Table: "I'm Going Full Blast"
In a university dorm room, Michael Dell hits on a revolutionary idea: Sell PCs over the phone, rather than build a costly sales team or pay a middleman a distribution fee.
With great prices and quick delivery, Dell's sales hit $159 million. The efficient model enables 30% gross margins, making it easy for Dell to undercut rivals who enjoy 40%-plus margins. Dell goes public, raising $30 million.
Compaq and IBM move to squelch the upstart--or so they think. By creating new units with pared-down staffing and R&D, they narrowed Dell's gross margins lead. It isn't enough.
Dell launches brash ads against Texas rival Compaq, calling its laptop prices "the lap of lunacy." CEO Dell predicts its 4.1% U.S. market share will one day hit 18%. It sounded audacious, but they hit it in 1999.
The company revamps to reach new efficiency highs. By combining its build-to-order system and tightening its supply chain, Dell cuts inventory levels from 40 days to 17. That helps Dell slash gross margins to 22%.
Dell starts its assault on the server business with models costing one-third as much as rivals. And Dell jumps on the Net. By April, it's doing $1 million in sales daily online--with 30 people, vs. the 700 it would have needed to man the phones.
Thanks to the Internet boom, Dell's sales zoom to $18 billion, and stellar execution drives inventory to record lows. The result: record profits. Dell doubles its server share to 13%, sapping rivals' main source of profits.
PC sales hit a wall, so Dell launches a price war. It works. Dell becomes the No. 1 PC seller, with a 13% worldwide share. Dell's margins get crimped, yet it chalks up $361 million in profits thanks to big cost cuts, while rivals lose $1.1 billion.