KARACHI UNIVERSITY BUSINESS SCHOOL

Group # Name Class Summary Date

1 Kamran Tahir (14) BS-VIII Case II: Dell Inc. October 25, 2013

Submitted to Prof. Dr. Ali Askari

Case II: Dell Inc.

MANAGEMENT ISSUES Vision Statement Its the way we do business. Its the way we interact with the community. Its the way we interpret the world around us our customers needs, the future of technology, and the global business climate. Whatever the changes the future may bring, our vision Dell Vision will be our guiding force. Mission Statement Dells mission is to be the most successful Computer Company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of: Highest quality Leading technology Competitive pricing Individual and company accountability Best-in-class service and support Flexible customization capability Superior corporate citizenship Financial stability

Organization Structure Headquartered in Round Rock, Texas, Dell Inc. is managed on a geographic basis. The three geographic segments are the Americas, Europe, and Asia-Pacific. Dell maintains more than 7 million square feet of office, research, manufacturing and distribution space in the United States, with another new half-million squarefoot manufacturing facility under construction in North Carolina. Dell also maintains 4.5 million square-feet of office, research, manufacturing and distribution space around the globe. The Americas The Americas segment is based in Round Rock, Texas and covers the US, Canada, South America and Latin America. Dells operations in America are reported in two different categories: Business and US Consumers. The net revenues for the Business Division amounted to $25,339 million, making it by far the companys largest segment, accounting for almost 52 percent of total net revenues and 61 percent of total operating income in 2004. The consumer sales in the US totaled $7,601 million, accounting for just over 15 percent of total net revenues and over 9 percent of total operating income in 2004. Together, the Americas region account for almost 67 percent of Dells total net revenues and 70 percent of operating income. Dell controls 29.1 percent of the total market for PC sales in the Americas, easily placing it ahead of its rivals.

Case II: Dell Inc.

Dell Inc.s Geographic Area Information 2004 (in $ million)
Net Revenues
Americas Business Americas Consumer Total Americas Europe Asia-Pacific Total Net Revenues Operating Income Americas Business Americas Consumer Total Americas Europe Asia-Pacific Total Net Revenues Annual Share of Personal Computer Sales Americas Europe Asia-Pacific Worldwide 2,579 399 2,978 818 458 4,254 2,194 400 2,594 637 313 3,544 1,945 308 2,253 388 203 2,844

28 Jan 05
25,339 7,601 32,940 10,787 5,478 49,205

28 Jan 04
21,888 6,715 28,603 8,495 4,346 41,444

28 Jan 03
19,394 5,653 25,047 6,912 3,445 35,404

29.10% 11.70 8.30 17.80

27.70% 10.50 7.20 16.70

24.80% 9.60 5.80 15.00

Europe Dells Europe operations are based in Bracknell, England, and covers the European, some African and Middle Eastern countries. Dell reported net revenues of $10,787 million from Europe in 2004, amounting to almost 22 percent of total net revenues and 19 percent of its total operating income. Dells 11.7 percent market share for sales of PC sales in Europe, makes Dell the second-largest supplier of computers in this segment. Asia-Pacific The Asia-Pacific segment is based in Singapore and covers the Pacific Rim, including Japan, Australia and New Zealand. In 2004, sales in the Asia-Pacific segment generated $5,487 million in net revenues, accounting for just over 11 percent of total net revenues and total operating income in 2004. Dell is the third largest supplier of personal computers in Asia-Pacific and holds 8.3 percent of market share. Manufacturing Dell manages manufacturing facilities in six locations: Austin, Texas (Americas) Nashville, Tennessee (Americas) El dorado do Sul, Brazil (Americas) Limerick, Ireland (Europe) Penang, Malaysia (Asia-Pacific and Japan) Xiamen, China (China)

Case II: Dell Inc.

Dell maintains least possible levels of inventory through its build-to-order approach, where products are manufactured only after orders are received from customers. Parts, components and subassemblies purchased from suppliers are tested and held to quality standards. This attribute lessens Dells exposure to the risk of declining inventory values and allows it to quickly incorporate new technologies or product components into its product offerings. To ensure defect-free product, testing is performed at various stages during manufacturing and assembling processes. Marketing Dells customer base includes large corporations, government agencies, healthcare and educational institutions, small businesses and individuals. Dell divides its customers into three groups: relationship, transactional, and Internet. Relationship customers include large corporations, government agencies, health-care and educational institutions, and small to mid-size businesses. Transactional customers are typically small to mid-sized businesses. Dell markets its products and services to these customers through advertisements in TV and Internet, and mailing product catalogues. Internet customers can access a wide-range of information about Dells products and offerings and place orders by visiting Dells Web site (www.dell.com). Finance Dells total net revenues for 2004 of $49,205 million is almost a 40 percent increase over its 2002 revenues of $35,404, indicating an annual growth rate of almost 19 percent. Besides that, Dells net income has increased from $2,122 million in 2002 to $3,043 million in 2004, showing an annual growth of 19.75 percent. Competitors Dell faces daunting competition from Hewlett-Packard, IBM and Lenovo. Competition on the basis of price, technology availability, performance, product offerings, and services is very intense in PC market. Dell could maintain profitability by reducing its operating expenses and by continuing to leverage its lean inventory model to rapidly realize the benefits of component price declines. Hewlett-Packard HP is Dells closest competitor by most accounts. In 2003, Dells 16.7 percent market share of global PC market surpassed that of HPs 16.2 percent. The gap has widened further, with Dell boasting a market share of 18.3 percent against HPs 15.7 percent. Dells operating margins of 8.8 percent far outstrip HPs 0.9 percent profit margin. However, HP does have certain competitive strengths. HPs total net revenues for 2004 of $79,905 million are far greater than Dells $49,205. Sale of printers and printer inks generate 30 percent of HP total net revenue, though contribute 70 percent towards its operating profits. To challenge HP in printer market, Dell has begun to sell printers (by rebranding Lexmark printers), but it is yet to be seen if Dell would be able to offer serious competition to HP, given the dominating position HP enjoys. HP sold 43 printers in 2004 compared to Dells 3 million.

Case II: Dell Inc.

IBM IBM divested its Personal Computing Division to Lenovo in 2004, citing Dells profit margin advantages and difficulty in maintaining a reasonable profit margin. Still, IBM and Dell compete directly in the computer server market. However, Dells low-cost, low-research approach to manufacturing has hampered its ability to compete with IBM (with net revenues of $96,293 million). Dell holds 9 percent of server market, compared to IBMs 32 percent. In addition, much of Dells sales are in the lower, less-profitable end of the server industry, whereas IBM is thriving in the upper and middle sections of server market. IBM spends $1 billion annually in research and development, which allows it come up with unique solutions. This would further deteriorate Dells ability to compete with the more complex offerings of IBM. Gateway Computers Gateway Computer, a once formidable competitor to Dell, has collapsed in recent years. In 2004, Gateway acquired eMachines and appointed eMachines CEO to take helm of the combined company. Gateway commands only 6 percent of the PC market against Dells 29 percent, and its net revenues for 2004 were merely $3,650 million. The company posted a net loss for 2004 of $475 million and it is distinctly possible that it would not be able to survive the tight competition in PC market. Apple Computer Apple has continued to introduce innovative designs for its brand of personal computers. The use of color, styling, and a commitment to its own operating system means that Apple clearly has a unique product line. In addition to that, Apple has enjoyed remarkable success with its iPod line of portable digital music players. Apples 2004 net revenues of $8,279 million are dwarfed by Dells $49,205 million. Apples 2004 net income of $276 million is likewise surpassed by Dells $3,043 million. Apple with its 5 percent share of the US PC market seems an unlikely competitor to Dell with 29 percent market share. However, Apples philosophy of innovation, experimentation and leading-edge design is a stark contrast to Dells focus on cost and inventory control. Recommendations 1) Dell should follow the lead of IBM and set aside a research and development budget of 1 3 percent of net revenues every year. This would prove to be highly beneficial in improving Dells competitive edge in the long-run. 2) To compete more efficiently with rivals that enjoy low-wage advantages, such as Lenovo, Dell must consider shifting some of its manufacturing and assembling operations in low-wages countries such as China and Vietnam, which are in close proximity to its potential markets. 3) Dells must avoid selling rebranded Lexmark printers, where Dell might not be successful in achieving cost-benefits. Rather, Dell should consider developing its own line of printers and printer inks.

Case II: Dell Inc.

4) In growing markets, such as China and India, Dell may not be able to apply its build-to-order approach as most of the customers would be first time buyers. Hence, to fully tap the potential of emerging markets must consider opening retail stores or entering into agreements with other retailers. 5) Dells adherence to the commodified low-cost version of the PC may prove to be a limitation in the future. In a market in which consumers regularly shell out thousands of dollars for cutting-edge high-end gaming and performance machines, Dells generic offerings may prove vulnerable. 6) Dell must conduct extensive experimentations with its Internet server product lines and come up with more sophisticated systems for offerings to higher value sections of the market.