A.

Case Abstract Headquartered in Round Rock, Texas, Dells common stock is publicly traded on the New York Stock Exchange under the ticker symbol DELL. With 34,800 employees at mid-2002, Dell designs, develops, manufactures, markets and services and supports a range of computer systems, including desktop, notebooks, and enterprise systems (includes servers and workstations). DELL also markets software, peripherals, service and support programs. For the 13 weeks ended May 30, 2002, Dells revenues rose less than 1% to $8.07 billion while net income decreased 1 % to $457 million. Results reflect increased desktop sales, offset by reduced margins. 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. B. Vision Statement (actual) 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. C. Mission Statement (proposed but adapted from actual) 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: 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. 3. 4. 5. 6. 7. 8. 9.

Products or services Markets Technology Concern for survival, profitability and growth Philosophy Self-concept Concern for public image Concern for employees

D. External Audit Opportunities 1. 2. 3. 4. 5. 6. 7. Customers value convenience and one stop shopping. Customers know what they want and need to purchase. Marketing on the Internet. Need for replacement equipment from World Trade Center Attack. US PC households with Internet access will increase 25% by 2002. Some rivals weak in PCs in all the worlds major markets. Servers market can be tapped better.

Threats 1. Global economic recession. 2. Aggressive pricing wars. 3. Continuously changing consumer demands. 4. Strong brand name of competitors (IBM, Hewlett-Packard). 5. Rapid technological advancement. 6. A long-term slow down in global sales of PCs and servers. 7. Corporate customers and other large buyers decide to rely more and more heavily on the systems and service capabilities that IBM and Hewlett-Packard can provide and that Dell cannot. Competitive Profile Matrix Dell Hewlett-Packard IBM Critical Success Factors Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score Price Compt. Product Quality Market Share Financial Position Global Expansion Consumer Loyalty .25

.15 .15 .15 .20 .10 4 4 4 3 3 4 1.0 .60 .60 .45 .60 .40 3 3 3 2 3 3 .75 .45 .45 .30 .60 .30 3 4 3 3 4 3 .75 .60 .45 .45 .80 .30 Total 1.00 EFE Matrix Key External Factors Weight Rating Weighted Score Opportunities

3.65

2.85

3.35

Customers value convenience and one stop shopping .05 3 .15 Customers know what they want and need to purchase .05 2 .10 Marketing on the Internet ..06 3 .18 Need for replacement equipment from World Trade Center Attack .05 4 .20 US PC households with Internet access will increase 25% by 2002 .04 2 .08 Some rivals weak in PCs in worlds major markets .10 3 .30 Server market can be tapped better ..06 2 .12 Threats Global economic recession .12 3 .36 Aggressive pricing wars .09 4 .36 Continuously changing consumer demands .06 3 .18 Strong brand name of competitors (IBM, HP) .07 3 .21 Rapid technological advancement .08 4 .32 A long-term slow down in global sales of PCs and servers .10 3 .30 Corporate customers relying more and more heavily on the systems and service capabilities .07 2 .14 Total 1.00 3.0 E. Internal Audit Net Worth Analysis in $millions at year-end 2001 1. Stockholders Equity + Goodwill 2. Net income x 5 = $1,246 x 5 $ 3. Share price = $23 /EPS = $.479 4. Number of Shares Outstanding X Method Average $ 32,638 $4,694 + 0 $ 4,694 6,230 x Net Income $1,246 $ 59,828 Share Price = 2,600 x $23 $ 59,800

Financial Ratio Analysis as of July 2002 Industry: Computer Hardware Sector: Technology Source: www.investor.stockpoint.com Dell Computer Industry Sector SandP 500 Valuation Ratios P/E Ratio (TTM) 49.65 29.93 37.84 25.25 P/E High - Last 5 Yrs 105.71 44.40 66.10 49.79 P/E Low - Last 5 Yrs 21.29 17.78 19.59 17.38 Beta 2.04 1.60 1.76 1.00 Price to Sales (TTM) 1.95 1.40 4.05 2.67 Price to Book (MRQ) 13.08 6.12 3.92 4.19 Price to Tangible Book (MRQ) 13.07 6.36 4.98 6.59 Price to Cash Flow (TTM) 41.59 18.93 25.27 17.38 Price to Free Cash Flow (TTM) 49.65 29.93 37.84 25.25

% Owned Institutions 105.71 44.40 66.10 49.79 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 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 1. Growing market share. 2. Direct sales approach. 3. Build to order approach. 4. Long term partnerships with reputable suppliers of name-brand parts and components 5. Reputation/image. 6. Managing product End of Life Program/Dell Exchange Just-in-Time inventory, know-how and capabilities. 7. Contracts with local service providers to handle customer requests for repairs. 8. Environmental policy. 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 Key Internal Factors Weight Rating Weighted Score Strengths Growing market share .15 4 .60 Direct sales approach .14 4 .56 Build to order approach .12 4 .48 Long term partnerships with reputable suppliers of name-brand parts and components .07 3 .21 Reputation/image .08 4 .32 Dell Exchange .04 3 .12

Just-in-Time inventory, know-how and capabilities .05 3 .15 Contracts with local service providers to handle customer requests for repairs .06 3 .18 Environmental policy .07 4 .28 Weaknesses Lacks the product line and service breadth of Hewlett-Packard and IBM .11 1 .11 The direct sales approach is not the preferred distribution channel in Europe .08 2 . 16 No in-house repair service capabilities .03 1 .03 TOTAL 1.00 3.20 F. TOWS Matrix Strengths Weaknesses 1. Growing market share 2. Direct sales approach 3. Build to Order approach 4. Long term partnerships with reputable suppliers of name-brand parts and components 5. Reputation/image 6. Dell Exchange 7. JIT, know-how and capabilities 8. Contracts with local service providers to handle customer requests for repairs 9. Environmental policy 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 Opportunities S-O Strategies W-O Strategies 1. Customers value convenience and one stop shopping 2. Customers know what they want and need to purchase 3. Marketing on the Internet 4. Need for replacement equipment from World Trade Center Attack 5. US PC households with Internet access will increase 25% by 2002 6. Some rivals weak in PCs in all the worlds major markets 7. Servers market can be tapped 1. Conduct aggressive domestic advertising campaign. (S1, S2, S3, S5, O1, O2, O3, O5, O6, O7) 1. Joint Venture with EMC to offer storage services. (W1, O1, O4, O6, O7) 2. Open two Dell outlet stores in Europe (W2, W3, O6) Threats S-T Strategies W-T Strategies 1. Global economic recession

2. Aggressive pricing wars 3. Continuously changing consumer demands. 4. Strong brand name of competitors (IBM, HP) 5. Rapid technological advancement 6. A long-term slow down in global sales of PCs and servers 7. Corporate customers relying more and more heavily on the systems and service capabilities that IBM and HP provide 1. Produce low price standardized PC. (T2, S1, S2, S4, S5, S7) 2. Reduce workforce by 1700 employees to cut costs (T1, T2, S2, S3, S4, S7, T6) 1. Conduct aggressive European ad campaign to promote Dell Direct Selling (W2, T3, T2) 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 Defensive

IS ES Competitive

Backward Integration Forward Integration Horizontal Integration Market Penetration Market Development Product Development Joint Venture H. Grand Strategy Matrix RAPID MARKET GROWTH Quadrant II Quadrant I

WEAK STRONG COMPETITIVE COMPETITIVE POSITION POSITION Dell Quadrant III Quadrant IV SLOW MARKET GROWTH 1. 2. 3. 4. Concentric Diversification Horizontal Diversification Conglomerate Diversification Joint Ventures

I. The IE Matrix The IFE Total Weighted Score Strong Average Weak 3.0 to 4.0 2.0 to 2.99 1.0 to 1.99 High I II III 3.0 to 3.99

Medium IV V VI The EFE Total Weighted Score 2.0 to 2.99 Low VII VIII IX 1.0 to 1.99 Hold And Maintain Segments Revenue Profit EFE IFE Americas Europe Asia-Pacific and Japan 71% 21% 8% 81% 13% 6% 3.46 2.1 2.1 3.52 2.1 2.1

J. BCG Matrix Relative Market Share High 1.0 Medium .50 Low 0.0

High +20 Stars Question Marks Industry Sales Growth Rate

Medium 0 Cash Cows Dogs

Low -20 K. Matrix Analysis and TOWS Summary Alternative Strategies IE SPACE GRAND COUNT Forward Integration X X 2 Backward Integration X X 2 Horizontal Integration X X 2 Market Penetration X X 2 Market Development X X 2 Product Development X X 2 Concentric Diversification X 1 Conglomerate Diversification X 1 Horizontal Diversification X 1 Joint Venture X X 2 Retrenchment Divestiture Liquidation L. QSPM Strategic Alternatives Key Internal Factors

Weight Joint venture with EMC to offer storage services Produce low price standardized PC 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 name-brand parts and components .07 3 .21 4 .28 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 customer requests for repairs .06 1 .06 4 .24 Environmental policy .07 Weaknesses Lacks the product line and service breadth of HP and IBM .11 4 .44 1 .11 The direct sales approach is not the preferred distribution channel in Europe .08 No in-house repair service capabilities .03 SUBTOTAL 1.00 1.85 2.39 Key External Factors

Weight Joint venture with EMC to offer storage services Produce low price standardized PC Opportunities AS TAS AS TAS Customers value convenience and one stop shopping .05 4 .20 3 .15 Customers know what they want and need to purchase .05 3 .15 4 .20 Marketing on the Internet .06 1 .06 4 .24 Need for replacement equipment from World Trade Center Attack .05 4 .20 2 .10 US PC households with Internet access will increase 25% by 2002 .04 1 .04 4 .16 Some rivals weak in PCs in all the worlds major markets .10 3 .30 4 .40 Servers market not tapped well .06 4 .24 1 .06 Threats Global economic recession .12 Aggressive pricing wars .09 3 .27 4 .36 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 systems and service capabilities .07 4 .28 1 .07

SUBTOTAL 2.86 2.56 SUM TOTAL ATTRACTIVENESS SCORE 1.00 4.71 4.95 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 customers next purchase will most likely be a higher profit medium or top level PC. Revenue and Cost Estimates Last worldwide PC shipments = 30 million Monthly average = 10 million Dells Market Share = 13.8% Approx. 1,400,000 PCs per month Assume sales of 1% of current gross sales volume = 14,000 units per month Projected Revenue = $600 * 168,000 = $100,800,000 Gross Margin = 18.71% = $ 18,900,000 Est. cost of revenues = $ 81,900,000 (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 Dells 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. Revenue and Cost Estimates Estimated 5 year revenue = $4 billion If shared on an equal basis Dells anticipated gross revenue = $2 billon

Annual estimated gross revenue = $400 million Est. gross margin = 18.71% = $ 75 million Est. cost of revenues = 81.29% $ 325 million 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 Common Stock Financing Debt Financing High Low High Low EBIT ($1,789 in 2001) Interest (5%) EBT Taxes 28% EAT # of Shares Outstanding EPS $3000 0 3000 840 2160 2643 .817 $2000 0 2000 560 1440 2643 .545 $3000 50 2950 826 2124 2600 .816 $2000 50 1950

546 1404 2600 .540 Conclusion: Dell Computer should use debt to raise the $500 million.

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.