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Dell's Rollins: Unfazed by iPod, IBM

CEO sees little cause for concern from Apple's "one-product wonder" and Big Blue's "waving the white flag."

    Dell CEO Kevin Rollins is just now starting to step out of Michael Dell's shadow and into the limelight.

    It has been six months since Rollins took the reins at the PC giant after its namesake founder stepped aside as chief executive. In that short span, IBM has more or less bowed out of the PC business ("waving the white flag," Rollins said), Hewlett-Packard has realigned its PC business, and Apple Computer has reignited public attention with budget-minded Macs and iPods.

    Rollins says he is comfortable being the public face of Dell but claims he has no ego or need for fame. When asked if he wants to become part of the tech billionaire group occupied by the likes of Microsoft Chairman Bill Gates and Dell, he says: "That's a unique group. I don't even aspire to that."

    So what makes Rollins tick? Outside of Dell he is a classically trained violinist who plays in public several times a year. He races motocross motorbikes and likes to go skiing. He's also a keen fan of history books who has taken a recent interest in the founding fathers of the United States and likes to read about political leadership in times of crisis--not a phenomenon that can be applied to his situation at Dell, a company that continues to consistently outperform the rest of the market and beat analyst expectations.

    We caught up with Rollins last week, on a visit to Dell's enormous sprawling headquarters just outside Austin in Round Rock, Texas. A breezy, youthful-looking Rollins, sporting a casual open-necked shirt and a pair of modern black-rimmed "new media" glasses, fielded questions in a plush wood-paneled executive meeting room.

    We asked about his views on everything from the Chinese technology market to Apple and the iPod to the Republican Party.

    Q: Your current target is to double the size of the company from $30 billion to $60 billion. But is there a limit on the size of Dell? And how big do you see Dell becoming? Do you have a vision of a $100 billion company?
    A: We have not launched publicly what is the next step. What I can tell you is that I have not found the end. We own 18 percent of just the PC business. Now that's only about 60 percent of our business today. But if you look at that business alone, at 18 percent is it conceivable to double the size of that business? Yes, 36 percent market share is not irrational. That would take us this year from $50 billion to $100 billion. Now will we do it? I don't know. It's very hard to do, but it's not irrational.

    What would stop you achieving that? Where are the weaknesses?
    The weakness in the company is if we fail to execute. What we learned several years ago was that one of our weaknesses would be if we didn't develop enough people with the know-how to run our company, it would come to the point where we would just stop. There would not be enough talent that's educated, developed and ready to take on the next leadership challenge, and it would cap our growth. Now we've put programs in place not to have that happen, but that could be a weakness.

    The iPod has been out for three years, and it's only this past year it's become a raging success. Well, those things that become fads rage, and then they drop off.
    After the IBM-Lenovo deal, how much room do you think there is for further consolidation in the PC market?
    I think the economics of our competitors--the fact that no one else is making any money--is going to drive the consolidation. IBM reported in the last three years that they lost $1.1 billion in their PC business. That's the reason they got out. I don't know who (else) will get out, but I do believe we will see continued consolidation. You cannot have companies where many of the largest ones lose money indefinitely without someone finally waving the white flag, and IBM is the most recent example of that.

    Do you think the HP-Compaq merger has been a success? And if not, why not?
    Well, you would have to say what is the criteria to determine the success of any merger? It would have to be that the companies are stronger financially, that they took market share, and they are on a very steady footing in terms of their performance. I think you have to ask yourself the question of whether those criteria occurred in the case of the HP-Compaq merger. I think they've done a nice job of trying to integrate the companies, but they are in a very, very tough industry, and at just about the time they got the thing integrated and took all the cost out, they were right back in the situation where they don't make very much money.

    Would you consider growth by acquisition a strategy for Dell? Will you be a consolidator?
    I think not, and the reason is our organic growth has been very good, somewhere between 17 and 20 percent each quarter. And our size: The company this year is going to be close to $50 billion, so if that's the case and you can continue to grow that fast, I would rather put my energies to solving customer problems and growing our business than worrying about integrating and laying people off.

    Will China surpass the United States as the dominant technology nation?
    In the market it probably could; there's so many people there. Obviously I'm an American, so I'm going to feel pretty strongly about the U.S. being able to keep its competitive edge. But there are a vast number of people who are very educated, very talented who will compete aggressively. Now, for Dell that doesn't have much of an impact because we're going to compete everywhere, but that's more of a country-to-country competition.

    How important do you think the role of consumer electronics is to Dell's business?
    Consumer electronics is a challenging one. It's very interesting. Everyone wants to talk about it, and right now music, flat-panel televisions, a whole host of new handheld devices are fun to talk about and very exciting to look at. Our mindset always says it's not how big the market is but how profitable it can be as the key determiner of whether or not we want to be in it.

    I think right now the jury is out on where and how much profit is available in the consumer electronics industry, because if you look at the current consumer electronics players, the biggest ones on the planet struggle to make profit consistently. If they can't make it being very large, sophisticated, entrenched players, what will it look like now that everyone else is getting into this business? It might make it very, very tough.

    (AMD's) technology in many areas was leading. But those are transient.
    Do you resent the amount of publicity Apple gets given its market share?
    Apple's created a niche. If you look at the grand scheme of things, this quarter we are supposed to achieve something like $13.5 billion in revenue. Apple's in the $2.4 billion (region), so the size and scale is not even in the same league. But what they do they do very well, and they've had great success with the iPod. It's interesting: The iPod has been out for three years, and it's only this past year it's become a raging success.

    Well, those things that become fads rage, and then they drop off. When I was growing up there was a product made by Sony called the Sony Walkman--a rage, everyone had to have one. Well, you don't hear about the Walkman anymore. I believe that one-product wonders come and go. You have to have sustainable business models, sustainable strategy. But don't read that as any sort of disparagement of Apple. They've done a nice job.

    What's your take on Apple's new Mac Mini? Will it have any effect on the PC market?
    It looks like an interesting new product. It might take some here and there, but Apple's market share in the global computer business has really shrunk pretty far, and where they've been making success recently is not in the computer business but in the iPod music business. So this might be an interesting new product, but I don't really believe this is going to turn the industry upside down.

    You've dropped hints about Advanced Micro Devices over the past few months. Can we expect to see a partnership with AMD this year?
    I don't know. I'm the one who made many of the bold comments that we'd seen the technologies from AMD as pretty good. Their technology in many areas was leading. But those are transient. You have one quarter (when) one company is ahead, and the next quarter someone else is ahead, so we just made a statement of what we saw at the time. Intel's still our main partner. We have not announced anything with AMD and don't have anything planned, but we're constantly being aware to make sure our customers get the best technology. And when the customers demand technology we move and adopt it. And right now since we're focused mostly on corporations they are not demanding it.

    Are you Republican or Democrat?
    I actually give to both sides, but I am probably leaning more towards the Republican side. I believe that because predominantly I am an open market individual--I don't believe in closed markets and I was starting to fear that maybe with the challenges President Bush has his competitors would close the U.S. market down and be protectionist and weren't going to foster growth and open trade the way we need to do in this country.

    Dell was one of largest corporate donors to the tsunami relief effort. What role do corporations have to play in these types of situations?
    We're just very proud that we could even help. We think we have a responsibility. And I think it's important for all of us in the Western world to realize that we've all been blessed a lot and if you go to these parts they don't have a lot, even before the tsunami. I think we all personally need to do that, and if companies can they should help too.

    How does that sit with the shareholder ethic?
    We used some amount of shareholder money, but we've asked our employees to give too...So it's a joint effort. Our shareholders look on that and they say that's fair, we'll give in some. I think they are proud of what we have done, and I know our board of directors is.  

    Andy McCue of Silicon.com reported from Round Rock, Texas, where he traveled as a guest of Dell.