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Dell Inc which captures a global market share of more than 16 percent, is now the leading seller of computer systems in the world. Its products includes desktop PC, notebook computers, workstations, handheld computers, monitors, printers, high-end storage products, and a variety of computer peripherals and software. Dell also has moved into the consumer electronics arena, offeringÂ LCD TV, projectors, and other products. Most of the products are made by Dell's six production facilities all over the world. Dell sells its equipment directly to consumers through dedicated sales representatives, telephone-based sales, and online via the company web site.
Dell was founded by Michael Dell, who started selling personal computers out of his dorm room as a freshman at the University of Texas in Austin. Dell used low-cost direct marketing to undersell the better known computers being sold through such high-overhead dealer networks. Dell placed ads in computer magazines. Orders were sent to Dell by dialing a toll-free number. As a result of these methods, Dell's computers became the top brand name in the direct-mail market.
Dell achieved sales of $6 million its first full year inÂ business, approaching $40 million the next year. E. Lee Walker was hired as president in 1986 to help deal with explosive growth. To achieve market share goal, Dell hired a group of marketing executives from Tandy Corporation, another maker of low-cost PCs.
The Tandy team soon helped raise gross margins to 31 percent, up from 23 percent a year earlier.
In 1988, the firm continued growing rapidly, offices in England and Canada were opened. Dell went public in this year..
Increased competition in the Late 1980s
Dell faced competition from several Japanese manufacturers. Dell responded to the increasing competition by increasing the level of technical sophistication in its computers. By mid-1989 Dell had finished initial attempts at graphics hardware, giving it inroads into the higher end of the PC market.
Despite these advances, Dell still had a research and development budget of $7 million, compared with the hundreds of millions spent by such larger competitors as IBM. Dell's share of the PC market was only 1.8 percent, but it was still growing rapidly. U.S. sales for 1989 reached $257.8 million, while sales in Britain increased to $40 million.
In 1990 Dell set up subsidiaries in Italy and France as well as a manufacturing center in Limerick, Ireland, to serve customers in Europe, the Middle East, and Africa. It also began selling some computers through large computer stores. As a result, 40 percent of Dell's $546 million in 1990 sales came from the corporate world, up from 15 percent in 1987. Dell became the sixth largest PC maker in the United States
Price Wars in the Early 1990s and Expansion in the Late 1990s
With a recession dampening sales, PC makers engaged in a furious price war that resulted in slumping profits nearly across the board. Nevertheless, the economic recession actually benefited Dell. While customers had less money, they still needed PCs, and they purchased Dell's inexpensive but technologically innovative IBM clones in record numbers. Consequently, annual sales shot up toward $1 billion.
In 1991, Dell devoted resources to producing its first notebook model.
The new price reduction strategy of Compaq, which had been a higher priced manufacturer affected Dell's margins, forcing it to cut its computer prices to keep its market share. Dell could afford such steep price cuts because its operating costs were only 18 percent of revenues, compared with Compaq's 36 percent. The competition also forced Dell away from its attempts to stress its engineering. To fight back against Compaq's inexpensive PC line, Dell introduced its Dimensions by Dell line of low-cost PCs. Sales for the year reached $2 billion, and Dell made a second, $148 million stock offering.
During the early 1990s Dell also attempted a foray into retail marketing, the most popular venue with individual consumers. Dell agreed to allow the stores to sell the products at mail-order prices, a policy that soon caused Dell a lot of grief. The value of existing computers on store shelves plummeted whenever Dell offered a new computer through its direct sales and loss.
In 1994, after a loss of $36 million Dell rebounded spectacularly, reporting profits of $149 million in 1995. That year, the company introduced Pentium-based notebook computers and a popular dual-processor PC. The company grew by almost 50 percent that year and the next, raising its market share to approximately 4 percent and entering the company into the ranks of the top-five computer sellers in the world.
Expansion continued on many fronts in 1996. Dell introduced a line of network servers and was soon the fastest-growing company in that sector.
Dell continued its exponential growth in 1997 and 1998, reaching profits of $944 million in 1998.
Following on the success of its direct sales over the Internet, Dell opened an online superstore of computer-related products in 1999. Gigabuys.com offered low-priced computer hardware, software, and peripherals from various companies in the industry, although Dell continued to sell its own products at www.dell.com. Two more manufacturing facilities were added to the firm's global production network that year, located in Nashville, Tennessee; and Eldorado do Sul, Brazil. For the fiscal year ending in January 2000, Dell reported net income of $1.86 billion on total revenues of $25.26 billion.
2000s: Surviving Global PC Downturn, Diversifying
When the global PC industry fell into its worst slump ever during 2000, Dell responded by initiating a price war to which its rivals were slow to respond, providing Dell with a chance to further increase its market share.
By 2001 Dell managed to gain for the first time the top spot globally in PC sales, with a 13 percent worldwide share. Dell also responded to the PC slump by aggressively pushing into the market for Internet servers, a more profitable sector than that of PCs. It launched another price war on the low end of the server market, which cut into its margins somewhat but enabled it to gain share. Dell targeted other higher-margin sectors as well. It continued its push into the storage market in late 2001 by entering into an alliance with EMC Corporation to develop a new line of data-storage systems, and it entered the market for low-end networking gear used by small businesses, launching its Power Connect line of network switches in 2001.
Finally, Dell stayed solidly in the black--while its rivals were losing money--via a major cost-cutting program. The company made the first significant layoffs in its history. The charges reduced profits, but Dell still managed to record net income of $1.78 billion on revenues of $31.17 billion for 2002.
Although Michael Dell remained firmly in charge of the company he had founded as chairman and CEO, Kevin B. Rollins was increasingly taking over the day-to-day operations at Dell Computer and had been instrumental in the maneuvers that had enabled the company to gain ground on its rivals during the industry slump. Rollins had consulted for Dell while employed with the consulting firm Bain & Company, before joining Dell in 1996 as a senior vice-president. He was named vice-chairman in 1997 and then became president and chief operating officer in 2001. Rollins's assumption of the operating reins enabled Michael Dell to concentrate more on long-range, strategic planning.
During 2002 the company entered the handheld computer market by launching its Axim line of personal digital assistants (PDAs). Early in 2003 it debuted its own line of printers aimed at both businesses and consumers. Later that year Dell gained a toehold in the cutthroat consumer electronics industry by introducing LCD flat-panel televisions, digital music players, and an online music service. With businesses keeping a tight rein on their PC spending, Dell in 2002 attempted to gain further sales from consumers by setting up kiosks at shopping malls where customers could see and try out Dell computers, printers, and other products before placing their orders online or by phone.
The corporation's widening interests took a quite concrete form in mid-2003 through the shortening of the firm's name to simply Dell Inc. Dell's diversification, coupled with large increases in shipments of high-profit-margin products such as servers, notebook computers, and storage equipment, propelled the company to new heights in 2004. Net income surged 25 percent that year, hitting $2.65 billion, while revenues jumped 17 percent, to $41.44 billion. Soon after these stellar results were released, Michael Dell, announced that he would relinquish his CEO title to Rollins in July 2004 but would remain actively involved in the company as chairman.
On January 31, 2007,Â Michael DellÂ returned to the company as CEO. As chairman of the board, Michael Dell had had significant input into the company's operations during Rollins' years as CEO. However with the return of Michael Dell as CEO, the company saw immediate changes in operations, the exodus of many senior vice-presidents and new personnel brought in from outside the company.
Michael Dell announced a number of initiatives and plans (part of the "Dell 2.0" initiative) to improve the company's financial performance. These include elimination of 2006 bonuses for employees with some discretionary awards, reduction in the number of managers reporting directly to Michael Dell from 20 to 12, and reduction of "bureaucracy."
On April 23, 2008, Dell announced the closure of one of its biggest Canadian call-centers inÂ Kanata, Ontario, terminating approximately 1100 employees, with 500 of those redundancies effective on the spot, and with the official closure of the center scheduled for the summer. On January 8, 2009 Dell announced the closure of its manufacturing plant in Limerick, Ireland with the loss of 1,900 jobs and the transfer of production to its plant in Poland.
Today, Dell offers a complete line ofÂ desktop and notebook PCs, network servers, printers, data storage systems, projectors, HD televisions, home theater systems, mobile phones,smart phones, cameras, and a vast array of technology accessories. In addition, Dell markets third-party hardware and software, and provides services such as computer consulting, support, and training.Â