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Dell scorns high-tech purity, taps technology of others

By Sam Diaz
Knight Ridder Newspapers

JOANNE HOYOUNG LEE / KNIGHT RIDDER NEWSPAPERS
Michael Dell, 38-year-old chairman and CEO of Dell, speaks his mind: "If you invent something that no one wants to buy, I don't care."
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SAN JOSE, Calif. — To Silicon Valley, innovation is what goes on in laboratories, where bunny-suited scientists manipulate molecules to create the latest advances in nanotechnology. Innovation is a multibillion-dollar fabrication plant turning out the world's fastest computer chips. Or software that powers the Internet.

In Round Rock, Texas, home of Dell, innovation comes in the form of a pop-up window that appears on a computer screen when your printer runs low on ink.

Just click on a button and a new Dell ink cartridge lands on your front porch within 24 hours. It's not cutting-edge technology, but it is a smart, consumer-friendly feature sure to please customers who dread trekking down to Office Depot with a spent cartridge in hand.

This is how Dell — a company that stunned the personal-computer industry with its price-slashing, direct-sales model — is gaining a foothold in new markets, including the $25 billion U.S. printer ink and toner business.

It also helps explain why Silicon Valley has decidedly mixed feelings about Dell, an outsider that challenges the valley's almost religious belief in the power and profit of technological innovation.

As the tech industry recovers from the dot-com bust and gears up for the next technological wave, can Dell's way of running a business — selling low-cost products for the masses — co-exist with Silicon Valley's mindset of creating technology that will change the world?

Michael Dell, who founded his Fortune 500 company out of his University of Texas dorm room in 1984, doesn't mince words when the topic of innovation comes up.

"If you invent something that no one wants to buy, I don't care," he said.

Dell doesn't mind slapping his own brand on other people's products. In fact, roughly 60 percent of Dell's offerings are made by someone else, he said.

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The company's printers, for instance, come from Lexmark. Dell's online-music store is a rebranded version of the Musicmatch service. And the Dell Axim handheld computer is manufactured by a Taiwanese company named Wistron.

"We didn't grow to be a $40 billion company in 19 years by trying to do everything ourselves," said Dell's 38-year-old chairman and chief executive. "I don't want to reinvent things I can get from someone else."

That's practically heresy in Silicon Valley. And some here question whether Dell can sustain long-term success in an industry where PCs, printers, DVD players and digital cameras quickly become just another cut-price commodity at the local Wal-Mart.

Dell nemesis Hewlett-Packard, for example, spends about $1 billion a year — more than a quarter of the Palo Alto, Calif., company's total research-and-development budget — studying ink chemistries and working to develop new, superior printing products.

Dell, by comparison, spends less than 2 percent of its total revenue on R&D — about $455 million last year.

"If you stand back and look at the bigger picture in tech, Dell gets all the pieces it needs from others," said Dick Lampman, Hewlett-Packard's senior vice president of research and director of HP Labs.

"From my view, that's definitely a limiter in opportunities to grow. Dell has tried to enter the printer market by using other people's products. It's a clear limitation on their financial model because they have to share their profits. That limits their success in that market."

Perhaps. But Michael Dell is quick to point out that he sold more than 1 million of his Dell-branded printers in fewer than eight months.

On the business side, Dell is moving forward — even in this sluggish economy.

The company is on track to reach $40 billion in revenue this year and has set a goal of hitting the $60 billion mark by 2006 — which means sales must grow by 15 percent annually for the next three years.

It's moving fast into overseas markets. Dell said business grew by about 60 percent in China in the first nine months of the year.

Copyright © 2003 The Seattle Times Company

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