KARACHI UNIVERSITY BUSINESS SCHOOL

Group # 1
Name Kamran Tahir (14)
Submitted to Prof. Dr. Ali Askari
Class BS-VIII
Summary Case II: Dell Inc.
Date October 25, 2013
Case II: Dell Inc.
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MANAGEMENT ISSUES
Vision Statement
Its the way we do business. Its the way we interact with the community. Its the
way we interpret the world around us our customers needs, the future of
technology, and the global business climate. Whatever the changes the future may
bring, our vision Dell Vision will be our guiding force.
Mission Statement
Dells 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
Organization Structure
Headquartered in Round Rock, Texas, Dell Inc. is managed on a geographic basis.
The three geographic segments are the Americas, Europe, and Asia-Pacific.
Dell maintains more than 7 million square feet of office, research, manufacturing
and distribution space in the United States, with another new half-million square-
foot manufacturing facility under construction in North Carolina. Dell also
maintains 4.5 million square-feet of office, research, manufacturing and distribution
space around the globe.
The Americas
The Americas segment is based in Round Rock, Texas and covers the US, Canada,
South America and Latin America. Dells operations in America are reported in two
different categories: Business and US Consumers. The net revenues for the Business
Division amounted to $25,339 million, making it by far the companys largest
segment, accounting for almost 52 percent of total net revenues and 61 percent of
total operating income in 2004. The consumer sales in the US totaled $7,601
million, accounting for just over 15 percent of total net revenues and over 9 percent
of total operating income in 2004. Together, the Americas region account for almost
67 percent of Dells total net revenues and 70 percent of operating income.
Dell controls 29.1 percent of the total market for PC sales in the Americas, easily
placing it ahead of its rivals.

Case II: Dell Inc.
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Europe
Dells Europe operations are based in Bracknell, England, and covers the European,
some African and Middle Eastern countries. Dell reported net revenues of $10,787
million from Europe in 2004, amounting to almost 22 percent of total net revenues
and 19 percent of its total operating income. Dells 11.7 percent market share for
sales of PC sales in Europe, makes Dell the second-largest supplier of computers in
this segment.
Asia-Pacific
The Asia-Pacific segment is based in Singapore and covers the Pacific Rim,
including Japan, Australia and New Zealand. In 2004, sales in the Asia-Pacific
segment generated $5,487 million in net revenues, accounting for just over 11
percent of total net revenues and total operating income in 2004. Dell is the third
largest supplier of personal computers in Asia-Pacific and holds 8.3 percent of
market share.
Manufacturing
Dell manages manufacturing facilities in six locations:
Austin, Texas (Americas)
Nashville, Tennessee (Americas)
El dorado do Sul, Brazil (Americas)
Limerick, Ireland (Europe)
Penang, Malaysia (Asia-Pacific and Japan)
Xiamen, China (China)
Dell Inc.s Geographic Area Information 2004
(in $ million)
Net Revenues 28 Jan 05 28 Jan 04 28 Jan 03
Americas Business 25,339 21,888 19,394
Americas Consumer 7,601 6,715 5,653
Total Americas 32,940 28,603 25,047
Europe 10,787 8,495 6,912
Asia-Pacific 5,478 4,346 3,445
Total Net Revenues 49,205 41,444 35,404
Operating Income
Americas Business 2,579 2,194 1,945
Americas Consumer 399 400 308
Total Americas 2,978 2,594 2,253
Europe 818 637 388
Asia-Pacific 458 313 203
Total Net Revenues 4,254 3,544 2,844

Annual Share of Personal Computer Sales
Americas 29.10% 27.70% 24.80%
Europe 11.70 10.50 9.60
Asia-Pacific 8.30 7.20 5.80
Worldwide 17.80 16.70 15.00
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Dell maintains least possible levels of inventory through its build-to-order approach,
where products are manufactured only after orders are received from customers.
Parts, components and subassemblies purchased from suppliers are tested and held
to quality standards. This attribute lessens Dells exposure to the risk of declining
inventory values and allows it to quickly incorporate new technologies or product
components into its product offerings. To ensure defect-free product, testing is
performed at various stages during manufacturing and assembling processes.
Marketing
Dells customer base includes large corporations, government agencies, healthcare
and educational institutions, small businesses and individuals. Dell divides its
customers into three groups: relationship, transactional, and Internet. Relationship
customers include large corporations, government agencies, health-care and
educational institutions, and small to mid-size businesses. Transactional customers
are typically small to mid-sized businesses. Dell markets its products and services to
these customers through advertisements in TV and Internet, and mailing product
catalogues. Internet customers can access a wide-range of information about Dells
products and offerings and place orders by visiting Dells Web site (www.dell.com).
Finance
Dells total net revenues for 2004 of $49,205 million is almost a 40 percent increase
over its 2002 revenues of $35,404, indicating an annual growth rate of almost 19
percent. Besides that, Dells net income has increased from $2,122 million in 2002
to $3,043 million in 2004, showing an annual growth of 19.75 percent.
Competitors
Dell faces daunting competition from Hewlett-Packard, IBM and Lenovo.
Competition on the basis of price, technology availability, performance, product
offerings, and services is very intense in PC market. Dell could maintain
profitability by reducing its operating expenses and by continuing to leverage its
lean inventory model to rapidly realize the benefits of component price declines.
Hewlett-Packard
HP is Dells closest competitor by most accounts. In 2003, Dells 16.7 percent
market share of global PC market surpassed that of HPs 16.2 percent. The gap has
widened further, with Dell boasting a market share of 18.3 percent against HPs 15.7
percent. Dells operating margins of 8.8 percent far outstrip HPs 0.9 percent profit
margin. However, HP does have certain competitive strengths.
HPs total net revenues for 2004 of $79,905 million are far greater than Dells
$49,205. Sale of printers and printer inks generate 30 percent of HP total net
revenue, though contribute 70 percent towards its operating profits. To challenge HP
in printer market, Dell has begun to sell printers (by rebranding Lexmark printers),
but it is yet to be seen if Dell would be able to offer serious competition to HP,
given the dominating position HP enjoys. HP sold 43 printers in 2004 compared to
Dells 3 million.
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IBM
IBM divested its Personal Computing Division to Lenovo in 2004, citing Dells
profit margin advantages and difficulty in maintaining a reasonable profit margin.
Still, IBM and Dell compete directly in the computer server market. However,
Dells low-cost, low-research approach to manufacturing has hampered its ability to
compete with IBM (with net revenues of $96,293 million). Dell holds 9 percent of
server market, compared to IBMs 32 percent. In addition, much of Dells sales are
in the lower, less-profitable end of the server industry, whereas IBM is thriving in
the upper and middle sections of server market. IBM spends $1 billion annually in
research and development, which allows it come up with unique solutions. This
would further deteriorate Dells ability to compete with the more complex offerings
of IBM.
Gateway Computers
Gateway Computer, a once formidable competitor to Dell, has collapsed in recent
years. In 2004, Gateway acquired eMachines and appointed eMachines CEO to
take helm of the combined company. Gateway commands only 6 percent of the PC
market against Dells 29 percent, and its net revenues for 2004 were merely $3,650
million. The company posted a net loss for 2004 of $475 million and it is distinctly
possible that it would not be able to survive the tight competition in PC market.
Apple Computer
Apple has continued to introduce innovative designs for its brand of personal
computers. The use of color, styling, and a commitment to its own operating system
means that Apple clearly has a unique product line. In addition to that, Apple has
enjoyed remarkable success with its iPod line of portable digital music players.
Apples 2004 net revenues of $8,279 million are dwarfed by Dells $49,205 million.
Apples 2004 net income of $276 million is likewise surpassed by Dells $3,043
million. Apple with its 5 percent share of the US PC market seems an unlikely
competitor to Dell with 29 percent market share. However, Apples philosophy of
innovation, experimentation and leading-edge design is a stark contrast to Dells
focus on cost and inventory control.
Recommendations
1) Dell should follow the lead of IBM and set aside a research and development
budget of 1 3 percent of net revenues every year. This would prove to be
highly beneficial in improving Dells competitive edge in the long-run.
2) To compete more efficiently with rivals that enjoy low-wage advantages, such as
Lenovo, Dell must consider shifting some of its manufacturing and assembling
operations in low-wages countries such as China and Vietnam, which are in
close proximity to its potential markets.
3) Dells must avoid selling rebranded Lexmark printers, where Dell might not be
successful in achieving cost-benefits. Rather, Dell should consider developing its
own line of printers and printer inks.
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4) In growing markets, such as China and India, Dell may not be able to apply its
build-to-order approach as most of the customers would be first time buyers.
Hence, to fully tap the potential of emerging markets must consider opening
retail stores or entering into agreements with other retailers.
5) Dells adherence to the commodified low-cost version of the PC may prove to be
a limitation in the future. In a market in which consumers regularly shell out
thousands of dollars for cutting-edge high-end gaming and performance
machines, Dells generic offerings may prove vulnerable.
6) Dell must conduct extensive experimentations with its Internet server product
lines and come up with more sophisticated systems for offerings to higher value
sections of the market.