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OUR TOPIC
DELL IN 2003: DRIVING FOR INDUSTRY LEADERSHIP

Team member's
FAHAD NASEER ABBASI FAHAD YOUSAF AAMIR SHEHZAD M. OMER SIDDIQUE MB093041 MB093042 MB093024 MB093046

COURSE INSTRUCTOR:
SIR ARIF VASEER

COMPANY HISTORY

1984
At the age of 19 with $ 1,000 in start up capital Michael Dell founded Dell Computer with simple vision and business concept that Personal computer could built to order and sold directly to customer. He believed that:

Bypassing distributors and retail dealers eliminated the mark-ups of reseller. Building to order greatly reduced the costs and risks associated with carrying large stock of parts, components and finished goods.

1985
Dell build and design the first computer system.

1988
Dell had raised $ 30 Million in its IPO. At this time his capital is $ 85 Million.

1996

ABOUT FOUNDER

Michael Dell was considered leading person in PC industry At the age of 19, Michael Dell founded Dell Computers with business concept In 1992 at the age of 27, Michael Dell youngest CEO of fortune 5oo Company At the age of 32, Michael Dell was a billionaire In 2003 Michael Dell owned about 11.8 % of Dell Computers worth about $8.5 billion.

CASE ANALYSIS

Question # 1 What are Economic Characteristic of PC Business ?

In 2002 Operating Cost as compared to revenue:

o

Dell 10% HP 21% Gateway 25%

In 2002 Dell was Market Leader with 28% Market Share Dell overtaken the Compaq in 2001 Mid 1990s UNIX operating System price 30,000 to 1 Million $ In 2003 Dell introduced Axim X5 In late 1990s Dell market new Product Line In 2002 47.8 million of shipments of Leading PC Vendors US Market In 2002 136 million of shipments of Leading PC Vendors World wide

U.S Market Share of the Leading PC Vendors, 1998 - 2002

2002
2002 Vendor Rank Shipments (in 000s) Market Share (%)

2001
Shipments (in 000s) Market Share (%)

2000
Shipments Market (in 000s) Share (%)

1999
Shipments (in 000s) Market Share (%)

1998
Shipments (in 000s) Market Share (%)

1 2 3 4 5 6

Dell Compaq HP Gateway IBM Apple Others All

13,324 8,052 2,725 2,531 1,693 19,514 47,839

27.9 16.8 5.7 5.3 3.5 40.8 100

10,817 5,341 4,374 3,219 2,461 1,665 23,509 46,051

23.5 11.6 9.5 7.0 5.3 3.6 51.0 100

9,645 7,761 5,630 4,237 2,668 N.A 18,959 48,900

19.7 15.9 11.5 8.7 5.5 N.A 38.8 100

7,492 7,222 3,955 4,001 3,274 N.A 19,248 45,192

16.6 16 8.8 8.9 7.2 N.A 42.6 100

4,799 6,052 2,832 3,039 2,983 N.A 16,549 36,254

13.2 16.7 7.8 8.4 8.2 N.A 45.6 100

Worldwide Share of the Leading PC Vendors, 1998 2002

2002
2002 Vendor Rank Shipments (in 000s) Market Share (%)

2001
Shipments (in 000s) Market Share (%)

2000
Shipments Market (in 000s) Share (%)

1999
Shipments (in 000s) Market Share (%)

1998
Shipments (in 000s) Market Share (%)

1 2 3 4 5 6

Dell Compaq HP IBM Fujitsu Siemens NEC Others All

20,672 18,432 7,996 5,822 4,533 78,567 136,02 2

15.2 13.6 5.9 4.3 3.3 57.8 100

17,231 14,673 9,309 8,292 6,022 4,702 73,237 133,46 6

12.9 11.0 7.0 6.2 4.5 3.5 54.9 100

14,801 17,399 10,327 9,308 6,582 N.A 80,640 139,05 7

10.6 12.5 7.4 6.7 4.7 N.A 58.0 100

11,883 15,732 7,577 9,287 N.A 5,989 62,258 112,72 6

10.5 14.0 6.7 8.2 N.A 5.3 55.2 100

7,770 13,266 5,743 7,946 N.A 5,976 50,741 91,442

8.5 14.5 6.3 8.7 N.A 6.5 55.5 100

Question # 2 What are the Key Elements of Dell Strategy? How Well do they fit together? What does a SWOT analysis reveal of the attractiveness of Dell position?

DELL COMPUTERS STRATEGY Cost Efficient Build to Order Manufacturing

Quality Control Partnerships with Supplier Just in Time Inventory Direct Sales Strategy and Marketing Efforts Customer Services and Technical Support Pioneer Leadership in Use of Internet and E-Commerce

COMPARATIVE VALUE CHAIN MODELS OF PC VENDORS

Traditional PCs Industry Value Chain (Utilized by Compaq, IBM, HP and Most Other)
Fill order from Suppliers and Keep distribution Channels Build-to-Order/Direct Sales Value Manufactured of PCs Component By Suppliers Sales and Marketing Activities Purchase By PC Users Service and support activities Provided to PC Users Micron Electronics)

Chain (Employed by: Dell, Gateway,

Manufactured of PCs Component By Suppliers

Customized Assembly of PCs

Purchase By PC users

Service and Support activities Provided to PC Users

SWOT ANALYSIS
WEEKNESSES STRENGTHS
Just in time Inventory Long Term Partnership Pioneer of use Internet Customer Requirement Low Cost Leader

No Repair Service Lack of Product Line

OPPORTUNITIES

THREATS

Continue in Market Share Make Further Products

IBM with great reputation

Corporate Sector rely on HP Less inventory make process slower

Question # 3 What is your assessment of Dell Financial performance during the past years? What are the key reasons of its revenue growth and profitability?

From 1997 to 2003 Dell revenue Grow 28.8% Earning raised from $ 518 million to $ 1,222 million Gross Profit Margin trending downward from 21.5% to 17.9%

Working Capital drop over the past 3 years Current Ratio down from 1.57 to 1.48 Strong Cash position with 4.6 billion cash and marketable securities

KEY REASONs OF GROWTH IN REVENUE Cost Efficient Build to Order Manufacturing Quality Control Partnership with Suppliers Just in Time Inventory Practices Customer Service and Technical Support Pioneering Leadership in use of Internet and ECommerce Technology Expansion into New Products

Question # 4
Analyse Dell competitors and their results. Has Dell strategy resulted in sustainable competitive advantage over its rivals? If so, what is the nature and source of the advantages? Do Dell expansion into other IT products and services make good strategic sense?

Hewlett Packard, IBM, Compaq and Sun Microsystems are the main competitor of Dell IBM has an edge because of its image and reputation Suns Strength was in technical Computing and leader in work stations Dell have an edge of low cost leadership Dell face weakness in its smaller IT service and Technical Support capabilities Gateway has an edge over Dell in appealing Home and Individual Consumer Dell have an edge over competitors because of Supply Chain Efficiency and Direct Sales Model Dell Value added Services and after Sale Services are pretty impressive and growing over the time

Dells Principal Competitors and Dells Market Share by Product Category IN 2002
Estimated Worldwide Dells Market Size in Worldwide Share 2003 2002 (%) (billions $) 162 ~ 16

Product Category

Dells Principal Competitors

PCs and Workstations Hewlett Packard (maker of both HP and Compaq brand), IBM, Gateway, Apple, Acer, Sony, FujitsuSiemens (in Europe and Japan) Legend (in China)

Servers

Hewlett Packard, IBM, Sun Microsystems, Fujitsu

50 31 4

~9 ~6 <1

Data Storage Devices Hewlett Packard, IBM, EMC, Hitachi Networking switches Pam, Sony, Hewlett Packard, Toshiba, Casio and related equipment Handheld PCs

Printers and Printer Cartridges

Hewlett Packard, Lexmark, Canon, Epson

35 45 4 (in North America) 350

0 0 ~2

Cash Register System IBM, NCR, Wincor Nixdorf, Hewlett Packard, Sun Microsystems Services Accenture, IBM, Hewlett Packard, Many others

EXPANSION INTO IT PRODUCT AND SERVICES

Printers and Printer Cartridges CD and DVD Drivers Scanners Modems Monitors Digital Cameras Memory Cards Zip Drives

Question # 5 What is Dell chances to remain the global market leader in PCs and low end servers? Would you recommend any major changes in its strategies?

Dell was Global Market Leader in PC in 2003 29% increase in 2003 to 2004 shipments Dells Growth will be boost up in near future in USA, Asia, Japan and Europe Dell has a strong competitive position in PC and low end servers Dell have a low cost leadership in PC market To get more profit Dell should work on

INVENTORY PERIOD 3 DAYS INVENTORY

Suppliers

Logistics Hubs

Dell Factory

Delivery

Local Suppliers

Supplier Owned

Dell Owned

Customer

CONCLUSION

Michael Dell founded Dell Computers in 1984 From 1986 to 1993 company struggled a lot to refine its strategy and better knowledge of rivals In 2002 28% market share No. 1 Domestic Seller In 2003 Dell market new Product and Services The core of Dell Strategy give the

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