(FORTUNE Magazine) – Eight months ago, when we last checked in on Michael Dell ("Michael Dell Turns the PC World Inside Out," Sept. 8, 1997), he was 32 years old and worth $4.3 billion. Today he's 33 years old and worth $7 billion.

His company, Dell Computer, is a runaway money train. Measured by growth in sales, profits, market share, or, of course, stock price, Dell seems to defy conventional logic. Over the past three years, sales have climbed from $3.4 billion to $12.3 billion (that's 53% compound annual growth). Profits are up from $140 million to $944 million (that's 89% annual growth). Dell is growing more than twice as fast as any competitor, and its worldwide PC market share has doubled. Never mind merely comparing it with other boxmakers. Among the FORTUNE 500, Dell ranks No. 7 in return on stockholders' equity--ahead of Coca-Cola, Intel, and Microsoft. It is the only FORTUNE 500 company that has increased sales and earnings by more than 40% a year in each of the past three years.

Then there's the stock. Ah, the stock! Over the past three years, it's up more than 26 times. In fact, Dell is the top-performing big-company stock of the '90s. With about 18 months to go, it stands a good chance of being crowned stock of the decade, as in the best-performing stock of the S&P 500. Since 1990, this sucker's already risen 29,600%! (For those of you who like to check the math, the split-adjusted share price went from 23 cents to $68.)

After a run like that, the easy money in Dell has been made, right? That's what folks keep saying. That's what they were saying eight months ago. Those folks will be right someday, of course. In its 14-year history, Dell Computer has screwed up plenty: It made an unsuccessful foray into retailing, it started product lines that flopped, it built crummy computers and failed to support customers who had the bad luck to purchase them, and its management for years seemed out of its depth.

But today, naysaying seems wrong-headed. In the first quarter of 1998, Dell did it again: Buoyed by anticipation of strong sales and profits, the stock shot up another 61%. Dell's competitive position seems stronger than ever. It's not just that Dell is reshaping its industry by selling made-to-order computers directly to customers, thus bypassing the middlemen and their markups. It's that Dell is leading this revolution with a run of execution and innovation that no competitor has matched. It is more focused than any rival on speedily manufacturing and delivering inexpensive top-quality machines. At the same time, Dell is helping to define Internet commerce--the company is on track to sell over $1 billion on its Website this year--and perhaps even the future of commerce in general. "Think about it," says money manager Graham Tanaka, with a trace of awe in his voice. "Going directly to customers. Eliminating the middleman. Selling over the Internet. Wouldn't a Chrysler like to do that? Wouldn't everyone want to do business like that?"

Perhaps. But not everyone has a CEO like Michael Dell, who is looking less and less like a computer nerd and more and more like an awesome manager and competitor. The more time you spend with him--as beige as he may be--the more you realize how singular and impressive he is. And how impervious he is to the pressures of running a multibillion-dollar phenomenon.

On an April morning in a packed-to-capacity ballroom at Manhattan's Pierre hotel, Dell is addressing 270 Wall Street analysts, many poised with cell phones as they listen for the slightest equivocation. If they hear something they don't like, they'll punch up their clients or traders and urge them to dump the stock. Dell pitches them coolly, without notes, answering every question from the technical to the arcane. It's an impressive performance, especially when you realize that he is one of the youngest people there. The analysts' verdict comes in at the end of the trading day: Dell's stock is up almost $2 a share.

For that, Wall Street breathes a sigh of relief. Over the past six months, nearly every bellwether tech company--Intel, Motorola, Oracle, Compaq--has announced that results would disappoint. The market's response has been swift and unforgiving, with each stock blowing up. The mood among investors seems to be, "Who's next in tech?" After all, corporate profits may be flagging. And Asia's troubles may hit hard. And, hey, a sane investor might ask, "Aren't PC sales slowing down?"

Back in Austin, Texas, Dell sighs and gives one of his little Dell grins. "Every spring the analysts say PC growth is slowing to below 10%," he begins. "In the fall they get too excited and say it's growing 20%. By year-end they get realistic and move the estimate to 15%, which is where it usually ends up. That doesn't much matter to us anyway, because we're looking to grow at a multiple of that rate."

Dell will tell you that his company's growth is the sum of many little things done right. That's in tune with how he thinks: he segments the business into discrete parts to focus his plans of action. So in an effort to answer the question on every investor's mind ("Isn't Dell due for a fall?"), we segmented his business as well. Whether you look at how Michael Dell makes war on competitors, how he's expanding the company overseas, or how he seduces Wall Street, he seems to be making all the right moves.

WINNING THE PC WARS

Making PCs has been, is, and will continue to be a nasty business. It's a business in which competitors cut prices literally every week, where the product you make is obsolete just months after you make it, where customers choose between your boxes and essentially similar boxes made by a slew of rivals. Right now, the market is choosing Dell's. He seems to have the kind of three-yards-and-a-cloud-of-dust game plan it takes to win.

Two years ago, Peter Mojica moved to Charlotte, N.C., to take a job as an IT manager for First Union's capital markets group. The job was great, except for one major problem: the bank's PCs. The unit generates nearly 20% of the bank's profits, and to ensure that kind of performance, traders need top-of-the-line equipment. "For us, having the right technology is do or die," says Mojica. "We need to have 50 PCs available at any given time for delivery within 24 hours. But our resellers were never able to provide us with that." When Mojica arrived, the unit depended on some 2,500 PCs and 75 Windows NT servers, a mix of various generations of Compaqs and DECs. That meant Mojica had to stock and install a mishmash of peripherals and software. "And just imagine networking those babies," he says.

Another bugaboo was taking delivery and installing new machines. "UPS would deliver the PC," he says, "and a purchasing guy would open the box, pull out the machine, tag it, power it up, and program its electronic address. Then he would put the PC back in the box and store it in a holding station. Later another guy would take the PC out of the box again, load in our software, and stick it back in the box. Then it would go to someone's desk to be installed. If we were doing this in an office outside of Charlotte, we'd have to send a guy there for two days. Can you believe how much money we were throwing out the window?"

Mojica called Dell. "They were priced below the other guys, and Dell could tag and address the machines and load our software in its factory," he says. "That alone saves us $500,000 a year." Mojica has now cleaned out the Compaqs and DECs and replaced them with Dell PCs. Next comes a rollout of Dell machines in the Asian offices that First Union picked up in its recent acquisition of CoreStates. Like the U.S. machines, the Asian PCs will come fully loaded according to Mojica's specs, only these babies will be made in Dell's plant in Malaysia.

Dell has dozens of these stories. Such as last fall, when it shipped 2,000 PCs and 4,000 servers loaded with proprietary and multimedia software to 2,000 Wal-Mart stores in six weeks--just in time for the Christmas season. Or last October, when it delivered eight customized, fully loaded PowerEdge servers to Nasdaq in a New York minute (36 hours actually) so the exchange could handle higher trading volume during the Asian crises.

Still, with its 6% market share worldwide, Dell is only the third-largest PC maker--behind Compaq and IBM, with Hewlett-Packard breathing down its neck. And in the corporate market, which accounts for the majority of Dell's sales, the appeal of dealing directly with a manufacturer is not universal. Some customers prefer working with intermediaries that can offer extra service. Mike Kwatinetz of DMG is the ax of Dell analysts and a raging Dell bull, but even he says resellers have a role to play: "The reseller may be a local company or may specialize in providing PCs to a certain industry. And some companies want to deal with more than one PC maker." Nevertheless, for now, Dell Computer seems to be in a pretty comfortable spot. Here's a precis of where each of its competitors stands:

Compaq. The world's leading PC manufacturer, with market share of 12%, just keeps on growing--albeit not as quickly as Dell. Selling almost exclusively through resellers, Compaq offers a full line of machines, from low-margin, sub-$1,000 PCs to high-margin workstations and servers that can cost hundreds of thousands of dollars. Driven by CEO Eckhard Pfeiffer, the company is clearly the powerhouse of the computer industry.

But Compaq faces big challenges. It overestimated demand and must now get rid of an inventory hairball. It is trying to start building computers to order, a la Dell, but it must do so without alienating resellers--no small matter! Its biggest challenge is to assimilate Digital, which it is buying for $9.6 billion. Bringing DEC's 50,000-plus employees into Compaq's win-at-all-costs culture will be anything but easy.

That's why Dell--who calls Compaq "the boys down in Houston"--and his employees aren't exactly quaking. "Compaq wants to be a full-service company like Unisys, the old DEC, or IBM," says vice chairman Kevin Rollins, one of many top executives who have become way rich working at Dell (see box). "How appealing are those models?" Right now, not that appealing. Compaq's stock is down 18% year to date.

IBM. Under Lou Gerstner's heralded leadership, IBM has extended its reach as a full-service technology provider, offering consulting and support that appeal particularly to small and midsized businesses lacking an in-house IT department. Like Compaq, IBM operates in a different business category from Dell's: They're not just PC makers; they're "computer solutions" companies.

That's just fine with Dell. Big Blue may be "back," but it has lost more PC market share this decade than any other top competitor, with its slice of the market falling from 14% to 9%. Like Compaq, IBM has recently tried to respond to Dell's inroads by making more PCs to order. Compaq is trying to maximize profits by customizing the machines in its factories--a plan that squeezes resellers. IBM, on the other hand, is increasingly putting resellers in charge of custom assembly--which means less value-added business for IBM. Neither way of doing business has the simplicity or efficiency of Dell's.

Hewlett-Packard. "HP is a strong competitor," Michael Dell admits in a rare tip of the hat. "They have a presence because of their printers. Their name is very good. And they're trusted by companies." Over the past three years, HP's market share has zipped upward right along with Dell's. And the future looks bright: HP is co-designing the next-generation Merced chip with Intel, so it will presumably be on the cutting edge of PC technology for years to come.

Execs at the two companies treat one another to the invective Dell and Compaq used to trade before Compaq moved into IBM's tier. Says Michael Dell: "HP just lost Rick Belluzzo [the heir apparent to CEO Lew Platt left to run Silicon Graphics]. He was their main guy. That's the big HP story right now."

HP marketing director Jim McDonnell admits that "Dell is a galvanizing force" in the industry. But that's all he'll grant. "Dell has nothing on us in the ability to deal with global accounts. Our resellers deliver to a major account within 12 to 24 hours.

Our data show that Dell's average shipping time is 7 to 14 days. Try it," he adds. "Buy a Dell. See how long it takes you to get one. I guarantee it will take at least a week. If it doesn't, I'll pay for it." (We're taking him up on the offer, and we'll let you know the outcome in the next issue.)

There are other significant competitors, including Gateway 2000 and Packard Bell/NEC. But none has the heft of the top four manufacturers, and none has anything close to Dell's momentum.

To really understand Dell's eye-popping numbers, you have to consider how fully it exploits the model of selling custom-made machines directly to buyers. First, Dell has no finished-goods inventory. Second, it ships machines with the latest high-margin components. Almost every computer Dell makes now is a Pentium II machine. Third, unlike manufacturers that use resellers, Dell has nothing but direct contact with its customers. If customers start requesting an 8.4-gigabyte drive, Dell knows immediately. Fourth, selling directly means that Dell isn't getting paid by resellers; it's getting paid by the likes of Boeing, Ford, and Shell Oil. Not surprisingly, Dell receivables have a great credit rating--higher, in fact, than Dell itself! Consumers and small businesses pay for their orders by credit card, which means Dell has its money in the bank before the motherboard meets the chassis. No wonder Dell has a cash-conversion cycle--the difference between the time it pays its creditors and the time it takes to get paid--of negative eight days.

For Michael Dell, that's what business is all about--milking every edge he has. He now wants to measure parts inventory in hours instead of days. "Seven days doesn't sound like much inventory, but 168 hours does," he says. "In a business where inventory depreciates by 1% per week, inventory is risk. A few years ago no one in this business realized what an incredible opportunity managing inventory was." In 1993, Dell had $2.6 billion in sales and $342 million of inventory. At the end of last year it had $12.3 billion in sales and $233 million of inventory. By comparison, Gateway 2000, which also sells directly, had $6.3 billion of sales and $249 million of inventory.

DELL INTERNATIONAL: IT WORKS

It's 7 A.M. on a recent morning at a Dell telecenter in Bray, Ireland, where hundreds of employees, many in extra-smart attire, are lined up outside the cafeteria to meet the CEO. At 7:45, Michael Dell arrives and wanders through the canteen mingling with the staff. At 8:30 everyone files into an auditorium. When Dell strides onto the stage, he receives a standing ovation from the employees, who enjoy the same company stock plan as their brethren in the U.S. Beaming, Dell looks over the crowd. "Gee, I wish I got a reception like this every day I go to work," he says.

The enthusiasm in Bray speaks to Dell's success in overturning a significant image problem for the company. For years, Dell doubters offered a standard line that went like this: Selling directly was a very nice idea for the U.S. But Dell could never become a global power. Dell could never sell PCs directly to customers overseas. There were no 800 numbers abroad. Resellers were too strong in those markets. The cultural barriers would be too great. Hearing this today, Jan Gesmar-Larsen, the lanky Dane who runs Dell Europe, shakes his head and chuckles. "That's totally wrong," he says. "The proof is in the numbers."

Last year 31%, or $3.8 billion, of Dell's sales came from abroad. That would place Dell International, if it were an independent company, at No. 384 on the FORTUNE 500, just below Southwest Airlines. In Europe, Dell's sales are climbing 50% annually. In Britain, where the company has been on the ground for a decade, Dell has a 12% market share, trailing only Compaq. In Asia, sales were up 70% last year, albeit from a much smaller base. "Would have been up more," reports vice chairman Mort Topfer, "if not for the Asian flu."

How does Dell sell overseas? Just as it does in the U.S. Hundreds of Dell sales reps court large international accounts such as Deutsche Bank, Michelin, and Sony. U.S. customers like First Union want Dell PCs in their foreign offices. And while it's true that 800 lines are in their infancy overseas, Dell has things arranged so that customers all over the world can dial toll-free to one of six call centers in Europe and Asia. A customer in Lisbon, for instance, makes a local call that is automatically forwarded to Dell's center in Montpellier, France, where he is connected to a Portuguese-speaking sales rep.

Dell still uses some resellers overseas, particularly in Asia, where the regulatory environment or traditional business practices can make direct selling difficult. "But it's changing," says Topfer, "and of course there's the Internet, the ultimate direct-sales channel." The fastest-growing segment of Dell's international effort is Internet sales. The company now sells $5 million a week on the Net in Europe and is ramping up fast in Asia.

Dell assembles its European PCs in Limerick, Ireland--in an old Atari factory--and its Asian PCs in Penang, Malaysia. (By the end of this year the company will have added another plant in Ireland and a new one in China--the next huge PC market, says Dell.) As in Austin, the overseas plants are close to suppliers such as Intel; Maxtor, a hard-drive maker; and Selectron, a motherboard manufacturer, which ship parts just-in-time. For a while, the Limerick plant actually had less inventory than its Austin parent. "That's the thing," says Dick Kennedy, the proud manager of the Limerick plant. "When we bring ideas over from Austin, Michael expects us to do it 15% better."

Be they in Limerick or Austin, Dell's plants are a remarkable balance between the cost-saving efficiencies of mass production and the value-added process of customization. It's as if Henry Ford had said, "You can have your car in any color you want. Really." An order form follows each PC across the factory floor, starting from when the machine is nothing more than a metal chassis. Drives, chips, and boards are added according to the customer's request. At one spot, partly assembled PCs roll up to an operator standing before a tall steel rack with drawers full of components. (Like an automat, it's restocked from the other side.) Little red and green lights flash next to the drawers containing parts the worker must install. When he's done, the machine glides on down the line.

That kind of efficiency is what attracted David Benaron, head of information technology at Woolwich, a British bank with $64 billion in assets. The Woolwich, as it is known, was a 100% IBM shop, or "true blue," until Benaron started asking questions. "I wanted to know what our reseller's markup was on our PCs and servers," he recalls, sitting in his office in Bexleyheath in Kent. "He wouldn't tell us." So when Benaron next needed a bunch of PCs--300 of them--he invited Dell to make a bid. The price quoted was better than anything the reseller could offer on the IBM machines. Benaron gave Dell a shot. "And the machines ran just fine," he says.

Last summer, Benaron decided the bank needed a computer overhaul. He wanted to purchase 2,700 Pentium II PCs and 800 servers. Dell was in the competition. "At first it was between Dell, IBM, and HP, but IBM dropped out because it couldn't match the price," says Benaron. The HP and Dell bids were nearly identical, he says, except for one critical detail. The HP reseller would only ship the order to the bank's headquarters, whereas Dell would deliver ready-to-boot machines to each of its 450 branches. At no added cost. "That was the clincher," says Benaron, who estimates Woolwich saved over $750,000 by going with Dell. Oh, by the way: Benaron just got a nice promotion.

Still, Dell has nowhere near the presence overseas that it has in the U.S. HP's McDonnell says that for every Woolwich story Dell points to, he can offer examples of HP wins. HP gets some 55% of its PC sales from overseas, almost twice Dell's share. Even so, McDonnell admits to taking Dell very seriously. And which competitor do Dell people fear? "No one," says Adrian Weekes, head of Dell's U.K. corporate accounts. "We fear no one."

WAY UP ON WALL STREET

In the past few years, Dell shareholders have been treated to an exhilarating but nerve-racking experience. Every time the stock rises another ten points, any sane shareholder must wonder: "Isn't it time to sell this stock?"

Imagine the questions that must swirl through the head of Scott Schoelzel, a fund manager at Janus in Denver. Schoelzel keeps watch over his firm's 23 million shares of Dell, now worth about $1.5 billion! That's one of the two or three largest Dell holdings on the Street. Needless to say, Schoelzel watches Dell like a hawk. For now, he likes Dell as much as ever.

"I remember meeting Michael on one of his early road shows," Schoelzel says. "Back then, Dell seemed just like any other boxmaker." Eventually, Schoelzel became a true believer, and as they say in his business, backed up the truck and bought millions of shares, some at a split-adjusted cost in the teens. "I realized Dell was a whole new way of doing business," says Schoelzel. "Michael may not be as animated as Gates. But the more time you spend with him, the more you realize that he is completely focused on the customer and his model."

Actually, there is a third constituency Dell completely focuses on: Wall Street. "Dell management really knows what the Street wants," says Schoelzel. "They are great communicators." Wall Street likes simple. Dell keeps its story very simple, as in "We sell custom-made computers directly to our customers." Compare that with the complicated stories Compaq or IBM must walk analysts through. Wall Street likes stock buybacks. Dell has bought back some $1.5 billion over the past three years. Wall Street likes consistency. Dell offers explosive growth consistently, posting record numbers 17 out of the past 18 quarters, and usually beating analysts' estimates. Not surprisingly, Dell's P/E has climbed from ten to 34. Wall Street also likes managers it can count on. So over the past few years, Michael Dell has turned himself into a manager Wall Street can count on.

Five years ago his company hit the wall. It was growing out of control, had a crummy line of notebooks, and had made a disastrous foray into retailing. With foresight rare for the young founder of a company, Dell learned from the experience, bringing in top managers like Topfer and CFO Tom Meredith. The execs actually put a governor on growth, and they now watch business units and factories closely as they grow, to ensure they remain manageable. When Europe gets too big for one manager, for example, it will be divided into northern and southern zones; if the growth continues, two more regions will be segmented off.

For long-standing bulls like analysts Kwatinetz, Mary Meeker at Morgan Stanley, and Rick Schutte at Goldman Sachs, covering Dell has become, well, a little boring. "I sound like a broken record," sighs Meeker during the recent meeting at the Pierre. "The beat goes on." Says Kwatinetz, who figures he has raised his earnings estimates on Dell perhaps 40 times: "I can understand why you might not buy a Dell computer. But I can't see any reason you shouldn't buy Dell stock." Kwatinetz was recently named a "home-run hitter" for the second year in a row by Institutional Investor. It was the first time anyone had doubled up by virtue of picking the same big stock. Guess which stock?

The analysts do have questions. What about network computers? Dead in the water, Dell replies. Sub-$1,000 PCs? No way he wants to compete in that low-margin segment. Will new software applications be demanding enough for companies to upgrade their PCs? Yes, Dell says, because businesses continue to install rich E-mail systems like Lotus Notes, continue to roll out complex enterprise applications like those made by SAP, and continue to rely more on the Internet. How can Dell compete with full-service companies like Compaq and IBM? We offer all the services our customers need, says Dell, either internally or through partnerships with the likes of EDS and Wang.

What concerns analysts most is pricing. While Dell's machines are still cheaper than comparable ones from Compaq and IBM, it hasn't been lowering prices as fast. "Isn't price Dell's real advantage?" asks one. According to Meredith, the answer is no: "Increasingly, we find that we don't need a discount. We are winning on quality and service." But just in case, Meredith promises the analysts privately that Dell will keep its machines cheaper.

For now, such answers soothe the analysts. Kwatinetz says Dell could double its market share in three years. To do so while the PC business grows 15% a year, Dell would have to grow about 40% annually--a slowdown from its current rate. If that came to pass, Dell's sales would grow from $12.3 billion last year to $33 billion in 2000. Extrapolation? Yes. Pie in the sky? No.

How far can Michael Dell go? It's an open question, and his only response is, "Hey, I'm a young guy. I like this game." But think about it this way. Henry Ford transformed the transportation business in the Industrial Age by figuring out how to make a car affordable to every man. Sam Walton revolutionized retailing in the Service Age by making cheaply priced goods available to everyone. Might Dell be considered one of their information age heirs? His business is predicated on redefining the information-technology business by streamlining the distribution of cheap, made-to-order computer hardware. How far can you go on something like that? The jury's still out, of course, but the first two guys had pretty good runs.

REPORTER ASSOCIATES Liz Smith and Patty de Llosa