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8/4/2019 Quebec Dell
1/27
DELL Computers CorporationDELL Computers Corporation
Jose VillarrealJose Villarreal
WeiWei 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, storageand 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 franchisesin 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 billionin 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 frommanufacturing process patents to computer design patents.
We attribute Dells 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 disrupttraditional technology business models that rely on proprietary technology or multistage salesand distribution. A key part of Dells 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 Dells total revenue is tied to PC hardware while the remaining 54% ofrevenue 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 processorrunning at eight megahertz
n1987Dell is first computer systems company to offer next-day, on-site product service. International expansion beginswith opening of subsidiary in United Kingdom
n1988 Dell conducts initial public offering of company stock,3.5 million shares at $8.50 each
n
1990 Manufacturing center in Limerick, Ireland, opened to serve European, Middle Eastern and African marketsn1991 Company introduces its first notebook computer
n1992 Dell included for first time among Fortune 500 roster of world's largest companies1993Dell joins ranks of thetop-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 arecompany'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 Dellcomputers via Internet at www.dell.com Dell begins major push into network-server market. Company added toStandard & 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 atthe start of the year
n1998Company expands manufacturing facilities in the Americas and Europe, and opens a production and customercenter in Xiamen, China. Dell introduces its PowerVault storage products1999Dell opens second major U.S. locationin Nashville, Tenn. Dell opens manufacturing facility in Eldorado do Sul, Brazil, to serve Latin America. Dellintroduces "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 workstationshipments. 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 Intelarchitecture server shipments. Dell introduces Power Connect network switches
n2002Dell names its Austin Manufacturing Campus the Topfer Manufacturing Center in recognition of thecontributions Mort Topfer made to Dell and the community during his tenure, 1994 to 2002.Dell enters the projectormarket 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 animportant 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 weare committed to providing the tools for making it easier to Techsplore. From our TechKnow
program 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 theirefforts to make a better world.
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MissionMission
Dell's mission is to be the most successful computercompany in the world at delivering the best customerexperience in markets we serve. In doing so, Dell willmeet 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
Only Slide
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The Portfolio
Desktop ComputersPortable Computers
Enterprise Systems
Third-Party Products
Services
Dell distributes various computer systems and services via direct customer relationships and the dell.com web site. Nosingle 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. Dells market -share gains can bepartially 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), Dells portable computer unit shipments increased 17% year over year, compared to4% industry growth excluding Dell.
According to IDC, Dell is the No. 1 supplier of portable computers worldwide. Dell manufactures and distributes twolines 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 toaddress 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, includingprofessional 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 and27% 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
Dells 8% server market -share is compared to Hewlett-Packard and IMB, which each have 28% market share.
Industrial watcher predict that Dells 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 enterprisesystems 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 lastfour 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 accountfor 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*
ChangeRevenue $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 2,746
Working 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 revenueand 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, nearlyfive 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 investorsfor 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, morepowerful 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 anddesktop computers are more than three years old, and that 300 million computers cannot run Microsoft's Windows XPoperating system.
In fiscal 2002, we had tremendous success in three areas of strategic emphasis: enhancing operating efficiencies todeliver 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 representeda 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 productsworldwide, in still-larger numbers.
Dell sold nearly twice as much storage capacity than in fiscal 2001-more than 57,000 terabytes. By year-end, almostone-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 ofenterprise 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 o n 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 Dellcapabilities 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. Anindependent 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 andstorage 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 thatorganizations migrating to standards-based products earliest realize benefits of low cost, simplicity and the highest
levels of return on investment-all Dell strengths.
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FinancialsFinancials--20022002
EARNINGS (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 $21.90
Price Change - 10 Day -2.8%
Price Change - Last Month 0.7%
Price Change - 26 Week 6.6%
Price Change - 52 Week 12.6%
Price Change - YTD 7.5%
Current Pricing
Shares Outstanding Date 8/30/2002
Avg. Dai ly Volume Last 10 Days 28,762,400
Net Insider Transactions -1,414,000
Shares He ld by Ins ti tu tions 1,516 ,730,000
Institutions Holding Shares 2,913
% of Shares Outstanding Held by
Institutions 58.6%
Shareholdings
Shares Outstanding
August 2, August 3, August 2, August 3,
2002 2001 2002 2001
Net income (loss) 501$ 101 )$ ( 958$ 361$
Weighted average shares outstanding:Basic 2,586 2,601 2,591 2,600Employee 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
Basic earnings (loss) per share is based on the weighted effect of all common shares issued and outstanding and iscalculated 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 sharesused in the basic earnings (loss) per share calculation plus the number of common shares
Employee 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 periodsended 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.
as of The date of the previous trading day. "Recent Price" is the clo sing price taken from this day.
52-Week High The highest intra-day price during the preceding 52 weeks.
52-Week Low The lowest intra-day price during the preceding 52 weeks.
Price Change - 52 Week The % change in the latest closing price of the stock vs. the closing price 52 weeks ago.
Price Change - YTD The % change in the latest closing price of the stock vs. the closing price at the beginning ofthe calendar year.
Shares Outstanding Date The date the latest Shares Outstanding are downloaded into Multex Market Guide'sDatabase.
Avg. Daily Volume Last 10 Days This value is calculated as the Total Revenues for the trailing twelvemonthsdivided by the Average Total Assets. The Average Total Assets is defined as the Total Assets for the 5 most recent
quarters divided by 5.
Short 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, theCanadian Stock Exchange, or the American Stock Exchange (depending on where the security trades).
Short Interest (Mil) The number of shares of the stock that have been sold, but not yet repurchased.
Short 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 thenumber of days of average trading needed to cover the shorts. This is also called Days-to-Cover.
Net Insider Latest Date The date of the latest insider information. There is usually a lag of approximately sixweeks before a report is posted.
Net Insider Transactions This is the net difference between the number of SHARES of company stock purchasedby officers and directors and the number of shares sold by officers and directors during the preceding six months.
Institutional Holdings Latest Date The date of the latest institutional holdings information.
Shares 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
Au ust 2 Au ust 32002 2001 2002 2001
Net revenue:
Americas:
BusinessU.S. Consumer 1,095 853 2,314 1,824
Total Americas 6,141 5,402 11,747 10,847
Europe 1,526 1,483 3,184 3,235
Asia Pacific-Japan 792 726 1,594 1,557
Total net revenue $8,459 $7,611 $16,525 $15,639
Operating income:
Americas:Business
U.S. Consumer 59 26 131 45
Total Americas 545 432 1,024 834
Euro e 78 82 150 209
Asia 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 $9,433
Three Months Ended Six Months Ended
August 3, August 2,
The Company conducts operations worldwide and is primarily managed on a geographic basis,
with those geographic segments being the Americas, Europe, and Asia Pacific-Japan regions.The Americas region, which is based in Round Rock, Texas, covers the United States, Canada,
South America, and Latin America. The Company has two reportable segments within the
Americas: Business and U.S. Consumer. The Americas Business segment includes sales to
commercial, government and education customers. The European region, which is based in
Bracknell, England, covers the European countries and also some countries in the Middle East
and Africa. The Asia Pacific-Japan region covers the Pacific Rim, including Japan, Australiaand New Zealand, and is based in Singapore. The accounting polic ies of the Companys
reportable segments are the same as those described in the summary of significant accounting
policies in the Companys Annual Report on Form 10-K for the fiscal year ended February 1,
2002. The Company allocates resources to and evaluates the performance of its segments
based on operating income. Corporate expenses are included in the Companys measure ofsegment operating income for management reporting purposes.
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FinancialsFinancials--20022002
LiquidityLiquidityAugust 2, February 1,
2002 2001Cash and investments 8,633.00$ 8,287.00$Working capital 238.00$ 358.00$Days of sales in accounts receivable 32.00 29.00Days 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 largeportion of its available cash in highly liquid/ highly rated corporate, bank, and government debt securities of varying
maturities at the date of acquisition. The Companys investment policy is to manage its investment portfolio topreserve principal and liquidity while maximizing the return on the investment portfolio through the full investment ofavailable funds. As of August 2, 2002, only $248 million of the Companys 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 Companys principal source of cash. Cash flows from operating activities resulted primarily fromnet 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 thefair value of the Companys stock exceeds the option strike price on the day the employee exercises an option, that
reduce the Companys taxes payable, and that under generally accepted accounting principles are recorded directly tostockholders equity accounts rather than to earnings. Management believes that the Companys cash provided from
operations will continue to be strong and more than sufficient t o support its operations and capital requirements, evenif 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 theaccompanying consolidated statement of financial position included in Item 1 Financial Statements. For more
information, see Item8 Financial Statements and Supplementary Data Notes to Consolidated FinancialStatements included in the Companys 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
Only Slide
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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 marketsegments. 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 tohigh teens despite macroeconomic constraints, given its product expansion into storage, midrange servers, networking
and printers; international expansion; further market -share gains in PCs; and pent-up demand stemming from a delayedPC 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 underutilizedstorage 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-costcomputer 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 modularcomputing 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 asa 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 priceswould 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 Dells position as a key modular computing supplier. Not only does Dell provide completesolutions 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 Dellis 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
rna
l
Ex
terna
l
Threat
Regional Competition Changes in Technology Prolonged Economic
downturn Disruptive Technology Reliance on Suppliers
WeaknessRevenue MixAcceptance of DirectSales Model
Dependence onVolume
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 therelationship 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 Dells supplychain 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 withPhilips for the supply of CRT and flat panel monitors. Philips monitor business is struggling the signing of the dealwas a win/win situation for both companies as Philips 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 beeither 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. Dells
success in the most recent economic downturn serves as clear signal that the company can weather less than favorableeconomic conditions. In 2001, Dells 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 andhigh inventories. Competitors may be forces absorb write-offs associated with inventory obsolescence or markdown
products below cost to clear inventory.
Dells 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 Analysis
High
LowIndustryGrowthRate
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 asprinter, 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
SizeofCompany
Dividends are usually associated with maturity cycle'', whatever that means. What does ``mature'' mean anyway, andwhat might constitute maturity for a technological Corporation
Most companies pass through a struggling start-up phase, a period of rapid growth, and an extended maturitycharacterised by relatively stable sales and earnings. This life cycle usually follows the development of the industry inwhich the company operates: from not being recognised at all, through exponential growth in a market with unknowntotal size, to saturation and growth thereafter at rates limited by the overall growth of the market (usually constrainedby demographic or economic factors) and the company's share of that market, won or lost at the expense of itscompetitors. Earnings performance also evolves through these phases: during start-up the company loses money, itslosses funded by the original investors. If it succeeds and begins to grow rapidly, it becomes profitable but reinvestsall of its earnings in the business to fund its rapid growth and not forfeit portions of the market to competitors who arealso growing rapidly. In the third phase the company cannot grow measurably faster by reinvesting its earnings, so itoften chooses to pay dividends to its shareholders.
Dell Corporation can be expected to follow this pattern of development, but the presence of technological leverageresults in a very different earnings profile as it moves from stage to stage. After surviving the start-up phase, aTechnological Corporation begins to generate earnings at a very high rate of return. Because little capital investment isneeded during its period of rapid growth, there is little need to reinvest earnings and they are simply retained. After thecompany's product reaches market saturation, earnings may actually decline as the percentage of sales the companydevotes to sales and marketing increases to maintain and expand its market share.
COMPANY:
DELL is in the mature stageDELL 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 becomethe cost leader.
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ExternalEnvironment
Strategic
Planning
ResourceAllocation
ResourceRequirements
StrategicManagement
OrganizationalStructure
OrganizationalCulture
Strategic
Control
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/ BehavioralParticipative
Management
Phase 3b
Co-ordinationProduct Group Structure
Conceptual SBU
Phase 3a
ExpansionDivisional Structure
Analytical/Decentralized
Management
Phase 2
FormulationBureaucratic Structure
Analytical/DirectiveManagement
Phase 1
InitiationEntrepreneurial Structure
Informal Management
Sizeofcompany
Small
Large
Young Mature
Need fordirection
Lack ofAutonomy Lack of
Control
Need toAdapt 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 makingEmphasis in portfolio management
Divisional or strategic business unit
Specific strategy Horizontal & Vertical expansion
Generic strategy Cost
Structure divisional / multidivisional
Decrease in culture
Market structure high margin / balance in share/
strength / growth
Tech focus processInventive emphasize advertising / finance / manufacturing / process
Incentives features Formula based / multilevel / risk averse / long
term
Strategic info Market share / Costs / adjacent markets
Strategic 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
advantage0 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 Fast
27 0 1 0 12 4 10 0
Ave rag e - 6 - 3. 00
Factors determining competitive
advantage0 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 Fast
27 0 1 0 12 4 10 0
Aver ag e - 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 Low
Cash flow Low 3 HighEase of exit from market Difficult 1 EasyRisk involve in business Much 3 Little
Inventory turnover Slow 5 FastEconomic of scale and experience Low 6 High
33 0 1 2 6 3 15 6
Average 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 Low
Cash flow Low 3 HighEase of exit from market Difficult 1 EasyRisk involve in business Much 3 Little
Inventory turnover Slow 5 FastEconomic of scale and experience Low 6 High
33 0 1 2 6 3 15 6
Average 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 Stability
Factors determining environmentalstability
0 1 2 3 4 5 6
Technological changes Many 2 FewRate of inflation High 5 LowDemand variability Large 1 Small
Price range of competing products Wide 1 NarrowBarriers to entry into market Few 5 Many
Competitive 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 environmentalstability
0 1 2 3 4 5 6
Technological changes Many 2 FewRate of inflation High 5 LowDemand variability Large 1 Small
Price range of competing products Wide 1 NarrowBarriers to entry into market Few 5 Many
Competitive 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 High
Profit potential Low 4 High
Financial stability Low 5 High
Technological know-how Simple 5 Complex
Resource utilization Inefficient 6 Efficient
capital intensity Low 3 HighEase of entry into market Easy 6 Difficult
Productivity, capacity, utilization Low 6 High
Manufacturers' bargaining power Low 6 High45 0 0 0 3 8 10 24
Average 5.00
Factors determining industry strength0 1 2 3 4 5 6
Growth potential Low 4 High
Profit potential Low 4 High
Financial stability Low 5 High
Technological know-how Simple 5 Complex
Resource utilization Inefficient 6 Efficient
capital intensity Low 3 HighEase of entry into market Easy 6 Difficult
Productivity, capacity, utilization Low 6 High
Manufacturers' bargaining power Low 6 High45 0 0 0 3 8 10 24
Average 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.Its 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 ofthe SPACE Matrix, indicating competitive strategies.
Competitive strategies include backward, forward, and horizontal integration; market penetration; market development; product development; andjoint 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 ofSubstitutes
Barriers toEntry
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 raiseprices.
The competition engendered by a Threat of Substitute comes from products outside the industry. The price ofaluminium beverage cans is constrained by the price of glass bottles, steel cans, and plastic containers. Thesecontainers 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 muchconsideration 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 diaperindustry, 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 inassessing 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 tocompetition among these substitute means of connecting the home to entertainment. Except in remote areas it isunlikely 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
Bu er concentration vs. industr
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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 longshoremens 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 locatednear manufacturing plants in Texas. If the lockout lasts longer than two weeks, Dell could realize higher componentcosts 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 spendingdownturn. Recent comments from technology leaders, including Sun Microsystems, Oracle and EDS, suggest that aseasonal 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 togrow units 8% next year.
Supply-Chain and Single-Source Supplier Risks
Dells 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, fromcomponent 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 alternativesources 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 ofdistribution agreements with Hewlett-Packard, Cisco and 3Com could have an adverse effect on future financialresults.
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 Dellssuccess will depend on the success of R&D efforts by its partners.
Significant Exposure to PC Market
Dells financial results are highly dependent on the PC industry. Excluding PC-related service revenue, we estimate
that PC hardware accounts for about 62% of Dells 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 Direc ting Persuades by Involving
Expects Rapid Change Reacts to Change
Performance TransformationEmphasis of Change
GoalOrientation
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 inspecial 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
Directive
Production
Logical
Quality
Supportive
Supportive
Inspirational
Creative
Life Cycle: Leadership
Based on the idea that all managers in a chain of command are supervisors. The directive manager will tell their directsubordinates 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 appliedwhen Human Resources Management is adopted by organisations, but it's emphasis on control is given as one of themajor 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-imageHigh 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 EfficienciesEfficiencies CommunicativeCommunicative InnovativeInnovative
Mic hael S. DellMic hael 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 apremier 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 fourquarters. Since its first international subsidiary opened in the United Kingdom in 1987, Dell has opened sales officesworldwide 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 onlinecommercial 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 toearn a ranking on the Fortune 500.
Because of the phenomenal success of the company, Mr. Dell has been honored many times for his visionaryleadership, earning a spot on Time/CNN's list of the 25 most influential 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, "Manof 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 hasrefined 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 affiliationof 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 PlansFuture Plans
Poised for Growth Despite IT SpendingDownturn
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 forrevenue and profit growth despite a highly challenging economic environment and ongoing IT spending constraints.
This is most evident by managements recent confirmation that the company is on track for 22% revenue growth and30% profit growth in the November quarter. We believe Dell is positioned for double-digit growth rates for theforeseeable 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 managements 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 theforeseeable future, despite macroeconomic challenges based on the following rationale.
New Product Expansion
The majority of Dells revenueapproximately 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 itsproduct 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 Dells revenue comes from sales into the Americas. Dell has 27.2% PC market share in theUnited 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 sawmeasurable international success in EMEA, growing share from 9.7% to 10.5%. Dells success in France was
particularly impressive; the company moved from the No. 4 PC supplier to the No. 2 PC supplier, based on stronggrowth that was 20% higher in units than the rest of the industry. More recently, Dell has focused international
expansion 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 severalquarters. 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
B d it di t l t t th ti l k t t f D ll t d t b h il k d t d