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Dell Inc. in 2005Dell Inc. in 2005

History of Dell ComputersHistory of Dell ComputersMichael Dell, Founder.Michael Dell, Founder.Dell started business as a Dell started business as a student in 1983.student in 1983.Company renamed Dell Company renamed Dell Computer in 1987Computer in 1987

Michael Dell, Founder of Dell Computers

Computer in 1987.Computer in 1987.Dell Computers hit Fortune Dell Computers hit Fortune 500 in 1992.500 in 1992.Became the leader of PC Became the leader of PC industry in the U.S. in industry in the U.S. in 1999.1999.Became the worldwide Became the worldwide leader in PCs in 2001. leader in PCs in 2001.

ProductsProductsDell’s principal products include:Dell’s principal products include:

Desktop PCsDesktop PCsNotebook computersNotebook computersWorkstationsWorkstationsServersServersServersServersPrintersPrintersStorage devicesStorage devicesMP3 playersMP3 playersLCD and Plasma TVsLCD and Plasma TVsDigital camerasDigital camerasMemory cardsMemory cards……

How Well has Dell been How Well has Dell been Performing?Performing?

2004 2003 2002 2001 2000 1999 1998

U.S. market share 33.10% 30.90% 27.90% 23.50% 19.70% 16.60% 13.20%

Global market share 18.40% 16.90% 15.20% 12.90% 10.60% 10.50% 8.50%

Revenue (millions) $41,444 $35,404 $31,168 $31,888 $25,265 $18,243 $12,327

Gross profit $7,552 $6,349 $5,507 $6,443 $5,218 $4,106 $2,722

Operating expenses $4,008 $3,505 $3,718 $3,780 $2,955 $2,060 $1,406

Net income $2,645 $2,122 $1,246 $2,177 $1,666 $1,460 $944

How Well has Dell been How Well has Dell been Performing?Performing?

2004 2003 2002 2001 2000 1999 1998

U.S. share growth 7.12% 10.75% 18.72% 19.29% 18.67% 25.76%

Global share growth 8.88% 11.18% 17.83% 21.70% 0.95% 23.53%

Revenue growth 17.06% 13.59% -2.26% 26.21% 38.49% 47.99%Gross profit margin 18.22% 17.93% 17.67% 20.21% 20.65% 22.51% 22.08%Operating

efficiency 9.67% 9.90% 11.93% 11.85% 11.70% 11.29% 11.41%Net margin 6.38% 5.99% 4.00% 6.83% 6.59% 8.00% 7.66%

Net profit growth 24.65% 70.30% -42.77% 30.67% 14.11% 54.66%

Dell Inc. PerformanceDell Inc. Performance

Market shares continue to grow, so do Market shares continue to grow, so do revenues and net profits.revenues and net profits.Able to maintain profit margins.Able to maintain profit margins.Abl t i i ti l ffi iAbl t i i ti l ffi iAble to gain in operational efficiency.Able to gain in operational efficiency.Overall, a great company!Overall, a great company!

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(Potential) Problems Faced by (Potential) Problems Faced by Dell Inc.Dell Inc.

Growth in sales, market share, and profits Growth in sales, market share, and profits are slowing down.are slowing down.Not clear what SBU could serve as “Star”Not clear what SBU could serve as “Star”Not clear what SBU could serve as Star Not clear what SBU could serve as Star and which SBU is a potential “Star”.and which SBU is a potential “Star”.How to continue to grow into the future.How to continue to grow into the future.

Factors that Contributed to Dell Factors that Contributed to Dell Inc.’s PerformanceInc.’s Performance

A great strategy!A great strategy!Superb execution.Superb execution.Growth of the PC markets.Growth of the PC markets.Leadership.Leadership.Human resources.Human resources.

What is Dell’s strategy for growth?What is Dell’s strategy for growth?

Leverage the company’s strong capabilities in supply Leverage the company’s strong capabilities in supply chain management, lowchain management, low--cost manufacturing, and direct cost manufacturing, and direct sales to expand into product categories where it could sales to expand into product categories where it could provide added value to its customers (chiefly in the form provide added value to its customers (chiefly in the form of good products at lower prices than rivals charged)of good products at lower prices than rivals charged)

The standard pattern of attack was to identify an IT product with The standard pattern of attack was to identify an IT product with good margins, figure out how to build it (or else have others build good margins, figure out how to build it (or else have others build it) cheaply enough to be able to significantly underprice the it) cheaply enough to be able to significantly underprice the competitive products of rivals; and then market the item to Dell’s competitive products of rivals; and then market the item to Dell’s steadily growing customer base.steadily growing customer base.

Key Elements of Dell’s StrategyKey Elements of Dell’s Strategy

A costA cost--efficient approach to buildefficient approach to build--toto--order order manufacturing and mass customization;manufacturing and mass customization;Partnership with suppliers to squeeze costPartnership with suppliers to squeeze cost--savings out of the supply chain;savings out of the supply chain;g pp yg pp yCommitment to justCommitment to just--inin--time inventory practices;time inventory practices;Direct sales and the use of extensive market Direct sales and the use of extensive market segmentation segmentation Customer valueCustomer value--added services and technical added services and technical support;support;

Key Elements of Dell’s StrategyKey Elements of Dell’s Strategy

Pioneering use of Internet and ePioneering use of Internet and e--commerce commerce technology;technology;Expansion into new products and IT servicesExpansion into new products and IT services

deliberately launch offensives to take sales and deliberately launch offensives to take sales and yymarket share away from rivals in those areas where market share away from rivals in those areas where they make a high proportion of their profits (i.e., HP in they make a high proportion of their profits (i.e., HP in printers and printer cartridges; Compaq and HP in printers and printer cartridges; Compaq and HP in servers; Cisco in routers and switches);servers; Cisco in routers and switches);

Building the Dell brand via advertising;Building the Dell brand via advertising;Good testing and quality control procedures.Good testing and quality control procedures.

Factors That Contribute to Dell’s Factors That Contribute to Dell’s ProblemProblem

Slowing down of PC marketsSlowing down of PC marketsIntense competitionIntense competitionShifting customer preferenceShifting customer preference

Consumers want laptopsConsumers want laptopsBusinesses demand systems and servicesBusinesses demand systems and services

Limited product linesLimited product linesLack of R&D capabilitiesLack of R&D capabilities

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What are Dell’s Distinctive What are Dell’s Distinctive Competencies?Competencies?

JustJust--inin--time inventory practices and supply chain time inventory practices and supply chain management (no one in the PC industry does it management (no one in the PC industry does it betterbetter——or even comes close to matching what or even comes close to matching what Dell can do).Dell can do).LL t b ildt b ild tt d f t i dd f t i dLowLow--cost buildcost build--toto--order manufacturing and mass order manufacturing and mass customizationcustomization——a worlda world--class manufacturing class manufacturing innovator.innovator.Direct sales capabilities (no rival can yet match Direct sales capabilities (no rival can yet match Dell)Dell)——and the capabilities are global.and the capabilities are global.Leadership in use of the Internet and eLeadership in use of the Internet and e--commerce technologies.commerce technologies.

What are Key Weaknesses of What are Key Weaknesses of Dell?Dell?

Direct sales is probably not the best way to access firstDirect sales is probably not the best way to access first--time buyers, plus it has disadvantages in Japan and time buyers, plus it has disadvantages in Japan and China where buyers like to look and touch before buying.China where buyers like to look and touch before buying.No inNo in--house repair service capabilities (as some rivals house repair service capabilities (as some rivals have).have).))Lacks the product line and IT service breadth of HewlettLacks the product line and IT service breadth of Hewlett--Packard and IBM.Packard and IBM.A somewhat weaker brand name image and reputation A somewhat weaker brand name image and reputation as compared to HP and IBM (at least for large enterprise as compared to HP and IBM (at least for large enterprise customers).customers).Lacks R&D capabilities.Lacks R&D capabilities.Become too big and too diversified too fast (battery Become too big and too diversified too fast (battery problem).problem).

What Recommendations would What Recommendations would you make for Dell to achieve you make for Dell to achieve

longlong--term growth?term growth?gg gg

Some broad strategiesSome broad strategies

Complementing product development with Complementing product development with market development.market development.Global expansion.Global expansion.Leverage its distinctive competenciesLeverage its distinctive competenciesLeverage its distinctive competencies.Leverage its distinctive competencies.Continue brand building and skill Continue brand building and skill upgrading (e.g., inupgrading (e.g., in--house R&D).house R&D).Develop/acquire systems and service Develop/acquire systems and service capabilities.capabilities.Build viable “Stars”!Build viable “Stars”!

Dell’s Sales Growth by Dell’s Sales Growth by Geographical MarketsGeographical Markets

2004 2003 2002 2001

Americas 14% 15% ‐5% 28%

Business 13% 12% ‐9% 25%

Consumer 19% 26% 15% 44%

Europe 23% 8% 0% 14%

Asia‐Pacific 29% 16% 14% 46%