Want CNET to notify you of price drops and the latest stories?

Is Dell's winning streak in jeopardy?

newsmaker CEO Kevin Rollins' long run of good fortune faces the biggest test yet. Still, he says, "I wouldn't go run (HP)." Photos: Inside Dell's Austin assembly plant

John G. Spooner Staff Writer, CNET News.com
John Spooner
covers the PC market, chips and automotive technology.
John G. Spooner
9 min read
When it comes to pushing the right buttons, Dell CEO Kevin Rollins arguably has racked up the best record of any computer executive this side of Steve Jobs.

The former Bain management consultant, who came on board at Dell in 1996, received kudos for the way he handled day-to-day operations at the technology maker even before his appointment as CEO in July.

Under his stewardship, Dell has racked up impressive growth records. It raced past rival Hewlett-Packard even after the company consumed Compaq Computer to become the world's largest supplier of PCs.

His Midas touch has extended beyond personal computers and servers to printers--a fledgling business that is in the black after only a few quarters of operation.

But Rollins will be hard-pressed to maintain Dell's winning streak as the company continues to diversify its business. For instance, Rollins wants to drive prices of big-screen digital televisions down to under $1,000, which would bring Dell into fiercer competition with consumer electronics giants such as Sony and Samsung. He admits most of that equation is out of Dell's hands and rests instead with screen makers.

Also, Dell's growth may be eventually hindered by a relatively limited talent pool. It's a concern that gives Rollins pause. Still, there are a few more future opportunities for Dell that Rollins has his eye on, including digital cameras and smart phones.

CNET News.com editors and reporters recently visited Rollins at Dell's Round Rock, Texas, headquarters to learn more about what's on his mind these days.

Q: What's the outlook for Dell's business?
A: The outlook for the PC industry does not really describe our business as well as it used to. But for the PC business at large, which is still the core of what we do...we are seeing good, constant growth, quarter after quarter, as corporations once again start to buy.

And your consumer business?
The consumer products piece is kind of a second-tier activity. It's sexy to talk about, but doesn't generate a lot of revenue and profits for the company. So financially and strategically, we think about it in a different bucket than we do the other pieces of the business.

Will that ever change?
I don't think it will, for a couple of reasons. If you look at all of the very best consumer electronics companies on the planet, they are all doing terrible. They don't make any money. The only kind of recent successful new product in that category is the iPod, and no one else has been able to match that. So the industry is fundamentally challenged.

Customer service has been a challenge.
Secondly, you are seeing a new wave of consumer electronics that are taking on PC componentry. That's suggesting we are going from a proprietary realm towards PC componentry, which is going to put a real strain on all of those companies. It looks like a tough darn place to make a lot of money.

So why does Dell bother with consumer electronics products?
Because we're in the PC business. So for us, (consumer electronics) looks like a wonderful place. We buy the most flat-panel monitors on the planet, so adding a tuner--which is not very expensive--and building flat-panel (television) products is a natural product extension for us.

Are there opportunities for Dell in the smart phone or hybrid PDA-cellular handset market?
We think there's a convergence (coming) eventually, but we're still not convinced that there is an opportunity for Dell there. So we are just waiting to see.

What's the issue? Does it have to do with working with network providers?
No. The big hang-up, again, is profit. Where is the money made? Selling $199 products is very, very difficult to make a lot of money on, versus $1,000 or $2,000 PCs--or $50,000 server clusters. Secondly, there are a lot of great companies who are just gorillas in that market already, like Nokia, Motorola and Ericsson.

How long are new Dell products allowed to exist before they have to be profitable?
We haven't set a hard and fast (rule), but we insist that before we get in...we have a road to profitability. We have a pretty low tolerance for losing money. So I would say kind of between one and two years, but not any longer than that.

Can you give us an assessment of how televisions are doing?
As everybody knows, the TV market really was disappointing all of last year. It just didn't take off, and I think it was because prices were too high.

What was the goal behind adding plasma-screen TVs?
We think that now we're ready to take that next step, which is in a few more models of TVs. But we're not going to do 61-inch; we're not going to DLP (a type of TV that uses a digital light projector chip to put the image on screen); we are not launching all of the categories of TV that we could. We'll see how it goes, step by step. The good news is our financial results are really not dependent on whether the TV works or not.

We have a pretty low tolerance for losing money.

What would make it successful?
First, I want the prices to come down. I think the key success factor is not how many sizes (Dell offers). I think (it's), "Can we get the 42-inch (plasma TV) product down below $1,000?"

How can you do that?
I think the (screen) manufacturers just need the size, the volume and the time to do it...Those prices will start to move down in the same way that now you can get a flat-panel monitor for $300. Those used to be $2,000.

What about other consumer electronics products Dell could offer?
Well, right now, I do not think there is a ton. We are trying to stay very close to the PC. The (digital) camera, at some point, might make sense. But I am not trying to announce one. For the time being, I think printing and imaging associated with that, color--both inkjet and laser--is really the big push. We will continue to broaden that product line...and (add) a few more televisions.

Convergence (in smart phones), we don't believe has happened yet, so we don't think that's a near-term product.

How have Dell printers turned out so far?
So far, they have really surpassed our expectations. After one year, we're an established brand (with) the ability to make money. We were surprised on all of those dimensions.

When did it become profitable?
In about the second quarter, we started to get closer to breakeven and so we said, "Wow. We did not anticipate this. Double down. Go get more aggressive." Then it popped up to breakeven or (making) a little money. It has just continued to exceed--not massively, but modestly--our expectations, and we really haven't lost any money on it.

So what took Dell so long to get into printers?
We have a lot of fish to fry.

How hard would it be to accept Advanced Micro Devices as a major new chip supplier?
The bigger problem is the complexity that it throws into the (PC or server) product line. We would have to have a separate R&D group to do those products, and that would have to be sequestered from the Intel team. That adds inefficiency right off the bat.

What about offering a Dell-AMD game PC, for example? It would have high margins and play to a specific and enthusiastic audience?
We have looked at that, and maybe at some point we will. The gaming market is kind of nice and high-margin. But it's very, very, very small.

What if you wanted to make a statement?
To make a statement for who is the question? To rub it in Intel's nose? No. It would be because we want to make some money.

Are you getting a lot of customer feedback from people interested in AMD's Opteron?
We're not getting an overwhelming customer surge that says, "Dang it, I won't buy unless you get them." There are some who say that but, again, it's not very large.

So what's your advice to AMD?
Just keep doing what they're doing. They're in a tough game, but I think they're doing better lately than they've ever done before.

Microsoft has also made a lot of missteps in the past 18 months and also a lot of security flaws. How has that impacted Dell?
I don't think it has impacted us in a major way. We have to sell our product anyway, and most people have not waited (for new software). I think we want to always keep those (software) cycles going, but they are not as big they were back in the '90s.

Security is also a growing concern.
Absolutely. It's a huge concern for customers, and Microsoft knows this. They've got security written all over their foreheads up in Redmond now. They have got the message. We have recently launched a spyware, security software package that we want to get more customers on. We think the best defense for (customers) is not to complain about Microsoft, it's to get the latest software capability in virus protection and spyware protection.

How's Dell doing on customer service these days?
Customer service has been a challenge, but I think if you watch the scores now, we have hit the trough, and that's now coming back up. The whole company is focused on the customer experience, first and foremost. So we think we've got that one now under control.

What is next for Dell in terms of expansion? A new manufacturing plant?
We will announce, in the next month or two, new capacity here in the U.S. In the next few years, we are going to need new capacity in Europe and Asia, too...because we don't outsource our manufacturing. Those will be desktop and server factories and notebook factories.

Why not be like others and build products overseas?
Well, we don't operate the way everybody else does. We haven't outsourced our manufacturing. We still own it, and that's because our model requires that we own the value chain. We have to know where our suppliers are, where customers are, and we have to integrate those for just-in-time delivery.

We will announce, in the next month or two, new capacity here in the U.S.

The issue has become one of logistics. The cost of moving a PC around is much more expensive than the labor cost (of building one), and so we locate close to customers.

Now that you're CEO, what are some of the things that you think Dell needs to do?
(Former CEO) Michael (Dell) and I have been running the company (together) for a long time, so in July when I became CEO, it was really not like, "Ah, now I can get to do those things that I've wanted to do."

Are there things you think Dell needs to do better?
Well, one of the things we have been doing is changing and maturing our culture. The Dell model is fantastic. Our ability to add products and capability globally is great. But the restrainer has been--and will be--people. In the last two years, that's been a focal point for Michael: getting the talent engine running as well as getting the cultural engine running.

What about competitors? HP isn't growing as fast as Dell. Why is it falling behind?
Everybody says they're doing wonderful...with a fantastic turnaround.

Do you agree with that assessment?
No. I agree they took a lot of costs out, but I don't think they strategically moved the needle on the company's strengths.

What's your recipe for HP success? I don't know that there is a recipe that can turn it around. I wouldn't go there first off. I wouldn't go run that one. I look at the standpoint of profitability--I don't care about how much cost they took out; I don't care about how well they integrated. What was making money beforehand is what makes money now, and the same businesses that were struggling before the integration are still struggling. So I ask: What has changed?