February 5, 2013 2:38 pm

Michael Dell looks back to the future

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
Michael Dell at his company's production facility in Austin, Texas in April 1989©AP

Michael Dell at his company's production facility in Austin, Texas in April 1989

Twenty-five years ago, Michael Dell, aged just 23, took his PC business public with a valuation of $85m. Now, after returning as chief executive five years ago, he wants to take his company private again, with a private-equity backed offer worth $24.4bn.

A popular marketing campaign in the early 2000s screamed: “Dude, you're getting a Dell!” Now Mr Dell himself wants to be the “dude”, and to buy his company back from shareholders so he can transform it from a PC maker into an enterprise IT services provider.

Since that popular slogan was used in 2003, Dell’s fortunes have been mixed. Back then the company was still in the ascendant, overtaking Hewlett-Packard to become the world’s largest computer maker. Now it sits in third place in a PC market in decline, having failed to capture the recent booms in smartphones or tablets.

After Mr Dell stepped back as chief executive in 2004 and handed the reins to Kevin Rollins, the PC maker was hit by setback after setback: laptops with faulty batteries, missed Wall Street forecasts, falling margins and an SEC investigation into accounting fraud related to its partnership with Intel, which eventually led to a $100m settlement.

By the time Mr Dell returned to lead the company in February 2007, Apple had just unveiled its iPhone. Although Mr Dell proudly pronounced that “it feels like 1984 and I am starting over again”, the post-PC age had already dawned.

Like many technology entrepreneurs before and since, the teenage Mr Dell forged his company in his college dorm room, dropping out to pursue his entrepreneurial ambitions.

He was born in Houston in 1965 to an orthodontist father and stockbroker mother, who had hoped their son would become a doctor. But by high school, using a mailing list stored on his Apple IIe computer, he had made enough money selling newspaper subscriptions to buy a BMW sports car.

In 1984, at the age of 19 while studying biology at the University of Texas, he was making $80,000 a month upgrading storage for IBM computers. He quit to run the business PCs Limited, and soon realised that he could make the entire PC himself – and at cheaper prices than established giants such as IBM and Compaq.

It took just three months for Mr Dell to pivot his business from hard drive upgrades to building complete computers. These were customised and sold direct to the customer, rather than through resellers as was then the norm.

Instead of investing heavily in cutting-edge technology or research like many of his larger rivals, Mr Dell focused on logistics and the supply chain as his competitive advantage.

After rapid successes, the early 1990s saw Mr Dell and his company stumble. Having built his business by undercutting the IBM PC industry, it now faced the same threat itself from new rivals such as Gateway.

A shortlived move away from customisation and direct sales, and into retailers such as Best Buy, propelled revenues but ate into profit margins. Mr Dell’s lack of management experience began to show.

However, he faced up to his shortcomings and recruited Mr Rollins from consultants Bain in 1996 to help handle operations. After going back to the direct model in the mid-1990s, growth was explosive, with revenues up 49 per cent a year between 1994 and 1999.

Reports from this period portrayed Mr Dell as a Wall Street superstar, greeted by autograph seekers at his annual shareholder meetings. His rising stock price, apparently defying gravity, gave him a net worth estimated at $4.3bn. That personal fortune has swelled to about $14.6bn today, according to Forbes. But Mr Dell is no longer being mobbed by fans at shareholder meetings, and his PC-industry DNA seems rooted in a bygone era.

Soon, he may be able to run his company like he did in its early days. In a 2011 interview, he said: “While we are certainly a large corporation today, I still consider us very much a start-up at heart.”

Related Topics

Copyright The Financial Times Limited 2015. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE