DELL Computers Corporation
Jose Villarreal
Wei Zhong
Xiao Dong Lin
We will look at:
-History of the DELL
-Will look at the direction they should be going in
-What they need to do to get there and
-Whether their present leader is the man for the job.
1
OVERVIEW
We make computing easy.
Like it should be.
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
2
Dell is the world's leading computer systems company. They design, build and customize
products and services to satisfy a range of customer requirements. From the server, storage
and Premier Services needs of the largest global corporations, to those of consumers at home.
They do business directly with customers, one at a time, and believe They do it better than
anyone on the planet.
Over the last 18 years, Dell has emerged as one of the most successful technology franchises
in the United States. Founded in 1984 and public since 1988, Dell has be-come one of the
largest suppliers of personal computers in the world, growing revenue from less than $1 billion
in fiscal 1992 to over $31 billion in fiscal 2002. To-day, Dell commands 15% of the
worldwide PC market and has over 35,000 employees with manufacturing facilities in Texas,
Tennessee, Brazil, Ireland, China and Malaysia. While Dell operates a highly collaborative
research and development model, leveraging technology partners Microsoft and Intel, among
others, Dell has 730 patents and 535 pending patents that include everything from
manufacturing process patents to computer design patents.
We attribute Dell’s success within the computer industry to its unique, low-cost busi-ness
model, direct sales approach and collaborative research and development. By focusing on
leveraging its core competency in supply-chain management and low-cost manufacturing
within mature technology segments, such as PCs, Dell has a proven strategy to disrupt
traditional technology business models that rely on proprietary technology or multistage sales
and distribution. A key part of Dell’s success stems from leveraging widely available industry
technology within a low-cost manufacturing framework as a way of displacing the
competition. This is already evident by market-share gains in PCs, and it is becoming more
evident by recent success in servers, storage and low-end networking.
Today, about 46% of Dell’s total revenue is tied to PC hardware while the remaining 54% of
revenue is tied to enterprise systems (storage, servers, networking, etc.), third-party products
and services (both PC and non-PC related). Interestingly, while PC hardware accounts for 46%
of total revenue, non-PC hardware accounts for more than 50% of total gross profit. Going
forward, we believe profit growth, as it is today, will be driven primarily by non-PC hardware
revenue.
2
History
•
1984 Michael Dell founds Dell Computer Corporation
•
1985 Company introduces the first computer system
•
1987 Dell is first computer systems company to offer next-day, onsite product service
•
1991 Company introduces its first notebook computer
•
1996Dell opens original Asia-Pacific manufacturing
•
1997Dell ships its 10-millionth computer system
•
1999 Dell opens second major U.S. location in Nashville
•
2000 Company sales via Internet reach $50 million per day
•
2001For the first time, Dell ranks No. 1
Strategic Management
n1984Michael
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
3
Dell founds Dell Computer Corporation
n1985Company
introduces the first computer system of its own design; the Turbo, featuring Intel 8088 processor
running at eight megahertz
n1987Dell
is first computer systems company to offer next-day, on-site product service. International expansion begins
with opening of subsidiary in United Kingdom
n1988
Dell conducts initial public offering of company stock,3.5 million shares at $8.50 each
n1990
Manufacturing center in Limerick, Ireland, opened to serve European, Middle Eastern and African markets
n1991
Company introduces its first notebook computer
n1992
Dell included for first time among Fortune 500 roster of world's largest companies1993Dell joins ranks of the
top-five computer system makers worldwide. Subsidiaries in Australia and Japan are company's first entries into AsiaPacific region
n1993
Dell joins ranks of the top-five computer system makers worldwide. Subsidiaries in Australia and Japan are
company's first entries into Asia-Pacific region
n1995
$8.50 shares of Dell stock worth $100 on presplit basis
n1996Dell
opens original Asia-Pacific manufacturing center in Penang, Malaysia. Customers begin buying Dell
computers via Internet at www.dell.com Dell begins major push into network-server market. Company added to
Standard & Poor's 500 stock index
n1997
Dell ships its 10-millionth computer system Per-share value of common stock reaches $1,000 on presplit basis.
Dell introduces its first workstation systems. Company sales via Internet exceed $4 million per day, from $1 million at
the start of the year
n1998Company
expands manufacturing facilities in the Americas and Europe, and opens a production and customer
center in Xiamen, China. Dell introduces its PowerVault storage products1999Dell opens second major U.S. location
in Nashville, Tenn. Dell opens manufacturing facility in Eldorado do Sul, Brazil, to serve Latin America. Dell
introduces "E-Support Direct from Dell" online technical support
n2000
Company sales via Internet reach $50 million per day For the first time, Dell is No. 1 in worldwide workstation
shipments. Dell introduces Power App appliance servers Dell ships its one millionth Power Edge server
n2001
For the first time, Dell ranks No. 1 in global market share Dell is No. 1 in the United States for standard Intel
architecture server shipments. Dell introduces Power Connect net work switches
n2002Dell
names its Austin Manufacturing Campus the Topfer Manufacturing Center in recognition of the
contributions Mort Topfer made to Dell and the community during his tenure, 1994 to 2002.Dell enters the projector
market with the introduction of the 3100MP micro-projector.
3
VISION
• Learn
• Give
• Connect
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
4
Information technology has changed the world in which we live by enabling businesses and
individuals to simplify tasks and accomplish more each day. But technology has also played an
important role in giving us greater power to make a positive difference. All around the globe,
people are turning on their computer systems, going on the Internet, and discovering new ways
to learn about the world, connect with other people, and give time and resources to their
communities.
Dell encourages everyone to Techsplore - to explore new ways of using technology to do good
things and leave a positive impression on the world. This is Dell's vision of technology, and we
are committed to providing the tools for making it easier to Techsplore. From our TechKnow
program that's putting computer systems in the hands of students and teaching them how to use
them, to Know-the-Net, which takes users on a journey through the Web, to E-ssentials, a
guide to online privacy and safety, to Tech in the City, panel discussions on women and
technology, Dell's goal is to help people get the most out of technology -- and support their
efforts to make a better world.
4
Mission
Dell's 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
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
5
Only Slide
5
The Portfolio
•Desktop Computers
•Portable Computers
•Enterprise Systems
•Third-Party Products
•Services
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
6
Dell distributes various computer systems and services via direct customer relationships and the dell.com web site. No
single customer accounts for more than 10% of revenue.
Desktop Computers
Hewlett-Packard is the No. 1 supplier with 15.4% market share. Legend, IBM, Toshiba, Gateway and NEC, among
others, control the remaining 70% of the PC market.
During the June quarter of 2002, Dell continued to gain market share, showing 18% year-over-year unit growth versus
the PC industry, which was down 2% due to the prolonged IT spending downturn. Dell’s market -share gains can be
partially attributed to continued penetration within key consumer, government and education verticals.
According to IDC, Dell is the No. 1 supplier of desktop computers in the United States and No. 2 worldwide. Dell
manufactures and distributes three desktop product lines under the OptiPlex, Dimension and SmartStep brands.
OptiPlex is optimized for the commercial PC market. Dimension is optimized for power users within the commercial
PC market. SmartStep is a low-cost desktop computer optimized for the consumer PC market.
Portable Computers
Last quarter(starting July 2002), Dell’s portable computer unit shipments increased 17% year over year, compared to
4% industry growth excluding Dell.
According to IDC, Dell is the No. 1 supplier of portable computers worldwide. Dell manufactures and distributes two
lines of portable computers under the Latitude and Inspirion brands. The Latitude line is optimized to address the
computing needs of large enterprise and government verticals, among others. The Inspirion line is opti-mized to
address the computing needs and multimedia requirements of consumers and small businesses. Last quarter, portable
computer unit shipments increased 17% year over year, compared t o 4% industry growth excluding Dell.
Services
Based on pursuing a single-source strategy, Dell is also expanding the number of ser-vices that it provides, including
professional consulting services, custom integration, leasing, installation and onsite service and support. Service
revenue from consulting, warranty contracts, custom integration and leasing accounts for about 10% of reve-nue and
27% of gross profit. In the last three years, service revenue has more than tripled, increasing to more than 10% of the
revenue mix today from 5% in F1999.
Enterprise Systems
Dell’s 8% server market -share is compared to Hewlett-Packard and IMB, which each have 28% market share.
Industrial watcher predict that Dell’s server business will growat twice the projected industry growth rate of 4.5%.
Over the last five years, Dell has expanded its product line beyond PC products and services into additional enterprise
systems that consist of workstations, servers, stor-age and, most recently, networking products. The enterprise systems
segment is the fastest-growing area for Dell, which has grown from less than $1 billion to nearly $5 billion in the last
four years. Unlike the low-margin PC business, where gross margins rarely exceed 15%, we estimate the enterprise
systems business can command a gross margin in the 20% to 30% range. We estimate that enterprise systems account
for about 15% of the revenue mix for Dell and about 23% of gross profits.
6
Financials
-2001 Third Quarter
Financials-2001
Third Quarter
Year to Date
(in millions, except share
*
data)
FY'03
FY'02
Change
FY'03
FY'02
Change
Revenue
$9,144
$7,468
22%
$25,669 $23,107 11%
Operating Income
$758
$544
39%
$2,025
$1,677
21%
Net Income
$561
$429
31%
$1,519
$1,324
15%
Earnings Per Share
$0.21
$0.16
31%
$0.57
$0.48
19%
*FY02 income and earnings data exclude a $742 million pretax charge, related to job reductions,
Operating Results — in millions, except per-share data
Fiscal Year Ended
Feb. 1,
Feb. 2,
Net revenue
$31,168
$31,888
Gross margin
$5,507
$6,443
Operating income
$2,271
$2,768
Net income
$1,780
$2,310
Income per common share
- Basic
$0.68
$0.89
- Diluted
$0.65
$0.84
Weighted average shares
- Basic
2,602
2,582
- Diluted
2,726
2,746
Working capital
$358
$2,948
Total assets
$13,535
$13,670
Long-term debt
$520
$509
Total stockholders' equity
$4,694
$5,622
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
Change
-2.30%
-14.50%
-18.00%
-22.90%
(23.6%)
(22.6%)
7
Customers selected Dell's standards-based computer products and services in increasing
numbers in fiscal third-quarter 2003, pushing the company to record shipments and revenue
and a higher rate of profitability.
In the process, customers again made Dell the world's leading supplier of computer systems.
The company regained its position as the favourite computer company among U.S. consumers,
and ranked No. 1 in all U.S. customer segments for the first time.
Dell's 28-percent year-over-year rise in overall product shipments compared with a 2-percent
increase for the rest of the industry. Company server volumes were 24 percent higher, nearly
five times the rate for the rest of the industry. Revenue from Dell enterprise products--servers,
storage systems, network switches and workstations--was up a combined 27 percent.
For the third quarter ended Nov. 1, total revenue was $9.1 billion, up 22 percent from last year
in an industry where sales have otherwise been flat to down. Dell's earnings per share reached
21 cents, 31 percent higher. Company revenue and per-share earnings were consistent with
increased guidance Dell provided Oct. 1. Dell has met or exceeded initial guidance to investors
for seven consecutive quarters.
"The direction of customers toward standards-based computing is obvious," said Michael Dell,
the company's chairman of the board and chief executive officer. "The reason is simple:
customers get more flexibility, performance and reliability for their money with standards than
from proprietary technology."
"Dell's obligation to customers is to innovate products and services that deliver great value,
and our people are doing that with exceptional skill and efficiency."
Mr. Dell said fourth-quarter company shipments could increase 10 percent from the third
quarter, or 23 percent from the year-ago period. Q4 revenue is expected to be up about 20
percent year-over-year, to nearly $9.7 billion. With anticipated further improvement in
operating margins, the company expects fourth-quarter earnings per share of 23 cents, or 35
percent higher than last year.
In the third quarter, Dell again demonstrated solid balance between its long-time priorities of
liquidity, profitability and growth. Operating expenses were 9.9 percent of revenue, equalling
a company best. Cost reductions, an improved mix of products and services, and lower
7
Financials-Geographic's Markets
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
8
That's important, because we believe the pent-up demand for more expansive computer applications and faster, more
powerful systems is significant. Many corporate and institutional customers describe major long-term plans for
increased investment in networks of servers and storage products. Analysts estimate that 150 million notebook and
desktop computers are more than three years old, and that 300 million computers cannot run Microsoft's Windows XP
operating system.
In fiscal 2002, we had tremendous success in three areas of strategic emphasis: enhancing operating efficiencies to
deliver greater customer value, winning in high-growth products and services, and expanding our business in key
geographic markets.
Dell's full-year operating expenses as a percent of revenue were a company-record low, and less than one-half those of
our nearest competitor. By the end of the year, our inventory as a percent of revenue was our best ever, and represented
a lean four days of supply. Our attention to controlling operating expenses remains relentless, and we intend to fulfill
the tremendous opportunity for additional efficiency.
Customer demand for our PowerEdge servers jumped 27 percent last year. Without Dell, industry server volumes fell 3
percent. We became the leading server supplier in the United States. In countries where our presence is less developed,
many new customers are choosing Dell first for servers and storage products, then for personal computers and
workstations. And customers last year selected Dell Precision workstations, already the best-selling such products
worldwide, in still-larger numbers.
Dell sold nearly twice as much storage capacity than in fiscal 2001-more than 57,000 terabytes. By year-end, almost
one-half of our storage revenue was from external storage systems. During the year we entered a strategic alliance with
EMC that increases our presence in this rapidly growing product category. The alliance includes a co-branded line of
enterprise storage systems for storage area networks and high-capacity network-attached storage installations. We also
introduced PowerConnect network switches in the U.S., with which customers capitalize on the performance,
reliability and value of standards-based switch technology, including high-speed gigabit Ethernet.
Customer engagements by Dell Technology Consulting, which trades on our extensive knowledge in designing,
testing, validating, tuning and implementing information-technology installations, more than doubled in the past year.
We are continuing to broaden our professional services in response to customer requirements, both by adding new Dell
capabilities and partnering with additional best-in-class providers. Today, such partnerships give Dell customers a
single point of accountability for 50,000 field technicians in 170 countries, in addition to 6,700 Dell service people.
More and more customers are choosing Dell for enterprise products-based on Windows operating systems and Linuxfor one-to-one relationships, built-to-order systems, custom services, exceptional value and leading support. An
independent ranking named Dell best in U.S. customer satisfaction for servers for 16 of the past 17 quarters.
A new survey by industry analysts showed that the trend in customer preference for industry-standard server and
storage technology continues uninterrupted. By a 10-to-1 ratio, U.S. customers said disadvantages in using standardsbased products for midrange to high-end computing have been overcome, or will be soon. Analysts reported that
organizations migrating to standards-based products earliest realize benefits of low cost, simplicity and the highest
levels of return on investment-all Dell strengths.
Our shipment growth far exceeded industry averages in every product category and geographic market. Company
8
Financials-2002
FinancialsEARNINGS (LOSS) PER COMMON SHARE
Shares Outstanding
Current Pricing
as of
Recent Price
11/20/2002
Shares Outstanding Date
8/30/2002
$29.21
Avg. Daily Volume Last 10 Days
52-Week High
$31.06
52-Week Low
$21.90
28,762,400
Shareholdings
Price Change - 10 Day
-2.8%
Net Insider Transactions
Price Change - Last Month
0.7%
Shares Held by Institutions
1,516,730,000
Price Change - 26 Week
6.6%
Institutions Holding Shares
2,913
Price Change - 52 Week
12.6%
Price Change - YTD
-1,414,000
% of Shares Outstanding Held by
Institutions
7.5%
Three Months Ended
August 2,
August 3,
2002
2001
58.6%
Six Months Ended
August 2,
August 3,
2002
2001
(in millions, except per share amounts)
Net income (loss)
Weighted average shares outstanding:
Basic
Employee stock options and others
Diluted
Earnings (loss) per common Share:
Basic
Diluted
Strategic Management
$
501 $ (
2,586
63
2,649
$
$
0.19 $ (
0.19 $ (
101 ) $
2,601
2,601
958
$
2,591
70
2,661
0.04 ) $
0.04 ) $
0.37
0.36
361
2,600
143
2,743
$
$
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
0.14
0.13
9
ØBasic earnings (loss) per share is based on the weighted effect of all common shares issued and outstanding and is
calculated by dividing net income (loss) by the weighted average shares outstanding during the period. Diluted
earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares
used in the basic earnings (loss) per share calculation plus the number of common shares
ØEmployee stock options and put obligations exercisable for 197 million and 319 million shares during the second
quarter of fiscal 2003 and 2002, respectively, and for 197 million and 260 million shares during the six-month periods
ended August 2, 2002 and August 3, 2001, respectively, were not included in the computation of diluted weighted
average shares outstanding because the effect of such instruments was antidilutive.
Øas of The date of the previous trading day. "Recent Price" is the clo sing price taken from this day.
Ø52-Week High The highest intra-day price during the preceding 52 weeks.
Ø52-Week Low The lowest intra-day price during the preceding 52 weeks.
ØPrice Change - 52 Week The % change in the latest closing price of the stock vs. the closing price 52 weeks ago.
ØPrice Change - YTD The % change in the latest closing price of the stock vs. the closing price at the beginning of
the calendar year.
ØShares Outstanding Date The date the latest Shares Outstanding are downloaded into Multex Market Guide's
Database.
Ø Avg. Daily Volume Last 10 Days This value is calculated as the Total Revenues for the trailing twelvemonths
divided by the Average Total Assets. The Average Total Assets is defined as the Total Assets for the 5 most recent
quarters divided by 5.
ØShort Interest Latest Date The latest short interest date, which is usually 5 trade days before the 15th of the month.
This figure is available monthly, and is provided by either the NYSE, the NASDAQ, The Toronto Stock Exchange, the
Canadian Stock Exchange, or the American Stock Exchange (depending on where the security trades).
ØShort Interest (Mil) The number of shares of the stock that have been sold, but not yet repurchased.
ØShort Interest Ratio Shares sold short (as reported by the exchange) divided by average daily volume during the
short interest period. This period is usually the 11th of the month to the 10th of the next month. This represents the
number of days of average trading needed to cover the shorts. This is also called Days-to-Cover.
ØNet Insider Latest Date The date of the latest insider information. There is usually a lag of approximately six
weeks before a report is posted.
ØNet Insider Transactions This is the net difference between the number of SHARES of company stock purchased
by officers and directors and the number of shares sold by officers and directors during the preceding six months.
ØInstitutional Holdings Latest Date The date of the latest institutional holdings information.
ØShares Held by Institutions The actual number of common stock shares held by all reporting institutions.. This
figure is the sum of all the shares held by institutions filing 13-Fs and all non-13-F reporting funds.
9
Financials-2002
FinancialsSEGMENT INFORMATION
Net revenue:
Americas:
Business
U.S. Consumer
Total Americas
Europe
Asia Pacific-Japan
Total net revenue
Operating income:
Americas:
Business
U.S. Consumer
Total Americas
Europe
Asia Pacific-Japan
Less: Special charge
Total operating income
Strategic Management
Three Months Ended Six Months Ended
August 2, August 3, August 2,
August 3,
2002
2001
2002
2001
(in millions)
$5,046
$4,549
$9,433
$9,023
1,095
6,141
1,526
792
$8,459
$486
853
5,402
1,483
726
$7,611
$406
2,314
11,747
3,184
1,594
$16,525
$893
1,824
10,847
3,235
1,557
$15,639
$789
59
545
78
54
26
432
82
31
-482
$63
131
1,024
150
93
45
834
209
90
-482
$651
$677
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
$1,267
10
The Company conducts operations worldwide and is primarily managed on a geographic basis,
with those geographic segments being the Americas, Europe, and Asia Pacific -Japan regions.
The Americas region, which is based in Round Rock, Texas, covers the United States, Canada,
South America, and Latin America. The Company has two reportable segments within the
Americas: Business and U.S. Consumer. The Americas Business segment includes sales to
commercial, government and education customers. The European region, which is based in
Bracknell, England, covers the European countries and also some countries in the Middle East
and Africa. The Asia Pacific -Japan region covers the Pacific Rim, including Japan, Australia
and New Zealand, and is based in Singapore. The accounting polic ies of the Company’s
reportable segments are the same as those described in the summary of significant accounting
policies in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1,
2002. The Company allocates resources to and evaluates the performance of its segments
based on operating income. Corporate expenses are included in the Company’s measure of
segment operating income for management reporting purposes.
10
Financials-2002
FinancialsLiquidity
August 2,
2002
Cash and investments
$
8,633.00
Working capital
$
238.00
Days of sales in accounts receivable
32.00
Days of supply in inventory
4.00
Days in accounts payable
73.00
Cash conversion cycle
(37.00)
February 1,
2001
$
8,287.00
$
358.00
29.00
4.00
69.00
(36.00)
*Millions Dollars
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
11
The Company ended the second quarter with $8.6 billion in cash and investments. The Company invests a large
portion of its available cash in highly liquid/ highly rated corporate, bank, and government debt securities of varying
maturities at the date of acquisition. The Company’s investment policy is to manage its investment portfolio to
preserve principal and liquidity while maximizing the return on the investment portfolio through the full investment of
available funds. As of August 2, 2002, only $248 million of the Company’s cash and investments were represented by
its venture portfolio of private and public equity investments as compared to $454 million a year ago.
During the first six months of fiscal 2003, the Company generated $1.4 billion in cash flows from operating activities,
which represents the Company’s principal source of cash. Cash flows from operating activities resulted primarily from
net income and income tax benefits that resulted from the exercise of employee stock options. These benefits represent
corporate tax deductions (that are considered taxable income to the employee) that represent the amount by which the
fair value of the Company’s stock exceeds the option strike price on the day the employee exercises an option, that
reduce the Company’s taxes payable, and that under generally accepted accounting principles are recorded directly to
stockholders’ equity accounts rather than to earnings. Management believes that the Company’s cash provided from
operations will continue to be strong and more than sufficient t o support its operations and capital requirements, even
if the economic climate should remain weak. The Company currently anticipates that it will continue to utilize its
strong liquidity and cash flows to repurchase its common stock, make a limited number of strategic equity investments,
consider and possibly make acquisitions and invest in systems and processes, as well as invest in the development and
growth of its enterprise products.
The Company ended the second quarter of fiscal 2003 with a Company record cash conversion cycle of negative
37 days. Days of sales outstanding include the effect of customer shipments recorded in other current assets in the
accompanying consolidated statement of financial position included in “Item 1 — Financial Statements”. For more
information, see “Item 8 — Financial Statements and Supplementary Data — Notes to Consolidated Financial
Statements” included in the Company’s Annual Report on Form 10-K for the year ended February 1, 2002.
11
Analysis Methods
• Financial Profile
• WOTS-UP
• BCG Analysis
• Life Cycle
• Four Factor Model
• SPACE
• Porter Analysis
• Leadership Analysis
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
12
Only Slide
12
Financial Profile
Profitability
*
Very low
Average
Liquidity
*
Very tight
About right
Leverage
Too much slack
*
Too much debt
Activity
Balanced
Too much equity
*
Too slow
Strategic Management
Very High
About right
Too fast
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
13
Excellent profitability, high liquidity. DELL applies a aggressive financial policy in financing the company.
Very little debt is used.
The activity ratios indicate great improvements, especially in inventory turnover
Initiating coverage with Buy recommendation. We believe DELL is attrac-tively priced, with 21% projected growth
in earnings, a solid balance sheet with $8.6 billion in net cash, and extensive opportunities for growth in new market
segments. Our 12-month price target of $30 assumes a P/E of 26x our calendar 2004 earnings estimate of $1.17.
Poised for growth despite IT spending downturn. We believe Dell is posi-tioned for sustained growth in the mid to
high teens despite macroeconomic constraints, given its product expansion into storage, midrange servers, network-ing
and printers; international expansion; further market -share gains in PCs; and pent-up demand stemming from a delayed
PC upgrade cycle.
Shift to modular computing favors Dell. We believe the enterprise data cen-ter is moving toward a modular
computing architecture, spurred by the limitations of the existing architecture, cost, complexity and underutilized
storage and compute resources. Modular computing could be the most influential driver of IT spending over the next
three to five years, and we believe Dell is uniquely po-sitioned as a turnkey enterprise data center supplier of low-cost
computer components that will be required to build modular computing infrastructures.
We believe Dell is uniquely positioned as a turnkey enterprise data center supplier of low-cost computer components
that will be required to build modular computing infra-structures. Today, Dell is beginning to benefit from modular
computing trends and has 195 enterprise customers, including Boeing, Volvo, NASA, Merrill Lynch and AT&T, that
have deployed high-performance computing (HPC) clusters using Dell servers and storage in a modular architecture as
a replacement for legacy UNIX and main-frame computer systems. Dell estimates that hardware costs on an HPC
cluster with 192 peak gigaflops of computing resources with up t o 7.3 terabytes of storage based on Dell list prices
would cost $170,000. This compares to an IBM UNIX computer (P690 ) configured with 166.4 gigaflops of compute
resources and up to 4.7 terabytes of storage for approximately $2 million.
Dell expects the number of enterprise customers deploying Dell HPC clusters to grow from 195 today to over 500 in
2003, demonstrating Dell’s position as a key modular computing supplier. Not only does Dell provide complete
solutions for storage fabrics and HPC clusters, but the company also plans to ship blade servers before year-end,
further extending its product portfolio to address the modular computing needs of large enterprises.
While we expect the computer-systems market to realize single-digit growth over the next five years, we believe Dell
is well positioned for revenue growth in the mid teens as it gains share in new market segments including storage,
networking, printers and midrange servers, and as it expands beyond the PC and pursues its strategy to be a singlesource technology supplier.
13
External
WOTS-UP
•
•
•
•
•
Internal
•
•
•
•
•
•
•
Opportunity
•
•
•
International Growth
Pricing flexibility
Computers moving toward
commodity status
Fragmented PC market
Work-through by HP/CPQ
merger
Rapidly changing technology
leading to upgrades
•
•
Strength
Weakness
•Revenue Mix
•Acceptance of Direct
Strong supplier relationships
Lower Unit Costs
Strong Quicker reaction to
customer wants and needs
Better reach at lower cost
Strong customer retention
and relationships
Brand Equity
Strategic Management
Threat
Regional Competition
Changes in Technology
Prolonged Economic
downturn
Disruptive Technology
Reliance on Suppliers
Sales Model
•Dependence on
Volume
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
14
Strengths
Strong supplier relationships
Dell seeks long-term single source relationships in situations where alternative sources are unavailable or the
relationship is advantageous with respect to performance, quality, support, delivery or price.
Securing long-term relationships with vendors allows Dell to more fully integr ate major vendor into Dell’s supply
chain management programs. This helps Dell reduce inventories of components, which translate into lower unit costs.
Dell also seeks to lock-up supply at the lowest possible cost. Recently Dell signed a long-term supply agreement with
Philips for the supply of CRT and flat panel monitors. Philips’ monitor business is struggling the signing of the deal
was a win/win situation for both companies as Philip’s will now have a more stable stream of production and Dell
perhaps was able to secure supply at a favorable cost.
Lower Unit Costs
Removing the third party retailer from the sales equation eliminates additional product mark-ups. The savings can be
either recognized as higher margins or passes along to consumers. In both situations Dell is experiences better pricing
flexibility than its competitors.
When economic conditions are slow Dell is able to offer product at lower prices and still operate profitably. Dell’s
success in the most recent economic downturn serves as clear signal that the company can weather less than favorable
economic conditions. In 2001, Dell’s domestic market share actually climbed from 19% to 24.2%.
Quicker reaction to customer wants and needs
As mentioned above Dell focuses on streamlining their production operations. Finished
products are quickly assembled in direct response to a customers order.
Low finished good inventories put Dell in a better position to continually offer the newest and most requested
technologies. Changes in customer demands hurt the competition more as they struggle with product obsolescence and
high inventories. Competitors may be forces absorb write-offs associated with inventory obsolescence or markdown
products below cost to clear inventory.
Dell’s superior inventory management strategy can be seen in the following table
Dell
Inventory
Days on
Turnover
Hand
75.7
4.8
HP
6.1
59.4
CPQ
14.8
24.6
AAPL
24.1
15.2
GTW
187.6
1.9
Better reach at lower cost
14
Portfolio Analysis
Industry Growth Rate
High
?
Services
Portable Computers
Third -Party Products
Enterprise Systems
Desktop Computers
Low
Low
Strategic Management
Market Share
High
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
15
•The third-party products are new emergence for Dell. For example, Dell enter market with new products such as
printer, CD-player, storage, digital camera, which are new for Dell. Therefore, Dell is not sure for their potential road for
the future(put in question mark position).
•Services were introduced last year with more power, and now in a growing road to star position.
•Networking and P_Portable Computers have been achieving signific ant growth in past years(put in star position).
•Desktop Computers and Enterprise Systems are the main products for Dell bringing a huge amount of profits in
years(put in cow position).
15
Life Cycle
Introduction
(Early
Growth)
Growth
(Accelerated
Development)
Maturity
Decline
Size of Company
Development
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
16
Lin
Age of Company
Dividends are usually associated with “maturity cycle'', whatever that means. What does ``mature'' mean anyway, and
what might constitute maturity for a technological Corporation
Most companies pass through a struggling start-up phase, a period of rapid growth, and an extended maturity
characterised by relatively stable sales and earnings. This life cycle usually follows the development of the industry in
which the company operates: from not being recognised at all, through exponential growth in a market with unknown
total size, to saturation and growth thereafter at rates limited by the overall growth of the market (usually constrained
by demographic or economic factors) and the company's share of that market, won or lost at the expense of its
competitors. Earnings performance also evolves through these phases: during start-up the company loses money, its
losses funded by the original investors. If it succeeds and begins to grow rapidly, it becomes profitable but reinvests
all of its earnings in the business to fund its rapid growth and not forfeit portions of the market to competitors who are
also growing rapidly. In the third phase the company cannot grow measurably faster by reinvesting its earnings, so it
often chooses to pay dividends to its shareholders.
Dell Corporation can be expected to follow this pattern of development, but the presence of technological leverage
results in a very different earnings profile as it moves from stage to stage. After surviving the start-up phase, a
Technological Corporation begins to generate earnings at a very high rate of return. Because little capital investment is
needed during its period of rapid growth, there is little need to reinvest earnings and they are simply retained. After the
company's product reaches market saturation, earnings may actually decline as the percentage of sales the company
devotes to sales and marketing increases to maintain and expand its market share.
COMPANY:
•DELL is in the mature stage
•DELL needs to competitive positions. They need to focus on Marketing activities.
•DELL has a Multi-tiered structure which is consistent with a Mature company
•DELL appears to be a stable with many products lines at various stages of development
•The Company is undergoing some Marketing and segments changes
•DELL market strength is stable – profit in market share.
•A mature company really needs to Focus, increase efficiencies of production and get costs under control and become
the cost leader.
16
Four Factor Model
Opportunity
•
•
•
•
•
•
Threat
International Growth
Pricing flexibility
Computers moving toward commodity status
Fragmented PC market
Work-through by HP/CPQ merger
Rapidly changing technology leading to
upgrades
Resource
Allocation
Resource
Requirements
Organizational
Structure
Organizational
Culture
Strategic
Control
Strong supplier relationships
Lower Unit Costs
Strong Quicker reaction to customer wants
and needs
Better reach at lower cost
Strong customer retention and relationships
Brand Equity
Strategic Management
Regional Competition
Changes in Technology
Prolonged Economic downturn
Disruptive Technology
Reliance on Suppliers
Strategic
Planning
Strategic
Management
Strength
•
•
•
•
•
•
•
•
•
•
•
External
Environment
Weakness
Internal
Environment
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
• Revenue Mix
• Acceptance of Direct Sales Model
• Dependence on Volume
17
17
Match of Style with Org. Life Cycle
Phase 2
Formulation
Phase 3a
Expansion
Phase 3b
C o-ordination
Phase 4
Participation
Entrepreneurial Structure
Informal Management
Bureaucratic Structure
Analytical/Directive
Management
Divisional Structure
Analytical/
Decentralized
Management
Product Group Structure
Conceptual SBU
Matrix Structure
Conceptual/ Behavioral
Participative
Management
Size of company
Large
Phase 1
Initiation
Need to
Adapt and
Cope
Lack of
Autonomy
Lack of
Control
Need for
direction
Small
Young
Strategic Management
Age of Company
Mature
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
18
Organizational Life Cycle
Phase 3b Co-ordination & Phase 4 Participation
Decentralized analytical decision making
Emphasis in portfolio management
Divisional or strategic business unit
Specific strategy
Horizontal & Vertical expansion
Generic strategy
Cost
Structure
Decrease in culture
Market structure
strength / growth
divisional / multidivisional
Tech focus
process
high margin / balance in share/
Inventive emphasize
advertising / finance / manufacturing / process
Incentives features
term
Formula based / multilevel / risk averse / long
Strategic info
Strategic focus
Market share / Costs / adjacent markets
internal & external
Priorities
Career path to top
Production / market share
Marketing / finance / planning / accounting
18
SPACE-Competitive Advantage
Factors
Factors determining
determining competitive
competitive
advantage
advantage
Market
Market Share
Share
Product
Product Quality
Quality
Small
Small
Inferior
Inferior
Product
Product life
life Cycle
Cycle
Product
Product replacement
replacement cycle
cycle
Late
Late
Variable
Variable
Costumer
Costumer Loyalty
Loyalty
Competition's
Competition's capacity
capacity utilization
utilization
Low
Low
Low
Low
Technological
Technologicalknow-how
know-how
Vertical
Verticalintegration
integration
Low
Low
Low
Low
Innovation
Innovation
Average
Average -- 66
00
11
22
33
44
55
33
55
11
00
High
High
High
High
33
55
Slow
Slow
27
27
-3.00
-3.00
00
11
Large
Large
Superior
Superior
Early
Early
Fixed
Fixed
33
33
66
High
High
High
High
44
Fast
Fast
00 12
12 44 10
10 00
Factors
Factors determining
determining financial
financial strength
strength
Return
Return on
on investment
investment
Leverage
Leverage
Liquidly
Liquidly
Capital
Capital required
required versus
versus capital
capital available
available
Cash
Cash flow
flow
Ease
Ease of
of exit
exit from
from market
market
Risk
Risk involve
involve in
in business
business
Inventory
Inventory turnover
turnover
Economic
Economic of
of scale
scale and
and experience
experience
Low
Low
Imbalanced
Imbalanced
Imbalanced
Imbalanced
High
High
Low
Low
Difficult
Difficult
Much
Much
Slow
Slow
Low
Low
33
33
Average
3.67
Average
3.67
Strategic Management
00
11
22
33
44
33
55
66
High
High
Balance
Balance
Solid
Solid
Low
Low
High
High
Easy
Easy
Little
Little
55
Fast
Fast
66 High
High
15
15 66
55
55
22
33
11
33
00
11
22
66
33
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
19
Dell is benefiting its high market and superior product price and quality.
Dell enjoys to have strong competitive strategy on marketing and distribution procedures
attacking the teenager market. They have a very differentiation price for economics of scale.
Excellent financials, but with some risk for the kind of competitiveness market Dell is
immerse.
Financial position very strong
19
SPACE-Environmental Stability
Factors
Factors determining
determining environmental
environmental
stability
stability
Technological
Technological changes
changes
Rate
Rate of
of inflation
inflation
Demand
Demand variability
variability
Price
Price range
range of
of competing
competing products
products
Barriers
Barriers to
to entry
entry into
into market
market
Competitive
Competitive pressure
pressure // rivalry
rivalry
Price
Price elasticity
elasticity of
of demand
demand
Pressure
Pressure for
for substitute
substitute products
products
00
Many
Many
High
High
Large
Large
Wide
Wide
Few
Few
High
High
Elastic
Elastic
High
High
17
17
Average
-3.88
Average -- 66
-3.88
11
22
33
44
66
Few
Few
Low
Low
Small
Small
Narrow
Narrow
Many
Many
Low
Low
Inelastic
Inelastic
Low
Low
55
11
11
55
00
00
00
22
Factors
Factors determining
determining industry
industry strength
strength
Growth
Growth potential
potential
Profit
Profit potential
potential
Financial
Financial stability
stability
Technological
Technological know-how
know-how
Resource
Resource utilization
utilization
capital
capital intensity
intensity
Ease
Ease of
of entry
entry into
into market
market
Productivity,
Productivity, capacity,
capacity, utilization
utilization
Manufacturers'
Manufacturers' bargaining
bargaining power
power
22
33
33
00 10
10
Low
Low
Low
Low
Low
Low
Simple
Simple
Inefficient
Inefficient
Low
Low
Easy
Easy
Low
Low
Low
Low
45
45
Average
5.00
Average
5.00
Strategic Management
55
22
00
00
11
22
33
44
55
66
44
44
55
55
66
33
00
00
00
33
66
66
66
88 10
10 24
24
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
High
High
High
High
High
High
Complex
Complex
Efficient
Efficient
High
High
Difficult
Difficult
High
High
High
High
20
Fairly stable environment. Dell confront very strong competition
Is very important to observe the competitors very close.
Is necessary observe new entrants carefully
Good growth and potential profit . Dell has very good capacity and productivity.
It’s a very attractive industry but require to be very carefully with the suppliers.
20
SPACE -Analysis
High
High
FS
FS
66
55
CONSERVATIVE
CONSERVATIVE
44
AGGRESSIVE
AGGRESSIVE
33
22
Low
Low
-6
-6
-5
-5
--44
-3
-3
-2
-2
CA
CA
11
--11
11
22
33
44
55
66
High
High
IS
IS
-2
-2
-3
-3
DEFENSIVE
DEFENSIVE
-4
-4
COMPETITIVE
COMPETITIVE
-5
-5
ES
ES
-6
-6
Low
Low
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
21
Using the four input variables and graphing them we have arrived at a competitive strategic posture that DELL is taking, with that king of strategy
DELL is going to ensure product focus on price an quality.
This posture is typical in an attractive industry. DELL enjoys a competitive advantage in a relatively unstable environment.
The critical factor is the financial strength.
Companies in this situation require financial resources to increase marketing thrust, add to the sales force, extend or improve the product line; on
Dell case they have the sufficient money, they are very efficient and productive.
The directional vector located in the lower-right or competitive quadrant of the SPACE Matrix, indicating competitive strategies.
Competitive strategies include backward, forward, and horizontal integration; market penetration; market development; product development; and
joint venture.
Sources report new pricing structures are expected to emerge as new solutions are bundled together in Q4 of this year. The bundling of products and
professional services is one area that DELL plans to develop
21
Porter Analysis
Threat of
Substitutes
Supplier
Power
Market
Buyer
Power
Barriers to
Entry
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
22
Threat of Substitutes
Switching costs
Buyer inclination to substitute
Price-performance trade-off of substitutes
In Porter's model, substitute products refer to products in other industries. To the economist, a threat of substitutes
exists when a product's demand is affected by the price change of a substitute product. A product's price elasticity
is affected by substitute products - as more substitutes become available, the demand becomes more elastic since
customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise
prices.
The competition engendered by a Threat of Substitute comes from products outside the industry. The price of
aluminium beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These
containers are substitutes, yet they are not rivals in the aluminium can industry. To the manufacturer of
automobile tires, tire retreads are a substitute. Today, new tires are not so expensive that car owners give much
consideration to rethreading old tires. But in the trucking industry new tires are expensive and tires must be
replaced often. In the truck tire market, rethreading remains a viable substitute industry. In the disposable diaper
industry, cloth diapers are a substitute and their prices constrain the price of disposables.
While the treat of substitutes typically impacts an industry through price competition, there can be other concerns in
assessing the threat of substitutes. Consider the substitutability of different types of TV transmission: local
station transmission to home TV antennas via the airways versus transmission via cable, satellite, and telephone
lines. The new technologies available and the changing structure of the entertainment media are contributing to
competition among these substitute means of connecting the home to entertainment. Except in remote areas it is
unlikely that cable TV could compete with free TV from an aerial without the greater diversity of entertainment
that it affords the customer.
Buyer Power
Bargaining leverage
Buyer volume
Buyer information
Brand identity
Price sensitivity
Threat of backward integration
Product differentiation
Buyer concentration vs. industry
22
Risk Factors
•Possibility of Component Shortages
•Difficult Economic and Industry Conditions
•Supply-Chain and Single-Source Supplier Risks
•Competition
•Dependency on Third-Party R&D Efforts
•Significant Exposure to PC Market
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
23
Possibility of Component Shortages
The longshoremen’s lockout currently under way on the West Coast heightens the risk of component shortages. Dell
typically has access to one to two weeks of computer parts, which are stocked by partners at inventory hubs located
near manufacturing plants in Texas. If the lockout lasts longer than two weeks, Dell could realize higher component
costs from the switch to air freight and/or product shipment delays.
Difficult Economic and Industry Conditions
General economic and industry conditions carry the most uncertainty for Dell, given a prolonged IT spending
downturn. Recent comments from technology leaders, includ-ing Sun Microsystems, Oracle and EDS, suggest that a
seasonal rebound in the fourth quarter could be tempered due to economic uncertainties. Additionally, enterprises and
consumers could choose to further postpone upgrading aging PCs; upgrading would be required for the PC industry to
grow units 8% next year.
Supply-Chain and Single-Source Supplier Risks
Dell’s financial results are highly dependent on tight supply-chain controls that sup-port rapid inventory turns and
extremely low inventory levels, compared with its computer-system peer group. Any supply-chain disruptions, from
component short-ages to transportation delays, could have negative implications on its financial results. Additionally,
Dell has several single-source supplier relationships that heighten the risks of manufacturing delays if alternative
sources of supply are not readily available.
Competition
Dell faces stiff competitive challenges ranging from low-cost PC manufacturers over-seas to technology leaders such
as Cisco, Hewlett-Packard, Sun Microsystems, Lexmark, IBM, NEC and Fujitsu- Siemens. As Dell enters into new
market segments like networking and printers, execution concerns are heightened further. The recent cancellation of
distribution agreements with Hewlett-Packard, Cisco and 3Com could have an adverse effect on future financial
results.
Dependency on Third-Party R&D Efforts
Part of the reason Dell is the low-cost manufacturer of computer systems is that it leverages a collaborative R&D
model, where Dell relies on technology attained from third-party companies such as Microsoft and Intel. Part of Dell’s
success will depend on the success of R&D efforts by its partners.
Significant Exposure to PC Market
Dell’s financial results are highly dependent on the PC industry. Excluding PC-related service revenue, we estimate
that PC hardware accounts for about 62% of Dell’s reve-nue and 49% of gross profits.
23
Goal Orientation
Leadership Style
Broad
Goals
Specific
Goals
Logical
Inspirational
Analyzes new Directions
Envisions New opportunities
Solves Complex Problems
Introduces Radical Ideas
Formulates plans
Empowers Others
Persuades by Reasoning
Persuades by Creating Trust
Prefers Incremental Change
Relies on Radical Change
Directive
Supportive
Focuses on Control
Tries for Consensus
Achieves Results
Facilitates Work
Take Charge
Encourage Openness
Persuades by Directing
Persuades by Involving
Expects Rapid Change
Reacts to Change
Performance
Transformation
Emphasis of Change
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
24
DELLL is a mature company, at this stage the company need to be efficient and have a clear
direction. They are also a competitive company, therefore need to keep an eye on the future in
special to product renovation.
Evaluation of Michael Dell leadership style and evaluate how consistent is.
Looking at the quadrants vertically Serge has more points on the directive and performance
side. Examining the quadrant horizontally his style indicates that he would be best at looking
at different goals.
Persuasive leader and strong image.
24
Life Cycle: Leadership
Effectiveness
Efficiency
Logical
Quality
Directive
Production
Inspirational
Creative
Supportive
Supportive
Transformational
Transactional
(revolutionary)
(evolutionary)
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
25
Based on the idea that all managers in a chain of command are supervisors. The directive manager will tell their direct
subordinates what their roles and tasks are and what is expected of them. He or she will provide a blueprint of how to
do a job, and will monitor performance and achievement of standards. This type of management style is often applied
when Human Resources Management is adopted by organisations, but it's emphasis on control is given as one of the
major reasons why Hard HRM policies result in no motivation rat her than the intended motivation.
Leads from in front
Characteristics:
One style
Gives orders, make statements
Focuses on leader's strengths
Man of action
Know-it-all
Says, "Don't just sit there, do something."
Sense of responsibility
Technical and professional competence
Emotional stability
Enthusiastic
Good listening skills
Positive self-image
High moral and ethical beliefs
Flexibility
Risk taker
Communication skills
Decision making ability
Positive physical and mental image
Know your subordinates
proprietary
Product -focused
Lock-in
Subsidization approach
Proprietary technology
25
Leadership Reputation
• Personal Charisma
• Cooperativeness
• Visionary
• Efficiencies
• Communicative
• Innovative
Michael S. Dell
CEO-- Dell Computer
CEO
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
26
Under Michael's direction, Dell has established itself as the world's most preferred computer systems company and is a
premier provider of products and services required for customers to build their information-technology and Internet
infrastructures. In 18 years, the company's sales have grown from $6 million to $33.7 billion in during the past four
quarters. Since its first international subsidiary opened in the United Kingdom in 1987, Dell has opened sales offices
worldwide and its approximately 38,200 employees serve customers around the globe.
The latest global innovation to come from Dell is its leadership on the Web. Dell is acknowledged as the largest online
commercial seller of computer systems. The company also is redefining the role of the Web in delivering faster, better
and more convenient service to customers.
The company's corporate customers include many of the companies in the Fortune 500 list of the largest American
companies. With the addition of Dell to this list in 1992, Mr. Dell became the youngest CEO of a company ever to
earn a ranking on the Fortune 500.
Because of the phenomenal success of the company, Mr. Dell has been honored many times for his visionary
leadership, earning a spot on Time/CNN's list of the 25 most influential global executives in 2001 and being named the
2001 Chief Executive of the Year by Chief Executive Magazine, "Entrepreneur of the Year" from Inc. magazine, "Man
of the Year" by PC Magazine, "High Impact CEO" by executive search firm Heidrick and Struggles, "Top CEO in
American Business" from Worth magazine and "CEO of the Year" by Financial World and Industry Week magazines.
In 1997, 1998 and 1999, he was included in Business Week's list of "The Top 25 Managers of the Year." In addition,
executive search firm Heidrick and Struggles named Michael their "High Impact CEO" for 1996 and 1997.
Mr. Dell attended The University of Texas at Austin. In 1999, he wrote the best-selling book, Direct From Dell:
Strategies That Revolutionized an Industry, his story of the rise of Dell Computer Corp. and the strategies he has
refined that apply to all businesses. Mr. Dell is a member of the executive committee of the World Business Council, a
vice chairman of the U.S. Business Council, and the chairman of the Computer Systems Policy Project, an affiliation
of CEOs from top computer companies that advocates public policy positions on trade and technology affecting the
computer industry. He also serves on the U.S. President's Council of Advisors on Science and Technology.
26
Future Plans
• Poised for Growth Despite IT Spending
Downturn
• New Product Expansion
• International Expansion
• International Expansion
• Gains in PC Market Share
• Consumer Expansion
• PC and Server Upgrade Cycles
Strategic Management
Jose Villarreal/Wei Zhong/Xiao Dong
Lin
27
We believe the Dell management team has done an excellent job during 2002 in re-positioning the company for
revenue and profit growth despite a highly challenging economic environment and ongoing IT spending constraints.
This is most evident by management’s recent confirmation that the company is on track for 22% revenue growth and
30% profit growth in the November quarter. We believe Dell is positioned for double-digit growth rates for the
foreseeable future, despite macroeconomic chal-lenges based on the following rationale.
Poised for Growth Despite IT Spending Downturn
We believe the Dell management team has done an excellent job during 2002 in re-positioning the company for
revenue and profit growth despite a highly challenging economic environment and ongoing IT spending constraints.
This is most evident by management’s recent confirmation that the company is on track for 22% revenue growth and
30% profit growth in the November quarter. We believe Dell is positioned for double-digit growth rates for the
foreseeable future, despite macroeconomic challenges based on the following rationale.
New Product Expansion
The majority of Dell’s revenue—approximately 70%—is still driven from the sale of personal computers, either laptop
or desktop computers. However, Dell is in various stages of a product expansion strategy that will further extend its
product reach into storage, midrange servers, networking and printers. We estimate that these markets combined
represent another $128 billion in total addressable market that Dell will target, beyond the $172 billion PC market.
International Expansion
Approximately 70% of Dell’s revenue comes from sales into the Americas. Dell has 27.2% PC market share in the
United States, compared to only 10.5% in Europe, the Middle East and Africa (EMEA), 4.7% in Asia Pacific and 7.1%
in Japan. We consider the international PC market to be untapped potential for growth. Last quarter alone, Dell saw
measurable international success in EMEA, growing share from 9.7% to 10.5%. Dell’s success in France was
particularly impressive; the company moved from the No. 4 PC supplier to the No. 2 PC supplier, based on strong
growth that was 20% higher in units than the rest of the industry. More recently, Dell has focused in-ternational
expansion in four key markets, Germany, France, China and Japan.
Gains in PC Market Share
Dell has only a 15% share of the worldwide PC market. We believe its aggressive pric-ing strategy, direct model,
strong brand, new white-box initiatives and international expansion plans should contribute to continued market -share
gains within the PC market. Dell has averaged 60 basis points of PC market -share gains per quarter in the last several
quarters. If Dell succeeds in increasing its worldwide PC market share to 30% from 15% in the next five years, the
company could double its annual revenue to over $62 billion.
Consumer Expansion
Based on its direct sales strategy, the vertical market segments for Dell tend to be more heavily skewed toward
education, government and enterprise markets. More recently, Dell’s growing brand awareness and creative marketing
campaign have been successful in expanding its penetration within the consumer market. Last year, con-sumer PC
shipments accounted for about 33% of the worldwide PC market, according to IDC. This compares to less than a 20%
consumer mix for Dell. We expect Dell to expand its consumer PC market share through its marketing campaigns,
27