Dell case comments

SUMMARY

1. Industry overview

1. Major trends of the market

1. Competitors and market shares

1. The industry profit pool

1. Company overview

1. General presentation

1. Business Model of DELL

1. SWOT analysis

1. Financial Past performance

1. Analysis of the project (Manufacturing a new type of tablet computer)

1. Presentation of the project:

1. Cash flow calculation (See Excel File for more details) :

1. Sensitivity Test:

1. Recommendations:

1. Industry overview:

1. Major trends of the market

The computer industry consists of hardware, software, service and a wide range of products. For the purpose of our project, we chose to narrow the research to personal computers.

The personal computer industry continues to experience though times as the PC shipment are shrinking due to the declining demand for home PC’s. In fact, fewer consumers in mature markets are replacing their old computers and notebooks. In addition to that, consumers in emerging markets are simply not buying that first computer at all, choosing to buy tablets and smart phones instead.

In 2006, worldwide PCs shipment was 239.2 million units. Over the years, an increasing number of people bought PCs to use at home for a range of tasks, but most of them use it to access the internet. By 2011, PC shipments worldwide reached a peak of 365.4 million units (see figure 1).

In 2012, the entire PC industry began to contract. PC Shipment decreased by 4% on 2012 and 10% on 2013. Actually, consumers start using simpler devices such as smart phones and tablets for daily tasks like checking emails, reading online news or social networking.

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            Figure 1: Worldwide PC shipments from 2006 to 2015 (in million units)

In figure 2, we notice clearly that the impact of tablet start to become evident from 2015. In that year, the shipment of tablets exceeded PC. The impact will definitely increase in 2016 and 2017.

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                 Figure 2: Global Tablet and PC shipment forecast 2016 - 2017

As the technology improvements have not been sufficient to create real market growth, the PC market has been static in the previous years. There have been some innovative improvements like thin and light notebooks, as well as technology improvements, such as longer battery life. However, the market driven by PC enthusiasts is not big enough to drive overall market growth. Consumers who have high dependency on smart phones stretch PC life cycles longer.

1. Competitors and market shares:

Among the major PC vendors, we find the top three companies: Lenovo, HP and Dell Technologies who dominates the market with a total market share of 58% of total shipment in 2016. The chart below presents the market share of PC shipments worldwide from 2013 to 2015.

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           Figure 3: Market share of personal computer shipments worldwide from 2013 to 2015

Only the top three companies increased their market share in 2016. The rest, including Apple, declined significantly. Outside of the top five companies, the remaining PC vendors in aggregate saw their shipments fall 11.9%.

1. The personal computer industry profit pool:

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                    Figure 4: The PC industry’s profit pool.

The figure above shows the mapping of the profits across the value chain of the personal computer industry. We notice that profit is more concentrated in the microprocessors and software segments than in hardware manufacturing. The value chain for the personal computer industry includes six key activities: microprocessors, other components, personal computers, software, peripherals and services. The profitability measured by the operating margin varies widely in a range from 3 to 35%. Dell as many other manufacturers compete in the largest but least-profitable segment of the chain, the manufacturing of hardware.

1. Company overview :

1. General presentation:

DELL is an American privately owned multinational computer technology based in round rock, Texas, United States, that develops, sells, repairs and supports computers and related products and services. Bearing the name of its founder, Michael dell, the company is one of the largest technological corporations in the world, employing more than 108,300 people worldwide.

Dell product line is varied and encloses: desktop computers, Notebook computers, network servers, workstation, and storage product. Dell offers 1.6 million different possible product configurations for all its product lines. The company traces its origins to 1984, when Michael Dell created PCs limited while a student at the University of Texas at Austin.

In 1985, the company produced the first computer of its own design. The company changed its name to Dell computer corporation in 1988 and began expanding globally first in Ireland.

1. Business Model of DELL :

From its creation in 1984, DELL has had a distinctive perspective on the industry. It builds its business on a direct sales model. In fact, Dell eliminated the dealers standing between the company and its customers, which allowed it to keep a portion of the dealers’ profit pool for itself and to share the rest with customers in the form of lower prices.

Over the years, Dell’s top management supposed that they would be unable to sustain the company’s growth trajectory by relying only on direct distribution alone. Therefore, Dell entered the much larger retail channel. The growth strategy worked: Dell grew more than 50% per year from 1989 to 1993.

The company stopped making money and actually suffered losses in 1993. In fact, Dell had lost its focus on the most profitable customer segments and on a distribution model that is at heart more efficient than what the retailer can provide.

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