Dell Essay

4. Is Dell’s strategy working? What is your assessment of the financial performance that Dell’s strategy has delivered during fiscal years 2000-2008? Use the financial ratios presented in the Appendix of the text (pages 240-241) as a basis for doing your calculations and drawing conclusions about Dell’s performance. Selected Financial Statement Data for Dell Inc., Fiscal Years 2000 – 2008 (in million, except per share data) | February 1, 2008| February 2, 2007| February 3, 2006| January 28, 2005| January 30, 2004| February 1, 2002| January 28, 2000| Results of Operations| | | | | | | | Net Revenue| 61,133| 57,420| 55,788| 49,121| 41,327| 31,168| 25,265| Cost of Revenue| 49,462| 47,904| 45,897| 40,103| 33,764| 25,661| 20,047| Gross Margin| 11,671| 9,516| 9,891| 9,018| 7,563| 5,507| 5,218| Gross Profit Margin| 19.1%| 16.6%| 17.7%| 18.4%| 18.3%| 17.7%| 20.7%| Operating Expenses| | | | | | | | + Selling, general and administrative| 7,538| 5,948| 5,051| 4,352| 3,604| 2,784| 2,387| + Research, development and engineering| 693| 498| 458| 460| 434| 452| 374| + Special charges| -| -| -| -| -| 482| 194| Total operating expenses| 8,231| 6,446| 5,509| 4,812| 4,038| 3,718| 2,955| Total operating expenses as a % of net revenues| 13.5%| 11.2%| 9.9%| 9.8%| 9.8%| 10.4%| 10.9%| Operating Income| 3,440| 3,070| 4,382| 4,206| 3,525| 1,789| 2,263| Operating profit margin| 5.6%| 5.3%| 7.9%| 8.6%| 8.5%| 5.7%| 9.0%| Investment and other income (loss), net| 387| 275| 226| 197| 186| (58)| 188| Income before income taxes extraordinary loss, and cumulative effect of change in accounting principle| 3,827| 3,345| 4,608| 4,403| 3,711| 1,731| 2,451| Provision for income taxes| 880| 762| 1,006| 1,385| 1,086| 485| 785| Net Income| 2,947| 2,583| 3,602| 3,018| 2,625| 1,246| 1,666| Net profit margin| 4.8%| 4.5%| 6.5%| 6.1%| 6.4%| 4.0%| 6.6%| Earnings per common share: Basic| 1.33| 1.15| 1.50| 1.20|  1.02| 0.48| 0.66| Diluted| 1.31| 1.14| 1.47| 1.18| 1.01| 0.46| 0.61| Weighted average shares outstanding: Basic| 2,223| 2,255| 2,403| 2,509| 2,565| 2,602| 2,536| Diluted| 2,247| 2,271| 2,449| 2,568| 2,619| 2,726| 2,728| | | | | | | | | Cash Flow and Balance Sheet Data| | | | | | | | Net cash provided by operating activities| 3,949| 3,969| 4,751| 5,821| 3,670| 3,797| 3,926| Cash, cash equivalents, and short-term investments| 7,972| 10,298| 9,070| 9,807| 11,922| 8,287| 6,853| Total assets| 27,561| 25,635| 23,252| 23,215| 19,311| 13,535| 11,560| Long-term debt| 362| 569| 625| 505| 505| 520| 508| Total stockholders’ equity| 3,735| 4,328| 4,047| 6,485| 6,280| 4,694| 5,308| Profitability Ratios | January 28, 2000| February 1, 2002| January 30, 2004| January 28, 2005| February 3, 2006| February 2, 2007| February 1, 2008| Gross Profit Margin| 20.7%| 17.7%| 18.3%| 18.4%| 17.7%| 16.6%| 19.1%| Operating Profit Margin| 9.0%| 5.7%| 8.5%| 8.6%| 7.9%| 5.3%| 5.6%| Net Profit Margin| 6.6%| 4.0%| 6.4%| 6.1%| 6.5%| 4.5%| 4.8%| The chart shows the Profitability Ratios of Dell from 2000 to 2008. In general, from 2000 to 2008, the profit of Dell was quite stable. As we can see, Dell’s strategy is still working and makes a lot of money for Dell every year. However, there was no remarkable increase. The net profit margin has been about 5% during Fiscal Years 2000 – 2008. | January 28, 2000| February 1, 2002| January 30, 2004| January 28, 2005| February 3, 2006| February 2, 2007| February 1, 2008| Return on total assets (ROA)| 14.4%| 9.2%| 13.6%| 13.0%| 15.5%| 10.1%| 10.7%| Return on Stockholder’s Equity (ROE)| 31.4%| 26.5%| 41.8%| 46.5%|  89.0%| 59.7%| 78.9%| Return on invested capital (ROI)| 28.6%| 23.9%| 38.7%| 43.2%| 77.1%| 52.7%| 71.9%| The chart indicates ROA, ROE and ROI of Dell from 2000 to 2008. From 2000 to 2008, ROA has been stable because Dell built a lot of manufactory. However, ROE and ROI had very impressive increase since 2000. In 2006, ROE reached the peak 89% and ROI reached the peak 77.1%. It proved that Dell has used the monetary capital invested in its operations and the returns to those investments very effectively. | January 28, 2000| February 1, 2002| January 30, 2004| January 28, 2005| February 3, 2006| February 2, 2007| February 1, 2008| Long term debt to capital ratio| 0.09| 0.10| 0.07| 0.07| 0.13| 0.12| 0.09| Long term debt to equity ratio| 0.10| 0.11| 0.08| 0.08| 0.15| 0.13| 0.10| The chart shows 2 leverage ratios of Dell: Long-term debt to capital ratio and long term debt to equity ratio. These ratios are quite important because they measure creditworthiness and balance sheet strength. As we can see, all the ratios were very low, under 0.2 which had very good effect to the creditworthiness and balance sheet strength. Besides that, they could also help Dell to borrow additional funds if needed. In conclusion: Through the analysis, we can say that Dell’s strategy is still effective. It helps Dell to earn a lot of money every year. However, although Dell has gained profit during Fiscal Years 2000 – 2008, there was no remarkable increase in profit and it seemed to be stable. Dell’s strategy has been very successful when it helped the company to control the cost very well and run the company very smoothly. 5. What does a SWOT analysis reveal about the attractiveness of Dell’s situation in 2008? Dell SWOT analysis Strengths: * World’s largest PC maker. * One of the best known brands in the world. * First PC maker to offer next-day, on-site product service. * Direct to customer business model. Uses latest technology. * Dell has remarkably low operating cost relative to revenue because it cuts out the retailer and supplies directly to the customers. * Dell’s Direct Model approach enables the company to offer direct relationships with customers such as corporate and institutional customers. * Dell’s direct customer allows it to provide top-notch customer service before and after the sale. * Each Dell system is built to order to meet each customer’s specifications. Reliability, Service and Support. * Dell boasts a very efficient procurement, manufacturing and distribution process allowing it to offer customers powerful systems at competitive prices. * Dell is able to introduce the latest relevant technology compared to companies using the indirect distribution channels. * Dell is not a manufacturer; Components are made by the suppliers and Dell assembles the computers using relatively cheap labor. The finished goods are then dropped off with the customer by courier. Dell has total command of the supply chain. * Dell turns over inventory for an average of every six days, keeping inventory costs low. * Dell is enhancing and broadening the fundamental competitive advantages of the direct model by increasingly applying the efficiencies of the Internet to its entire business. Weakness: * A huge range of products and components from many suppliers from various countries. * Computer maker and not the computer manufacturer, making DELL unable to switch supply. * Dell lacked solid dealer / retailer relationships. * No propriety technology * Not attracting the college student segment of the market. Dell’s sales revenue from educational institutions such as colleges only accounts for a merely 5% of the total. * Dell’s focus on the corporate and government institutional customers somehow affected its ability to form relationships  with educational institutions. * For home users, Dell’s direct method and customization approach posed problems. For one, customers cannot go to retailers because Dell does not use distribution channels. * Customers just can’t buy Dell as simply as other brands because each product is custom-built according to their specifications and this might take days to finish. Opportunities: * Diversification strategy by introducing many new products to its range. * Personal computers are becoming a necessity now more than ever. Customers are getting more and more educated about computers. Second-time buyers would most likely avail of Dell’s custom-built computers because as their knowledge grows, so do their need to experiment or use some additional computer features. * The internet also provides Dell with greater opportunities since all they have to do now is to visit Dell’s website to place their order or to get information. * Since Dell does not have retail stores, the online stores would surely make up for its absence. It is also more convenient for customers to shop online than to actually drive and do purchase at a physical store. Threats: * Competitive rivalry that exists in the PC market globally. * New entrants to the market pose potential threats. * The threat to become outmoded is a pulsating reality in a computer business. * Price difference among brands is getting smaller. * Dell’s Direct Model attracts customers because it saves cost. Since other companies are able to offer computers at low costs, this could threaten Dell’s price-conscious growing customer base. * With almost identical prices, price difference is no longer an issue for a customer. They might choose other brands instead of waiting for Dell’s customized computers. * The growth rate of the computer industry is also slowing down. Today, Dell has the biggest share of the market. If the demand slows down, the competition will become stiffer in the process. Dell has to work doubly hard to differentiate itself from its substitutes to be able to continue holding a significant market share. => Technological advancement is a double-edge sword. It is an opportunity but at the same time a threat. Low-cost leadership strategy is no longer an issue to computer companies therefore it is important for Dell to stand out from the rest. 6. Which company is competitively stronger—Dell or Hewlett-Packard? Use the weighted competitive strength assessment methodology shown in Table 4.2 of Chapter 4 to support your answer.