Dell leadership style

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DELL Computers CorporationDELL Computers Corporation

Jose VillarrealJose VillarrealWeiWei ZhongZhong

XiaoXiao Dong LinDong Lin

We will look at:

-History of the DELL

-Will look at the direction they should be going in

-What they need to do to get there and

-Whether their present leader is the man for the job.

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Strategic Management Jose Villarreal/Wei Zhong/Xiao Dong Lin

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OVERVIEWOVERVIEW

We make computing easy.We make computing easy.Like it should be.Like it should be.

Dell is the world's leading computer systems company. They design, build and customize products and services to satisfy a range of customer requirements. From the server, storage and Premier Services needs of the largest global corporations, to those of consumers at home. They do business directly with customers, one at a time, and believe They do it better than anyone on the planet.

Over the last 18 years, Dell has emerged as one of the most successful technology franchises in the United States. Founded in 1984 and public since 1988, Dell has become one of the largest suppliers of personal computers in the world, growing revenue from less than $1 billion in fiscal 1992 to over $31 billion in fiscal 2002. Today, Dell commands 15% of the worldwide PC market and has over 35,000 employees with manufacturing facilities in Texas, Tennessee, Brazil, Ireland, China and Malaysia. While Dell operates a highly collaborative research and development model, leveraging technology partners Microsoft and Intel, among others, Dell has 730 patents and 535 pending patents that include everything from manufacturing process patents to computer design patents.

We attribute Dell’s success within the computer industry to its unique, low-cost business model, direct sales approach and collaborative research and development. By focusing on leveraging its core competency in supply-chain management and low-cost manufacturing within mature technology segments, such as PCs, Dell has a proven strategy to disrupt traditional technology business models that rely on proprietary technology or multistage sales and distribution. A key part of Dell’s success stems from leveraging widely available industry technology within a low-cost manufacturing framework as a way of displacing the competition. This is already evident by marketshare gains in PCs, and it is becoming more evident by recent success in servers, storage and low-end networking.

Today, about 46% of Dell’s total revenue is tied to PC hardware while the remaining 54% of revenue is tied to enterprise systems (storage, servers, networking, etc.), third-party products and services (both PC and non-PC related). Interestingly, while PC hardware accounts for 46% of total revenue, non-PC hardware accounts for more than 50% of total gross profit. Going forward, we believe profit growth, as it is today, will be driven primarily by non-PC hardware revenue.

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HistoryHistory

• 1984 Michael Dell founds Dell Computer Corporation

• 1985 Company introduces the first computer system

• 1987 Dell is first computer systems company to offer next-day, on-site product service

• 1991 Company introduces its first notebook computer

• 1996Dell opens original Asia-Pacific manufacturing

• 1997Dell ships its 10-millionth computer system

• 1999 Dell opens second major U.S. location in Nashville

• 2000 Company sales via Internet reach $50 million per day

• 2001For the first time, Dell ranks No. 1

n1984Michael Dell founds Dell Computer Corporation

n1985Company introduces the first computer system of its own design; the Turbo, featuring Intel 8088 processor running at eight megahertz

n1987Dell is first computer systems company to offer next-day, on-site product service. International expansion begins with opening of subsidiary in United Kingdom

n1988 Dell conducts initial public offering of company stock,3.5 million shares at $8.50 each

n1990 Manufacturing center in Limerick, Ireland, opened to serve European, Middle Eastern and African markets

n1991 Company introduces its first notebook computer

n1992 Dell included for first time among Fortune 500 roster of world's largest companies1993Dell joins ranks of the top-five computer system makers worldwide. Subsidiaries in Australia and Japan are company's first entries into Asia-Pacific region

n1993 Dell joins ranks of the top-five computer system makers worldwide. Subsidiaries in Australia and Japan are company's first entries into Asia-Pacific region

n1995 $8.50 shares of Dell stock worth $100 on presplit basis

n1996Dell opens original Asia-Pacific manufacturing center in Penang, Malaysia. Customers begin buying Dell computers via Internet at www.dell.com Dell begins major push into network-server market. Company added to Standard & Poor's 500 stock index

n1997 Dell ships its 10-millionth computer system Per-share value of common stock reaches $1,000 on presplit basis. Dell introduces its first workstation systems. Company sales via Internet exceed $4 million per day, from $1 million at the start of the year

n1998Company expands manufacturing facilities in the Americas and Europe, and opens a production and customer center in Xiamen, China. Dell introduces its PowerVault storage products1999Dell opens second major U.S. location in Nashville, Tenn. Dell opens manufacturing facility in Eldorado do Sul, Brazil, to serve Latin America. Dell introduces "E-Support Direct from Dell" online technical support

n2000 Company sales via Internet reach $50 million per day For the first time, Dell is No. 1 in worldwide workstation shipments. Dell introduces Power App appliance servers Dell ships its one millionth Power Edge server

n2001 For the first time, Dell ranks No. 1 in global market share Dell is No. 1 in the United States for standard Intel architecture server shipments. Dell introduces Power Connect net work switches

n2002Dell names its Austin Manufacturing Campus the Topfer Manufacturing Center in recognition of the contributions Mort Topfer made to Dell and the community during his tenure, 1994 to 2002.Dell enters the projector market with the introduction of the 3100MP micro-projector.

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VISIONVISION•• LearnLearn

•• GiveGive•• ConnectConnect

Information technology has changed the world in which we live by enabling businesses and individuals to simplify tasks and accomplish more each day. But technology has also played an important role in giving us greater power to make a positive difference. All around the globe, people are turning on their computer systems, going on the Internet, and discovering new ways to learn about the world, connect with other people, and give time and resources to their communities.

Dell encourages everyone to Techsplore - to explore new ways of using technology to do good things and leave a positive impression on the world. This is Dell's vision of technology, and we are committed to providing the tools for making it easier to Techsplore. From our TechKnowprogram that's putting computer systems in the hands of students and teaching them how to use them, to Know-the-Net, which takes users on a journey through the Web, to E-ssentials, a guide to online privacy and safety, to Tech in the City, panel discussions on women and technology, Dell's goal is to help people get the most out of technology -- and support their efforts to make a better world.

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MissionMission

Dell's 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

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The Portfolio•Desktop Computers

•Portable Computers

•Enterprise Systems

•Third-Party Products

•Services

Dell distributes various computer systems and services via direct customer relationships and the dell.com web site. No single customer accounts for more than 10% of revenue.

Desktop Computers

Hewlett-Packard is the No. 1 supplier with 15.4% market share. Legend, IBM, Toshiba, Gateway and NEC, among others, control the remaining 70% of the PC market.

During the June quarter of 2002, Dell continued to gain market share, showing 18% year-over-year unit growth versus the PC industry, which was down 2% due to the prolonged IT spending downturn. Dell’s market -share gains can be partially attributed to continued penetration within key consumer, government and education verticals.

According to IDC, Dell is the No. 1 supplier of desktop computers in the United States and No. 2 worldwide. Dell manufactures and distributes three desktop product lines under the OptiPlex, Dimension and SmartStep brands. OptiPlex is optimized for the commercial PC market. Dimension is optimized for power users within the commercial PC market. SmartStep is a low-cost desktop computer optimized for the consumer PC market.

Portable Computers

Last quarter(starting July 2002), Dell’s portable computer unit shipments increased 17% year over year, compared to 4% industry growth excluding Dell.

According to IDC, Dell is the No. 1 supplier of portable computers worldwide. Dell manufactures and distributes two lines of portable computers under the Latitude and Inspirion brands. The Latitude line is optimized to address the computing needs of large enterprise and government verticals, among others. The Inspirion line is optimized to address the computing needs and multimedia requirements of consumers and small businesses. Last quarter, portable computer unit shipments increased 17% year over year, compared t o 4% industry growth excluding Dell.

Services

Based on pursuing a single-source strategy, Dell is also expanding the number of services that it provides, including professional consulting services, custom integration, leasing, installation and onsite service and support. Service revenue from consulting, warranty contracts, custom integration and leasing accounts for about 10% of revenue and 27% of gross profit. In the last three years, service revenue has more than tripled, increasing to more than 10% of the revenue mix today from 5% in F1999.

Enterprise Systems

Dell’s 8% server market -share is compared to Hewlett-Packard and IMB, which each have 28% market share.

Industrial watcher predict that Dell’s server business will growat twice the projected industry growth rate of 4.5%.

Over the last five years, Dell has expanded its product line beyond PC products and services into additional enterprise systems that consist of workstations, servers, storage and, most recently, networking products. The enterprise systems segment is the fastest-growing area for Dell, which has grown from less than $1 billion to nearly $5 billion in the last four years. Unlike the low-margin PC business, where gross margins rarely exceed 15%, we estimate the enterprise systems business can command a gross margin in the 20% to 30% range. We estimate that enterprise systems account for about 15% of the revenue mix for Dell and about 23% of gross profits.

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Financials-2001 Third QuarterFinancialsFinancials--2001 Third Quarter2001 Third Quarter(in millions, except share data) FY'03 FY'02 Change FY'03 FY'02

*Change

Revenue $9,144 $7,468 22% $25,669 $23,107 11%Operating Income $758 $544 39% $2,025 $1,677 21%Net Income $561 $429 31% $1,519 $1,324 15%Earnings Per Share $0.21 $0.16 31% $0.57 $0.48 19%

Third Quarter Year to Date

*FY02 income and earnings data exclude a $742 million pretax charge, related to job reductions,

Fiscal Year Ended Feb. 1, Feb. 2, ChangeNet revenue $31,168 $31,888 -2.30%Gross margin $5,507 $6,443 -14.50%Operating income $2,271 $2,768 -18.00%Net income $1,780 $2,310 -22.90%

- Basic $0.68 $0.89 (23.6%)- Diluted $0.65 $0.84 (22.6%)

- Basic 2,602 2,582- Diluted 2,726 2,746Working capital $358 $2,948Total assets $13,535 $13,670Long-term debt $520 $509Total stockholders' equity $4,694 $5,622

Operating Results — in millions, except per-share data

Income per common share

Weighted average shares

Customers selected Dell's standards-based computer products and services in increasing numbers in fiscal third-quarter 2003, pushing the company to record shipments and revenue and a higher rate of profitability.

In the process, customers again made Dell the world's leading supplier of computer systems. The company regained its position as the favourite computer company among U.S. consumers, and ranked No. 1 in all U.S. customer segments for the first time.

Dell's 28-percent year-over-year rise in overall product shipments compared with a 2-percent increase for the rest of the industry. Company server volumes were 24 percent higher, nearly five times the rate for the rest of the industry. Revenue from Dell enterprise products--servers, storage systems, network switches and workstations--was up a combined 27 percent.

For the third quarter ended Nov. 1, total revenue was $9.1 billion, up 22 percent from last year in an industry where sales have otherwise been flat to down. Dell's earnings per share reached 21 cents, 31 percent higher. Company revenue and per-share earnings were consistent with increased guidance Dell provided Oct. 1. Dell has met or exceeded initial guidance to investors for seven consecutive quarters.

"The direction of customers toward standards-based computing is obvious," said Michael Dell, the company's chairman of the board and chief executive officer. "The reason is simple: customers get more flexibility, performance and reliability for their money with standards than from proprietary technology."

"Dell's obligation to customers is to innovate products and services that deliver great value, and our people are doing that with exceptional skill and efficiency."

Mr. Dell said fourth-quarter company shipments could increase 10 percent from the third quarter, or 23 percent from the year-ago period. Q4 revenue is expected to be up about 20 percent year-over-year, to nearly $9.7 billion. With anticipated further improvement in operating margins, the company expects fourth-quarter earnings per share of 23 cents, or 35 percent higher than last year.In the third quarter, Dell again demonstrated solid balance between its long-time priorities of liquidity, profitability and growth. Operating expenses were 9.9 percent of revenue, equalling a company best. Cost reductions, an improved mix of products and services, and lower

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FinancialsFinancials--Geographic's MarketsGeographic's Markets

That's important, because we believe the pent-up demand for more expansive computer applications and faster, more powerful systems is significant. Many corporate and institutional customers describe major long-term plans for increased investment in networks of servers and storage products. Analysts estimate that 150 million notebook and desktop computers are more than three years old, and that 300 million computers cannot run Microsoft's Windows XP operating system.

In fiscal 2002, we had tremendous success in three areas of strategic emphasis: enhancing operating efficiencies to deliver greater customer value, winning in high-growth products and services, and expanding our business in key geographic markets.

Dell's full-year operating expenses as a percent of revenue were a company-record low, and less than one-half those of our nearest competitor. By the end of the year, our inventory as a percent of revenue was our best ever, and represented a lean four days of supply. Our attention to controlling operating expenses remains relentless, and we intend to fulfill the tremendous opportunity for additional efficiency.

Customer demand for our PowerEdge servers jumped 27 percent last year. Without Dell, industry server volumes fell 3 percent. We became the leading server supplier in the United States. In countries where our presence is less developed, many new customers are choosing Dell first for servers and storage products, then for personal computers and workstations. And customers last year selected Dell Precision workstations, already the best-selling such products worldwide, in still-larger numbers.

Dell sold nearly twice as much storage capacity than in fiscal 2001-more than 57,000 terabytes. By year-end, almost one-half of our storage revenue was from external storage systems. During the year we entered a strategic alliance with EMC that increases our presence in this rapidly growing product category. The alliance includes a co-branded line of enterprise storage systems for storage area networks and high-capacity network-attached storage installations. We also introduced PowerConnect network switches in the U.S., with which customers capitalize on the performance, reliability and value of standards-based switch technology, including high-speed gigabit Ethernet.

Customer engagements by Dell Technology Consulting, which trades on our extensive knowledge in designing, testing, validating, tuning and implementing information-technology installations, more than doubled in the past year. We are continuing to broaden our professional services in response to customer requirements, both by adding new Dell capabilities and partnering with additional best-in-class providers. Today, such partnerships give Dell customers a single point of accountability for 50,000 field technicians in 170 countries, in addition to 6,700 Dell service people.

More and more customers are choosing Dell for enterprise products-based on Windows operating systems and Linux-for one-to-one relationships, built-to-order systems, custom services, exceptional value and leading support. An independent ranking named Dell best in U.S. customer satisfaction for servers for 16 of the past 17 quarters.

A new survey by industry analysts showed that the trend in customer preference for industry-standard server and storage technology continues uninterrupted. By a 10-to-1 ratio, U.S. customers said disadvantages in using standards-based products for midrange to high-end computing have been overcome, or will be soon. Analysts reported that organizations migrating to standards-based products earliest realize benefits of low cost, simplicity and the highest levels of return on investment-all Dell strengths.

Our shipment growth far exceeded industry averages in every product category and geographic market. Company

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FinancialsFinancials--20022002EARNINGS (LOSS) PER COMMON SHAREEARNINGS (LOSS) PER COMMON SHARE

as of 11/20/2002

Recent Price $29.21

52-Week High $31.06

52-Week Low $21.90

Price Change - 10 Day -2.8%

Price Change - Last Month 0.7%

Price Change - 26 Week 6.6%

Price Change - 52 Week 12.6%

Price Change - YTD 7.5%

Current Pricing

Shares Outstanding Date 8/30/2002

Avg. Daily Volume Last 10 Days 28,762,400

Net Insider Transactions -1,414,000

Shares Held by Institutions 1,516,730,000

Institutions Holding Shares 2,913

% of Shares Outstanding Held by Institutions 58.6%

Shareholdings

Shares Outstanding

August 2, August 3, August 2, August 3,2002 2001 2002 2001

Net income (loss) 501$ 101 )$ ( 958$ 361$ Weighted average shares outstanding:

Basic 2,586 2,601 2,591 2,600 Employee stock options and others 63 70 143 Diluted 2,649 2,601 2,661 2,743

Earnings (loss) per common Share:Basic 0.19$ 0.04 )$ ( 0.37$ 0.14$ Diluted 0.19$ 0.04 )$ ( 0.36$ 0.13$

(in millions, except per share amounts)

Six Months EndedThree Months Ended

ØBasic earnings (loss) per share is based on the weighted effect of all common shares issued and outstanding and is calculated by dividing net income (loss) by the weighted average shares outstanding during the period. Diluted earnings (loss) per share is calculated by dividing net income ( loss) by the weighted average number of common shares used in the basic earnings (loss) per share calculation plus the number of common shares

ØEmployee stock options and put obligations exercisable for 197 million and 319 million shares during the second quarter of fiscal 2003 and 2002, respectively, and for 197 million and 260 million shares during the six-month periods ended August 2, 2002 and August 3, 2001, respectively, were not included in the computation of diluted weighted average shares outstanding because the effect of such instruments was antidilutive.

Øas of The date of the previous trading day. "Recent Price" is the closing price taken from this day.

Ø52-Week High The highest intra-day price during the preceding 52 weeks.

Ø52-Week Low The lowest intra-day price during the preceding 52 weeks.

ØPrice Change - 52 Week The % change in the latest closing price of the stock vs. the closing price 52 weeks ago.

ØPrice Change - YTD The % change in the latest closing price of the stock vs. the closing price at the beginning of the calendar year.

ØShares Outstanding Date The date the latest Shares Outstanding are downloaded into Multex Market Guide's Database.

Ø Avg. Daily Volume Last 10 Days This value is calculated as the Total Revenues for the trailing twelvemonths divided by the Average Total Assets. The Average Total Assets is defined as the Total Assets for the 5 most recent quarters divided by 5.

ØShort Interest Latest Date The latest short interest date, which is usually 5 trade days before the 15th of the month. This figure is available monthly, and is provided by either the NYSE, the NASDAQ, The Toronto Stock Exchange, the Canadian Stock Exchange, or the American Stock Exchange (depending on where the security trades).

ØShort Interest (Mil) The number of shares of the stock that have been sold, but not yet repurchased.

ØShort Interest Ratio Shares sold short (as reported by the exchange) divided by average daily volume during the short interest period. This period is usually the 11th of the month to the 10th of the next month. This represents the number of days of average trading needed to cover the shorts. This is also called Days-to-Cover.

ØNet Insider Latest Date The date of the latest insider information. There is usually a lag of approximately six weeks before a report is posted.

ØNet Insider Transactions This is the net difference between the number of SHARES of company stock purchased by officers and directors and the number of shares sold by officers and directors during the preceding six months.

ØInstitutional Holdings Latest Date The date of the latest institutional holdings information.

ØShares Held by Institutions The actual number of common stock shares held by all reporting institutions.. This figure is the sum of all the shares held by institutions filing 13-Fs and all non-13-F reporting funds.

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FinancialsFinancials--20022002SEGMENT INFORMATIONSEGMENT INFORMATION

August 2, August 3,2002 2001 2002 2001

Net revenue:Americas:

Business U.S. Consumer 1,095 853 2,314 1,824

Total Americas 6,141 5,402 11,747 10,847Europe 1,526 1,483 3,184 3,235Asia Pacific-Japan 792 726 1,594 1,557

Total net revenue $8,459 $7,611 $16,525 $15,639Operating income:

Americas:Business U.S. Consumer 59 26 131 45

Total Americas 545 432 1,024 834Europe 78 82 150 209Asia Pacific-Japan 54 31 93 90Less: Special charge -482 -482

Total operating income $677 $63 $1,267 $651

$9,023

$486 $406 $893 $789

(in millions)$5,046 $4,549 $9,433

Three Months Ended Six Months EndedAugust 3, August 2,

The Company conducts operations worldwide and is primarily managed on a geographic basis, with those geographic segments being the Americas, Europe, and Asia Pacific -Japan regions. The Americas region, which is based in Round Rock, Texas, covers the United States, Canada, South America, and Latin America. The Company has two reportable segments within the Americas: Business and U.S. Consumer. The Americas Business segment includes sales to commercial, government and education customers. The European region, which is based in Bracknell, England, covers the European countries and also some countries in the Middle East and Africa. The Asia Pacific -Japan region covers the Pacific Rim, including Japan, Australia and New Zealand, and is based in Singapore. The accounting polic ies of the Company’s reportable segments are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2002. The Company allocates resources to and evaluates the performance of its segments based on operating income. Corporate expenses are included in the Company’s measure of segment operating income for management reporting purposes.

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FinancialsFinancials--20022002LiquidityLiquidity

August 2, February 1,2002 2001

Cash and investments 8,633.00$ 8,287.00$ Working capital 238.00$ 358.00$ Days of sales in accounts receivable 32.00 29.00 Days of supply in inventory 4.00 4.00 Days in accounts payable 73.00 69.00

Cash conversion cycle (37.00) (36.00) *Millions Dollars

The Company ended the second quarter with $8.6 billion in cash and investments. The Company invests a large portion of its available cash in highly liquid/ highly rated corporate, bank, and government debt securities of varying maturities at the date of acquisition. The Company’s investment policy is to manage its investment portfolio to preserve principal and liquidity while maximizing the return on the investment portfolio through the full investment of available funds. As of August 2, 2002, only $248 million of the Company’s cash and investments were represented by its venture portfolio of private and public equity investments as compared to $454 million a year ago.

During the first six months of fiscal 2003, the Company generated $1.4 billion in cash flows from operating activities, which represents the Company’s principal source of cash. Cash flows from operating activities resulted primarily from net income and income tax benefits that resulted from the exercise of employee stock options. These benefits represent corporate tax deductions (that are considered taxable income to the employee) that represent the amount by which the fair value of the Company’s stock exceeds the option strike price on the day the employee exercises an option, that reduce the Company’s taxes payable, and that under generally accepted accounting principles are recorded directly to stockholders’ equity accounts rather than to earnings. Management believes that the Company’s cash provided from operations will continue to be strong and more than sufficient t o support its operations and capital requirements, even if the economic climate should remain weak. The Company currently anticipates that it will continue to utilize its strong liquidity and cash flows to repurchase its common stock, make a limited number of strategic equity investments, consider and possibly make acquisitions and invest in systems and processes, as well as invest in the development and growth of its enterprise products.

The Company ended the second quarter of fiscal 2003 with a Company record cash conversion cycle of negative 37 days. Days of sales outstanding include the effect of customer shipments recorded in other current assets in the accompanying consolidated statement of financial position included in “Item 1 — Financial Statements”. For more information, see “Item 8 — Financial Statements and Supplementary Data— Notes to Consolidated Financial Statements” included in the Company’s Annual Report on Form 10-K for the year ended February 1, 2002.

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Analysis MethodsAnalysis Methods

• Financial Profile• WOTS-UP• BCG Analysis• Life Cycle• Four Factor Model• SPACE• Porter Analysis • Leadership Analysis

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Financial ProfileFinancial Profile

Profitability

Liquidity

Leverage

Activity

*

*

Very low Average Very High

Very tight About right Too much slack

Too much debt Balanced Too much equity

Too slow About right Too fast

*

*

Excellent profitability, high liquidity. DELL applies a aggressive financial policy in financing the company.

Very little debt is used.

The activity ratios indicate great improvements, especially in inventory turnover

Initiating coverage with Buy recommendation. We believe DELL is attractively priced, with 21% projected growth in earnings, a solid balance sheet with $8.6 billion in net cash, and extensive opportunities for growth in new market segments. Our 12-month price target of $30 assumes a P/E of 26x our calendar 2004 earnings estimate of $1.17.

Poised for growth despite IT spending downturn. We believe Dell is positioned for sustained growth in the mid to high teens despite macroeconomic constraints, given its product expansion into storage, midrange servers, networkingand printers; international expansion; further market -share gains in PCs; and pent-up demand stemming from a delayed PC upgrade cycle.

Shift to modular computing favors Dell. We believe the enterprise datacenter is moving toward a modular computing architecture, spurred by the limitations of the existing architecture, cost, complexity and underutilized storage and compute resources. Modular computing could be the most influential driver of IT spending over the next three to five years, and we believe Dell is uniquely positioned as a turnkey enterprise data center supplier of low-cost computer components that will be required to build modular computing infrastructures.

We believe Dell is uniquely positioned as a turnkey enterprise data center supplier of low-cost computer components that will be required to build modular computing infrastructures. Today, Dell is beginning to benefit from modular computing trends and has 195 enterprise customers, including Boeing, Volvo, NASA, Merrill Lynch and AT&T, that have deployed high-performance computing (HPC) clusters using Dell servers and storage in a modular architecture as a replacement for legacy UNIX and mainframe computer systems. Dell estimates that hardware costs on an HPC cluster with 192 peak gigaflops of computing resources with up t o 7.3 terabytes of storage based on Dell list prices would cost $170,000. This compares to an IBM UNIX computer (P690) configured with 166.4 gigaflops of compute resources and up to 4.7 terabytes of storage for approximately $2 million.

Dell expects the number of enterprise customers deploying Dell HPC clusters to grow from 195 today to over 500 in 2003, demonstrating Dell’s position as a key modular computing supplier. Not only does Dell provide complete solutions for storage fabrics and HPC clusters, but the company also plans to ship blade servers before year-end, further extending its product portfolio to address the modular computing needs of large enterprises.

While we expect the computer-systems market to realize single-digit growth over the next five years, we believe Dell is well positioned for revenue growth in the mid teens as it gains share in new market segments including storage, networking, printers and midrange servers, and as it expands beyond the PC and pursues its strategy to be a single-source technology supplier.

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WOTSWOTS--UPUP

Inte

rnal

Ext

erna

l

Threat• Regional Competition• Changes in Technology• Prolonged Economic

downturn• Disruptive Technology• Reliance on Suppliers

Weakness•Revenue Mix•Acceptance of Direct Sales Model

•Dependence on Volume

Opportunity• International Growth• Pricing flexibility • Computers moving toward

commodity status• Fragmented PC market• Work-through by HP/CPQ

merger• Rapidly changing technology

leading to upgrades

Strength• Strong supplier relationships• Lower Unit Costs• Strong Quicker reaction to

customer wants and needs• Better reach at lower cost• Strong customer retention

and relationships• Brand Equity

Strengths

Strong supplier relationships

Dell seeks long-term single source relationships in situations where alternative sources are unavailable or the relationship is advantageous with respect to performance, quality, support, delivery or price.

Securing long-term relationships with vendors allows Dell to more fully integrate major vendor into Dell’s supply chain management programs. This helps Dell reduce inventories of components, which translate into lower unit costs.

Dell also seeks to lock-up supply at the lowest possible cost. Recently Dell signed a long-term supply agreement with Philips for the supply of CRT and flat panel monitors. Philips’ monitor business is struggling the signing of the deal was a win/win situation for both companies as Philip’s will now have a more stable stream of production and Dell perhaps was able to secure supply at a favorable cost.

Lower Unit Costs

Removing the third party retailer from the sales equation eliminates additional product mark-ups. The savings can be either recognized as higher margins or passes along to consumers. In both situations Dell is experiences better pricing flexibility than its competitors.

When economic conditions are slow Dell is able to offer product at lower prices and still operate profitably. Dell’s success in the most recent economic downturn serves as clear signal that the company can weather less than favorable economic conditions. In 2001, Dell’s domestic market share actually climbed from 19% to 24.2%.

Quicker reaction to customer wants and needs

As mentioned above Dell focuses on streamlining their production operations. Finished

products are quickly assembled in direct response to a customersorder.

Low finished good inventories put Dell in a better position to continually offer the newest and most requested technologies. Changes in customer demands hurt the competition more as they struggle with product obsolescence and high inventories. Competitors may be forces absorb write-offs associated with inventory obsolescence or markdown products below cost to clear inventory.

Dell’s superior inventory management strategy can be seen in the following table

Inventory Days on

Turnover Hand

Dell 75.7 4.8

HP 6.1 59.4

CPQ 14.8 24.6

AAPL 24.1 15.2

GTW 187.6 1.9

Better reach at lower cost

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Portfolio AnalysisPortfolio AnalysisHigh

Low

Indu

stry

Gro

wth

Rat

e

Low Market Share High

?

Third -Party Products

Services

Portable Computers

Desktop Computers

Enterprise Systems

•The third-party products are new emergence for Dell. For example, Dell enter market with new products such as printer, CD-player, storage, digital camera, which are new for Dell. Therefore, Dell is not sure for their potential road for the future(put in question mark position).

•Services were introduced last year with more power, and now in a growing road to star position.

•Networking and P_Portable Computers have been achieving signific ant growth in past years(put in star position).

•Desktop Computers and Enterprise Systems are the main products for Dell bringing a huge amount of profits in years(put in cow position).

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Life CycleLife Cycle

DeclineDevelopment Introduction(Early

Growth)

Growth(Accelerated

Development)

Maturity

Age of Company

Siz

e of

Com

pany

Dividends are usually associated with “maturity cycle'', whatever that means. What does ``mature'' mean anyway, and what might constitute maturity for a technological CorporationMost companies pass through a struggling start-up phase, a period of rapid growth, and an extended maturity characterised by relatively stable sales and earnings. This life cycle usually follows the development of the industry in which the company operates: from not being recognised at all, through exponential growth in a market with unknown total size, to saturation and growth thereafter at rates limited by the overall growth of the market (usually constrained by demographic or economic factors) and the company's share of that market, won or lost at the expense of its competitors. Earnings performance also evolves through these phases: during start-up the company loses money, its losses funded by the original investors. If it succeeds and begins to grow rapidly, it becomes profitable but reinvests all of its earnings in the business to fund its rapid growth and not forfeit portions of the market to competitors who are also growing rapidly. In the third phase the company cannot grow measurably faster by reinvesting its earnings, so it often chooses to pay dividends to its shareholders. Dell Corporation can be expected to follow this pattern of development, but the presence of technological leverage results in a very different earnings profile as it moves from stage to stage. After surviving the start-up phase, a Technological Corporation begins to generate earnings at a very high rate of return. Because little capital investment is needed during its period of rapid growth, there is little need to reinvest earnings and they are simply retained. After the company's product reaches market saturation, earnings may actually decline as the percentage of sales the company devotes to sales and marketing increases to maintain and expand its market share.

COMPANY:•DELL is in the mature stage•DELL needs to competitive positions. They need to focus on Marketing activities.•DELL has a Multi-tiered structure which is consistent with a Mature company•DELL appears to be a stable with many products lines at various stages of development•The Company is undergoing some Marketing and segments changes•DELL market strength is stable – profit in market share.•A mature company really needs to Focus, increase efficiencies of production and get costs under control and become the cost leader.

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External Environment

Strategic Planning

ResourceAllocation

ResourceRequirements

Strategic Management

OrganizationalStructure

OrganizationalCulture

StrategicControl

Internal Environment

Opportunity• International Growth• Pricing flexibility • Computers moving toward commodity status• Fragmented PC market• Work-through by HP/CPQ merger• Rapidly changing technology leading to

upgrades

Threat• Regional Competition• Changes in Technology• Prolonged Economic downturn• Disruptive Technology• Reliance on Suppliers

Strength• Strong supplier relationships• Lower Unit Costs• Strong Quicker reaction to customer wants

and needs• Better reach at lower cost• Strong customer retention and relationships• Brand Equity

Weakness• Revenue Mix• Acceptance of Direct Sales Model• Dependence on Volume

Four Factor ModelFour Factor Model

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Phase 4 ParticipationMatrix Structure Conceptual/ Behavioral Participative Management

Phase 3b Co-ordinationProduct Group Structure Conceptual SBU

Phase 3a ExpansionDivisional Structure Analytical/ Decentralized Management

Phase 2 FormulationBureaucratic Structure Analytical/Directive Management

Phase 1 InitiationEntrepreneurial Structure Informal Management

Siz

e of

com

pany

Small

Large

Young Mature

Need for direction

Lack of Autonomy Lack of

Control

Need to Adapt and

Cope

Age of Company

Match of Style with Org. Life Cycle

Organizational Life Cycle

Phase 3b Co-ordination & Phase 4 Participation

Decentralized analytical decision making

Emphasis in portfolio management

Divisional or strategic business unit

Specific strategy Horizontal & Vertical expansion

Generic strategy Cost

Structure divisional / multidivisional Decrease in cultureMarket structure high margin / balance in share/ strength / growth

Tech focus process

Inventive emphasize advertising / finance / manufacturing / process

Incentives features Formula based / multilevel / risk averse / long term

Strategic info Market share / Costs / adjacent marketsStrategic focus internal & external

Priorities Production / market share

Career path to top Marketing / finance / planning / accounting

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SPACESPACE--Competitive AdvantageCompetitive AdvantageFactors determining competitive advantage

0 1 2 3 4 5 6

Market Share Small 3 Large

Product Quality Inferior 5 Superior

Product life Cycle Late 1 Early

Product replacement cycle Variable 3 Fixed

Costumer Loyalty Low 0 High

Competition's capacity utilization Low 3 High

Technological know-how Low 5 High

Vertical integration Low 3 High

Innovation Slow 4 Fast27 0 1 0 12 4 10 0

Average - 6 -3.00

Factors determining competitive advantage

0 1 2 3 4 5 6

Market Share Small 3 Large

Product Quality Inferior 5 Superior

Product life Cycle Late 1 Early

Product replacement cycle Variable 3 Fixed

Costumer Loyalty Low 0 High

Competition's capacity utilization Low 3 High

Technological know-how Low 5 High

Vertical integration Low 3 High

Innovation Slow 4 Fast27 0 1 0 12 4 10 0

Average - 6 -3.00

Factors determining financial strength0 1 2 3 4 5 6

Return on investment Low 3 HighLeverage Imbalanced 5 BalanceLiquidly Imbalanced 5 SolidCapital required versus capital available High 2 LowCash flow Low 3 HighEase of exit from market Difficult 1 EasyRisk involve in business Much 3 LittleInventory turnover Slow 5 FastEconomic of scale and experience Low 6 High

33 0 1 2 6 3 15 6Average 3.67

Factors determining financial strength0 1 2 3 4 5 6

Return on investment Low 3 HighLeverage Imbalanced 5 BalanceLiquidly Imbalanced 5 SolidCapital required versus capital available High 2 LowCash flow Low 3 HighEase of exit from market Difficult 1 EasyRisk involve in business Much 3 LittleInventory turnover Slow 5 FastEconomic of scale and experience Low 6 High

33 0 1 2 6 3 15 6Average 3.67

Dell is benefiting its high market and superior product price and quality.

Dell enjoys to have strong competitive strategy on marketing and distribution procedures attacking the teenager market. They have a very differentiation price for economics of scale.

Excellent financials, but with some risk for the kind of competitiveness market Dell is immerse.

Financial position very strong

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SPACESPACE--Environmental StabilityEnvironmental StabilityFactors determining environmental stability 0 1 2 3 4 5 6

Technological changes Many 2 FewRate of inflation High 5 LowDemand variability Large 1 SmallPrice range of competing products Wide 1 NarrowBarriers to entry into market Few 5 ManyCompetitive pressure / rivalry High 0 LowPrice elasticity of demand Elastic 0 InelasticPressure for substitute products High 3 Low

17 0 2 2 3 0 10 0Average - 6 -3.88

Factors determining environmental stability 0 1 2 3 4 5 6

Technological changes Many 2 FewRate of inflation High 5 LowDemand variability Large 1 SmallPrice range of competing products Wide 1 NarrowBarriers to entry into market Few 5 ManyCompetitive pressure / rivalry High 0 LowPrice elasticity of demand Elastic 0 InelasticPressure for substitute products High 3 Low

17 0 2 2 3 0 10 0Average - 6 -3.88

Factors determining industry strength0 1 2 3 4 5 6

Growth potential Low 4 HighProfit potential Low 4 HighFinancial stability Low 5 HighTechnological know-how Simple 5 ComplexResource utilization Inefficient 6 Efficientcapital intensity Low 3 HighEase of entry into market Easy 6 DifficultProductivity, capacity, utilization Low 6 HighManufacturers' bargaining power Low 6 High

45 0 0 0 3 8 10 24Average 5.00

Factors determining industry strength0 1 2 3 4 5 6

Growth potential Low 4 HighProfit potential Low 4 HighFinancial stability Low 5 HighTechnological know-how Simple 5 ComplexResource utilization Inefficient 6 Efficientcapital intensity Low 3 HighEase of entry into market Easy 6 DifficultProductivity, capacity, utilization Low 6 HighManufacturers' bargaining power Low 6 High

45 0 0 0 3 8 10 24Average 5.00

Fairly stable environment. Dell confront very strong competition

Is very important to observe the competitors very close.

Is necessary observe new entrants carefully

Good growth and potential profit . Dell has very good capacity and productivity.

It’s a very attractive industry but require to be very carefully with the suppliers.

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SPACESPACE--AnalysisAnalysis

FS 6

5

CONSERVATIVE 4 AGGRESSIVE

3

2

1-6 -5 -4 -3 -2 -1 1 2 3 4 5 6

CA -2 IS

-3

DEFENSIVE -4 COMPETITIVE

-5

ES -6

HighLow

Low

High

FS 6

5

CONSERVATIVE 4 AGGRESSIVE

3

2

1-6 -5 -4 -3 -2 -1 1 2 3 4 5 6

CA -2 IS

-3

DEFENSIVE -4 COMPETITIVE

-5

ES -6

HighLow

Low

High

Using the four input variables and graphing them we have arrived at a competitive strategic posture that DELL is taking, with that king of strategy DELL is going to ensure product focus on price an quality.

This posture is typical in an attractive industry. DELL enjoys a competitive advantage in a relatively unstable environment.

The critical factor is the financial strength.

Companies in this situation require financial resources to increase marketing thrust, add to the sales force, extend or improve the product line; on Dell case they have the sufficient money, they are very efficient and productive.

The directional vector located in the lower-right or competitive quadrant of the SPACE Matrix, indicating competitive strategies.

Competitive strategies include backward, forward, and horizontal integration; market penetration; market development; product development; and joint venture.

Sources report new pricing structures are expected to emerge as new solutions are bundled together in Q4 of this year. The bundling of products and professional services is one area that DELL plans to develop

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Porter AnalysisPorter Analysis

Supplier Power

Buyer Power

Threat of Substitutes

Barriers to Entry

Market

Threat of Substitutes

Switching costs

Buyer inclination to substitute

Price-performance trade-off of substitutes

In Porter's model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A product's price elasticityis affected by substitute products - as more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices.

The competition engendered by a Threat of Substitute comes from products outside the industry. The price of aluminium beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. These containers are substitutes, yet they are not rivals in the aluminium can industry. To the manufacturer of automobile tires, tire retreads are a substitute. Today, new tires are not so expensive that car owners give much consideration to rethreading old tires. But in the trucking industry new tires are expensive and tires must be replaced often. In the truck tire market, rethreading remains a viable substitute industry. In the disposable diaper industry, cloth diapers are a substitute and their prices constrain the price of disposables.

While the treat of substitutes typically impacts an industry through price competition, there can be other concerns in assessing the threat of substitutes. Consider the substitutability of different types of TV transmission: local station transmission to home TV antennas via the airways versus transmission via cable, satellite, and telephone lines. The new technologies available and the changing structure of the entertainment media are contributing to competition among these substitute means of connecting the home to entertainment. Except in remote areas it is unlikely that cable TV could compete with free TV from an aerial without the greater diversity of entertainment that it affords the customer.

Buyer Power

Bargaining leverage

Buyer volume

Buyer information

Brand identity

Price sensitivity

Threat of backward integration

Product differentiation

Buyer concentration vs. industry

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Risk FactorsRisk Factors•Possibility of Component Shortages

•Difficult Economic and Industry Conditions

•Supply-Chain and Single-Source Supplier Risks

•Competition

•Dependency on Third-Party R&D Efforts

•Significant Exposure to PC Market

Possibility of Component Shortages

The longshoremen’s lockout currently under way on the West Coast heightens the risk of component shortages. Dell typically has access to one to two weeks of computer parts, which are stocked by partners at inventory hubs located near manufacturing plants in Texas. If the lockout lasts longer than two weeks, Dell could realize higher component costs from the switch to air freight and/or product shipment delays.

Difficult Economic and Industry Conditions

General economic and industry conditions carry the most uncertainty for Dell, given a prolonged IT spending downturn. Recent comments from technology leaders, including Sun Microsystems, Oracle and EDS, suggest that a seasonal rebound in the fourth quarter could be tempered due to economic uncertainties. Additionally, enterprises and consumers could choose to further postpone upgrading aging PCs; upgrading would be required for the PC industry to grow units 8% next year.

Supply-Chain and Single-Source Supplier Risks

Dell’s financial results are highly dependent on tight supply-chain controls that support rapid inventory turns and extremely low inventory levels, compared with its computer-system peer group. Any supply-chain disruptions, from component shortages to transportation delays, could have negative implications on its financial results. Additionally, Dell has several single-source supplier relationships that heighten the risks of manufacturing delays if alternative sources of supply are not readily available.

Competition

Dell faces stiff competitive challenges ranging from low-cost PC manufacturers overseas to technology leaders such as Cisco, Hewlett-Packard, Sun Microsystems, Lexmark, IBM, NEC and Fujitsu-Siemens. As Dell enters into new market segments like networking and printers, execution concerns are heightened further. The recent cancellation of distribution agreements with Hewlett-Packard, Cisco and 3Com could have an adverse effect on future f inancial results.

Dependency on Third-Party R&D Efforts

Part of the reason Dell is the low-cost manufacturer of computer systems is that it leverages a collaborative R&D model, where Dell relies on technology attained from third-party companies such as Microsoft and Intel. Part of Dell’s success will depend on the success of R&D efforts by its partners.

Significant Exposure to PC Market

Dell’s financial results are highly dependent on the PC industry. Excluding PC-related service revenue, we estimate that PC hardware accounts for about 62% of Dell’s revenue and 49% of gross profits.

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Leadership StyleLeadership Style

Logical InspirationalAnalyzes new Directions Envisions New opportunities

Broad Solves Complex Problems Introduces Radical Ideas

Goals Formulates plans Empowers Others

Persuades by Reasoning Persuades by Creating Trust

Prefers Incremental Change Relies on Radical Change

Directive SupportiveFocuses on Control Tries for Consensus

Specific Achieves Results Facilitates Work

Goals Take Charge Encourage Openness

Persuades by Directing Persuades by Involving

Expects Rapid Change Reacts to Change

Performance TransformationEmphasis of Change

Go

al O

rien

tati

on

DELLL is a mature company, at this stage the company need to be efficient and have a clear direction. They are also a competitive company, therefore need to keep an eye on the future in special to product renovation.

Evaluation of Michael Dell leadership style and evaluate how consistent is.

Looking at the quadrants vertically Serge has more points on the directive and performance side. Examining the quadrant horizontally his style indicates that he would be best at looking at different goals.

Persuasive leader and strong image.

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(evolutionary)(revolutionary)

EfficiencyEffectiveness

Transformational Transactional

DirectiveProduction

LogicalQuality

SupportiveSupportive

InspirationalCreative

Life Cycle: Leadership

Based on the idea that all managers in a chain of command are supervisors. The directive manager will tell their direct subordinates what their roles and tasks are and what is expected of them. He or she will provide a blueprint of how to do a job, and will monitor performance and achievement of standards. This type of management style is often applied when Human Resources Management is adopted by organisations, but it's emphasis on control is given as one of the major reasons why Hard HRM policies result in no motivation rat her than the intended motivation.

Leads from in front

Characteristics:

One style

Gives orders, make statements

Focuses on leader's strengths

Man of action

Know-it-all

Says, "Don't just sit there, do something."

Sense of responsibility

Technical and professional competence

Emotional stability

Enthusiastic

Good listening skills

Positive self-image

High moral and ethical beliefs

Flexibility

Risk taker

Communication skills

Decision making ability

Positive physical and mental image

Know your subordinates

proprietary

Product-focused

Lock-in

Subsidization approach

Proprietary technology

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Leadership ReputationLeadership Reputation•• Personal CharismaPersonal Charisma•• CooperativenessCooperativeness•• VisionaryVisionary•• Efficiencies Efficiencies •• Communicative Communicative •• InnovativeInnovative

Michael S. DellMichael S. Dell

CEOCEO-- Dell ComputerDell Computer

Under Michael's direction, Dell has established itself as the world's most preferred computer systems company and is a premier provider of products and services required for customers to build their information-technology and Internet infrastructures. In 18 years, the company's sales have grown from $6 million to $33.7 billion in during the past four quarters. Since its first international subsidiary opened in the United Kingdom in 1987, Dell has opened sales offices worldwide and its approximately 38,200 employees serve customers around the globe.

The latest global innovation to come from Dell is its leadership on the Web. Dell is acknowledged as the largest online commercial seller of computer systems. The company also is redefining the role of the Web in delivering faster, better and more convenient service to customers.

The company's corporate customers include many of the companies in the Fortune 500 list of the largest American companies. With the addition of Dell to this list in 1992, Mr. Dell became the youngest CEO of a company ever to earn a ranking on the Fortune 500.

Because of the phenomenal success of the company, Mr. Dell has been honored many times for his visionary leadership, earning a spot on Time/CNN's list of the 25 most inf luential global executives in 2001 and being named the 2001 Chief Executive of the Year by Chief Executive Magazine, "Entrepreneur of the Year" from Inc. magazine, "Man of the Year" by PC Magazine, "High Impact CEO" by executive search firm Heidrick and Struggles, "Top CEO in American Business" from Worth magazine and "CEO of the Year" by Financial World and Industry Week magazines. In 1997, 1998 and 1999, he was included in Business Week's list of "The Top 25 Managers of the Year." In addition, executive search firm Heidrick and Struggles named Michael their "High Impact CEO" for 1996 and 1997.

Mr. Dell attended The University of Texas at Austin. In 1999, he wrote the best-selling book, Direct From Dell: Strategies That Revolutionized an Industry, his story of the rise of Dell Computer Corp. and the strategies he has refined that apply to all businesses. Mr. Dell is a member of the executive committee of the World Business Council, a vice chairman of the U.S. Business Council, and the chairman of the Computer Systems Policy Project, an affiliation of CEOs from top computer companies that advocates public policy positions on trade and technology affecting the computer industry. He also serves on the U.S. President's Council of Advisors on Science and Technology.

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Future Plans Future Plans

• Poised for Growth Despite IT Spending Downturn

• New Product Expansion• International Expansion• International Expansion• Gains in PC Market Share• Consumer Expansion• PC and Server Upgrade Cycles

We believe the Dell management team has done an excellent job during 2002 in repositioning the company for revenue and profit growth despite a highly challenging economic environment and ongoing IT spending constraints. This is most evident by management’s recent confirmation that the company is on track for 22% revenue growth and 30% profit growth in the November quarter. We believe Dell is positioned for double-digit growth rates for the foreseeable future, despite macroeconomic challenges based on the following rationale.

Poised for Growth Despite IT Spending Downturn

We believe the Dell management team has done an excellent job during 2002 in repositioning the company for revenue and profit growth despite a highly challenging economic environment and ongoing IT spending constraints. This is most evident by management’s recent confirmation that the company is on track for 22% revenue growth and 30% profit growth in the November quarter. We believe Dell is positioned for double-digit growth rates for the foreseeable future, despite macroeconomic challenges based on the following rationale.

New Product Expansion

The majority of Dell’s revenue—approximately 70%—is still driven from the sale of personal computers, either laptop or desktop computers. However, Dell is in various stages of a product expansion strategy that will further extend its product reach into storage, midrange servers, networking and printers. We estimate that these markets combined represent another $128 billion in total addressable market that Dell will target, beyond the $172 billion PC market.

International Expansion

Approximately 70% of Dell’s revenue comes from sales into the Americas. Dell has 27.2% PC market share in the United States, compared to only 10.5% in Europe, the Middle East and Africa (EMEA), 4.7% in Asia Pacific and 7.1% in Japan. We consider the international PC market to be untapped potential for growth. Last quarter alone, Dell saw measurable international success in EMEA, growing share from 9.7% to 10.5%. Dell’s success in France was particularly impressive; the company moved from the No. 4 PC supplier to the No. 2 PC supplier, based on strong growth that was 20% higher in units than the rest of the industry. More recently, Dell has focused internationalexpansion in four key markets, Germany, France, China and Japan.

Gains in PC Market Share

Dell has only a 15% share of the worldwide PC market. We believe its aggressive pricing strategy, direct model, strong brand, new white-box initiatives and international expansion plans should contribute to continued market -share gains within the PC market. Dell has averaged 60 basis points of PC market -share gains per quarter in the last several quarters. If Dell succeeds in increasing its worldwide PC market share to 30% from 15% in the next five years, the company could double its annual revenue to over $62 billion.

Consumer Expansion

Based on its direct sales strategy, the vertical market segments for Dell tend to be more heavily skewed toward education, government and enterprise markets. More recently, Dell’s growing brand awareness and creative marketing campaign have been successful in expanding its penetration within the consumer market. Last year, consumer PC shipments accounted for about 33% of the worldwide PC market, according to IDC. This compares to less than a 20% consumer mix for Dell. We expect Dell to expand its consumer PC market share through its marketing campaigns,

Documents

Dell leadership style