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Headwinds

I was sitting at Carl Icahn's dining room table with Icahn and his wife, eating Mrs. Icahn's meat loaf.

It was a lovely spring evening-Wednesday, May 29, 2013-and Carl Icahn was trying to take my company away from me.

It was a truly surreal moment, in so many ways.

That May evening was almost the precise midpoint in a nine-month drama in which the personal computer company I started in my freshman dorm room at the University of Texas in 1984, the company with my name on it, tilted E and all, almost slipped away from me-and then changed forever, changing me along with it.

I'd like to tell you that story, and a couple of other ones besides.

The year 2005 dawned bright with promise for Dell Inc. Apart from the blip of the dot-com bust five years earlier-a correction that affected not just us but tech companies across the board-Dell had enjoyed a pretty uninterrupted run of growth in revenue and profits and cash flow for two decades. In January 2005 our share of PCs sold stood at a robust 18.2 percent. In February Fortune named us the most admired company in America. Dell, they wrote, was Òthriving in an industry that may technically qualify as being in the poorest state in the Union. Its profits in this margin-squeezed business soared 15 percent in 2004, a feat that Dell makes look boringly routine. And now itÕs the first PC maker to hold the rank of AmericaÕs Most Admired since the original ÔPCÕ maker, IBM, logged off in 1986.Ó

By September, though, things had begun to change. A lot. Though our profits rose 28 percent in the second quarter, total revenue was several hundred million dollars short of projections. We were, The New York Times reported, "wrestling with the same question facing other mature technology companies that ranked among the highest fliers of the 1990s: How to increase revenues when it is already so big?" Compounding the problem was the fact that personal computers and laptops, which accounted for roughly 60 percent of our sales, were no longer the rich profit center they used to be. As prices had dropped over the course of the year, we'd had to sell that many more PCs just to keep up with the previous year's revenue.

Interviewed by the Times, our CEO Kevin Rollins blamed himself for the shortfall. "Frankly," he said, "we executed poorly on managing overall selling prices"-especially on machines sold to consumers.

Yes, you read that correctly; it wasn't a typographical error. Kevin Rollins, not I, was CEO of Dell Inc. that fall. I'd stepped aside from the position in July 2004 and Kevin had taken over-though taken over isn't exactly the right way to put it. I remained chairman, and the two of us continued to run the company together as we had for a decade; not much really changed except for our titles.

And so if there was blame to be laid for that revenue loss, I shared it. But it quickly became apparent in late 2005 that the underperformance wasn't an anomaly: Dell was beginning to hit serious headwinds. For one thing, our competitors were getting smarter. Companies like Hewlett-Packard, Acer, and Lenovo, companies we'd always soundly defeated with our build-to-order model, had gone back into their cave and figured out how to duplicate many of our supply chain innovations. Meanwhile, build-to-order itself, so effective at addressing the many combinations and permutations of desktop computers, lost its advantage as the industry shifted from desktops to less easily customized notebooks. Customers were starting to focus more on services and solutions as value...