The Slowing Sales Growth

02 Nov 2017

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However in 2005, while earnings and sales continued to rise, sales growth slowed considerably, and the company stock lost 25% of its value that year.[15] By June 2006, the stock was trading around $25 which was 40% down from July 2005 which was the high watermark of the company in the post-dotcom era.[16][17]

The slowing sales growth has been attributed to the maturing PC market, which constituted 66% of Dell's sales, and analysts suggested that Dell needed to make inroads into non-PC businesses segments such as storage, services and servers. Dell's price advantage was tied to its ultra-lean manufacturing for desktop PCs,[18] however this became less important as savings became harder to find inside the company's supply chain, and as competitors such as Hewlett-Packard and Acer made their PC manufacturing operations more efficient. Throughout the entire PC industry, declines in prices along with commensurate increases in performance meant that Dell had fewer opportunities to upsell to their customers (a lucrative strategy of encouraging buyers to upgrade the processor or memory). As a result the company was selling a greater proportion of inexpensive PCs than before which eroded profit margins.[14] The laptop segment had become the fastest growing of the PC market, but Dell produced low-cost notebooks in China like other PC manufacturers which eliminated Dell's manufacturing cost advantages.[16]) CNET has suggested that Dell was getting trapped in the increasing commoditization of high volume low margin computers which prevented it from offering the more exciting devices that consumers demanded.[18]

There has also been a decline in consumers purchasing PCs through the Web or on the phone, as increasing numbers were visiting consumer electronics retail stores to try out the devices first. The lack of a retail presence stymied Dell's attempts to offer consumer electronics such as flat-panel TVs and MP3 players.[18]

As well, many analysts were looking to innovating companies as the next source of growth in the technology sector. Dell's low spending on R&D relative to its revenue (compared to IBM, Hewlett Packard, and Apple Inc.) which worked well in the commoditized PC market prevented it from making inroads into more lucrative segments such as MP3 players.[15] Increasing spending on R&D would have cut into the operating margins that the company had emphasized on.[5]

Dell's reputation for poor customer service, since 2002, which was exacerbated as it moved call centres offshore and as its growth outstripped its technical support infrastructure, came under increasing scrutiny on the Web. Although the original Dell model was known for high customer satisfaction when PCs were selling for thousands, by the 2000s the company could not justify maintaining that level of service when computers in the same lineup were now selling for hundreds. By 2006, Dell had spent $100 million in just a few months to improve on this, as well as rolling out DellConnect to answer customer inquiries more quickly.[16]

There was also criticism that Dell used faulty components for its PCs.[19] A battery recall in August 2006, as a result of a Dell laptop catching fire caused much negative attention for the company, although later Sony was found to be responsible for the faulty batteries.[14]

2006 marked the first year that Dell's growth was slower than the PC industry as a whole. By the fourth quarter of 2006, Dell lost its title of the largest PC manufacturer to rival Hewlett Packard whose Personal Systems Group was invigorated thanks to a restructuring initiated by their CEO Mark Hurd.[15][20] [21]

After four out of five quarterly earnings reports were below expectations, Rollins resigned in 2007 and founder Michael Dell assumed the role of CEO again. Dell announced a change campaign called "Dell 2.0," reducing headcount and diversifying the company's product offerings.

Manufacturing

From its early beginnings, Dell operated as a pioneer in the "configure to order" approach to manufacturing—delivering individual PCs configured to customer specifications. In contrast, most PC manufacturers in those times delivered large orders to intermediaries on a quarterly basis.[64]

To minimize the delay between purchase and delivery, Dell has a general policy of manufacturing its products close to its customers. This also allows for implementing a just-in-time (JIT) manufacturing approach, which minimizes inventory costs. Low inventory is another signature of the Dell business model—a critical consideration in an industry where components depreciate very rapidly.[65]

Dell's manufacturing process covers assembly, software installation, functional testing (including "burn-in"), and quality control. Throughout most of the company's history, Dell manufactured desktop machines in-house and contracted out manufacturing of base notebooks for configuration in-house.[66] However, the company's approach has changed, as cited in the 2006 Annual Report which states "we are continuing to expand our use of original design manufacturing partnerships and manufacturing outsourcing relationships." The Wall Street Journal reported in September, 2008 that "Dell has approached contract computer manufacturers with offers to sell" their plants.[67] By the late 2000s, Dell's "configure to order" approach of manufacturing—delivering individual PCs configured to customer specifications from its US facilities was no longer competitive with high-volume Asian contract manufacturers.[68]

Assembly of desktop computers for the North American market formerly took place at Dell plants in Austin, Texas (original location) and Lebanon, Tennessee (opened in 1999), which have been closed in 2008 and early 2009, respectively. The plant in Winston-Salem, North Carolina received $280 million USD in incentives from the state and opened in 2005, but ceased operations in November 2010, and Dell's contract with the state requires them to repay the incentives for failing to meet the conditions.[69][70] Most of the work that used to take place in Dell's U.S. plants was transferred to contract manufacturers in Asia and Mexico, or some of Dell's own factories overseas. The Miami, Florida facility of its Alienware subsidiary remains in operation, while Dell servers (its most profitable products) continue to be produced in Austin, Texas. [68]

Dell assembled computers for the EMEA market at the Limerick facility in the Republic of Ireland, and once employed about 4,500 people in that country. Dell began manufacturing in Limerick in 1991 and went on to become Ireland's largest exporter of goods and its second-largest company and foreign investor. On January 8, 2009, Dell announced that it would move all Dell manufacturing in Limerick to Dell's new plant in the Polish city of Łódź by January 2010.[71] European Union officials said they would investigate a €52.7million aid package the Polish government used to attract Dell away from Ireland.[72] European Manufacturing Facility 1 (EMF1, opened in 1990) and EMF3 form part of the Raheen Industrial Estate near Limerick. EMF2 (previously a Wang facility, later occupied by Flextronics, situated in Castletroy) closed in 2002,[citation needed] and Dell Inc. has consolidated production into EMF3 (EMF1 now[when?] contains only offices).[73] Subsidies from the Polish government did keep Dell for a long time.[74] After ending assembly in the Limerick plant the Cherrywood Technology Campus in Dublin was the largest Dell office in the republic with over 1200 people in sales (mainly UK & Ireland), support (enterprise support for EMEA) and research and development for cloud computing, but no more manufacturing except [75] Dell's Alienware subsidiary which manufactures PCs in an Athlone, Ireland plant. If this facility will remain in Ireland is not sure.[76] Construction of EMF4 in Łódź, Poland has started: Dell started production there in autumn 2007.[77]

Dell opened plants in Penang, Malaysia in 1995, and in Xiamen, China in 1999. These facilities serve the Asian market and assemble 95% of Dell notebooks. Dell Inc. has invested[when?] an estimated $60 million in a new manufacturing unit in Chennai, India, to support the sales of its products in the Indian subcontinent. Indian-made products will bear the "Made in India" mark. In 2007 the Chennai facility had the target of producing 400,000 desktop PCs, and plans envisaged it starting to produce notebook PCs and other products in the second half of 2007.[citation needed]

Dell moved desktop and PowerEdge server manufacturing for the South American market from the Eldorado do Sul plant opened in 1999, to a new plant in Hortolandia, Brazil in 2007.[78]

Commercial aspects

Organization

The board consists of nine directors. Michael Dell, the founder of the company, serves as chairman of the board and chief executive officer. Other board members include Don Carty, William Gray, Judy Lewent, Klaus Luft, Alex Mandl, Michael A. Miles, and Sam Nunn. Shareholders elect the nine board members at meetings, and those board members who do not get a majority of votes must submit a resignation to the board, which will subsequently choose whether or not to accept the resignation. The board of directors usually sets up five committees having oversight over specific matters. These committees include the Audit Committee, which handles accounting issues, including auditing and reporting; the Compensation Committee, which approves compensation for the CEO and other employees of the company; the Finance Committee, which handles financial matters such as proposed mergers and acquisitions; the Governance and Nominating Committee, which handles various corporate matters (including nomination of the board); and the Antitrust Compliance Committee, which attempts to prevent company practices from violating antitrust laws.

Day to day operations of the company are run by the Global Executive Management Committee which sets strategic direction. Dell has regional senior vice-presidents for countries other than the United States, including David Marmonti for EMEA and Stephen J. Felice for Asia/Japan. As of 2007, other officers included Martin Garvin (senior vice president for worldwide procurement) and Susan E. Sheskey (vice president and Chief Information Officer).

Marketing

Dell advertisements have appeared in several types of media including television, the Internet, magazines, catalogs and newspapers. Some of Dell Inc's marketing strategies include lowering prices at all times of the year, offering free bonus products (such as Dell printers), and offering free shipping in order to encourage more sales and to stave off competitors. In 2006, Dell cut its prices in an effort to maintain its 19.2% market share. However, this also cut profit-margins by more than half, from 8.7 to 4.3 percent. To maintain its low prices, Dell continues to accept most purchases of its products via the Internet and through the telephone network, and to move its customer-care division to India and El Salvador.[82]

A popular United States television and print ad campaign in the early 2000s featured the actor Ben Curtis playing the part of "Steven", a lightly mischievous blond-haired youth who came to the assistance of bereft computer purchasers. Each television advertisement usually ended with Steven's catch-phrase: "Dude, you're gettin' a Dell!"

A subsequent advertising campaign featured interns at Dell headquarters (with Curtis' character appearing in a small cameo at the end of one of the first commercials in this particular campaign).

A Dell advertising campaign for the XPS line of gaming computers featured in print in the September 2006 issue of Wired. It used as a tagline the common term in Internet and gamer slang: "FTW", meaning "For The Win". However, Dell Inc. soon[when?] dropped the campaign.

In the first-person shooter game F.E.A.R. Extraction Point, several computers visible on desks within the game have recognizable Dell XPS model characteristics, sometimes even including the Dell logo on the monitors.

In 2007, Dell switched advertising agencies in the US from BBDO to Working Mother Media. In July 2007, Dell released new advertising created by Working Mother to support the Inspiron and XPS lines. The ads featured music from the Flaming Lips and Devo who re-formed especially to record the song in the ad "Work it Out". Also in 2007, Dell began using the slogan "Yours is here" to say that it customizes computers to fit customers' requirements.[83]

Dell partner program

In late 2007, Dell Inc. announced that it planned to expand its program to value-added resellers (VARs), giving it the official name of "Dell Partner Direct" and a new Website.[84]

Criticisms of marketing of laptop security

In 2008, Dell received press coverage over its claim of having the world's most secure laptops, specifically, its Latitude D630 and Latitude D830.[85] At Lenovo's request, the (U.S.) National Advertising Division (NAD) evaluated the claim, and reported that Dell did not have enough evidence to support it.[86]

Retail

Competition

Dell's major competitors include Hewlett-Packard (HP), Acer, Toshiba, Gateway, Sony, Asus, Lenovo, IBM, MSI, Samsung, Apple and Sun Microsystems. Dell and its subsidiary, Alienware, compete in the enthusiast market against AVADirect, Falcon Northwest, VoodooPC (a subsidiary of HP), CustomPotato, and other manufacturers. In the second quarter of 2006, Dell had between 18% and 19% share of the worldwide personal computer market, compared to HP with roughly 15%.

In late 2006, Dell lost its lead in the PC-business to Hewlett-Packard. Both Gartner and IDC estimated that in the third quarter of 2006, HP shipped more units[dead link] worldwide than Dell did. Dell's 3.6% growth paled in comparison to HP's 15% growth during the same period. The problem got worse in the fourth quarter, when Gartner estimated that Dell PC shipments declined 8.9% (versus HP's 23.9% growth). As a result, at the end of 2006 Dell's overall PC market-share stood at 13.9% (versus HP's 17.4%).

IDC reported that Dell lost more server market share than any of the top four competitors in that arena. IDC's Q4 2006 estimates show Dell's share of the server market at 8.1%, down from 9.5% in the previous year. This represents a 8.8% loss year-over-year, primarily to competitors EMC and IBM.[90]

In 2011, The Brand Trust Report, India study revealed that Dell is ranked as the 27th most trusted brand as compared to Samsung which stood at 5th and HP which ranked 23[91]

Environmental record

Dell committed to reduce greenhouse gas emissions from its global activities by 40% by 2015, with 2008 fiscal year as the baseline year.[95] It is listed in Greenpeace’s Guide to Greener Electronics that scores leading electronics manufacturers according to their policies on sustainability, climate and energy and how green their products are. In November 2011, Dell ranked 2nd out of 15 listed electronics makers (increasing its score to 5.1 from 4.9, which it gained in the previous ranking from October 2010).[96]

Dell was the first company to publicly state a timeline for the elimination of toxic polyvinyl chloride (PVC) and brominated flame retardants (BFRs), which it planned to phase out by the end of 2009. It revised this commitment and now aims to remove these toxics by the end of 2011 but only in its computing products.[97] In March 2010, Greenpeace activists protested at Dell offices in Bangalore, Amsterdam and Copenhagen calling for Dell’s founder and CEO Michael Dell to ‘drop the toxics’ and claiming that Dell’s aspiration to be ‘the greenest technology company on the planet’[98] was ‘hypocritical’.[99] Dell has launched its first products completely free of PVC and BFRs with the G-Series monitors (G2210 and G2410) in 2009.[100]

In its 2012 report on progress relating to conflict minerals, the Enough Project rated Dell the eighth highest of 24 consumer electronics companies.[101]

Green initiatives

Dell became the first company in the information technology industry to establish a product-recycling goal (in 2004) and completed the implementation of its global consumer recycling-program in 2006.[102] On February 6, 2007, the National Recycling Coalition awarded Dell its "Recycling Works" award for efforts to promote producer responsibility.[103] On July 19, 2007, Dell announced that it had exceeded targets in working to achieve a multi-year goal of recovering 275 million pounds of computer equipment by 2009.[104] The company reported the recovery of 78 million pounds (nearly 40,000 tons) of IT equipment from customers in 2006, a 93-percent increase over 2005; and 12.4% of the equipment Dell sold seven years earlier.[105]

On June 5, 2007 Dell set a goal of becoming the greenest technology company on Earth for the long term. The company launched a zero-carbon initiative that includes:

reducing Dell's carbon intensity by 15 percent by 2012

requiring primary suppliers to report carbon emissions data during quarterly business reviews

partnering with customers to build the "greenest PC on the planet"

expanding the company's carbon-offsetting program, "Plant a Tree for Me".

The company introduced the term "The Re-Generation" during a round table in London commemorating 2007 World Environment Day. "The Re-Generation" refers to people of all ages throughout the world who want to "make a difference" in improving the world's environment. Dell also talked about plans to take the lead in setting an environmental standard for the "technology industry" and maintaining that leadership in the future.

Dell reports its environmental performance in an annual Corporate Social Responsibility (CSR) Report that follows the Global Reporting Initiative (GRI) protocol. Dell's 2008 CSR report ranked as "Application Level B" as "checked by GRI".[106]

The company aims to reduce its external environmental impact through energy-efficient evolution of products, and also reduce its direct operational impact through energy-efficiency programmes. Internal energy-efficiency programmes reportedly save the company more than $3 million annually in energy-cost savings.[107] The largest component of the company's internal energy-efficiency savings comes through PC power management: the company expects to save $1.8 million in energy costs through using specialised energy-management software on a network of 50,000 PCs.[108][109]

Criticism

See also: Lawsuits involving Dell Inc.

In the 1990s, Dell switched from using primarily ATX motherboards and PSU to using boards and power supplies with mechanically identical but differently wired connectors. This meant customers wishing to upgrade their hardware would have to replace parts with scarce Dell-compatible parts instead of commonly available parts. However, company practice in this respect changed in 2003.[110][111]

In 2005, complaints about Dell more than doubled to 1,533, after earnings grew 52% that year.[112]

In 2006, Dell acknowledged that it had problems with customer service. Issues included call transfers[113] of more than 45% of calls and long wait times. Dell's blog detailed the response: "We're spending more than a $100 million — and a lot of blood, sweat and tears of talented people — to fix this."[114] Later in the year, the company increased its spending on customer service to $150 million.[115] Despite significant investment in this space, Dell continues to face public scrutiny with even the company's own website littered with complaints regarding the issue escalation process.[116]

On August 17, 2007, Dell Inc. announced that after an internal investigation into its accounting practices it would restate and reduce earnings from 2003 through to the first quarter of 2007 by a total amount of between $50 million and $150 million, or 2 cents to 7 cents per share.[117] The investigation, begun in November 2006, resulted from concerns raised by the U.S. Securities and Exchange Commission over some documents and information that Dell Inc. had submitted.[118] It was alleged that Dell had not disclosed large exclusivity payments received from Intel for agreeing not to buy processors from a rival manufacturer. In 2010 Dell finally paid $100 million to settle the SEC's charges of fraud. Michael Dell and other executives also paid penalties and suffered other sanctions, without admitting or denying the charges.[119]

In July 2009, Dell apologized after the firm offered its Latitude E4300 notebook at NT$18,558 (US$580), 70% lower than usual price of NT$60,900 (US$1900) in its Taiwan website. The firm withdrew orders and offered a voucher of up to NT$20,000 (US$625) a customer in compensation. The consumer rights authorities in Taiwan fined Dell NT$1 million (US$31250) for customer rights infringements. Many consumers sued the firm for the unfair compensation. A court in southern Taiwan ordered the firm to deliver 18 laptops and 76 flat-panel monitors to 31 consumers for NT$490,000 (US$15,120), less than a third of the normal price.[120] The court said the event could hardly be regarded as mistakes, as the prestigious firm said the company mispriced its products twice in Taiwanese website within 3 weeks.[121]



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