Dell SWOT

Dell Inc.

Company Profile

Publication Date: 17 Sep 2010

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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 is one of the leading technology companies, offering a broad range of products, including desktopPCs, servers, networking products, storage, mobility products, software and peripherals, and services.The company primarily operates in the US. It is headquartered in Round Rock, Texas and employs96,000 people including 1,700 temporary employees.

The company recorded revenues of $52,902 million during the financial year ended January 2010(FY2010), a decrease of 13.4% over FY2009.The operating profit of the company was $2,172 millionin FY2010, a decrease of 31.9% over FY2009. Its net profit was $1,433 million in FY2010, a decreaseof 42.2% over FY2009.

KEY FACTS

Dell Inc.Head OfficeOne Dell WayRound RockTexas 78682USA

1 512 338 4400Phone

1 512 283 6161Fax

http://www.dell.comWeb Address

52,902.0Revenue / turnover(USD Mn)

JanuaryFinancial Year End

96,000Employees

DELLNASDAQ NationalMarket Ticker


Dell Inc.Company Overview

SWOT ANALYSIS

Dell is one of the leading providers IT systems in the world. The company offers a broad range ofproducts, including desktop PCs, servers and networking products, storage solutions, mobilityproducts, software and peripherals, and related services. Dell has a strong brand value and is amongthe top 100 global brands. Strong brand value enhances the company’s market penetration capabilityand provides cross selling opportunities. However, intense completion in the technology industrymay affect the company’s profitability in coming years.

WeaknessesStrengths

Violation of lawsStrong brand valueRelatively weak R&D capabilitiesRobust market position

Diversified customer baseDell Perot Systems’ position in healthcarebusiness

ThreatsOpportunities

Intense competitionEntry into smartphone businessProduct defectsGrowing PC market

Positive outlook for global IT spendingIncreasing adoption of cloud computingservices

Strengths

Strong brand value

Dell enjoys a strong brand image supporting its growth. The company is among the top 100 brandsin the world, with a brand value of $10,291 million, according to Interbrand annual ranking 2009. Itwas ranked 35 in the list of top 100 brands. Dell was ranked ahead of some of its competitors suchas Acer, Toshiba and Lenovo.

Moreover since FY2008, Dell started offering products through indirect sales, such as leading retailchain stores. It offers select products through strategic relationships with a various major retailerslike Wal-Mart and Best Buy in the US;Wal-Mart and Pontofrio in Latin America; Carphone Warehouse,Carrefour, Tesco and DSGi in EMEA region; and Gome, HiMart, Courts and Bic Camera in AsiaPacific region. With its entry into indirect sales channel model, Dell’s visibility among the individualcustomer in the retail space is increasing, which further increases its brand value.


Dell Inc.SWOT Analysis

Dell's brand image generates a large percentage of intangible earnings. Strong brand image makesDell a preferred hardware provider over its competitors. In addition, strong brand image promotesgreater trust in the company's product and services, which boosts the demand for them.

Robust market position

Dell has a robust market presence in IT systems market. Despite losing market share to other playersin the recent past, Dell continues to remain a strong player in the IT systems market. Dell was thesecond largest player in the in the worldwide PC market with approximately 13.1% share, with thevolume shipments of 38.4 million in 2009. In the US, the company is the second leading player inPC market with approximately 11.9% market share of the volume shipments in 2009. Moreover, thecompany achieved the number one position in the rapidly developing Indian PC market, surpassingHewlett-Packard during the second quarter of 2010 with a market share of 15.2%.

It is also a leading player in the computer peripheral equipment and software wholesaler market.According to the industry sources, the company is also the fourth largest player in the worldwidedisk storage systems market with a market share of over 12.3% during the second quarter of 2010.The company is the leading player in the NAS domain with share of 32.9%. Further, Dell is the thirdlargest player in the worldwide servers' segment with a market share of approximately 15.3%.

Dell's strong market position in the IT systems market provides it with a competitive advantage.

Diversified customer base

Dell serves a diversified customer base globally.The company offers a range of IT products includingmobility products, desktop PCs, software and peripherals, servers and networking, and storage toa wide customer base, which ranges from large scale businesses to small organizations of varioussectors. It provides customized products to all size of clients according to their needs.The company’scustomers are categorized as: large enterprise, public, small and medium business (SMB), andconsumer.

The company’s large enterprise customers include the business from large global and nationalcorporate companies. The public customers comprises of educational institutions, government,health care, and law enforcement agencies, operate in communities. For SMBs, the company offersthe simplest and most complete standards-based IT solutions and services, customized for theirneeds. For consumers, the company markets products through an on-line store at www.dell.com,over the phone, and through retail.Wide range of customer base provides the company with diversifiedrevenue streams. During FY2010, the company generated 27% of the total revenues from largeenterprise, 27.4% from public clients, 22.8% from SMBs, and 22.8% from consumers.

Diversified revenues from wide range of customers shields the company against demand fluctuationsin a specific market by dispersing its business risks.

Dell Perot Systems’ position in healthcare business



Dell Perot Systems is a leading provider of healthcare IT services in the US. The company providesservices to more than 1,000 hospitals and five of the top 25 systems in the US. It serves about 70health insurance organizations and more than 30,000 doctors as members of physician groups. Itis a leading systems integrator of Tier I clinical systems.

The company's healthcare business was also recognized by several agencies for its capabilities. InMay 2010, it was ranked number one for the fourth consecutive year in Annual Datamonitor BlackBook of Outsourcing 2009 survey of Healthcare ITO vendors. The survey positioned Dell PerotSystems as the highest rated overall vendor in the areas of applications development andmaintenance, revenue cycle management, and clinical data initiatives.

Dell Perot Systems strong position in healthcare IT segment provides a competitive advantage tothe company and allows it to achieve new contracts.

Weaknesses

Violation of laws

Dell was involved in the violation of federal securities laws and is paying the civil penalties. A complaintwas filed against the company alleging that Dell and some of its staff have violated the federal laws.The company also faced investigations from the US Securities and Exchange Commission (SEC)regarding these violations including the antifraud provisions of federal securities laws, relating tocertain accounting and financial reporting matters during 2001–06.The company also faced allegationsregarding certain aspects of its commercial relationship with Intel.

As a part of this, the company reached a settlement with SEC resolving the investigations duringJune 2010. Under its settlement, the company has consented to a permanent injunction againstfuture violations of such federal securities laws and SEC rules.The company also agreed to performcertain undertakings, including retaining an independent consultant, to enhance its disclosureprocesses, practices and controls. According to the settlement, the company is required to pay acivil monetary penalty of $100 million. Also Mr. Michael S Dell, the Chairman and CEO of Dell, hasto pay a penalty of $4 million regarding the alleged failure to provide adequate disclosures withrespect to the company’s commercial relationship with Intel prior to Fiscal 2008.

Violation of laws, investigations and paying penalties impacts the company’s reputation and affectsthe investor’s confidence.

Relatively weak R&D capabilities

Dell has relatively weak research, development and engineering (R&D) capabilities compared to itsmajor competitors. The company employs a collaborative approach to product design anddevelopment, where it works with a network of technology companies. It uses original designmanufacturing (ODM) partnerships and manufacturing outsourcing relationships for manufacturing.



However, it undertakes essential manufacturing processes including assembly, software installation,functional testing and quality control. As a result, the company’s R&D spending has been lower thanits competitors. Dell’s R&D expenses were $624 million, $663 million, and $610 million, respectively,during FY2010, FY2009 and FY2008. By contrast, its main competitors such as HP reported R&Dspending of $2,819 million, $3,543 million, and $3,611 million, respectively, in FY2009, FY2008, andFY2007; and IBM reported R&D spending of $5,820 million, $6,337 million and $6,153 million,respectively, in FY2009, FY2008 and FY2007. Furthermore, the company’s R&D spending aspercentage of total revenues was 1.2% in FY2010, compared to HP (3%), and IBM (6.1%).

As a result, the company had lesser patents than its competitors. At the end of FY2010, it had aworldwide portfolio of 2,577 patents and additional 2,418 patent applications pending. By contrast,HP had a worldwide portfolio of over 33,000 patents, and IBM achieved over 4,914 patents only in2009.

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 differentiationthough innovation. Further more, 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.

Opportunities

Entry into smartphone business

Dell has entered into the smartphone business with the launch of Dell Mini 3 smart phones inNovember 2009. The company also partnered with China Mobile, the largest telecommunicationscompany in the world with more than 500 million customers; and Claro, which serves more than 42million people in Brazil as part of the America Movil network, to distribute its smartphone offerings.Further, the company also formed smartphone agreement with AT&T as a carrier to offer Dell Mini3 smart phone in January 2010. The company’s entry into the smartphone business demonstratesits continued expansion into mobile internet products.

Moreover, the smart phone market is projected to grow significantly, poising the growth opportunitiesto Dell. According to the industry sources, the smartphone market is forecast to grow at a compoundedannual rate (CAGR) of 32% between 2010 and 2014. More than 50% of this growth in handsets isforecast to come from the developing markets of Asia-Pacific, including China and India, and Centraland Latin American states. Also, the smartphones are expected to represent 26% of all handsets in2014, compared to 14% in 2009.

The company’s expansion into growing smartphone business will provide it with additional revenues.



Growing PC market

The global PC market is expected to grow in the coming years. According to the industry sources,the global PC market is forecast to record a growth of 20% in terms of volume in 2010, comparedto 2009. The demand is being driven by increased customer adoption and the growth of netbooks.The netbook market is expected to record 25% growth in shipments in 2010, over 2009.

In addition, the Asia Pacific PC market is expected to grow significantly, both China and Indianmarkets driving the demand.The PC shipments in China and India are forecast to grow around 20%during 2010.

The company is the second largest player in the worldwide PC market, offering desktop PCs andnotebooks under various brands: Allienware, Studio, OptiPlex, Inspiron, Vostro and Precision. Further,the company is investing in the emerging BRIC regions including Brazil, Russia, India, and Chinato design and manufacture products and support its customers.

Growing PC demand and the company’s focus on emerging markets ensures steady revenues tothe company from PC segment.

Positive outlook for global IT spending

The global information technology (IT) spending is expected to grow in the near future. A steadyimprovement in the macroeconomic environment in 2010 will enable modest growth in overall ITspending. According to Datamonitor, the global IT hardware and equipment is projected to recorda CAGR of 6.3% during 2009–14. Further, the global IT consulting and other services market isforecast to grow at a CAGR of 2.4% during 2009–14.

Being one of the leading provider of mobility products, desktop PCs, software and peripherals,servers and networking, storage and IT services, Dell is poised to capitalize on the global IT positiveoutlook.

Increasing adoption of cloud computing services

The worldwide demand for cloud computing services is forecast to record strong growth in comingyears. Cloud computing is a computing infrastructure model, which enables delivery ofsoftware-as-a-service (SaaS), platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS).This reduces the upfront royalty or licensing payments, investment in hardware and other operatingexpenses. As result of its benefits, the global cloud computing services market is forecast to growat a CAGR of over 20% during 2009–14.With the growth of cloud computing services, the enterprisesare expected to gain significant savings from SaaS, PaaS and IaaS during the next five years.

Dell is increasing its presence in cloud environments and also launched new offerings in this domain.In 2009, Dell and salesforce.com, the enterprise cloud computing company, together launchedcertified Dell-salesforce.com solutions, joint offerings for small and medium businesses, that offer



customer relationship management applications through the cloud. Further, Dell in collaboration withIntel launched a cloud-based learning management platform during May 2010. As a part of expandingits cloud strategy, Dell formed a strategic partnership with Microsoft to use the Windows Azureplatform appliance as a part of its Dell Services Cloud for developing next-generation cloud services.

The company’s focus on cloud computing services will enhance its revenue and market share incoming years.

Threats

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.

Product defects

Dell's products are highly complex and sophisticated. As a result, they may occasionally containdesign defects, software errors or security problems that may be difficult to detect and correct. Inaddition, implementation of the company's products may involve customer-specific configuration. Inparticular, it is common for complex hardware products to contain undetected errors when firstreleased. They are discovered only after the product is used over time with different systems andin a variety of applications and environments. Despite extensive testing before release, the companymay experience errors in the products, which may affect the market acceptance of the products.

For instance, the company faced product defect issues and recalled several products in the recentpast owing to quality issues. In August 2006, the company announced the recall of 4.1 millionnotebook batteries owing to fire risk. Additionally, in October 2008, Dell updated itsbattery-replacement program based on additional information it received from lithium-ion batterysupplier, Sony.

Product defects resulting in recalls may undermine the faith of consumers in the products, benefitingthe competitors of the company.



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Dell SWOT