At a Time When PC Growth Has Been Declining for the First Time in Western Europe, Paul

Dell Europe Managing Its Supply Chain
Financial Times; London; Nov 9, 2001; Daniel, Caroline;

At a time when PC growth has been declining for the first time in western Europe, Paul Bell, who heads the European operations of US computer company Dell, is surprisingly upbeat. "We are assuming relatively slow growth in the industry for next year, but continued fast growth for Dell," he says. Mr Bell's confidence is based not just on internal forecasts. A report from Gartner Dataquest, a technology research group, found that PC sales in western Europe fell 11 per cent during the third quarter, compared with the same period a year ago.

Even so, of the top five vendors only Dell achieved any growth over the period. It grew at 5.6 per cent, compared with a fall of 18.8 per cent for Compaq - the leader in Europe - and a fall of 23.9 per cent for Fujitsu Siemens. Moreover, Dell has grabbed market share. It is now within three percentage points of overtaking Compaq in Europe, which has more than 11 per cent of the market, according to Gartner Dataquest. Part of that gain has come after Dell kicked off a price war. In February it cut some portable PC prices by 26 per cent. Mr Bell, however, shies away from crude talk of a price war. Not surprisingly, as a former management consultant from Bain, where he helped mould the Dell strategy, he prefers to credit Dell's business model. Dell's ability to cut prices is helped by selling direct to customers. More than half its European sales are sold online, helping efficiency.

More important is the way Dell manages its supply chain. "Low inventory is critical to our cost advantage. Component costs have been reducing at a rate of about 1 per cent a week, and that is still continuing," says Mr Bell. Dell carries about one week's worth of stock, compared with rivals' three to four weeks, with up to a further month's worth of inventory stuck in partners' sales channels. "So we maybe have six weeks' advantage of buying components at lower prices," says Mr Bell. The growth has helped drive revenues in Europe, Middle East and Africa to about $6.4bn last year, about one-fifth of Dell's revenues globally.

Dell employs about 8,700 in the region, more than half in Ireland, where Dell has a factory and call centre. But Dell is unsatisfied. "We are number one in the world, but have only 13 per cent of the market after year-on-year of aggressive growth .…Michael Dell [the company's founder] has stated he wants 40 per cent market share worldwide, so we are not going to ease off."

To achieve that, Mr Bell estimates Dell must more than double its market share in Europe. "At a minimum we are aiming for 25 per cent. It will take several years to get there," he said.

Dell could benefit from rivals' problems. Gateway is exiting the European market. IBM has pulled back from retail PCs, and the potential merger of Compaq and Hewlett Packard could create opportunities. Even so, Brian Gammage, an analyst at Gartner, said: "Without changing the business model, Dell's target is unrealistic. The rate of growth is dependent on the rate of changing the business buying culture." Dell has already cornered about half of the direct sales business in Europe, Mr Gammage says, "so the propensity to grow is limited by the overall size of the direct market".

The challenge is that companies in continental Europe have been slow to embrace the direct sales model. While more than 50 per cent of businesses buy direct in the UK, only about 27 per cent do so in Germany, and 17 per cent in Italy. "Dell's Anglo-Saxon model has mapped most readily to the UK and Australia. But Dell could find it can't colonise the world without taking on the cultural peculiarities of these continental European countries," says Mr Gammage. The company ranks first in the UK for PC sales and fifth in France. It is now risen from seventh to fourth in Germany, after a series of setbacks. "We had lots of fits and starts in the 1990s in Germany. We had never really got a management team in place schooled in the Dell model. It was not progressing because it was not delivering the Dell model," says Mr Bell. Dell is also pinning its hopes of growth on the sale of less commoditised products, such as servers and networking equipment, conscious that a continuous price war on desktop PCs will destroy margins.

"We need to keep the financial health strong by diversifying . . . Our job is not to stake our future on the big grey desktop," says Mr Bell. "We are looking to double storage revenues across the EMEA next year."

Success in these product areas will be crucial, especially as Mr Bell rules out a sudden rebound in demand for PCs. "Now the US has stabilised. It is too soon to call recovery, but it looks like we have found the bottom. In Europe I don't honestly know if it will go down any further or stabilise like the US," he says.

Dell Europe moves up a gear as PC industry declines: Direct sales and low inventories have enabled the computer manufacturer to buck the recession, says Caroline Daniel:
Financial Times; London; Nov 9, 2001; Daniel, Caroline;