Dominant Economic Traits in PC Industry

Scope of the Rivalry Global, U.S 40% of Market, Europe 11%, AsiaPacific especially China growth markets

Market Size Number of Competitors

1999- 113 M PCs sold, 2001 120M1 Global (at least 7) and National competitors

Growth Rate (Units) PCs --1999 23%, 2000 16%2, 2001 (-8%)3 Servers 2000 16%, 2001- (-16%)4

Customers

Several Buying Groups (Corporations, Government, Academia, Healthcare and Individuals) with different pricing and technology requirements
Minimal backward integration

Prevalence of Backward Integration Distribution

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Retail Outlets and Direct Sales

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Dominant Economic Traits in PC Industry

Entry Barriers Experience Curve, Sizable economies of scale, some brand loyalty, capital requirements PCs Based upon software compatibility (Internet based applications) not hardware5 Obsolescence is an issue because of the speed of components. Lower inventory is preferred Many innovations Operating Margin 2001 7.3% 2000 10% 1999 10.7% Net Profit Margin 4.6% 7.9% 7.9%
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Product Differentiation Pace of Technology

Rapid Product Innovation Profitability 6

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Drivers of Change in PC Industry

Driver Slow Industry Growth Industry Effect 1999 PCs (lower priced units), Servers, and Workstations driving growth

Increasing Globalization
Technological Change

Growth Markets Asia Pacific and Latin America

PC hardware must have compatibility with multiple types of software (Internet Applications) Fast-paces changes in component technology driven by suppliers Customization, low costs, compatibility

Suppliers Larger Role Customer Preferences

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Key Success Factors in PC Industry

Technology-related Manufacturing-related Distribution-related Marketing-related

Software Compatibility, Internet Technical Support (drives down costs) Quality, customization, efficiency Low distribution costs, short delivery times Breadth of Products and Services

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Dells Value Chain Primary Activities

Purchased Supplies and Inbound Logistics Suppliers

Long-term partnerships
Brand name components Suppliers part of Dells Design team valuechain.dell.com Logistics Just-in-Time delivery Low inventory ratio 6 days vs. Gateway at

14 days, Compaq with 23 days

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Dells Value Chain Primary Activities

Operations Customized Assembly

Cell Manufacturing with Groups vs. Traditional

Individuals at a single station (75% reduction in assembly time and 100% increase in productivity) Quality Control Programs
Distribution and Outbound Logistics

Direct Sales
Simultaneous shipping of PC and monitors
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Dells Value Chain Primary Activities

Sales and Marketing Direct sales provided immediate feedback

about customer preferences 8 Market Segments Sales representatives for large corporate and institutional accounts Internet, phone, and fax sales

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Dells Value Chain Primary Activities

Service Repairs through local contractors

Customer and technical support via a toll free

number, fax, or e-mail Customer Software added at the factory Premier Pages for corporate accounts On-site Service On-site Support Customer Forums Online order Inquiries
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Dells Value Chain Support Activities

General Administration Strategic partnerships with Microsoft and Intel

Human Resource Management

Training for Sales-account managers Profit-sharing for Compensation 360-degree performance appraisal Research and Development Product Development - $250 M (1% of sales)

annually to improve customers experience with product Efforts to improve users experience
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Dells Value Chain Support Activities

Research and Development Direct sales provided immediate feedback

about customer preferences 8 Market Segments Sales representatives for large corporate and institutional accounts Internet, phone, and fax sales

McGraw-Hill/Irwin

Copyright 2001 by The McGraw-Hill Companies, Inc. All rights reserved.

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