is more than four times larger than HP’s. So we’ve just gone in totally opposite directions from our competitors.

What we see in storage, with our friends at EMC, is the same thing all over again. There’s more of a software component to storage-in the management of large volumes and the virtualization of different logical units of storage across a wide variety of heterogeneous server platforms. But there’s nothing about those products or technologies that scares us. The industry keeps moving towards broad standards, and that creates a real dilemma for companies who try to create and lead an industry by maintaining proprietary platforms and high margins.

The unmistakable trend here is that industry or open standards are beneficial to customers. If you look at any proprie-tary computer company in history, whether it’s Silicon Graphics, Data General, Digital, Prime or fill in the blank, the fate is almost always the same. Their

higher margins make them a prime target for nonproprietary competitors. Because in an industry or open-standards environment, companies can focus on what they’re good at and not spend resources on what they’re not. So innovation is high, and costs are low-and this is the challenge a lot of these companies have.
Our business model is in many ways the polar opposite of the proprietary computing model. If our margins are going up, we get worried, and we wonder whether we’re doing everything we can to deliver more value to our customers. Because if we’re not, we know somebody else will.

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