DELL INC.

CASE ABSTRACT:

Dell is the current PC industry leader. Michael Dell founder of DELL Inc.
started his business with simple concept of built to order personal
computers sold directly to costumers. His approach brought him two
advantages firstly he bypassed distributors and retailers which
eliminated the markups of resellers and improved his profits. Secondly
by doing so he reduced the costs and risks associated with carrying
large stock of parts, components and especially finished goods. This
case includes the company’s financial statements, competitor
information and more for the year ended 2004.

Michael Dell serves as the chairman of the board of directors for

the company. He has held his position since he founded it in 1984.
Kevin Rollins serves the titles of president and chief executive officer.
Dell has divided its customers in three geographic segments Americas,
Europe and Asia Pacific. Dell holds 29.1% of the total market for
personal computer sales in Americas placing it well ahead of its
competitors, whereas in Europe Dell holds 11.7% market share for
sales of personal computer placing it as the 2 nd largest supplier of
personal computers in this segment and while in Asia Pacific Dell is the
3rd largest supplier of personal computers with 8.3% market share.

Dell has divided its customers in three groups: relationship,

transactional and internet. Relationship customers include large
corporations, governmental, healthcare and educational institutions.
Transactional customers involve small to midsize businesses and
individuals. The internet customers can access almost all sort of
information on the Dell’s website. Over the years Dell is seen as the
better growing companies as its revenue for 2004 of $49,205 million
was almost 40% increase over its revenue for 2002 of $35,404 million.
The level of competition Dell is facing is formidable with HP and IBM
being its main rivals. Gateway and Apple computers also compete to
some extent with Dell for their space in PC market.

HP by most accounts is Dell’s closest competitor. Until 2004 Dell

commands 18.3% of global personal computer market as compared to
HPs 15.7. However HP still has certain competitive strengths. Sales of
printers and printer ink account for approx 30% of HP total revenue.
For the sake of competition Dell also began to sell printers but they are
way behind HP as HP’s printers ran close to 43 million as compared to
Dell’s 3 million in 2004. Dell’s model of sleek production and cost

1
DELL INC.

control is hampered by the fact that Dell purchases printers from

Lexmark and then re-brands those printers.

Lenovo Group limited the largest producer of personal computers

in Asia acquired IBM’s personal computing division in 2004. Lenovo
enjoys significant wage advantages over Dell therefore this acquisition
will provide Dell with increasing competition in the expanding market
in Asia. Apart from this Dell and IBM compete directly in computer
server market where Dell holds 9% as compared to IBM’s 32%
market, much of Dells sales are in lower less profitable end of server
industry. IBM spends $1billion a year in server research and
development to thrive for the upper and middle sections of server
market. As the internet usage expands Dell will find itself unable to
compete with more complex offerings of IBM.

Gateway once a formidable competitor has fallen over the past

few years. The company commands about 6% of US market as
compared to Dells 29% with the competition growing strong it seems
that Gateway will not be able to survive. Similarly Apple, a very
unlikely competitor to Dell with just 5% of US computer market but
still Apple’s philosophy of innovation, experimentation and leading
edge design is a perfect contrast to Dell’s which has its focus on cost
and inventory control. However the income statement of all these
firms for 2005 shows that the last two firms are outplayed up till now.

2
DELL INC.

VISION STATEMENT:

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. Whatever changes the future may bring our
vision —Dell Vision will be our guiding force.

MISSION STATEMENT:

Dell's mission is to be the most successful computer company in

the world at delivering the best customer experience in market
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

3
DELL INC.

SWOT ANALYSIS:

Strengths:
• Dell is the World's largest PC maker. For the last couple of years
it has held its position as market leader and shown signs of
growing market share.
• Direct sales approach.
• Build to Order approach.
• Long term partnerships with reputable suppliers of name-brand
parts and components
• Reputation/image
• JIT, know-how and capabilities
• Dell has total command of the supply chain.

Weaknesses:
• Lacks the product line and service breadth of Hewlett Packard
and IBM
• The direct sales approach is not the preferred distribution
channel in some locations
• No in-house repair service capabilities

Opportunities:
• Customers know what they want and need to purchase.
• Customer’s value convenience and one stop shopping.
• Servers market can be tapped.
• Printers market can be tapped.
• 80% of new computer sales are likely to come by 2010

Threats:
• Global economic recession.
• Aggressive pricing wars
• Continuously changing consumer demands.
• Strong brand name of competitors (IBM, HP)
• Rapid technological advancement.
• Expected computer sales increase from 7.9 million to 78 million
by 2010, many areas lack phone and internet services.

4
DELL INC.

EXTERNAL FACTORS ANALYSIS SUMMARY:

Key External Factors Weight Rating Weighted

Score
Opportunities
Customers value convenience and one stop .05 3 .15
shopping
Customers know what they want and need .05 2 .10
to purchase
80% of new computer sales are likely to .11 3 .33
come by 2010
Printers market can be tapped .04 2 .08
Server market can be tapped better .16 2 .32

Threats
Global economic recession .12 3 .36
Aggressive pricing wars .09 4 .36
Continuously changing consumer demands .06 3 .18
Strong brand name of competitors (IBM, .07 3 .21
HP)
Rapid technological advancement .08 4 .32
Expected computer sales increase from 7.9 .17 2 .34
million to 78 million by 2010, many areas
lack phone and internet services

Total 1.00 2.75

5
DELL INC.

INTERNAL FACTORS ANALYSIS SUMMARY:

Key Internal Factors Weight Rating Weighted

Score
Strengths
Growing market share .15 4 .60
Direct sales approach .14 4 .56
Build to order approach .12 4 .48
Long term partnerships with reputable .07 3 .21
suppliers of name-brand parts and
components
Reputation/image .12 4 .48
JIT know-how and capabilities .05 3 .15
Command over supply Chain .13 3 .39

Weaknesses
Lacks the product line and service .11 1 .11
breadth of Hewlett-Packard and IBM
The direct sales approach is not the .08 2 .16
preferred distribution channel in some
locations
No in-house repair service capabilities .03 1 .03

TOTAL 1.00 3.17

6
DELL INC.

TOWS MATRIX:

Strengths
1. Growing market share
2. Direct sales approach
3. Build to Order approach
4. Long term partnerships
with reputable suppliers
of name-brand parts and
components
5. Reputation/image
6. JIT, know-how and
capabilities
7. Command over supply
Chain
Weaknesses
1. Lacks the product line
and service breadth of
Hewlett Packard and IBM
2. The direct sales approach
is not the preferred
distribution in some
locations
3. No in-house repair service
capabilities

Opportunities S-O Strategies W-O Strategies

1. Customers value 1. Conduct aggressive 1. Joint Venture
convenience and one stop domestic advertising
shopping
2. Customers know what
campaign. 2. Open couple Dell
they want and need to outlet stores where
purchase direct sale approach
3. 80% of new computer is not worthy.
sales are likely to come
by 2010
4. Printers market can be
tapped
5. Servers market can be
tapped

Threats S-T Strategies W-T Strategies

1. Global economic 1. Produce low price 1. Conduct aggressive
recession standardized PC. ad campaign to
2. Aggressive pricing wars
3. Continuously changing
promote Dell Direct
2. Reduce workforce to Selling.
consumer demands.
cut some costs.
4. Strong brand name of
competitors (IBM, HP)
5. Rapid technological
advancement
6. Expected computer sales
increase from 7.9 million
to 78 million by 2010,
many areas lack phone
and internet services

7
DELL INC.

RECOMMENDATIONS:

Although the figures suggest that they are going fine in personal
computer markets but in some areas they are facing some very stiff
competition from their main rivals HP and IBM. Since HP’s merger with
Compaq they are making huge revenues as compared to Dell’s mainly
because of the printer market. Although Dell also started to sell
printers but the way they sell it is not going to get them any way
closer to HP. Rather than purchasing printers from Lexmark and then
re-brand them as Dell they should also look forward to a merger with
Lexmark to compete in printer market.

Similarly in Asian market where Lenovo is the market leader has

acquired IBM’s division will be giving extreme competition to Dell
where the computer market is expected to grow abnormally in the
next 5 years and in places which lack telephone and internet facilities.
So they will be required to start some distributions centers over there
to capture the market. Further they need to develop some R&D if they
want to compete with IBM in server market.

8
 DELL INC.

ANNEXURE I
Projected Income Statement
Period Ending 31 Jan 30 Jan 28 Jan 28 Jan 28 Jan 28 Jan 28 Jan 28 Jan
2003 2004 2005 2006 2007 2008 2009 2010
All figures in $
Total revenue 35404 41444 49205 58062 68513 80845.4 95398 112569.12
cost of Revenue 29055 33892 40190 47424 55960.6 66033.5 77919 91944.98
Gross Profit 6349 7552 9015 10638 12552.5 14811.9 17478 20624.13

Operating Expenses
Research & Development 455 464 463 546.34 644.681 760.724 897.65 1059.23
Selling, General and
Administrative 3050 3544 4298 5071.6 5984.54 7061.75 8332.9 9832.78
Non recurring Events 0 0 0 0 0 0 0
Others 0 0 0 0 0 0 0 0
Total Operating Expenses 0 0 0 0 0 0 0 0
Operating Income or
Loss 2844 3544 4254 5019.7 5923.27 6989.46 8247.6 9732.12

Income From Continuing

Operations
Total other
Income/Expenses Net 183 194 191 225.38 265.948 313.819 370.31 436.96
Earnings Before Interest
and Taxes 3027 3738 4445 5245.1 6189.22 7303.28 8617.9 10169.08
Interest Expense 0 14 0 0 0 0 0 0
Income Before Tax 3027 3724 4445 5245.1 6189.22 7303.28 8617.9 10169.08
Income Tax Expense 905 1079 1402 1654.4 1952.14 2303.53 2718.2 3207.43
Minority Interest 0 0 0 0 0 0 0 0
Net Income from
Continuing operations 2122 2645 3043 3590.7 4237.07 4999.75 5899.7 6961.64

Non Recurring events

Discontinued operations -18 0 0 0 0 0 0 0
Extraordinary items 0 0 0 0 0 0 0 0
Effect of Accounting
changes 0 0 0 0 0 0 0 0
other items 0 0 0 0 0 0 0 0
Net Income 2122 2645 3043 3590.7 4237.07 4999.75 5899.7 6961.64
Preferred Stock and other
adjustments 0 0 0 0 0 0 0 0
Net income applicable to
common shares 2122 2645 3043 3590.7 4237.07 4999.75 5899.7 6961.64

Growth Rate Sales Growth

2003 35404
2004 41444 0.1706
2005 49205 0.18726
Average 0.18

9
 DELL INC.

ANNEXURE II
Projected Balance Sheet
Period
ending 31 Jan 30 Jan 28 Jan 28 Jan 28 Jan 28 Jan 28 Jan 28 Jan
2003 2004 2005 2006 2007 2008 2009 2010

Assets
current
assets
cash & cash
equivalents 4232 4317 4747 5601.46 6609.7228 7799.4729 9203.37803 10859.986
Short term
investment 406 0.13107904 5060 5970.8 7045.544 8313.7419 9810.21547 11576.054
net
receivables 2586 0.18321309 4414 5208.52 6146.0536 7252.3432 8557.76503 10098.163
inventory 306 0.06184331 459 541.62 639.1116 754.15169 889.898992 1050.0808
other current
assets 1394 0.62446132 2217 2616.06 3086.9508 3642.6019 4298.27029 5071.9589
total current
assets 8924 10633 16897 19938.46 23527.3828 27762.312 32759.5278 38656.243

Long term
investment 5267 6770 4319 5096.42 6013.7756 7096.2552 8373.58115 9880.8258
property plant
and
equipment 913 1517 1691 1995.38 2354.5484 2778.3671 3278.47319 3868.5984
Goodwill 0 0 0 0 0 0 0 0
intangible
assets 0 0 0 0 0 0 0 0
accumulated
amortization 0 0 0 0 0 0 0 0
other assets 366 391 308 363.44 428.8592 506.05386 597.14355 704.62939
Deferred long
term assets
charges 0 0 0 0 0 0 0 0
total assets 15470 19311 23215 27393.7 32324.566 38142.988 45008.7257 53110.296

liabilities
current
liabilities
accounts
payables 6282 9935 14136 16680.48 19682.9664 23225.9 27406.5624 32339.744
Short/current
long term
debt 0 0 0 0 0 0 0 0
other current
liabilities 2651 961 0 0 0 0 0 0
total current
liabilities 8933 10896 14136 16680.48 19682.9664 23225.9 27406.5624 32339.744

Long term
debt 506 505 505 505 505 505 505 505
other 1158 538 2089 2089 2089 2089 2089 2089

10
 DELL INC.

liabilities
deferred long
term liability
charges 0 1092 0 0 0 0 0 0
minority
interest 0 0 0 0 0 0 0 0
negative
Goodwill 0 0 0 0 0 0 0 0
Total
Liabilities 10597 13031 16730 19274.48 22276.9664 25819.9 30000.5624 34933.744

Stockholders
Equity
Misc Stock,
options,
warrants 0 0 0 0 0 0 0 0
Redeemable
Preferred
Stock 0 0 0 0 0 0 0 0
Preferred
Stock 0 0 0 0 0 0 0 0
Common
Stock 6018 6823 8195 9670.1 11410.718 13464.647 15888.2837 18748.175
Retained
Earnings 3486 6131 9174 10825.32 12773.8776 15073.176 17786.3472 20987.89
Treasury -14979.439 -24611.69
Stock -4539 -6539 -10758 -12694.44 2 -17675.738 -20857.371 8
Capital
Surplus 0 0 0 0 0 0 0 0
Other
Stockholder -210.4737
equity -92 -135 -126 -108.56 -128.1008 -151.15894 -178.36755 1
Total
Stockholders
Equity 4873 6280 6485 7692.42 9077.0556 10710.926 12638.8922 14913.893

Total
Liabilities
and SE 15470 19311 23215 26966.9 31354.022 36530.826 42639.4546 49847.636
EFN 426.8 970.544 1612.1619 2369.27107 3262.6599

11
DELL INC.

ANNEXURE III
Ratios

Profitability ratios
2005
Net profit Margin 13.1079 %
Gross profit margin 18.32131 %
Return on investment 6.184331 %
return on equity 62.44613 %

Leverage Ratios

debt to assets 72.06547 %

debt to equity 343.3203 %
Long term debt to capital 53.2321 %
times interest 0 times
coverage of fixed charges 0 times
current liabilities to equity 290.0882 %

We know that
Z = 1.2x1+1.4x2+3.3x3+0.6x4+1.0x5 Z=150.25

x1 = working capital/total assets

x2 = retained earning/total assets
x3 = Debit/total assets
x4 = market value of equity/total
liabilities
x5 = sales/total assets

12