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Dell Computer Corporation

FOUNDED: 1984

Contact Information:

HEADQUARTERS: 1 Dell Way
Round Rock, TX 78682-2222
PHONE: (512)338-4400
FAX: (512)728-3653
TOLL FREE: (800)289-3355
URL: http://www.dell.com

OVERVIEW

Dell Computer Corporation is the world's leading direct seller of computer systems. The company's direct marketing practice allows it to offer its products at lower prices than retailers or value-added resellers. The company sells computers assembled to order. The company sells predominantly to corporate accounts, but its 2001 home computer sales grew by 38 percent over the previous year. In the fourth quarter of 2001, home computer sales were particularly strong, up 56 percent from the third quarter. The increase coincided with the company's "Dude, you're gettin' a Dell" television advertising campaign.

Dell has expanded rapidly, and sometimes it appeared the company could not control its own growth. After establishing itself as a leader in the direct marketing sector, Dell attempted to move into retail stores with an expanded product line but was unsuccessful. Refocusing on its core strategy and hiring experienced managers helped put Dell back on the right track. In mid-1998 Dell's stock reached a high of $114.25 per share; in 1990 it could have been purchased for __BODY__.23 per share.

Michael Dell founded the company in his dorm room as a freshman at the University of Texas. He bought excess components from companies; built and sold computers; and offered over-the-telephone support. He realized that customers wanted low-priced computers that offered the most current technologies and came with a good service plan. To save consumers money, Dell sells and ships directly to the customer. Dell also builds its computers to order, eliminating the need for customers to buy more than they need.

The emergence of the Internet allowed customers to place orders online. Internet sales reached $6 million per day by mid-1998. The direct sales strategy worked to Dell's advantage, as more tech savvy consumers began to shop online and custom order their computers. Two years later in 2000, online sales had topped $50 million per day and 840 million page requests per quarter. The company also used the Internet to boost sales overseas by offering Web sites targeted to 82 country sites in 21 languages.

COMPANY FINANCES

Dell's sales for fiscal year 2001 were $31.9 billion, up 26.2 percent from 2000 sales. Net income rose 42.8 percent, to __BODY__.2 billion in 2001. In 2001 Dell's Web site generated $50 million per day in sales. As the company grew, its stock also grew in value. From 1990 to May 1998 the stock price went from __BODY__.23 per share to $68.00, an increase of 29,600 percent. For a 52-week period in 1997-98, the company's stock reached a high of $114.00; with a low of $35.00. Dell does not pay dividends to shareholders, preferring to reinvest in the company. The stock has split a number of times—July 25, 1997; March 6, 1998; September 4, 1998; and March 5, 1999—and shareholders were awarded additional shares.

ANALYSTS' OPINIONS

Corporate leaders, investors, analysts, and industry watchers track Dell Computer Corporation. The company pioneered the concept of direct marketing in the computer industry. Whether or not the company continues to lead the industry will be determined in time. Some analysts praise the company and its simple yet radical idea of direct marketing. As one analyst said, "Who wouldn't want to sell directly to the customer?"

With computer and technology companies reporting less than expected sales and revenues in 2000 and 2001, analysts are waiting to see how Dell will respond to new market conditions. By mid-2001 almost every personal computer (PC) manufacturer, except Dell, had realized a drop in sales and market share. Dell is expected to remain a leader, as other PC makers try to emulate Dell's approach.

HISTORY

Michael Dell was a freshman at University of Texas when he began selling computer components from his dorm room. He opted to pursue a career in business rather than continue with another three years of colleage as a pre-med student. He went into business for himself as a reseller of IBM PCs. At that time dealers were forced to make huge purchases from IBM, which was not practical for a single salesman. He offered to take IBM's excess stock and sell it for them. His discounts of 10 to 15 percent represented a healthy markdown. Soon the burgeoning market for personal computers transformed Dell's dorm space into more office than living quarters, and he dropped out of college to devote his time to making IBM clones.

FAST FACTS: About Dell Computer Corporation

Ownership: Dell Computer is a publicly held company trading on the NASDAQ Stock Exchange. Michael Dell owns slightly more than 12 percent of the company.

Ticker Symbol: DELL

Officers: Michael S. Dell, Chmn. and CEO, 36, $2,560,770; Kevin B. Rollins, President and CEO, 48, __BODY__,847,385; James T. Vanderslice, PhD., Vice Chmn. of the Board, 60, __BODY__,900,722; Joseph A. Marengi, SVP and Gen. Mgr., 47, $923,701; Morton L. Topfer, Dir., 64, $872,500

Employees: 40,000

Principal Subsidiary Companies: Dell has 75 subsidiaries worldwide.

Chief Competitors: Dell competes with other computer companies, both direct marketing and retail. Some primary competitors include Hewlett-Packard, Gateway, and IBM.

Dell was no ordinary company and Michael Dell was no ordinary entrepreneur. Dell Computer Corporation was not the first time Michael had reinvented a way to sell a product. When he was 12, Michael held an auction to sell stamps; it netted him __BODY__,000. As a senior in high school, he sold newspapers, making $18,000. His secret was the old business adage: know your customer. Since new residents and newlyweds were the most likely subscribers, Michael researched marriage licenses and real estate transfers to solicit customers. At college Michael decided he could give computer owners better service via telephone than the original store sales people could. His experiences taught him that customers often knew more about computers than the people selling them. Eventually, Michael formulated his goal: to compete head-to-head with IBM.

Dell, the man and the company, were pioneers in direct marketing of computer system. Despite management problems in the mid-1980s, the fledgling company plodded on. The name, Dell Computers, was not affixed to the operation until about 1987, when staff was added to sell to government and corporate accounts. A year later the company went public with a $34.2 million initial public offering.

The company's growth was rapid—going from $546 million in fiscal 1991 to $2 billion in 1993. In 1993 the inexperience of top management, especially Dell himself, became an obvious problem. With sales of about $3 billion in 1993, the company still posted a loss of nearly $36 million. Of greater concern was the fact that Dell lost ground to rival computer makers Packard Bell and Gateway and fell from fifth to sixth place in the market. The stock began to fall as well. In January 1993 it was worth $49 per share, by July it hit a low of $16 per share.

The biggest problem facing Dell in 1993 was the inability to track profit and loss by product type. The company had no idea which products were bringing in money and which were losing money. Experienced managers and high-level executives were retained to put the company back on track. The company returned to its core products and customers, and was rewarded with soaring sales, income, and stock prices.

STRATEGY

Dell's strategy is simple: the customer deserves the best product, at the best price, with the best service. Not only that, the customer deserves the product he wants. Dell computers are made to order so customers get exactly what they want, which is a stark contrast to many retail computer stores, where customers end up buying more computer than they need. Since Dell knows what the customer wants, it can more accurately predict future needs and develop products based on those needs. Dell also offers superior customer service, providing on-site service for its computers for one year and offering extended warranties.

Dell runs its procurement, manufacturing, and distribution processes in the most efficient manner possible. By selling direct and making computers to order, Dell reduces its inventory and the risk of the parts becoming obsolete. The company only keeps about 8 days of inventory on hand, versus the industry average of 8 to 12 weeks. This strategy allows Dell to be one of the first companies to capitalize when prices fall at the wholesale level. Unlike retailers, Dell doesn't need a network of wholesalers and distribution centers. It can sell at lower prices because there are no middlemen, no need to carry a high inventory, and no need to spend time and money competing for shelf space in retail stores. Dell maintains good working relationships with the top technology companies. Obtaining input from these companies allows Dell to design computers using the best technology available. Dell spent $204 million on research and development in 1998, up from $126 million in 1997.

INFLUENCES

After making a tremendous start, the company faltered in the early 1990s. Direct selling worked well, and Dell decided to offer retail units to capture more sales. Customers didn't respond, however, and Dell withdrew from the retail market. Dell aggressively expanded its product line but had little success in new markets. Michael Dell learned from the experience and refocused his efforts on streamlining operations. He also hired more experienced executives to help run the company. By 1994 the company returned to its core strategy of quickly delivering the best technology to suit the needs of its customers at a low price with excellent service.

CHRONOLOGY: Key Dates for Dell Computer Corporation

1984:

Michael Dell drops out of the University of Texas to found Dell Computers

1988:

Dell goes public, opens a London office, and forms a Canadian subsidiary

1990:

Subsidiaries in Italy and France are set up; Dell ranks number one in J.D. Powers & Associates' first survey of PC-customer satisfaction

1993:

Digital Equipment Corporation surpasses Dell to become the biggest computer mail order company

1998:

Dell and Gateway, Inc. are announced as the only PC companies to turn a profit

1999:

Dell opens manufacturing facility in Eldorado Do Sul, Brazil, to serve Latin America

2000:

Company's daily sales via Internet reach $50 million

2001:

Dell ranks No. 1 in global market share

CURRENT TRENDS

Dell started the trend for direct sale, made-to-order computers. While the industry averaged a growth rate of -12 percent for shipped units in 2001, Dell's growth rate was 11 percent. While the industry tried to catch the wave Dell created, it was busy engineering the next business model. This includes reducing the shelf life of inventory, offering even better customer service, tapping into Internet markets, and turning first time customers into repeat customers.

Dell jumped on the Internet bandwagon with enthusiasm. A natural extension of direct sales, the Internet offers customers a place to look at Dell products and offerings at their leisure. In 1997 sales from the Internet site topped __BODY__ million per day; a year later daily sales reached $6 million. In 2001 sales had reached $50 million per day. In addition, Dell is using the Internet to increase international sales; the company has designed more than 82 country-specific Web sites.

To keep customers coming back, Dell offers a lease program on some of its computers. This program has proved popular among customers concerned with the costs associated with replacing rapidly obsolete technology. The program also appeals to customers who do not want to invest a large sum of money at once. Monthly payments of under $65 represent an affordable risk. Operating much like a car-easing program, the Dell Personal Lease program lasts from 2 to 3 years, has no up-front costs, and allows the customer to buy the computer at the end of the lease. The final price is 15 percent of the computer's original price after a three-year lease or 22 percent after a two-year lease. Gateway, Dell's direct-selling competitor, has gone one step further. Gateway's program offers free Internet access during the lease term and allows the customer to trade the omputer in after two years for a newer one.

PRODUCTS

Dell offers two models of desktop computers: the OptiPlex and Dimension. The OptiPlex is suited for larger companies and institutions requiring network capabilities. It also allows for remote manageability and control. The Dimension line is tailored to meet the needs of small businesses and individuals. This line includes models with cutting edge technology, as well as basic, low cost units. Dell also sells two lines of notebook computers. The Latitude serves business customers and has networking capabilities, and the Inspiron, introduced in late 1997, is for users needing the latest in technology and multimedia capabilities.

During 1998 the company expanded its product lines to include high-performance workstations, forming a special business unit to take care of this new market. The Workstation products run the Microsoft Windows operating software and are for businesses seeking advanced technology to run sophisticated programs. The Workstations are for those who work in industries such as computer-aided design and software development.

Dell also offers network servers, software, and accessories. The company will install off-the-shelf software, such as Microsoft Office or a company's own, specifically designed software. Dell has many different service and support options customized to the customer's needs.

CORPORATE CITIZENSHIP

Dell believes in investing in the community, especially its home base of Austin, Texas. The Dell Foundation, through cash and non-cash donations, partners with non-profit organizations, especially those dealing with children. The company provides corporate sponsorship of various programs in the community. Dell also encourages charitable donations and the volunteer efforts of its employees. In addition to charitable efforts, Dell tries to maintain a positive economic impact in communities and to be an environmentally aware company.

GLOBAL PRESENCE

Approximately 30 percent of Dell's sales are derived outside the United States. The company's products are sold in more than 170 countries, covering three geographic regions. The Americas include the United States, Canada, and Latin America. The European region covers European countries, as well as areas in the Middle East and Africa. The Asia-Pacific-Japan region includes the Far East, Japan, Australia, and New Zealand.

In addition to its manufacturing facility in Austin, Texas, Dell has facilities in Limerick, Ireland, and Penang, Malaysia. By the end of 1998, Dell had opened a second plant in Limerick and one in Xiamen, China. In 1999 Dell opened a manufacturing facility in Brazil. In all, Dell has 39 subsidiaries in 33 countries. In 1998 the company held a 10 percent share of the worldwide market. However, the company anticipated increasing to a 20 percent share. In 2001 Dell's market position was second in Europe, fifth in Japan, and had grown by 37 percent in the Middle East.

EMPLOYMENT

Dell invites technology professionals to "Make your mark at Dell." Offering the opportunity to work at a revolutionary company with plenty of potential for growth, Dell also links the company's success directly to each employee. Dell offers its employees stock options, profit-sharing, and incentive programs.

SOURCES OF INFORMATION

Bibliography

Corcoran, Elizabeth. "The Direct Approach." Washington Post, 1 July 1998.

"Dell Computer Corporation 10-K Form," April 2002. Available at http://www.sec.gov.

"Dell Computer Corporation." Hoover's Guide to Computer Companies. Austin, TX: The Reference Press, 2001.

The Dell Computer Home Page, 30 March 2001. Available at http://www.dell.com.

"Dell Internet, Overseas Sales Up." Reuters , 17 July 1998.

Durhahm-Vichr, Deborah. "Computers: Let the Price Wars Begin." E-commerce Times, 2 May 2002.

Einstein, David. "Dell, Gateway Use Payment Plans to Attract Buyers." San Francisco Chronicle, 10 July 1998.

Jacob, Rahul. "The Resurrection of Michael Dell." Fortune, 18 September 1995.

Kirkpatrick, David. "No Big Deal Why Michael Dell Isn't Afraid of the New Compaq." Fortune, 2 March 1998.

McGraw, Dan. "The Kid Bytes Back." U.S. News & World Report, 12 December 1994.

Serwer, Andy. "Michael Dell Rocks." Fortune, 11 May 1998.

"Why Compaq Envies Dell: The Leading Maker Alters Course." Fortune, 17 February 1997.

For an annual report:

on the Internet at: http://www.dell.com or write: Investor Relations, Dell Computer Corp., 2214 W. Braker Ln., Austin, TX 78758

For additional industry research:

Investigate companies by their Standard Industrial Classification

Codes, also known as SICs. Dell Computer Corporation's primary SICs are:

7371 Computer Programming Services

7372 Prepackaged Software

7373 Computer Integrated Systems Design

7376 Computer Facilities Management

7378 Computer Maintenance & Repair

7379 Computer Related Services, NEC

Also investigate companies by their North American Industrial Classification System codes, also known as NAICS codes. Dell Computer Corporation's primary NAICS codes are:

334111 Electronic Computer Manufacturing

334119 Other Computer Peripheral Equipment Manufacturing

454110 Electronic Shopping and Mail-Order Houses

511210 Software Publishers