LAST YEAR MY WIFE AND I BOUGHT A BRAND-NEW Dell computer. It was a handsome machine, sleek and gunmetal gray, with a swiveling screen and a set of speakers. Unlike our previous computer, it worked without wires, miraculously conversing with a small box of blinking lights in our bedroom. We were very happy with it—for about two hours. That was when the wireless feature started to go wiggy. Sometimes we would get an Internet connection, and sometimes we wouldn’t. We called the Dell folks for help.

What followed made me long for the days of carrier pigeons and slide rules. Dell’s response was to send a string of ever less intelligent and ever less reliable service people to try to solve the problem. We spent hours with technicians, both at home and on the phone. It took more than a month for them to determine that our cordless telephone was knocking the computer off-line, a solution so crushingly obvious that it only made us madder.

We later learned that what happened to us was not just some isolated, random piece of bad luck. At that very moment, tens of thousands of other people were having similar horrific experiences with Dell, a company long famous for its excellent customer service. And the incompetence of Dell’s help desk mirrored the bigger, deeper, and less tractable problems that would soon be flogged in headlines around the world: declining growth, a drop in global market share, an unprecedented descent in the company’s consumer satisfaction ratings, its consistent failure to earn as much money as it was expected to.

The precise details were ugly. In the first quarter of 2006, Dell was waxed by Hewlett-Packard, its resurgent main rival, in the fastest-growing component of the market: notebook computers. During the same period, Dell’s overall sales failed, for the first time ever, to keep pace with the computer industry as a whole. By the time the company reported in August that its quarterly earnings would decline for the eighth consecutive time—plummeting from $1.02 billion a year earlier to $502 million—business writers and stock analysts had all found their angle: Dell was rapidly losing its once huge price advantage and therefore its legendary ability to lowball its competitors. Amid such speculation, Dell’s shell-shocked shareholders watched the value of their holdings plunge earthward. On July 21 Dell stock closed at a five-year low of $19.04, down 54 percent from the previous July, and remained mired for the rest of the summer in the low $20’s. It was kept there, in part, by Dell’s announcement, in August, that it would recall 4.1 million batteries that could cause laptops to erupt into flames—the largest safety recall in the history of the consumer electronics industry.

To listen to this steady drumbeat of bad news, you might think that Dell is losing money or about to lay off workers. No and no. Dell is not in trouble in any conventional sense of the word. It is still growing, albeit modestly, and still making money. Dell’s problem is that it is not what it used to be, which is to say the world’s fastest-growing company with the world’s best-performing stock. The easiest way to illustrate this is to compare Dell with the most successful companies of our era. At the end of its first twenty years in business (2004), Dell’s revenues, adjusted for inflation, stood at $41 billion. Microsoft and Wal-Mart, by comparison, had revenues of only $10.7 billion and $4.7 billion, respectively.

No company in history has ever matched the speed or duration of Dell’s revenue growth, and few have left as many failed and bankrupt competitors in their wake. Dell inflicted such large losses on IBM that the computer giant got out of the PC business altogether, selling out to a Chinese company. Dell outmaneuvered Hewlett-Packard and Compaq so completely that they were forced into an initially disastrous merger that cost the combined companies 40,000 jobs. These triumphs in turn fueled the greatest sustained stock price rise in history—nearly 87,000 percent from bottom to top—and established Michael Dell as one of the richest people on earth, with a net worth, at its height in 2000, of $21.5 billion.

And so the mere whiff of mortality, of weakness, of the beginning of the end of Dell’s dominance, has sent the high-tech world into a little celebratory fit of schadenfreude. Making everything worse—or better, depending on your point of view—Dell has another, more serious problem that you have not read about in the headlines: a severe decline in company morale linked to both the fading stock price and to a crisis of leadership, which has spawned a radical, company-wide attempt to remake the Dell culture. While it wrestles with those demons, Dell must deal with the inconvenient fact that it is now widely perceived as decelerating irreversibly into a comfortable and somewhat stagnant middle age, taking its once high-flying stock down with it. Even two years ago, such a thought would have been unimaginable. Now it is common currency. Is the joyride finally over?

THERE HAS ALWAYS BEEN SOMETHING disquietingly calm about Michael Dell. In an industry where change comes at you like telephone poles on a country road, he ought to look a great deal more worried, harried, driven, nervous. Unhappy, perhaps. But he shows no scars; his trademark is still that engaging, guileless, dopey grin spreading across that creaseless, unmarked, choirboy face. If you did not know that he was the greatest industrial genius of our age, you would never guess it. When I first interviewed him, in 1997, he was only 32 and already worth more than $10 billion. Back then he still looked a bit like a pudgy kid and had this slightly confused, deer-in-the-headlights expression on his face when meeting someone new, which made for a profound disconnect between the innocent he seemed and the hypercompetitive monster he actually was.

The main purpose of that interview was to get him to explain how Dell, which had been growing like bacteria—doubling in size every few years and already sprawling all over Austin and Round Rock—could possibly keep up that pace. The conventional wisdom said that it could not. Such runaway growth was unmanageable and certainly unsustainable; Michael Dell might be smart, but he wasn’t that smart; and so on. We now know that, even as I was tossing questions at him, his company was embarking on a period of expansion that would make all that had gone before in the history of human business enterprise pale by comparison. That year the company had $7.8 billion in sales, a number that would jump to $18.2 billion by 1999. This year Dell’s sales will top $60 billion.

And so it is ironic and even funny that I am back again, nine years later, to badger him on what is, by and large, the same topic. The context, admittedly, is very different. The company he founded is now a global behemoth (75,000 employees in 180 countries) that makes desktop and laptop PCs, servers, storage systems, printers, work-stations, and even TVs, and is beset with all those nagging recent troubles that the press, financial analysts, and competitors have been trumpeting with such unrestrained glee. Dell himself has hardened into a fully configured adult who looks and seems more like the chairman of the world’s largest computer company. His curly black hair is finally showing a few touches of gray. He is slicker and just the slightest bit world-weary, or at least media-weary, or at least tired of having to account for himself, considering who he is and what he has done.

Another difference is that he now shares power with a whip-smart, data-obsessed 53-year-old former consultant named Kevin Rollins. Rollins started working with Dell in 1993, joined the company in 1996, and quickly made himself indispensable, setting up many of the management systems that allowed the company to sustain its growth. He became president in 2001 and chief executive officer in 2004. The two run the company from large, airy, blond-wood offices that overlook the lobby of Building One at Dell’s headquarters, in Round Rock. Their offices are separated by a glass door that they say is never closed, even when they are in private meetings. Although Rollins runs the day-to-day operations of the company, you get the sense that there is a good deal of collaboration going on here. They are highly compatible; each seems perfectly content to be interrupted by the other.

When I ask the two men—who have agreed to be interviewed together—the inevitable is-this-the-end-of-the-world-as-we-know-it question, they respond with a sort of Bob and Ray routine:

Dell: “People have been saying for a long time that Dell is a niche company, that it won’t work here and it can’t work there. It was never supposed to work.”

Rollins: “It was never going to work, and they would say, ‘Oh, look, it’s about to hit the wall.’ But then it wouldn’t, and they would say, ‘Well, that wasn’t really the time, but now is really the time. Okay, now Dell is hitting the wall and now it’s really over.’”

Dell: “‘It worked in the U.S., but it’s not going to work in the U.K.’”

Rollins: “‘Okay, it worked in the U.K., but it’s not going to work in Japan.’”

Dell: “‘Not going to work in France. Not going to work in China. It worked in desktops, but it isn’t going to work in notebooks.’”

Rollins: “‘And it won’t work in servers. Never in servers.’”

Dell: “‘And no chance in printers.’”

Rollins: “‘Printers will never work.’”

“It won’t work” refers to Dell’s direct model of sales, in which the company deals directly with its customers instead of through retailers, distributors, and resellers. In this system, Dell builds a computer only when a customer orders one and then ships it directly to the customer; its competitors, by contrast, build products first and then stack them in distributors’ warehouses or in stores and hope customers buy them. Dell’s model has been challenged, unsuccessfully, every step of the way by vast numbers of competitors and industry experts, most notably in 1989 and 1993, when the company stumbled badly. And Dell has been wildly successful in all the areas where it was not supposed to succeed, particularly overseas.

What is noteworthy here is the attitude of the two men. Their unapologetic message is that Dell’s run is not over, that the stock market is wrong, that the industry analysts and journalists are once again being foolish and shortsighted, and that the burgeoning global market for computer systems has so much room for growth that in some ways Dell is just getting started. I did not expect them to agree with their critics; still, the fierceness of their rejoinder was striking.

“What is interesting is the relatively random nature of the proposed solutions,” says Dell. “Let me give you an example. In 2000 Dell had a six percent share of the U.S. consumer market, okay? By 2005 our share of that market had risen to about thirty percent. Six percent to thirty percent. And now you see articles written where the suggestion is that the reason Dell isn’t doing well is because Dell doesn’t sell through retailers. Hello? Hello? Is anyone paying attention to what is actually going on?” Dell and Rollins remind me of certain unassailable truths: Dell still ranks number one in the world in desktops, notebooks, and total PCs. Dell controls 19 percent of the global market but owns fully two thirds of the world’s computer profits. In servers and external storage systems, businesses that Dell entered only within the past few years, it ranks third and fourth, respectively. While all the other major computer companies are getting out of the business of actually manufacturing computers, Dell is not only expanding but expanding within the U.S.

But everyone is talking about the trend line, I argue. What they’re saying is that those competitive advantages are disappearing. Do Dell and Rollins maintain, with straight faces, that those advantages are still there? To this they answer, loudly and simultaneously, “They’re still there.”

“Will those advantages contract a little and widen a little, then widen again?” Rollins asks. “Yeah, they do that sometimes. Some of our competitors have clearly done better. But does one robin make a spring? No. This company is still very healthy. You don’t do what this company did and not expect a few bumps. But you can’t look at it and say the ride’s over.”

“We went from being three times as profitable as the competition to being two and a half times as profitable,” Dell says. He pauses, looks at Rollins, then says, “So sue me.” Both men laugh.

Such assertions will no doubt seem, to competitors, to be telling examples of the Dell hubris, of the company’s blinkered inability to see or comprehend the peril that now surrounds it. But most of what Dell and Rollins talked to me about was not their competitive prowess. They focused instead on what Rollins readily admits was a “confluence of mistakes” that led the company astray in the past year and of its deeper challenge of trying to change the way its managers treat their people. Dell and Rollins concede that they did not see the troubles coming, that they and their managers misunderstood the nature and strength of the competition and priced their products too high, causing them to lose market share to more-attentive and aggressive rivals, something a growth company must never do. They acknowledge that competitors such as HP and Lenovo have partially reduced Dell’s once awesome cost advantage and that Dell’s customer service fell off disastrously. The latter, at least, happened for known reasons: Dell shifted resources elsewhere, cut its one-year warranties on average to ninety days, and hired many temporary workers with marginal training to man the phones. The result was that consumers, who account for 15 percent of the PC market (the other 85 percent are businesses), bought fewer Dell machines. “Every time something goes wrong, no matter how big or small, we really feel bad about it,” says Dell. “This is one of those times. And so right now we are completely in the mode of ‘We are going to get this fixed.’ We are maniacally focused on how we drive improvement.”

So they have unleashed a flurry of tactical moves meant to put the company back in fighting trim. Dell is spending $150 million this year alone on its customer service problems, hiring two thousand new people to answer the phones and retraining five thousand more. It will slash $3 billion in costs. In April it began cutting prices on some of its most popular products, knocking $700 off its Inspiron line of notebooks and $500 off its Dimension desktops. It launched a full line of new hardware products, including servers and storage systems, and unveiled a remote-service system called Dell Connect, which allows technicians to seize control of your computer keyboard and screen in order to help you fix it. It started a corporate blog featuring videos of engineers explaining products and a Web chat between Dell execs and ordinary people. Dell even opened two new retail stores—containing no actual products, mind you, but as a way to enhance its direct sales by letting consumers finger the merchandise before buying it online or by telephone. And to promote all this, the company unveiled a massive new advertising campaign with a new slogan, “Purely Dell,” reminding consumers that Dell builds all of its computers exactly as they order them and hyping improvements in customer service.

Whether all this will do what Dell and Rollins intend will soon be evident. They are clearly not talking about a long, slow turnaround. It is a high-stakes bet, because if they are wrong, they are going to be hammered on Wall Street as never before.

IN FEBRUARY 2002 Dell and Rollins presided over a meeting at Dell’s headquarters that many employees consider a turning point in the company’s history. It was less a business discourse than a confessional. The two men stood before some 150 vice presidents and senior vice presidents and did what wealthy, autocratic executives of Fortune 25 corporations never, ever do: They admitted, in significant detail, their personal shortcomings and weaknesses.

These startling mea culpas were the product of a survey of these same vice presidents in which they had been asked, pointedly and anonymously, what they thought of their leaders. Dell and Rollins had received poor grades, and they then decided, for reasons that mystified their employees at the time, to own up to it. For Dell, this meant acknowledging that he was cold, distant, aloof, obsessed with technology, charts, and graphs; Rollins copped to being too dictatorial, too opinionated, failing to listen or be open to different points of view. They both conceded that they needed to be nicer, more inclusive, less like remote and remorseless inquisitors brandishing incriminating profit-and-loss statements. In spite of their unparalleled success, they had failed on the most basic levels of human interaction. “Michael started to explain that he wanted to get better,” recalls Paul McKinnon, Dell’s senior vice president for human resources. “And there was this sense in the room—everyone was on the edge of their seats—that people wanted to try to help him. It was so awkward, but he did it, and it was an electric moment. Here was someone worth more than some small countries, and he so clearly wanted to be a better manager and leader.” It was also the first salvo in a cultural revolution. All managers would henceforth be subject to similar reviews and would be expected to share the results with their staffs, as Dell and Rollins had. They would then be graded on their performance. The message was, We’re going to be warmer and more caring, and so are you.

Why the sudden move toward touchy-feely management at a company widely considered to be built on a brutally demanding, performance-obsessed work ethic? To answer that question, you have to know something about the culture that emerged at Dell during the go-go years of the nineties. It was indeed a place where people routinely worked seventy- to eighty-hour weeks. It was also a place where employees who got Dell shares and options got very rich very quickly, richer than almost anyone else at any company in the world. By the late nineties, making a personal fortune had become inextricably linked to the idea of working at Dell.

“Every time your spouse would say, ‘You’re killing yourself, you don’t see your kids. Is this really worth it?’” McKinnon explains, “you’d say, ‘The stock went up ten points this week,’ and she would say, ‘You’re right, it is worth it. I was wrong.’ It was an immediate pellet you got every week for busting your tail. You didn’t have to be here very long to feel like you were going to get fabulously rich by noon tomorrow. The stock split three times after I came. It was the most exhilarating thing I will ever experience in my life.” In 1995 a Dell marketing executive named Ben Bentzin—who has since left the company and run twice for elective office in Austin—received a set of stock options as an attaboy for having done a good job on a particular project. They had no value on the day he got them, of course, but turned out to be worth $10 million. And this was in addition to all the options and shares he and others got in the normal course of work.

During this period, the Dell team was young, overwhelmingly male, and remarkably homogeneous. “We were all clones, and the proof is that eighty percent of us got identical results on the Myers-Briggs personality test: analytical, extroverted, and intensely goal driven,” Bentzin says. “You were surrounded by people like you who were also working eighteen-hour days, and it was contagious.” It was also high pressure, unforgiving, and relentlessly demanding. The hallmark of the Dell culture was to set seemingly impossible goals and then push people to their intellectual and physical limits to achieve them. Build a factory in ninety days from initial planning to full operation? No problem. That was exactly what happened with Dell’s Nashville plant. In 1997 the Nasdaq stock exchange, reeling from an unprecedented volume of trades prompted by a panic in Asia, ordered eight sophisticated new server systems from Dell. Thirty-six hours later, Dell delivered customized, fully tested, ready-to-operate products. (After Hurricane Katrina, it took a dozen Dell workers two weeks to rebuild the data center at Louisiana State University’s Health Sciences Center, in New Orleans—a process that would normally have taken six months.) “Dell made no allowances for the difficulty of the dive,” says Bentzin. “You were expected to enter the water smoothly.” Another former executive told the Austin American-Statesman: “It was like jumping out of a plane with your hair on fire.”

Whatever the preferred metaphor, this collection of amped-up, hypermotivated, type A personalities was having unparalleled success at selling computers all over the world—and biting off huge chunks of market share. In 1997 Dell’s annual sales were $7.8 billion. The next year, they were $12.3 billion. The year after that, $18.2 billion. The year after that, $25.3 billion. Competitive bloodlust was a big part of the Dell culture—the sheer joy at seeing rivals writhe in pain and die. “They used to have ‘Crush Compaq’ parties in which they’d throw Compaq servers off the roofs of buildings,” says a former executive. (Like many Dell exes interviewed for this story, this one asked not to be named, for fear of burning a bridge.)

Dell’s rampaging success was also transfiguring metropolitan Austin, once a sleepy government and university town that was suddenly a magnet for high-tech companies and armies of bright young people who would never have heard of the place a few years before. The company’s exploding Central Texas workforce—which would eventually number 18,000—colonized the pasturelands north of downtown and in neighboring Williamson County, while in the Hill Country, to the west, sprawling Tuscan villas with six-car garages and negative-edge pools rose to accommodate the hundreds of new millionaires that Dell was spawning each year. (There were so many that they even had a name: Dellionaires.) They spent extravagantly on meals and landscaping and cars and were soon interlaced into all of the city’s charities and cultural groups. A city known for being lazy, bohemian, and anti-materialistic was now full of big money, BMWs, and a swarm of bratty, arrogant twentysomethings who had never tasted anything but success, a cultural shift for which Dell gets a good deal of the credit. “It was the surge of Dell that caused Austin to emerge as a high-tech powerhouse,” says Scott Eckert, a former Dell executive who, like so many others, went on to start his own high-tech company. “IBM, Motorola, and 3M had been here, but it was Dell that created the visibility in the nineties.” When Eckert graduated from Harvard Business School in 1995, his classmates thought he was crazy to move to Austin. “At that point, not a soul came here because it was just not known at the time. Four or five years later, Austin was a technology hot spot everyone wanted to come to.”

But by then, as it turns out, the party was almost over. It ended when, on March 22, 2000, the price of a share of Dell stock did something that many employees had never seen it do before: It stopped going up. Then it went down fast, plunging from the mid $50’s into the low $20s. And then, as the dot-com bust rumbled through the economy, yet another unthinkable thing came to pass: Dell laid off five thousand workers. The effect on morale was devastating and immediate. With it came the realization that money was the principal tie that had bound many employees to Dell and that what really defined the company was what Rollins calls “a culture of the stock price.” For fairly obvious reasons, many people found it a mean-spirited, inhuman place to work. “It was a sink-or-swim culture, and everyone experienced it, even the top performers,” says Louise O’Brien, a Dell vice president of corporate strategy. “I felt a lot of anxiety, and when I told them, they said, ‘Oh, no! Not you!’” Still, people tolerated it. “When the stock is going up two hundred to three hundred percent a year, it is remarkable what people will put up with,” says McKinnon. “Because we knew nobody was going to quit, we treated them that way. This was a results-driven place, and we weren’t too concerned with how you got those results. If you had to work your folks twenty hours a day, no problem.”

That was then. In 2001 Dell and Rollins took a company-wide survey to see how people felt about working there. The results shocked them. More than half of all Dell employees around the world said they would leave the company if they could. People felt mistreated, uncared for, driven to meet difficult goals by numbers-obsessed managers. “It was hard to be part of the company during that time,” says an executive who left in 2004. “And the layoffs? It was painful for people to learn that Dell doesn’t love me. You start to wonder, ‘What was the loyalty to all these years?’”

It was this first, disastrous survey that inspired Dell and Rollins to poll their vice presidents and remake the company culture. The vehicle of change was a twice-annual employee survey, known as Tell Dell, in which the lower-downs would rate the higher-ups. At first it was fiercely resisted by managers who believed the new system would destroy Dell’s hard-edged, take-no-prisoners ethos. But Dell and Rollins persisted: Somebody running roughshod over his or her people would soon be identified and rooted out. There was even a set of rules for the new order, which was distributed under the rubric “The Soul of Dell.”

The problem was not just unhappy workers. There was also a leadership vacuum created both by the exodus of talented people who had gotten rich and cashed out and by the promotion of hundreds of managers over many years for the wrong reasons. Now Dell managers were graded on the surveys, and they were expected to show improvement. The idea was to develop leaders in a culture where people were no longer getting rich quick. “The goal is not to make everyone happy,” says Dell. “That is not what we’re trying to do here. What we’re trying to do is to improve performance. We changed the value system. Let’s say you’re delivering fantastic results but you’re not developing your team and not listening to your team. That is just not acceptable, because in a year or two no one will want to work for you.”

Whether this so-called “Winning Culture” program—yes, everything has a name—has really altered Dell’s cultural DNA is open to debate. Dell, Rollins, and McKinnon insist that it has, and they say the proof is in the improving scores on the Tell Dell survey. Others see it differently: “This is an attempt made among leadership to deal with employees according to a different set of standards, but the message never changed,” says a former executive who left the company recently. “People may feel better, but it’s still performance based.” O’Brien agrees: “The idea is to make it a nice, friendlier place to work, a place where they don’t whip the horses as hard. But Dell will probably never be a place for the faint of heart.” Then there are those who say the survey itself has become yet another way to put pressure on managers. “There is an overreliance on Tell Dell,” says a former high-ranking executive. “They used those metrics to beat people up. If you were a couple of percentage points off your peer group, it would be a serious problem. People were bludgeoned with it.” There is also the unresolved question of whether Dell’s slowing sales are a direct result of its morale problems. It is impossible to measure this, of course. But given the urgency with which Dell and Rollins are addressing the problem, it is also impossible to rule it out.

Whatever the case, it should be noted that any talk of caring or nurturing is inwardly directed: The Soul of Dell program coincided with the company’s most brutal assault on the competition to date. As the world reeled from a deep recession and the gathering effects of September 11, Dell launched a vicious price war that was clearly intended to destroy its weakened rivals. The strategy was, You open a vein, and we’ll open a vein, and we’ll see who bleeds to death first. Of course, no one could bleed with Dell. Not then, anyway. In response, Hewlett-Packard and Compaq, rapidly losing market share to Dell individually, cast their lot together in an ill-fated 2002 merger that soon cost high-profile CEO Carly Fiorina her job (HP is only now regaining its footing). IBM, meanwhile, was forced to sell its PC business in 2004, and Gateway was reduced, in the words of Fortune magazine, to “a shadow of its former self.”

The message was clear enough: The nicer, more-caring Dell was going to be no less bloodthirsty on the battlefield.

ANYONE TRYING TO PROVE that Dell’s joyride is over must confront one very large and very dramatic counterargument: China. Having passed Japan earlier this year, it is now the second-largest market for PCs behind the U.S. and the fastest-growing computer market in the world. If you talk to Dell people, you hear over and over again the same article of faith: The future is China. Well, not solely China. There are other huge, emerging markets out there, like India, where Dell will open a plant next year. But China is by far the ripest opportunity, one already providing Dell with the sort of wild, sustained, double-digit growth it dreams about. Admittedly, China could also erupt in social revolution or civil war, wither under Tiananmen Square—style repression, or fall into a long and debilitating economic recession. That is the risk Dell, and every other company doing business in China, will have to take.

In June I traveled to Xiamen, a coastal city of a million and a half people some three hundred miles northeast of Hong Kong, to see what the future of Dell—and the computer business—actually looks like. The company’s computer plants are here, where broad-shouldered mountains rise from the Taiwan Strait, sparkling skyscrapers jostle with crumbling Mao-era tenements, and late-model Lexuses cruise next to creaking bicycles that look as if they must have been old at the time of the Long March. Like everything else in China, Xiamen is a titanic clash of old and new, and nothing represents the new more than Dell’s low-slung, white-stone-and-mirrored-glass plant, which opened this month near the city’s airport. This is where the company makes PCs and servers for export to South Korea, Japan, and Hong Kong; next door, a slightly older Dell plant produces for the Chinese market.

Inside, it looks nearly identical to Dell’s manufacturing facilities in the U.S. Conveyors bear unassembled computers through a gantlet of blinking lights, industrial hoists, tracking screens, and stacks of inventory so small that it seems impossible that the plant can produce seven million units a year or that it can turn out a computer, from the arrival of materials to shipment on the dock, in less than three hours. But it doesn’t take long to realize what a vastly different market this is and to see the astonishing potential wealth that lies within. While analysts in the West were sounding alarms in the first quarter of 2006 largely because of weakness in U.S. consumer sales, Dell’s (mostly corporate) unit sales in China were jumping 40 percent, a growth rate reminiscent of U.S. and European markets in the nineties, at their most incandescent. Dell now controls some 10 percent of the market (behind Chinese companies Lenovo and Founder but ahead of Hewlett-Packard)—a share it reached faster than it did in any other foreign country, including the U.K. and Australia, in both of which Dell now ranks first. The stark truth is that if China’s computer market continues to grow at its present rate of 25 percent a year and Dell ends up with 20 percent of it—a reasonable assumption, since that’s its current share of the global market—Dell China in ten years could be nearly as big as Dell worldwide is today. (The U.S. market, by contrast, is growing at only 5 to 6 percent.)

All this vast potential was also on display in a meeting I attended in one of the plant’s conference rooms: It was both a corporate pep talk and palpable evidence of the cultural revolution that Dell and Rollins are driving deep into the far-flung ranks of the company. A slender 45-year-old named David Miller, the CEO of Dell in China, spoke to a crowd of some five hundred Chinese workers. He began with praise: Dell was growing like gangbusters in the Asia-Pacific area; Dell’s revenues were up 30 percent, a rate two times that of the competition; China revenues were up 30 percent; market share was up. Next he addressed the company’s recent problems, explaining that Dell had lost some of its cost advantages to competitors and had acknowledged its customer service woes, pledging, “We will never again sacrifice the customer experience for profitability.”

Then he turned to his most important subject, at least as measured by the time he spent on it: making Dell a better place to work. “We want to make sure you really want to come to work every day and that you want to stay … We want to be motivating, not intimidating… Employees can’t feel fear.” He talked about a more nurturing corporate culture in which there are such things as “individual development plans” and “career path management.” Then he said, somewhat surprisingly, “We feel shame that our turnover is as high as it is.” This is the real point of the Winning Culture initiative. As Dell said, they are not doing this to make people happy. (Ironically, Miller himself became part of the turnover in August, becoming one of five high-ranking Dell executives to join Lenovo in the past two years.)

China also illustrates some of the critical advantages Dell has over its competitors. The ability to maintain these advantages—and the willingness of investors to believe they can be maintained—is the key to Dell’s future. They start with what people in the industry refer to as the supply chain: the companies who make the components that go into Dell’s computers, many of which are located in China. The old model was vertical; one company made all of the parts and then assembled them. In the new, horizontal model, microprocessors, motherboards, hard drives, and LCD screens are made by an ecosystem of companies that work together. Managing your supply chain means getting suppliers to deliver exactly what you want (i.e., cheap, innovative, state of the art) exactly when you want it, at the lowest price. Dell has long been better than anyone at this and is notorious for its hardball tactics with its suppliers, often virtually dictating what it will pay.

But Dell’s biggest advantage lies in what happens to its products once they leave the factory. In Dell’s system, computers assembled at the factory are shipped directly to the customer, arriving in a few days. All other computer makers decide which products they would like to make, then make millions of them and send them out into what is known in the industry as the channel: the complex and highly interdependent network of distributors, resellers, and retailers who actually sell the computers. Because no one has ordered these computers, they must, in effect, sit on a shelf until someone buys them. This takes between 30 and 45 days. The problem is the very significant cost, peculiar to the computer business, associated with the lag time: These sorts of products devalue by as much as 1.5 percent per month.

In the nineties, Dell had a market-share edge over its competitors of as much as twenty percentage points, which allowed it to undercut them at will. But that gap has narrowed. Part of this is just the law of evolution: The fittest competitors (HP, Lenovo, Apple, Acer) have survived against one of the most aggressive companies in the world, and they have done so partly by copying Dell’s own practices. They have tightened their supply chains, squeezed costs out of the manufacturing process, and cut the amount of time that their products sit on shelves. HP, Dell’s principal competitor in computer systems, is the best example of this. “We have reduced our costs over the last five years,” says John Dayan, a marketing vice president in HP’s Personal Systems Group. “It has been done, honestly, with a lot of real hard work day in and day out. We have made significant improvement in days of material in inventory, and it now takes under three hours to manufacture a PC.”

Most industry analysts agree that Dell’s edge is shrinking, though they differ on just how much. “The lack of inventory is definitely an advantage that Dell retains,” says Roger Kay, the president of Endpoint Technologies Associates, a leading consultant to the computer industry, “and it retains some but not all of its manufacturing advantages. But in the supply chain area, rivals have caught up and equaled Dell and in some cases surpassed it. This is partly because everyone is using the same Asian manufacturing partners.” Kay also believes, as do many other analysts, that there has been a resurgence of good old-fashioned retail computer buying in the past few years, and that in countries like China, Dell’s direct model is not likely to work as well as it did in Europe and the U.S. Such buying habits favor a smaller brand like Apple, which, while holding only 2.5 percent of the global market (compared with Dell’s 19.3 percent), has shown that it is still possible to sell glamour in a commoditized business—something that Dell’s recent advertising campaign seems to understand.

I KNOW WHAT you’re thinking: Given how affordable it is at the moment, relatively speaking, should you buy Dell stock?

If the company’s supporters are right, Dell is going to start expanding again and will get quite a bit bigger than it is now. With a mere 10 percent annual growth—tortoiselike by its previous standards—Dell will reach $100 billion in revenues within five years, at which point its share price, now stuck in the low $20’s, will be a good deal higher than it is today. Emerging markets like China and India are the best arguments for this.

If the Wall Street skeptics are right, the company’s direct model will look increasingly dated, and Dell will settle into a period of respectable but unspectacular growth befitting a mature, middle-aged company with an unremarkable stock. The market today is full of such companies, who—compared with sexed-up sweethearts like Google—bore investors to death. It is not coincidental that Dell, Intel, and Microsoft, the big three of the computer business for the past twenty years, all languish in the same market doldrums. Between May 1999 and July 2006, Dell’s stock was off 53 percent, but Intel’s was off by the same percentage and Microsoft’s was down 45 percent.

Whatever your perspective, there are certain cold realities that the stock market sometimes seems to forget. Dell still holds a significant built-in cost advantage over its rivals. No one argues with that. Dell is still a lean, highly motivated, and dangerous foe. No one argues with that either. It is, measured in purely objective terms, one of the best companies in the world, as Fortune noted in March 2005 when it named Dell the “most admired company” in America. Its sales overseas, especially in Asia, are incontrovertible evidence that its model works in the world’s fastest-growing markets. Even as its customer service flagged in the U.S., its ratings among its corporate customers—which account for 85 percent of its business—never changed. In the first quarter of 2006, an influential survey of corporate chief information officers rated Dell number one in customer satisfaction in desktops and notebooks and number two in servers. And beware of a market that insists on seeing gloom and doom everywhere and targeting former highfliers with its ire. Buried in this summer’s news of plunging profits at Dell was another piece of information that media like the New York Times failed to note: Though Dell took a major earnings hit, its global PC market share (which includes desktops, laptops, and low-end servers) rose by a full point from the first quarter, from 18.2 percent to 19.3 percent, while HP’s global share fell from 16.5 percent to 16 percent. This important fact—possibly the single most important fact in Dell’s recent past when looking at the company’s long-term prospects—was unaccountably overlooked. There are two final things to bear in mind. First, Dell has always been at its best when it is under attack. This was true in 1989, 1993, and 2001. Second, over the past 22 years, everyone who has bet against Dell has lost, and lost big. The Cassandras have never won, except in the very short term, in spite of whole gangs of market soothsayers who have emerged during tough times to pronounce Dell’s run over. Retired admiral Bob Inman, a former Dell board member who is now a prominent Austin venture capitalist, recalls a day in 1991 when “people thought I was crazy to buy Dell stock. The stock had dropped, and I happened to have the resources and bought twenty-five thousand shares on the open market. The Wall Street Journal made fun of me for it.”

Inman had the last laugh then. Whether Dell has it now is the proverbial $64,000 question, except the answer is worth quite a bit more.