Dell: Tablet PC Is Todays Pen PC

Michael Dell also shares his views on the industry price war, the HP-Compaq merger and Sun's strategy.

LAS VEGAS--One day after Microsoft Corp. Chairman Bill Gates promoted the Tablet PC as the future of personal computing, another industry leader, Michael Dell, openly questioned whether theres really any demand for such a device.

Speaking at a media reception hosted by his company at the House of Blues atop the Mandalay Bay hotel here last night, the founder of Dell Computer Corp. shared his views not only on the Tablet PC, but on the yearlong industry price war and the troubled merger of two of his rivals, as well as taking a jab at another competitor, Sun Microsystems Inc.

Addressing the touting of the Tablet PC by Microsoft and other computer makers at the annual Fall Comdex convention, Dell said it was reminiscent of other high-tech innovations previously hailed at the show that eventually crashed and burned in the marketplace.

"Comdex is a great time to remind us of all the wonderful technologies that are in search of a problem," Dell said. "And unfortunately, not all of those will actually be demanded by customers."

As an example, the chairman of Dell Computer, based in Round Rock, Texas, compared the Tablet PC to the pen PC, such as the Apple Newton, championed a decade ago.

"Go back to the pen PC phenomenon about 10 years ago. Where were all those customers for the pen PC when it was finally introduced?" Dell asked.

"You know, making a Tablet PC is not very hard," he added. "Find me customers that want to buy it; now thats what Comdex is all about and thats what companies are trying to figure out."

Dell also deflected criticisms of his companys aggressive price-cutting over the past year, which many industry analysts blamed for fueling a price war that has further undermined the earnings of computer makers already struggling amid an industrywide slowdown in sales.

The chief executive argued that his companys actions were merely reflective of its low-cost made-to-order manufacturing model, which enabled it to offer products at lower prices than its competitors while still making a profit.

While the Dell model is widely considered the most efficient in the industry, the company also cut in to its own profit margins to subsidize its cost cutting, sending margins to historically low levels.

But while Dells profits declined, the company successfully boosted market share this year, largely at the cost of major competitors Compaq Computer Corp. and Gateway Inc. In addition, the two rivals efforts to match Dells low prices dramatically undermined earnings and resulted in both companies posting quarterly losses.

When asked when the price war will end, Dell responded, "It is when our competitors decide they want to price their products so they can make a profit."

Dell also hinted that those companies that cant profitably compete against his company should consider abandoning the business altogether.

"If they havent made any money in a long time, and they dont have any hopes of making any money, well," he shrugged, not finishing his thought, but clearly indicating such companies would be wise to leave the market.

Early this year, Dell suggested the harsh economic climate and increasing competition would force industry consolidation, a projection followed a few months later by Hewlett-Packard Co.s proposed buyout of Compaq.

But while the planned HP-Compaq merger would create the worlds largest PC maker and form a potentially formidable new competitor, Dell expressed little concern about the matter, appearing mostly bemused by increasing turmoil at HP that has seen the companys heirs publicly denounce the deal.

"It seems like a soap opera," Dell said, referring to the potential proxy battle brewing pitting the heirs of HPs co-founders against company Chairman Carly Fiorina.

In one final stab at another competitor, Dell took aim at Scott McNealy, chairman of Sun Microsystems, an outspoken critic of Microsoft-Intel based systems. By rejecting "industry standards," or Intel-based designs, Suns setting itself up to become irrelevant, he said.

For example, he said, Dell has become the worlds largest workstation vendor in recent years, an area once dominated by Sun, by offering Intel-based systems that are generally less expensive and offer greater software flexibility than Suns proprietary designs.

"Sun is the Apple of the server world," Dell said.