Professional Documents
Culture Documents
A BIRDS EYE
VIEW:
Where is the PC
industry today? How
did it evolve? Was
young Dell a game
changer or a mere
spectator as the game
changed?
Dell entered in the PC
industry in 1984 with a
humble 1000$ but
generated a revenue of
56.94 billion $ in 2013.
Within 8 years of its
inception, the company
was ranked in the
Fortune 500
Abhishek Bardia
(61510045)
Manuj Kumar
(61510346)
Priyank Garg
(61510570)
Shruti Jangid
(61510529)
Dr. Sana Shaikh
(61510570)
Introduction
Dell announced on February 5, 2013 that it had stuck a $24.4 billion leveraged buyout deal to take the
company private, delisting its shares from NASDAQ and Hong Kong stock exchange. The buyout,
largest technology buyout ever, surpassing the 2006 buyout of Freescale Semiconductor for $17.5
billion, is the brainchild of Michael Dell, companys founder, who will buy the shares at $13.65 apiece,
aided by Silver Lake partners and $2 billion loan from Microsoft.
Why the Buyout
Dell was losing confidence of its investors rapidly. By Dec12 stock prices, which had traded above
$40 in 2005, had sunk below $10.
Source
Yahoo Financial
Investors werent responding positively to the diversification strategy, with all the news focused on
declining PC sales and market share, rather than on the fact that it had built the non-PC business from
$8 billion in 2004 to $20 billion in ten years with a CAGR of 9.1% as compared to 1.2% for PC
business1.
PC Business
CAGR =
1.2%
Non-PC
Business
CAGR =
9.1%
Source Dell Annual Reports
This buyout will give Michael Dell freedom to restructure its PC business and beef up the offerings in
enterprise solutions and cloud computing without worrying about the impact on quarterly results and
stock prices.
Can Michael Dell transform Dell into an enterprise powerhouse in the next five years?
The buyout has handed Michael Dell an absolute power to implement his vision, however a lot of
lingering questions and doubts remain whether the company, worlds third-largest personal computer
maker, can successfully push into enterprise solutions and services.
Theres a long way to go to successfully re-align the business. After spate of acquisitions (Exhibit 1),
worth more than $13 billion, in non-PC segment, consuming more than 20 firms; the firm still gets
around 50% of revenue from PCs.
2013 is now officially in the books as the worst in the PC markets history, as industry-wide sales
declined by more than 35 million units year over year2
Challenges facing Dell3
1. Dells market share in services and software stands at less than 1%, but these are the only
categories making money and growing.
2. Enterprise solutions, software and services space witnessing increasing competition from
traditional rivals like Hewlett-Packard and IBM and IT newcomers such as Amazon and
Rackspace, which are wooing businesses with cloud-based services.
3. Rocky growth in PC business - Net income dropped 32% from a year earlier due to Dell
strategy to gain market share even at expense of profit (Price wars).
In Ovums view4, Dell has always been late in changing the course of its strategy whether it is switching from a direct to a blended sales model; considering segments adjacent to end-user
computing such as smartphones; or leveraging its many acquisitions.
Hence company will need to prove that it can achieve its desired transformation and demonstrate
that it can outsmart its publicly owned competitors by going private.
The Personal Computer Industry
Perhaps the Personal Computer (PC) is the one of the biggest innovation of the last 25 years that has
had the huge impact on the society and businesses. Since its birth, Personal Computer (PC) has
transformed the way people work and communicate.
PC Worldwide sales
500,000
400,000
300,000
Price Wars
Growth by innovation
200,000
100,000
0
4000
3000
2000
1000
0
1975 1980 1985 1990 1995 2000 2005 2010
US Price
Global Price
Source - http://www.c-i-a.com/worldwideuseexec.htm
100,000,000,000
1000000
10000
100
1
0.01
1,000,000,000
10,000,000
100,000
1,000
1970 1980 1990 2000 2010
The curve shows counts doubling every two years. Source - Wikipedia
Source - http://ns1758.ca/winch/winchest.html
Little
retail
Alliances
with
stores
channel
leading
for
Product
Differentiation
Scope
Standardization
retailers
and Carrefour
New including
avenues toWal-Mart
gain Competitive
Advantage
battles
can
reluctant
to
incorporate
Product innovation at the system level was incremental and emphasized on developing slightly
different products for narrowly defined market niches, such as PC gamers who demand high
performance or business travellers who desire ultra-light notebooks, rather than more distinctively
innovative products. Instead, most product innovation occurs upstream in components and software,
which are then incorporated by PC makers.
Limited scope in Product Differentiation
Build-to-order
production
Manufacturi
ng
Vendor managed
Inventory
Supply
Third party
logistics
Direct Sales
channel
24 Hrs. Customer
Service
Sales
Service
Innovations acrossChain
value chain to gain competitive advantage
Technology has become more and more powerful. As the cost of components drops, so do personal
computer prices.
The mail-order market posed a threat to the leading PC makers. These companies, notably Gateway,
do not perform and actual design and innovation, but successfully grabbed a significant chunk (as
much as 16%) of the PC market.
PC industry entered in mature phase signifying slowness in demand for the personal computers.
Drop in shipments have forced companies to cut price to boost up sales.
Figure: Technology Price-Performance Wedge
Source - Computer Industry Almanac & eTForecasts July 2007 Worldwide PC Market
Trends in Demand
PC demand has been shifting steadily for over a decade towards smaller, more integrated and more
communications-oriented products (Exhibit 2).
Form factor
as
well
as
the
shift
of
Low-Cost Leadership
Differentiation
Target Market
Cost
Specific Niche or Segment (Narrow)
Leadership
Focused
Differentiation
Low-Cost Leadership
Differentiation
Target Market
Cost
Specific Niche or Segment (Narrow)
Leadership
Focused
Differentiation
Apples
Competitive
Position
Differentiation
with High
Quality
Low-Cost Leadership
Differentiation
Target Market
Specific Niche or Segment (Narrow)
Cost Leadership
Focused
Differentiation
Low-Cost Leadership
Differentiation
Target Market
Cost
Focused
Specific Niche or Segment (Narrow)
Leadership
Differentiation
Buyer
s
Industry