When times get tough in the computer industry - and they could hardly be tougher than they are now - Dell Computer simply turns up the heat and watches its competitors wilt.

So far, the strategy has worked well. The Texas-based company is the world's biggest manufacturer of personal computers, having overtaken Compaq earlier this year, and has gained market share as global PC sales have faltered.

But can Dell's aggressive pricing and relentless cost-cutting keep it ahead at a time when PCs have virtually become a commodity product and IT companies have to keep mutating their business models in the new internet-driven business environment?

Michael Dell, the 36-year-old founder and chief executive of the company which bears his name, certainly thinks so. Although his relaxed, imperturbable manner displays cool confidence rather than outright aggression, he makes it clear that he is determined to give his rivals no quarter.

"We're profitable, we're growing, and it's sort of crunch time for our competitors because they are in a commodity business," he says. "They can't differentiate themselves, even amongst themselves, and certainly not against Dell, and they're losing money. So they've got tough choices to make."

Mr Dell has thrived by making the company ultra-lean as he pioneered the practice of direct computer selling, first over the telephone and then via the internet. Half its business is now transacted online.

But when the IT industry began to slump this year, he drove down costs and cut prices to attract buyers away from less agile competitors. He does not intend to soften that strategy, even when the market turns up again.

He expects this to happen around next spring. Sales of PCs and other equipment should, he believes, be stimulated by the arrival next month of Microsoft's Windows XP operating system and the continued marketing drive behind Intel's latest Pentium 4 microprocessor.

It will also be nearly three years since the last big wave of equipment purchasing ahead of 2000 and the widespread fears of the millennium bug.

But how much of any new growth will come to Dell and how much to its competitors? Mr Dell wants his company to grab as much new business as possible.

"It's our intention to stay very very aggressive on price and have the most aggressive pricing in the industry, deliver more value to customers and have as many of those customers as possible come to Dell.

"So it [the eventual recovery] might be great news for the industry, it might be great news for Dell - but it might not be great news for all the other companies."

Price war

Dell's price cuts have forced rivals to follow suit. But because they mostly do not have such a slim operating base as Dell, they tend to feel the pain more. Compaq, for example, recently said it would put more emphasis on software and services and drop its own Alpha microprocessors in favour of Intel technology.

Mr Dell grudgingly agrees that he has set off a price war. "Well, yes, it's kind of a price war. It's really more like a cost war because if you have the best cost structure, you win. And the customer wins. You can't forget about the customer - that would be a big mistake."

Keeping customers happy has been central to Mr Dell's credo since he founded Dell in 1984 with $1,000 while still a student at the University of Texas.

By cutting out the middleman, keeping production lean and focusing heavily on customer service, Dell has grown into a company with annual sales of $32bn.

Products are built to order and the company carries only four days of inventory, far less than its rivals. "No wonder Dell's growing so much faster than the other guys," Mr Dell says.

"It's all about providing benefit for the customer which translates itself into market share and obviously, in our case, profits and growth."

However, the rapid deterioration of conditions in the IT industry has brought pain to Dell and its competitors. For example, Gateway, the second largest direct retailer of PCs, is planning to cut some 4,600 jobs from its 19,000-strong workforce as it shuts down operations in Asia and considers withdrawing from Europe. US-based Gateway has already shed 3,000 workers so far this year.

Dell, too, has cut jobs sharply as it has striven to keep ahead by constantly shaving costs. This year, the company has announced reductions in the workforce totalling 5,700. It now employs 35,300 people.

Dell's continuing success in the cut-throat PC world will depend on how far it can keep growing faster than the market. Its current world market share is around 13 per cent.

But growth in PC sales has come to a halt. Figures from Gartner Dataquest, the market researcher, show that worldwide PC shipments eased by 1.9 per cent in the second quarter over the same period of last year.

This was the first time the market had slipped for 15 years. But such trends hold few fears for Mr Dell. "We have never been a particularly good indicator of the market, because we've always been attracting more customers than the rest of the market."

Moreover, Dell's future does not just lie with PCs. At present, these account for about a third of profits, which last year totalled $2.3bn after tax, a rise of 24 per cent.

However, second quarter net income this year fell by 28 per cent to $433m. After taking account of a $742m pre-tax charge for job cuts and other restructuring costs, Dell actually made a $101m loss. But overall product shipments were up 19 per cent, prompting US investment bank Merrill Lynch to talk of Dell's "superior execution and impressive market share gains".

With PCs playing a lesser role in Dell's fluctuating fortunes, servers, storage devices and services have been gradually accounting for a larger slice of business.

"I would expect the desktop PC to continue to diminish as a percentage of our profits." The PC will, nonetheless, remain a core element in Dell's strategy.

Mr Dell even plans to triple the company's worldwide market share. "I, personally, don't see any reason why we can't capture as much as 40 per cent of the customer opportunity that exists out there in our market." Dell already has more than 40 per cent of the US market for desktop PCs and notebook computers, he adds. But he is not prepared to say when it could achieve this share on a global scale.

"Whenever we're fortunate enough to deliver enough value to our customers, then we'll have a 40 per cent share." What happens if PCs fall out of favour? He has a ready response to what is obviously a familiar question. "Much has been said about the demise of the PC and a long string of things that were supposed to kill the PC.

"There was the network appliance, network terminals, the network computer and the internet appliance and pen computers and mobile phones, TV, internet, PDAs. All these things. The fact is that none of these have ever killed the PC. A lot of them have been dismal failures."

He does not see people buying mobile phones or PDAs (personal digital assistants) to replace PCs. Instead, as wireless internet links develop, he expects PCs - in more mobile form - PDAs and other devices to be hooked up to "always on" packet data networks.

"Does that mean that the PC is a great replacement for your phone or your PDA or your television? No, of course not." So while data is converging, devices are not. "We could put a PC on your watch but you can't read the screen, you can't type on the keyboard - does you no good."

While some IT visionaries may disagree, Mr Dell has succeeded by keeping his feet on the ground. Yet even he would be dismayed if the slowdown was prolonged and the PC market continued to suffer. Then, Dell's well-oiled business model would really have to show its mettle.