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February 27, 1997updated 05 Sep 2016 12:31pm

DELL SHOWS IT CAN GIVE COMPAQ A RUN FOR ITS MONEY

By CBR Staff Writer

With a superb set of year-end figures (CI No 3,108), Dell Computer Corp is turning itself into a very worth rival indeed for fellow Texan Compaq Computer Corp. Commenting on the figures, chairman Michael Dell said he expected server sales to continue their rapid growth, and that, compared to the third quarter, server sales jumped 76% in the fourth quarter of fiscal 1997, which ended February 2, and now made up 6% of total revenue. I think the server momentum is going to continue. We’re going to continue to be very aggressive in servers. This is a major area of share gain for us, he said. Dell is not interested in the bargain basement end of the market, dismissing Compaq’s $1,000 computer as being like the car with no tires. If you read the press release, you have to get down to the fifth page and it finally tells it doesn’t include a monitor. Small detail, he said, adding that the Compaq machine could end up producing more Dell customers. If they bring more first time buyers into the market, it helps us because the second time they buy, they’re more likely to go direct.

German sales climbed 48%

He said that Dell was unlikely to try to match the low-priced Compaq. We play more at the higher end and mid-range. The lower end is not really a major space for us, Dell said. Overall, the company says it believes the outlook for growth in the overall computer systems market continues to be robust, with rich opportunities for continued success. In Europe, the company says a surge led by its German and French units sparked European sales to rise 36% to $2bn – but so many others are doing so badly that Dell’s success seems to be much more at the expense of less well- positioned rivals than an earnest that there is much health in the market. Nevertheless, Dell has nothing to complain about: fourth-quarter European sales jumped 34% to $618m as German sales climbed 48% – where Compaq had a rotten year – and French sales rose 62% compared to the year-earlier quarter. Dell did not break out more specific results by country. Over the past 18 months, the company has reorganized its German and French units to focus on large business. European sales represented 25% of Dell’s worldwide revenue, the Americas generated 69%, or $5.35bn, while Asia provided a mere 6%, or $465m. In the fourth quarter, notebook sales rose 84% worldwide, and desktop computer sales increased 61% worldwide. Gross margin declined slightly from the third quarter to 21.7%, but the company says the drop in gross margin was more than offset by lower operating expenses, which declined a full point to a record low of 11.3%, so that operating margin in the fourth quarter increased to 10.4%, reflecting Dell’s success in managing both gross margin and operating expenses together to deliver steady, sustainable results over time. Like Compaq, Dell continued to focus on tight asset management, and it closed the fourth quarter with just 13 days of inventory, equivalent to 28 inventory turns a year. For fiscal 1998 – which starts rather earlier for Dell than for most companies, it says its objective is to take advantage of the substantial momentum it has generated by continuing to extend the capabilities of uts business model, with the Internet, value-added services and the workstation market presenting significant opportunities for the company.

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