Dell

Dell

In 1984, at the age of 19, Michael Dell founded Dell Computer with a simple vision and business concept—that personal computers could be built to order and sold directly to customers. Michael Dell believed his approach to PC manufacturing had two advantages: (1) bypassing distributors and retail dealers eliminated the markups of resellers, and (2) building to order greatly reduced the costs and risks associated with carrying large stocks of parts, components, and finished goods. While Dell Computer sometimes struggled during its early years in trying to refine its strategy, build an adequate infrastructure, and establish market credibility against better-known rivals, its build-to-order and sell-direct approach proved appealing to growing numbers of customers in the mid-1990s as global PC sales rose to record levels. And, just as important, the strategy gave the company a substantial cost and profit-margin advantage over rivals that manufactured PCs in volume and kept their distributors and retailers stocked with ample inventories.

Going into 1998, Dell Computer had a 12 percent share of the PC market in the United States, trailing only Compaq Computer and IBM, which held first and second place in the market, respectively. Worldwide, Dell Computer had nearly a 6 percent market share (see Exhibit 1). And the company was gaining market share quickly in all of the world's markets. The company's fastest growing market for the past several quarters was Europe. Even though Asia's economic woes in the first quarter of 1998 resulted in a slight decline in Asian sales of PCs, Dell's sales in Asia rose 35 percent. Dell's sales at its Internet Web site were averaging $5 million a day and were expected to reach $1.5 billion annually by year-end 1998. Dell Computer had 1997 revenues of $12.3 billion, up from $3.4 billion in 1994—a compound average growth rate of 53 percent. Over the same period, profits were up from $140 million to $944 million—an 89 percent growth rate. Since 1990, the company's stock price had exploded from a split-adjusted price of 23 cents per share to $83 per share in May 1998—a 36,000 percent increase. Dell Computer was the top-performing big company stock so far during the 1990s and seemed poised to become the stock of the decade.

Dell's principal products included desktop PCs, notebook computers, workstations, and servers. The company also marketed a number of products made by other manufacturers, including CD-ROM drives, modems, monitors, networking hardware, memory cards, storage devices, speakers, and printers.