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Life has been challenging for Dell over the past decade. First it struggled against relentless competition from HP, which cost it a place as the world's #1 computer manufacturer during 2007. It then faced an equally daunting challenge from Lenovo, which managed to over-leap both Dell and HP by 2013. Most damaging of all was the dramatic slump in PC sales as a result of surging demand for tablets. Key to Dell's original success had been its decision to focus on a direct sales model, selling only via the internet, telephone and mail order in order to provide high quality technology at the lowest cost. Other companies attempted to emulate the formula, but for many years none was able to match Dell's efficiency or success. Eventually though Dell became distracted by other issues, including internal control problems and a lack of cohesion in its approach to market, and it struggled to keep abreast of the fast-changing market. To fix those problems without the glare of a public listing, founder Michael Dell launched a $25bn bid to take the business private again in 2013. Two years later, he unveiled an equally bold plan to acquire storage and services company EMC for around $63bn. That deal, the biggest to-date in the tech industry, created a new IT giant with combined sales almost $80bn. At the end of 2018, the group returned to the stock market with a complicated buyout of publicly quoted part-subsidiary VMware.
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Few users expect Dell to be on the cutting edge of new technology, but the brand had long been renowned for low cost efficiency. Its direct-to-customer approach also earned it a reputation for top-notch customer service and trusted support services. However a string of problems began to emerge between 2005 and 2009 which tarnished Dell's previously faultless reputation. Although these had been resolved by 2010, competitive challenges from other manufacturers lost Dell its lead in several markets and sales of computers by all manufacturers have come under intense pressure since 2011 as a result of the explosion in popularity of tablets, which have begun to cannibalise traditional PC sales, especially of notebooks.
Dell lost its lead in the global PC market to HP in 2007, a few years after the latter's acquisition of Compaq, itself the former global champion in the late 1990s which had itself been deposed by Dell. The market itself continued to grow, with global industry PC sales peaking in 2011 at almost 353m units. However Dell failed to keep pace with rivals. Its own shipments that year were almost 42.9m units, equivalent to 12.1% share, but it was pushed back into 3rd place by faster growing Lenovo. The PC market has remained turbulent ever since. For 2016, IDC estimated global shipments of 40.7m PCs, equivalent to 15.7% share. In the core US market it retained the #2 spot behind HP, and was #3 in the EMEA region.
Dell is based in Austin, Texas, and has several manufacturing plants worldwide: three in the US, as well as facilities in Brazil, Ireland, Malaysia, China and India. The group designs and build a broad selection of computer systems ranging from entry level to enterprise. In the commercial sector, the company markets Precision and Vostro desktops and notebooks, Optiplex desktops and Latitude notebooks. The consumer models are marketed under the Inspiron, XPS and Alienware brands. The latter brand, which denotes high-specification devices designed specifically for gaming, was acquired in 2006. Revenues for fiscal 2014 were not disclosed because of the company's private buyout. However combined sales from PCs in ye 2013 were $28.29bn. Notebooks contributed $15.3bn, down 20% on the year before, with desktops adding $13.0bn, down 8%.
For more than two decades, Dell built its business more or less exclusively through direct mail service, taking orders by mail, phone or internet. All Dell systems were built to order, eliminating the need for inefficient inventory stock. Although it began to test Dell Direct "stores" in the US and Japan in 2006, these were in fact simply mobile kiosks, where customers could test the company's equipment and place direct orders online. However the continuing erosion of its business by HP and other manufacturers, forced Dell to abandon this previously sacred strategy in 2007. From June that year, the company began selling two of its low-end Dimension models through around 3,000 Wal-Mart outlets in North America. Later it agreed a similar arrangement with Staples and Best Buy in the US, China's largest electronics retailer Gome, Tesco and Dixons Group in the UK, and Carrefour in France. By early 2009, the group was selling its products through as many as 24,000 outlets around the globe.
Servers are marketed under the PowerEdge banner, and storage systems as PowerVault and Equalogic. The latter was acquired in 2007 for $1.4bn. The group ranks #2 globally with around 18% share in 2017, behind HPE and its Chinese partner H3C, with almost 20%. In 2010, the group attempted to expand its data storage operations further through the acquisition of developer Ocarina Networks, followed by the announcement of an agreed deal to acquire 3Par. However Dell's offer was quickly trumped by arch-rival HP, prompting a brutal bidding war between the two companies. In a series of offers and counter-offers over the course of just a few days, HP pushed up the price from Dell's original $18 per share to $33 per share. Dell finally pulled out of the contest. It has continued to make other purchases including data storage company Compellant in 2010 and Force10 networks in 2011.
In 2015, after several months of quiet recovery as a private company, Dell unveiled a deal to acquire data storage, cloud computing and consulting group EMC in what is for now the biggest ever deal in the technology sector. Dell's private equity backers Silver Lake and Temasek of Singapore funded a $63.5bn bid for the target company, which itself controlled a "federation" of satellite businesses including virtualisation specialist VMware, digital security software developer RSA and data analytics & cloud computing service Pivotal. Reaction to the announcement was generally muted, with several rival CEOs and also commentators predicting a degree of chaos as the two groups integrate their respective services. Announced in Oct 2015, the deal finally completed in Sept 2016.
The addition of EMC prompted a series of other deals to divest weaker subsidiary businesses in software and IT services. That unpicked a strategy pursued by Dell during the 2000s, when it had pushed into these areas to match the offerings of rivals such as HP and IBM. In 2002, it acquired Plural, a software support specialist, and made it the core of a new division offering professional and managed services for maintenance and outsourcing. In 2007, it agreed to buy US company ASAP, which made software that helps companies manage back office licensing and compliance. Its biggest acquisition to-date in the field of IT services was agreed in 2009 with a deal to purchase Perot Systems for $3.9bn. In 2012, the group agreed to acquire business software company Quest for $2.4bn in cash. By 2013, revenues from software and services were well in excess of $8bn. However, in 2016, the group announced plans to sell its entire IT services division to NTT of Japan for $3.05bn. A separate deal was agred to offload the bulk of the software division to private equity for $2.4bn, while EMC's own enterprise content division was sold to OpenText for $1.6bn.
The Dell consumer and enterprise hardware business remains the core of the business. It is partnered by a new and envigorated services division, DellEMC, offering cloud computing, digital transformation, servers and storage. Several of these services are offered via EMC's former "fedaration" businesses Pivotal, RSA and VMware, which continue to operate as separately branded standalone entities. SecureWorks, acquired by Dell in 2011, also remains a standalone entity specialising in digital security and cybercrime monitoring.
Dell's financial problems began to materialise towards the end of 2005. The company had forecast sales of $60bn for that fiscal year. However the final figure fell short by more than $4bn, alarming investors. Those concerns increased significantly over the next six months as sales growth slowed for the first half of 2006 to just 6%, while operating and net income both fell sharply. Dell's share price followed suit, plunging to its lowest level for three years. Attempts to reduce costs by cutting jobs and outsourcing technical support led to a sharp increase in complaints from customers over poor service as well as technical faults. The most dramatic of these was a faulty laptop battery capable of disastrous over-heating.
In summer 2006, Dell was forced to issue what was then the biggest safety recall in IT history, calling back more than 4m batteries after videos were circulated online showing them spontaneously bursting into flames. Sony, which made the batteries in question, agreed to contribute to the cost of the recall, but it was Dell who suffered the fallout from the bad PR.
In Spring 2007, Dell's problems worsened after it was forced to acknowledge that it had uncovered "evidence of misconduct" in its finances between 2002 and 2007. Following an investigation, it restated several years' results, although the total figure for the adjustment was not excessive by corporate standards at $92m. For the year ending January 2009, Dell's revenues were flat at $61.1bn. Net income fell 16% to $2.5bn. For the following year, revenues slipped by 13% to $52.9bn, as a 17% fall in hardware sales was partly offset by growth in the services division. Net income plunged 42% to $1.4bn. There were signs that Dell had got back its game by the end of 2010. For the year ending January 2011, group revenues rose 16% to $61.5bn, while net income jumped 84% to $2.6bn. A further 1% increase in the year ending 2012 took the total to almost $62.1bn. All the growth came from the group's services segment, with hardware revenues declining marginally. However net income jumped by a third to $3.5bn. Once the core of the business, desktop systems generated less than a quarter of revenues in the year to 2011. Instead laptops and other mobility products had become Dell's biggest business, accounting for 31% of sales.
For its final full year as a public company, ending January 2013, Dell's revenues slipped 8% to $56.94bn. Net income plunged by almost a third to $2.37bn. The US accounted for just under 50% of revenues. The biggest dent in performance came from the consumer business, where sales fell by 20% during the year, resulting in a small operating loss.
In early 2013, founder Michael Dell launched a $24.4bn bid to take the company private again, backed by private equity firm Silver Lake. However that offer faced opposition from several institutional shareholders, who would make a loss on their investments at that price. As a result, two other investors expressed interest, private equity firm Blackstone and activist investor Carl Icahn, both indicating that they would make a slightly higher bid. However Blackstone pulled out only a few weeks later as further evidence emerged of the general slide in global PC sales. Further wrangling over price and terms followed. A rise in Dell's offer price to around $25bn - including $1bn of Michael Dell's own money - finally clinched the deal, prompting Icahn to withdraw his rival bid. The buyout was accepted by a majority of shareholders in September and completed a month later.
In 2015, the group created Denali Holding as a new parent entity above Dell Inc. The acquisition of EMC created a new IT group with combined proforma sales of $80bn, making it America's third largest private company behind Cargill and Koch Industries. However, the sell-off of non-core divisions reduced the size of the group significantly during 2016.
For the year to Feb 2017, the group reported continuing revenues of $61.64bn, up 21% the year before, including a part-year contribution from EMC. However, the business reported net losses of $1.67bn. That figure was stated after interest expense of over $2.1bn. Revenues for the year to Feb 2018 were $79.04bn, but a huge $8.6bn depreciation write-off resulted in a net loss of $2.9bn.
For the year ended Feb 2019, revenues topped $90.6bn, but the group reported another large deficit of $2.3bn. Operating loss was $191m. The net figure included depreciation charges of $7.7bn and financial expenses of almost $2.2bn. Corporate debt was over $53bn. Excluding exceptional charges Dell reported EBITDA of almost $7.6bn.
Michael Dell was a teenage entrepreneur long before he founded the computer company which made his fortune. As a kid he ran a mail-order stamps business from home, and followed this by selling newspaper subscriptions. His success in this area enabled him to buy a BMW when he was 17. As a pre-med student at the University of Texas, he started a computer components business from his dormitory room, buying disk drives and chips cheap from IBM dealers and reselling them through newspapers and magazines.
By 1984, this business was already generating sales of close to $1m a year, so Dell dropped out of college to begin building PC clones. He named his company PCs Limited, launching the first model, the Turbo in 1985. As before, he sold his computers exclusively through mail order, and by cutting out the middle man retailer, found he could market his machines at 40% below other companies' prices. In 1987, renamed Dell Computer, the company opened its first international office, in the UK, and went public in 1988. Following the launch of manufacturing centres in Europe and then Asia, Dell had become one of the world's top five computer manufacturers before its 10th birthday. The company also briefly toyed with retail sales, licensing office suppliers Staples and CompUSA to retail its computers at mail order prices. This experiment was unsuccessful, and Dell returned to pure mail order in 1994.
The company launched its e-commerce site at Dell.com in 1996, and in less than a year, this had become the company's fastest-growing sales channel, generating sales of more than $4m a day within a year. The range of products also gradually expanded. The first notebooks were introduced in 1991, followed by servers in 1996, workstations in 1997 and storage products in 1998. By 2000, internet sales were exceeding $50m every day. One year later Dell overtook Compaq to become the #1 computer manufacturer by market share. An MP3 digital music player and accompanying online download service launched in the US in late 2003, but was later discontinued. The company had more success with a range of flat-screen TVs, and digital projectors in early 2004.
Having already earned the title as the longest-serving chief executive in the computer industry, Michael Dell stepped down as CEO of the company in 2004, but remained chairman. Kevin Rollins, previously president & COO, was appointed as CEO. However after a terrible year in 2006 in which Dell came within a whisker of losing its position as the global #1 in PCs, Rollins was dismissed in February 2007, and Michael Dell took back the role of chairman & CEO. In the meantime, in 2005, the group had also become the subject of an investigation from US financial regulators over alleged accounting irregularities. This prompted Dell to launch its own probe. After an extensive internal investigation lasting some two years, Dell announced in August 2007 that it had discovered evidence that several unidentified senior executives had sought to manipulate past quarterly financial performance in order to achieve performance goals. The group said it would restate its financial results for the four years 2002 to 2006, as well as for 1Q 2007, to reduce combined net profits by between $50m and $150m. The actual figure finally confirmed in October 2007 was $92m.
Also in 2007, Dell announced plans to consolidate all its global marketing with WPP. That group began construction of a dedicated global network to handle the business, drawing staff members and resources from its existing agencies. In May 2008, rumours emerged that the agency would be named Synarchy Worldwide. This news was greeted with derision by industry pundits, since it referred to a historical political movement from the late 19th century with connections to Nazism. WPP finally confirmed in June that the real name of the agency would be Enfatico. However, that experiment was generally regarded as unsuccessful if not disastrous. There were long delays getting Enfatico fully operational, and most of Dell's most visible advertising continued to be produced by other agencies. By early 2009, the two Dell marketing executives who had championed the strategy to create Enfactico, CMO Mark Jarvis and VP Casey Jones, had both left the company. Soon afterwards, the Enfatico project effectively stalled, with WPP's Y&R taking charge of Dell's marketing.
In early 2009, the group was reported to be working on the launch of a Dell-branded mobile "smartphone". The first of these, Dell Aero, launched in 2010 using Google's Android operating system, but was widely regarded as a flop. Better models followed, including the Dell Venue and Streak, some using the Windows Mobile operating system. However the group's share of the smartphone market remained minimal, and the smartphone range was phased out. The Venue sub-brand was retained for a line of tablets.
Last full revision 17th November 2017
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