Prize-fighters of the PC world

ONE IS a pony-tailed chief executive with his finger on the consumer pulse, the other is a 37-year-old management whizz known for his searing strategic sense.

These two American computer industry icons - long-haired Ted Waitt of Gateway and Michael Dell of Dell Computer - have much in common. Both built up personal computer retail giants from scratch. Dell started his in a college dorm in Texas in the early 1980s. Waitt began Gateway near his family's cattle farm in Iowa. Both have congenial personalities and quick smiles.

However, their companies could not be facing more different circumstances.

In a miserable environment for PC sales, Dell is gaining strength while Gateway is fading. Dell is pushing forcefully abroad while Gateway has exited overseas markets. Gateway's debt rating has been downgraded twice in the past year and its sales were 37% lower in 2001 than the previous year.

By contrast, the $30bn (£20.5bn) valued Dell posted only a slight dip in earnings to $457m, or 17 cents a share, in the first quarter of the year and revenue rose slightly - no small accomplishment in a weak market.

Dell is not pulling in the 50% annual growth that it routinely managed in the 1990s, but Michael Dell insists there is plenty of growth potential in the US and overseas - including in a British market it already leads in sales. Today, Dell has captured 14% of the global PC market, but has nearly 20% of Britain's. Its corporation looms so large over the global PC landscape that it is forcing industry consolidation via mergers and takeovers.

Hewlett-Packard chief executive Carly Fiorina's desperation to buy Compaq was largely prompted by Dell's strength, analysts believe. In the UK, for example, adding Compaq's first-quarter sales to HP's would have given it a slight lead over Dell, according to International Data Corp.

Gateway is not even a factor in the British market since pulling out of it last year.

Where once Waitt and Dell had nearly equal guru status on Wall Street, analysts no longer speak of the two men with the same reverence. Now the accolades are reserved for Dell, who last year won Chief Executive magazine's prestigious Chief Executive of the Year award. Key to Dell's success is a state-of-the-art stock system. When Intel cuts microprocessor prices, as it did this week by 50%, Dell can pass on the savings to customers in a matter of days.

Gateway is struggling to impose disciplined management controls - such as those that have been used at Dell for years - on a corporate culture which is so reliant on its founder's vision that Waitt has been forced to postpone his retirement several times. He is the company spokesman - he even appears in all its advertisements - its Wall Street cheerleader and top decision-maker.

If it is a comeuppance to discover that he now needs to Dell-ise Gateway, Waitt is not showing it. He recently hired Bain & Co, the consultancy used by Dell in the early 1980s, to help bring cost-discipline to a freewheeling corporate culture and provide more autonomy to his managerial staff.

Michael Dell realised years ago that he needed support in growing his business, say analysts. His partner Kevin Rollins, a former Bain consultant, is credited with sparking the PC price war in 2000 that crippled Dell's rivals and knocked Compaq from its perch.

Rollins has also had a hand in Dell's foray into consumer sales, once Gateway's mainstay, and new ventures in non-PC products, including a new server that runs PC networks and a projector that is five times bigger than large-screen televisions.

'Up to now there wasn't a great rivalry because, for a long time, Dell geared itself toward corporate and Gateway more to consumer, but now Gateway is losing market share in its own sector to Dell,' says Wendy Abramowitz, an analyst with Argus Research. 'In a young company, a lot depends on whether the chief executive has the right outlook and knows the business well, but as it matures it needs more depth in the executive suite.'

Abramowitz says that in the early days Michael Dell brought in a lot of outside talent to assist him. 'Ted Waitt did the same thing,' she points out, 'but the people he brought in didn't do a good enough job.'

Waitt projects a nice-guy image. In ads that feature him and Gateway's talking cow, he frequently pokes fun at himself. Dell, however, has more of an edge. He has 'dissed' industry icon and Apple founder Steve Jobs and put off some analysts with his frequent assertions that Dell will capture 40%, 50% or even 60% of the personal computers market before long. Dell pledges to grow the computer giant into the 'Wal-Mart' of the PC market.

His lofty goal does not seem so far-fetched now that his competitors are stumbling and the HP-Compaq merger is in the early, rocky stages of combining two distinctly different corporate cultures. 'I am not a historian,' Dell recently told a group of college students. 'I am not about what we have, but the future. When we started, we were the little guys challenging the big guys. Now we are the ones who have to work hard to stay ahead.'

Meanwhile, Waitt recently told the Wall Street Journal that he is making changes, professionally and personally. 'Our model is Dell's model,' he declared. On Wall Street, one sceptical analyst said he will know that Waitt really means it when he cuts his hair to resemble Dell's.