$2.0B

Presented by:• Amit Kumar(03)• Prashant Goel (18)• Vishwa Vibhuti(36)• Ajay Jain(42)

“ “ Direct From DELLDirect From DELLStrategies That Revolutionized an Industry Strategies That Revolutionized an Industry

” ”

COMPANY PRESENTATION

$2.0B

In doing so, Dell will meet customer expectations of:

• Highest quality • Leading technology • Competitive pricing

• Individual and company accountability • Best-in-class service and support • Flexible customization capability • Superior corporate citizenship

• Financial stability

Mission Statement: “To provide customers with superb value, Mission Statement: “To provide customers with superb value, high quality, relevant technology, customized systems, superior high quality, relevant technology, customized systems, superior service and support, and products and services that are easy to service and support, and products and services that are easy to

purchase and use.”purchase and use.”Strategy Statement: “To do business with its consumers one-on-Strategy Statement: “To do business with its consumers one-on-

one, through the phone or internet.”one, through the phone or internet.”

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DELL Inc - TIMELINE

1983-- Michael Dell starts business of pre-formatting IBM PC HD’s on weekends

1985-- $6 million sales, upgrading IBM compatibles for local businesses1986-- $70 million sales; focus on assembling own line of PC’s

1990-- $500 million sales; with an extensive line of products

1996-- Dell goes online; $1 million per day in online sales; $5.3B in annual sales1997-- Dell online sales at $3 million per day; 50% growth rate for 3rd consecutive year, $7.8B in total annual sales.

2005-- $49.2B in sales

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Dell Computer Corporation

A Fortune 200 company in just 14 years Dell is the World's largest PC maker having Build To Order model.No 1 in profitability for the computer systems industryAs of 2006 it employs more than 63,700 people. Customers in 170+ countries.For the last couple of years it has held its position as market leader (it took it from rivals Hewlett-Packard).According to the Forbes 50 2005 list, Dell ranks as the 28th-largest company in the United States by revenue.In 2006, Fortune magazine ranked Dell as No. 8 on its annual list of the most-admired companies in the United States. Major competitors are IBM, APPLE, HP.

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DELL Brand-Names for Its product ranges

OptiPlex: Office desktop computer systems Dimension: Consumer Desktop computer systems Latitude: Commercially-focused laptopsInspiron: Consumer laptopsPrecision: Workstation systems and high-performance laptopsPowerEdge: Larger corporate serversPowerVault: Direct-attach and some network-attached storage (NAS) Dell EMC: Storage area networks XPS: Enthusiast/high-performance systems Axim: PDAs utilizing Microsoft's Windows Mobile Dell On Call: Extended support services

Dell Digital Jukebox (DJ) MP3 Players (discontinued, August 18 2006) Dell monitors LCD/plasma TVs and projectors: HDTV and monitor use

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Odds Improve for the Top 10

Source: IDC PC Tracker, 1995 - 2005 (Full Year)* In 1995 Pre-Merger, Compaq ranked #1, HP #7

Went Up

No Change

Went Down

New Entry

WW Vendor Ranking 1995 Q1'05 RankQ1'05 y/y Growth

Dell 7 1 13.6%HP (Merged) 1 2 10.6%

IBM 3 3 2.2%Fujitsu Siemens n/a 4 14.0%

Acer 6 5 39.1%Toshiba 8 6 22.6%

NEC 2 7 23.9%Apple 4 8 42.5%

Legend / Lenovo 46 9 19.9%Gateway 9 10 -20.0%

Dell Takes No.1Position in 2004

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DELL’s SUCCESS

$2.0B

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Dell’s Global Presence

The AmericasThe Americas EMEAEMEA Asia PacificAsia Pacific ChinaChina

Sales Offices in 43 countries Sales presence in 170 countries

6 Manufacturing Sites

XiamenChina

PenangMalaysia

LimerickIreland

AustinTexas

NashvilleTennessee

Eldorado do Sul Brazil

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Dell’s Competitive Advantage

Dell’s Direct Business Model

Commitment to Open Standards

Order Velocity/Build to Order

Supply Chain Optimisation

Continuous Process Improvement

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Dell’s Direct Approach:A Fundamentally Different Model

SuppliersSuppliersSuppliersSuppliers CustomersCustomers CustomersCustomers

Dell Direct Model

SuppliersSuppliersSuppliersSuppliers CustomersCustomersCustomersCustomers

Competitor Model

CompetitorCompetitorCompetitorCompetitor ChannelChannelChannelChannelOutsourcingOutsourcingOutsourcingOutsourcing

Ownership of the value chain

Loss of control over product &information flow & customer relationships

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Benefits of Dell Direct Model

Better understand customer needsCustomers receive exactly what they want: not standard solutionMinimized inventoryNew technology delivered immediately

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The BenefitsBenefits of Low Inventory

90

95

100

105

110

115

120

-14

-12

-10 -8 -6 -4 -2 0

TypicalDell

RelativeComponent

Cost

Weeks Relative to Delivery

With 3 DaysInventory,

Dell Buys Here

With 90+ Day’s Manufacturerand Reseller Inventory, Channel

Manufacturer Buys Here

10-12% Cost Advantage

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Customer

Local Suppliers

Dell Factory

Lean Inventory Model

Logistics Hubs

Suppliers

Results: 3 days of inventory - Inventory turns of 122 per year

Delivery

Supplier Owned Dell Owned

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Pass cost savings on

to customer

Pass cost savings on

to customer

Competitive pricing ignites demand

Competitive pricing ignites demand

Lower cost drives

Increased demand

Lower cost drives

Increased demand

Industry's most efficient procurement, manufacturin

g and distribution

process

Industry's most efficient procurement, manufacturin

g and distribution

process

How the Model drives Market Share

CompetitivePricing

EfficientModel with lowest

Cost Structure

HelpDrive

SupplierBusiness

DrivesMarketShare

Improved Customer Experience

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Open Innovation And Effective R&D

The traditional approach to innovation tends to produce proprietary technologies and products that are often hard to migrate from as a customer. Dell have a more open and effective approach to R&D.

Dell spends little on product research and development — $440 million a year, vs. $4 billion a year at Hewlett-Packard.

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Dell’s organizational structure: The virtual company

Direct relationship with customer is strategic; rich information flows Outsource non-strategic functions Information flows substitute for physical flows Coordinate value network thru IT-enabled information processes

System integrators and resellers

Dell Order management

Customer relations

Operations and supply chain

ComponentManufacturer

Componentsuppliers

Third party HW and SW suppliers

Distributors

Logistics companies

Repair and support providers

Customer

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Dell GrowthDell Growth

$0$5

$10$15$20$25$30$35$40$45$50$55

FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05

Rev

enu

e $

Bn

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Un

its

Mar

ket

Sh

are

%

Revenue Mkt Shr

FY05 revenue of $49.2 billion Market Share FY05 = 17.8 %

Source: IDC All Form Factors

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DELL Growth Highlights                              

Growth Highlights

                                                                                                                   

                                                         

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Q2FY06 Financial Performance

$ * Note: New Dell Record* Note: New Dell Record* Note: New Dell Record* Note: New Dell Record

Profitability GM = 18.6%

OPEX = 9.9% of revenue OpInc = $1.2B, 8.7% (up 10 bps Y/Y)

Net Income = $935M EPS $0.38*; 23% Y/Y growth

Growth: 9.1M Units (up 25%) Revenue $13.4B 15% Revenue growth

Liquidity: $0.9B in Cash from

Operations $12.7B in Cash and

Investments

Note: Q2 Financial performance excludes the impact of an $85M dollar tax benefit related to a revised estimate of taxes on the repatriation of earnings under the American Jobs Creation Act of 2004

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PROFITABILITY COMPARISON

Profitability Dell Hewlett-Packard IBMSun

Microsystems

IndustryMedian

MarketMedian2

Gross Profit Margin

17.50% 23.90% 41.40% 42.70% 33.90% 51.90%

Pre-Tax Profit Margin

7.60% 5.40% 28.10% (4.10%) 4.00% 6.20%

Net Profit Margin 6.00% 4.10% 9.50% (4.40%) 2.90% 4.80%

Return on Equity 75.6% 9.6% 26.5% (8.3%) 10.4% 9.4%

Return on Assets 14.9% 4.7% 8.2% (3.8%) 3.6% 1.6%

Return on Invested Capital

45.8% 7.4% 10.9% (5.7%) 6.3% 4.1%

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Using IT and e-networks strategically with customers

Internet based customer services• Online ordering, asset tracking, product road maps, technical

support, highly tailored information, all provided online. Diversification into non-PC businesses for “one-vendor solution”

• Changed name from Dell Computer to Dell, Inc.• Dell sells PCs, servers, printers, storage, networking, software

(e.g., network management), services• Sells add-on software, peripherals, PDAs, cases, cameras, TVs

Promote Dell as company that “knows how ‘E’ works” • Run’s Dell on Dell; corporate customers come to Dell for

advice• Dell has e-services business in partnership with consulting

firms (e.g., Accenture) to capitalize on Dell’s reputation as e-commerce leader

Results: • Dell now #1 PC vendor with Market Share 34.4% in US and 18% globally• Revenue of $49.2 billion in 2005; growth over 30%(units) annually

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Coordinating the virtual company with

IT and e-networksSpeed

• Order-driven processes linked by internal IT and external networks allow only 7 hours of inventory in factory and orders to be filled in 5 days or less

• Entire value network linked by EDI, Internet, extranetsQuality

• Bar coding allows components to be tracked to suppliers when problems occur, stop production and notify suppliers

• Cell assembly allows problems to be fixed on the spot without shutting down production

Cost • Online sales and support saves on call center costs• Supply chain coordination substitutes information for

inventory

Results• Overhead 8% compared to 15% for others •122 inventory turns annually minimizes depreciation•New technologies can be introduced immediately

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Dell’s Direct vs. Industry Indirect model

Strengths of the direct model• Most efficient method of distribution • Extremely low inventories.• Rapid response to customer changes.• Strong relationship with customers

and suppliers.Weaknesses of indirect model

• Time = money (rapid innovation by parts suppliers send value of newly built PCs plummeting quickly).

• Have to discount old technology.• Retailer sends unsold units back to

manufacturer.

Results:Direct vendor Dell has best performance.Dell has forced other vendors to go direct. Industry as a whole has improved performance.

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Industry improvement: Inventory turns

Inventory Turnover for PC firms, 2003 versus 1999 (number of turns) 1 2 1999 2003 Dell Gateway Apple IBM PC Division Compaq PC divisionsa HP Personal Systems Groupb Industry

60 35 12 14 15 - 22

109 36 116 43 - 18 92

3

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DELL Inc – Company Comparison

DIRECT COMPETITOR COMPARISON

DELL HPQ IBM SUNW Industry

Market Cap: 89.29B 60.17B 121.16B 11.79B 112.93M

Employees: 55,200 151,000 329,001 32,600 341

Rev. Growth (ttm):

18.70% 9.40% 8.00% -2.20% 6.20%

Revenue (ttm): 49.21B 81.85B 96.95B 11.20B 116.36M

Gross Margins (ttm):

18.32% 23.87% 37.42% 40.88% 23.94%

Net Income (ttm):

3.04B 3.50B 8.25B 645.00M -153.00K

Above Data shows DELL is a perfect example of a Lean Machine

Enterprise System: servers, workstations, storage, network products

Client Systems: notebooks, PC, printing, imaging systems, software and peripherals

Dell Financial Services (DFS) – joint venture with Citi group

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Less than 50/50 for Short-Term IT Industry Survival

241

111

247

050

100150200250300350400

# of WW PCVendors Trackedby IDC in 1995

# of WW PCVendors Trackedby IDC in 2002

Source: IDC PC Tracker, 1995 & 2002

New Entrants:Low Barriers to Entry

Survivors

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SWOT Analysis Dell

Strengths

The Dell brand is one of the best known and renowned computer brands in the World. Dell cuts out the retailer and supplies directly to the customers. It uses information technology, and Customer Relationship Management (CRM) approaches to capture data on its loyal consumers. So a customer selects a generic PC model, and then adds items and upgrades until the PC is kitted out to the customer's own specification.Dell acts as a assembler not as manufacturer. PC's are assembled using relatively cheap labor. Dell has total command of the supply chain.

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Weaknesses

Within the strengths lies Dell's weaknesses. Much of its strategies have to rely on the capacity and capability of these manufacturing components. Continuous updates and process improvement is required so that they can keep up with Dell's pace of development. High no. of suppliers from a plethora of countries, can cause Dell some embarrassment. Dell is a computer maker, not a computer manufacturer. It buys from a group of concentrated hi-tech component manufacturers. Whilst this is a tremendous advantage in terms of business operations, allowing Dell to focus on marketing and logistics, the company is reliant on a few large suppliers, and to an extent is locked in for periods of time (i.e. unable to switch supply dues to the lack of large suppliers in the World).

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Opportunities

Kevin Rollins replaced Michael Dell in 2004 as Dell's Chief Executive Officer. Michael Dell remained the company's Chairman. Despite founder Dell's massive success, new blood and a change in management thinking could lead the company into a new, even more profitable period. Dell was born in 1965, and founded Dell in 1984 with $1000 whilst studying at the University of Texas. He became the youngest Fortune 500 CEO in 1992, and will be a tough act to follow. Dell is pursuing a diversification strategy by introducing many new products to its range. This initially has meant good such as peripherals including printers and toners, but now also included LCD televisions and other non-computing goods. So Dell compete against iPod and other consumer electronics brands. Dell is making and selling low-cost, low-price computers to PC retailers in the United States. The PC's are unbranded and should not be recognized as being Dell when the consumer makes a purchase. Rebranding and rebadging for retailers, although a departure for Dell, gives the company new market segments to attack with the associated marketing costs. The established value web corporate model have also allow Dell to have global wide access to customers and market. Reaching any niche market in any continent is therefore not a problem for Dell's marketers.

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ThreatsThe single biggest problem for Dell is the competitive rivalry that exists in the PC market globally.Retaliation from competitors and new entrants to the market pose potential threats.Dell sources from Far Eastern nations where labour costs remain low, but there is nothing stopping competitors doing the same - even sourcing the same or similar components from the same or similar suppliers. Dell, being global in its marketing and operations, is exposed to fluctuations in the World currency markets. Changes in exchange rates could leave the company exposed to potential loses in parts of its supply chain.

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Porter’s Five Forces & Analysis: DELL

Threat of New Entrants: MODERATE

Low capital investment for independent storesLow product differentiation

• Brand name may be a barrier to entryLow economies of scaleNo legal or governmental barriersDecreasing profitability shows that there is a threat of new entrants

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High concentration

Price War: Low Margin

Decreasing profitability

Low differentiation

However, in the midst of sever competition, Dell can still gain market share from other competitors. That proves Dell’s business strategies have been successful.

Rivalry: HIGH

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Strong presence of PC’s throughout society• One computer for every three people in the U.S.

Only substitute for PC: Apple Computer. However, high price, and lack of software support

prevent people from switching to Apple system.

Threat of Substitutes: LOW

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Highly price sensitive

Reliability and customer service become important factors.

Dell’s products are very reliable and customer service is outstanding. These two factors help Dell to create certain brand royalty. But that’s given the fact that the Company set the prices very low. If the prices are raised too high, customers will not hesitate to switch.

Bargaining Power of Buyer: High

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Bargaining Power of Suppliers: HIGH

Large number of suppliers for components like hardware, keyboards, etc.

But two major inputs are monopolized• Microsoft standard for all PC’s• Intel standard for most PC’s

High switching costs

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DELL INDIAAs part of this globalization strategy, Dell established a sales & marketing office in Bangalore in 1996, and its first India customer contact centre in Bangalore in May 2001 followed by a similar centre in Hyderabad in 2003, and in Mohali on 21 March 2005

Manufacturing facility in India in 2007. It will be Dell’s fourth plant in Asia after two in China and one in Malaysia

Due to competitive pricing strategy in INDIA, sales jumped 63 per cent year on year and achieved 82 per cent growth in shipments.

The company gained on the back of the customers’ strong preference for standards-based technology and Dell’s direct model in India.

Shipment growth in the country was biggest among the three emerging markets — China, Brazil and India. Also it is likely to capture 20-30 per cent of the market share in India in the next few years.

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DELL Inc – The Success Secret

Internet coupled with Direct Business Model - sell directly to end customers instead of intermediate distributors, resellers.Virtual Integration - using sophisticated CRM, SCM systems at respective ends as well their integration - already integrated with 38 procurement and ERP systems across all its clients - vendors – Ariba, SAP, PeopleSoft, J.D. Edwards – Dell integrated with their ERP (Source: Rob Rosenthal, Dell’s B2B web site strategy, October 2003, IDC #30202)Selling Points - Internet, B2B (Premier Pages), Phone-calls, Mass catalog mailingsDo not Just sell Products – sell Values - client asked to put tags on their computers - proactive in solving clients pain points – preloaded softwareDell was much less mature compare to IBM and HP at time when Internet took off – required much less effort to adapt its systems to Internet technologies. IBM and HP’s core competency was product innovation and development, Dell’s expertise was in assembling and catering to business needs.

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Dell Inc – Boundaries of Direct Business Model ?

Have other manufacturers been able to do this?  Why or why not?  Is this model bounded in the PC industry?

• Presently HP is using the Direct Model. Supposedly Compaq’s strong direct sales model helped HP after the merger. Prices are in comparison to Dell.

• Source - www.ecommercetimes.com/story/19385.html

• Compaq emulated the model before merger with HP.

• Dell had better profitability management.

• Source - http://www.findarticles.com/p/articles/mi_m0DTI/is_12_31/ai_111163644

• Local computer vendors

• B2B markets – common meeting point for manufacturers and institutional consumers.

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Customer Lessons Learned

Form a direct model that specializes on market segments or customer types.

Know EXACTLY what the customer wants and then provide it.

Price is not a sustainable competitive advantage.

Sustain loyalty through customers and employeesResponse TimeQuality ProductsValuable FeaturesMake the Experiencing of Products EASY

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Dell Inc – Key Questions

Is the Direct Business Model a new model ?

No, its not ! – all the primitive businesses used to trade like this – today hotdog stands all over Manhattan is an example of that model on small scale

What new emerging technologies will push this further ?

- SOA will help refine and innovate these and perhaps new similar kind of business models by reducing operational and transaction cost.

- Web Services will remove human interaction further – reducing cost for example:

- SLA will be negotiated by software agents - Vendors selection based on their expertise will be automated

- Long life Lithium ion batteries increased sales- RFID tags can further streamline the supply chain, inventory and shipment tracking process

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? Thank You >

Three golden rules at Dell : Three golden rules at Dell : `Disdain inventory' `Disdain inventory'

`Listen to the customer' `Listen to the customer' `Never sell indirect' `Never sell indirect'