ntroduction: On behalf of CEDA, we are delighted to welcome our guest of honor, Michael Dell.
CEDAs mission is to enhance Australias economic and social development through information
dissemination and knowledge diffusion. Our chair today is Verena Nielsen, managing director of
Manpower services, Australia/New Zealand. Verena was previously the CEO of Burson Marsteller and
is a member of the board of CEDA.

Moderator: Michael, theres quite a history here, so if you dont mind, Ill call out some highlights.
Chairman and chief executive of Dell, the company you founded in 1984 with $1000 and a great idea,
to sell computer systems directly to customers. The company currently employs approximately 46,000
team members worldwide, with revenues of $41.4 billion for the past four quarters. Youve been
honored many times for your visionary leadership, including in 2003 being named one of the top 10
most powerful people in business by Fortune Magazine, the fourth most respected world leader by the
Financial Times and the best CEO in the IT hardware industry by Institutional Investor Magazine. In
2001, you were named Chief Executive of the Year by the Chief Executive magazine. Im going to pose
questions which have been put from a variety of sources, and then Michael, Ill just ask you to address
the audience.

The world has heard much about the Dell model. Its become a metaphor for a well-run supply chain.
Was it your intention back then? Did you expect to achieve this extent of economic benefits?

Michael Dell: No, we didnt have all this figured out. What we did see was that the way computers
were being sold, distributed, manufactured, delivered and serviced was actually quite inefficient. At that
time, the personal computer industry was a very small business. It was not the big business that it is
today, pervasive across the whole world. The original idea created the basis of the direct business
model and the company grew about 80% per year for the first 8 years, on a compounded basis, and
about 60% per year for the 6 years after that. So clearly there was something there that we were
offering that was really attractive to customers, and weve been able to expand from that into new
products and new geographies and new services. But I couldnt say that we had it all figured out all
along. You can look out over any 3- or 5-year window and see that weve always had aggressive plans,
and weve always exceeded them. Were always surprised by how much opportunity there is in our
industry.

Moderator: Its been clear for some time that this direct model has huge economic advantages leading
to better gross margins, better asset utilization and higher return on invested capital. However, its not
Michael Dell Remarks
CEDA
Sydney, Australia
March 22, 2004
Page 2

clear why anyone else in the industry hasnt copied you in terms of executing the Dell way. In your
opinion, why is this? Why havent they been able to replicate it?

Michael Dell: A number of our competitors had a very different business concept with a supply chain
that was quite different; the whole customer orientation was quite different. We oriented ourselves
around the end user, whether it was a big company or government or a small business, not around the
products and not around the channel. Often the other companies sold through dealers and distributors
so the entire process of design and manufacturing was quite different. I think its been very hard for
others to change that. Execution is not a commodity, and what weve been able to do is execute and
continue to raise the bar on what it means to deliver value in the industry. Weve benefited also from
competitors not understanding what we were doing; underestimating the complexity of it. What they
saw was a fairly elegant and easy system for customers, but what was behind it was quite complex in
terms of logistics and infrastructure, and has proven to be very difficult to replicate. Its probably a
better question for them than for me.

Moderator: Dell is currently achieving 18% gross margins and 9.6% operating expenses worldwide.
Can you expand on how youre able to achieve this and continue it?

Michael Dell: Having low gross margins is really easy: lower your prices. Were pretty good at that
and its a really important concept for us in delivering value. How you get an operating cost structure of
9.6% is a bit trickier. At its core, we try to eliminate unnecessary steps. Dealers, distributors, added
markups, added costs, we try to get rid of that. Consider the supply chain. Everyday we will sell about
150,000 computers. The signals that come into us from end customers whether its from an EDI
interchange or a link with an ERP system or online dell.com - generate signals back for our suppliers,
and our suppliers suppliers. We turn our inventory over 100 times per year. By driving transactions
online and by getting more skill on operations, our operating expenses are 9.6% today, where 10 years
ago they might have been 18%. Our revenues have been growing faster than our costs, and so the
percentage goes down. In our competitors case, over the last couple of years the dollar value of their
opex has actually gone down, but the percentage has gone up because their revenues are dropping
faster than they can cut their costs. In our case, the revenues are going up faster than the opex is so
the percentage is going down. Theres a lot that goes into how were able to do that, but it didnt
happen all of a sudden. It happened gradually as we found more and more ways to become much
more efficient and ultimately deliver better value for our customers. Its interesting to note that our
principal competitors have lost, in the last 3 years, about $12 billion. They havent been able to make
any money in the small computer business. During that time weve been quite profitable and our market
share has grown by 50%. Its clearly a model that customers like, that delivers a lot of value and can
have applicability in adjacent markets.

Moderator: Your competitors always seem to be looking for something to say about you because Dell
keeps growing. One of their latest criticisms is that you only spend 1.2% of revenue on R&D while they
spend 3 or 4 or 5%. Do you think the critics are trying to protect the high end? You talk about delivering
Michael Dell Remarks
CEDA
Sydney, Australia
March 22, 2004
Page 3

value to the customer. Does that market still exist? Is there anything to protect or is there another
agenda?

Michael Dell: The question is not what percentage youre spending. The question is, or should be,
what is the right amount to spend to deliver something of value to customers. In our case, its
instructive to remember that we have about 3800 engineers, and we spend a half a billion dollars a
year weve been issued over 1000 patents. For $500 million, you can develop a lot of technology. If we
happen to sell three times as many of them, is that a good thing or a bad thing? Our partners - Intel or a
Microsoft, or Oracle or many other companies - collectively spend $12 to $15 billion on R&D. What we
dont want to do is reinvent the things that theyre inventing, and then charge customers more as a
result. We want to take advantage of their capabilities and our own capabilities to deliver something
thats truly valuable. Over time, the industry is moving more toward a model like ours. Have you heard
of Moores Law? Ive got my own law that suggests if you provide something of value you will earn a
profit. If you take that very simple concept and apply it to our industry, what you find is a lot of
companies are not providing value or earning a profit.

Moderator: How is Dells direct selling model adopted by consumers in emerging markets, for
instance in Asia? How do they approach what appears to be a U.S. model?

Michael Dell: We often get asked if our business model will work in other markets. This year, our
business in Europe is $10 billion. Our business in Asia is about $6 billion. These are good-sized
businesses that are growing quickly. In Japan, we are No. 3 in the market. We recently passed Sony
and are now the largest non-Japanese computer company in Japan. Likewise in China. In Australia,
New Zealand we had 50% unit growth this last quarter and it looks like well have another 50% growth
this quarter, which makes it among our fastest growing market in the world, so thank you for your
support. What were finding is that whether you go to Beijing or Bangalore or Bratislava or Boston or
Brisbane, the concept still based on economics and value. Its not an English language concept; its not
an American concept. Its something which is appealing in a value sense. If we were to be transported
into Dells call center in Xiamen, China, youd see a large and successful business selling to Chinese
companies. And youd see very much the same kinds of activities that youd see in any other Dell call
center all over the world.

Moderator: What do you believe are the ingredients for success and the challenges for a multinational
company? How can you replicate that culture in your call center in China?

Michael Dell: Were blessed in the sense that this is an industry that has not had massive amounts of
local country regulation. The financial sector, by comparison, has country by country regulation that
makes it a bit more difficult for global companies to operate seamlessly and quickly. Our products are
us