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Dell Computers was founded by Michael Dell, who started selling personal computers out of his dorm room as a freshman at the University of Texas. Michael Dell would buy parts wholesale, assembled them into clones (exact replicas) of IBM computers, and sold them by mail order to customers who did not want to pay the higher prices charged by retailers. Michael Dell was soon making 80,000 dollars a month profit and in 1984 Michael dropped out of university to found Dell Computers. Michael formed in his dorm room the underlying principles, which he would follow throughout the 80’s and 90’s as CEO of Dell Computers.
Since their inception in 1982, dell has had a consistent rise in sales. Dells built to order strategy has enabled them to become a very efficient producer of computers and profitable company. The WebPages for dell computers has enabled dell to be able to reduce expenditures and become more efficient in their overall production and distribution of their products. Dell has been the only company to become an efficient maker of computers using the built-to-order system. Dells stock has become increasingly more valuable to investors over the past five years. Dell’s built-to-order strategy has made them successful in growth, development and stock valuation.
The book “Direct from Dell” gave a lot of background information on, Dell’s strategy, and mail order system as well as statistics on company sales and growth. The book goes into depth when analyzing Dell’s built-to-order system, and mail order system. The book was written before the WebPages became popular so it talks only about what the company expects from it and not about how the web page has performed. The Charles Shwabb investment web page gave a lot of information, which would suit potential investors on Dell. The web page allowed me to view Dell’s financial statements and analyze just how profitable Dell Computers has been and in which areas they showed the most or least profit. The book “The Market Share Reporter” gave me information on how much of the market Dell controls for each product they sell and how they compare to other companies. The book has many graphs, and charts to make it easier to see how much control a particular company has in that area in relation to other competing companies.
Selling computers over the Internet enables Dell to become a more efficient distributor of computers.
When Michael Dell first started Dell computers the majority of the selling of the custom built computers were made over the phone with considerably less coming in through the mail. This was a very costly method for selling computers because there is a need for 700 customer service agents who service many calls a day and it costs the corporation on average 8 dollars a call. In 1994 Dell set up a group of people to set up a web page for Dell products, which would be customer friendly and reduce the costs being paid for customer service. Michael Dell was once asked why he initiated the move for the majority of their mail order sales to come through the Internet and answered like this. He said “the role of a sales person is changing from the role of an actual sales person to a web page. The Internet lets people choose between many pitches and buy the best product offered.” The move onto the Internet made the whole process for receiving orders and reducing expenditures a lot cheaper and more efficient. Now the orders go directly to the warehouse floor where they are quickly assembled and instead of needing 700 people to answer phone calls you need only 30 to run the web page. The web page has also helped Dell increase sales because consumers only need to log onto the Internet and order a computer with the exact specifications which they require. As of December 31st 1999 Dell was selling 14 million dollars worth of software and equipment a day over their various web pages. Dell has become a more cost efficient seller of computers because with the reduced cost of paying customer service they are able to lower the costs of the computer and still make the same profit. The web page also makes money for Dell, which in turn lets them subsidize their expenditures because they also sell products for competitive companies and are able to take a premium of the sale. The online internet sales allows Dell to follow the order patterns of their customers and use that information to know where they can mass produce a certain computer prototype and be able to sell the computer and since that computer has been mass produced Dell will make a bigger profit. By selling computers over the Internet Dell has been able to become a more efficient seller of computers and been able to utilize the Internet to make a large profit.
The build to order strategy allows Dell to be more cost efficient by helping them cut expenditures and delivering better products. Dells strategy for manufacturing computers is called the built-to-order system where you only build the computer once the computer has been ordered. Using the built to order strategy allows Dell computers to be very cost efficient. They only build computers once they have been ordered so that Dell is never left with any unused inventory, which in the computer hardware industry depreciates at 1% a week. Dell buys their inventor based on estimates of consumer needs. They buy less than the estimates predict but more frequently so that they never run into a problem of too much inventory. This also allows Dell to buy the top of the line products to place in their computers. After purchasing computers from Dell the CEO of Sprint said “Dell was the only built-to-order manufacturer with solid, dependable, and interchangeable parts.” Competitors of Dell such as IBM, Compaq, and Hewlett-Packard mass-produce their computers so they don’t start new computers until their inventory has run out or because their inventory has grown to old. This means that they start losing profits for every week their inventory has not been sold and that they don’t start updating their inventory until their computers have been sold. Dell’s computers are on average 60 days newer than the computers of their competitors. Analysts have said about Dell “Dell’s business model is what most employers are trying to achieve. PC’s are all somewhat the same it’s the business model and the ability to satisfy customers that can determine success.” The built to order strategy has enabled Dell to become more cost efficient, reduce expenditures and deliver better products than their competitors.
Dell has increasingly become more valuable as an investment opportunity for investors who like seeing high returns. Dell has been the fastest growing computer manufacturer since the early 1990’s. Their market share has continued to grow at a high rate in the last few years of the decade and in the last quarter of the 1999 they surpassed Compaq in computer market share holding the position of largest market share in the computer industry with 16.8 percent. Dell’s market share has grown in all areas of the computer industry where they manufacturer those products. Their desktop sales market share grew from 5.5% in 1998 to 12.2% in 1999. Dells notebook market share grew form 4.5% in 1998 to 12% in 1999. Dells server market share grew from 3.3%in 1998 to 13%in 1999 a growth of 143.3%. These increases have shown us that people are buying dells products because they are cheap, reliable, and high-end appliances. Due to all these increases in market share revenues for Dell grew 48% more than double their nearest competitor to 25,265 million. Dell’s profits grew 14% in 1999 to 1,666 million good enough for 3rd in the industry. Dell’s stock also grew 97% in 1999 and has averaged 77% growth over the past 10 years showing the demand people have for Dell’s stock and the returns that investors have received due to their investments. Dell also has the fewest amount of employees in the top 5 companies for computer manufacturing with the 2nd lowest more than doubling dells workforce. Showing us how efficient Dell works, that they are still able to be a leader in the computer market with a relatively small work force. Dells share price to earnings ratio is 89.01 which tells us that people value dells stock 89 times what it is really worth.
Dell’s share price to earnings ratio is 89.01 which is proof that investors value Dell’s stock 89 times more than the share actually earns and technically should be worth. Dell has been the fastest growing computer manufacturer in all areas of the computer industry and has proven how efficiently they work and how they really are a premier Blue Chip stock.
Since their inception in 1982, dell has had a consistent rise in sales. Dells built to order strategy has enabled them to become a very efficient producer of computers and profitable company. Dell’s WebPages have enabled Dell computers to reduce their expenditures and become much more efficient in their production and distribution of their computers. Dell’s success at using the built-to-order system has enabled them to become a much more efficient manufacturer of computers allowing Dell to maximize profits. Dells stock has become more valuable to investors over the past five years because Dell in that time has become the fastest growing computer manufacturer in the world. Dell’s built-to-order strategy has made them successful in growth and development and stock valuation.
Dell throughout their years has proven to be a valuable stock for investors. They have managed to become the first major company to make a profit while using the mail order system and the built to order systems to sell products. By making a profit they defied all odds that they would ever succeed against computer giants such as IBM, Compaq, and Hewlett-Packard, using such unproven methods. Dell has succeeded in overtaking these major computer manufacturers in market share and will most likely increase their market share over the next ten years to become the premier computer manufacturer in the world.