Michael Dell vows to end server 'rip-offs'

The financial engines may be slowing at Intel Corp. and Compaq Computer Corp., but it's full speed ahead for PC industry boy wonder Michael Dell.

The 33-year-old chairman and CEO of Dell Computer Corp. (DELL) said Wednesday that his next initiative is to "expose the great crime" surrounding the overpricing of PC-based servers while also noting that PC demand remains strong.

	Compaq's earnings don't impress, and there's no quick fix in sight.

"Our production lines are rolling," he said, adding that Dell's move to the Pentium II was as fast as its transition from 486-based systems to the Pentium.

At the same time, Dell fired a broadside at his chief rivals, saying that computer companies are ripping off corporate customers by overcharging consumers for servers built using `industry-standard technology.'

Hear Dell's expose on the truth about pricing.

But in a wide-ranging interview, Dell vowed to "change the rules of the server game" in the weeks and months ahead.

Returning to a familiar theme, Dell said the absence of a middleman -- in this case a distributor or reseller -- remained the company's ultimate ace in the hole. However, he declined to get more specific about just how aggressive pricing would become, saying the ultimate decision "was based on cost."

Dell on the attack
With Compaq (CPQ) -- the Austin, Texas company's main rival 100 miles to the south -- reeling from bloated inventories and a nearly profitless first quarter, Dell stepped up his attacks on what he claimed are less efficient PC makers.

"Our pricing [on servers] is based on our cost," he said, saying that his rivals make 60 percent of their profit on servers although the products represent 20 percent of overall sales.

Hear Dell opine on why the old game 'is going away.'

"We will redefine the value equation once again. The industry average inventory [for channel-based PC makers] is 80 to 100 days. Ours is 10 to 15 times lower than that. Inventory devalues 1 percent a week," he said.

He added that new rack-mount servers and high-speed fiber channel storage technology provided via a deal with Data General will help Dell win new corporate accounts. Dell's biggest server -- the PowerEdge 6100 -- currently runs up to four Pentium Pros and is the only four-way server line not running Pentium IIs. An eight-way server will be coming next, said Dell.

No Data General purchase
Dell also disputed reports that the company was considering buying Data General to fill high-end gaps in its server line. He added that the company planned to internally fund growth rather than through acquisition.

"We have more opportunities than we can pursue," he said.

Dell was interviewed the same day as the 350MHz and 400MHz Pentium IIs from Intel were introduced. To mark the occasion, Dell introduced the PowerEdge 2300 line of servers using Intel's fastest chips.

Although he expressed confidence that users would buy new PCs based on the next fastest processor, Dell remained cool to the introduction of Intel's Celeron chip, a product dunned by critics as under-powered. However, Dell nonetheless said the company would likely incorporate Celerons into the low end of its Optiplex line.

Not close to retirement
For Dell, who has been in the PC business since 1984, retirement is not in the near or mid-term future. Since Intel chairman Andy Grove is slowing down, why shouldn't he, Dell was asked.

"He is old enough to be my father,'' said Dell. "I have the greatest job in the world."

Clearly, these are boom times for the young CEO. The company expects its yearly annual unit shipments to climb more than 15 percent through the remainder of this decade.

Dell discusses Compaq's Achilles' heel.

Indeed, Dell's revenues increased 59 percent during its last fiscal year. In contrast, Compaq earlier Wednesday announced that earnings free-fell 96 percent in the first quarter to $16 million. The cross-Texas rival, which has had to cut prices to clear out an inventory backlog, warned that its next quarter would not be much better.

Surveying the terrain, Dell said he thought Compaq's inventory woes left the company more vulnerable than it has been in a long time.

Well-positioned
Andy Neff, senior managing director at Bear Stearns in New York, said that Dell is in an excellent position to exploit still "healthy" customer demand.

"A lot of people look at Dell as being a PC company, but it is also a unique delivery system which allows it to get superior financial results," Neff said. "It is really focused on optimizing its business." The financial engines may be slowing at Intel Corp. and Compaq Computer Corp., but it's full speed ahead for PC industry boy wonder Michael Dell.

The 33-year-old chairman and CEO of Dell Computer Corp. (DELL) said Wednesday that his next initiative is to "expose the great crime" surrounding the overpricing of PC-based servers while also noting that PC demand remains strong.

	Compaq's earnings don't impress, and there's no quick fix in sight.

"Our production lines are rolling," he said, adding that Dell's move to the Pentium II was as fast as its transition from 486-based systems to the Pentium.

At the same time, Dell fired a broadside at his chief rivals, saying that computer companies are ripping off corporate customers by overcharging consumers for servers built using `industry-standard technology.'

Hear Dell's expose on the truth about pricing.

But in a wide-ranging interview, Dell vowed to "change the rules of the server game" in the weeks and months ahead.

Returning to a familiar theme, Dell said the absence of a middleman -- in this case a distributor or reseller -- remained the company's ultimate ace in the hole. However, he declined to get more specific about just how aggressive pricing would become, saying the ultimate decision "was based on cost."

Dell on the attack
With Compaq (CPQ) -- the Austin, Texas company's main rival 100 miles to the south -- reeling from bloated inventories and a nearly profitless first quarter, Dell stepped up his attacks on what he claimed are less efficient PC makers.

"Our pricing [on servers] is based on our cost," he said, saying that his rivals make 60 percent of their profit on servers although the products represent 20 percent of overall sales.

Hear Dell opine on why the old game 'is going away.'

"We will redefine the value equation once again. The industry average inventory [for channel-based PC makers] is 80 to 100 days. Ours is 10 to 15 times lower than that. Inventory devalues 1 percent a week," he said.

He added that new rack-mount servers and high-speed fiber channel storage technology provided via a deal with Data General will help Dell win new corporate accounts. Dell's biggest server -- the PowerEdge 6100 -- currently runs up to four Pentium Pros and is the only four-way server line not running Pentium IIs. An eight-way server will be coming next, said Dell.

No Data General purchase
Dell also disputed reports that the company was considering buying Data General to fill high-end gaps in its server line. He added that the company planned to internally fund growth rather than through acquisition.

"We have more opportunities than we can pursue," he said.

Dell was interviewed the same day as the 350MHz and 400MHz Pentium IIs from Intel were introduced. To mark the occasion, Dell introduced the PowerEdge 2300 line of servers using Intel's fastest chips.

Although he expressed confidence that users would buy new PCs based on the next fastest processor, Dell remained cool to the introduction of Intel's Celeron chip, a product dunned by critics as under-powered. However, Dell nonetheless said the company would likely incorporate Celerons into the low end of its Optiplex line.

Not close to retirement
For Dell, who has been in the PC business since 1984, retirement is not in the near or mid-term future. Since Intel chairman Andy Grove is slowing down, why shouldn't he, Dell was asked.

"He is old enough to be my father,'' said Dell. "I have the greatest job in the world."

Clearly, these are boom times for the young CEO. The company expects its yearly annual unit shipments to climb more than 15 percent through the remainder of this decade.

Dell discusses Compaq's Achilles' heel.

Indeed, Dell's revenues increased 59 percent during its last fiscal year. In contrast, Compaq earlier Wednesday announced that earnings free-fell 96 percent in the first quarter to $16 million. The cross-Texas rival, which has had to cut prices to clear out an inventory backlog, warned that its next quarter would not be much better.

Surveying the terrain, Dell said he thought Compaq's inventory woes left the company more vulnerable than it has been in a long time.

Well-positioned
Andy Neff, senior managing director at Bear Stearns in New York, said that Dell is in an excellent position to exploit still "healthy" customer demand.

"A lot of people look at Dell as being a PC company, but it is also a unique delivery system which allows it to get superior financial results," Neff said. "It is really focused on optimizing its business."