Dell : The World's Fastest Growing Pc Market

In 1994, Dell made the bold decision to remove their products from retail stores and focused on direct to customer sales. In 1996 Dell began selling through their website which is to this day their most successful sales channel. By eliminating their retail store presence Dell was able to reduce costs on multiple fronts, reduce inventory, and maximize profits. Dell created an order system which allowed customers to specify and select options, components and features they wanted on their Dell device. Dell 's just in time inventory system lowered inventory holdings to just 3 days from 9 days and storage costs were thus minimized significantly. In 1995, Dell entered the Chinese market where a population of 1.3 billion was a great opportunity to create a significant market presence; IBM, Compaq, and Hewlett-Packard had all penetrated the Chinese market prior to this date and had opened offices in China during the early 1990’s. It wasn’t long before Dell proved to be worthy competition with not only international companies but also with local companies like Toshiba, Samsung, NEC and Acer. With so

The economic segment is an important threat to Dell. Dell faces significant challenges in the midst of the current economic recession. Forrester Research analyst Andrew Bartels predicts “the brunt of the slowdown in IT spending will hit servers and PCs,” which is Dell’s primary market. The worst-case scenario for IT spending in 2009 will be no growth in the United States, and IT expenditures are expected to shrink in Europe (Hitt). Dell’s first quarter Net Revenue fell by 23 percent. In 2009, the Large Enterprise segment, the companies’ largest commercial revenue stream, dropped 31 percent to $3.4 billion and operating margins of 5.7 percent. Also, revenues for the public, SMB, and consumer segments all dropped an average of 19.2 percent in 2009. Publicly traded on the NASDAQ, Dell has been a volatile stock over the past year with a high of $26.04 and a low of $7.84 per share. Dell’s 12-month stock performance is -48.29 percent, which is due in large part to the global recession.

The proposal presented herein gives the background information of Dell Computers Corporation highlighting the current operation for the manufacture of computers. The proposal highlights the potential of the company to increase its market share and profitability through change of its culture from order based to inventory base.

Dell Computer Corporation was founded in 1984 by Michael Dell. From the early 1990s until the mid-2000s, Dell was ranked as a PC market leader relying on their distinctive marketing pattern “Direct Model” which undertook direct communication with customers and provided customized products. Recently, the PC industry is facing inconceivable worldwide competition, and Dell is gradually losing their competitive advantages by using its direct model in critical business segments. The company is facing shrinkage of growth, increasing competition, declining quality of customer service, and limitation of expansion. These issues have an enormous impact on Dell’s position as a technological giant in the PC industry.

Affordability of latest technology through Direct Sales Services - Dells uses direct customer relationship or as it calls it “customer intimacy” as its distribution strategy. This means meeting customer needs directly and cutting middleman interference as much as possible. This is done either through dedicated sales representatives, telephone based sales and online at www.dell.com. As a result, the purchase price would be lower than other competitors.

It involves differentiating their products and services to be consistent which such markets as the home, and home office markets, small business, medium and large business, government, education and healthcare markets. In reference to the levels of a product, both firms market products and services with the same core benefit or service.

The technology industry is one predicated on constant innovation. Products within the field must provide a compelling value proposition for consumers in order to properly maintain both margins and revenue. Technology companies, particularly those who manufacture products are realizing decreasing margins as the competitive environment matures (Bodie, 2004). Competition for foreign competitors has reduced margins and subsequently profit margins. Cost conscious consumers are now purchasing product based primarily on price rather than specifications. Combine this fact with the macroeconomic factors prevailing in the market and the industry has significant headwinds going forward one year from now. This is particularly true of Dell who has seen an erosion of market share due to the influx and demand of tablet computers. Less demand for traditional laptops has also decreased the profit and operating margins of the firm. Even within its own market, Dell has encountered significant competition for rivals such as HP, IBM, and Microsoft who recently announced its own tablet (Scheck, 2008). Below is a chart indicating markets share within the PC market over the last decade. Notice that market share gains after the housing market collapse have deteriorated. This reflects changing consumer sentiments regarding the overall purchase of PCs and heightened demand for alternative products such as tablets and notebooks.

Dell has always been one of the largest PC makers in the United States. Recently, though its share of the PC industry has been declining. It went from the number one low cost provider of PCs in the world to number 3. Its inability to adapt to the new markets that have emerged has caused the company to fall behind other hi-tech companies such as IBM, Apple, and even HP. I feel this is an important topic because it is an example of a large company that has lost touch with what consumers want and is currently trying to restructure itself in order to gain back the dominance they once had. Consequently, Michael Dell has announced his decision to attempt a leverage buyout in order to retain control of his company. Furthermore,

I presently work for IBM. The case discusses how IBM’s famous hardware division of personal computing/Thinkpad was sold-off to a Chinese firm Lenovo who had no presence in the market and who was hardly known for laptops. Its only presence was in the Chinese market and no-where else in the world. The case further discusses the Merger and Acquisition of the hardware division of IBM and what challenges were faced by Lenovo and what should be done to overcome those problems.

The business model of dell which concentrates on a built to order framework where the middleman is removed and PCs are sold directly to the end buyer

Both Dell and HP are two strong players in PC industry which refers to an industry where companies produces PCs (desktops and notebooks), handheld devices (smart phones and tablets), and workstations. However, with growing global expansion, Dell and HP’s performance differs. Dell, once the world’s largest PC maker in 2001, has continually lost its market share to HP and Acer since 2007 (Guglielmo 2009). The cause is rooted in two differences of these companies: company diversifications and core competences. Therefore, how firms can continually survive in the PC business is more of an issue for Dell than for HP.

It is well known that Lenovo is the world’s second-largest PC vendor ,as well as the China’s second-largest smartphone company, manufacturing desktops, smartphones, tablets and smart TVs and own accessories (Lenovo website, n.d.). Having changed its name to “Lenovo” since 2003, the company has decided to expand its market outside China by carrying out a series of effective management strategies, particularly in PC+ strategy, multi-brand strategy, “protect and attack” strategy and global-local strategy. Depending on the seasonable adjustment for the rapidly changing markets, Lenovo currently already has obtained trust and loyalty from millions of consumers

Lenovo Group Limited is today the largest information technology enterprise in China and the third largest computer company in the world which is has an 8.6 per cent share of the PC market, after Hewlett-Packard at 15 per cent and Dell of the US at 16.8 per cent. During its first 20 years, Lenovo evolved from a small distributor of imported computers into China’s leading computer firm and in 2005, it purchased IBM’s division. Lenovo has been the market leader for seven consecutive years, commanding a 27 per cent share of the domestic PC market. It is also the market leader in the Asia Pacific region (excluding Japan), with a market share of 12.6 per cent.

Dell’s research and development wing is relatively poor in developing new products or in investment for research purposes. According to Data Monitor report Dell has relatively weak research, development and engineering (R&D) capabilities compared to its major competitors. The company 's R&D spending has been lower than its competitors. Dell 's R&D expenses were $661 million, $624 million respectively, during financial year 2011 and financial year 2010. By contrast, its main competitors such as HP reported R&D spending of $3,000 million and $2,800 million in financial year 2010 and 2009; and IBM reported R&D spending of $6,026 million and $5,820 million, respectively, in financial year 2010 and 2009. Furthermore, the company 's R&D spending as percentage of total revenues was 1.1% in financial year 2010, compared to HP (2.4%), and IBM (6%) (Data Monitor report). These numbers shows that Dell is lacking inputting impetus to its R&D wing which may impact its growth in highly competitive, rapidly changing and dynamic technology market. As a result Dell has significantly less number of patents than it competitor like HP and IBM. At the end of financial year 2011,

One of the largest technology company in the world, Lenovo had a humble beginning as a small Chinese firm founded in 1984. The company showed modest growth throughout the rest of the 20th century. It wasn’t until the company’s acquisition of IBM’s personal computer business in 2005 (Martin, 2014) that the company began to gain prominence in the technology industry. Lenovo’s innovation and strategic decision making has allowed the company to evolve on a global platform and enabled it to become one of the leading technology companies in the market today.