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Dell Inc. Analysis Page 1 of 24
Dell Inc. Analysis
Executive Summary
Dell is a company that produces technologically innovative products. Dell is based out of
Round Rock Texas. Dell was founded in 1984 by Michael Dell, who is currently the chairman
Dell Inc. Analysis Page 2 of 24
and chief executive officer of the company. Mr. Dell started his business out of his dorm room in
The University of Texas; he began selling custom computers with a simple built-to-order concept
selling directly to customers (Reed S., Bloomberg Business Week). Later on he started direct
sales by mail and phone. But it wasn’t until the Mid 1990’s When Dell became to see rapid
growth, this sudden growth was a result of them being the first to launch a website selling their
products online (Dells Dubious Decision To Go Private, Forbes). In Feb of 1998 Dell’s stock
reached an all time high of $139.88 per share, and net capital of $90.5 billion (Yahoo Finance).
The company is now worth twenty five billion dollars (value line), accounting for 6% of the
industry (industry worth 440Billion, Yahoo Finance).
With the turn of the new century and upcoming rivals it has became increasingly difficult
for them to keep afloat. In 2004-2005 a series of mergers in the industry began to make it
increasingly difficult for Dell to maintain its place in the market (Dells Do-over), in 2005 Dell
was worth $100Billion by 2009 the company was only worth $21Billion. Dell responded to this
by making a series of Acquisitions with software companies such as Perot System (Dells Do-
Over). What Dell did not realize was that they also were experiencing internal issues which were
causing there sales to drop as they compromised their image to the customer, Dell began to
outsource most of their employees (approx 76% jobs, Forbes), which weakened their
communications with their customers. It took Dell a lot of work but since then Dell has working
hard to improve their customer service and has made a turn around by bringing back more jobs
to the U.S and providing more training, Dell Currently employees 109,400 employees of which
51% are out sources.
Over the year’s Dell has made an effort to reinvent themselves, by broadening their target
markets, going through some distribution channels, acquisitions, investing in R&D and
Dell Inc. Analysis Page 3 of 24
innovation (Dells Do-Over, Business Source Complete). They now provide products and services
to large enterprises, Public enterprises, small to medium sized businesses, and General
consumers. The products they provide are Laptops/Ultra books, Desktops/Al-In-ones, Touch
PC’s/Tablets, Monitors, HDTV’s/Home theatre/Projectors, Accessories for all product’s, Printers,
Computer parts/upgrades, Software, Storage/Hardware, and Services and solutions (Dell Inc,
Business Source Complete.)
Dell is currently working on their biggest attempt to reinvent themselves. Michael Dell’s
Plan is to enter the $3trillion market of services and products such as servers, network switches,
storage gear and software (Dells High-Wire Enterprise act). He plans on doing this by taking the
company private. However things have not turned out as easy as he taught. Michael Dell has
teamed up the Silver lake Partners in an attempt to buyout the current shareholders. It took them
a bit of negotiation but on according to Gupta and Raoumeliotis (yahoo finance), Michel Dell
and Silver Lake partners finally reached an agreement on February 5th of this year. In the
agreement the shareholders would receive $24.4Billion, $13.65 per share (Private Equity, A.
Collins). Michael Dell, is to give up his 13.97% of shares worth $3.8billion (Value line), Silver
lake Partners is to contribute $1billion, Microsoft is to lend $2billion in shares, and the rest is to
be loaned trough a finance institution. This agreement allows Michael Dell to remain CEO of the
company. according to Gupta and Raoumeliotis( yahoo finance), Dell has a 45 day period to
consider other options, Dell has received offers from Icahn and Blackstone however they intend
to leave the company private and possible eliminate Michael Dell as CEO, As mentioned by
value line Michael Dell will only accept an agreement in which he will remain CEO.
Some argue that Michael Dell’s Plan of going private in not the best strategy. This is due
to the fact that cost to buy out the current stock holders is a huge expense to incur and the interest
Dell Inc. Analysis Page 4 of 24
rates for the loans alone will account for $1.2Billion a year. This will make it increasingly
difficult for them to bounce back. Where would they obtain capital to invest into these new
markets they intend to join (Dell’s high-wire enterprise act.). As suggested by the Author of
Dells Dubious Decision to Go Private, perhaps it is time the Michael Dell allows a new CEO
with new ideas to join the group. Michael Dell has constantly spoke of changes and innovation,
buy his strategy of Selling Direct to customers is not good enough anymore, and the stock prices
of Dell proves it, since 2000 the stock has dropped in value 76%.
Mission Statement
Dells mission is to help companies of all sizes simplify IT environment. To be the most
successful Computer Company in the world and 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.
Vision Statement
Dells vision statement is: It’s the way we do business. It's the way we interact with the
community. It's the way we interpret the world around us-- our customers’ needs, the future of
technology, and the global business climate. Dell needs full customer satisfaction. In order to
become the most successful computer company, they need the newest technology and loyal
customers.
Value Statement
Dells Value statement is to provide superior service and support, easy to buy, easy to use.
Dell Inc. Analysis Page 5 of 24
EXTERNAL FACTORS OF THE PC INDUSTRY
1. Political
Political factors include government regulations and legal issues determining the conditions
under which companies have to operate. The laptop and PC industry is expected to grow at a
faster rate in developing countries compared to the developed countries. Therefore, changes in
government policies in developing countries like India and China can affect the potential growth
rates in their markets. For instance, the removal of import duties on laptops in India in 2005 was
one of the factors that resulted in a growth of 94% in laptop sales in 2005.
Some corporation encounters problems in certain countries where political stability is not
guaranteed, no matter whether companies operate production facilities or if they do business with
that country through exports or imports. Many countries still have restrictive policies such as the
trade quotas and certain government regulations that implies on MNC (Multinational
corporations) which are maintained to protect domestic manufacturers and production. These
policies are more likely to obstruct foreign companies from investing or entering into these
markets. The only possibility to do business in those countries is to establish partnerships with
local companies such as joint ventures or strategic alliances, where they are additionally forced
to accept minority shares and to provide resources concerning money, local culture and
technological knowledge. However, the computer industry sees great potential in those countries
with looser and less restricted government regulations for countries like China which has opened
for many industries since its accession to the WTO in 2001. This causes the globalization trade
barriers to be less restricted and the opportunities for new market to emerge thus allowing free
trade to expand.
Dell Inc. Analysis Page 6 of 24
2. Economic
The global economy influences various different factors that affect the growth of the PC industry.
Since early 2008, the slowing global economy is one of the reasons for the decrease in business
capital spending for small and large corporations, resulting in reduced demand for PCs. Gartner,
Inc. forecasts a decline of 3.8% in global IT spending, of which computing hardware spending is
expected to decrease by 14.9% in 2009. Though this decline in IT spending is likely to recover
slowly during 2010, the global PC market is expected to face declining growth rates in terms of
market value, from an expected 5.4% growth in 2009 to 4.1% in 2012 Most laptop (and PC)
manufacturers such as Dell, HP, Acer, Lenovo, and Apple generate sales throughout the world
and therefore currency exchange rates are an important factor as well. The strength (or weakness)
of the US dollar versus other currencies can directly affect a company’s bottom line. The
economies in developing countries such as China, India, Brazil, and Latin America are growing
at a much faster rate than developed countries and therefore provide better growth opportunities
for computer manufacturers, since developed countries like the US and Japan have become
saturated. This trend is reflected in the slower single digit growth in the last few years as opposed
to the consistent double digit growth in the developing markets.
Economic conditions influences demand and supply, capital and cost are greatly influences by
political and government policies. The computer industry expects a growth of approximately
10% over the next years. This growth is influenced by the economic situation in a specific
country, having an impact on the purchasing power of potential customers. Hence, changing
inflation rates and currency fluctuation also determine the profitability of a company. If the cost
of capital is low it will be a profitable market for firms to invest and expand in the market
thoroughly. Certain countries in Asia and South America represent a great opportunity for firms
Dell Inc. Analysis Page 7 of 24
to invest and expand in, such as Brazil, Russia, India and China (BRIC). According to China
daily, China GDP for 2012 was estimated at $8.28trillion with a growth rate of 7.9%. Brazil´s
GDP Rises 7.5% in 2010, achieving best result in 25 years. And the GDP growth for Russia and
India are 4.3% and 6.9% respectively in 2011.
3. Social
Social factors such as education, preferences, income levels, and other cultural factors influence
demand patterns in the different regions and therefore affect how a company operates in each
region. The education and income level of users affects the brand perception of the computer
manufacturers. As shown in Figure 5, households with higher income have higher percentages of
Apple computers. Such households are also more likely able to afford (and want) Apple
