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Dell (DELL)Stock (Computer Hardware Manufacturing Industry, Consumer Products Industry, Retail Industry)
 Dell (NASDAQ: DELL) is a leading global vendor of personal computers. In addition to both desktop and notebook PCs, Dell sells peripherals, software, accessories, corporate servers and storage systems, and customer support services. Based in Round Rock, Texas, Dell is one of the largest corporations in America, employing over 65,000 people and earning revenues of $61.1 billion in 2007. Dell wants to become an all-in-one technology company so they are able to incorporate all phases of the production cycle from semiconductors to final products. This can help Dell improve efficiency and cut costs. Traditionally, Dell had been concentrated in the domestic PC market. In 2006-2007 the domestic PC market was saddled by sluggish PC sales growth and intense competition. Beginning in 2007, Dell began forming partnerships with large retailers across the U.S., Europe and Asia. Notable among these are Wal-Mart Stores, Best Buy (BBY), Costco Wholesale (COST), Suning and Gome, China's largest electronics store. These partnerships represent a drastic departure from Dell's previous strategy which purposely excluded any relationships with retailers. As a result, in addition to its traditional mail order distribution system, Dell now has nearly 13,000 retail locations worldwide. In the first quarter of 2008, international sales represented half of Dell's revenues. As corporations upgrade their computer systems to meet the compatibility requirements of Microsoft’s Windows Vista operating system, Dell’s higher-margin commercial business stands to benefit from increased demand. Dell is also responding to somewhat unimpressive PC sales growth by expanding their offerings of non-PC electronics, which have been experiencing faster growth and higher margins. In addition, Dell’s direct-to-customer business model advantage, as it keeps operating costs low and provides Dell with the industry’s highest operating margins.
[edit] History and Corporate OverviewDell (originally named PC’s Limited) was founded in 1984 by Michael Dell. The company sold IBM-compatible computers made from stock components. Dell implemented a direct-to-customer business model, selling made-to-order computers directly to customers, who could customize their systems using a list of available options. This model offered custom systems at lower prices and is still used by the company today. Dell has since expanded beyond the personal computer business, though its largest source of revenues remains its PCs. The PC hardware itself accounts for about 60% of total revenues. Along with PCs comes the sale of services, software, and peripherals, which constitute 26% of Dell’s revenues. The remainder of Dell’s revenues comes from commercial sources, principally the sale of servers and storage systems, which account for around 14% of total revenues combined. Dell is now one of the largest companies in America, coming in at 34 on the 2007 Fortune 500 list of America’s largest corporations by revenue. In 2007, the company earned $61.1 billion in revenue and $2.9 billion in net income and employed over 65,000 people worldwide. In 2007 Dell announced a turn-around plan to restore the company's growth and profitability. This plan includes reducing the workforce by 8900 (of which 7000 jobs had already been cut by Q1 2008), developing innovative new products, cutting $3 billion dollars in structural costs by 2009, and increasing market share in all of the markets where Dell competes. As of May 2008, this plan appears to be producing results as for the first time in two years, Dell had outgrown the industry in all markets and regions where it competed, despite the economic downturn in the United States. Although helped by a weaker dollar, for the first quarter of 2008 Dell's profits were up 3.7% with a 9% increase in sales over the same period a year earlier. Similarly, Dell's operating expenses were reduced by 9% for the said period.
[edit] Products Dell’s revenues by product segment (%), 2006 Dell offers a variety of products and services. Among its offerings are wide array of desktop and notebook computers, peripherals and software, technical support services, and corporate servers and storage systems. In addition, Dell’s subsidiary Alienware offers desktops, notebooks, and peripherals specialized for high-end video and audio editing and gaming.
Dell produces several lines of consumer and commercial PC systems, including both desktop and notebook models. Overall, Dell holds about 14% of the worldwide PC market. Within the PC segment, desktops contributed 38% of Dell’s 2006 revenue, and notebooks accounted for 25%.
Dell sells various software programs with its PC systems, such as productivity software, security programs, and games. Dell also sells a number of computer-related peripherals, including LCD monitors, printers, input and storage devices, etc. Aside from PC-related items, Dell sells various accessories and electronic devices, such as LCD televisions, digital cameras, and MP3 players. These software and peripherals accounted for 15% of Dell’s 2006 revenue.
For its corporate customers, Dell provides both servers and storage systems. Dell continues to aggresively pursue this market, bringing 9 new enterprise servers to corporate consumers in Janruary of 2008.
Dell also sells technical support services for its products, providing customers with assistance after they purchase their systems. Typically, services such as these provide high margins relative to Dell’s other business segments. Though services accounted for only 9% of total sales, they contributed around 35% to Dell’s 2006 gross profits. [edit] Customer SegmentsDell’s customers are divided into two broad categories: consumer and commercial. Dell markets different products and services to each category, reflecting the diverse technological needs of these distinct segments. The consumer segment includes all purchases made for personal or home business use and makes up around 20% of Dell’s total sales. The commercial segment is further divided into two sub-categories: small business and relationship business. Small business includes firms with fewer than 100 employees, and relationship business encompasses medium and large companies, healthcare companies, educational institutions, and government agencies. About 60% of Dell’s total sales comes from relationship business, which is Dell’s most profitable customer segment. Small business accounts for around 20% of total sales and has been showing sizable growth. Small business had traditionally been Dell's strongest suit, and recently Dell management has refocused on this sector as IBM and HP have used their greater size and wider range of products and expertise to dominate enterprise servers and networking systems for larger companies. Additionally, many companies that provide IT solutions for large companies that do not produce their own hardware have turned to Dell for equipment, as they do not want to purchase it from their large competitors: IBM or HP. [edit] Upgrade CyclesAs technology evolves, companies often upgrade or replace their computer systems to take advantage of new technologies, an occurrence known as the upgrade cycle. Technological innovations can trigger the upgrade cycle and increase demand for Dell’s products, while a lack of new developments can discourage companies from upgrading their computer systems. This cycle occurs primarily in the commercial market, where companies tend to replace all their computers at once. This can significantly impact Dell’s revenues, as the commercial market accounts for 80% of the company’s total sales. The release of a product like Microsoft’s Windows Vista operating system could trigger an upgrade cycle in Dell’s commercial segment. Many older computer systems do not meet Vista’s compatibility requirements, encouraging companies to upgrade their systems to take advantage of Vista’s new features. This potentially increased demand in the higher-margin commercial segments could positively impact Dell’s total sales. [edit] Growing MarketsEstablished in 1984, Dell is a relative newcomer in the computer industry, especially when compared to long-established companies like IBM and HP. As such, Dell still has a lot of room for expansion in certain areas, especially the non-PC segment and international markets. These segments have been showing higher growth potential than the domestic PC market in which Dell has historically been concentrated. On that note, Dell has shown a major interest in expanding their global exposure. Dell has signed a deal with Wal--Mart Stores (WMT) to sell Dell desktops and notebooks in Brazil and Mexico. Dell has also signed a deal with Gome Group, which is the largest electronics retailer in China. Deals with retailers in Japan and UK have also been inked. This is a major shift from Dell's previous model of selling PCs over the internet and phone. Opening up to retailers such as Wal-Mart and Gome adds a massive distribution network for Dell that has the potential for a major international turnaround. In part to this new exposure, recent earnings in August have grown 5% over the last quarter.  Dell’s revenue by region, 2006 [edit] International GrowthDell continues to pursue international sales through a variety of means. In addition to distribution agreements with large retailers, Dell has developed a number of products specifically targeted at emerging markets. The best example of this is the Dell 500 notebook, a low cost laptop designed to be affordable for a large phase of the population of developing countries. Such initiatives have proven successful for Dell; unit sales for emerging markets grew 62% during the first quarter of 2008. With revenue in India and China growing 52% and 30%, respectively, for the same period. This growth is reflected by the fact that half of the fastest growing Chinese internet companies use Dell hardware. [edit] Non-PC SegmentWithin Dell’s portfolio of offerings, non-PC products and services are showing larger growth potential than the company’s PC segment, which currently accounts for 60% of sales. Dell is responding to this increased demand in the non-PC segment, expanding its line of servers, peripherals and accessories, and customer support services. These account for a smaller percentage of Dell’s revenue, leaving room for continued growth. In addition, margins on these goods and services are generally higher, especially for technical support services. The higher profitability and increased demand in the non-PC segment could bolster Dell’s earnings significantly if the company continues to improve its offerings in the segment. Dell has agreed to acquire EqualLogic Inc. (EQLX), a data networking systems company, for $1.4 billion. This acquisition is an attempt to enhance Dell's offering in data storage, which only accounted for 4% of sales in 2006. The main customer demographic is expected to be medium sized companies that cannot afford the more expensive data storage systems. [edit] OutsourcingThe PC market has become intensely competitive, especially in the United States. Dell must keep its prices competitive or risk losing business to competitors, putting pressure on Dell to cut production costs wherever possible. Following industry trends, Dell has begun outsourcing more components to third parties in order to lower its costs of production. Unlike other leading PC manufacturers, however, Dell still assembles its own final products. The purpose of this outsourcing is to minimize production costs, increasing profit margins and allowing the company to reduce prices. On the other hand, Dell’s increasing reliance on its technology partners can decrease its control over the supply chain as a whole. As more components are outsourced to third parties, Dell loses some of its control over both prices and the overall production process. [edit] Competition Global PC market, by units sold, 2006  Global server marker, by revenues, 2006Q4 Dell’s competition varies in its different segments. However, its largest competitors overall are Hewlett-Packard, International Business Machines, and Lenovo. Hewlett-Packard's recent acquisition of Electronic Data Systems (EDS) will create difficulties for Dell, as previously Dell had an agreement to sell its PCs and other hardware through EDS. Since HPQ will likely be unwilling to market Dell's products through its subsidiary this buyout will cause a loss of sales for Dell.
 Dell2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] PCsDell is the second-largest vendor of PCs worldwide with a 14.4% market share, coming second to Hewlett-Packard who commands an 18.6% market share. Dell’s other significant competitors in the PC market include Lenovo, Acer, Toshiba, and Apple. The desktop market is highly fragmented, with the top ten companies accounting for only 57% of the global desktop market share. This is due to the large number of small, low-cost manufacturers, which hold around 35% of the desktop market. Dell saw a decline in desktop sales in Q3 2007, which widens the gap between Hewlett Packard who had a 15% increase in desktop sales in the recent quarter. In notebooks, the top ten companies hold about 84% of the global market, and the segment has shown strong growth, attributable to sales in developed countries and the proliferation of wireless access. [edit] ServersDell is a relative newcomer to the server market. In the server market, Dell is behind HP, IBM, and Sun Microsystems, accounting for just 9% of revenues in the server market in the last quarter of 2006. Dell’s server offerings are aimed at the low-end market segment, which includes servers that cost less than $25,000. This segment has shown strong growth as quality in the segment increases, resulting in declining demand for high-end servers.
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