'There's no way the mobile phone will replace the PC'

He loves his silver two-seater Mercedes 500 SL just a bit more than he loves his $10million mountain-top estate. But there is one other thing that has taken precedence of late: the Internet.

"This Internet thing, I tell you, is really amazing. I love it," he says. No, he is not just another geek making prophecies on how the Internet is going to be the be-all and end-all of life.

He is Michael S Dell, chairman and CEO, of Dell Computers -- the richest man in the world under 35, who single-handedly built up a $28.75-billion computer empire.

Ask him what it takes to become the under-35 richest man on earth, and he gives a disarming smile and says 'idea'. And that is all that he had with him when he started off with $1,000 in a Texas University dorm room. Dell said to himself, why get into this middlemen business, why don't I just make a computer just the way the buyer wants it and sell it to him directly. Is it necessary that only beauty creams and washing solutions can be sold directly, why not a computer?

He found answers as he went on and what started off as a juvenile idea has today landed Dell in the league of Bill Gates. But then really, Dell is a bit more popular at 35 than Gates was at the age.

Sitting in his office complex in the Prairie lands of Round Rock, Texas, Dell now oils his direct marketing techniques to such perfection that an order placed at 9 a.m. on Monday can be delivered by 9 p.m. on Tuesday. But then Dell clarifies a bit there, "Well, that is, if there is a call centre anywhere in your country, else it is by 9 p.m. Saturday -- for a trans-country delivery."

Dell was in India on a one-day whirlwind trip to unveil his direct marketing strategy for "this potential IT giant.'' And it is difficult to not draw comparison between Dell's visit and that Bill Gates a few weeks ago. While Gates' was a high-profile presentation on his company and the .Net strategy, Dell was rather shy and kept his interaction warm and friendly, and did not keep a bevy of politicians, media and industry leaders waiting.

Michael Dell in a tête-à-tête with Neena Haridas.

What is Dell's secret? How has it managed to turn a classically low margin mail-order into a high profit, high-service business?

In a word, speed. Dell Computer Corporation has long been a model of just-in-time manufacturing, but now it has upped the ante by applying the same brutal time standard to its supply chain -- insisting, for example, that the bulk of its components be warehoused within 15 minutes of a Dell factory.

Dell also has seized on the ultimate in low-cost, fast-paced business--electronic commerce. The combination puts Dell in the vanguard of manufacturers in any industry.

If you're good at both, you get a multiplier effect. That is Dell. In fact, this speed has allowed Dell to slash inventories and keep parts costs down so low that we can underprice rivals by 10 to 15 per cent. The company calls it 'velocity', squeezing time out of every step in the process -- from the moment an order is taken to collecting the cash. Especially, the cash.

Dell converts the average sale to cash in less than 24 hours, by tapping credit cards and electronic payment. Our competitors take over 35 days to do this. Speed is everything in this business. We're setting the pace for the industry. Think of it as Dell-ocity, a pace so fast that even the whirlwind Silicon Valley has taken notice.

Now with Internet, does your speed become unlimited?

We sell about $50 million worth of computers on the Net every day. Now, that is about 50 per cent of our total revenue. We are now No.1 PC retailer on the web -- growing faster than the industry standards. Electronic commerce is the perfect extension of direct-sales business. Corporations and techno-savvy customers that were willing to buy over the phone are the first ones dialling in to purchase on the Web. The Internet is the ultimate direct model.

Direct buyers now account for nearly a third of the PC business, up from 15 per cent six years ago. Throw in an increasingly wired population that is just a mouse click away from buying over the Net.

What is the market evolving into really?

There will be a lot of evolution in the market once the bandwidth increases and undersea fibre installations, etc are in place. There will be increased fluidity of information across borders and the friction in transactions will be reduced. I think there will be three general trends: One, non-proprietary systems will become essential -- as the market texture changes the stress will be on volumes. Two, systems will get smaller and smaller. And, three, wireless will act as a catalyst in the overall growth of businesses in this scenario.

So do you believe that the PC is becoming redundant and that mobiles and palm tops will take siege of the market?

Tell me, are you going to file this story on your 10-key mobile phone? Doomsayers predicted the death of the PC with the advent of WAP. And since then 350 million PCs have been sold. So, PC is going to be right here -- but there will be integration of the systems, and businesses will move towards mobility and high bandwidth. There is no way that a mobile phone is going to replace a PC.

What is the global market trend these days?

Overall demand is going up and the market is growing at about 15-17 per cent annually. This trend is likely to continue and, in this market, we are growing four to five times the industry growth.

Was there some kind of shortage of components in the global market recently?

Yes, there was some shortage and there was there was a build-up of inventory. But that problem is over and the prices have also come down.

Let's talk about India. With the kind of bureaucratic hassles and tariff structure, how do you expect to have a competitive pricing strategy?

Yes, tariff is a problem in India. But we are sure that tariff will be rationalised and we will be able to cut down our prices further. But that does not mean our products are highly priced now -- even now they are competitively priced because the cost of components have gone down. And on the delivery side, we still maintain that the computer will be on your table within seven days of placing the order. No matter what, we are prepared. We have experienced such market conditions elsewhere too.

What is the kind of growth you are expecting in India?

Really, we haven't quantified our growth prospects. In the last two years we grew by 260 per cent in India. So, obviously, we will do well this year as well. Asia-Pacific contributes about 8 per cent of the overall turnover of Dell. India, I think, would be somewhat like the Chinese market -- China has shown about 85 per cent growth in two years. A lot of lessons learnt here can be applied in China.

When do you intend to set up a manufacturing unit in India like the one in China?

Not at the moment. We have to understand the market and judge the sales performance before we take a decision on manufacturing unit. We are studying the market for possibilities of assembling unit and manufacturing, but definitely not now.

Why didn't you come to India sooner?

We have been here for a while in various capacities - working on projects with local companies and we have been selling our products as well. Now we have decided to set up our subsidiary here because of the speed at which the market is growing. The market is liberalised and there are multinational and domestic giants who will be buy from us. Hence, it is the right time to set base here.

In India, the PC market is slated to grow from the small office and home office segment. But that doesn't seem to be your target customer?

No, that is not our focus market. We have always been suppliers for businesses and that is the way it is going to be in India. We are number one in the businesses market, while we are number four in the consumer market. But, one day, we will be number one in both markets. Right now, our priority is the businesses market.

There is a huge (70 per cent) assembled market in India for PCs (the grey market), because they are much cheaper. How will you convince Indians to buy branded products?

This is prevalent in other markets as well. But these assembled products are bought by individual consumers and not in bulk by businesses. As the market evolves and the prices settle all segments of the consumers will start buying branded products.

What is your opinion of Linux?

We love Linux. It is great and a lot of people have been embracing Linux. It is going to play a very important role in our business and we already have many activities with them. In fact, 10 per cent of our products use Linux as the operating system.

Where does that leave Microsoft?

Why, we love Microsoft, too. The Windows operating system is very popular. We use their products and they use ours. We have an excellent relationship.

What really happened when your empire almost collapsed in 1993?

In the first six months of 1993, Dell had a $65 million loss from inventory write-downs and an industry-wide price war started by Compaq. But we learnt from this and transformed the experience into a lesson on the dangers of growth at all costs. We got wiser and recruited operations-savvy managers from Motorola, Sun Microsystems, and Western Digital. Financial teams fanned out to talk with employees about new metrics for running the business --minimising inventories and increasing return on capital.

Today, the financial nitty-gritty is deeply ingrained in Dell's employees. The marketing department calculates the return on investment for each mailing; purchasing managers figure the cost of unsold inventory each day. We spent 15 months educating people about return on invested capital, convincing them they could impact our future.

What is your advice to the growing e-commerce cult in the industry?

It is not enough to make a Web site. That is just the front end. To get e-commerce really going, a complete backend infrastructure network needs to be put in place. So my advice is work hard, really hard, don't just design a Web site and wait for business to happen.

Who will the next under-35 richest man?

(Laughs) Oh, there could be a few. But I think it will take another 5 years for that.

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Dell Computer Corp unveils India plans

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