Dell Inc.
...or change is acquisitions are fueling growth, and in bull markets companies harvest new technologies and key personnel by acquiring startups. However, consolidation is not limited to prosperous periods, as we have seen major mergers happen in the past few years. In a highly competitive operating environment, sales growth for PC unit demand is improving, but price pressures are adversely affecting net revenues. A turnaround has not occurred as during the prosperous years of the early 00’s where the industry averaged growth of nearly 27 percent. Profit Margins price pressures and eroding profit margins for PCs have led to diversification into wider margin products. Still, the industry margins are forecasted at (8% in global PC) and (5 to 8% in IT) for FY04 according to S&P reports. Competition As Ranked # 1 in hardware sales, IBM’s Global-Services Group continues to book sizable stacks of multiyear service contracts. Service bookings are encouraging because each project will usually stimulate demand for additional software and hardware that IBM can usually source from its own product offerings. Ranked # 2, HP’s most important division is the Imaging and Printing group, which accounts for about a third of revenue but 75% of profits. As the worldwide leader in printers, HP depends on its large installed base to capture the demand for replacement printer supplies like ink and toner cartridges, which carry enormous profit margins. Lastly, Gateway has been surprisingly successful at through stellar service and support. However, Gateway has been stumbling in the PC business and recently closed down all retail shops last month. The following are is a snapshot of the competition. Direct Competitor Comparison DELL HPQ IBM Industry Market Cap: 92.0B 66.13B 155.1B 171.42M Employees: 46,000 142,000 319,273 Revenue Growth: 15.90% 25.10% -7.10% 0.00% Revenues: 35.40B 56.59B 81.19B 88.79M Gross Margin: 17.9% 26.28% 37.09% 38.03% Net Income: 2.10B 2.54B 6.81B -1.93M EPS: 0.954 0.829 3.899 0.00 HPQ = Hewlett-Packard Co IBM = International Business Machines Corp Industry = Computer Hardware Computer Hardware (US) Ranked by Sales Company Symbol Price Change Market Cap INTL BUS MACHINE IBM 91.28 0.60% 155.12B HEWLETT-PACKARD HPQ 21.67 0.64% 66.13B DELL INC DELL 35.96 1.58% 92.07B SUN MICROSYS SUNW 4.39 2.81% 14.43B GATEWAY INC GTW 5.81 -2.02% 1.89B APPLE COMP INC AAPL 27.70 -0.29% 10.24B Footnote: Business Life Cycle The business life cycle for PCs is at the stage of maturity. Being that PC’s account for nearly 53% of Dell’s total revenues, it vital that they closely monitor their external environment. At this stage, prices pressures are conti...