INDEX

Indian notebook & computers Industry in India

Dell Computers
Vision
Mission
Facts
Strategy to promote Dell
Value chain
Technology
Entry Strategies
Marketing Strategies
Porter’s five competitive forces
SWOT:
Tie-ups and acquisition
Criticism on strategies adopted by Dell Computers
 Industry Analysis
Industry Overview
The computer hardware industry was hit hard in 2002. The great results seen in the 1990’s are a
tough act to follow. Also the events of September 11th, 2001 took a great toll on the industry as it
did to the economy as a whole. In 2002 worldwide unit shipments for the second quarter declined
0.5%, from second quarter 2001 results. This was the fourth consecutive quarter with negative
year-to-year comparisons for the computer hardware industry. The global unit shipment figure was
31.082 million units. The low figures in shipments could be attributed to the Hewlett-Packard Co.
(H-P) and Compaq merger of May 2002. Hewlett Packard was the market leader, with a 15.1%
share, but its unit shipments were down 16.2%. Dell Computer Corp. constituted 14.8% share, and
its shipments grew 15.5% worldwide. International Business Machines Corp. (IBM) followed with
6.3% of the market for second quarter 2002. U.S. PC shipments for the second quarter of 2002
grew to 1.8% from the previous year but shipments to area such as Europe, the Middle East, and
Africa declined by 2.2%. Considering growth in the second quarter of 2002 wasn’t as much as
anticipated hopes of fall and winter sales were being counted on a lot. Even so a large amount of
growth wasn’t anticipated until this year. The consolidation move of HP and Compaq did affect
the market a lot. The decline in HP’s shipments can be attributed to the confusion and uncertainty
from customers due to the acquisition, which was believed to affect their sales. During the merger
Dell made strategic moves by lowering their prices to gain market share. It is believed that the
industry will continue to see effects of the merger in the future. Low PC sales date back to 2001
where unit sales of PCs decreased by an estimated 4.0% this
decrease generally reflected the global economic slowdown. The growth of our country’s GDP
was reduced to 0.3% in 2001 from 4.1% in 2000 a dramatic decrease. This intern meant that
people had less money to spend and less PC’s were purchased. From 1997–2000 there was a huge
increase in PC investments. Shipments rose by 16% in 2000, 24% in 1999, 13% in 1998, and 16%
in 1997. Their enterprise systems (servers, storage & networking products, and workstations) grew
in shipments by 26% and a 44% revenue increase from 2000 to 2002 These numbers were fairly
high and became difficult to compete with. In the second quarter of 2002, Dell dropped to the
second spot in the worldwide market, with a 14.8% share, closely following HP. They reported
15.5% unit growth for the quarter, which outperformed the overall market decline of 0.5%.
Even though sales in 2002 we not great, sales for 2003 are anticipated to be much better due to a
few beliefs. First it is believed that many people that worried about Y2K purchase new computers
and now it is three plus years later and time for upgraded systems, intern they will invest in new
computers. Also our economic recover is anticipated to begin in 2003. Standard & Poor’s has
estimated real GDP for 2003 at 3.4%. Investment in information technology and new PC’s is
anticipated. The demand for PC’s definitely follows the market movement so if there is not an
upturn soon this will continue to have effects on the industry. Along with making and selling PC’s
Dell is involved in Internet World. The Internet World is comprised of many different parts such as
networking hardware, which includes routers, access equipment, and servers. In 2002 the leader in
vendors was HP-Compaq with 30% market share followed by Dell with 19.2% of the market
share. In the third quarter alone Dell was number one with 26.3% of the market share followed by
HP-Compaq with 25.9%. The Internet is used for various different services such as chatting,
browsing, emailing, shopping, etc… A very profitable part of the Internet is business-to-business
e-commerce (B2B). In 2001 the market was anticipated to generate $474.3 billion and in 2004 it is
anticipated to grow to $2.4 trillion! Cisco Systems and Dell Computer Corp. are two big
companies in this category. Daily sales for Cisco amount to approximately $43 million in online
sales, as of October 2002. And some of Dell’s sales amount to $41 million to $51 million daily.

Life Cycle of PC Industry

The computer industry, specifically the PC hardware sector, is now at the maturity stage, this
means that all the consumers who want computers have had their share of computers. Market
Maturity occurs when industry sales level off. Competition gets tougher as aggressive competitors
entered for profits. Industry profits continue to go down during maturity because promotion costs
rise and competitors continue to cut prices to attract more business. Now customers want
convenience and value for their money. At this phase, the products have to meet consumer's need.
The consumers in this stage do not need technical expertise. Mass distribution and total market
coverage usually characterizes a product in maturity. Competition shifts to customer services,
production, and distribution efficiency. Dell has an advantage in this area because they are a direct
seller of PCs. This allowed them to have a better grasp of current demand trends and control their
inventory levels.
Market Trends

The PC industry has gone through numerous changes in its competitive environment since its
inception in the mid-1970s. In 1995, Dell Computer held less than 4 percent of the worldwide PC
market. Now Dell is the number one PC vendor worldwide, with 13 percent of the global market,
and holds nearly 25 percent of the US market. Today the PC industry is struggling with revenues
declining and profits disappearing. The most dramatic evidence of major changes taking place in
the industry is consolidation. The largest merger in this industry as of yet was the May 2002
merger of Compaq and Hewlett Packard. This deal was valued at around $19 billion. Acquisition
strategies allow companies to broaden their customer base and offer a wide variety of products and
services to their customers. Some of the other key industry trends that affect the companies
include:

Market and Distribution Trends

Competitive advantage in the PC industry today is driven more by sales, distribution and customer
relationships than by manufacturing or product innovation. Dell’s direct sales model has proven to
have inherent advantages over the indirect channel, including cash management, rapid inventory
turnover, and stronger customer loyalty. Dell utilizes national advertising campaigns on television,
print advertising in magazines, and sale sites on the World Wide Web.
In addition to those means, Dell also sends mailing to consumers and uses a direct sales force for
corporate accounts. With this type of low cost strategy, Dell has gained the market share benefits.
The direct sales method has become possible because consumers are becoming more computer
literate and are more comfortable with making purchases over the phone and the Internet. Other
PC makers have tried to implement their own direct sales models, but have faced serious problems
with channel conflict, as well as with making the internal changes necessary for such a shift.

New product and Technology Directions

In the past five years, mobile IT products have gained an average of 1.75% annually as a share of
total end computing devices sold. With the arrival of 3G mobile communications services and
wireless networking standards such as Bluetooth, the shift toward mobility in data communications
and computing is likely to continue. This change means there will be new opportunities for growth
and for innovation on the part of PC makers. It also may change the competitive landscape because
firms in the PDA and wireless industries may begin to compete with PC makers.

Internet Boost IT Investments

Demand for PCs should continue to grow as the number of users seeking to access the Internet
grows. The growth forecast for Internet usage should stimulate investments in computer
hardware. The growth can come from many areas. Businesses can gain a competitive advantage by
providing their customers better service and support through their websites. They can also link to
their suppliers through the Internet, allowing for faster transactions and delivery. Individual
countries can benefit when they invest in the Internet infrastructure to become more globally
competitive and improve standards of living for its people. Consumers will continue to use the
Internet for a variety of communication, commerce, and educational purposes.

PC Home Entertainment Center

Computers are rapidly becoming the center of home entertainment and information. A
wellequipped PC now functions as a CD player for music, a DVD player for movies, a video game
machine, a storage and viewing device for family photos, an e-mail enabler, a voice mail/fax
machine, and a gateway to the Internet. This trend is likely to continue, as consumers prefer the
“all in one” mentality. Consumers want one machine that can do they job of many to reduce cost of
buying them separately and reduce the space to store them. Some sector of the computer industry
experiencing mature growth rates but the industry’s overall outlook remains healthy. There is
pressure on the growth rates of computer hardware because nowadays, greater computing power is
available at lower prices.

Factors Affecting the Industry’s Performance

There are a variety of factors that can affect the operation of a computer hardware company. The
factors that will have an effect on future operations includes:

General Economic and Industry Conditions

Any circumstances that would cause consumers to delay or decrease purchases of computers will
have an adverse affect on the financial status of the companies in the PC industry. Take Dell for
example, during the fiscal year 2002, worldwide economic conditions negatively affected demand
for the Dell’s products. This resulted in declining revenue and earnings for the company as
compared to their previous year. In addition, political factors can affect companies as well. For
example, acts of terrorism in the United States or abroad could cause disruption to the companies,
its suppliers, distributors or customers. This could result in a material adverse effect on business.

Dell Computers

Company Background
Dell Computer was founded by Michael Dell in 1984, while he was a student at the University of
Texas, Austin. Dell began by selling upgrades of IBM-compatible PCs and in 1985 began to sell
its own brand of PCs. From the beginning, Dell operated on the direct sales model, taking orders
over the phone and building PCs to the customers specifications. Dell entered the retail PC channel
for several years in the early 1990s, but a downturn in business in 1993 led it to return to its roots
as a direct vendor (although the company does work with resellers in some markets).
Dell grew rapidly and in the mid-1990s, its sales reached an inflection point, soaring from $3.5
billion in 1994 to $25 billion in 1999. By 1999, Dell had become the number one PC seller in the
United States, and was number two worldwide. More importantly, profits were soaring, thanks to
the cost structure of the direct, build-to-order model. By turning its inventory over 60 times a year,
Dell minimized the rapid depreciation costs that mark the PC industry, and by receiving payment
from its customers before it paid its suppliers for components, Dell operated on a negative cash
conversion cycle. This minimized Dell’s working capital requirements and
allowed it to achieve high rates of return on its invested capital. The result was an exceptional run
for Dell’s stock, which outperformed even stalwarts such as Microsoft and Intel in the 1990s
(Kraemer, et al., 2000).
This success has taken place against the backdrop of falling PC prices, brutal competition, and
enormous losses by other PC makers. Dell has not only survived, but thrived in this environment
thanks to the fundamental advantages of the direct model, and to its continued efforts to improve
its execution of that model. It also has taken advantage of its direct model to build strong, stable
relationships with the large corporations and other organizations who are its core customers.
Unlike indirect vendors, Dell knows who its customers are and has a great deal of information that
it uses to provide a high level of service and support, to target customers for retention and
expanded sales, and to sell additional third party hardware and software.
But even Dell has not been immune to the turmoil in the PC industry. While its most recent 26%
growth rate continues to outpace the industry as a whole, it has not been able to match its earlier
growth rates of 50% a year, and was hit hard by the slowdown in PC sales in late 2000.1 The result
has been a sharp fall in Dell’s stock price and a reminder that Dell is vulnerable to the brutal price
competition and cyclical demand of the PC industry.

Introduction of Dell Computer

Dell Computer has been touted by itself and others as a quintessential Internet company. The
Internet has given Dell a means for extending the reach and scope of its direct sales business model
at a relatively low marginal cost. It has done so in part by automating functions such as product
configuration, order entry, and technical support, enabling the company to grow revenues without
a corresponding increase in customer service costs. Also, it has used the Internet to coordinate a
network of suppliers and business partners who carry out many of the processes involved in
building, distributing and supporting personal computers. Dell refers to this network of partners as
a “virtual company” linked electronically by the Internet. Another name for this type of industrial
organization is the value web (Kraemer and Derrick, 2000). In early 2000, Dell began to redefine
itself as the company that “knows how E works.” Capitalizing on its reputation as an e-commerce
pioneer, Dell has offered to share that expertise with its customers as they develop their own e-
commerce capabilities. Dell is using the virtual company approach to expand the scope of its
business without a commensurate expansion of its own work force and without making a major
acquisition. It is doing so by developing a network of software and services companies that offer
technologies and skills that Dell lacks in its existing value web. However, Dell remains focused on
the fact that it is still a hardware company. Its e-commerce efforts are aimed at improving its own
efficiency, enhancing customer satisfaction, and reaching new product markets, rather than
transforming itself into a services provider as its competitors such as IBM, Compaq, and Hewlett-
Packard are becoming. A close analysis of Dell’s use of the Internet and electronic commerce
illustrates the strategic and organizational challenges that face any company that is serious about
embracing the Internet and trying to tap its potential. It also offers insights into a new form of
business organization that may become more prevalent in the networked economy.
Competition
We face intense price and product feature competition from branded and generic competitors when
selling our services. In addition to several large branded companies, there are other smaller
branded and generic competitors. Historically, we competed primarily based on the customer value
that a direct relationship can bring —technology, performance, customer service, quality, and
reliability. Our general practice is to rapidly pass on cost declines to our customers to enhance
customer value. As a result of the intensely competitive environment, we lost 1.9 points of share
during calendar 2007.We lost share, both in the U.S. and internationally, as our growth did not
meet overall personal computer systems growth. This was mainly due to intense competitive
pressure in our U.S. Consumer business, particularly in lower priced desktops and notebooks, as
well as a slight decline in our worldwide desktop shipments (compared to 5% worldwide industry
growth in desktops). At the end of calendar 2007, we remained the number one supplier of
personal computer systems in the U.S. and the number two supplier worldwide. We expect that the
competitive pricing environment will continue to be challenging. However, we believe that the
strength of our evolving business strategy and indirect distribution channels, as well as our strong
liquidity position, makes us well positioned to continue profitable growth over the long term in any
business climate. For consumers, we recognize the increasing importance of product “ID”, which
is the appearance, ease of use, and ability to interact with peripheral products like cameras and
MP3 players, and we are focusing more resources to improve in this area. In our financial services
business we compete with the captive financing businesses of some of our competitors as well as
with banks and financial institutions. While DFS is one of the many potential sources for arranging
funding that may be available to our customers, we believe that our ability to offer or arrange
financing for products, services, and solutions makes us competitive with banks and financial
institutions.

Stock Performance Graph

The following graph compares the cumulative total return on Dell’s common stock during the last
five fiscal years with the S&P 500 Index and the Dow Jones Computer Index during the same
period. The graph shows the value, at the end of each of the last five fiscal years, of $100 invested
in Dell common stock or the indices on February 1, 2003, and assumes the reinvestment of all
dividends. The graph depicts the change in the value of common stock relative to the indices at the
end of each fiscal year and not for any interim period. Historical stock price performance is not
necessarily indicative of future stock price performance.
Fiscal 2008 Performance
Share position • We shipped 40 million units for calendar year 2007 according to IDC, resulting in
a worldwide PC share position of 14.9%. After leading the worldwide PC market for the past six
years, we fell to the second position for calendar year 2007. We lostshare, both in the U.S. and
internationally, as our growth did not meet the overall PC growth. Our U.S. Consumer segment
continued to underperform, which slowed our overall growth in unit shipments, revenue, and
profitability. This was mainly due to intense competitive pressure, particularly in the lower priced
desktops and notebooks where competitors offered aggressively priced products with better
product recognition and more relevant feature sets. A slight decline in our worldwide desktop
shipments also was a factor in our losing worldwide PC share position; worldwide desktop
shipments grew 5% during calendar year 2007.

Net revenue • Fiscal 2008 net revenue increased 6% year-over-year to $61.1 billion, with unit
shipments up 5% year-over-year, as compared to Fiscal 2007 net revenue which increased 3%
year-over-year to $57.4 billion on unit growth of 2% over Fiscal 2006 net revenue of $55.8 billion.
Vision

Learn how Dell is reinventing the way the world uses information technology, and how we
demonstrate our commitment to responsible and sustainable business practices.

Leaders
hip

Meet Dell’s executives through videos, photos, recent speeches and more.
Products & Services

Explore our industry-leading products and services, which simplify IT for customers globally.

Dell Worldwide
Learn about Dell’s technology, economic and social impact in the countries we serve
around the world.

History

See how Dell has continually transformed the IT industry - from 1984 to the present.

Mission

Many people are familiar with Dell's customer-focused direct business model, and the company's
success in creating leading value for customers and investors. Less well known is the unique
environment forged by Michael Dell and the people of Dell since the company's founding in 1984.

We characterize that environment in a statement of corporate philosophy called the "Soul of Dell."
It defines the kind of company we are and aspire to become, serves as a guide for our actions
around the world, and ultimately forms the basis of our "winning culture."

Below are the core elements of the Soul of Dell:

Customers: We believe in creating loyal customers by providing a superior experience at a great

value. We are committed to direct relationships, providing the best products and services based on
standards-based technology, and outperforming the competition with value and a superior
customer experience.

The Dell Team: We believe our continued success lies in teamwork and the opportunity each team
member has to learn, develop and grow. We are committed to being a meritocracy, and to
developing, retaining and attracting the best people, reflective of our worldwide marketplace.
Direct Relationships: We believe in being direct in all we do. We are committed to behaving
ethically; responding to customer needs in a timely and reasonable manner; fostering open
communications and building effective relationships with customers, partners, suppliers and each
other; and operating without inefficient hierarchy and bureaucracy.

Global Citizenship: We believe in participating responsibly in the global marketplace. We are

committed to understanding and respecting the laws, values and cultures wherever we do business;
profitably growing in all markets; promoting a healthy business climate globally; and contributing
positively in every community we call home, both personally and organizationally.

Winning: We have a passion for winning in everything we do. We are committed to operational
excellence, superior customer experience, leading in the global markets we serve, being known as
a great company and great place to work, and providing superior shareholder value over time.

FACTS

The new Dell Studio notebook computers inherit design elements first introduced in Dell’s XPS
M1330 and M1530 laptops, including a sleek wedge-shaped profile and an iconic drop hinge
design. Taking its cue from the Inspiron portfolio, Studio laptops also offer several personalization
options that allow a customer to color customize a laptop unique to him or her.

The Studio laptops also include a new, easy-to-set up and use communications program, Dell
Video Chat. Families and friends can stay in touch using video chat, recording and sending video
emails, or even PC-to-PC phone calls around the world. The application supports four-way calling,
making virtual family reunions a reality.

Starting with either a 15 or 17-inch high-definition display, customers may pick one of six optional
color choices, including new Plum Purple and Tangerine Orange, in addition to Flamingo Pink,
Midnight Blue, Ruby Red, Spring Green or standard Jet Black. For a more subtly personalized
laptop, Dell has added an optional high gloss Graphite Grey choice that can be customized with
contrasting Black, or more vivid Blue, Pink or Red edge trim around the display back.

The first Dell Studio products are two distinctively styled laptops, the Dell Studio 15 and Dell
Studio 17. These laptops combine sleek designs, striking visual color elements and personalization
options with features such as standard built-in webcam, capacitive touch media control buttons,
slot load drives, and optional mercury-free LED displays. They are available today on
www.dell.co.in starting at Rs 46,800(Studio 15) and Rs 52,800 (Studio 17)

Dell Studio has a unique user interfaces like the Dell Dock, a task-based application organizer that
places the most frequently accessed programs front and center, and Dell Video Chat, a one-click
easy to setup and use video and voice communication program.

The Dell Dock automatically sorts installed software applications on the PC into user friendly
categories, which can be accessed by a simple taskbar, leaving the desktop free of clutter. Users
don’t have to locate and open a program by application name or icon on the desktop, but instead
can locate it by task, like “email & chat,” “security,” “view photos,” “play music,” etc. The task
bar is customizable: users can chose its anchor location, background and font color, and even the
icons used to represent a category.

The optional Blu-ray Disc drives help deliver cinematic video quality on high definition displays.
Users can simplify password management while preventing unauthorized access with the optional
fingerprint reader. Users also have the option of upgrading to a back-lit keyboard for a better input
experience while working in dark environments.

STRATEGY TO PROMOTE Dell

Product Development

We focus on developing standards-based technologies that incorporate highly desirable features

and capabilities at competitive prices. We employ a collaborative approach to product design and
development, where our engineers, with direct customer input, design innovative solutions and
work with a global network of technology companies to architect new system designs, influence
the direction of future development, and integrate new technologies into our products. Through
this collaborative, customer-focused approach, we strive to deliver new and relevant products and
services to the market quickly and efficiently. Our research, development, and engineering
expenses were $693 million for Fiscal 2008, $498 million for Fiscal 2007, and $458 million for
Fiscal 2006, including in-process research and development of $83 million related to acquisitions
in Fiscal 2008.

Products and Service

We design, develop, manufacture, market, sell, and support a wide range of products that in many
cases are customized to individual customer requirements. Our product categories include desktop
PCs, servers and networking products, storage, mobility products, and software and peripherals. In
addition, we offer a wide range of services. See "Part II - Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Revenue by Product and Service
Categories" and Note 11 of Notes to Consolidated Financial Statements included in "Part II - Item
8 - Financial Statements and Supplementary Data."
• Desktop PCs - The XPS tm and Alien ware lines are targeted at customers seeking the best
experiences and designs available, from multimedia capability to the highest gaming performance.
The OptiPlextm line is designed to help business, government, and institutional customers manage
their total cost of ownership by offering a portfolio of secure, manageable, and stable lifecycle
products. The Inspirit line of desktop computers is designed for mainstream PC users requiring the
latest features for their productivity and entertainment needs. In July 2007, we introduced the
Vostrotm line, which is designed to provide technology and services to suit the specific needs of
small businesses. Dell Precisiontm desktop workstations are intended for professional users who
demand exceptional performance from hardware platforms optimized and certified to run
sophisticated applications, such as those needed for three-dimensional computer-aided design,
digital content creation, geographic information systems, computer animation, software
development, computer-aided engineering, game development, and financial analysis.
VALUE CHAIN
TECHNOLOGY
New product and Technology Directions
In the past five years, mobile IT products have gained an average of 1.75% annually as a share of
total end computing devices sold. With the arrival of 3G mobile communications services and
wireless networking standards such as Bluetooth, the shift toward mobility in data communications
and computing is likely to continue. This change means there will be new opportunities for growth
and for innovation on the part of PC makers. It also may change the competitive landscape because
firms in the PDA and wireless industries may begin to compete with PC makers.

ENTRY STRATEGIES
As Dell looks at expanding into international markets, it needs to consider entering the markets that are
key to the region. For example, Germany in Europe, China in Asia, and Brazil in South America. Dell
needs to carefully study these types of key markets and implement its Direct Model only after it
understands how these regions economically and politically function. However, this expansionary
growth will place extensive demands on Dell’s information infrastructure needed to support such
global operations. To be successful in these new markets, Dell must update its websites in the
particular languages and modify the accounting systems to handle the specific currencies. Keeping
these new employees in touch with one another and with customers, suppliers, and partners will be a
gigantic task requiring the latest technology, increasing the demand for instant information. The global
market is huge and virtually untapped and Dell is in a great position to take advantage of this market,
especially with the use of the Internet and its advanced online capabilities. Dell’s most important
strategic advantage is the ability to sell direct from Dell, eliminating all the middlemen in the normal
distribution line. Anyone who wants a Dell must order it through the mail, online, or over the phone,
which is a perfect method for doing international business. Dell just takes the order and ships the
computers via one of its many shippers. Dell should focus on dominating the Asian market where they
only have a 3.7% hold on a market with over 19.9 billion units. Asia is a virtually untapped market and
is expected to grow rapidly in the next few years.
MARKETING STRATEGY
This is one of my favorite stories to tell technology consulting businesses who want to market
more effectively. It's a mainstay in my seminars because it illustrates such a critical marketing
point -- one every business should be reminded of. Frequently.
I have included a transcription here, and I believe you'll enjoy it. (For the original account this is
based on, read Michael Dell's "Direct from Dell" ... an absolutely fantastic book for marketing
strategies, entrepreneurial inspiration, and more.)
Most people don't know that one the key marketing strategies that have made Dell Computer so
unbelievably successful had nothing to do with the computer business. Dell actually discovered it
as a 12-year old kid in Houston, during one of their hot, sweltering, humid, and disgusting
summers. (No offense to anyone in Houston, I'm just not a big fan of hot, humid summers.)
Anyway, he decided one summer to be a paper boy. He wanted to make some extra money, and, as
an entrepreneurial kid, that means running a paper route. He went down to the paper where he
received a bundle of papers and a list of names to call or visit. The names were randomly picked
people who did not have a subscription to the paper. Dell's job was to begin calling everyone on
the list and get some subscriptions sold. He sold one here and he sold one there, but he pretty soon
began to notice a pattern. There were two categories of people who were much more likely to buy
a subscription from him than anyone else. First, people who had just moved into a new home. And
second, people who had just married. It makes sense right? They are going through life changes
that dramatically increase the likelihood of them wanting and needing a paper subscription. Most
kids - and most adult businesspeople - would say, "That’s neat" and stop there. But Dell took the
next step. He began to ask "how can I target these people and only these people, so that I'm
spending my time, resources, and my energy where I know it's going to pay off best?" The answer
came when he discovered public information available at the local courthouse could give him
access to exactly who he wanted to target. He gathered a small army of 12-years-old kids and sent
them all down to the courthouse on a regular basis. They wrote down everyone who had purchased
a new home and everyone who had applied for a marriage license. Michael Dell then spent his
time selling to those people predisposed to buying. He didn't try to be all things to all people, he
narrowly and specifically defined who he wanted to spend his limited time and energy on, he had a
much smaller list of potential buyers, and he did an enormous amount of business (for a paper
boy!) because of it. When summer ended and Dell went back to school, he was actually making
more money from his paper route than the teachers in his school. Most people look at Dell
Computer today and think they are being all things to all people. It is an illusion created by their
size. The success of Dell lies in large part with market segmentation and specialization strategies
that Michael Dell learned that hot Houston summer, pioneered at Dell Computer, and that the
company still does today.

Business Strategy

Our core business strategy is built around our direct customer model, relevant technologies and
solutions, and highly efficient manufacturing and logistics; and we are expanding that core strategy
by adding new distribution channels to reach even more commercial customers and individual
consumers around the world. Using this strategy, we strive to provide the best possible customer
experience by offering superior value; high-quality, relevant technology; customized systems and
services; superior service and support; and differentiated products and services that are easy to buy
and use. Historically, our growth has been driven organically from our core businesses. Recently,
we have begun to pursue a targeted acquisition strategy designed to augment select areas of our
business with more products, services, and technology that our customers value. For example, with
our recent acquisition of Equal Logic, Inc., a leading provider of high-performance storage area
network solutions, and the subsequent expansion of Dell's Partner Direct channel, we are ready to
deliver customers an easier and more affordable solution for storing and processing data.
PORTER’S FIVE COMPITITIVE FORCES

SWOT, External, Competitive and Internal Matrix Analysis of

Dell Corporation;
In this part of this research paper we would analyze the Dell Corp by utilizing the strategic
management matrix tools. For example, we would explore the SWOT Analysis, External Factor Matrix
Analysis, Competitive Profile Matrix Analysis and finally the Internal Factor Matrix Analysis to
analyze the strategic position of Dell Corporation in the industry.
Our objective here is to utilize the strategic management tools mentioned in the course books and in the
research material reviewed during the class secession to come up with valuable conclusion that would
add value to Dell Corporation.
However before we proceed to strategic analysis, we would critically view the core issues of Dell
Corp. This step would help us to better understand the development and implementation of strategies in
this organization.
The Core Issues at Dell Corp:
1. The Price War is going on between PC Makers.
 2. Revenues Down in 2002 compare to 2001 (31.9 to 31.1 billion)

3. Worldwide sales of PC’s Down 11% in 2001, Dell’s Sales Up

4. Leadership at Dell Corporation

5. Service Contracts

6. Maintaining the Market Share

Strengths Weaknesses
Production Adaptability Rapid I.T. Advancement
Financial Ratio Price Wars
Product Reliability Strong Brands in The Market (IBM)
Customer Relationship
Build To Order
Competitive Prices
Leading technologies
Opportunities Threats
Global Markets I.T. Advancement
Internet Usage Price Wars
Outsourcing Strong Brands in The Market (IBM)
Ecommerce Changing Consumer Needs
EMS HP / Compaq Merger
Maintaining Low Price Leadership Emerging Markets
Global Presence Indian I.T Industry

SWOT
Strength – By offering superior telephone customer services such as Premier Access, and outsourcing
their shipping, Dell had the lowest operating cost in the industry at 11.5%. It had a unique ability to
predict which new high margin technology product could be driven to scale w/lower priced products
driven by its direct model, which was continuously improving, making it hard to copy. Dell set the
industry standard for customer service/relations resulting in satisfied customers and less downtime
(Dell resolved 72% of problems remotely, which was twice the industry average.)
Weakness – Dell was late getting into the Latin American market (5th place in overall market share),
resulting in lost sales. It also had weak international market share in 2002 (Western Europe =3 rd,
Asia/Pacific = 7th, Japan = 8th, and 5th place in the rest of the world. In addition, jumping into the laptop
market too soon, entering the workstation market late and signing unsuccessful retail agreements all
brought losses to the company. Dell doesn’t have robust products to support mission critical
environments and is shut-out of big enterprise storage accounts.
Opportunity – Dell can further capitalize on the remaining build-out of the Internet infrastructure and
increase market share in the external storage market (i.e. SAN/DAS were expected to take 2/3rds of the
market by 2005) and participate more in the midrange and high-end server markets (2000 saw a 7%
worldwide increase from 1999.) It can develop itself into the premier Internet partner for customers
around the world by heavily targeting sales to first-time PC buyers and introducing new product
categories and services. With only a 5% global market share, Dell can easily increase business
revenues from international growth.
Threat – Computer industry consumers have traditionally been notoriously fickle in their buying
habits and trends, affected by the rapid pace of technology and the bursting Dot.com Economy. While
the growth of the Internet should produce more demand for servers and storage, those markets will test
Dell in areas that haven't been its strong points: sophisticated product engineering and labor-intensive
services.
The Competitive Profile Matrix
Critical Success Factors DELL IBM HP/COMPAQ

C.S.FAC WGHT RTG SCR RTG SCORE RTG SCR

TORS
1 Ecomme .15 4 .60 4 .60 4 .60
rce
2 Leadersh .15 4 .60 4 .60 4 .60
ip
3 Global .10 3 .30 4 .40 3 .30
Expansio
n
4 Competit .05 3 .15 4 .20 4 .20
ive
Prices
5 Service/ .10 3 .30 4 .40 3 .30
Repair
6 Direct to .05 4 .20 3 .15 4 .20
Custome
rs
7 Adaptabi .10 3 .30 4 .40 3 .30
lity
8 Understa .10 4 .40 4 .40 3 .30
nding
Custome
rs
9 EMS .05 4 .20 3 .15 3 .15
10 World’s .05 4 .20 4 .20 3 .15
Leading
Web Site
11 Quality .10 4 .40 4 .40 3 .30
Control
TOTAL 1.00 3.65 3.90 3.40

TIEUPS AND ACQUISITIONS

Merger and Acquisitions: By 2000, the external storage market was growing at 23% per year. By
acquiring an innovative leading company like the EMC corporation, Dell caneffectively enter the
external storage and software market previously untapped, leveraging EMC’s expertise and experience.
Due to the sagging economy, EMC’s stock price had fallen over 800% in 2001, meaning now might be
the perfect time to buy the company at a significant discount. The Pros include increased market share
and economies of scale, but cons are higher costs and the need to re-train employees to learn Dell’s
culture and mission.

CRITICISM ON STRATEGY ADOPTED BY Dell Computers

Current Strategy
“High Quality, More Powerful, Faster, Customized and Cheaper”. For every new product or service it
introduces to the market, Dell consistently implements its startup mindset of “build-to-order
computers” (referred to as the direct model approach) from the very beginning of the development and
production process. Dell’s business was unique in that it was able to consistently make significant
profits in low margin product areas.

Its’ direct model approach evolves for every new product and service achieving delivery of high quality
PC’s in a very cost efficient manner; one of continuous improvement. Dell is a continuous-growth
model, constantly adapting, changing and finding ways to master its environment, as opposed to
just responding to it. In addition, Dell has been able to take flexibility and speed, and build it into
the company’s DNA.
Positioning- Michael Dell portrays his company as “the good guy”, the Robin Hood of the computer
industry offering more for less. Their mantra is “better, faster, cheaper” using brand name components,
build to order manufacturing, and customized customer service, which led to high quality and more
powerful computing power. Dell had a reputation for “effectively entering product markets where core
proprietary elements had become standardized and undercutting existing players based on price.”
Dell’s strategy was to choose the best in class providers (like Intel and Microsoft) for each component
and leveraging their scale investment in R&D. By 2001, Dell had become the US market leader in
Wintel server sales.
Target Market – Dell’s main focus is on large corporations with secondary efforts on small and
medium sized businesses. In addition, they also target the global consumer directly, but with minimal
effort. Dell mainly focuses on the segments that are already knowledgeable about computers.
12.
Products - Dell currently has 6 main products: PC’s, laptops, customer service, storage devices,
workstations, and auxiliary services.
Pricing - When Dell decides to enter a particular market, it consistently uses the Direct Model
approach, pricing their product below that of their competitors. These low prices are the result of multi-
level leveraging and from achieving economies of scale.
Promotion - On-line model, direct mail order, catalogues, Premier Pages, special training and
certifications, word-of-mouth, editorials, reviews, sales reps, and awards

Place - Direct from Dell: On-line, telephone, mail-order. (Dell does not use any retailers or
wholesalers to sell their products.)
In conclusion, Dell’s strategies do match the company’s 4 P’s, targeting, and positioning and can be
summarized as a low-cost, fast and efficient business model, with superior customer value with virtual
integration.
STRATEGIC OPTIONS
Market Penetration – Maintain status Quo and continue to do more of the same. “If it a isn’t
broke don’t fix it”. Many people believe the recession will end soon, so Dell could just ride it out
and hope to hang onto the market share it currently has. This option is not a proactive approach
and could prove to be risky, resulting in declining market share, lower profits, and the possibility
of the competition advancing while Dell stays stagnant.
Product Development –
 • Pursue Mid-Range Server Growth. By 2001, Dell was the market leader in entry level
servers, but had no presence in the mid-range server market. Pursuing this growth option
could result in increased market share and higher profits due to the

Higher selling prices and markups of these units, but could be risky if technology suddenly
changes. Increased post sale costs are also a concern, as server sales don’t just stop upon
delivery; they require continued service regarding reliability, serviceability, availability,
and manageability.

• Increase product line: By introducing new products like a PDA, Dell can capture new markets
and increase sales and awareness. However, Dell’s R&D budgets are well below that of its
primary competitors. This option contains increased risk and high initial start-up costs.

• Pursue Associated Services Growth – within the US, 2000 service revenues accounted for
over 37% of $2 billion in total revenues. This business unit was becoming an increasingly
important part of Dell’s portfolio with longevity, able to stand the test of time and market
uncertainty, no matter what turn technology took.
New International Market Development – Target new segments and enter new markets with
existing products. The Potential benefits of international expansion are increased market share,
revenues, profit, and buyer awareness. However, the successful Dell Model might not work
everywhere. The product chosen for expansion should be a commodity where the demand is
already in place and the country must also value on-time delivery. In addition, terrorism, cultural
barriers, political systems, and longer ROI must be taken into consideration as well as limits on
foreign ownership and tariff barriers.
Diversification
Merger and Acquisitions: By 2000, the external storage market was growing at 23% per year. By
acquiring an innovative leading company like the EMC Corporation, Dell can effectively enter
the external storage and software market previously untapped, leveraging EMC’s expertise and
experience. Due to the sagging economy, EMC’s stock price had fallen over 800% in 2001;
meaning now might be the perfect time to buy the company at a significant discount. The Pros
include increased market share and economies of scale, but cons are higher costs and the need to
re-train employees to learn Dell’s culture and mission.