Case Study Dell Inc.: How its Business Model Sweetens its Financial Statements

1.
Entrepreneurial
Manager
Case
Study
Dell Inc.: How its Business Model Sweetens its
Financial Statements
Submitted
to:
Jonas
Debrulle
October
21st
2016
Lee
Yi
Hsuan

2. IESEG
School
of
Management
IMBA/
LEE
YI
HSUAN
１
INTRODUCTION
Founded
in
1988,
Dell
has
been
successful
over
the
years
by
its
direct
sales
business
model
and
its
efficient
global
supply
chain.
Along
with
the
benefit
for
consumer
and
businesses
to
"customize"
their
product
online,
Dell
maintained
no
inventory
as
well
as
minimizes
the
pressure
of
cash
flow.
In
2007,
Dell
transformed
its
business
model
from
direct
sales
into
hybrid
model
for
adding
its
emphasis
not
only
on
targeting
business
but
also
consumer
and
international
market.
Customers
can
either
order
Dell's
product
online
or
purchase
in
a
retail
store.
Is
Dell
making
a
good
business
model
transition?
See
below
analysis.
1-­‐1
Inventory
turnover
A
higher
inventory
turnover
means
the
company
has
light
inventory.
Therefore,
the
company
spends
less
money
on
storage,
write-­‐downs,
and
obsolete
inventory.
The
higher
number
in
inventory
turnover
can
also
show
a
healthy
sign
in
the
cash
flow
of
the
company.
Collecting
the
data
of
DELL’s
inventory
turnover
from
2004
to
2015
as
below
graph,
we
see
there
is
a
significant
inventory
turnover
number
in
2004.
After
that,
the
inventory
turnover
continued
to
decrease
every
year
until
2015.
Besides,
there
is
a
big
drop
in
years
2007
to
year
2008
with
24
ratios.
By
the
year
Dell
started
to
sell
its
product
in
retail
stores
in
2007,
which
is
exactly
the
year
Apple
Inc.
introduced
the
iPhone.
Not
surprisingly,
Dell
ended
up
having
an
increase
of
storage.
0"
20"
40"
60"
80"
100"
120"
2004" 2005" 2006" 2007" 2008" 2009" 2010" 2011" 2012" 2013" 2014" 2015"
DELL$inventory$turnover$$

3. IESEG
School
of
Management
IMBA/
LEE
YI
HSUAN
２
Furthermore,
compare
inventory
turnover
between
Dell
and
its
competitor
HP,
IBM,
and
LENOVO,
the
inventory
turnover
started
to
drop
in
2007.
Sales
of
personal
computer
continued
to
slump
until
the
final
quarter
of
2015
as
the
consumers’
preference
has
shifted
toward
tablets
into
smartphone/handheld
device.
Overall,
the
inventory
turnover
of
DELL
still
performs
better
then
its
competitors,
which
could
be
related
to
its
efficient
of
supply
chain
management.
1-­‐2
Asset
Turnover
Asset
Turnover
is
a
measure
of
how
efficient
a
firm
uses
its
assets
to
generate
sales.
Which
means
the
higher
the
turnover
ratio
is,
the
company
is
using
its
assets
more
efficiently;
the
lower
the
ratio
is,
the
company
isn’t
using
its
assets
as
efficiently.
If
we
look
at
the
graph
below,
obviously
DELL’s
asset
turnover
started
to
drop
in
2009
-­‐
2010,
and
remains
to
decrease
until
2014.
The
main
business
of
Dell
is
PCs
and
laptops.
Having
asset
turnover
dropping
means
either
its
sales
are
down
on
the
same
asset
level
or
its
new
purchases
doesn’t
generate
enough
sales.
If
we
look
at
Dell’s
financial
report
for
the
past
years,
we
know
the
answer
is
the
previous
one.
Further
explanation
in
question
2.
0
10
20
30
40
50
60
70
80
90
2007
2008
2009
2010
2011
2012
2013
2014
2015
DELL
HP
IBM
LENOVO
0
0.5
1
1.5
2
2.5
2007
2008
2009
2010
2011
2012
2013
2014
2015
Dell

4. IESEG
School
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３
Companies
with
low
profit
margin
tend
to
have
high
asset
turnover.
Look
at
Lenovo,
the
Beijing-­‐based
computer
who
is
the
top-­‐selling
PC
in
China.
“The
price-­‐conscious
supplier's
overall
strategy
is
straightforward:
Boost
profitability
in
more
mature
developing
markets
like
China,
and
ruthlessly
amass
share
in
the
emerging
world
and
in
the
new
product
categories
like
tablets.”
[4]
IBM/HP
remain
its
asset
turnover
around
1,
we
can
indicate
that
the
net
sales
of
those
companies
are
almost
equal
to
the
average
total
asset
every
year.
In
other
words,
the
company
is
generating
1
dollar
of
sales
for
every
dollar
invested
in
assets.
2007
2008
2009
2010
2011
2012
2013
2014
2015
APPLE
1,13
1
0,99
1,06
1,13
1,07
0,89
0,83
0,89
DELL
2,35
2,3
2,26
1,76
1,7
1,49
1,24
1,16
1,21
HP
1,22
1,17
1
1,05
1
1,01
1,05
1,07
0,98
IBM
0,88
0,9
0,88
0,9
0,93
0,89
0,81
0,76
0,72
LENOVO
2,77
2,59
2,21
2,18
2,2
2,23
2,07
2,2
2,04
0
0.5
1
1.5
2
2.5
3
2007
2008
2009
2010
2011
2012
2013
2014
2015
DELL
HP
IBM
LENOVO

5. IESEG
School
of
Management
IMBA/
LEE
YI
HSUAN
４
2-­‐1
Dell
10-­‐K
Report
Analysis
By
looking
at
Dell’s
recent
10-­‐K
report,
there
are
top
3
important
financial
ratios,
which
are
Net
profit
margin,
current
ratio,
and
debt/equity.
Those
are
the
important
ratios
covers
net
income,
total
revenue,
current
assets,
total
liabilities,
and
shareholders
equity.
Also
these
are
basic
numbers
for
us
to
understand
if
Dell
makes
money.
On
the
graph
below,
we
can
see
there’s
a
big
drop
of
net
profit
margin
in
between
2013
and
2014,
which
was
the
year
Dell
announced
the
completion
of
its
acquisition
to
become
a
private
company.
*Net
profit
margin=
(net
profit
OR
net
income)
/Net
sales
*CURRENTO
RATIO=
(current
assets/current
liabilities)
*DEBT-­‐to-­‐equity
Ratio=
(total
liabilities/shareholders
equity)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Net profit margin 6,39 4,5 4,82 4,06 2,71 4,29 5,63 4,17 -0,032 -0,021
Current Ratio 1,11 1,12 1,07 1,36 1,28 1,49 1,34 1,19 0,8 0,826
Debt/Equity 0,12 0,13 0,1 0,44 0,61 0,66 0,72 0,49 0,9 0,939
-­‐1
0
1
2
3
4
5
6
7
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Dell
Net
proLit
margin
Current
Ratio
Debt/Equity

6. IESEG
School
of
Management
IMBA/
LEE
YI
HSUAN
５
3.
If
you
were
the
CEO
of
HP,
how
would
you
respond
to
Dell’s
hybrid
sales
approach?
Different
than
before,
consumers
are
now
less
concerned
with
customization,
but
are
willing
to
choose
from
off-­‐the-­‐shelf
PCs.
As
a
CEO
of
HP,
we
are
glad
to
hear
that
Dell
had
changed
their
business
model
from
direct
sale
into
hybrid
sale.
For
HP,
we
are
not
only
selling
our
product
directly
to
large
enterprises
and
government,
but
also
to
retailers,
distributors,
and
other
online
channels.
We
can
meet
customer’s
particular
specification
with
big
volume
orders,
but
also
corporate
with
retail
partners.
We
are
confident
that
this
variety
in
sales
will
be
attractive
to
all
our
customers.
“The
world
is
changing
very
fast.
Big
will
not
beat
small
anymore.
It
will
be
the
fast
beating
the
slow.”
4.
Lessons
learn
from
Dell's
experience
as
a
young
entrepreneurial
firm
There
are
three
key
lessons
to
be
learned
as
a
young
entrepreneurial
firm,
when
examining
the
DELL
case:
a.
Choose
the
area
you
are
familiar
with
As
the
consumer
preference
changed
from
tablets
into
hand
phone
devises,
Dell
decided
to
sell
more
product
like
TV
and
printers
they
are
not
professional
with.
It
ended
up
failing.
As
a
new
entrepreneur,
the
best
place
to
start
is
the
industry
you
are
familiar
with,
also
the
industry
you
are
interested
in
and
which
matches
with
your
previous
experience.
Lesson
to
be
learned
is
to
stay
focused,
instead
of
diversifying
your
portfolio.
b.
Target
Market
setting
As
a
young
entrepreneurial
firm,
you
should
have
a
clear
target
market
established.
As
we
can
see
from
the
article,
Dell
wants
not
only
the
business
market
but
also
international
market
and
all
consumers.
While
this
may
be
possible
for
a
firm
like
Dell,
a
young
entrepreneur
should
focus
on
a
segment
of
entrepreneur
before
expending
globally.
A
young
entrepreneur
should
create
the
market
foundation,
start
from
small
business
and
grow
over
time.
Like
Lenovo,
choose
a
clear
market
target
to
focus
on
emerging
country
like
china.
If
you
are
too
broad
and
not
focused,
there’s
a
chance
you
might
miss
the
boat.
c.
Strategy
should
align
with
the
trend
With
the
rise
of
e-­‐commerce
like
Amezon/Taobao,
the
direct
sale
is
no
longer
a
unique
weapon
for
Dell.
The
single
category
and
the
shortcoming
of
a
single
brand
had
been
enlarged.
Consumers
are
more
into
a
convenient
platform
to
purchase
anything
at
home,
especially
when
all
products
seems
to
have
equal
quality.
Dell
should
either
design
a
unique
product
or
utilize
the
advantages
of
online
platform
to
sell
its
products.

7. IESEG
School
of
Management
IMBA/
LEE
YI
HSUAN
６
REFERENCE:
Google
Finance
https://www.google.com/finance?q=NYSE%3ADVMT&fstype=ii&ei=jIkGWOGMG8SLUv_Jq
oAK
MORNINGSTAR
http://financials.morningstar.com/direct/ratios/r.html?t=XNAS:DELL&region=usa&culture
=en-­‐US&productcode=MLE&cur=
The
wall
street
journal
http://www.wsj.com/articles/pc-­‐sales-­‐drop-­‐to-­‐historic-­‐lows-­‐1452634605
[4]
BARRON’s
http://www.barrons.com/articles/SB50001424052748703496404578173641856530944
Ready
Ratios
http://www.readyratios.com/reference/analysis/most_important_financial_ratios.html