Dell Computer Corp - Early History

University of Texas freshman Michael S. Dell began selling IBM-compatible computers from his dorm room in 1984. Using parts he purchased at wholesale prices, Dell built the machines to closely resemble IBM models and then sold them to PC users looking to avoid the prices typically charged by computer retailers. Realizing that the $80,000 per month he brought in could easily be transformed into a full-fledged business, Dell left school and founded Dell Computer Corp. in April of 1984. Believing that more experienced computer users would likely recognize the value his custom-built machines offered, Dell began placing advertisements in computer magazines. Customers used an 800 number to places orders that Dell would ship via mail upon completion. Dell used no middleman, and the firm's direct sales model allowed it to price machines significantly lower than competing PC vendors.

Dell quickly found itself a leader in mail order PC sales. Revenues of $6 million in 1985 ballooned to nearly $40 million the following year. Realizing that he needed help managing the company's growth, Dell recruited several marketing managers from competitor Tandy Corp., as well as investment banker E. Lee Walker to serve as president. Dell himself served as CEO. In 1987, Dell began expanding its manufacturing facilities. The firm also created a national customer support center and started offering on-site setup, maintenance, and repair services for Dell products. An office in the United Kingdom marked the firm's initial foray into international sales. Dell also published its first catalog.

The firm's new marketing team began peddling Dell products to larger businesses. It also expanded Dell's sales force and increased advertising expenditures. Believing his firm was moving too far away from its initial direct selling model, Dell began criticizing his marketing executives for spending too much on advertising and using traditional marketing tactics. By the end of 1987, most of the executives from Tandy had either been asked to leave or had left on their own. Dell reorganized to improve its customer services in 1988. The firm also launched three new PC models, opened an office in Canada, began offering a leasing option, and increased its emphasis on targeting larger clients, such as governmental entities, corporations, and educational institutions. That year, Dell completed its initial public offering, selling shares for $8.50 each.

To better compete with Japanese PC firms that were lowering their prices, Dell began working to upgrade its machines. To this end, Dell hired former IBM Corp. engineer Glenn Henry in 1989, charging him with the task of overseeing product development. The firm also became one of the first to create file servers that used the Unix platform, and began working to incorporate Intel Corp.'s 486 microprocessor into its computers as soon as the chip was released. Dell also began selling several new dot matrix printers manufactured by Epson. Corporations accounted for 40 percent of the firm's 1990 revenues, which reached $546 million. Despite twofold sales growth, profits plunged by 64 percent, which Dell blamed on the higher research and development costs and a surplus inventory of memory chips. The firm began using retail outlets for the first time that year after reaching a sales agreement with Soft Warehouse Inc., the leading U.S. computer retailer. International growth continued with the construction of a manufacturing plant in Ireland and offices in France, Italy, and Sweden.