QUOTE AND NEWS
MarketWatch  Dec 10  Comment 
Two hedge fund managers had been convicted in 2012 for involvement with Dell and NVIDIA.
The Hindu Business Line  Dec 10  Comment 
Computer firm Dell India today launched rugged notebooks, made to withstand heavy rains, moisture and over 60 kg weight on to them, with prices starting at Rs 2.29 lakh.Dell is mainly lookin...
Benzinga  Dec 4  Comment 
It seems that Dell’s founder, Michael Dell, has become an advocate for companies to go private. In a recent interview with Bloomberg, Dell enumerated on the numerous benefits he is enjoying after going private and also shared the future strategy...
The Hindu Business Line  Dec 4  Comment 
Data centres, security tech and mobility are the focus areas of research team
CNNMoney.com  Dec 4  Comment 
Michael Dell is loving life a year after taking his namesake company private.
Bloomberg  Dec 4  Comment 
Financial Times  Dec 4  Comment 
Dell, who is retiring as chair of Latham & Watkins, led the law firm’s aggressive expansion
The Hindu Business Line  Dec 1  Comment 
Using tablets at the workplace is beneficial for businesses, as it helps improve employee productivity, according to a Dell 2014 International Tablet Survey of IT Decision Makers (ITDMs). ...
Benzinga  Nov 26  Comment 
Michael Dell recently wrote an op-ed for The Wall Street Journal in which he suggested that companies that go for a split do so at the cost of innovation. Though advice from competitors is the last thing a company considers before taking a...
Yahoo  Nov 25  Comment 
With Dell back on track a year after going private, CNBC contributor Herb Greenberg, discusses if Twitter would be better off going private or getting folded into someone like Apple or Google.




 


Dell (NASDAQ: DELL) is a global vendor of personal computers and is one of the largest companies in America, employing over 78,900 people (with approximately 33% located in US and rest in other countries) and earning revenues of $61.5 billion in FY 2011.[1] In addition to both desktop and notebook PCs, Dell sells peripherals, software, accessories, corporate servers and storage systems, and customer support services.

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), Staples, Carrefour and 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 has nearly 24,000 retail locations worldwide.[2]

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 and increasing their presence in developing countries such as India and China.

News Updates

Keeping in line with its lines of acquisitions, Dell acquired RNA Networks, a Portland, Ore., software company. RNA Networks owns a memory virtualization technology.[3]

Company Overview

Dell offers a variety of products and services. Among its offerings are a 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.

Business Segments[4]

  • Product: 81.3% of revenue
  • Services, including software related: 18.7%

Products

  • PCs: Dell produces several lines of consumer and commercial PC systems, including both desktop and notebook models.
  • Software, Peripherals, and Accessories: 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.

Servers and Storage: For its corporate customers, Dell provides both servers and storage systems. Dell also sells customized servers and enterprise systems designed to meet the specific needs of certain customers.

  • Technical Support and Services: 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. Typically, services such as these provide high margins relative to Dell's other business segments.

Business Growth

FY 2010 (ended January 28, 2011)[1]

  • Net revenue increased by less than 16.5% to $61.5 billion.
  • Net income increased 83.8% to $2.63 billion.

Trends and Forces

Upgrade Cycles force companies to replace their computer systems

As 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.

The release of a product like Microsoft’s Windows Seven operating system could trigger an upgrade cycle in Dell’s commercial segment. As seen with Vista, compatibility issues will occur, encouraging companies to upgrade their systems to take advantage of Seven's new features. This potentially increased demand in the higher-margin commercial segments could positively impact Dell’s total sales.

Dell is expanding its global presence through deals with various retailers

Established 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 WalMart Stores (WMT) to sell Dell desktops and notebooks in Brazil and Mexico.[5] Dell has also signed a deal with Gome Group, which is the largest electronics retailer in China.[6] Currently Dell has 24,000 retail stores around the world, with a much bigger reach thanks to its partnerships and collaborations.

Developing countries boost computer sales

Dell 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 have grown signifcantly. Despite this stellar performance there is still much room for growth, since only 5.1% of Indians and 9% of Chinese have computers, compared to 75% of Americans.[7] Furthermore, 85% of the world's population lives in developing markets.[8]

Dell has a variety of non-PC products with room for growth

Within 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.

Outsourcing to increase profit takes power from Dell

The 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, such as Hewlett-Packard Company (HPQ) or Apple (AAPL), Dell still assembles its own final products.[9] In order to try and close the resultant gap in production costs, especially for highly demanded notebooks, Dell sells its factories worldwide to various contract producers.[10]

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.

U.S. Government spending on digitizing health records may secure revenue for Dell

In an effort to counter the fall of personal computers and server sales, Dell will make a strategic acquisition that will allow it to obtain a piece of the U.S. government’s stimulus. As part of the U.S. stimulus, the government is spending $19 billion over the next five years into technology that will digitize medical records.[11] To get a piece of this, Dell will purchase Perot Systems, a provider of technology services with specialty in electronic health records, for $3.9 billion; Perot services 1,000 hospitals and automates patient records for 200,000 doctors.[12] This will secure revenue for Dell which has had difficulty during the downturn.

Competition

Dell’s competition varies in its different segments. However, its largest competitors overall are Hewlett-Packard, International Business Machines, and Lenovo Group (LNVGY). 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.

References

  1. 1.0 1.1 DELL 2011 10-K pg. 57-60  
  2. Dell shares jump on upgrade (07-31-2008). Retrieved on 2009-06-05.
  3. Dell acquires Oregon startup (7/20/2011)
  4. Dell to Sell PCs in Brazil, Mexico Through Wal-Mart Stores (2007-09-28). Retrieved on 06-28-2009.
  5. GOME And Get Your Dell (2007-09-24). Retrieved on 06-28-2009.
  6. Seekingalpha: Dell Targets India
  7. DELL Annual Report 2008 - Item 6 - Page 23
  8. WSJ: Dell Plans to Sell Factories in Effort to Cut Costs
  9. WSJ: Dell Plans to Sell Factories in Effort to Cut Costs
  10. David Jolly and Ashlee Vance. New York Times.
  11. David Jolly and Ashlee Vance. New York Times.
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