AT DELL COMPUTER
PRESENTED TO: PRESENTED BY:
Dr. Sanjai Parahoo Mohamed AL Hendasi
& Obaid Al keebali
& Saif Aleisaei
This case is all about dell computer which in spite
of taking a good start got stuck into cash crunch in
The company is also facing problems with their
existing design of portable computer as they had
some technical problem relating to battery life.
For solving the problem a meeting was held in
hopes the group could reach a consensus on
recommendation for developing a new line of
THE PERSONAL COMPUTER INDUSTRY
The first digital computer were designed by Charles Babbage in the
Micro computer revolution started in 1970’s, with machine catering to
hobbyists and hackers.
In July 1974 an electronic magazine promoted a printed circuit board
that came with instruction book for simulation.
In late 1970’s and 1980’s apple computer California based firm
successfully commercialized an intuitively “easy to use” interface.
Initially Texas Instruments and Zenith entered in the business
segment of microcomputer.
To play catch-up, IBM rapidly leveraged-off its traditional corporate
base and strong direct sales and services organization.
It outsourced hardware & software components to launch its IBM
personal computer in 1981.
THE HISTORY OF DELL
In 1983 Michael Dell a freshman at the University of
Texas, Austin started upgrading IBM compatible personal
computers door to door for local business.
He soon started buying and assembling components himself in
order to sell computer his name directly to customers.
High growth and attractive margins allowed him to fund growth
internally and he began to get number of orders from large oil
companies and government agencies.
In order to promote dell product , dell started 24 hour complaint
hotline & offer a supply of back up replacement equipment.
Dell’s company grew to $6 million by 1985, firm introduced its own
DELL BUSINESS MODEL
Dell computer used the same principal to sell
computers. The company focused on selling customized
products directly via mail to shabby customer.
Dell assured product quality by extensively pretesting all
the configuration options it offered.
A 24-hour telephone support system comprising well-
trained technical representative provided the first post-
shipment level of support.
Dell serviced its customers with combination of home
based telephone representative and field based
Dell maintained a month’s worth of component inventory
but it suppliers generally carried supplemental buffer
PROBLEM FACED BY DELL
Dell had to callback 17000 units due to
Company got stuck into Cash Crunch.
Dell stock plunged to $7 a share.
Profit slashed to $10 million.
Retail Selling proved contrary to dell.
Senior management unable to guide the firm
Improper structure of Product Development
THE NEXT GENERATION: WHICH BATTERY
Holliday & his team entertained only a few realistic
Computer with a proven battery technology (NiHi):
McCarty & Taylor, the mechanical engineer, favored this
option such as communication control or memory
Go with the new battery technology (LiOn):
Dell could incorporate new Lithium ion batteries into the
notebook. This option mean incorporating an unproven &
more expensive technology, which would also take up more
space than traditional batteries.
Defer commitment to either battery technology:
Dell could continue to pursue the laptop development
DELL HAS THREE OPTION FOR PDP
Option 1: continue with a proven battery technology (NiHi)
Confidence = 100% (likelihood that it works as expected)
Net margin = 825,000 units * $600/units- $10m
Option 2: Go with the new battery technology (LiOn)
Confidence = 60% (likelihood that it works as expected): nsky
Net margin (if LiOn works) = 990,000 units*$600/unit-$10m
Net margin (if LiOn fails) = (825,000 units*0.5) * $600/units-
If LiOn fails at launch, a switch to NiHi would require
substantial rework (70% of original schedule and 30% of
cost). Because competitors would have an established
product on the market before them. Dell would lose about
Option 3: Defer commitment until qualification phase
review (dual development or design)
*If dual Estimated =$2.5m
development additional fixed
*If product is Estimated =0.5% of
overdesigned additional revenue (2% of
variable cost margin)
Gross margin 999,000*$600/u $594m (before
(if LiOn works) nit additional cost)
Gross margin 825,000*$600/u $495m (before
The analysis assumes that Sony will give us enough
(if LiOn fails) nit additional cost)
information at the end of the qualification phase to
determine with full certainly if LiOn will work or fail. If it fails
*these are the actual project cost incurred. They include
additional designers and engineers, material & tools
cost, etc. if we follow a dual path until the qualification
phase review. Te costs do not include the product
opportunity forego if we had to pull people away from
* Because of the LiOn battery different dimension and
properties we would have to “overdesign” the
computer case, the charging circuitry and battery
management software to a accommodate either
battery technology which would add about $12
DELL’S LATITUDE DEVELOPMENT PROJECT
In 1991, Dell came out with its first line of portable computers .
In 1992, with portables accounting for 17 percent of Dell’s
sales, rumors circulated about quality problems.
Early in 1993, Dell canceled a new line of laptops under
development, since these were deemed too slow and expensive.
By May 1993, notebook sales had slipped to just 6 percent of Dell
sales previously account for 20-25 percent of sales.
Bill Gated stated:
“Dell is a super-solid company . They’ll get on top of the situation”
In October 1993, Dell recalled 17,000 notebooks. Announced plans
for launching a new line of notebooks, named the latitude series.
NEW PRODUCT DEVELOPMENT
Product and market definition, resulting in a two to three page
“ product features guide”.
Detailed business case for the product.
Designed, built and tested functional prototypes of the
The entire customer buying experience, from opening the
packaged finished product to running various software
applications, was exhaustively tested.
PORTABLE COMPUTER INDUSTRY
Osborne marketed the first portable computer in 1981.
By the end of the decade, the quality of the portability itself
gave these machines gross margins that were typically 3 to 5
percent above desktops.
In 1993 portable were classified as laptops if they weighed
between 4.5 & 8 pounds & sub notebooks if they weighed
under 4 pounds.
Portable computer Market Size
(millions of units)
World United States
1992 4.3 2.2
1993 6.2 2.9
1994 7.4 3.2
1995 8.9 3.7
DELL FINANCIAL DATA
Particular 1991 1992 1993
Net sale($M) $890 $2.024 $2.873
Desktops 90% 88% 94%
Laptops 10% 12% 2%
Servers -- -- 4%
Relationship 59% 61% 64%
Transaction 41% 39% 36%
US 72.8% 72.5% 70.9%
Europe 27.2% 27.5% 27.2%
Asia -- -- 1.9%