Dell-New Horizons HBS case-9-502-022
As a consecutively successful and fast-growing company, Dell’s management got the pressure of maintaining the rapid growth. On the other hand, the hyper-growth in the PC industry over-drafted some growth potential in the coming years and the bubble of the internet economy burst so the speed of the growth would slow down. Since March 2000, Dell’s performance in market capitalization and stock prices had got a slump. In addition, competitions were becoming ferocious so Dell frequently lowered its prices, lowering profit margins as well. Therefore, how to maintain a 30% growth in revenues and earnings year after year was a challenge to Dell. Dell faced the options such as product growth, service growth and international markets growth. In the product growth section, personal computers, workstations, servers and storage were the portfolio. Whether to enter new product categories such as high-end servers, external storage and enterprise services was on the table for the management. The financial constraint was $7.9 billion in cash on its balance sheet. (In 2000, net income + average growth on liabilities=$ 5,146 million). In this analysis, we will scrutinize the growth options and Dell’s ability in certain fields to make sure which options are suitable for it. Finally, we will lay out a prospective plan to pursue growth. Analysis
Dell’s success relies on the growing market of PC industry, its business model and its superior ability to execute to sustain the business model. Dell Direct model was about low cost, direct customer relationships and virtual integration. It was a high velocity, efficient distribution system characterized by build-to-order manufacturing, and products and services targeted at specific market segments. From mail orders and phone orders to internet orders processing, Dell has a long history and experience in direct selling, making it difficult for competitors to imitate. Personal computers
This is the biggest segment with $ 217 billion in 2000. It was almost 75% of Dell’s revenues and the market still grew at 10% even though it slowed down from a speed of 20%. It was very important so Dell still need to work hard on this field. Further prices cutting might get some players out of this game while it would harm Dell as well. Dell’s operating incomes on sales were 9% in 1999, 8% in 2000, and 5% in 2001. Without new effective ways to cut costs down further, prices cutting would harm the industry and Dell itself. Dell can expand in this segment by focus on small and medium businesses. International markets such as Asia/Pacific and Japan are main fields to grow. Dell already did a good job in relationship business, producing 60% Dell’s U.S revenues. While in small and medium businesses, Dell had enough space to expand because only 30% of U.S revenue was from this segment and small and medium businesses are countless. Workstations
This is the smallest segment in Dell’s products portfolio. The market was $9.2 billion in 2000 worldwide. Dell already got 36.8% in U.S and 29.6% worldwide. With the increasing of Windows-based workstations, Dell’s share can be expected to grow. This segment can contribute revenues to Dell while Dell should not allocate too many resources on it. Servers
This is the second largest segment. It was $69 billion in 2000 and kept 7% growth per year. SIAS enjoyed annual growth in excess of 30% and Dell played in SIAS arena and had 25.5% share in 2001. Therefore, Dell’s management considered entering high-end servers. It is reasonable because Dell had no market share in high-end servers. Storage
This market was $69 billion in 2000 and kept 23% growth per year. The industry trend was that NAS and SAN were getting two-thirds of the market while DAS would fall to one-thirds from 70%. Dell’s products mainly were NAS with cheaper prices than competitors’ such as Compaq, Network Appliance and Sun N8200. Dell also allied with EMC by selling...
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