Marketing: Dell gets back on the highway: After last year's disaster with notebooks, the computer manufacturer now has ambitious plans for a portable comeback

IT SEEMED last year that Dell Computer Corporation, headed by the 29-year-old Michael Dell, had fallen prey to the same kind of illness that once laid low its rivals, Compaq and IBM. Compaq has since bounced back to rude health; IBM, or at least its personal computer business, is recovering.

In March Dell, the world's fifth-biggest computer company, announced its results for the fiscal year ending 30 January 1994. Sales were up 43 per cent on 1993 to dollars 2.87bn (pounds 1.9bn) - but the company also posted its first-ever loss, of dollars 34m. This was attributable, it said, to the big writedown it took in the first half of the year, as it pulled the plug on a whole new range of notebook computers. In a second embarrassing setback last year, it had been forced to recall thousands of sub-notebook computers, after it was found the machines could catch fire. Dell was left virtually bereft of portable computers to sell.

The timing was unfortunate. Worldwide, analysts say, notebook and sub-notebook computers comprise about a fifth of the PC market - and they may soon constitute a half of all personal computers sold. In contrast to desktop computers, where technologies are stabilising and profit margins getting paper-thin, portables remain an attractive market.

Much of the burden of retrieving the situation at Dell fell on John Medica, a 34-year-old recruited from Apple Computers early last year where he had led the team responsible for the design and development of the Macintosh Powerbook family.

'The first priority was simply getting back there with something to sell,' Mr Medica admitted. The company's corporate account customers were wanting to buy all their computers from a single source, and Dell was being crossed off buyers' lists because it did not have a portable offering. The commercial imperative for the company was clear: in a year or so it could be a leading player in the global PC business - or just another clone manufacturer.

Accordingly, Phase I of Mr Medica's plan was a deal struck with fellow PC manufacturer AST to build an improved version of an AST notebook computer. Currently being marketed, these 'Latitude' computers are essentially Dell-tweaked AST models, with a claimed 50 per cent improvement in battery life and storage capacity, and better power-management systems to conserve battery life still longer.

Mr Medica also decided to avoid revolutionary hi-tech ventures. 'We can't afford it: the R & D budget at Dell is 2.5 per cent of sales turnover, not 5 per cent as it is at companies like Toshiba and Compaq,' he said. Instead the company would improve the 'cloning' formula that had served it so well.

Among the big players in the PC market, Dell is unique in its ability to build its own computers and sell them directly. Compaq, Toshiba, IBM and NEC do not sell directly, so have to wait for their dealers' feedback. And, while the importers of Taiwan-built machines that do sell directly still have shipments at sea, Dell knows what features are selling and can fine-tune production schedules accordingly.

'Within a week of the Latitude's launch, we knew the exact mix of displays, drives and memory that customers were buying. Compaq and Toshiba would have had to wait 60 days,' Mr Medica said. But Dell is also in close touch with leading technology developers.

'We are reaching the size limit of how far you can go with conventional notebooks,' Mr Medica said. 'There's only so much allowed by the constraints of useable keyboard buttons, a 3.5 inch floppy disk, 2.5 inch hard drive and a 9.4 inch-diagonal screen.'

Pointing out that Dell is still the third largest manufacturer of PCs in the world, Mr Medica insists that 'best of class' suppliers want to work with the company, enabling it to find out where suppliers' technologies are going over the next two years - despite the fact that Dell's reputation is as a technology follower, not a leader.

So Phase II calls for exploiting this reputation. Anticipated improvements include faster microprocessors, better colour screens and 'expansion docking', to allow users to plug their portables into a desktop case for easier working in the office. A lightweight sub-notebook computer, weighing about 3 lbs, should also be launched.

Phase III, around a year from now, focuses on wireless communications, advanced power management and still faster microprocessors, as well as an even smaller 'hand-held' computer. The company also plans a big push on built-in communications options and accessories to compensate for its late entry to the market.

As more and more business people took their computers with them when they travelled, the ability to stay in touch while away would become an increasingly important part of the purchase decision, Mr Medica said.

All Dell's machines will come bundled with a communications software package, and a range of data and fax modems are available, including - 'for road warriors on the information super-highway' - international telephone adaptors.

Will this be enough to keep Dell's sales climbing upwards? It may be a winning formula in the US, where hotel phones have data sockets, but the picture in Europe is less clear. In the US, a traveller 3,000 miles from home is still dealing with the same telephone sockets and PTT standards: not so in Europe.

Unfortunately, Dell is far more exposed to the international market than most of the other clone manufacturers: 50 per cent of its sales now come from non-US markets.

(Photograph omitted)