Why Are These CEOs Smiling?

(2 of 3)

One of the few Net companies to be profitable since its inception, eBay is on track to pull in $1 billion in revenues next year and record 70% earnings' growth for the next two to three years, according to Jeetil Patel, senior e-commerce analyst at Deutsche Bank Alex. Brown. eBay owns 85% of the online consumer-auction market, and it is poised to grab more, cutting into newspapers' revenues from classified advertising and Yahoo's and Amazon's copycat auction sites. It has also made significant inroads in Europe and Asia.

--DELL COMPUTER Michael Dell spent the 1990s boom building his homegrown PC operation into a formidable competitor to powerhouses like Hewlett-Packard and Compaq. But as the U.S. economy teeters on the brink of recession, he's cementing his place alone at the top. Taking advantage of a low-cost, low-inventory, direct-sales business model, Dell launched a harsh price war last year that has effectively crippled rivals and handed the company an increasing share of the market. "In a recession, customers become more price and performance sensitive," says Kevin Rollins, Dell's chief operating officer. "Our model shines even more [now]."

Despite the ongoing tech slump, Dell has added 26 new corporate accounts this year, and plans to take advantage of the customer confusion about the proposed merger of H-P and Compaq to win even more. Because Dell manufactures each computer for about half the cost of its rivals, it can afford to squeeze the competition--even if its gross margins have dropped to about 17% from 20% last year. By selling PCs directly to customers without any middlemen, Dell carries only four days' worth of inventory--compared with 20 to 30 days for the rest of the industry--and can immediately pass on to customers savings from drops in component prices. Any shipping delays caused by heightened security also play to Dell's strengths; it requires its suppliers to keep warehouses near the main Dell plant outside Austin, Texas, and its sophisticated tracking system lets the company know ahead of time what parts it will need.

Dell recently reaffirmed its third-quarter estimates of between $7.2 billion and $7.6 billion in sales, with about $423 million in earnings. Though the price war will push total sales down 3% this year, Dell is still way ahead of its rivals. Compaq recently warned that its third-quarter revenues would be $1 billion less than expected, and Gateway's third-quarter sales took a similar hit.

Since 1999, Dell's share of the worldwide PC market has gone from 10% to almost 14%, vaulting it past Compaq for the lead. It commands a full quarter of the U.S. market, twice that of its nearest competitor, Compaq. Dell is a growing presence in the more lucrative market for high-end server computers and storage systems. In just five years, it has gone from a bit player in this area to No. 2 worldwide, with almost 20% of the market.

--TOYOTA For years, the U.S. auto industry tried to emulate the advanced manufacturing systems pioneered by Japanese carmaker Toyota, known for high-quality (if boring) vehicles like the popular Camry. But Toyota keeps extending its lead. In the first nine months of this year, Toyota's U.S. sales increased 5.3%, even as the total U.S. market fell about the same amount. Along with Honda, Toyota has helped drag below 60% the share of the U.S. market for new cars traditionally won by the Big Three of Chrysler, Ford and General Motors.

After listening carefully to its U.S.-based design chiefs, Toyota has come up with a stylish, new lineup for the next year; including the popular Lexus luxury line, it features a dozen new designs including six so-called crossover vehicles (like minivan-suv hybrids). As the Big Three ax workers and idle plants, Toyota is ramping up production in the U.S., where capacity will hit 1.45 million cars by 2003, and continuing its strategy of building cars close to target markets. It is expanding an Indiana factory and is likely to build a new North American assembly plant, its fifth, in Mexico.

Toyota can shift production of different models much quicker than its rivals, and it can take a new car from design to production in less than a year, compared with as many as three years for its Motor City competitors. In August the company came very close to selling more cars than Chrysler, the first time ever that an import would have outsold one of the Big Three. Its total market share has soared from 8.5% in 1999 to almost more than 10% this year, putting it just behind faltering Chrysler.

--STEEL DYNAMICS It takes guts to launch a start-up in a slowly dying industry--and more guts to build a new, $315 million plant when that industry is suffering its worst crisis in 30 years, facing cheap imports and falling prices and demand at home. But for industry veterans Keith Busse, Mark Millett and Richard Teets Jr., who founded Steel Dynamics in 1993, there's no better time for their reinvented steel business to show its mettle.