"There weren't too many people interested in going," says Matter, 52, a high school wrestling coach who bought Dell shares in 1996 and has recommended the stock to former students. "It's been rough the last year." After a run as the best-performing stock of the 1990s, Dell shares plunged 66 percent in 2000, their worst showing since the PC maker went public in 1988. They're still 62 percent below their high, closing at US$22.32 yesterday, even after the company said that fiscal third-quarter sales and earnings will meet predictions.
Dell has cut profit or sales forecasts seven times since January of last year and missed them once. In August, it reported a US$101 million loss, only its second quarterly deficit and the first since 1993.
Just as Dell passed Compaq Computer Corp for the first time in worldwide PC sales, Hewlett-Packard Co swooped in. On Sept. 4, the Palo Alto, California, computer maker headed by CEO Carly Fiorina agreed to buy Compaq in a deal now valued at US$17.3 billion in stock.
The combined company would take back the title of No. 1 PC maker based on second-quarter data compiled by market researcher IDC. Dell shipped 3.98 million PCs during the period, while Hewlett-Packard and Compaq jointly shipped 5.66 million.
Trouble is, the PC market is in its worst slump since monitor screens were green on black. Second-quarter sales industry wide fell for the first time in 15 years. IDC had predicted that third-quarter sales would rise slightly from the second quarter.
Now, the terrorist attacks in New York and Washington will cause shipments to fall in the third quarter and to decline more than expected for the year, IDC says. Chief Executive Michael Dell, 36, doesn't see a rebound until at least the middle of next year.
Recession strategy
Dell, seated in a sparse conference room that belies his company's US$58 billion market value, says he has a plan to skirt the slowdown. He's adapting the build-to-order, buy-on-the- Internet strategy that anchors his PC business to the more profitable business of building servers, the computers that run networks, databases and Web sites.
PC margins have slipped to less than 10 percent in the past year, while margins on some of the biggest servers can be as high as 40 percent, according to IDC.
He's having some success. In the second quarter, Dell tied Compaq as the biggest US server seller, with 29 percent of the market. Dell's server sales rose 15 percent, while Compaq's fell 26 percent. Worldwide, Dell has grabbed 18 percent market share -- up from nothing five years ago, when Dell built only PCs.
"There's no reason why we can't grow to 25 or 35 percent market share," Michael Dell says of his server strategy. "The opportunity's there." Rivals Compaq, IBM and Sun Microsystems Inc say there are plenty of reasons it won't be easy for Dell. First, a bulked-up Hewlett-Packard would take the US server crown back from Dell. Combined second-quarter server shipments by Hewlett-Packard and Compaq were 125,738, outpacing Dell's 99,000, according to Gartner Inc's Dataquest unit.
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