COMPANY PROFILE

Dell Inc.

REFERENCE CODE: 8E2C53C7-29AC-4848-9511-9B752758E3B4

PUBLICATION DATE: 24 Sep 2012
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Dell Inc.
TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................3
Key Facts...............................................................................................................3
SWOT Analysis.....................................................................................................4

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Dell Inc.
Company Overview

COMPANY OVERVIEW
Dell Inc (Dell or the company) is one of the leading technology companies, offering a broad range
of products, including desktop personal computers (PC), servers, networking products, storage,
mobility products, software and peripherals, and services. The company primarily operates in the
US. Dell is headquartered in Round Rock, Texas and employed about 109,400 people as of February
3, 2012 of which 2,700 were employed part-time.
The company recorded revenues of $62,071 million during the fiscal year ended February 2012*
(FY2012), an increase of 0.9% over FY2011. The operating profit of the company was $4,431 million
during FY2012, an increase of 29.1% over FY2011. The net profit was $3,492 million in FY2012, an
increase of 32.5% over FY2011.
*The fiscal year end for Dell will be the period ending on the Friday nearest January 31. For 2012,
the fiscal year ended on February 3, 2012.

KEY FACTS
Head Office

Dell Inc.
One Dell Way
Round Rock
Texas 78682
USA

Phone

1 512 338 4400

Fax
Web Address

http://www.dell.com

Revenue / turnover 62,071.0

(USD Mn)
Financial Year End

February

Employees

109,400

NASDAQ National
Market Ticker

DELL

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SWOT Analysis

SWOT ANALYSIS
Dell Inc (Dell or the company) is one of the leading technology companies, offering a broad range
of products, including desktop PCs, servers, networking products, storage, mobility products, software
and peripherals, and services. The company has established a strong market position and is able
to defend the same with strong brand value. However, sluggish growth trends in the PC market will
impact Dell negatively as the company has significant exposure to the segment.
Strengths

Weaknesses

Robust market position supported by strong

brand value
Cash flow generation capabilities to support
growth
Diversified operations with focus on growth
areas
Acquisitions to drive growth

Relatively weak research and development

capabilities
Lower margins compared to peers

Opportunities

Threats

Emerging economies will dominate the

global IT spending marking strong growth
Measures to gain market share in the
growing cloud computing segment
Poised to drive growth in thin client market

PC market poised for a likely decline

Intense competition

Strengths

Robust market position supported by strong brand value

Dell has a robust market presence in IT systems market. Despite tough market conditions and
competition in the recent past, Dell continues to remain a strong player in the IT systems market.
According to industry estimates, Dell was the third largest player in the worldwide PC market with
shipments of 42.9 million units in 2011; garnering a market share of about 12.1%. The company is
among the leading players in the computer peripheral equipment and software wholesaler market.
According to industry estimates, the company is also the sixth largest player in the external
controller-based disk storage systems market with a market share of about 7.3% in the second
quarter of 2012. Further, Dell is the third largest player in the worldwide servers' market with a factory
revenue share of 16% in the second quarter of 2012. Strong market position indicates that the
products and services offered by the company have received wide acceptance from the customers.
Accordingly, Dell now has access to a large customer base which is a competitive advantage.

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In addition to the robust market position, Dell enjoys a strong brand image supporting its growth.
The company is among the top 100 brands in the world, with a brand value of $11,605 million,
according to annual ranking given by industry sources as of December 31, 2011. It was ranked 72
in the global 500 rankings in 2012. Strong brand image makes Dell a preferred hardware provider
over its competitors. In addition, strong brand image promotes greater trust in the company's product
and services, which boosts the demand and Dell is better positioned to defend its market share
owing to the strong brand image which will lead to customer loyalty. Strong market position and
brand image will therefore facilitate strong revenue growth and will enable the company to better
sustain cyclical downturns.
Cash flow generation capabilities to support growth
Dell enjoys strong cash flow generation capabilities. The companys cash from operating activities
increased from $3,969 million in FY2011 to $5,527 million in FY2012. The company has maintained
an operating cash flow to earnings before interest and tax (EBIT) ratio of over 100%. In FY2012,
the companys operating cash flow as a percentage of EBIT was over 124%. This indicates that Dell
is able to convert 124% of its EBIT into cash. Comparatively, IBM had operating cash flow to EBIT
ratio of over 98% in FY2011.
Furthermore, Dell enjoys one of the leading cash conversion cycle (CCC) which facilitated strong
cash flows. For FY2012, the company had a negative CCC of 36 days. CCC expresses the length
of time in days that it takes for a company to convert resource inputs into cash flows. It measures
the amount of time each net input dollar is tied up in the production and sales process before it is
converted into cash through sales to customers. The metric is a combination of the amount of time
needed to sell inventory, to collect receivables, and the length of time the company is given to pay
its bills without incurring penalties. The shorter the cycle is, the less time capital is tied up in the
business process and thus the better it is for the company's balance sheet. Dell has negative CCC
days which indicate that the company does not pay its suppliers for the products it buys until it
receives payment for selling those products. Accordingly, the company does not need to hold large
inventory and can hold on to cash for a longer period of time. This advantage is usually enjoyed by
the online retailers and as Dell relies heavily on the direct channel of distribution, it is able to maintain
negative CCC days. In addition, Dell being a large company is in a better position to wield the power
to attain favorable terms from suppliers. The companys competitor HP does not enjoy the same
advantage, for instance in FY2011 it had CCC of 26 days.
Strong cash flow generation indicates that the company is well placed to finance its growth internally.
Furthermore, strong cash flow generation capabilities will provide certain resilience in times of cyclical
down turns. Dells ability to convert most of its operating income into cash will enable the company
to maintain liquidity and solvency in addition to funding the growth prospects.
Diversified operations with focus on growth areas
Dell has pro-actively expanded and diversified its operations and has transformed itself since its
inception. The company has focused on positioning itself as a company offering IT products and
solutions from originally being a PC brand. Accordingly, it has made several investments and gained

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SWOT Analysis

significant market in enterprise solutions and in offering IT services. These segments have higher
margins and are also significant growth areas. Dell has a diversified customer base as well, owing
to the expansion of its product and service portfolio. The company's customers are categorized as
large enterprise, public, small and medium business (SMB), and consumer. During FY2012, the
company generated 29.7% of the total revenues from large enterprise, 26.7% from public clients,
24.4% from SMBs, and 19.2% from consumers. The company has been focusing on SMB segment
within the enterprise market. SMBs are estimated to grow in number and also are expected to
experience strong growth. Therefore, the company is not only exposed to large players that enjoy
stable markets but is also exposed significantly to the growth in SMB segment. Similarly, Dell has
also diversified geographically. Sales outside the US accounted for about 51% of consolidated net
revenue for FY2012. Furthermore, Dell has been focusing on emerging countries such as Brazil,
Russia, India and China (BRIC) and has invested significantly in these markets. Emerging nations
provide a complete contrast to the developed markets as they are characterized by strong growth
rates.
Dell by the end of FY2012 had significant exposure to strong growth areas while still maintaining
exposure to its core markets. These factors will contribute positively to the revenue growth and
margin expansion in the future.
Acquisitions to drive growth
The company has undertaken several acquisitions in 2011 and 2012. In January 2011, Dell signed
a definitive agreement to acquire SecureWorks, a globally recognized provider of information-security
services. In the following month, the company completed the acquisition of Compellent Technologies,
a provider of highly-virtualized storage solutions with automated data management features, including
tiering and thin provisioning, for enterprise and cloud-computing environments. In April 2011, the
company acquired Dell Financial Services Canada. In a separate transaction, Dell also acquired
CIT Vendor Finances Dell-related assets and sales and servicing functions in Europe. In July 2011,
Dell signed a definitive agreement to acquire Force10 Networks, one of the leading companies in
high-performance datacenter networking.
In February 2012, the company acquired AppAssure, one of the leading providers of complete
application protection for virtual, physical and cloud infrastructure. In March 2012, Dell signed a
definitive agreement to acquire SonicWALL, a leading company in advanced network security and
data protection. Subsequently, in April 2012, the company signed a definitive agreement to acquire
Wyse Technology, a leading provider of cloud client computing. In the same month, Dell acquired
Clerity Solutions, a leading global provider of applications modernization and re-hosting solutions
and services. Later in April 2012, Dell signed a definitive agreement to acquire Make Technologies,
a leading global provider of application modernization software and services that reduce the cost,
risk and time required to re-engineer applications. In July 2012, the company entered into a definitive
agreement to acquire Quest, an IT management software provider offering a selection of solutions
that facilitate solving IT related problems.
Dell has historically pursued acquisitions to expand its presence in the non-core and adjacent
markets. The company has been able to establish a strong position in some of these markets due

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SWOT Analysis

to such acquisitions. The acquisitions are aiding Dell to position itself as a provider of complete IT
products and services, and compete effectively against dominant players in these markets. Several
acquisitions made by Dell enabled it to establish its presence in some of the growth markets. These
acquisitions are expected to contribute significantly to the overall growth. They also facilitate quick
penetration into markets that are strategically important for Dell.

Weaknesses

Relatively weak research and development capabilities

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 $856 million, $661 million and $624 million respectively, during FY2012, FY2011
and FY2010 respectively. By contrast, its main competitor HP reported R&D spending of $3,254
million and $2,959 million in FY2011 and FY2010 respectively; and IBM reported R&D spending of
$6,258 million and $6,026 million, respectively, in FY2011 and FY2010. Furthermore, the company's
R&D spending as percentage of total revenues was 1.4% in FY2010, compared to HP (2.6%), and
IBM (5.9%).
As a result, the company had lesser patents than its competitors. At the end of FY2012, it had a
worldwide portfolio of 3,449 patents and additional 1,660 patent applications pending. By contrast,
HP had a worldwide portfolio of over 36,000 patents as of October 31, 2011.
Although, the company's business model was not highly dependent on R&D over years, changing
industry dynamics with increasing competition and commoditization of PC market call for differentiation
through innovation. Furthermore, the company's relatively weak R&D increases dependency on
licenses for third-party patents, and it may affect its ability to introduce innovative products. It also
affects the competitiveness adversely.
Lower margins compared to peers
Dell is witnessing lower margins compared to peers. The companys operating margin was 7.1% in
FY2012. Comparatively, IBMs operating margin stood at 19% in FY2011. This indicates that the
company is lagging its peers when it comes to profitability of operations. Furthermore, Dells net
margin of about 5.6% is lower than IBMs 14.8%. Profitability provides a cushion in times of
pressurized sales. Lower profitability will also impact Dells pricing policy as the companys competitors
have higher margins to reduce prices to be more competitive. Therefore, a lower margin compared
to its peer companies is a competitive disadvantage for Dell. Additionally, the players across the
industry including Dell and IBM have transformed into products and services companies from pure
play product companies. Like Dell, IBM has also positioned itself as a complete IT services provider.
The difference in the margins indicates that IBMs strategically sound transformation has enabled it
to earn higher margins. Dells margins indicate a competitive disadvantage which has the potential
to impact the companys growth prospects.

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SWOT Analysis

Opportunities

Emerging economies will dominate the global IT spending marking strong growth
The emerging markets of the world with strong economic fundamentals are estimated to witness
robust growth in IT spending. According to industry estimates, emerging markets are expected to
generate about $1.2 trillion in IT spending in 2012, representing over 30% of the worldwide IT
spending. IT spending at Brazil, Russia, India, Mexico and China is expected to be particularly strong
among the emerging nations. Dell has aligned its investment priorities to the trends in the emerging
markets. In recent years, the company has not only increased investments in BRIC, but has also
made efforts to tailor products and services to meet the specific needs of customers in these countries.
Dell has performed strongly in the region. Revenue from BRIC nations increased 15% year-over-year,
for FY2012. Total revenue from BRIC has been increasing sequentially since the fourth quarter of
2009 and represented 14.2% of the companys total net revenue for FY2012 compared to 12.3% in
the previous year. The company continues to focus on expanding into these and other emerging
countries that represent the vast majority of the world's population and to enhance relationships to
provide customer choice and flexibility. The companys pro-active expansion into emerging markets
will provide a strong support for growth.
Measures to gain market share in the growing cloud computing segment
Dell in the recent times has been making a major push into the cloud computing services. The
company has made several acquisitions in the segment to tap into the large opportunity offered in
this market segment, According to the industry estimates, the global market for cloud computing will
increase from $41 billion in 2011 to more than $240 billion in 2020. Furthermore, the total size of
the public cloud market is estimated to grow from $25 billion in 2011 to $160 billion in 2020. Further
estimates indicate that, by 2014, 2.5% of the enterprise IT spending will be on cloud applications.
By 2020, about 15% of the IT spending will be on cloud. During 2010-13, the revenues from cloud
computing are estimated to grow at a compounded annual growth rate (CAGR) of 24%. Dell has
focused on enhancing its services business, and the investments made by the company in this
rapidly growing market will enhance revenue accruals for the segment.
Poised to drive growth in thin client market
Dell is positioning itself for tapping into the growth offered in the thin client market by launching a
thin client designed to work on Microsofts Windows 8 operating system (OS) due to release in 2012.
According to the industry estimates, the thin client market size is expected to grow to about $3 billion
by 2015 at a CAGR of 15%. Thin clients are key components in the virtualization value chain, a
segment that is poised for strong growth. Dells Wyse products are well positioning to tap into the
immense opportunity in the thin clients market.

Threats

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PC market poised for a likely decline

The PC market has been posting declines amid competition from mobility products like tablets.
Tablets are likely to cannibalize into the sales of PCs further hampering the growth prospects. The
macro economic trends in the developed countries which have not followed the strong path of
recovery originally estimated is also pressurizing the business and consumer spending.The worldwide
desktop PC market is estimated to record a decline of 1.2% in 2012 while the portable PCs are
estimated to grow by a sluggish 2.4%. Overall, the PC market is estimated to grow by 0.9%. Most
of the growth is expected to come from the emerging nations. The industry estimates indicate that
in mature markets, the PC shipments will decline by 1.2% in 2012. Though Dell is increasing its
exposure to emerging nations, it continues to derive significant revenues from mature markets. The
US alone accounts for 49% of the companys total revenues. Despite efforts to diversify into other
business segments, Dell is significantly exposed to the PC market and its revenues from the segment
will be adversely impacted amid the slow growth in the segment.
Intense competition
The company faces intense competition in all its business segments. It competes in terms of price,
quality, brand, technology, reputation, distribution and range of products, among other factors. Dell
faces stiff competition in enterprise PC and server markets from Acer, Apple, HP, Lenovo, IBM and
Toshiba, among others. In some regions, the company faces competition from local companies and
from generically-branded or white box manufacturers. In the consumer market, Dell faces stiff
competition from HP, Acer, Apple, Sony, Lenovo and Asustek. Furthermore, in the European and
Asian netbooks markets the company faces intense competition from Asustek. In addition, with the
launch of smartphone the company's mobile business competes with Apple, Research In Motion
and HTC. Intense competition may affect the company's operating performance and market share
in coming years.

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