Dell – 2011

Forest David

A. Case Abstract
Dell is a comprehensive strategic management case that includes the company’s year-end 2010 financial
statements, organizational chart, competitor information and more. The case time setting is the year 2011.
Sufficient internal and external data are provided to enable students to evaluate current strategies and
recommend a three-year strategic plan for the company. Headquartered in Round Rock, Texas, Dell’s
common stock is publicly traded under the ticker symbol DELL.

Dell is one of the world's top producers of desktop and notebook PCs. Dell also offers a broad range of
technology products for the consumer, education, enterprise, and government sectors, including network
servers, data storage systems, printers, Ethernet switches, and peripherals, such as displays and projectors.
Dell also markets third-party software and hardware. Dell’s growing services unit provides asset recovery,
financing, infrastructure consulting, support, systems integration, and training. Dell generates nearly half of
its revenues outside the US.

Dell designs, develops, manufactures, markets, sells, and supports mobility products, including laptops,
netbooks, tablets, and smartphones; desktops PCs; and servers and networking products. It also offers
storage solutions comprising storage area networks, network-attached storage, direct-attached storage, disk
and tape backup systems, and removable disk backup.

B. Vision Statement (proposed)

To regain our position as the #1 computer company in the world.

C. Mission Statement (proposed)

1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability
6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

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D. External Audit
Opportunities

1. Corporate demand for PCs is increasing.

2. Asia-Pacific sales increased 5.6% in first quarter 2011 and are expected to grow 32 percent in 2011.
3. Shipments to the Middle East, Eastern Europe and Latin America are expected to grow 19 percent in
2011.
4. Consumers prefer phones and tables today to desk top PCs and laptops.
5. Business analytic service industry is still in the development phase.
6. The US malware infection rate is 58.25%.
7. PCs are still the best option for typing, spreadsheets, and activities that require more processing power.

Threats

1. Hewlett-Packard is currently the #1 PC seller with 18.9 percent market share. Dell is 3 rd.
2. Apple and Blackberry products are viewed as the best in the industry with iPad sales growing 82% in
2010.
3. Consumer demand for PCs in develop countries continues to lose market share to tablets and smart
phones.
4. Acer and Lenovo based in Asia are impacting price and increasing their market share in the United
States.
5. Oracle, SAP, and IBM are well entrenched in the business analytics service industry.
6. Rapid technology advancement in the industry.
7. The US malware infection rate is 58.25%.
8. Slow down in the global economy.
9. Volatile nature of currency rates.

Competitive Profile Matrix

Dell HP Apple

Critical Success Factors Weight Rating Score Rating Score Rating Score
Advertising 0.05 3 0.15 2 0.10 4 0.20
Market Penetration 0.08 3 0.24 4 0.32 2 0.16
Customer Service 0.05 3 0.15 2 0.10 4 0.20
Store Locations 0.01 1 0.01 2 0.02 4 0.04
R&D 0.12 1 0.12 2 0.24 4 0.48
Employee Dedication 0.05 2 0.10 1 0.05 4 0.20
Financial Profit 0.13 1 0.13 2 0.26 4 0.52
Customer Loyalty 0.08 2 0.16 1 0.08 4 0.32
Market Share 0.10 3 0.30 4 0.40 1 0.10
Product Quality 0.13 1 0.13 2 0.26 4 0.52
Top Management 0.10 3 0.30 2 0.20 4 0.40
Price Competitiveness 0.10 4 0.40 3 0.30 1 0.10
Totals 1.00 2.19 2.33 3.24

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 EFE Matrix

Opportunities Weight Rating Weighted Score

1. Corporate demand for PCs is increasing. 0.08 4 0.32
2. Asia-Pacific sales increased 5.6% in first quarter 2011 and are 0.05 3 0.15
expected to grow 32 percent in 2011.
3. Shipments to the Middle East, Eastern Europe and Latin America 0.05 3 0.15
are expected to grow 19 percent in 2011.
4. Consumers prefer phones and tables today to desk top PCs and 0.09 2 0.18
laptops.
5. Business analytic service industry is still in the development 0.08 1 0.08
phase.
6. The US malware infection rate is 58.25%. 0.04 1 0.04
7. PCs are still the best option for typing, spreadsheets, and 0.08 4 0.32
activities that require more processing power.

Threats Weight Rating Weighted Score

1. Hewlett-Packard is currently the #1 PC seller with 18.9 percent
0.09 3 0.27
market share. Dell is 3rd.
2. Apple and Blackberry products are viewed as the best in the
0.09 2 0.18
industry with iPad sales growing 82% in 2010.
3. Consumer demand for PCs in develop countries continues to
0.07 3 0.21
lose market share to tablets and smart phones.
4. Acer and Lenovo based in Asia are impacting price and
0.07 3 0.21
increasing their market share in the United States.
5. Oracle, SAP, and IBM are well entrenched in the business
0.04 1 0.04
analytics service industry.
6. Rapid technology advancement in the industry. 0.07 2 0.14
7. The US malware infection rate is 58.25%. 0.03 2 0.06
8. Slow down in the global economy. 0.05 2 0.10
9. Volatile nature of currency rates. 0.02 2 0.04
TOTALS 1.00 2.49

E. Internal Audit
Strengths

1. In addition to PCs, Dell offers servers, data storage systems, printers, Ethernet switches and
peripherals.
2. Half of Dell’s revenue comes from outside the United States.
3. Newsweek’s Greenest Companies named Dell the top company in 2010 and second in 2009.
4. Dell’s late mover strategy lowers R&D costs in product development.
5. Dell is currently transforming its image from a computer manufacturer to a technology services
provider with the purchase of Perot and Boomi corporations.
6. Sells directly to customers and end users.

Weaknesses

1. Dell 2010 shipments in the US were down 11.8%.

2. 80% of Dell’s revenue comes from corporate and government customers.

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3. Dell knowing sold flawed desk tops between 2003 and 2005 according to Advanced Internet
Technologies.
4. Fined $100 million by the SEC over misleading financial statements.
5. Stock price is down over 70% from the high in 2000.
6. Dell’s Streak Tablet received poor reviews for quality and lack of functionality.
7. Dell has $5 billion in debt which is 14 times the debt the company had in 2008.
8. Inventory turnover of 35 versus industry average of 67.
9. Income/employee is $35,000 versus $400,000 industry average.
10. Purchase of Perot and Boomi corporations increased goodwill from $1.7 billion to $4.4 billion.

Financial Ratio Analysis

Growth Rate Percent Dell Industry S&P 500

Sales (Qtr vs year ago qtr) 0.80 36.30 14.50
Net Income (YTD vs YTD) NA NA NA
Net Income (Qtr vs year ago qtr) 63.30 54.40 47.50
Sales (5-Year Annual Avg.) 1.97 38.38 8.27
Net Income (5-Year Annual Avg.) -6.06 61.93 8.68
Dividends (5-Year Annual Avg.) NA NA 5.68

Profit Margin Percent

Gross Margin 21.5 39.1 39.9
Pre-Tax Margin 7.2 29.9 18.1
Net Profit Margin 5.8 22.7 13.2
5Yr Gross Margin (5-Year Avg.) 18.0 37.3 39.8

Liquidity Ratios
Debt/Equity Ratio 0.93 0.07 1.01
Current Ratio 1.5 1.6 1.4
Quick Ratio 1.4 1.6 0.9

Profitability Ratios
Return On Equity 49.4 42.2 26.0
Return On Assets 9.2 25.8 8.9
Return On Capital 19.3 35.1 11.8
Return On Equity (5-Year Avg.) 50.1 37.2 23.8
Return On Assets (5-Year Avg.) 8.4 22.0 8.0
Return On Capital (5-Year Avg.) 21.4 31.2 10.8

Efficiency Ratios
Income/Employee 35,733 401,304 126,213
Revenue/Employee 615,763 2 Mil 1 Mil
Receivable Turnover 9.3 19.1 15.7
Inventory Turnover 35.7 68.0 12.4

Net Worth Analysis (in millions)

Stockholders Equity $7,766

Net Income x 5 $13,175
(Share Price/EPS) x Net Income $21,587
Number of Shares Outstanding x Share Price $27,882
Method Average $17,603

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 IFE Matrix

Strengths Weight Rating Weighted Score

1. In addition to PCs, Dell offers servers, data storage systems,
0.10 4 0.40
printers, Ethernet switches and peripherals.
2. Half of Dell’s revenue comes from outside the United States. 0.10 4 0.40
3. Newsweek’s Greenest Companies named Dell the top company
0.03 3 0.09
in 2010 and second in 2009.
4. Dell’s late mover strategy lowers R&D costs in product
0.08 4 0.32
development.
5. Dell is currently transforming its image from a computer
manufacturer to a technology services provider with the 0.07 4 0.28
purchase of Perot and Boomi corporations.
6. Sells directly to customers and end users. 0.05 4 0.20

Weaknesses Weight Rating Weighted Score

1. Dell 2010 shipments in the US were down 11.8%. 0.06 1 0.06
2. 80% of Dell’s revenue comes from corporate and government
0.08 2 0.16
customers.
3. Dell knowing sold flawed desk tops between 2003 and 2005
0.05 1 0.05
according to Advanced Internet Technologies.
4. Fined $100 million by the SEC over misleading financial
0.05 1 0.05
statements.
5. Stock price is down over 70% from the high in 2000. 0.07 1 0.07
6. Dell’s Streak Tablet received poor reviews for quality and lack of
0.05 1 0.05
functionality.
7. Dell has $5 billion in debt which is 14 times the debt the
0.06 1 0.06
company had in 2008.
8. Inventory turnover of 35 versus industry average of 67. 0.06 1 0.06
9. Income/employee is $35,000 versus $400,000 industry average. 0.04 1 0.04
10. Purchase of Perot and Boomi corporations increased goodwill
0.05 1 0.05
from $1.7 billion to $4.4 billion.
TOTALS 1.00 2.34

F. SWOT
SO Strategies
1. Build two new production plants in India at $200M each (S2, O3).
2. Increase R&D on tablets and phones by $200M (S4, O4).

WO Strategies
1. Increase R&D on tablets and phones by $200M (W10, O4).

ST Strategies
1. Build two new production plants in China at $200M each (S2, T4).

WT Strategies
1. Increase R&D on tablets and phones by $200M (W6, T2).

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G. SPACE Matrix

FP
Conservative Aggressive
7

CP IP
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1

-2

-3

-4

-5

-6

-7
Defensive Competitive
SP

Internal Analysis: External Analysis:

Financial Position (FP) Stability Position (SP)
Sales 1 Rate of Inflation -2
Gross Margin 4 Technological Changes -7
Debt/Equity 2 Substitute Products -5
ROE 5 Competitive Pressure -6
ROA 2 Barriers to Entry into Market -4
Financial Position (FP) Average 2.8 Stability Position (SP) Average -4.8

Internal Analysis: External Analysis:

Competitive Position (CP) Industry Position (IP)
Market Share -3 Growth Potential 6
Product Quality -5 Financial Stability 6
Customer Loyalty -4 Ease of Entry into Market 3
Technological know-how -6 Resource Utilization 5
Control over Suppliers and Distributors -6 Profit Potential 7
Competitive Position (CP) Average -4.8 Industry Position (IP) Average 5.4

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H. Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Weak Strong
Competitive Competitive
Position Position

Dell

Quadrant III Quadrant IV

Slow Market Growth

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I. The Internal-External (IE) Matrix

The Total IFE Weighted Scores

Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
4.0 I II III

High

3.0 IV V VI

The
EFE
Total Medium
Weighted Dell
Scores

2.0 VII VIII IX

Low

1.0

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J. QSPM

Increase
Build 4 new
R&D on
plants
tablets
Opportunities Weight AS TAS AS TAS
1. Corporate demand for PCs is increasing. 0.08 3 0.24 1 0.08
2. Asia-Pacific sales increased 5.6% in first quarter 2011 and are
0.05 4 0.20 2 0.10
expected to grow 32 percent in 2011.
3. Shipments to the Middle East, Eastern Europe and Latin America
0.05 3 0.15 2 0.10
are expected to grow 19 percent in 2011.
4. Consumers prefer phones and tables today to desk top PCs and
0.09 2 0.18 4 0.36
laptops.
5. Business analytic service industry is still in the development 0.08 0 0.00 0 0.00
6. The US malware infection rate is 58.25%. 0.04 0 0.00 0 0.00
7. PCs are still the best option for typing, spreadsheets, and
0.08 4 0.32 1 0.08
activities that require more processing power.

Threats Weight AS TAS AS TAS

1. Hewlett-Packard is currently the #1 PC seller with 18.9 percent
0.09 4 0.36 2 0.18
market share. Dell is 3rd.
2. Apple and Blackberry products are viewed as the best in the
0.09 1 0.09 4 0.36
industry with iPad sales growing 82% in 2010.
3. Consumer demand for PCs in develop countries continues to
0.07 1 0.07 4 0.28
lose market share to tablets and smart phones.
4. Acer and Lenovo based in Asia are impacting price and
0.07 4 0.28 2 0.14
increasing their market share in the United States.
5. Oracle, SAP, and IBM are well entrenched in the business
0.04 0 0.00 0 0.00
analytics service industry.
6. Rapid technology advancement in the industry. 0.07 2 0.14 3 0.21
7. The US malware infection rate is 58.25%. 0.03 0 0.00 0 0.00
8. Slow down in the global economy. 0.05 0 0.00 0 0.00
9. Volatile nature of currency rates. 0.02 0 0.00 0 0.00

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.

 Increase
Build 4 new
R&D on
plants
tablets
Strengths Weight AS TAS AS TAS
1. In addition to PCs, Dell offers servers, data storage systems,
0.10 3 0.30 1 0.10
printers, Ethernet switches and peripherals.
2. Half of Dell’s revenue comes from outside the United States. 0.10 3 0.30 2 0.20
3. Newsweek’s Greenest Companies named Dell the top company
0.03 0 0.00 0 0.00
in 2010 and second in 2009.
4. Dell’s late mover strategy lowers R&D costs in product
0.08 1 0.08 3 0.24
development.
5. Dell is currently transforming its image from a computer
manufacturer to a technology services provider with the 0.07 0 0.00 0 0.00
purchase of Perot and Boomi corporations.
6. Sells directly to customers and end users. 0.05 3 0.15 2 0.10

Weaknesses Weight AS TAS AS TAS

1. Dell 2010 shipments in the US were down 11.8%. 0.06 3 0.18 2 0.12
2. 80% of Dell’s revenue comes from corporate and government
0.08 3 0.24 1 0.08
customers.
3. Dell knowing sold flawed desk tops between 2003 and 2005
0.05 0 0.00 0 0.00
according to Advanced Internet Technologies.
4. Fined $100 million by the SEC over misleading financial
0.05 0 0.00 0 0.00
statements.
5. Stock price is down over 70% from the high in 2000. 0.07 2 0.14 4 0.28
6. Dell’s Streak Tablet received poor reviews for quality and lack of
0.05 2 0.10 4 0.20
functionality.
7. Dell has $5 billion in debt which is 14 times the debt the
0.06 0 0.00 0 0.00
company had in 2008.
8. Inventory turnover of 35 versus industry average of 67. 0.06 0 0.00 0 0.00
9. Income/employee is $35,000 versus $400,000 industry average. 0.04 0 0.00 0 0.00
10. Purchase of Perot and Boomi corporations increased goodwill
0.05 1 0.05 4 0.20
from $1.7 billion to $4.4 billion.
TOTALS 3.57 3.41

K. Recommendations

1. Build two new production plants in India at $200M each.

2. Increase R&D on tablets and phones by $200M.
3. Build two new production plants in China at $200M each.

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L. EPS/EBIT Analysis (in millions)
Amount Needed: $1,000
Stock Price: $15.70
Shares Outstanding: 1,800
Interest Rate: 5%
Tax Rate: 21%

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom
EBIT $2,000 $3,500 $4,500 $2,000 $3,500 $4,500
Interest 0 0 0 50 50 50
EBT 2,000 3,500 4,500 1,950 3,450 4,450
Taxes 420 735 945 410 725 935
EAT 1,580 2,765 3,555 1,541 2,726 3,516
# Shares 1,864 1,864 1,864 1,800 1,800 1,800
EPS 0.85 1.48 1.91 0.86 1.51 1.95

20 Percent Stock 80 Percent Stock

Recession Normal Boom Recession Normal Boom
EBIT $2,000 $3,500 $4,500 $2,000 $3,500 $4,500
Interest 40 40 40 10 10 10
EBT 1,960 3,460 4,460 1,990 3,490 4,490
Taxes 412 727 937 418 733 943
EAT 1,548 2,733 3,523 1,572 2,757 3,547
# Shares 1,813 1,813 1,813 1,851 1,851 1,851
EPS 0.85 1.51 1.94 0.85 1.49 1.92

M. Epilogue
For Q4 of 2011 that ended September 30, 2011, Starbucks (SBUX) reported excellent same-store sales
expansion and an improved business outlook, despite higher coffee costs. The company’s total revenues,
on a comparable 13-week basis, increased 15 percent, while earnings per share increased 16 percent to a
record $0.37. Global results for Starbucks in their fiscal Q4 rose 9 percent on a comparable 13-week basis
thanks to a 6 percent jump in traffic and a 3 percent increase in ticket prices (US results increased 10
percent, while international comps advanced 6 percent). These excellent results were better than rival
Dunkin Brands’ (DNKN) 6 percent increases. US consumers seemingly can’t get enough of Starbucks'
brew thanks to growth of its loyalty program (My Starbucks Rewards program) and fall promotions
(Pumpkin Spice Latte, etc.), while international growth continues to improve also.

On the heels of this excellent performance, Starbucks increased its dividend by 31 percent in November
2011 and announced an authorization to purchase as many as 20 million shares more of the company’s
stock.

Starbucks plans to open 800 net new stores globally during 2012, with half opening in the Americas, 300 in
China and Asia, and the balance in EMEA (Europe, Middle East, Russia, and Africa). In fact, the firm

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expects to have 1,500 stores open in mainland China by 2015, a rapid pace of expansion (it currently has
about 500 stores open there).

Starbucks’ future looks excellent as the company has locked in lower coffee costs through 2013 and
Starbucks K-Cups (which will be available in US retail stores in 2012) will likely become a more material
earnings driver. Its partnership with Green Mountain (GMCR) will help propel results as well. Starbucks is
very confident about its Starbucks Blonde Roast (a premium light roast coffee), which will be available in
retail stores in January 2012, and estimates the market opportunity to be about $1 billion.

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