Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
pc wars

pc wars

Ratings: (0)|Views: 31|Likes:
Published by Lino Jacob
dell vs lenovo
dell vs lenovo

More info:

Published by: Lino Jacob on Jan 23, 2013
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

10/26/2013

pdf

text

original

 
 
1
M I T S l o a n C o u r s e w a r e
 
The PC Wars: Dell vs. Lenovo
1
 
L u i s V i v e s d e P r a d a & D o n a l d L e s s a r d
The April 2005 acquisition of the IBM PC division by Lenovo, creating overnight a Chinese and US-basedglobal player, significantly raised the stakes for Dell, the largest PC maker, in what was already a high-stakes game."If I were Dell, I'd be worried," said Laura DiDio, an analyst for Boston-based research firm YankeeGroup. "I'd expect (Lenovo) will be very aggressive and take Dell head on. I'm anticipating they aregoing to be a tough competitor. This is a full-court press."
2
  Although Dell’s initial public response was dismissive,"Really, they (Lenovo) are still very China-centric," declared Kevin Rollins, Dell CEO. "If you look atwhere they’d grown, where their profitability resides, it's still a Chinese business." Their growth isactually deteriorating. The question is, can they continue to compete globally, versus continuing tocompete in China"
3
 the difficult times for Dell had already started. A slowdown in sales in 2005 caused the company to miss itsannounced projections (see exhibit 1 – Decrease in Sales in the US), and its stock was heavily punished byinvestors (see exhibit 2 – Evolution of Dell Stock Price)."No, the sky is not falling at Dell," Mr. Rollins said. "We failed to meet our own expectations, whichwere high. But you'd think we were not growing or were losing money by what you read. We stillhave an outrageous track record. Our model still works very well."
4
 Nevertheless, Mr. Rollins admitted that some changes were necessary for Dell, but "we are not talking aboutwholesale upheaval. We are tweaking, making refinements and enhancements, and resetting."
5
Yet, it was
1
PC Wars: Dell vs. Lenovo case was written by Postdoctoral Fellow Luis Vives de Prada and Professor Donald R. Lessard, at theMIT Sloan School of Management in April 2006.
2
‘Lenovo's coming out party’, by Amanda Cantrell, CNNMoney.com published on January 5, 2006.http://money.cnn.com/2006/01/04/technology/lenovo/index.htm, accessed on February 3, 2006
3
‘Dell CEO Takes Digs At Lenovo’, by Edward F. Moltzen, CRN, published on Mar. 01, 2006,http://www.crn.com/sections/breakingnews/dailyarchives.jhtml?articleId=181401700, accessed on March 01, 2006
4
‘Dell's missing mojo’, by Amanda Cantrell, CNN/Money published on November 9, 2005.http://money.cnn.com/2005/11/09/technology/dell_analysis/index.htm, accessed on February 3, 2006
 
 
2
clear that investors were concerned about Dell’s future and wanted the company to go back to double digitgrowth, an expectation that had been set by the company in the past."A 6 to 9 per cent growth rate is not something we aspire to."
6
"Our belief is that we would want togrow faster than that"
7
.However, current market conditions seemed to be overwhelmingly working against Dell. Most of the growthin recent times in the PC industry was outside the US and in the consumer market, two segments in whichDell was relatively underrepresented
8
(see exhibits 3 and 4). Moreover, the reduction in the average sellingprice (ASP) due to increasing competition in the industry was also expected to negatively affect the bottomline of the company."We remain concerned that continued declines in PC pricing will continue to make PC revenuegrowth harder for Dell"
9
stated a recent Bear Sterns investment report. “Dell’s goal of 9%-10%operating margins is not an immediate priority or an integral element of company strategy”
10
.The US computer company also faced tougher competition in the enterprise hardware and servicessegments, and Dell’s cornerstone competitive advantage, its asset velocity model, had been having littleimpact on its competitiveness due to the firm component prices
11
. Nevertheless, the company wasconvinced that their business model was the right one to continue to be successful in the future."Our model continues to be the best in the business," Michael Dell defends. "We wouldn't tradeours for anyone else's! It's also important to have a little perspective. In the past ten years our sales are up about 15 times, earnings and the stock price are up about 20 times. Not tooshabby!”
12
 While all this was happening, Lenovo, one of the new
Chinese dragons 
, was looking at the United States asone of the key markets for its future expansion. Since the company closed the deal to acquire IBM PersonalComputers business on April 30, 2005, they had kept a fairly low profile in the United States. But this wasabout to change, as the company stated in its ‘3 phase plan’, released with its 2004/2005 year results inwhich they stated that one of its main objectives was to “grow Lenovo into a worldwide brand”
13
(see exhibit5 – Lenovo’s 3 phase plan), so the United States, the most important country in the computer business inthe world couldn’t be forgotten."2006 is the coming out party for Lenovo," said Peter Hortensius, senior vice president of Lenovo'snotebook business unit. "2005 was a year of integrating the business and laying the groundwork" for 
5
‘Dell's missing mojo’, by Amanda Cantrell, CNN/Money (November 9, 2005, accessed on February 3, 2005). Source:http://money.cnn.com/2005/11/09/technology/dell_analysis/index.htm 
6
‘Dell revenue growth picking up’, Business Section – The Advertiser,http://www.theadvertiser.news.com.au/common/story_page/0,5936,18322058%255E462,00.html, accessed on March 01, 2006
7
‘Dell revenue growth picking up’, Business Section – The Advertiser,http://www.theadvertiser.news.com.au/common/story_page/0,5936,18322058%255E462,00.html, accessed on March 01, 2006
8
Source: Dell Credit Suisse Report. February 2006.
9
‘Dell's missing mojo’, by Amanda Cantrell, CNN/Money (November 9, 2005, accessed on February 3, 2006). Source:http://money.cnn.com/2005/11/09/technology/dell_analysis/index.htm 
10
Dell Inc. Bear Stearns Report, January 05, 2006.
11
Source: Dell Credit Suisse Report, February 2006.
12
‘Dell's Midlife Crisis’, by Andy Serwer, Fortune Magazine (November 28, 2005, accessed on February 3, 2006). Source:http://money.cnn.com/magazines/fortune/fortune_archive/2005/11/28/8361935/index.htm 
13
Source: Lenovo’s presentation 2004/2005 company results.
 
 
3
what is to come in 2006, he said – “which will include Lenovo-brand desktops and notebooks that don'tcarry the ThinkPad logo”.
14
 To support the expansion of the company’s foothold, Lenovo strengthened its senior management team byselective hiring (see exhibit 6 for Lenovo’s Worldwide Management Team). Among others, the Chinesecomputer company hired William (Bill) Amelio, former senior vice president at Asia-Pacific and Japan for Dell, at the end of 2005, as new CEO replacing Steven Ward. William Amelio was viewed as the responsiblefor the successful entry of Dell in Asia. Now, Mr. Amelio could help Lenovo to improve its execution andmargins, turning into a Dell-like company."Bill Amelio's combined experience - in our industry, in emerging and mature markets, in senior operational roles and with IBM - gives him the perfect profile to lead Lenovo from the importantstability we have achieved in the first phase of our integration, to the profitable growth andefficiency improvement to which we are committed in our next phase," said Lenovo's ChairmanYang Yuanqing
15
.
The PC Industry
The PC Industry can be traced back to the 1970s. In those years, various companies launched what wereknown as ‘microcomputers’ – the MITS Altair, the Imsai 8080 or the M6800 computer are some examples.“If you wanted a personal computer back in 1975, you had to build it yourself. For under $500($1,700 in today’s money) you could mail-order a bag of parts that, after a few days’ frustratingconstruction, became the Altair 8800. Named after a star in a
Star Trek 
episode, the Altair was alarge blue box with no keyboard or screen. To program it, you flipped switches on the front andthen read off the results on two rows of tiny red lights”
16
.However, one can state that the Apple II was the first truly personal computer. The Apple II was launched by Apple in 1977. The company chose its name because Steve Jobs, one of the founders of the company, hadrecently worked at an organic apple orchard. "[H]e thought of the apple as the perfect fruit--it has a highnutritional content, it comes in a nice package, it doesn't damage easily--and he wanted Apple to be theperfect company. Besides, they couldn't come up with a better name."
17
The Apple II soon became a hugesuccess, selling more than 4,000 units in 1977
18
. Among its features it included a color display, eight internalexpansion slots, and a case with a keyboard. Other of the reasons that can explain the early success of the Apple II was the availability of different applications such as VisiCalc, the first spreadsheet programavailable for personal computers that “transformed the Apple II into a serious business machine”
19
.In the late 70s, IBM, after carefully observing the development of the personal computer industry finallydecided to launch its own project, even if rumors at that time said that they were considering the acquisitionof the fledging game company Atari to enter in the industry. On August 12, 1981, IBM launched the first IBMPC, a machine that run on ran on a 4.77 MHz Intel 8088 microprocessor with 16 kilobytes of memory,
14
‘Lenovo's coming out party’, By Amanda Cantrell, CNNMoney.com writer January 5, 2006,http://money.cnn.com/2006/01/04/technology/lenovo/, accessed on March 2, 2006.
15
‘Lenovo replaces Big Blue CEO with Dell man’, By Ashlee Vance in Mountain, published on 21 Dec 2005.http://www.channelregister.co.uk/2005/12/21/lenovo_hires_dell/
 
, accessed on March 7, 2006.
16
Source: People Magazine 2004, Bill Gates Interview.
17
Source: Apple II History.http://apple2history.org/history/ah02.html, accessed on March 5, 2006.
18
The sales of Apple II systems up to date are above the 750,000 units. Source:http://oldcomputers.net/appleii.html, accessed onMarch 5, 2006.
19
Source: Oldcomputers.net.http://oldcomputers.net/appleii.html, accessed on March 5, 2006.

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->