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Dell defends bottom line
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February 25, 1999: 8:13 a.m. ET
CEO says company is on track, will continue to grow faster than industry
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NEW YORK (CNNfn) - Once dubbed a "runaway money train," Wall Street darling Dell Computer Corp. has taken a bit of a fall in recent weeks.
The company, which last week unveiled positive quarterly results in line with analysts' estimates, has seen its shares fall 18 percent in less than two weeks.
Have the fundamentals changed or has Wall Street simply come to expect too much from the company whose shares skyrocketed nearly 11,000 percent in five years?
Michael Dell, the computer maker's chairman and chief executive, appeared on "Moneyline News Hour with Lou Dobbs" to discuss the trend.
Here are excerpts from that interview.
LOU DOBBS, CNNfn ANCHOR: Joining me now to talk about recent performance and Wall Street reaction is Michael Dell. He's, by the way, also the author of a new book called "Direct From Dell." Michael, good to have you back with us.
MICHAEL DELL, CEO, DELL COMPUTER: Thank you, good to be here.
DOBBS: You have got to be one frustrated CEO. You have turned in results year after year, quarter after quarter, you run into 38 percent revenue growth and you get hammered. How do you feel tonight?
DELL: Well, earnings per share were up 55 percent, and...
DOBBS: Not good enough.
DELL: ... that's not good enough. I guess we didn't -- I guess we ought to apologize for 55 percent earnings per share growth. And we only grew 3.6 times faster than our whole industry. Most people had expected that we would grow at maybe 3.8 or 3.9 times faster, but we only did 3.6.
DOBBS: Well now, you have had an incredible run, based on incredible performance. Wall Street right now, as you well know, is asking: Can Dell (DELL)continue to drive its profits, to drive its revenue, and its stock price at the pace and the rate that investors on Wall Street have been accustomed to over the last couple of years?
DELL: I think what you'll continue to see with a company like ours -- particularly given our positioning on the Internet and the direct business model that we have -- is that we'll be able to grow our business faster than the rate of the industry, and I think significantly faster when you consider global expansion, the growth in our server and workstation businesses, the storage business, the notebook business. The Internet, you know, is delivering about $5 billion worth of revenue for us. Interestingly enough, we had a record operating margin in the fourth quarter in dollars and percents. We had record cash flow of three-quarters of a billion dollars in one quarter.
DOBBS: But at the same time, Compaq has found a new channel, looks a lot like yours, at least as Eckard Pfieffer describes it and positions his company. Other companies, OEMs, are starting to try to look at that same approach. How concerned are you about it having an impact, that level of competition in what has really been yours and one or two other companies' space?
DELL: There's clearly a move towards direct distribution, although the companies you mentioned are 95-percent indirect...
DOBBS: Sure.
DELL: ... and they still have a lot of trouble to go through to make the transition. Not only that, they have to, sort of, learn how to be direct.
DOBBS: But you could pay for some of their education as a result, though.
DELL: Well, we've been doing this for 15 years. I think we have some built-up capability and knowledge on how to do it. They clearly face challenges, while we're moving ahead to...
DOBBS: So you're not concerned?
DELL: Well, you know, we always worry about our competitors, but so far they haven't shown an ability to really make the transition very well. They've talked about it a lot, but they haven't really done very much.
DOBBS: Two elements on the horizon -- one, Pentium 3. How important is it going to be to your sales?
DELL: I think the main drivers of demand over the next year or two are going to be Pentium 3, Windows 2000, broadband communications. Those three are going to be huge drivers for us.
DOBBS: And in terms of driving ahead for Dell, shall we expect past performance levels?
DELL: I think what you'll see for Dell is that we'll continue to grow faster than the industry. You know, we grew from $12 billion to $18 billion this last year, and, you know, analysts expect $24 to $25 billion this next year. 
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