Professional Documents
Culture Documents
A. Case Abstract
Dell Computer is a comprehensive business policy and strategic management case that
includes the company’s year-end 2001 financial statements, competitor information and
more. The case time setting is the year 2002. Sufficient internal and external data are
provided to enable students to evaluate current strategies and recommend a three-year
strategic plan for the company. Headquartered in Round Rock, Texas, Dell’s common
stock is publicly traded on the New York Stock Exchange under the ticker symbol DELL.
Headed by CEO Michael Dell, Dell Computer Corporation plans to enter the
printer business by the end of 2002. Dell has been dropping hints for months that it might
start selling its own line of printers. But after the company's annual meeting with
shareholders Thursday, Dell President Kevin Rollins' said, "My guess is sometime soon,
you'll see us in the printer business with a Dell-branded printer. Probably by the end of the
year, you'll see something." Students should prepare a three-year strategic plan for CEO
Michael Dell.
It's the way we do business. It's the way we interact with the community. It's the way we
interpret the world around us — our customers' needs the future of technology, and the
global business climate. Whatever changes the future may bring our vision —Dell Vision
will be our guiding force.
Dell's mission is to be the most successful computer company (2) in the world (3) by
servicing individuals and businesses (1). Dell employs only the best employees (9) to
meet customer expectations of:
131
• Highest quality
• Leading technology (4)
• Competitive pricing
• Individual and company accountability (6)
• Best-in-class service and support (7)
• Flexible customization capability
• Superior corporate citizenship (8)
• Financial stability (5)
1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability and growth
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees
D. External Audit
Opportunities
Threats
132
Competitive Profile Matrix
EFE Matrix
E. Internal Audit
133
Financial Ratio Analysis as of July 2002
Industry: Computer Hardware
Sector: Technology
Source: www.investor.stockpoint.com
Dividends
Dividend Yield 0.00 1.30 1.03 2.28
Dividend Yield - 5 Yr Avg 0.00 0.42 0.24 1.36
Dividend 5 Yr Growth Rate NM 6.77 6.24 7.92
Payout Ratio (TTM) 0.00 18.90 9.42 29.67
Growth Rates %
Sales (MRQ) vs Qtr 1 Yr Ago -8.97 -6.99 -2.04 0.81
Sales (TTM) vs TTM 1 Yr Ago -12.17 -10.05 -4.63 1.66
Sales - 5 Yr Growth Rate 3.32 10.78 20.73 11.89
EPS (MRQ) vs Qtr 1 Yr Ago 577.78 -50.05 -2.90 10.50
EPS (TTM) vs TTM 1 Yr Ago -60.15 -39.87 -23.06 0.51
EPS - 5 Yr Growth Rate -23.41 8.18 9.94 8.46
Capital Spending - 5 Yr Growth Rate -7.05 -0.70 13.35 9.96
Financial Strength
Quick Ratio (MRQ) 0.85 1.03 2.37 1.12
Current Ratio (MRQ) 1.06 1.39 2.91 1.65
LT Debt to Equity (MRQ) 0.12 0.45 0.26 0.68
Total Debt to Equity (MRQ) 0.12 0.64 0.35 1.04
Interest Coverage (TTM) NM 36.19 11.26 9.36
Profitability Ratios %
Gross Margin (TTM) 17.47 30.01 48.52 46.90
Gross Margin - 5 Yr Avg 20.62 31.72 51.88 48.17
EBITD Margin (TTM) 6.46 9.65 15.28 20.02
EBITD - 5 Yr Avg 9.64 13.11 21.95 21.84
Operating Margin (TTM) 5.74 6.05 9.65 17.19
Operating Margin - 5 Yr Avg 8.99 9.13 16.02 18.11
Pre-Tax Margin (TTM) 5.52 7.29 10.89 14.62
Pre-Tax Margin - 5 Yr Avg 9.56 10.18 19.06 17.04
Net Profit Margin (TTM) 3.98 4.28 5.54 9.62
Net Profit Margin - 5 Yr Avg 6.65 7.01 11.76 11.20
Effective Tax Rate (TTM) 27.97 28.17 30.95 33.25
Effective Tax Rate - 5 Yr Avg 30.20 29.81 34.06 35.69
134
Management Effectiveness %
Return on Assets (TTM) 9.30 5.60 2.52 6.07
Return on Assets - 5 Yr Avg 19.46 10.63 9.68 7.97
Return on Investment (TTM) 19.99 10.33 4.84 9.79
Return on Investment - 5 Yr Avg 42.98 20.66 14.66 12.77
Return on Equity (TTM) 25.38 18.83 7.22 17.57
Return on Equity - 5 Yr Avg 55.90 34.67 19.75 21.71
Efficiency
Revenue/Employee (TTM) 896,724 483,696 354,721 482,969
Net Income/Employee (TTM) 35,661 21,153 53,290 78,154
Receivable Turnover (TTM) 12.73 6.43 6.69 9.65
Inventory Turnover (TTM) 87.43 29.63 12.73 10.01
Asset Turnover (TTM) 2.34 1.39 0.74 0.99
www.investor.stockpoint.com
July 2002
Strengths
Weaknesses
1. Lacks the product line and service breadth of Hewlett-Packard and IBM.
2. The direct sales approach is not the preferred distribution channel in Europe.
3. No in-house repair service capabilities.
IFE Matrix
135
Contracts with local service providers to handle customer .06 3 .18
requests for repairs
Environmental policy .07 4 .28
Weaknesses
Lacks the product line and service breadth of Hewlett- .11 1 .11
Packard and IBM
The direct sales approach is not the preferred distribution .08 2 .16
channel in Europe
No in-house repair service capabilities .03 1 .03
TOTAL 1.00 3.20
F. TOWS Matrix
Strengths Weaknesses
1. Growing market share 1. Lacks the product line and
2. Direct sales approach service breadth of Hewlett
3. Build to Order approach Packard and IBM
4. Long term partnerships with 2. The direct sales approach is not
reputable suppliers of name- the preferred distribution
brand parts and components channel in Europe
5. Reputation/image 3. No in-house repair service
6. Dell Exchange capabilities
7. JIT, know-how and capabilities
8. Contracts with local service
providers to handle customer
requests for repairs
9. Environmental policy
136
global sales of PC’s and servers
7. Corporate customers relying
more and more heavily on the
systems and service capabilities
that IBM and HP provide
G. SPACE Matrix
y-axis
Financial strength +3.66 +1 worst to + 6 best Y axis: 3.66 + (-3.75) = -0.09
Environmental stability -3.75 -6 worst to –1 best
x-axis
Competitive advantage -1.4 -6 worst to –1 best X axis: 2.75 + (-1.4) = 1.35
Industry strength +2.75 +1 worst to +6 best
FS
Conservative Aggressive
CA IS
Defensive ES Competitive
Backward Integration
Forward Integration
Horizontal Integration
Market Penetration
Market Development
Product Development
Joint Venture
137
H. Grand Strategy Matrix
RAPID MARKET
GROWTH
Quadrant II Quadrant I
WEAK STRONG
COMPETITIVE COMPETITIVE
POSITION POSITION
Dell
1. Concentric Diversification
2. Horizontal Diversification
3. Conglomerate Diversification
4. Joint Ventures
I. The IE Matrix
Medium IV V VI
The EFE Total 2.0 to 2.99
Weighted Score
138
Hold And Maintain
J. BCG Matrix
Industry Sales
Growth Rate
Medium 0 Cash Cows Dogs
Low -20
139
Retrenchment
Divestiture
Liquidation
L. QSPM
Strategic Alternatives
Joint venture with Produce low price
Key Internal Factors EMC to offer standardized PC
Weight storage services
Strengths AS TAS AS TAS
Growing market share .15 3 .45 4 .60
Direct sales approach .14 2 .28 4 .56
Build to order approach .12
Long term partnerships with reputable suppliers of .07 3 .21 4 .28
name-brand parts and components
Reputation/image .08 4 .32 3 .24
Dell Exchange .04 1 .04 4 .16
JIT inventory, know-how and capabilities .05 1 .05 4 .20
Contracts with local service providers to handle .06 1 .06 4 .24
customer requests for repairs
Environmental policy .07
Weaknesses
Lacks the product line and service breadth of HP and .11 4 .44 1 .11
IBM
The direct sales approach is not the preferred .08
distribution channel in Europe
No in-house repair service capabilities .03
Customers know what they want and need to purchase .05 3 .15 4 .20
140
Continuously changing consumer demands .06 2 .12 4 .24
Strong brand name of competitors (IBM, HP) .07 4 .28 2 .14
Rapid technological advancement .08 4 .32 3 .24
A long-term slow down in global sales of PCs and servers .10 4 .40 2 .20
Corporate customers relying more and more heavily on the .07 4 .28 1 .07
systems and service capabilities
SUBTOTAL 2.86 2.5
6
SUM TOTAL ATTRACTIVENESS SCORE 1.00 4.71 4.9
5
M. Recommendations
1. Produce a standardized low price PC $599 - (T2, S1, S2, S4, S5, S7)
Objective: to use our low cost producer competitive advantage to gain more market share
from rivals. Exposing new customers to Dell quality and service further develops our
brand loyalty where customer’s next purchase will most likely be a higher profit medium
or top level PC.
Assume sales of 1% of current gross sales volume = 14,000 units per month
(Monday October 29, 2001 Dell began selling a standardized $599 PC – this is a slight
move away from their traditional custom built, direct selling business model)
2. Joint Venture with EMC to offer customers storage services – (W1,O1, O4, O6, O7)
Objective: to increase Dell’s ability to compete with Compaq, HP, and IBM in more than
the PC market. This JV will help Dell offer more one-stop solutions to business
customers as well as increase hardware sales through EMC customer recommendations
and referrals.
141
Revenue and Cost Estimates
N. EPS-EBIT Analysis
$Amount Needed: $1,000
Stock Price $23
EBIT Range $2000 to $3000
Tax Rate 485/1731 = 28%
Interest Rate 5%
#Shares Outstanding 2,600
Conclusion: Dell Computer should use debt to raise the $500 million.
142
O. Epilogue
On June 17, 2002, Dell and Microsoft announced an agreement to provide education-
specific network servers and notebook computers to K-12 education customers in the
United States. The new products, which feature Microsoft Class Server software, will
allow teachers and school administrators to easily organize and manage institutional
resources, provide individualized and engaging ways for students to learn, and promote
parents' involvement in their children's education.
On June 12, 2002, IBM proclaimed that it is going after Dell in the mainstream
server market, and the company introduced two new servers this week that it claims are
cheaper and better than Dell products. IBM said it is targeting the "sweet spot of Dell's
server lineup": the two-way Intel server segment. "Two-way" refers to the number of
processors the server sports. "We've gone after Sun [Microsystems] before, but this is the
first time we've gone after Dell," an IBM spokesperson said. Dell officials shrugged off
the challenge. "Being the number one server provider, just about everybody -- from white-
box manufacturers on up to those that are in the number two and three positions -- are
looking to gain market share from us," Dell server spokesperson Bruce Anderson said.
"IBM is no different," Anderson said. "They're in the same category as everyone else:
They're looking to expand their business, so they're going to go after the number one
provider."
Dell lost its #1 position in the PC market following the Hewlett-Packard purchase
of Compaq. Dell is now is considering expanding into the printer business, which is one
of the most profitable sector of the IT industry. HP, whose printing and imaging business
is widely seen as the firm's most valuable asset, is concerned. The printer business is HP's
primary source of profitability.
143