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HIGH-TECH INDUSTRY Dell Computer Corp. expands with low inventory, investment



Published: Sun, April 20, 2003 @ 12:00 a.m.



Dell is out to duplicate its success in personal computers.

SAN FRANCISCO CHRONICLE

ROUND ROCK, Texas -- At age 38, Michael Dell has already spent two decades in the technology industry, an arena he plunged into as a teen by selling computers out of his dorm room at the University of Texas at Austin.

Yet despite his success -- Dell Computer Corp. is a leading maker of PCs and one of the most profitable firms in the industry -- the founder and chief executive recently said he's only getting started. And the actions behind those words are jangling the nerves of several of Silicon Valley's big guns.

During the past several years, Dell has expanded into the router and server markets, rattling the respective cages of Cisco Systems and Sun Microsystems.

In its most recent foray, Dell began selling its own printers last month in a clear challenge to market leader Hewlett-Packard. Dell also started selling handheld computers in November, in competition with HP, Palm and Handspring.

"I think we're getting to the fun part, actually," Dell said. "There are great companies out there that are 50 years old, 100 years old. Our company is only 19 years old. We're off to a great start. I think we'll look back 30, 40 years from now and be very, very proud. There are enormous opportunities for us."

Business concept

The Dell juggernaut was largely built on what many industry analysts now see as a revolutionary business concept: Sell directly to customers, do it fast with virtually no inventory and a puny investment in research.

The power of that model was evident one recent morning at the company's flagship factory in Austin, Texas. A team of employees sorted through requests from Dell's Web site in a control room, then contacted suppliers for materials needed to build the machines before passing on the orders to the production line.

On the factory floor, composed of a maze of blue-and-yellow steel platforms and conveyor belts, workers driving forklifts were constantly moving supplies from the loading dock to the production line.

"We don't have a warehouse," said product engineering manager Steve Lawton, who pointed to workers unloading boxes that contained motherboards, computer cases and other supplies.

Dwayne Cox, a Dell communications director, was emphatic in describing the company's attitude toward inventory: "We abhor it."

The company also stresses speed.

In her small cubicle, worker Diana Johnson checked a monitor then quickly got to work on her latest assignment. In just three minutes, she built a Dell Optiplex GX260 desktop computer.

The factory can produce about 650 machines per hour per production line, according to the company. Dell declined to say how many production lines there are at the Austin factory.

Using data from customers who call Dell's tech support staff -- complaining of a faulty hinge or malfunctioning hard drive -- the factory can almost instantaneously shift to another supplier without disrupting production, said Tim Mattox, Dell's vice president of marketing for its client product group.

"We track maniacally the detail around those calls," he said.

"Maniacal" is a favorite word of Dell's top executives. Joe Marengi, senior vice president for Dell's Americas business, praised the company's culture, which he said stresses "a maniacal focus on execution."

The bottom line

Such cheerleading is backed up by Dell's numbers, which underscore its ability to go head to head with the tech world's other giants.

Dell, whose stock recently hit a 52-week high of $31, posted a profit of $2.1 billion in the fiscal year that ended Jan. 31.

Meanwhile, rival Sun Microsystems lost more than $500 million in its previous fiscal year. HP, based on combined results with Compaq Computer which it acquired last May, lost about $948 million.

In an industry that values innovation, Dell has prided itself on scrimping on research and development and relying mainly on the technological innovation of other players.

For example, compared with HP's annual R & amp;D budget of about $4 billion, Dell spends about $500 million a year.

This has led rivals to portray Dell as an impostor of sorts among technology giants.

Michael Winkler, HP's chief marketing officer, said Dell's entry into new markets is a sign that its vaunted business model may be running out of steam.

"I think they're desperately seeking for other sources of growth," he said. "It is not that Dell has this magic weapon that you can apply anywhere in the world."

But Michael Dell is unfazed by such criticisms.

"The company with the highest percentage of R & amp;D does not necessarily win in this industry," argued Dell, who, with a boyish grin, sat comfortably in a conference room near his office.




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