Dell’s Future Beyondthe PC Business

MOT 5223James Groh ● Stuart Bankey ● Ryan Zapata ● Daniel Montemayor

Overview of IndustryIndustry Background:

• The industry is highly concentrated, with the four largest companies controlling 79.9% of industry revenue. During the five years to 2011, fierce competition has made computer manufacturing an increasingly commoditized business.

• Despite declining revenue, domestic demand for computershas increased during the past five years highlighted by the increasing proportion of Americans that own computers.

Industry Life Cycle

Competitors Position

The industry is highly concentrated, with the four largest companies controlling 79.9% of industry

revenue. Major players have been extremely aggressive in acquisitions during the past five

years, and IBISWorld expects further concentration of industry revenue in the future as these

acquisitions continue.

Overview of Dell

Dell has shifted its strategy toward higher margin products. For instance, Dell is expanding its enterprise

solutions and services, which include servers, networking, storage and related services.

To achieve growth in this category, Dell expects to

leverage its existing customer base, partner

with other companies and invest in strategic

acquisitions.

Dell’s LeadershipMichael Dell built this company in the personal computer

business. The company has changed considerable, especially since Michael Dell returned as chief executive

in January 2007.

“A lot of people think of Dell as what it was five or 10 years ago,

but we’ve moved much more into the core of information technology, into the

data center.”

Problem

• What is the problem?

– “Just a PC company.”

– How to expand into services for mid-sized businesses?

Problem

• Root Cause– 2005 stock price drop. • $40.29/share to $30.64/share• Continued to drop in 2006 ($26.16/share

EOY 2006)

– Lost #1 title to HP

– Customer service problem

Problem

Problem

• Root Cause (conti.)

– Lost #1 title to HP

– Customer service problem

Problem

• Turning Point–Mr. Dell’s return as CEO in January 2007.

• Controlling Points– Focus of company– Current and future product portfolio

Problem Summary

• Dell was number 1 but lost it shortly after Rollins took over.

• Michael Dell returned and determined the company’s difficulty were are result of the lack of services.

PC Vendor Unit Shipment Estimates 4th Quarter 2011

Company 4Q11 Shipments

4Q11 Market Share (%)

4Q10 Shipments

4Q10 Market Share (%)

4Q11-4Q10 Growth (%)

HP 4,137,833 23.1 5,598,619 29.4 -26.1

Dell 4,020,549 22.4 4,210,000 22.1 -4.5

Apple 2,074,800 11.6 1,718,400 9.0 20.7

Toshiba 1,925,100 10.7 1,968,091 10.3 -2.2

Acer Group 1,756,838 9.8 1,982,477 10.4 -11.4

Others 4,014,644 22.4 3,583,418 18.8 12.0

Total 17,929,764 100.0 19,061,005 100.0 -5.9

iPad eats PC market share

• Improvements to the iPad turn it into a potential PC replacement for more and more people.

• More powerful chips mean more sophisticated aps can reside on the iPad.

• The iCloud should make the iPad's limited storage capacity less relevant.

• Built in LTE makes the tablet an attractive alternative for travelers who don’t want to hunt for a Wi-Fi hotspot.

Reaction to Problem

• Since 2007 Dell has grown by both increasing its customer base and through acquisitions.

• Dell has expanded into new markets. Most notably business services.

• As of February 27, 2012, 47,000 out of Dell’s 110,000 employees work in business services

• $7.7 billion a year business and about 12% of total revenue.

Dell’s Server Division

• One notable acquisition was of Perot Systems, in 2009, which had a large health consulting and services business.

• Dell is now the #1 provider of health technology services

• The company stores more than 4 billion medical images in its data centers, so hospitals do not have to grapple with that chore on their own.

Dell’s Server Division (cont.)

• In addition to acquiring companies. Dell has innovated.

• Server customers have many diverse choices and often cannot afford comprehensive upgrades.

• Therefore, Dell’s products must work with all kinds of new and older networking and data storage equipment.

Dell’s Server Division (cont.)

• Dell servers run at 5 watts (about as much as a night light).

• They manage internal temperature, since a machine’s cooling fans use more power than anything else.

Midsized Businesses Services

• Michael Dell believes the big potential market is offering services to midsize businesses, typically companies with from a few hundred to a few thousand employees

• According to him, Rivals I.B.M. and Hewlett-Packard, have a more costly business models aimed at large corporations.

Midsized Businesses Services (Cont.)

• On February 10, 2010 Dell acquired KACE Networks, a leader in Systems Management Appliances.

• Dell stated it was buying KACE to expand its systems management offerings to better address IT administrators in mid-size organizations.

Midsized Businesses Services (Cont.)

• Support Services• Configuration and Deployment• Cloud and IT Management• Business Continuity and Protection• Training Services

Our Evaluation of Dell’s case

• Do we agree with the Dell’s decision to evolve into more of a services company?– YES!!! – Helps diversify its business– IT industry is evolving; get with the program…– Maintain their “affordable and efficient”

tradition– Affordable & Efficient Hardware + Service = $$

$

+ =

Our Evaluation of Dell’s case

• What would we do to remedy the problem at hand?–What problem? – Dell already in most midsized

datacenters– Service via cloud or data center

management– Develop a sound market strategy– Continue to appeal to medical

information record management organizations

Our Evaluation of Dell’s case

• Breakdown on their decision– Dell is trying to be recognized as

more than a hardware– Already has a foot in the

datacenter door with their hardware

– Continue to appeal to midsized datacenters

– Companies may look to Dell for both hardware and service needs

Our Evaluation of Dell’s case

• Competition?– HP, IBM and other IT service support

organizations. • IBM – “Building a Smarter Planet”• HP – Has HP Services division in government

market

• Harris IT Services (My Company)– Division of Harris

• Has numerous IT services support contracts– Medical & Dental– Commercial and Government Sectors

Our Evaluation of Dell’s case

• What if we were against the services initiative?– Dell may have lost out on millions if not

billions– Could have filed for bankruptcy

Our Evaluation of Dell’s case

• Remember, “If there is a will there is a way”– Don’t overlook these IT giants evolving their

business into service oriented businesses

– One multi million dollar service contract can make a difference

Our final thoughts…

• Dell will need to market themselves as a reputable service leader

• Focus on IT service for midsized businesses

• Continue going after medical IT market• Perhaps price leverage their hardware and

service into an affordable bundle plan• Spend a little now to continue making

billions…

Sources:

• http://bits.blogs.nytimes.com/2012/02/27/dell-is-hoping-its-more-than-a-server-company/

• http://bits.blogs.nytimes.com/2011/05/02/dells-future-beyond-the-pc-business/

• http://content.dell.com/us/en/business/smb-services.aspx?c=us&l=en&s=bsd&~ck=mn

• http://www.zdnet.com/blog/btl/dell-acquires-kace-expands-systems-management-to-mid-size-business/30687

• http://blog.chron.com/techblog/2012/01/pc-makers-see-their-markets-shrink-while-apples-grows/

• http://www.slate.com/blogs/moneybox/2012/03/07/apple_gunning_for_pc_market_with_new_ipad.html