Dell sells personal computers (PCs), servers, data storage devices, network switches, software, computer peripherals, HDTVs, cameras, printers, MP3 players, and electronics built by other manufacturers. The company is well known for its innovations in supply chain managementand electronic commerce, particularly its direct-sales model and its "build-to-order" or "configure to order" approach to manufacturing—delivering individual PCs configured to customer specifications.[4][5] Dell was a pure hardware vendor for much of its existence, but with the acquisition in 2009 of Perot Systems, Dell entered the market for IT services. The company has since made additional acquisitions in storage and networking systems, with the aim of expanding their portfolio from offering computers only to delivering complete solutions for enterprise customers.[6][7]
Dell was listed at number 51 in the Fortune 500 list, until 2014.[8] After going private in 2013, the newly confidential nature of its financial information prevents the company from being ranked by Fortune. In 2014 it was the third largest PC vendor in the world after Lenovo and HP.[9]Dell is currently the #1 shipper of PC monitors in the world.[10] Dell is the sixth largest company in Texas by total revenue, according to Fortunemagazine.[11] It is the second largest non-oil company in Texas – behind AT&T – and the largest company in the Greater Austin area.[12] It was apublicly traded company (NASDAQ: DELL), as well as a component of the NASDAQ-100 and S&P 500, until it was taken private in a leveraged buyout which closed on October 30, 2013.
Dell traces its origins to 1984, when Michael Dell created Dell Computer Corporation, which at the time did business as PC's Limited,[13][14] while a student of the University of Texas at Austin. The dorm-room headquartered company sold IBM PC-compatible computers built from stock components.[15] Dell dropped out of school to focus full-time on his fledgling business, after getting $1,000 in expansion-capital from his family. In 1985, the company produced the first computer of its own design, the Turbo PC, which sold for $795.[16] PC's Limited advertised its systems in national computer magazines for sale directly to consumers and custom assembled each ordered unit according to a selection of options. The company grossed more than $73 million in its first year of operation.
In 1986, Michael Dell brought in Lee Walker, a 51-year-old venture capitalist, as president and chief operating officer, to serve as Michael's mentor and implement Michael's ideas for growing the company. Walker was also instrumental in recruiting members to the board of directors when the company went public in 1988. Walker retired in 1990 due to health, and Michael Dell hired Morton Meyerson, former CEO and president of Electronic Data Systems to transform the company from a fast-growing medium-sized firm into a billion-dollar enterprise.[17]
The company dropped the PC’s Limited name in 1987 to become Dell Computer Corporation and began expanding globally. In June 1988, Dell's market capitalization grew by $30 million to $80 million from its June 22 initial public offering of 3.5 million shares at $8.50 a share.[18] In 1992, Fortune magazine included Dell Computer Corporation in its list of the world's 500 largest companies, making Michael Dell the youngest CEO of a Fortune 500 company ever.[19]
In 1993, to complement its own direct sales channel, Dell planned to sell PCs at big-box retail outlets such as Wal-Mart, which would have brought in an additional $125 million in annual revenue. Bain consultant Kevin Rollins persuaded Michael Dell to pull out of these deals, believing they would be money losers in the long run.[20] Margins at retail were thin at best and Dell left the reseller channel in 1994.[21] Rollins would soon join Dell full-time and eventually become the company President and CEO.
Growth in the 1990s and early 2000s
Originally, Dell did not emphasize the consumer market, due to the higher costs and unacceptably low profit margins in selling to individuals and households; this changed when the company’s Internet site took off in 1996 and 1997. While the industry’s average selling price to individuals was going down, Dell's was going up, as second- and third-time computer buyers who wanted powerful computers with multiple features and did not need much technical support were choosing Dell. Dell found an opportunity among PC-savvy individuals who liked the convenience of buying direct, customizing their PC to their means, and having it delivered in days. In early 1997, Dell created an internal sales and marketing group dedicated to serving the home market and introduced a product line designed especially for individual users.[21]
From 1997 to 2004, Dell enjoyed steady growth and it gained market share from competitors even during industry slumps. During the same period, rival PC vendors such as Compaq,Gateway, IBM, Packard Bell, and AST Research struggled and eventually left the market or were bought out.[22] Dell surpassed Compaq to become the largest PC manufacturer in 1999. Operating costs made up only 10 percent of Dell's $35 billion in revenue in 2002, compared with 21 percent of revenue at Hewlett-Packard, 25 percent at Gateway, and 46 percent at Cisco.[23] In 2002, when Compaq merged with Hewlett Packard (the fourth-place PC maker), the newly combined Hewlett Packard took the top spot but struggled and Dell soon regained its lead. Dell grew the fastest in the early 2000s.[4]
Dell attained and maintained the number 1 rating in PC reliability and customer service/technical support, according to Consumer Reports, year after year, during the mid-to-late 90s through 2001 right before Windows XP was released.
In 1996, Dell began selling computers through its website.
In the mid-1990s, Dell expanded beyond desktop computers and laptops by selling servers, starting with low-end servers. The major three providers of servers at the time were IBM, Hewlett Packard, and Compaq, many of which were based on proprietary technology, such as IBM's Power4 microprocessors or various proprietary versions of the Unix operating system. Dell's new PowerEdge servers did not require a major investment in proprietary technologies, as they ran Microsoft Windows NT on Intel chips, and could be built cheaper than its competitors.[24]Consequently, Dell's enterprise revenues, almost nonexistent in 1994, accounted for 13 percent of the company's total intake by 1998. Three years later, Dell passed Compaq as the top provider of Intel-based servers, with 31 percent of the market. Dell's first acquisition occurred in 1999 with the purchase of ConvergeNet Technologies for $332 million, after Dell had failed to develop an enterprise storage system in-house; ConvergeNet's elegant but complex technology did not fit in with Dell's commodity-producer business model, forcing Dell to write down the entire value of the acquisition.[23]
In 2002, Dell expanded its product line to include televisions, handhelds, digital audio players, and printers. Chairman and CEO Michael Dell had repeatedly blocked President and COOKevin Rollins's attempt to lessen the company's heavy dependency on PCs, which Rollins wanted to fix by acquiring EMC Corporation.[25]
In 2003, the company was rebranded as simply "Dell Inc." to recognize the company's expansion beyond computers.[26]
In 2004, Michael Dell resigned as CEO while retaining the position of Chairman,[27] handing the CEO title to Kevin Rollins, who had been President and COO since 2001. Despite no longer holding the CEO title, Dell essentially acted as a de facto co-CEO with Rollins.[25]
Under Rollins, Dell began to loosen its ties to Microsoft and Intel, the two companies responsible for Dell's dominance in the PC business. During that time, Dell acquired Alienware,[28] which introduced several new items to Dell products, including AMD microprocessors. To prevent cross-market products, Dell continues to run Alienware as a separate entity, but still a wholly owned subsidiary.
Disappointments
In 2005, while earnings and sales continued to rise, sales growth slowed considerably, and the company stock lost 25% of its value that year.[29] By June 2006, the stock traded around $25 USD which was 40% down from July 2005—the high-water mark of the company in the post-dotcom era.[30][31]
The slowing sales growth has been attributed to the maturing PC market, which constituted 66% of Dell's sales, and analysts suggested that Dell needed to make inroads into non-PC businesses segments such as storage, services and servers. Dell's price advantage was tied to its ultra-lean manufacturing for desktop PCs,[32] but this became less important as savings became harder to find inside the company's supply chain, and as competitors such as Hewlett-Packard and Acer made their PC manufacturing operations more efficient to match Dell, weakening Dell's traditional price differentiation.[33] Throughout the entire PC industry, declines in prices along with commensurate increases in performance meant that Dell had fewer opportunities to upsell to their customers (a lucrative strategy of encouraging buyers to upgrade the processor or memory). As a result, the company was selling a greater proportion of inexpensive PCs than before, which eroded profit margins.[22] The laptop segment had become the fastest-growing of the PC market, but Dell produced low-cost notebooks in China like other PC manufacturers which eliminated Dell's manufacturing cost advantages, plus Dell's reliance on Internet sales meant that it missed out on growing notebook sales in big box stores.[3][30] CNET has suggested that Dell was getting trapped in the increasing commoditization of high volume low margin computers, which prevented it from offering more exciting devices that consumers demanded.[32]
Despite plans of expanding into other global regions and product segments, Dell was heavily dependent on U.S. corporate PC market, as desktop PCs sold to both commercial and corporate customers accounted for 32 percent of its revenue, 85 percent of its revenue comes from businesses, and Sixty-four percent of its revenue comes from North and South America, according to its 2006 third-quarter results. U.S. shipments of desktop PCs were shrinking, and the corporate PC market which purchases PCs in upgrade cycles had largely decided to take a break from buying new systems. The last cycle started around 2002, three or so years after companies started buying PCs ahead of the perceived Y2K problems, and corporate clients were not expected to upgrade again until extensive testing of Microsoft's Windows Vista (expected in early 2007), putting the next upgrade cycle around 2008.[34][35] Heavily depending on PCs, Dell had to slash prices to boost sales volumes, while demanding deep cuts from suppliers.[25]
Dell had long stuck by its direct sales model. Consumers had become the main drivers of PC sales in recent years,[35] yet there had a decline in consumers purchasing PCs through the Web or on the phone, as increasing numbers were visiting consumer electronics retail stores to try out the devices first. Dell's rivals in the PC industry, HP, Gateway and Acer, had a long retail presence and so were well poised to take advantage of the consumer shift.[36] The lack of a retail presence stymied Dell's attempts to offer consumer electronics such as flat-panel TVs and MP3 players.[32] Dell responded by experimenting with mall kiosks, plus quasi-retail stores in Texas and New York.[34]
Dell had a reputation as a company that relied upon supply chain efficiencies to sell established technologies at low prices, instead of being an innovator.[25][25][36][37] By the mid-2000s many analysts were looking to innovating companies as the next source of growth in the technology sector. Dell's low spending on R&D relative to its revenue (compared to IBM, Hewlett Packard, and Apple Inc.)—which worked well in the commoditized PC market—prevented it from making inroads into more lucrative segments, such as MP3 players and later mobile devices.[29]Increasing spending on R&D would have cut into the operating margins that the company emphasized.[4] Dell had done well with a horizontal organization that focused on PCs when the computing industry moved to horizontal mix-and-match layers in the 1980s, but by the mid-2000 the industry shifted to vertically integrated stacks to deliver complete IT solutions and Dell lagged far behind competitors like Hewlett Packard and Oracle. [33]
Dell's reputation for poor customer service, since 2002, which was exacerbated as it moved call centres offshore and as its growth outstripped its technical support infrastructure, came under increasing scrutiny on the Web. The original Dell model was known for high customer satisfaction when PCs sold for thousands but by the 2000s, the company could not justify that level of service when computers in the same lineup sold for hundreds.[38] Rollins responded by shifting Dick Hunter from head of manufacturing to head of customer service. Hunter, who noted that Dell's DNA of cost-cutting "got in the way," aimed to reduce call transfer times and have call center representatives resolve inquiries in one call. By 2006, Dell had spent $100 million in just a few months to improve on this, and rolled out DellConnect to answer customer inquiries more quickly. In July 2006, the company started its Direct2Dell blog, and then in February 2007, Michael Dell launched IdeaStorm.com, asking customers for advice including selling Linux computers and reducing the promotional "bloatware" on PCs. These initiatives did manage to cut the negative blog posts from 49% to 22%, as well as reduce the "Dell Hell" prominent on Internet search engines.[30][39]
There was also criticism that Dell used faulty components for its PCs, particularly the 11.8 million OptiPlex desktop computers sold to businesses and governments from May 2003 to July 2005, that suffered from bad capacitors made by a company called Nichicon.[40] A battery recall in August 2006, as a result of a Dell laptop catching fire caused much negative attention for the company though later, Sony was found responsible for the faulty batteries.[22]
2006 marked the first year that Dell's growth was slower than the PC industry as a whole. By the fourth quarter of 2006, Dell lost its title of the largest PC manufacturer to rival Hewlett Packard whose Personal Systems Group was invigorated thanks to a restructuring initiated by their CEO Mark Hurd.[29][41] [42]
After four out of five quarterly earnings reports were below expectations, Rollins resigned as President and CEO on January 31, 2007 and founder Michael Dell assumed the role of CEO again.[43]
Dell 2.0 and downsizing
Dell announced a change campaign called "Dell 2.0," reducing the number of employees and diversifying the company's products.[36][44] While chairman of the board after relinquishing his CEO position, Michael Dell still had significant input in the company during Rollins' years as CEO. With the return of Michael Dell as CEO, the company saw immediate changes in operations, the exodus of many senior vice-presidents and new personnel brought in from outside the company.[34] Michael Dell announced a number of initiatives and plans (part of the "Dell 2.0" initiative) to improve the company's financial performance. These include elimination of 2006 bonuses for employees with some discretionary awards, reduction in the number of managers reporting directly to Michael Dell from 20 to 12, and reduction of "bureaucracy". Jim Schneider retired as CFO and was replaced by Donald Carty, as the company came under an SEC probe for its accounting practices.[45]
On April 23, 2008, Dell announced the closure of one of its biggest Canadian call-centers in Kanata, Ontario, terminating approximately 1100 employees, with 500 of those redundancies effective on the spot, and with the official closure of the center scheduled for the summer. The call-center had opened in 2006 after the city of Ottawa won a bid to host it. Less than a year later, Dell planned to double its workforce to nearly 3,000 workers add a new building. These plans were reversed, due to a high Canadian dollar that made the Ottawa staff relatively expensive, and also as part of Dell's turnaround, which involved moving these call-center jobs offshore to cut costs.[46] The company had also announced the shutdown of its Edmonton,Alberta office, losing 900 jobs. In total, Dell announced the ending of about 8,800 jobs in 2007–2008 — 10% of its workforce.[47]
By the late 2000s, Dell's "configure to order" approach of manufacturing—delivering individual PCs configured to customer specifications from its US facilities was no longer as efficient or competitive with high-volume Asian contract manufacturers as PCs became powerful low-cost commodities.[5][48] Dell closed plants that produced desktop computers for the North American market, including the Mort Topfer Manufacturing Center in Austin, Texas (original location)[49][50] and Lebanon, Tennessee (opened in 1999) in 2008 and early 2009, respectively. The desktop production plant in Winston-Salem, North Carolina, received US$280 million in incentives from the state and opened in 2005, but ceased operations in November 2010. Dell's contract with the state required them to repay the incentives for failing to meet the conditions, and they sold the North Carolina plant to Herbalife.[51][52][53] Most of the work that used to take place in Dell's U.S. plants was transferred to contract manufacturers in Asia and Mexico, or some of Dell's own factories overseas. The Miami, Florida, facility of its Alienware subsidiary remains in operation, while Dell continues to produce its servers (its most profitable products) in Austin, Texas. [48] On January 8, 2009, Dell announced the closure of its manufacturing plant in Limerick, Ireland, with the loss of 1,900 jobs and the transfer of production to its plant in Łodź in Poland.[54]
The release of Apple's iPad tablet computer had a negative impact on Dell and other major PC vendors, as consumers switched away from desktop and laptop PCs. Dell's own mobility division has not managed success with developing smartphones or tablets, whether running Windows or Google Android.[55][56] The Dell Streak was a failure commercially and critically due to its outdated OS, numerous bugs, and low resolution screen. InfoWorld suggested that Dell and other OEMs saw tablets as a short-term, low-investment opportunity running Google Android, an approach that neglected user interface and failed to gain long term market traction with consumers.[57][58] Dell has responded by pushing higher-end PCs, such as the XPS line of notebooks, which do not compete with the Apple iPad and Kindle Fire tablets.[59] The growing popularity of smartphones and tablet computers instead of PCs drove Dell's consumer segment to an operating loss in Q3 2012. In December 2012, Dell suffered its first decline in holiday sales in five years, despite the introduction of Windows 8.[60]
In the shrinking PC industry, Dell continued to lose market share, as it dropped below Lenovo in 2011 to fall to number three in the world. Dell and fellow American contemporary Hewlett Packard came under pressure from Asian PC manufacturers Lenovo, Asus, and Acer, all of which had lower production costs and willing to accept lower profit margins. In addition, while the Asian PC vendors had been improving their quality and design, for instance Lenovo's ThinkPad series was winning corporate customers away from Dell's laptops, Dell's customer service and reputation had been slipping.[61][62] Dell remained the second-most profitable PC vendor, as it took 13 percent of operating profits in the PC industry during Q4 2012, behind Apple Inc.'s Macintosh that took 45 percent, seven percent at Hewlett Packard, six percent at Lenovo and Asus, and one percent for Acer.[63]
Dell has been attempting to offset its declining PC business, which still accounted for half of its revenue and generates steady cash flow,[64] by expanding into the enterprise market with servers, networking, software, and services.[65] It avoided many of the acquisition writedowns and management turnover that plagued its chief rival Hewlett Packard.[56][66] Dell also managed some success in taking advantage of its high-touch direct sales heritage to establish close relationships and design solutions for clients. Despite spending $13 billion on acquisitions to diversify its portfolio beyond hardware,[7] the company was unable to convince the market that it could thrive or made the transformation in the post-PC world,[66] as it suffered continued declines in revenue and share price.[67][68][69][70] Dell's market share in the corporate segment was previously a "moat" against rivals but this has no longer been the case as sales and profits have fallen precipitously. [71]
2013 buyout
After several weeks of rumors, which started around January 11, 2013, Dell announced on February 5, 2013 that it had struck a $24.4 billion leveraged buyout deal, that would have delisted its shares from the NASDAQ and Hong Kong Stock Exchange and taken it private.[72][73][74] Reuters reported that Michael Dell and Silver Lake Partners, aided by a $2 billion loan fromMicrosoft, would acquire the public shares at $13.65 apiece.[75] The $24.4 billion buyout was projected to be the largest leveraged buyout backed by private equity since the 2007 financial crisis.[76] It is also the largest technology buyout ever, surpassing the 2006 buyout of Freescale Semiconductor for $17.5 billion.[76]
The founder of Dell, Michael Dell, said of the February offer "I believe this transaction will open an exciting new chapter for Dell, our customers and team members".[77] Dell rival Lenovoreacted to the buyout, saying "the financial actions of some of our traditional competitors will not substantially change our outlook".[77]
In March 2013, the Blackstone Group and Carl Icahn expressed interest in purchasing Dell.[78] In April 2013, Blackstone withdrew their offer, citing deteriorating business.[79][80] Other private equity firms such as KKR & Co. and TPG Capital declined to submit alternative bids for Dell, citing the uncertain market for personal computers and competitive pressures, so the "wide-open bidding war" never materialized.[7] Analysts said that the biggest challenge facing Silver Lake would be to find an “exit strategy” to profit from its investment, which would be when the company would hold an IPO to go public again, and one warned “But even if you can get a $25bn enterprise value for Dell, it will take years to get out.”[81]
In May 2013, Dell joined his board in voting for his offer.[82] The following August he reached a deal with the special committee on the board for $13.88 (a raised price of $13.75 plus a special dividend of 13 cents per share), as well as a change to the voting rules.[83] The $13.88 cash offer (plus a $.08 per share dividend for the third fiscal quarter) was accepted on September 12[84] and closed on October 30, 2013, ending Dell's 25-year run as a publicly traded company.
After the buyout the newly private Dell offered a Voluntary Separation Programme that they expected to reduce their workforce by up to seven percent. The reception to the program so exceeded the expectations that Dell may be forced to hire new staff to make up for the losses.[85]
Technical support
Dell routes technical support queries on products for the professional market according to component-type and to the level of support purchased:[168]
- Basic support provides business-hours telephone support and next business-day on-site support/ Return-to-Base, or Collect and Return Services (based on contracts purchased at point of sale)
- Dell ProSupport provides 24x7x365 telephone and online support, a selection of 4 or 6-hour onsite support after telephone-based troubleshooting, and a Mission Critical option with two-hour onsite support, for customers who choose the highest level of support for their most critical hardware assets.[169]
In addition, the company provides protection services, advisory services, multivendor hardware support, "how-to" support for software applications, collaborative support with many third-party vendors, and online parts and labor dispatching for customers who diagnose and troubleshoot their hardware. Dell also provides Dell ProSupport customers access to a crisis-center to handle major outages, or problems caused by natural disasters.[170] Dell also provide on-line support by using the computer's service-tag that provides full list of the hardware elements installed originally, purchase date and provides the latest upgrades for the original hardware drivers.
Dell's Consumer division has 24x7 phone based and online troubleshooting in the United States and Canada. In 2008, Dell redesigned services-and-support for businesses with "Dell ProSupport", offering customers more options to adapt services to fit their needs.
