Dell Questions Tablet Demand

Chairman also tackles PC industry price war, HP-Compaq merger issues.

One day after Microsoft Corp. Chairman and Chief Software Architect Bill Gates promoted the Tablet PC as the future of personal computing, another industry leader openly questioned whether theres any demand for such a device.

Michael Dell, speaking at Comdex here last week, shared his views not only on the Tablet PC but also on the yearlong industry price war and the troubled merger of two of his rivals.

Addressing the Tablet PC promotions by Microsoft and other computer companies at the annual convention, the founder of Dell Computer Corp. said it was reminiscent of other high-tech innovations previously hailed at the show that eventually fell short in the marketplace.

"Comdex is a great time to remind us of all the wonderful technologies that are in search of a problem," Dell said. "And unfortunately, not all of those will actually be demanded by customers."

As an example, the chairman of the Round Rock, Texas, company compared the Tablet PC to the pen PC, such as the Newton, championed a decade ago by Apple Computer Inc.

"Go back to the pen PC phenomenon about 10 years ago. Where were all those customers for the pen PC when it was finally introduced?" Dell asked. "Making a Tablet PC is not very hard. Find me customers that want to buy it; now thats what Comdex is all about, and thats what companies are trying to figure out."

Dell also deflected criticisms of his companys aggressive price cutting over the past year, which many industry analysts blamed for fueling a price war that has further undermined the earnings of computer makers already struggling amid an industrywide slowdown in sales.

Dell argued that his companys actions were merely reflective of its low-cost, made-to-order manufacturing model, which enabled it to offer products at lower prices than its competitors while still making a profit.

While the Dell model is widely considered the most efficient in the industry, the company also cut into its own profit margins to subsidize its cost cutting, sending margins to historically low levels.

But while Dells profits declined, the company boosted market share this year, largely at the cost of major competitors Compaq Computer Corp. and Gateway Inc. In addition, the two rivals efforts to match Dells low prices dramatically undermined earnings and resulted in both companies posting quarterly losses.

When asked when the price war will end, Dell responded, "It is when our competitors decide they want to price their products so they can make a profit."

Dell also hinted that those companies that cant profitably compete against his company should consider abandoning the business altogether.

"If they havent made any money in a long time, and they dont have any hopes of making any money, well," he said, not finishing his thought but clearly indicating such companies would be wise to leave the market.

Early this year, Dell suggested the harsh economic climate and increasing competition would force industry consolidation, a projection followed a few months later by Hewlett-Packard Co.s proposed buyout of Compaq.

But while the planned HP-Compaq merger would create the worlds largest PC maker and form a potentially formidable new competitor, Dell expressed little concern about the matter, appearing mostly bemused by increasing turmoil at HP that has seen the Palo Alto, Calif., companys heirs publicly denounce the deal.

"It seems like a soap opera," Dell said, referring to the potential proxy battle brewing between the heirs of HPs co-founders and company Chairman Carly Fiorina.