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Bingo. OK. Good afternoon.

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One of the pleasures of being dean of the Sloan School is to spend some time with

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some of the leading innovative thinkers and businesspeople in the world today.

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Today I have the great pleasure of welcoming back to the MIT Sloan School a

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distinguished speaker,Michael Dell,chairman and CEO of Dell Computer¡Kif there's

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any uncertainty about this.

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Michael's spoken to MIT students and alumni on a number of occasions,both here on

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campus,and in Austin,Texas,at the Leaders for Manufacturing alumni program.

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In addition,Dell Computer has been quite an active recruiter of Sloan students,and

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counts a sizable number of MIT alum's among its employees.

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The company has been a major sponsor of the Leaders for Manufacturing program,

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which is sponsoring Michael's visit today along with the Sloan School.

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Dell Computer joined the LFM program in 1998,and has sponsored,hired,or

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sponsored internships for,29 students over the years.

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So in addition to welcoming Michael,I also want to extend my deep thanks,on behalf

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of LFM and Sloan,for his company's and his personal support.

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Michael Dell is one of the rare businesspersons who really needs no introduction.

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His story is well known,and Michael,even at his still extraordinarily young age,is a

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legendary figure.

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He launched Dell Computer when an undergraduate at the University of Texas,with

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an extra $1000 in his pocket.

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He started selling computer components from his dorm room.

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Since that humble beginning,company sales have grown to $32 billion for the last

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four quarters.

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Today Dell has 36,000 employees,offices worldwide,and is the number one PC

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supplier,a position it took from Compaq last year.

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Because of this phenomenal success,Michael,also a bestselling author,has been

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honored many times for his visionary leadership,including a spot on Time/CNN's

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list of the 25 most influential global executives,in 2001.

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I could go on and on,but I'm sure you'd rather hear from Michael Dell than about

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him,so it is my great pleasure to present to you,Michael Dell.

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Thank you.

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Thank you very much

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Thank you.

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It's great to be here.

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Is this working well?

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The microphone?

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OK,great.

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Well,thank you Dick,and ¡Kyou know we were very pleased with the LFM program

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in particular at Dell.

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It's been a great help in our quest for operational excellence and supply chain

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efficiency,and a lot of the things that have made Dell quite successful have been

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tremendously influenced by the graduates of the LFM program,and there's a lot¡Ka

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lot to be proud of there.

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But,more broadly,I think our great relationship with MIT has been to both parties'

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best interests and we certainly are very appreciative of that relationship.

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I'm going to keep this pretty informal and just say a few things about the state of the

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industry and then open it up for questions and discussion.

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So if you've got any questions you're thinking about,that will be great.

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Get 'em ready,and¡K. the harder the better,so ¡K.

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You know,it's a fairly challenging time in our industry right now.

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The economy isn't doing so well,but our business has done relatively well in

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comparison with the rest of our industry.

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I think there are some broad trends that are going on right now.

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The market continues to move toward industry-standard technology,and I think in the

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early stages of our industry,or in most industries,there's kind of a proprietary

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orientation,where companies,you know,invent things¡K.there's nothing wrong with

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that¡Kand,they,they often try to get into this habit of locking the customer in to a

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certain type of technology.

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That can work fairly well for a while but when technologies begin to standardize,or

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commoditize,if you will,the game starts to change,and the markets open up to be

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volume markets.

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And this is very much where Dell has made its growth and its business,first,of

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course,in the PC market,in desktops and notebooks,and then in the server market

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and storage market,and services and data networking.

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And we continue to expand the array of products that we sell,the array of services

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and,of course,expand on a geographic basis.

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And we've been able to do that using a relatively simple construct,and the way to

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think about it is,you know,there are all of these various technologies that are out there

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And the technologies may come in the form of semi-conductor ingredients,or pieces

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of software,or particular technologies,whether its standards like Ethernet,or fiber

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optics,or whatever it may be; it's technology ingredients.

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What we've been able to do is build a business system that takes those technological

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ingredients,translates them into products and services,and gets them to the customer

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more efficiently than any company around.

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And we do that directly with the customer,kind of with any customer,whether it's the

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largest customer in the world,or institutions or governments,corporations,all they

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down to the individual customer,the consumer,and we've kind of tailored the

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business to be very responsive to that ¡K.our customers' needs.

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And that's worked very well.

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That's represented a lot of growth for us.

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We only have about 3% market share in the $800 billion IT market.

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But we think this concept has a lot of applicability,and while we've achieved a fair

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amount,we think we've got a lot more opportunity going forward.

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So it's a pretty exciting time to be in our industry and the opportunities are,we think,

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pretty awesome.

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So,with that brief introduction,I'd be happy to open it up for any questions or

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discussion anyone wants to have,and I think there're some microphones here¡KYes?

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C: Er¡K the PC industry as we all know is more or less like a commodity now and it

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has reached the end of the S-curve.

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So for the future,like,are you interested in going¡Kin differentiating your products

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more?

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Like,I see you what IBM was in 1950,with the punch card machines,and then they

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diverted into the PC industry and continued their road,so what specifically would you

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be looking for future?

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B: Well,you know,about 30 to 40% of our profit today comes from desktop

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computers,so our business has actually shifted quite a bit into other areas.

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But interestingly enough,even in the desktop computer,which most people would

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agree is a commodity,we actually have quite a profitable business,making

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commodity products,because we're the low-cost provider.

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And we're quite happy to continue to do that.

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There's a lot of debate about whether people will continue to buy these things.

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I happen to believe that they will,particularly if they want to use such things as the

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Internet.

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There's an debate about it.

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They say,"Oh,well if you want to use the Internet,you can have a telephone,and

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that'll be the way you access the Internet."

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Well,you can access the Internet on the telephone,but,you know,the screen's not

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very big.

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And so that idea is not maybe as popular as it was a few years ago,although you

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can¡K.you know,people do use their telephones to access the Internet.

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I don't think the PC is going to go away.

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It continues to change form.

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You know,increasingly,the product we sell is a mobile machine,or it's a wireless

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machine.

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And certainly,we're selling kind of a system,which means we're selling the servers

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and the applications and the software and the storage that kind of goes along,you

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know with the whole capability. Also,a lot of our customers are coming to us and

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saying,"Hey,you know what?"

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"I'm buying these products,but I don't really want a product."

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"I want a service."

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You know.

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"You take care of all of this stuff,you manage the service,you move it around,you

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install them,you take them out,you refresh them."

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And,you know,"I'm going to ¡Kbe in the insurance business¡Kor¡Kdo the thing I'm

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really supposed to be doing."

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"You take care of all this."

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It's kind of the managed services business.

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So we're very much taking what is otherwise a commodity product and turning it into

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more of a service that has a continuing kind of refresh cycle along with it.

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So the business is definitely evolving.

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Yeah?

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D: Sir,you've obviously made a lot of recent noise about entering into the printer

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market,and also,you know,made a few enemies with Cisco and 3- Com.

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I'd be fascinated to hear about how you decided to enter those markets,and,sort of,

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what approach you have going forward.

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B:  Sure.

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Well,let's start with the data networking market.

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In the United States,Dell has about 46% market share with large corporations,for

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small computer systems,which does not mean we sell to 46% of corporations.

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It means we sell to about 90% of corporations,and one of the products they buy is

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Dell. So we have pretty profound access and coverage within large organizations.

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Every computer that we sell to businesses is attached to a network.

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OK?

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So.,you know,you buy a PC,you buy a server,you attach them with edge switches,

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you know,layer 2 and layer 3,into a WAN,into some fiber-optic backbone,or

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something that connects out to the broader Internet,or intranet,or other¡Kwhatever

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the network may be.

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So it's a fairly logical,you know,adjacency to say,"OK,you're buying servers from

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Dell,you're buying PCs from Dell.

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"How about switches from Dell?"

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And it turns out that that's a fairly easy thing for us to sell.

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In fact,in less than a year,we've sold more than one million ports in the switching

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market,and we've captured more than 10% of the managed gigabyte market,and

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about 10% of the unmanaged 10-100 market.

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So,you know,there are some fairly logical adjacencies.

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Printers is another interesting market,and we had a conversation earlier today,and I

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asked the question ¢w maybe we'll ask the question here ¢w what's the last innovation

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you all have experienced in printers?

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Color

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All-in-one printers.

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IR,infra-red printers.

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Blue-tooth printers.

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Haven't seen too many of those,but,but¡K

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What else?

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Photo printers,ok.

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There is some innovation in printers,but if you look at the whole market for printers,

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there's just not a lot of innovation in printers,and a lot of what is billed as research

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and development in printers,is really to protect the proprietary franchises that exist in

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printers around the ink and cartridges,where all the profit is.

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And,this is a bit of a radical notion today,but,you know,let's think about 10 or

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fifteen years from now.

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What if you had industry-standard cartridges in the printer market?

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The cost of ink and printers would go way,way down.

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Now we don't have that today,and it may be a while before it ever happens,and it

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may never happen.

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But we think there's an opportunity to drive the cost of printing and imaging down

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pretty significantly.

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We already sold in the last year two million printers,and it's obviously an adjacency

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for the computer systems business,and so that's a market that we're going to be

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entering as well.

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There are other markets.

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I mean we entered,you know,the digital projector market.

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You know,our cost structure's just simply better than,you know,other competitors'.

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So,you know,TI has this great technology called DLP.

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We can take TI's DLP technology,translate that into a projector,and deliver it to

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customers,who already have contact with Dell on a regular basis ¢w the same

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customers buy these,often from Dell,by the way,because we sell all the software and

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peripherals ¢w you know,fairly easy for us to translate that into a new opportunity.

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Yeah,we've got lots of questions so¡Kwhoever steps up to the microphone first,

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just¡K

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E: I have it,sir.

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B: You got it,you got it

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E: A question about your customer service.

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You're expanding quite rapidly into Europe and,you know,you've been in Europe for

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a little while now.

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The ability of your company to have one-on-one personalized service is quite

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incredible.

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How do you so rapidly and so effectively replicate your customer service across the

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world?

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B: Well,first thing I'll tell you is we're not perfect,and it's not always rapid and

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effective,but that's certainly our objective,so thank you for that endorsement.

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You know¡Kyou know,the first thing that we do is,because we align ourselves

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directly with the customer,we segment our business into groups that target unique,

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different kinds of customer.

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So,in the United States,for example,we have about 14 or 15 different customer

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segments that serve unique,distinct parts of the market.

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So,for example,we have a group,and all they do is serve the higher education

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market.

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OK?

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And all they do all day long is think about,is think about and understand the

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requirements for that market,in terms of product,services,capability,you

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know¡Keverything that kind of goes around that.

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We have a K through 12 market.

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We have a state and local government market,a federal market,a small business

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market,a global customer market,you know,so,any type of customer¡K.health care.

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So that's ¡Kthat's one thing.

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Another thing we do is we have what we call at Dell the Customer Experience.

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We have a real focus on the customer experience,which is sort of all-encompassing,

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you know,experience,that goes from buying,you know,owning,using,end of life,

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service.

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We have a series of measurements and metrics that are common across the company

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globally.

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So we can go into any operation around the world,and look at and compare the

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customer experience metrics.

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And in fact,as part of our¡Kyou know¡Kincentive systems globally,those are the

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things that kind of drive our teams to progress,and we have a best of breed process

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that encourages all of our teams to achieve the same kind of success.

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So,for example,we have a metric called First Time Resolution. This means,you now,

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when the customer called,did we actually solve the problem on the first call?

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And,we have a lot of tools to help us do that.

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And you can take any call center around the world,and,you know,know what that is

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and how we're going to get to,you know,a very high level of first time resolution.

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Or,the On-time First-time Fix,which means,if a customer did have a problem in the

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field,you know,did we get there on time?

236
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You know,was it the fist time?

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Did we have the right part?

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Was it the right part in the supply chain?

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Did everything go according to,you know,the way it was supposed to go?

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And it just becomes a pervasive focus across the organization,and it's part of the

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culture.

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F: I'm not sure if I'm right,but I heard that you'[re expanding into ready-made PCs,

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so ¡K.and selling through retailers¡K

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B: No,we don't' sell through retailers.

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We sell to consumers,but not through retailers.

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F: I mean,now,I mean most of your businesses are real,direct customizable PCs.

247
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Is it true that you're planning to have ready-made PCs to ship specially in Asia?

248
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B: We,we sell about¡Kit's probably between a half a percent and one percent of our

249
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machines are sold in ready-made configurations,sold directly to the customer.

250
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F: Coz,I mean,if you're in¡K.I mean,I think,I mean,I might be wrong but,isn't

251
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your competitive advantage that it's customizable within¡K.I mean,the ability to do it

252
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in such a short time-frame,so if you dump that aren't you¡Kyou're really losing your

253
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competitive advantage.

254
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B: Well,if you look at what customers buy,particularly in the consumer market,a fair

255
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number of them,it turns out,buy the same thing,ok?.

256
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So there's an opportunity to take kind of preconfigured systems for a certain portion

257
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of the market ¢w and it turns out it's a pretty small portion,like a half a percent to one

258
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percent ¢w and have effectively a kind of quick shift capability,you know,where we

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can rapidly deliver.

260
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We can also have a system where we can rapidly deliver customized systems. Our

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team has done a great job in driving out lead time,and that has,in a sense,kind of

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eliminated the need for preconfigured systems.

263
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So we don't really do a lot of preconfigured.

264
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The problem with preconfigured for us is we don't have any place to put 'em,you

265
00:19:16,840 --> 00:19:23,820
know,so¡Kyou know,'coz we ship right to the end-user,so we don't have,you know

266
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a lot of warehouses,and that's not really a big part of our strategy.

267
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Oh,fine,thank you.

268
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G: Just a simple question.

269
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Many analysts,strategists,and professors have studied your business model,Dell's

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business model.

271
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However,nobody,no companies can imitate your business model.

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As you yourself,what's the difference¡Kwhat's the difference between your business

273
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model and the other one?

274
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And how long do you think you will continue your business model strength in the

275
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global business¡K.in the global world?

276
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B: Well that's a great question.

277
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I would have expected by now that somebody would have copied our business model

278
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I'm actually quite surprised that it hasn't happened,¡Kyou know,particularly given

279
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that this is a conversation that's been going on for at least ten years,and our

280
00:20:23,160 --> 00:20:25,680
competitors have been trying for at least ten years.

281
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Now,if you look at the economics,in terms of,what is the result and ¡Kin the

282
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difference between companies in the computer systems business,you know,Dell's

283
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operating expense ratio to sales is less than 10%,whereas most of our competitors' is

284
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over 20%.

285
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So they're very¡Kthere's a very,very different cost structure.

286
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I think what we're coming to ¡Kto believe is that the,you know,it's just very,very

287
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hard to make these changes,and,you know,Dell's a company that kind of from the

288
00:21:05,220 --> 00:21:09,540
ground up,from the design,from the manufacturing,from the sales,from the support,

289
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started with a very distinctive and different way of doing business,and it continued on

290
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that path,and it continues to refine it and improve it and make it better.

291
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Other companies are kind of trying to change and copy and revise,and that's proving

292
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difficult.

293
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You know,I don't know how that's going to go on,but I'm sure enjoying the process.

294
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You know?

295
00:21:40,140 --> 00:21:44,930
Although,if you believe some of your competitors,they've already done it,so maybe,

296
00:21:44,930 --> 00:21:51,850
maybe it's already finished,you know?

297
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H: When you first started your business with just $1,000,did you think that your

298
00:21:57,250 --> 00:21:59,950
business would be successful like this?

299
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And if you¡K

300
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B: No.

301
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H: If you¡Kmy next question was,if you,if you thought that then what made you so

302
00:22:10,130 --> 00:22:12,220
sure?

303
00:22:12,220 --> 00:22:21,910
And,maybe,if you had not been so successful,what would you have been doing?

304
00:22:21,910 --> 00:22:32,000
B: Well,I probably would have gone back to college.

305
00:22:32,000 --> 00:22:37,110
You know,what,you know,what I saw was an opportunity that seemed pretty

306
00:22:37,110 --> 00:22:38,340
obvious.

307
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You know,you know,you had these computer dealers.

308
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They had high mark-ups.

309
00:22:41,480 --> 00:22:46,610
They didn't provide high levels of service,and the inventory system was very

310
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inefficient,and the technology took about a year from the time it was ready to the

311
00:22:52,610 --> 00:22:55,640
time the consumer could actually buy it.

312
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It seemed to me there were all kinds of inefficiencies in that.

313
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And it was,you know,pretty counter-intuitive at the time,but,you know,it seemed

314
00:23:07,350 --> 00:23:11,690
like an obvious thing to me,and over time,more and more customers became

315
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comfortable with buying directly from the manufacturer,first over the telephone,then

316
00:23:16,450 --> 00:23:21,970
in person,then over the Internet,and,you know,it was really a kind of incremental

317
00:23:21,970 --> 00:23:29,680
approach,in a sense,I mean,I did not have a master plan in 1984 that,you know,in

318
00:23:29,680 --> 00:23:34,020
September of 2002,you know,I'd be here at MIT and talking to all of you and telling

319
00:23:34,020 --> 00:23:36,730
you,you know,"This was so wonderful and,you know¡K.".

320
00:23:36,730 --> 00:23:41,670
That was not the plan,and you know¡KI was sort of¡K"We're here,and we think we

321
00:23:41,670 --> 00:23:45,670
can get to here," and,you know,each step of the way,we'd kind of look out two or

322
00:23:45,670 --> 00:23:49,650
three years,and say,"Here's what we think we can achieve," and,fortunately,usually

323
00:23:49,650 --> 00:23:54,150
we've been able to achieve more than we thought we could do.

324
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And,you know,we always challenge our teams,with,you know,very aggressive

325
00:24:00,340 --> 00:24:10,840
goals,and we set high standards,for,you know,what we want to achieve next.

326
00:24:10,840 --> 00:24:16,530
I: As a PC manufacturer,how much sleep do you lose over Microsoft's X-Box?

327
00:24:16,530 --> 00:24:17,340
B: How much what?

328
00:24:17,340 --> 00:24:18,550
I: How much sleep?

329
00:24:18,550 --> 00:24:23,450
How worried are you about Microsoft's X-Box?

330
00:24:23,450 --> 00:24:28,210
B: I'm not¡Kyou know¡K. I'd rather see Microsoft selling X-Boxes than Sony selling

331
00:24:28,210 --> 00:24:35,840
more Play Stations,because the X-Box is closer to something that can aid and assist

332
00:24:35,840 --> 00:24:43,830
Dell,and in fact there are a lot of discussions and strategies about how that code base

333
00:24:43,830 --> 00:24:52,230
can be used to assist in the gaming market in PCs.

334
00:24:52,230 --> 00:24:56,630
The game console business is really a business of royalties from the games,and,you

335
00:24:56,630 --> 00:25:01,580
know,there's a loss on the console itself,so that's a very different business from our

336
00:25:01,580 --> 00:25:06,730
business in a subsidy sense.

337
00:25:06,730 --> 00:25:10,540
But,you know,we're looking at gaming.

338
00:25:10,540 --> 00:25:13,420
We think there may be opportunities in gaming.

339
00:25:13,420 --> 00:25:19,730
Certainly a lot of gamers buy high-powered PCs,as opposed to consoles.

340
00:25:19,730 --> 00:25:22,320
I: And,do you think the X-Box could be like a Trojan Horse,to come in and actually

341
00:25:22,320 --> 00:25:26,640
replace the PC?

342
00:25:26,640 --> 00:25:31,490
B: I don't think that's where they're going with that. It's certainly possible,but I don't

343
00:25:31,490 --> 00:25:35,550
think that's their plan.

344
00:25:35,550 --> 00:25:41,970
A lot of conspiracy theories when you get into Microsoft¡K.territory¡Kyou know.

345
00:25:41,970 --> 00:25:46,700
Oliver Stone would have a field day with that,you know.

346
00:25:46,700 --> 00:25:47,910
Yeah,who's going to¡Kyeah?

347
00:25:47,910 --> 00:25:51,950
J: Thank you very much for coming to Sloan,for sharing your afternoon with us

348
00:25:51,950 --> 00:25:52,690
today.

349
00:25:52,690 --> 00:25:55,980
My question is regarding your relationship with Intel.

350
00:25:56,170 --> 00:25:59,260
It seems like it's been a pretty tight relationship.

351
00:25:59,260 --> 00:26:05,040
And looking towards the future,do you see a space for AMD as a competitor,as a

352
00:26:05,040 --> 00:26:17,540
provider for chips,or is it just a one-on-one game,and no small dogs invited?

353
00:26:17,540 --> 00:26:23,920
B: Well you know¡K.I got a question: has Dell ever sold computers with AMD

354
00:26:23,920 --> 00:26:24,550
processors?

355
00:26:24,550 --> 00:26:27,690
Anybody know the answer?

356
00:26:27,690 --> 00:26:29,910
Wrong.

357
00:26:29,910 --> 00:26:31,750
"Yes," is the answer.

358
00:26:31,750 --> 00:26:35,570
When did it occur?

359
00:26:35,570 --> 00:26:42,560
'85,'86,when AMD's processors were faster than Intel's.

360
00:26:42,560 --> 00:26:46,280
That hasn't occurred in a long,long time.

361
00:26:46,280 --> 00:26:48,080
You know,we're looking at their technology.

362
00:26:48,080 --> 00:26:50,070
They've got some interesting technology,with the Hammer processor.

363
00:26:50,070 --> 00:26:52,320
It's been delayed a bit.

364
00:26:52,320 --> 00:26:58,620
You know,we're not a subsidiary of Intel or Microsoft.

365
00:26:58,620 --> 00:27:03,620
We do things for the benefit of our customers and our shareholders.

366
00:27:03,620 --> 00:27:07,180
And,you know,if they have great ingredients that help us deliver great solutions,then

367
00:27:07,180 --> 00:27:07,600
fine.

368
00:27:07,600 --> 00:27:10,180
If they don't,then we'll have something else.

369
00:27:10,180 --> 00:27:13,770
You know,we've sold a lot of Linux. Microsoft doesn't ask us to sell Linux.

370
00:27:15,140 --> 00:27:18,340
Our customers do.

371
00:27:18,340 --> 00:27:22,330
So,you know,if AMD has great technology,if somebody else has great technology,

372
00:27:22,330 --> 00:27:25,760
we can bring that to our customers if that's what they want,we're going to provide it.

373
00:27:25,760 --> 00:27:31,900
We're number one in Linux servers in the United States,and that's a growing market,

374
00:27:31,900 --> 00:27:38,280
but obviously that's different from the Microsoft market.

375
00:27:38,280 --> 00:27:39,340
K: Hi.

376
00:27:39,340 --> 00:27:44,380
I'm curious about why you think it's taken the PC about 20 years to achieve a 50%

377
00:27:44,380 --> 00:27:50,490
penetration,when it probably took the CD about six years,and VHS four years.

378
00:27:50,490 --> 00:27:57,180
What's it going to take for the PC penetration to sky-rocket in the United States in the

379
00:27:57,180 --> 00:28:00,240
next ten or 20 years?

380
00:28:00,240 --> 00:28:05,800
B: In a lot of homes it's easier to sell the second PC than the first PC,because you

381
00:28:05,800 --> 00:28:11,640
have,you have,you know some homes where there's just not a lot of desire to have a

382
00:28:11,640 --> 00:28:20,480
PC,you know,versus a television or VCR or CD.

383
00:28:20,480 --> 00:28:25,740
You know,the fastest growing categories are kind of at the edges of the market in

384
00:28:25,740 --> 00:28:33,480
under-penetrated areas; lower income and senior citizens are very rapidly growing

385
00:28:33,480 --> 00:28:37,890
And then,as the cost comes down,you get greater penetration,as well as global

386
00:28:37,890 --> 00:28:38,480
penetration.

387
00:28:38,480 --> 00:28:43,930
I mean you only have 550 million PCs out there in the world,and so you've got a lot

388
00:28:43,930 --> 00:28:47,140
of market that is still way under-penetrated.

389
00:28:47,140 --> 00:28:51,690
I mean,if you take Europe,for example,you have greater population than the United

390
00:28:51,690 --> 00:28:52,180
States.

391
00:28:52,180 --> 00:28:56,300
You have an economy that's about the same size,yet you have half the number of

392
00:28:56,300 --> 00:28:56,830
PCs.

393
00:28:56,830 --> 00:29:04,590
You also have lower productivity,and I think it has something to do with the use of

394
00:29:04,590 --> 00:29:09,550
information technology.

395
00:29:09,550 --> 00:29:12,780
L: Thank you for coming and congratulations on your great success.

396
00:29:12,780 --> 00:29:18,430
For the entrepreneurs among us,can you tell us,based on your not so good times,

397
00:29:18,430 --> 00:29:24,510
some of the things to avoid,and the learnings you've gotten from those?

398
00:29:24,510 --> 00:29:30,540
B: Well,let's see.

399
00:29:30,540 --> 00:29:38,770
It's probably be easier to talk about specific situations than generalizations,but,you

400
00:29:38,770 --> 00:29:47,500
know,we've had situations where we grew too fast,you know,there was a time when

401
00:29:47,500 --> 00:29:51,250
I thought there wasn't such a thing as growing too fast,but we grew too fast and it

402
00:29:51,250 --> 00:29:56,310
created a huge,you know massive problems for us..

403
00:29:56,310 --> 00:29:59,730
You know,I think when you're starting a business,you have to be willing to

404
00:29:59,730 --> 00:30:04,340
experiment a tremendous amount,you know,and hone in on something that really

405
00:30:04,340 --> 00:30:08,170
works,and,you know,create something unique.

406
00:30:08,170 --> 00:30:12,600
It's¡K.you know,there aren't a lot of successful businesses,or really successful

407
00:30:12,600 --> 00:30:19,180
businesses that were created by trying to copy somebody else.

408
00:30:19,180 --> 00:30:22,950
So if you want to have a huge home-run,you've got to find something that is an

409
00:30:22,950 --> 00:30:30,530
unmet need,that is totally unique in its value and what it offers.

410
00:30:30,530 --> 00:30:32,870
You've got to be willing to take risks.

411
00:30:32,870 --> 00:30:38,570
I think one of the dangers of what's going on in today's economy is we're seeing a bit

412
00:30:38,570 --> 00:30:48,860
of¡Ka bit of,you know,the fear of failure come into play,and the kind of backlash

413
00:30:48,990 --> 00:30:55,080
from all the excesses of the last few years,and,you know that migrates into a,you

414
00:30:55,080 --> 00:31:01,360
know,where people are just so afraid to take a risk ¡K.that would be a huge,you now,

415
00:31:01,360 --> 00:31:08,650
impairment to the creation of new companies in this country and beyond.

416
00:31:08,650 --> 00:31:10,190
Yeah?

417
00:31:10,190 --> 00:31:15,270
M: I'm curious about your opinion of the HP-Compaq merger,and if that has

418
00:31:15,270 --> 00:31:21,310
accelerated your move into storage in your relationship with EMC.

419
00:31:21,310 --> 00:31:33,920
B: Well,I voted for the merger.

420
00:31:33,920 --> 00:31:39,110
No,I'm just kidding. I didn't have any shares,but if I did I would have voted for the

421
00:31:39,110 --> 00:31:40,250
merger.

422
00:31:40,250 --> 00:31:45,380
You know,these mergers are very hard to do,and it's created a lot of opportunity for

423
00:31:45,380 --> 00:31:45,870
us.

424
00:31:47,250 --> 00:31:50,460
You know...there's no question about that.

425
00:31:53,420 --> 00:31:57,740
It's a hard thing to combine companies and achieve success.

426
00:31:57,740 --> 00:32:04,450
I'm not a big fan of financial engineering or conglomeratization as a strategy for

427
00:32:04,450 --> 00:32:05,710
growth.

428
00:32:05,710 --> 00:32:08,940
You know our growth has been ....the vast majority of it's been organic growth and

429
00:32:08,940 --> 00:32:13,910
internal growth,and I think at Dell we have something very special in our culture that

430
00:32:13,910 --> 00:32:20,590
has been created,and I,as the founder of the company,think part of my job is to

431
00:32:20,590 --> 00:32:29,480
protect that and nurture it,and I think you have to be very careful when you undertake

432
00:32:29,480 --> 00:32:31,940
massive changes like this.

433
00:32:31,940 --> 00:32:37,720
There are a lot of companies out there that are,you know,struggling for....how do you,

434
00:32:37,720 --> 00:32:39,220
how do you deal with these changes?

435
00:32:39,220 --> 00:32:48,970
And sometimes the strategy emerges,you know,to go through a big combination,and,

436
00:32:48,970 --> 00:32:55,330
you know,the history of that does not point to a whole lot of success.

437
00:32:55,330 --> 00:32:59,430
But certainly they're a very viable competitor,they're a very strong competitor,and we

438
00:32:59,430 --> 00:33:07,700
have to,you know,compete with them every day.

439
00:33:07,700 --> 00:33:12,580
N: Hello. What information or what evidence do you have that consumers are ready to

440
00:33:12,580 --> 00:33:19,280
purchase their lucrative printer supplies two,three days in advance rather than running out

441
00:33:19,280 --> 00:33:23,390
to Comp USA  whenever their ink runs out?

442
00:33:23,390 --> 00:33:32,420
B: That's not our strategy

443
00:33:32,420 --> 00:33:36,180
Nice try,though.

444
00:33:36,180 --> 00:33:40,890
O: Looking some years ahead,what do you think will be the biggest threatens for your

445
00:33:40,890 --> 00:33:45,070
business,in terms of either technology - there's a big demand and someone will  start

446
00:33:45,070 --> 00:33:49,330
investing in more commoditizable machines,like e-machines,the low-cost machines -

447
00:33:49,330 --> 00:33:54,820
and also in terms of business model,which you said,it's very well studied,your model,and

448
00:33:54,820 --> 00:33:59,100
someone one day will come up with a similar model that will be much of the same,

449
00:33:59,100 --> 00:34:03,380
but ...and what will you do to avoid threatening your business?

450
00:34:03,380 --> 00:34:05,340
B:  I think there are always threats.

451
00:34:05,340 --> 00:34:13,170
I mean,certainly you could have a threat of companies,you know,out-Delling Dell,you

452
00:34:13,170 --> 00:34:16,150
know,with our business model.

453
00:34:16,150 --> 00:34:19,130
That has not presented itself so much.

454
00:34:19,130 --> 00:34:22,170
You know,a bigger threat would be somebody that came up with something more efficient

455
00:34:22,170 --> 00:34:24,560
than Dell,and challenged Dell.

456
00:34:24,560 --> 00:34:31,000
We saw some attempt at that with the subsidized,free PC or e-machines.

457
00:34:31,000 --> 00:34:33,520
Those turned out to be more mirages because they weren't really efficient; they were just,

458
00:34:35,480 --> 00:34:42,450
you know,lots...ways to lose money very quickly. You know,that's not a strategy.

459
00:34:42,450 --> 00:34:48,840
We have to be on the lookout for these new things,whether they're new technologies,you

460
00:34:48,840 --> 00:34:52,780
know,network-based computing models,you know,new forms of technology that

461
00:34:52,780 --> 00:35:02,190
dramatically change the cost paradigm for the product,you know,global competitors

462
00:35:02,190 --> 00:35:07,850
encroaching on certain parts of the value chain.

463
00:35:07,850 --> 00:35:14,190
You know,we're in a tug of war also with our suppliers for the profit pool,and then

464
00:35:14,190 --> 00:35:17,830
ultimately,we also have to worry about ourselves.

465
00:35:17,830 --> 00:35:25,370
You know,we are ...our own organization has to develop and grow,or else it becomes a big

466
00:35:25,370 --> 00:35:28,580
competitor to our success.

467
00:35:28,580 --> 00:35:32,160
So we worry about those things all the time.

468
00:35:32,160 --> 00:35:36,290
We were really worried about the Internet,and that motivated us to ...you know,there was a

469
00:35:36,290 --> 00:35:42,030
real risk that people would use the Internet to disintermediate Dell from its customers and

470
00:35:42,030 --> 00:35:46,240
we jumped all over that and said,"No,we want to be....we want Dell.com to be the place

471
00:35:46,240 --> 00:35:48,870
people go to buy computers."

472
00:35:48,870 --> 00:35:53,190
And that,you know,worked very,very well,and we put a tremendous amount of energy

473
00:35:53,190 --> 00:36:01,070
into that,and,you know,that threat didn't really materialize.

474
00:36:01,070 --> 00:36:01,900
P: Hi,Michael.

475
00:36:01,900 --> 00:36:04,290
My question is about career.

476
00:36:04,290 --> 00:36:10,580
Most of us are here for a short period of time and are either facing some big decisions either

477
00:36:10,580 --> 00:36:12,090
now or soon.

478
00:36:12,090 --> 00:36:16,680
So,thinking about your experience and what made you successful,do you have any advice

479
00:36:16,680 --> 00:36:21,880
as to how we should a) spend the rest of our time here,and perhaps more importantly,as we

480
00:36:21,880 --> 00:36:26,730
consider making some big decisions,any advice on how we should go about making those

481
00:36:26,730 --> 00:36:29,250
decisions.

482
00:36:29,250 --> 00:36:34,590
B: Well,you know,probably the only career advice that I can offer is to find something that

483
00:36:34,590 --> 00:36:35,950
you love doing.

484
00:36:35,950 --> 00:36:41,050
You know,I found what I loved doing when I was 19 years old,and I've been doing it ever

485
00:36:41,050 --> 00:36:46,160
since,and that's been a wonderful,wonderful thing for me.

486
00:36:46,160 --> 00:36:50,340
And I find a lot of people are still searching for what they love to do and haven't quite found

487
00:36:50,340 --> 00:36:56,470
it,and it takes,sometimes,people a long,long time to find that.

488
00:36:56,470 --> 00:37:01,310
You know,don't do something because somebody else told you to do it. Find something you

489
00:37:01,310 --> 00:37:06,460
really love doing,you really enjoy doing,and I think that's a lot more important than

490
00:37:06,460 --> 00:37:11,080
anything else.

491
00:37:11,080 --> 00:37:12,120
Q: Hi,Michael.

492
00:37:12,120 --> 00:37:13,640
I have a question here.

493
00:37:13,640 --> 00:37:18,640
Right now Dell is probably the most known brand in the United States,but looking back in

494
00:37:18,640 --> 00:37:23,990
history when you'd just started your game,this is a totally new approach.

495
00:37:23,990 --> 00:37:26,360
It's directly different from all your competitors.

496
00:37:26,360 --> 00:37:29,610
How do you convince the customer this is the right way to go?

497
00:37:29,610 --> 00:37:35,290
How do you go to the customer and tell them this is the thing they want to do?

498
00:37:35,290 --> 00:37:39,030
B: You have to build a business like this,you know,incrementally.

499
00:37:39,030 --> 00:37:45,710
I can remember lots of meeting in the '80s,you know in the mid to late '80s,where,you

500
00:37:45,710 --> 00:37:48,930
know,marketing guys would come in and say,"Oh,we have to advertise on television.

501
00:37:48,930 --> 00:37:52,430
"We have to do this stuff so that we'll build the brand,you know,we can't succeed if we

502
00:37:52,430 --> 00:37:55,480
don't build the brand here,and spend money here,and this n' that."

503
00:37:55,480 --> 00:38:00,270
And,you know,in one sense,yes they're right,yeah,you can spend money and build the

504
00:38:00,730 --> 00:38:07,050
brand,but you can also spend money ahead of your ability to underwrite that activity and

505
00:38:07,050 --> 00:38:08,430
you've bought a business,right?

506
00:38:08,430 --> 00:38:16,880
So,we built our brand gradually with,you know,the success of the business,and by

507
00:38:16,880 --> 00:38:21,880
delivering great products,and a lot of our advertising is very transactional.

508
00:38:21,880 --> 00:38:27,990
It's a pretty simple formula: call buy now.

509
00:38:27,990 --> 00:38:31,120
And a lot of our ads have that feel.

510
00:38:31,120 --> 00:38:39,610
Not all of them,but,you know,call go online now and buy,and you know,go online,call,

511
00:38:39,610 --> 00:38:48,440
do whatever you want,so long as you buy,that's right,so you...   so,you know,I think,my

512
00:38:48,440 --> 00:38:54,650
view is that these companies that just,you know,throw a whole bunch of money at

513
00:38:54,650 --> 00:39:02,630
branding,I think that has a lot less sustainability than a gradual build that's based on true,

514
00:39:02,630 --> 00:39:12,760
you know,brand elements: service,value,quality,product leadership,things that are ever

515
00:39:12,760 --> 00:39:21,660
lasting,as opposed to the kind of big bang stuff that doesn't really,you know,isn't really

516
00:39:21,660 --> 00:39:23,800
memorable.

517
00:39:23,800 --> 00:39:30,920
You know,our brand now,hopefully,means something to people.

518
00:39:30,920 --> 00:39:35,390
Two hands (39:29:39:30)

519
00:39:35,390 --> 00:39:43,560
R: Many PC companies view Chinese market as a very potential market 'coz its a market of

520
00:39:43,560 --> 00:39:49,500
10 million units every year with annual growth rate more than 20%,and also I know that

521
00:39:49,500 --> 00:39:58,920
Dell has established its manufacturing and distribution network in China since 1997,but 'til

522
00:39:58,920 --> 00:40:07,140
now it's only got the fourth...the fourth market place. Does it mean Dell model does not

523
00:40:07,140 --> 00:40:13,280
work in China,or does it mean you do not have enough interest in China?

524
00:40:13,280 --> 00:40:17,180
B: It doesn't mean either one of those things.

525
00:40:17,180 --> 00:40:23,050
It means that,you know,we've never seen a country grow faster than Dell China.

526
00:40:23,050 --> 00:40:27,920
It's a very big market,and it's growing very quickly.

527
00:40:27,920 --> 00:40:31,090
You know,let me draw a little bit different comparison.

528
00:40:31,090 --> 00:40:33,040
We have a business in Japan.

529
00:40:33,040 --> 00:40:38,870
It's a very successful business now; we're the number one non-Japanese computer company

530
00:40:38,870 --> 00:40:43,600
in Japan,ok?

531
00:40:43,600 --> 00:40:47,330
Which is pretty good,for Japan,right?

532
00:40:47,330 --> 00:40:50,670
Inaudible comment from audience (40:48-40:49)

533
00:40:50,670 --> 00:40:57,860
Except in business desktop computers,where Dell is number one,and if we're ...if we're

534
00:40:57,860 --> 00:41:03,730
successful,we'll have passed NEC in servers by the end of this year.

535
00:41:03,730 --> 00:41:06,940
We're already number two in servers in Japan.

536
00:41:06,940 --> 00:41:17,230
And,in profits,Dell is number one in Japan.

537
00:41:17,230 --> 00:41:24,000
In fact,in fact,our business in Japan is more profitable than it is in the United States,and

538
00:41:24,000 --> 00:41:29,730
it's ....and it's growing quite nicely,so I think the opportunity for us in markets like China,

539
00:41:29,730 --> 00:41:35,860
like Japan,is,you know,to establish the business model.

540
00:41:35,860 --> 00:41:43,250
China represents about ...almost 50% of the non-Japanese part of the Asian market.

541
00:41:43,250 --> 00:41:48,560
Japan itself is a huge market for us and growing quite nicely.

542
00:41:48,560 --> 00:41:53,440
But those are challenging markets because of,you know,local competitors,and also what I

543
00:41:53,440 --> 00:41:59,890
would characterize as irrational business practices; companies that are willing to sell at a

544
00:41:59,890 --> 00:42:04,300
loss for a long,long time,decades.

545
00:42:04,300 --> 00:42:10,510
My view is that,over time,those companies are gradually moving away from those

546
00:42:10,510 --> 00:42:15,540
business practices and...and saying,you know,"We can't lose money for ever in this

547
00:42:15,540 --> 00:42:17,770
business."

548
00:42:17,770 --> 00:42:22,150
As that occurs,we enjoy even more success in those markets,because we are the low-cost

549
00:42:22,150 --> 00:42:27,410
provider and we have a great business system,but there's plenty of good competition in

550
00:42:27,410 --> 00:42:28,300
those markets.

551
00:42:28,300 --> 00:42:34,980
Legend is a great competitor for us in China.

552
00:42:34,980 --> 00:42:36,690
S: I had a question on innovation.

553
00:42:36,690 --> 00:42:40,980
Dell has traditionally not invested a whole lot of money in R&D innovation in the

554
00:42:40,980 --> 00:42:45,990
technology space. Why is that,and,as a follow-on,where do you see the innovation in the

555
00:42:45,990 --> 00:42:50,370
PC or technology market moving forward happening?

556
00:42:50,370 --> 00:42:55,660
B: Well Dell invests about...close to $500 million dollars a year in R&D.

557
00:42:55,660 --> 00:43:01,300
And we have received close to 800 United States patents.

558
00:43:01,300 --> 00:43:06,050
We've been having patents issued to Dell since the late 1980s.

559
00:43:06,050 --> 00:43:16,210
I think if you look at R&D...let me compare and contrast two companies: Dell and Sun,ok?.

560
00:43:16,210 --> 00:43:26,020
Dell's R&D,both directly spent,and passed through from its vendors,like Intel and Microsoft

561
00:43:26,020 --> 00:43:32,680
has a weighted average of about seven to eight percent of revenues,ok?

562
00:43:32,680 --> 00:43:38,550
Sun's R&D,both what it spends and passed through from its vendors,has a weighted

563
00:43:38,550 --> 00:43:41,290
average of about 16%.

564
00:43:41,290 --> 00:43:46,920
Dell has the highest return on its R&D of any computer systems company in the world.

565
00:43:46,920 --> 00:43:52,000
We spend our R&D on things that add value,and get a return.

566
00:43:52,000 --> 00:43:55,720
After all,that's why you're supposed to spend money.

567
00:43:55,720 --> 00:44:01,840
We don't spend our money protecting proprietary interests and trying to,you know,lock the

568
00:44:01,840 --> 00:44:04,530
customer into things.

569
00:44:04,530 --> 00:44:12,410
And I think there's a real fallacy that exists in this perception of R&D that,you know,all

570
00:44:12,410 --> 00:44:14,730
R&D is good.

571
00:44:14,730 --> 00:44:21,080
The fact is that too much R&D can hurt a company very badly,and we're seeing that now,

572
00:44:21,080 --> 00:44:24,620
with these companies that have cost structures that are way out of whack,and they're trying

573
00:44:24,620 --> 00:44:30,940
to invent everything themselves and,as a result,they're failing,because the customer's not

574
00:44:30,940 --> 00:44:31,960
willing to pay for it.

575
00:44:31,960 --> 00:44:36,150
The customer doesn't value it,and the customer says,"I don't want to be locked into those

576
00:44:36,150 --> 00:44:38,120
things."

577
00:44:38,120 --> 00:44:43,640
So we spend R&D where it makes a difference,and where customers value it.

578
00:44:43,640 --> 00:44:46,930
Very different strategy.

579
00:44:46,930 --> 00:44:50,250
Yeah,who's got the...?

580
00:44:50,250 --> 00:44:51,930
T: Relating back to China.

581
00:44:51,930 --> 00:44:57,030
It was rumored that you were interested in acquiring Legend,and if that is not the case,do

582
00:44:57,030 --> 00:45:01,480
you have...you know,what are your plans to compete directly with them?

583
00:45:01,480 --> 00:45:06,140
B: Well,I hadn't heard that rumor before.

584
00:45:06,140 --> 00:45:12,790
I didn't know they were for sale. I had,you know....all businesses... I'm going to be in China

585
00:45:12,790 --> 00:45:15,420
in another for or five weeks.

586
00:45:15,420 --> 00:45:16,970
We have a great business there.

587
00:45:16,970 --> 00:45:20,590
It's growing much faster than the overall market.

588
00:45:20,590 --> 00:45:23,930
It's,you know...,in servers,we're growing seven times faster than the market.

589
00:45:23,930 --> 00:45:26,650
We have number one share in high-end workstations.

590
00:45:26,650 --> 00:45:29,600
There's been a lot of growth in the enterprise part of the market.

591
00:45:29,600 --> 00:45:33,170
We're implementing the consumer strategy in China.

592
00:45:33,170 --> 00:45:36,670
We have kiosks in the major cities.

593
00:45:36,670 --> 00:45:43,630
So we're growing nicely there...but,you know,we've only been there since '97,'98.

594
00:45:43,630 --> 00:45:47,790
We haven't been there a long long time. Not like the US or the UK,where we've been there

595
00:45:47,790 --> 00:45:51,170
for,you know,18 years,17 years.

596
00:45:51,170 --> 00:45:56,940
So,we're pretty happy with the growth of our business there,and,you know,I think it'll

597
00:45:56,940 --> 00:46:04,260
continue to be organic growth.

598
00:46:04,260 --> 00:46:10,580
Where's the next question?

599
00:46:10,580 --> 00:46:15,830
U: I had a question for you about your interest in the PDA market.

600
00:46:15,830 --> 00:46:19,290
There's been a lot of competition that's sort of come out in the PDA market lately,and

601
00:46:19,290 --> 00:46:23,190
there's been a lot of   rumors of Dell getting involved in that space.

602
00:46:23,190 --> 00:46:25,890
I was wondering about your thoughts are of getting involved there,how you can

603
00:46:25,890 --> 00:46:35,740
incorporate your manufacturing strategies into that,and also if you have any plans to look at

604
00:46:35,740 --> 00:46:39,740
companies to possibly acquire.

605
00:46:39,740 --> 00:46:43,580
B: Well,again,you know,to enter a new product category,you don't have to acquire

606
00:46:43,580 --> 00:46:44,370
companies.

607
00:46:44,370 --> 00:46:54,250
I mean...you guys are beginning to sound like investment bankers... you know you're.

608
00:46:54,250 --> 00:46:54,310
Sorry!

609
00:46:54,310 --> 00:46:56,910
Cheap shot!

610
00:46:56,910 --> 00:46:59,230
But,you know....these investment bankers come in.

611
00:46:59,230 --> 00:46:59,400
"You should buy this.

612
00:46:59,400 --> 00:47:00,130
"You should buy that.

613
00:47:00,130 --> 00:47:01,180
"You should buy this.

614
00:47:01,180 --> 00:47:01,800
You know.

615
00:47:01,800 --> 00:47:13,750
Just 'coz you have $8.6 billion in cash doesn't mean you should buy things.

616
00:47:13,750 --> 00:47:14,760
You know?

617
00:47:14,760 --> 00:47:22,840
You know,we have a saying in Texas: "Nobody ever went broke having too much cash."

618
00:47:22,840 --> 00:47:29,580
The PDA market is,like a lot of these markets,you know,it's still in a fairly developing

619
00:47:29,580 --> 00:47:34,320
stage,you have Palm - you have high market share,its market share is in decline,it's

620
00:47:34,320 --> 00:47:40,960
mostly consumer,you have Pocket PC,growing quite a bit,and then you have,you know,

621
00:47:40,960 --> 00:47:46,520
Blackberry,and you have all these other things,and then the telephone guys getting in the

622
00:47:46,520 --> 00:47:51,320
market with,you know,phones that have new capabilities - so there's lots of different

623
00:47:51,320 --> 00:47:53,710
products out there.

624
00:47:53,710 --> 00:47:59,680
You know,we're starting to believe that Pocket PC is going to be a very big part of the

625
00:47:59,680 --> 00:48:03,190
market. That doesn't mean that all customers will want Pocket PC.

626
00:48:03,190 --> 00:48:04,860
Some will say,"I don't want that; I want Palm."

627
00:48:04,860 --> 00:48:08,420
And others will say,"I want Blackberry,or "I want this or that."

628
00:48:08,420 --> 00:48:15,150
That's fine,but there's probably an opportunity there for us,so we're looking at that,but,

629
00:48:15,150 --> 00:48:20,940
you know,it's not like it's that complicated that you have to go and buy somebody to get into

630
00:48:20,940 --> 00:48:26,870
the market.

631
00:48:26,870 --> 00:48:32,410
V:  Good afternoon,do you think that consumers actually need the level of customization

632
00:48:32,410 --> 00:48:39,660
that you offer them,or just an illusion of it?

633
00:48:39,660 --> 00:48:45,680
B: Do customers really need the level of customization that we offer,or does the illusion of

634
00:48:45,680 --> 00:48:50,870
it,or appearance of it,you know,entice them to buy from Dell?

635
00:48:50,870 --> 00:48:51,670
Well,that's a good question.

636
00:48:51,670 --> 00:49:00,070
We know from our research that customers love the idea that they can configure the PC,

637
00:49:00,070 --> 00:49:03,330
even though what they may be configuring may be very similar to what somebody else

638
00:49:03,330 --> 00:49:03,780
configured.

639
00:49:03,780 --> 00:49:09,050
There's a kind of interaction there that personalizes the experience.

640
00:49:09,050 --> 00:49:13,720
It's also true that the variety of product that we can sell - permutations,combinations - is

641
00:49:13,720 --> 00:49:20,390
much,much greater than other competitors,and there are other advantages certainly from a

642
00:49:20,390 --> 00:49:26,870
supply chain standpoint,in terms of inventory,logistics,and,you know,all the things we've

643
00:49:26,870 --> 00:49:31,300
been able to operationalize.

644
00:49:31,300 --> 00:49:35,240
But,you know,customers clearly prefer the ability to configure product.

645
00:49:35,240 --> 00:49:39,320
Now,remember,only 13% of our sales are to consumers.

646
00:49:39,320 --> 00:49:44,070
The rest of our sales are to businesses,institutions,governments,and there you have a much

647
00:49:44,070 --> 00:49:45,870
higher degree of customization.

648
00:49:45,870 --> 00:49:53,360
For example,a very significant percentage,say about half of our larger customers,we do

649
00:49:53,360 --> 00:49:58,370
some sort of fairly,highly custom activity.

650
00:49:58,370 --> 00:50:03,640
For example,we load software images on the products for them,so,you know,Morgan

651
00:50:03,640 --> 00:50:08,690
Stanley,you know we will take their image,put it on the machine so when it shows up at the

652
00:50:08,690 --> 00:50:10,930
office,they plug it in and away they go.

653
00:50:10,930 --> 00:50:15,280
Or we might put an asset tag on it,or we might load some special software that they wrote,

654
00:50:15,280 --> 00:50:17,980
you know,on the machine.

655
00:50:17,980 --> 00:50:24,290
So there's lots of different forms of customization.

656
00:50:24,290 --> 00:50:32,320
V: Hi. I've got a question about what your opinion is of accounting for options,going

657
00:50:32,320 --> 00:50:36,510
forward,what Dell's position is and,more generally about corporate governance

658
00:50:36,510 --> 00:50:39,720
reforms.that have been talked about recently.

659
00:50:39,720 --> 00:50:41,930
B: Sure,I've heard of that topic.

660
00:50:41,930 --> 00:50:52,040
You know we've been studying this fairly carefully and it's a hard one to come to any clear

661
00:50:52,040 --> 00:50:54,630
conclusions on.

662
00:50:54,630 --> 00:50:59,320
You know,part of the problem if you say,"Well,Hhey it'd be good to expend stock

663
00:50:59,320 --> 00:51:06,650
options," then you have to say,"Well,how do you expense them. What method do you use

664
00:51:06,650 --> 00:51:09,300
to expense them?"

665
00:51:09,300 --> 00:51:14,050
If you take Black-Scholes,Black-Scholes I don't think,was ever intended to price the kind

666
00:51:14,050 --> 00:51:17,410
of options that we issue to employees.

667
00:51:17,410 --> 00:51:21,880
The other issue is that,you know,let's say  you took...you know,Cisco kind of gave this

668
00:51:21,880 --> 00:51:22,530
example.

669
00:51:22,530 --> 00:51:27,700
If you take the options that Cisco issued last year to their employees,they would have a

670
00:51:27,700 --> 00:51:30,930
Black-Scholes value of $3 billion.

671
00:51:30,930 --> 00:51:35,580
So,if it has a five-year vesting schedule,it's $600 million dollars a year for five years.

672
00:51:35,580 --> 00:51:38,170
It goes into the P&L.

673
00:51:38,170 --> 00:51:42,810
However,if you issued those same options this year,at last year's price it would have a

674
00:51:42,810 --> 00:51:46,780
Black-Scholes value of $120 million.

675
00:51:46,780 --> 00:51:47,950
So,which number is right?

676
00:51:47,950 --> 00:51:51,180
Three billion,or 120 million?

677
00:51:51,180 --> 00:51:53,740
And what's the cash effect on the P&L?

678
00:51:53,740 --> 00:51:58,270
The cash effect on the P&L is there is none,because it's a non-cash transaction.

679
00:51:58,270 --> 00:52:03,140
I don't know what the Financial Accounting Standards Board will do as a....riveting group

680
00:52:03,140 --> 00:52:09,180
that they are ...

681
00:52:09,180 --> 00:52:11,480
You ever read the minutes from one of those?

682
00:52:11,480 --> 00:52:21,150
Boy,that's fun stuff,let me...but,you know,let's say they say,"Well,ok,here's how you

683
00:52:21,150 --> 00:52:23,160
should expense your stock options."

684
00:52:23,160 --> 00:52:26,370
If we're required to do that,obviously,we'll do it.

685
00:52:26,370 --> 00:52:30,610
Now,if you're an investor,and you look at Dell and you say,"What's the effect of this on

686
00:52:30,610 --> 00:52:31,980
your company?"

687
00:52:31,980 --> 00:52:37,450
Well,my belief is that most institutions already know what the effect is on Dell.

688
00:52:37,450 --> 00:52:42,440
They can see it in our FAS 123 disclosure.

689
00:52:42,440 --> 00:52:45,240
They know what the dilution of stock options is.

690
00:52:45,240 --> 00:52:52,130
They know that we've repurchased enough stock to offset every option we've issued,and

691
00:52:52,130 --> 00:52:56,650
they know what the cash impact is,which is there is no cash impact.

692
00:52:56,650 --> 00:53:04,560
So it's a complex issue. I don't really know the answer,and I don't know how it's going to

693
00:53:04,560 --> 00:53:05,340
get resolved.

694
00:53:05,340 --> 00:53:10,540
In terms of corporate governance,first of all,I'll tell you I've been fairly disgusted recently

695
00:53:10,540 --> 00:53:16,640
with the problems and disclosures that have come out recently from a number of companies

696
00:53:16,640 --> 00:53:24,820
and individuals,some of whom I've met,in the past...I don't necessarily know them that

697
00:53:24,820 --> 00:53:32,010
well,but you look at this and you say,"Well it's really horrible that people did that,you

698
00:53:32,010 --> 00:53:37,070
know,inside companies that you used to trust.

699
00:53:37,070 --> 00:53:42,800
As far as our own company,you know,we're a NASDAQ company but we comply with

700
00:53:42,800 --> 00:53:47,030
both the NASDAQ and the New York Stock Exchange guidelines.

701
00:53:47,030 --> 00:53:50,130
The only change that we had to make that was of any magnitude was that we elected a lead

702
00:53:50,130 --> 00:53:50,520
director.

703
00:53:50,520 --> 00:53:53,180
Senator Sam Nunn is our lead director.

704
00:53:53,180 --> 00:53:56,350
We only have one person on the board who works at the company.

705
00:53:56,350 --> 00:53:58,670
That's me.

706
00:53:58,670 --> 00:54:04,530
I think it's ok for me to be on the board.

707
00:54:04,530 --> 00:54:06,930
And,you know,other than that,there aren't a whole lot of changes.

708
00:54:06,930 --> 00:54:10,850
Our business is fairly transparent.

709
00:54:10,850 --> 00:54:15,310
One of the things that I've seen is,you know,even though your business is transparent,it

710
00:54:15,310 --> 00:54:19,680
doesn't mean people always look at the information.

711
00:54:19,680 --> 00:54:27,280
More and more people are starting to read the disclosures,but you know occasionally we'll

712
00:54:27,280 --> 00:54:30,540
have a meeting and somebody will say,"Well I didn't know that this went on at your

713
00:54:30,540 --> 00:54:37,370
company,or that you had this at your company," and it's been in the disclosures for years

714
00:54:37,370 --> 00:54:40,410
and years and years.

715
00:54:40,410 --> 00:54:48,100
The difference now is that people are starting to read the disclosures.

716
00:54:48,100 --> 00:54:50,680
Who's got another question?

717
00:54:50,680 --> 00:54:52,190
Whoever's closest to the microphone.

718
00:54:52,190 --> 00:54:55,680
Go for it.

719
00:54:55,680 --> 00:55:00,240
W: Taking a totally different direction,there's been a  lot of discussion about the future of

720
00:55:00,240 --> 00:55:06,480
PCs,and to pick off of one of the previous questions,what's it going to take to get past,to

721
00:55:06,480 --> 00:55:13,600
get a higher penetration? Many have suggested that ...really need to turn the PC in to...truly

722
00:55:13,600 --> 00:55:19,430
an appliance,something that has the complexity more akin to a toaster or a blender than the

723
00:55:19,430 --> 00:55:25,680
current model,and,in that sort of scenario,your big decisions would be to decided whether

724
00:55:25,680 --> 00:55:30,170
to have a mahogany version or one in brush stainless.

725
00:55:30,170 --> 00:55:36,910
Do you see that happening,and,if so,in what sort of time frame might it?

726
00:55:36,910 --> 00:55:42,980
B: Well,first of all,you now,we come at this from the sort of standpoint that we've set our

727
00:55:42,980 --> 00:55:47,990
business system up where we intend to grow even if the market doesn't grow.

728
00:55:47,990 --> 00:55:53,580
Having said that,you know,our whole industry kind of has a responsibility to make the

729
00:55:53,580 --> 00:55:58,180
product more exciting,make customers more productive,and that's the only way you're

730
00:55:58,180 --> 00:56:00,720
going to get growth from the industry.

731
00:56:00,720 --> 00:56:06,030
You know,I think you've certainly had a lot of companies that are suffering from

732
00:56:06,030 --> 00:56:12,040
indigestion of,you know,too much technology,and not enough,you know,capital,and

733
00:56:12,040 --> 00:56:14,720
they're kind of reeling from the challenges of the past.

734
00:56:14,720 --> 00:56:16,850
You've got a lot of kind of old machines out there now.

735
00:56:16,850 --> 00:56:22,300
Of the 500 plus million computers that are out there,probably 190 million of them now are

736
00:56:22,300 --> 00:56:28,170
over three years old,and as you get more bandwidth,as you get new applications,new

737
00:56:28,170 --> 00:56:32,080
capability,more and more of those users are going to say "Hey,I want to have a new

738
00:56:32,080 --> 00:56:34,720
computer because I want to have some productivity."

739
00:56:34,720 --> 00:56:39,800
When you think about ....let's assume for the sake of argument that somebody who uses a

740
00:56:39,800 --> 00:56:48,940
computer on average costs a corporation,including salary,benefits,labor,facilities,

741
00:56:48,940 --> 00:56:52,540
everything,$50,000 dollars a year,ok?

742
00:56:52,540 --> 00:56:55,580
That number may be low,but let's just say it's $50,000 dollars a year,ok?.

743
00:56:55,580 --> 00:57:01,200
So,$150,000 dollars over three years of money that a corporation spends to cause

744
00:57:01,200 --> 00:57:06,500
somebody to come to work to produce erg units of productivity,ok?

745
00:57:06,500 --> 00:57:12,510
The company fundamentally has a choice: does it give that employee a calculator,a "Big

746
00:57:12,510 --> 00:57:15,850
Chief," tablet,a Dell Pentium 4,you know?

747
00:57:15,850 --> 00:57:18,480
What are the various options that you can do?

748
00:57:18,480 --> 00:57:23,340
And,if a computer costs twelve or fifteen hundred dollars,compared to the $150,000 dollar

749
00:57:23,340 --> 00:57:28,700
investment,over three years,I think companies,you know,if we can continue to increase

750
00:57:28,700 --> 00:57:35,230
productivity,are going to keep deploying those devices,and that's our responsibility as an

751
00:57:35,230 --> 00:57:37,600
industry; we've got to make them more productive.

752
00:57:37,600 --> 00:57:40,020
There's a huge move to wireless.

753
00:57:40,020 --> 00:57:47,070
There's big under-penetration in a lot of markets outside the US,and,you know,there's still

754
00:57:47,070 --> 00:57:52,730
a lot of companies that haven't integrated,you know,with their suppliers or customers,as

755
00:57:52,730 --> 00:57:58,010
we have in our business,so I think there's,I think there's enormous opportunity that will

756
00:57:58,010 --> 00:58:03,190
come in,and,eventually,a lot of those machines that were installed prior to the year 2000

757
00:58:03,190 --> 00:58:08,270
will get upgraded.

758
00:58:08,270 --> 00:58:11,360
W: So do you see yourself doing something like Apple,like choose you color capabilities,

759
00:58:11,360 --> 00:58:15,770
to your one,part of one manufacturing process,I mean things so ideally suited?

760
00:58:15,770 --> 00:58:21,750
B: Yeah,we do that.

761
00:58:21,750 --> 00:58:28,430
You can have notebooks and you can choose your colors with the dress pads and the,you

762
00:58:28,430 --> 00:58:29,110
know,we have different colors and color selections,and school colors,and all kinds of stuff

763
00:58:29,110 --> 00:58:31,130
like that.

764
00:58:31,130 --> 00:58:35,760
That's fairly popular in the consumer,consumer world,and easy to do in a built to order

765
00:58:35,760 --> 00:58:40,440
model.

766
00:58:40,440 --> 00:58:42,470
X: Hi,Michael.

767
00:58:42,470 --> 00:58:46,290
If you were to identify one personal trait that's been instrumental to your success,what

768
00:58:46,290 --> 00:58:49,120
would it be?

769
00:58:49,120 --> 00:58:53,760
B: Curiosity,and maybe resourcefulness.

770
00:58:53,760 --> 00:59:00,220
I asked a lot of questions.

771
00:59:00,220 --> 00:59:05,660
Y: I was just wondering,like I'm interested in your comments on the HP-Compaq merger.

772
00:59:05,660 --> 00:59:08,310
B: Comments on the HP-Compaq merger.

773
00:59:08,310 --> 00:59:21,930
So far,I like it.

774
00:59:21,930 --> 00:59:28,510
Z: Michael,talking about.Wall Street and the financial markets,you were talking about

775
00:59:28,510 --> 00:59:33,570
certain things that you like to do and how do you see the company going forward.

776
00:59:33,570 --> 00:59:39,180
Do you feel that what other people - especially analysts from Wall Street - see,does that

777
00:59:39,180 --> 00:59:39,910
restrain you?

778
00:59:39,910 --> 00:59:40,800
Is that a good check?

779
00:59:40,800 --> 00:59:44,700
How do you see this relationship playing out?

780
00:59:44,700 --> 00:59:49,350
B: No,I don't see it restraining us,I mean,you know,a really good financial analyst is a

781
00:59:49,350 --> 00:59:53,770
great,you know,person for us to talk to because they know a lot about our business,and

782
00:59:53,770 --> 00:59:58,200
they look at it from a different perspective and can ask intelligent questions and I learn a lot

783
00:59:58,200 --> 01:00:03,010
from their questions,just as I've learned a lot from you guys,as you've come with different

784
01:00:03,010 --> 01:00:11,270
questions and different approaches,and the annoying thing,quite frankly about some of the

785
01:00:11,270 --> 01:00:15,760
analyst meetings is that you go to the analyst meeting and 80% of the questions are,in some

786
01:00:15,760 --> 01:00:21,680
way or another,"What are the earnings going to be this quarter?"

787
01:00:21,680 --> 01:00:22,360
You know?

788
01:00:22,360 --> 01:00:26,080
And that goes on for four or five hours,and then you leave.

789
01:00:26,080 --> 01:00:36,370
And that...that seems to me to be a complete waste of time,you know?.

790
01:00:36,370 --> 01:00:40,810
AA: You mentioned earlier about the need for the industry to sort of invent new,compelling

791
01:00:40,810 --> 01:00:46,120
devices to help spur the growth,and I know Intel recently has kind of put forth this notion

792
01:00:46,120 --> 01:00:48,220
of convergence,along with some other people.

793
01:00:48,220 --> 01:00:54,530
I was interested to get your personal opinion on that,and also,sort of what's Dell's strategy

794
01:00:54,530 --> 01:01:04,150
is towards making some...that vision or maybe some other vision,moving forward.

795
01:01:04,150 --> 01:01:09,450
B: I'm not a big believer that we're all going to have one device that aggregates all

796
01:01:09,450 --> 01:01:10,120
functionality.

797
01:01:10,120 --> 01:01:14,140
I think that,you know,there's no question that,in the home,the PC is becoming the center

798
01:01:14,140 --> 01:01:19,160
of the entertainment experience,and certainly,in the dorm room,that's definitely

799
01:01:19,160 --> 01:01:20,060
happening.

800
01:01:20,060 --> 01:01:21,780
You have a limited amount of space.

801
01:01:21,780 --> 01:01:23,230
You have broadband connections.

802
01:01:23,230 --> 01:01:27,010
You know,it's music,its video,DVDs,the whole thing.

803
01:01:27,010 --> 01:01:34,270
But I think you're more likely to have the data distributed out,you know,wirelessly,in an

804
01:01:34,270 --> 01:01:39,680
802.11 kind've system,you know,kind of system to many,many different kinds of devices

805
01:01:39,680 --> 01:01:46,220
that are able to interact with it,as opposed to just one device,but if you take the TiVo replay

806
01:01:46,220 --> 01:01:51,170
functionality - we talked about this earlier - it's very,very easy to put a TV tuner

807
01:01:51,170 --> 01:01:58,020
capability and software stack on a next-generation Dell product,get a broadband

808
01:01:58,020 --> 01:02:00,560
connection coming in,and all of a sudden,you're capturing exactly the content you want,

809
01:02:00,560 --> 01:02:06,610
using it in exactly the way you want,and you might even,you know,be able to share it with

810
01:02:06,610 --> 01:02:09,180
your friends.

811
01:02:09,180 --> 01:02:16,460
But,maybe you won't,depending on,you know,what happens with the Motion Picture

812
01:02:16,460 --> 01:02:20,120
Association of America.

813
01:02:20,120 --> 01:02:23,490
BB: A quick question actually going back the one about the number of computers going

814
01:02:23,490 --> 01:02:25,010
through every year.

815
01:02:25,010 --> 01:02:27,530
You mentioned 500 million computers out there.

816
01:02:27,530 --> 01:02:31,840
What is Dell doing to change the design to promote recycling and the reuse of those

817
01:02:31,840 --> 01:02:35,580
computers so that they're not going into landfills?

818
01:02:35,580 --> 01:02:37,600
B: We've actually done a whole lot.

819
01:02:37,600 --> 01:02:44,320
In fact we were the first company to come up with chassis that were completely recyclable,

820
01:02:44,320 --> 01:02:50,140
and we've put in place a lot of processes for customers to be able to recycle their machines,

821
01:02:50,140 --> 01:02:55,910
so,any of who have Dell computers,or in fact any other computer,and you want to recycle

822
01:02:55,910 --> 01:03:00,830
it in an environmentally safe way,go to Dell.com/environment,and you've got a very easy

823
01:03:00,830 --> 01:03:08,420
way for you to get your machine into a recycling center that is safe and environmentally

824
01:03:08,420 --> 01:03:10,430
friendly.

825
01:03:10,430 --> 01:03:18,590
We're also working on a service where we will in effect pre-sell recycling as customers buy

826
01:03:18,590 --> 01:03:19,810
machines.

827
01:03:19,810 --> 01:03:23,740
One of the challenges with this is that not many customers are very interested in this right

828
01:03:23,740 --> 01:03:24,480
now.

829
01:03:24,480 --> 01:03:31,020
You know,we're working with some of the larger customers,and you know,they're actually

830
01:03:31,020 --> 01:03:35,930
quite concerned with it because of the questions of liability,not to mention just,you know,

831
01:03:35,930 --> 01:03:40,710
if you assume that there's 130 million new computers sold every year,presumably

832
01:03:40,710 --> 01:03:43,750
something like that also come out.

833
01:03:43,750 --> 01:03:45,110
Well,where do they all go?

834
01:03:45,110 --> 01:03:45,880
What happens to them?

835
01:03:45,880 --> 01:03:50,690
And what's the impact on the ecosystem of all that,that stuff.

836
01:03:50,690 --> 01:03:54,840
So you know,we've thought quite a bit about this. If you want more information,go to the

837
01:03:54,840 --> 01:03:58,360
website,there's a lot there.

838
01:03:58,360 --> 01:04:03,950
I would also tell you that if you look other industries,like televisions,dishwashers,cars,

839
01:04:03,950 --> 01:04:12,500
etcetera,there's not a lot that has happened,at least in this country,around this.

840
01:04:12,500 --> 01:04:20,020
There are other countries that have been more active in really forcing customers and

841
01:04:20,020 --> 01:04:21,630
manufacturers to do things.

842
01:04:21,630 --> 01:04:25,780
The products that we make here in this country comply with the toughest standards in the

843
01:04:25,780 --> 01:04:34,930
world for environmental content and recycling,but there aren't a lot of laws today that force

844
01:04:34,930 --> 01:04:38,900
that to happen.

845
01:04:38,900 --> 01:04:40,980
Thank you.

846
01:04:40,980 --> 01:04:41,740
Thank you.

847
01:04:41,740 --> 01:04:42,920
Thank you very much.

848
01:04:42,920 --> 01:04:45,890
Thank you.

849
01:04:45,890 --> 01:04:46,890
That was fun.

850
01:04:46,890 --> 01:04:47,540
OK.

851
01:04:47,540 --> 01:04:53,140
Thanks very much.

852
01:04:53,140 --> 01:04:55,090
Thanks very much. ENDS

853
00:00:00,000 --> 00:00:00,000


854
00:00:00,000 --> 00:00:00,000