COMPANY PRESENTATION

“ Direct From DELL

Strategies That Revolutionized an Industry ”

Presented by:
• Amit Kumar(03)
$2.0B • Prashant Goel (18)
• Vishwa Vibhuti(36)
• Ajay Jain(42)
 Mission Statement: “To provide customers with superb value,
high quality, relevant technology, customized systems, superior
service and support, and products and services that are easy to
purchase and use.”
Strategy Statement: “To do business with its consumers one-on-
one, through the phone or internet.”

In doing so, Dell will meet customer expectations of:

• Highest quality
• Leading technology
$2.0B • Competitive pricing
• Individual and company accountability
• Best-in-class service and support
• Flexible customization capability
• Superior corporate citizenship
• Financial stability
 DELL Inc - TIMELINE
1983-- Michael Dell starts business of pre-formatting IBM PC HD’s on
weekends

1985-- $6 million sales, upgrading IBM compatibles for local businesses

1986-- $70 million sales; focus on assembling own line of PC’s

1990-- $500 million sales; with an extensive line of products

1996-- Dell goes online; $1 million per day in online sales; $5.3B in annual sales
1997-- Dell online sales at $3 million per day; 50% growth rate for 3rd
consecutive year, $7.8B in total annual sales.

2005-- $49.2B in sales

www.dell.com 3
 Dell Computer Corporation

A Fortune 200 company in just 14 years

Dell is the World's largest PC maker having Build To Order
model.
No 1 in profitability for the computer systems industry
As of 2006 it employs more than 63,700 people. Customers
in 170+ countries.
For the last couple of years it has held its position as market
leader (it took it from rivals Hewlett-Packard).
According to the Forbes 50 2005 list, Dell ranks as the 28th-
largest company in the United States by revenue.
In 2006, Fortune magazine ranked Dell as No. 8 on its annual
list of the most-admired companies in the United States.
Major competitors are IBM, APPLE, HP.

www.dell.com 4
 DELL Brand-Names for Its product ranges

OptiPlex: Office desktop computer systems

Dimension: Consumer Desktop computer systems
Latitude: Commercially-focused laptops
Inspiron: Consumer laptops
Precision: Workstation systems and high-performance laptops
PowerEdge: Larger corporate servers
PowerVault: Direct-attach and some network-attached storage (NAS)
Dell EMC: Storage area networks
XPS: Enthusiast/high-performance systems
Axim: PDAs utilizing Microsoft's Windows Mobile
Dell On Call: Extended support services

Dell Digital Jukebox (DJ) MP3 Players (discontinued, August 18 2006)

Dell monitors LCD/plasma TVs and projectors: HDTV and monitor use

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 Odds Improve for the Top 10

Q1'05 y/y
WW Vendor Ranking 1995 Q1'05 Rank Growth
Dell 7 1 13.6%
HP (Merged) 1 2 10.6%
Dell Takes No.1
IBM 3 3 2.2%
Position in 2004
Fujitsu Siemens n/a 4 14.0%
Acer 6 5 39.1%
Toshiba 8 6 22.6%
NEC 2 7 23.9%
Apple 4 8 42.5%
Legend / Lenovo 46 9 19.9%
Gateway 9 10 -20.0%

Went Up Went Down

No Change New Entry

www.dell.com Source: IDC PC Tracker, 1995 - 2005 (Full Year)

* In 1995 Pre-Merger, Compaq ranked #1, HP #7
6
 DELL’s SUCCESS

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$2.0B
 Dell’s Global Presence
The Americas EMEA Asia Pacific China

Austin Limerick
Texas Ireland

Xiamen
Nashville
Tennessee China

Sales Offices in 43 countries

Eldorado do Sul Sales presence in 170 countries Penang
Brazil 6 Manufacturing Sites Malaysia

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 Dell’s Competitive Advantage

Dell’s Direct Business Model

Commitment to Open Standards

Order Velocity/Build to Order

Supply Chain Optimisation

Continuous Process Improvement

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 Dell’s Direct Approach:
A Fundamentally Different Model
Dell Direct Model
Suppliers Customers

Ownership of the value chain

Competitor Model

Suppliers OutsourcingCompetitor Channel Customers

Loss of control over product &

information flow & customer relationships

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 Benefits of Dell Direct
Model

Better understand customer needs

Customers receive exactly what they
want: not standard solution
Minimized inventory
New technology delivered immediately

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 The Benefits of Low
Inventory

With 90+ Day’s Manufacturer

and Reseller Inventory, Channel
120 Manufacturer Buys Here

115
Relative 110
Component 10-12% Cost
Cost 105 Advantage
100 With 3 Days
Inventory,
Dell Buys Here
95

90 Typical
Dell
4

-2
-8

-6

-4

0
-1

-1

-1

Weeks Relative to Delivery

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 Lean Inventory Model
Results: 3 days of inventory - Inventory turns of 122 per year

Suppliers

Logistics Hubs Dell Factory Delivery

Local Suppliers

Customer
Supplier Owned Dell Owned

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 How the Model drives Market
Share
Pass cost Industry's
savings on Efficient most efficient
to Model with lowest procurement,
customer Cost Structure manufacturin
g and
distribution
process
Improved
Competitive
Pricing Customer Help
Drive
Experience Supplier
Business

Drives Lower cost

Competitiv Market drives
e pricing Share Increased
ignites demand
demand
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 Open Innovation And Effective
R&D
Dell spends little on product research and development —
$440 million a year, vs. $4 billion a year at Hewlett-Packard.

The traditional approach to innovation tends to produce proprietary

technologies and products that are often hard to migrate from as a customer.
Dell have a more open and effective approach to R&D.

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 Dell’s organizational structure:
The virtual company
Direct relationship with customer is strategic; rich
information flows
Outsource non-strategic functions
Information flows substitute for physical flows
Coordinate value network thru IT-enabled information
processes
Logistics
Component System
companies
suppliers integrators and
resellers

Dell Order
management
Operations Customer
Component and supply relations Customer
Manufacturer chain

Repair and
Third party
support
HW and SW Distributors
providers
suppliers

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 Dell Growth

$55 FY05 revenue of $49.2 billion 20%

$50 Market Share FY05 = 17.8 %
18%
$45 16%

Units Market Share %

$40 14%
Revenue Mkt Shr
$35
Revenue $ Bn

12%
$30
10%
$25
8%
$20
$15 6%
$10 4%
$5 2%
$0 0%
FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05

(Annualized)
www.dell.comSource: IDC All Form Factors 18
 DELL Growth Highligh

Growth Highlights

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 Q2FY06 Financial
Performance
Liquidity: Growth:
 $0.9B in Cash from
 9.1M Units (up 25%)
Operations
 Revenue $13.4B

$
 $12.7B in Cash and
 15% Revenue growth
Investments
* Note: New Dell Record

Profitability
 GM = 18.6%
 OPEX = 9.9% of revenue
 OpInc = $1.2B, 8.7% (up 10 bps Y/Y)
 Net Income = $935M
 EPS $0.38*; 23% Y/Y growth
Note: Q2 Financial performance excludes the impact of an $85M dollar tax benefit related to a revised estimate of taxes on the
www.dell.comrepatriation of earnings under the American Jobs Creation Act of 2004 20
 PROFITABILITY
COMPARISON

Industry Market
Profitability Dell Hewlett-Packard IBM Sun Microsystems
Median Median2

Gross Profit
17.50% 23.90% 41.40% 42.70% 33.90% 51.90%
Margin

Pre-Tax Profit
7.60% 5.40% 28.10% (4.10%) 4.00% 6.20%
Margin

Net Profit Margin 6.00% 4.10% 9.50% (4.40%) 2.90% 4.80%

Return on Equity 75.6% 9.6% 26.5% (8.3%) 10.4% 9.4%

Return on Assets 14.9% 4.7% 8.2% (3.8%) 3.6% 1.6%

Return on Invested
45.8% 7.4% 10.9% (5.7%) 6.3% 4.1%
Capital

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 Using IT and e-networks strategically
with customers

Internet based customer services

• Online ordering, asset tracking, product road maps,
technical support, highly tailored information, all provided
online.
Diversification into non-PC businesses for “one-vendor solution”
• Changed name from Dell Computer to Dell, Inc.
• Dell sells PCs, servers, printers, storage, networking,
software (e.g., network management), services
• Sells add-on software, peripherals, PDAs, cases, cameras,
TVs
Promote Dell as company that “knows how ‘E’ works”
• Run’s Dell on Dell; corporate customers come to Dell for
advice
• Dell has e-services business in partnership with consulting
Results: firms (e.g., Accenture) to capitalize on Dell’s reputation as e-
• Dell nowcommerce leader
#1 PC vendor with Market Share 34.4% in US and 18%
globally
• Revenue of $49.2 billion in 2005; growth over 30%(units) annually

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 Coordinating the virtual company
with
IT and e-networks
Speed
• Order-driven processes linked by internal IT and external
networks allow only 7 hours of inventory in factory and
orders to be filled in 5 days or less
• Entire value network linked by EDI, Internet, extranets
Quality
• Bar coding allows components to be tracked to suppliers
when problems occur, stop production and notify suppliers
• Cell assembly allows problems to be fixed on the spot
without shutting down production
Cost
• Online sales and support saves on call center costs
• Supply chain coordination substitutes information for
inventory

Results
• Overhead 8% compared to 15% for others
•122 inventory turns annually minimizes depreciation
•New technologies can be introduced immediately

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 Dell’s Direct vs. Industry Indirect
model
Strengths of the direct model
• Most efficient method of distribution
• Extremely low inventories.
• Rapid response to customer
changes.
• Strong relationship with customers
and suppliers.
Weaknesses of indirect model
• Time = money (rapid innovation by
parts suppliers send value of newly
built PCs plummeting quickly).
• Have to discount old technology.
• Retailer sends unsold units back to
Results: manufacturer.
Direct vendor Dell has best performance.
Dell has forced other vendors to go direct.
Industry as a whole has improved performance.

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 Industry improvement: Inventory
turns

1 Inventory Turnover for PC firms, 2003 versus 1999 (number of turns)

2
1999 2003
Dell 60 109
Gateway 35 36
Apple 12 116
IBM PC Division 14 43
a
Compaq PC divisions 15 -
b
HP Personal Systems Group - 18
Industry 22 92
3

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 DELL Inc – Company Comparison
DIRECT COMPETITOR COMPARISON
DELL HPQ IBM SUNW Industry

Market Cap: 89.29B 60.17B 121.16B 11.79B 112.93M

Employees: 55,200 151,000 329,001 32,600 341
Rev. Growth 18.70% 9.40% 8.00% -2.20% 6.20%
(ttm):
Revenue (ttm): 49.21B 81.85B 96.95B 11.20B 116.36M
Gross Margins 18.32% 23.87% 37.42% 40.88% 23.94%
(ttm):
Net Income (ttm): 3.04B 3.50B 8.25B 645.00M -153.00K

Above Data shows DELL is a perfect example of a Lean Machine

Enterprise System: servers, workstations, storage, network products
Client Systems: notebooks, PC, printing, imaging systems, software and peripherals
Dell Financial Services (DFS) – joint venture with Citi group

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 Less than 50/50 for Short-Term IT
Industry Survival

400
350
300
250 247 New Entrants:
Low Barriers to Entry
200
150
241
100
50 111 Survivors
0
# of WW PC # of WW PC
Vendors Tracked Vendors Tracked
by I DC in 1995 by I DC in 2002

www.dell.com Source: IDC PC Tracker, 1995 & 2002 30

 SWOT Analysis Dell

Strengths

The Dell brand is one of the best known and renowned

computer brands in the World.
Dell cuts out the retailer and supplies directly to the
customers.
It uses information technology, and Customer
Relationship Management (CRM) approaches to capture
data on its loyal consumers.
So a customer selects a generic PC model, and then adds
items and upgrades until the PC is kitted out to the
customer's own specification.
Dell acts as a assembler not as manufacturer. PC's are
assembled using relatively cheap labor.
Dell has total command of the supply chain.

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 Weaknesses

Within the strengths lies Dell's weaknesses. Much of its

strategies have to rely on the capacity and capability of
these manufacturing components. Continuous updates
and process improvement is required so that they can
keep up with Dell's pace of development.
High no. of suppliers from a plethora of countries, can
cause Dell some embarrassment.
Dell is a computer maker, not a computer manufacturer.
It buys from a group of concentrated hi-tech component
manufacturers. Whilst this is a tremendous advantage in
terms of business operations, allowing Dell to focus on
marketing and logistics, the company is reliant on a few
large suppliers, and to an extent is locked in for periods
of time (i.e. unable to switch supply dues to the lack
of large suppliers in the World).

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 Opportunities

Kevin Rollins replaced Michael Dell in 2004 as Dell's Chief

Executive Officer. Michael Dell remained the company's
Chairman. Despite founder Dell's massive success, new blood
and a change in management thinking could lead the company
into a new, even more profitable period. Dell was born in 1965,
and founded Dell in 1984 with $1000 whilst studying at the
University of Texas. He became the youngest Fortune 500 CEO
in 1992, and will be a tough act to follow.
Dell is pursuing a diversification strategy by introducing many
new products to its range. This initially has meant good such as
peripherals including printers and toners, but now also included
LCD televisions and other non-computing goods. So Dell
compete against iPod and other consumer electronics brands.
Dell is making and selling low-cost, low-price computers to PC
retailers in the United States. The PC's are unbranded and
should not be recognized as being Dell when the consumer
makes a purchase. Rebranding and rebadging for retailers,
although a departure for Dell, gives the company new market
segments to attack with the associated marketing costs.
The established value web corporate model have also allow Dell
to have global wide access to customers and market. Reaching
any niche market in any continent is therefore not a problem for
Dell's marketers.
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 Threats
The single biggest problem for Dell is the
competitive rivalry that exists in the PC market
globally.
Retaliation from competitors and new entrants
to the market pose potential threats.
Dell sources from Far Eastern nations where
labour costs remain low, but there is nothing
stopping competitors doing the same - even
sourcing the same or similar components from
the same or similar suppliers.
Dell, being global in its marketing and
operations, is exposed to fluctuations in the
World currency markets. Changes in exchange
rates could leave the company exposed to
potential loses in parts of its supply chain.

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 Porter’s Five Forces & Analysis: DELL

Threat of New Entrants: MODERATE

Low capital investment for independent stores

Low product differentiation
• Brand name may be a barrier to entry
Low economies of scale
No legal or governmental barriers
Decreasing profitability shows that there is a threat of
new entrants

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 Rivalry: HIGH

High concentration

Price War: Low Margin

Decreasing profitability

Low differentiation

However, in the midst of sever competition, Dell can

still gain market share from other competitors. That
proves Dell’s business strategies have been
successful.

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 Threat of Substitutes: LOW

Strong presence of PC’s throughout society

• One computer for every three people in the U.S.

Only substitute for PC: Apple Computer.

However, high price, and lack of software support
prevent people from switching to Apple system.

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 Bargaining Power of Buyer: High

Highly price sensitive

Reliability and customer service become important factors.

Dell’s products are very reliable and customer service is

outstanding. These two factors help Dell to create certain
brand royalty. But that’s given the fact that the Company
set the prices very low. If the prices are raised too high,
customers will not hesitate to switch.

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 Bargaining Power of Suppliers: HIGH

Large number of suppliers for components like

hardware, keyboards, etc.

But two major inputs are monopolized

• Microsoft standard for all PC’s
• Intel standard for most PC’s

High switching costs

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 DELL INDIA
As part of this globalization strategy, Dell established a
sales & marketing office in Bangalore in 1996, and its first
India customer contact centre in Bangalore in May 2001
followed by a similar centre in Hyderabad in 2003, and in
Mohali on 21 March 2005
Manufacturing facility in India in 2007. It will be Dell’s
fourth plant in Asia after two in China and one in Malaysia
Due to competitive pricing strategy in INDIA, sales
jumped 63 per cent year on year and achieved 82 per
cent growth in shipments.
The company gained on the back of the customers’ strong
preference for standards-based technology and Dell’s
direct model in India.
Shipment growth in the country was biggest among the
three emerging markets — China, Brazil and India. Also it
is likely to capture 20-30 per cent of the market share in
India in the next few years.
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 DELL Inc – The Success
Secret
Internet coupled with Direct Business Model
- sell directly to end customers instead of intermediate distributors,
resellers.
Virtual Integration
- using sophisticated CRM, SCM systems at respective ends as well their
integration
- already integrated with 38 procurement and ERP systems across all its
clients
- vendors – Ariba, SAP, PeopleSoft, J.D. Edwards – Dell integrated with
their ERP (Source: Rob Rosenthal, Dell’s B2B web site strategy, October
2003, IDC #30202)
Selling Points
- Internet, B2B (Premier Pages), Phone-calls, Mass catalog mailings
Do not Just sell Products – sell Values
- client asked to put tags on their computers
- proactive in solving clients pain points – preloaded software
Dell was much less mature compare to IBM and HP at time when Internet
took off – required much less effort to adapt its systems to Internet
technologies.
IBM and HP’s core competency was product innovation and
development, Dell’s expertise was in assembling and catering to
business needs.
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 Dell Inc – Boundaries of Direct Business Model ?
Have other manufacturers been able to do this? Why or why not? Is this model
bounded in the PC industry?
• Presently HP is using the Direct Model. Supposedly Compaq’s strong direct
sales model helped HP after the merger. Prices are in comparison to Dell.
• Source - www.ecommercetimes.com/story/19385.html
• Compaq emulated the model before merger with HP.
• Dell had better profitability management.
• Source -
http://www.findarticles.com/p/articles/mi_m0DTI/is_12_31/ai_1
11163644
• Local computer vendors
• B2B markets – common meeting point for manufacturers and institutional
consumers.

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 Customer Lessons Learned

Form a direct model that specializes on market

segments or customer types.
Know EXACTLY what the customer wants and then
provide it.
Price is not a sustainable competitive advantage.
Sustain loyalty through customers and employees
Response Time
Quality Products
Valuable Features
Make the Experiencing of Products EASY

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 Dell Inc – Key Questions

Is the Direct Business Model a new model ?

No, its not ! – all the primitive businesses used to trade like this – today
hotdog stands all over Manhattan is an example of that model on small scale

What new emerging technologies will push this further ?

- SOA will help refine and innovate these and perhaps new similar kind of
business models by reducing operational and transaction cost.
- Web Services will remove human interaction further – reducing cost
for example:
- SLA will be negotiated by software agents
- Vendors selection based on their expertise will be automated
- Long life Lithium ion batteries increased sales
- RFID tags can further streamline the supply chain, inventory and
shipment tracking process

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 Three golden rules at Dell :
`Disdain inventory'
`Listen to the customer'
`Never sell indirect'

? Thank You >

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