dell swot

Dell Inc.

Company Profile

Publication Date: 12 May 2011

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Dell Inc.

TABLE OF CONTENTS

Company Overview..............................................................................................4

Key Facts...............................................................................................................4

SWOT Analysis.....................................................................................................5


Dell Inc.TABLE OF CONTENTS

COMPANY OVERVIEW

Dell (or “the company”) is one of the leading technology companies, offering a broad range ofproducts, including desktop PCs, servers, networking products, storage, mobility products, softwareand peripherals, and services. The company primarily operates in the US. Dell is headquartered inRound Rock, Texas and about 103,300 people of which 3,000 are employed part-time.

The company recorded revenues of $61,494 million during the financial year ended January 2011(FY2011), an increase of 16.2% over 2010. The operating profit of the company was $3,433 millionin FY2011, an increase of 58.1% over 2010.The net profit was $2,635 million in FY2011, an increaseof 83.9% over 2010.

KEY FACTS

Dell Inc.Head OfficeOne Dell WayRound RockTexas 78682USA

1 512 338 4400Phone

Fax

http://www.dell.comWeb Address

61,494.0Revenue / turnover(USD Mn)

JanuaryFinancial Year End

103,300Employees

DELLNASDAQ NationalMarket Ticker


Dell Inc.Company Overview

SWOT ANALYSIS

Dell (or “the company”) is one of the leading technology companies, offering a broad range ofproducts, including desktop PCs, servers, networking products, storage, mobility products, softwareand peripherals, and services. The company has established a strong market position and is ableto defend the same with strong brand value. However, sluggish growth trends in the PC market willimpact Dell negatively as the company has significant exposure to the segment.

WeaknessesStrengths

Relatively weak R&D capabilitiesRobust market position supported by strongbrand value Lower margins compared to peersCash flow generation capabilities to supportgrowthDiversified operations with focus on growthareasAcquisitions to drive growth

ThreatsOpportunities

PC market poised for a likely declineEmerging economies will dominate theglobal IT spending marking strong growth Intense competitionMeasures to gain market share in thegrowing cloud computing segmentEnterprise products to receive a boost fromservers and tablets

Strengths

Robust market position supported by strong brand value

Dell has a robust market presence in IT systems market. Despite tough market conditions andcompetition in the recent past, Dell continues to remain a strong player in the IT systems market.Dell was the second largest player in the worldwide PC market with the volume shipments of 43.8million in 2010; and garnering a market share of about 12.8%.The company is also a leading playerin the computer peripheral equipment and software wholesaler market. According to the industrysources, the company is also the fifth largest player in the external disk storage systems market witha market share of about 7.9% during the fourth quarter of 2010. The company is the leading playerin the NAS domain with share of 32.6%. Further, Dell is the second largest player in the worldwideservers' segment and the market share is estimated to have been nearly 40%. Strong market positionindicates that the products and services offered by the company have received wide acceptance


Dell Inc.SWOT Analysis

from the customers. Accordingly, Dell now has access to a large customer base which is a competitiveadvantage.

In addition to the robust market position, Dell enjoys a strong brand image supporting its growth.The company is among the top 100 brands in the world, with a brand value of $8,880 million, accordingto annual ranking given by industry sources in 2009. It was ranked 41 in the list of top 100 brands.Dell was ranked ahead of some of its competitors such as Acer, Toshiba and Lenovo. Dell's brandimage generates a large percentage of intangible earnings. Strong brand image makes Dell apreferred hardware provider over its competitors. In addition, strong brand image promotes greatertrust in the company's product and services, which boosts the demand. Dell is in a better positionto defend its market share owing to the strong brand image which will lead to customer loyalty.

Strong market position and brand image will therefore facilitate strong revenue growth and will enablethe company to better sustain cyclical downturns.

Cash flow generation capabilities to support growth

Dell enjoys strong cash flow generation capabilities. The company’s cash from operating activitiesincreased from $3,906 million in 2009 to $3,969 million in FY2011. The company has maintainedan operating cash flow to EBIT ratio of over 100%. In FY2010, the company’s operating cash flowas a percentage of EBIT was at 116%. This indicates that Dell is able to convert 116% of its EBITinto cash. Comparatively, HP and IBM have operating cash flow to EBIT ratios of 104% and 97%respectively for FY2010.

Furthermore, Dell enjoys one of the leading cash conversion cycles (CCC) which facilitated strongcash flows. The company’s CCC days ended the year with -33 days. CCC expresses the length oftime in days that it takes for a company to convert resource inputs into cash flows. It measures theamount of time each net input dollar is tied up in the production and sales process before it isconverted into cash through sales to customers. The metric is a combination of the amount of timeneeded to sell inventory, to collect receivables, and the length of time the company is given to payits bills without incurring penalties. The shorter the cycle is, the less time capital is tied up in thebusiness process and thus the better it is for the company's balance sheet.

Dell has negative CCC days which indicate that the company doesn't pay its suppliers for the productsit buys until after it receives payment for selling those products. Accordingly, the company doesn'tneed to hold large inventory and can hold on to cash for a longer period of time. This advantage isusually enjoyed by the online retailers and as Dell relies heavily on the direct channel of distribution,it is able to maintain negative CCC days. In addition, Dell being a large company is better able towield the power to attain favorable terms from suppliers. The company’s competitor HP doesn’tenjoy the same advantage and has CCC of days by the end of FY2010.

Strong cash flow generation indicates that the company is better positioned to finance its growthinternally. Furthermore, strong cash flow generation capabilities will provide certain resilience intimes of cyclical down turns. Dell’s ability to convert most of its operating income into cash will enablethe company to maintain liquidity and solvency in addition to funding the growth prospects.



Diversified operations with focus on growth areas

Dell has pro-actively expanded and diversified its operations and has transformed itself since itsinception. The company has focused on positioning itself as a company offering IT products andsolutions from originally being a PC brand. Accordingly, it has made several investments and gainedsignificant market in enterprise solutions and in offering IT services. These segments have highermargins and are also significant growth areas. Dell now has a diversified customer base as well,owing to the expansion of its product and service portfolio.The company's customers are categorizedas large enterprise, public, small and medium business (SMB), and consumer. During FY2011, thecompany generated 29% of the total revenues from large enterprise, 27.4% from public clients,23.5% from SMBs, and 20.1% from consumers.The company has been focusing on SMB nichewithin the enterprise market. SMBs are estimated to grow in number and also are expected toexperience strong growth. Therefore, the company is not only exposed to large players that enjoystable markets but is also exposed significantly to the growth in SMB segment. Similarly, Dell hasalso diversified geographically. Sales outside the US accounted for about 48% of consolidated netrevenue for FY2011. Furthermore, Dell has been focusing on emerging BRIC nations and hasinvested significantly in these markets. Emerging nations provide a complete contrast to the developedmarkets as they are characterized by strong growth rates.

Dell by the end of FY2010 is a company with exposure to strong growth areas while still maintainingexposure to its core markets. These factors will contribute positively to revenue growth and marginexpansion in the future.

Acquisitions to drive growth

The company has undertaken several acquisitions in 2010 and 2011. Dell acquired KACE, a systemsmanagement appliance company. Through this acquisition, Dell will be able to expand its systemsmanagement offerings to better address IT administrators in mid-size organizations. The companyacquired Scalent, a private company that provides software for data center infrastructure. Dell aimsat integrating Scalent technology into its Advanced Infrastructure Manager solution. The companyestimates that Scalent provides a critical building block for Virtual Integrated System. Scalent’s openarchitecture is also inline with Dell’s strategy to provide customers with solutions that are more openand do not lock the clients into proprietary hardware or gateways. The company offers a puresoftware-as-a-service (SaaS) application integration platform to its clients. Another acquisition inSaaS domain has been that of Boomi. Dell expects to leverage Boomi's technology which will enableit to effectively address the barrier of managing and integrating cloud-based applications with existingapplications and databases, which has been a key barrier for cloud adoption.

In addition, the company acquired Ocarina Networks in FY2011 and Compellent Technologies inearly FY2012 which are expected to enable Dell to expand storage product offerings.The integrationof these two companies will help Dell to make a greater push into the data management segment.Specifically, Ocarina’s deduplication capability is expected to complement the company’s EqualLogicoffering to create value addition to the clients. Dell plans to leverage Compellent’s channel offeringsto create a leading storage program in the industry. Dell has signed a definitive agreement to acquireSecureWorks, a globally recognized provider of information-security services. SecureWorks in one



of the leading companies in information security services and is expected to enhance the company’ssolutions portfolio.

Dell has historically pursued acquisitions to expand into non-core and adjacent markets.The companyhas been able to position itself strongly in some of these markets, which would not have beenpossible, given lack of capabilities in certain domains. The acquisitions are aiding Dell to positionitself as a provider of complete IT products and services, and compete effectively against dominantplayers in these markets. The acquisitions are also enabling Dell to position itself as a strong playerin some of the growth markets. Therefore, the acquisitions are expected to contribute significantlyto the overall growth.They also facilitate quick penetration into markets that are strategically importantfor Dell.

Weaknesses

Relatively weak R&D capabilities

Dell has relatively weak research, development and engineering (R&D) capabilities compared to itsmajor competitors. The company's R&D spending has been lower than its competitors. Dell's R&Dexpenses were $661 million, $624 million respectively, during FY2011 and FY2010. By contrast, itsmain competitors such as HP reported R&D spending of $3,000 million and $2,800 million in FY2010and 2009; and IBM reported R&D spending of $6,026 million and $5,820 million, respectively, inFY2010 and 2009. Furthermore, the company's R&D spending as percentage of total revenues was1.1% in FY2010, compared to HP (2.4%), and IBM (6%).

As a result, the company had lesser patents than its competitors. At the end of FY2011, it had aworldwide portfolio of 2,991 patents and additional 1,972 patent applications pending. By contrast,HP had a worldwide portfolio of over 37,000 patents, and IBM has over 75,000 patents by the endof their respective FY2010.

Although, the company's business model was not highly dependent on R&D over years, changingindustry dynamics with increasing competition and commoditization of PC market call for differentiationthrough innovation. Furthermore, the company's relatively weak R&D makes it depend on licensesfor third-party patents, and it may affect its ability to introduce innovative products.

Dell's relatively weak R&D capabilities affect its competitiveness as well as make it dependent onthird parties for patent licenses.

Lower margins compared to peers

Dell is witnessing lower margins compared to peers. The company’s operating margin was 5.6% inFY2011. Comparatively, HP has an operating margin of 9.1% and IBM’s operating margin stood at20.1%, indicating that the company is lagging its peers when it comes to profitability of operations.Furthermore, Dell’s net margin of about 4.3% is lower than HP’s 7% and IBM’s 15%. Profitability



provides a cushion in times of pressurized sales. Lower profitability will also impact the pricing policythat Dell can adopt and the company might not be able to compete effectively based on price dueto lower profitability. Therefore, lower margins compared to peers is a competitive disadvantage.

Opportunities

Emerging economies will dominate the global IT spending marking strong growth

The emerging markets of the world with strong economic fundamentals are estimated to witnessrobust growth in IT spending as well. According to industry estimates, emerging markets are estimatedto account for 27% of global IT spending by the end of 2011. BRIC in particular is estimated tocontribute to 44% of emerging markets spending. China alone is estimated to generate 54% ofBRIC’s spending, and is positioned to surpass Japan and will be the number two IT market by 2013.The IT spending is estimated to grow by 10.4% in the emerging nations in 2011.The growth registeredin these markets is expected to surpass the global growth rates. In 2011, emerging nations will bethe major contributors for growth in global IT spending accounting for 54% of the overall growthrates. The growth rates in BRIC nations are estimated to dominate.

Dell has aligned its investment priorities to the trends in the emerging markets. In recent years, thecompany has not only increased investments in BRIC, but has also made efforts to tailor productsand services to meet the specific needs of customers in these countries. Dell has performed stronglyin the region. Revenue from BRIC nations increased 38% year-over-year, for FY2011. Total revenuefrom BRIC has been increasing sequentially since the fourth quarter of 2009 and represented 12.3%of the company’s total net revenue for FY2011 compared to 10.5% in the previous year.The companycontinues to focus on expanding into these and other emerging countries that represent the vastmajority of the world's population and to enhance relationships to provide customer choice andflexibility. The company’s pro-active expansion into emerging markets will provide a strong supportfor growth.

Measures to gain market share in the growing cloud computing segment

Dell in the recent times has been making a major push into the cloud computing services. Thecompany has announced investment plans of close to $1 billion for developing cloud computinginfrastructure and also planned to open 10 data centers over a span of 24 months.The cloud servicesmarket is expected grow rapidly and is estimated to cross $102 billion in 2012 recording a growthrate of 50% from $68 billion in 2010. Dell has focused on enhancing its services business, and theinvestments made by the company in this rapidly growing market will enhance revenue accruals forthe segment.

Enterprise products to receive a boost from servers and tablets

Growing servers and enterprise tablet market will provide boost to the revenues from the productgroup. According to industry estimates, in 2010, global server market shipments grew by 17% and



the revenues from the same increased by 13%. The growth is estimated to continue through 2011,however at a slower pace compared to 2010. The server market is benefitting from the upgradesthat were postponed during the recent economic slowdown. Furthermore, as enterprises refreshtheir data centers to provide higher levels of business support and analytics, the demand for newservers and storage systems is slated to grow.

Additionally, enterprises are increasingly investing in tablets. According to industry estimates, about7% of companies provided some of their employees with tablets and the figure will double in the firstquarter of 2011. Furthermore, enterprise customers are estimated to account for up to 50% of tabletssold by 2015. Dell plans to launch several tablets in 2011 including Gallo, Opus One, Sterling, SilverOak and Rosemount with specific focus on the enterprise market. Dell is coming up with the largestnumber of devices in 2011. Furthermore, adoption of Android operating system is also expected toprovide a competitive edge. Android tablet market is estimated to account for 30% of total tabletmarket in 2011. Dell is therefore, well positioned to gain market share in the enterprise tablet market.

Enterprise products and solutions will benefit from the trends in the industry and Dell is positionedstrongly to gain market share in these growing segments.

Threats

PC market poised for a likely decline

PC market which was earlier estimated to grow strongly has been posting declines. The preliminaryindustry estimates suggest that PC sales during the first quarter of 2011 declined which is also thefirst time in six quarters. In the US, shipments totaled 16.1 million units, compared to over 17-millionsduring the same period in 2010. In addition, the estimated cannibalization is casting doubts over thegrowth prospects of PCs. Tablets are likely to cannibalize into the sales of PCs further hamperingthe growth prospects.The macro economic trends in the developed countries which have not followedthe strong path of recovery originally estimated is also pressurizing the business and consumerspending. Dell, despite efforts to diversify into other business segments is significantly exposed tothe PC market and its revenues from the segment will be adversely impacted.

Intense competition

The company faces intense competition in all its business segments. It competes in terms of price,quality, brand, technology, reputation, distribution and range of products, among other factors. Dellfaces stiff competition in enterprise PC and server markets from Acer, Apple, HP, Lenovo, IBM andToshiba, among others. In some regions, the company faces competition from local companies andfrom generically-branded or white box manufacturers. In the consumer market, Dell faces stiffcompetition from HP, Acer, Apple, Sony, Lenovo and Asustek. Furthermore, in the European andAsian netbooks markets the company faces intense competition from Asustek. In addition, with thelaunch of smartphone in FY2010, the company's mobile business competes with Apple, RIM, andHTC.



Intense competition may affect the company's operating performance and market share in comingyears.



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dell swot

Documents

gain market share

enterprise tablet market

including desktop pcs

operating cash flow

strong market position

lower margins compared

leading technology companies

pc market