Dell Outmaneuvers a Perfect Storm

 
 
By Eric Lundquist  |  Posted 2001-10-08 Email Print this article Print
 
 
 
 
 
 
 

Three days after Compaq CEO Michael Capellas blamed a perfect storm for unhinging the company's sales, Dell CEO Michael Dell said his namesake company's balance sheet was right on target.

Three days after Compaq CEO Michael Capellas blamed a perfect storm for unhinging the companys sales, Dell CEO Michael Dell said his namesake companys balance sheet was right on target. While the perfect storm as described by Capellas was a combination of a faltering economy, uncertainty arising from the proposed HP-Compaq merger, the World

Trade Center attacks and a typhoon in Taiwan, I think it is much more likely that Compaq got caught between high- and low-pressure systems.

The high-pressure system was in the form of an IBM front moving in from Armonk through Houston. If there is one strong theme I hear from the IT community these days, it is a need for consistency from high-tech vendors. The IT community wants reliable systems from financially strong companies that will support a product line all the way through its life cycle. This becomes even more crucial as systems become more business-critical. When Compaq announced it will be dropping Alpha-based systems, the door was open for IBM to approach customers of some of the most mission-critical systems in existence. The uncertainty associated with the HP-Compaq merger only provided an additional opening for IBM to go after those high-end customers.

The low-pressure system came in on a west-to-east track from Austin to Houston from Dell. Dell has a simple business model, but the fact it is simple does not mean it is easy. The model is essentially a process where all the companys resources go toward building the most direct pipeline between what a user wants in a computer and what a user gets when he or she opens the Dell shipping box. The user doesnt really care about typhoons or chip glitches or icons on screens; he or she wants a system that works.

Two trends are working in Dells favor on the low end. First, much of the IT hardware business right now is a replacement business. An IT organization replaces systems for one of three reasons: The old stuff is too busted to fix, the mix of the old stuff is too confusing and costly to keep maintaining, or the old stuff cant handle some new applications. In this market, having the lowest price is a big plus. Another plus is that anyone looking out over a user base that includes Microns, Packard Bells and maybe even a few old Free-PCs knows the value of consistency at the low end of the computer line as well.

Unlike storms where you are at natures mercy, this storm has some elements that Compaq can manage. First and foremost, HP and Compaq should be less concerned with soothing Wall Streets grumpiness about the proposed merger and much more concerned about assuring customers that service and support will continue regardless of what name ends up on the box. Pressing ahead with a merger while losing customers is no way to assure a storm-free future.

 
 
 
 
Since 1996, Eric Lundquist has been Editor in Chief of eWEEK, which includes domestic, international and online editions. As eWEEK's EIC, Lundquist oversees a staff of nearly 40 editors, reporters and Labs analysts covering product, services and companies in the high-technology community. He is a frequent speaker at industry gatherings and user events and sits on numerous advisory boards. Eric writes the popular weekly column, 'Up Front,' and he is a confidant of eWEEK's Spencer F. Katt gossip columnist.
 
 
 
 
 
 
 

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