Wednesday, November 07, 2012

Is Dell Losing Its Market Foothold?

The following is a guest post from David Fuller an article contributor at where David joins other contributors in giving consumers the low-down on the most recent product developments in the information technology industry.

When small companies get left in the dust by their competitors, hardly anybody notices it. However, for large corporations who dominate their respective industries, falling behind gets a lot of attention. In the case of Dell, Inc. the attention is quite overwhelming.

The Rise of Dell Inc.

Dell, Inc. traces its beginnings to a dorm room headquarters in the University of Texas at Austin. Founded in 1984 by Michael Dell, it was first known as PCs Limited, a company selling IBM PC-compatible computer systems. Using a direct-to-consumer sales approach, the company earned $73 million in its initial year of operation, thanks to their proprietary “Turbo PC” computer which sold at $795 per unit.

Going Global

Three years later, Michael Dell decided to go global and started using “Dell Computer Corporation” as its official company name. As Dell had its initial public offering on June 22, 1988, its market capitalization ballooned to $80 million. Four years after the IPO, Dell became a Fortune 500 company, elevating its status as one of the top corporations worldwide.

Market Dominance

Its early years of global operations saw constant growth, maintaining their share of the PC market even as their competitors groaned under the strain of industry slowdowns. Up until 2001, Dell is the number one PC brand in terms of reliability and customer service ratings. Dell officially went online and started selling PCs on their website in 1996. The company eventually surpassed their closest competitor, Compaq in 1999 as the largest manufacturer of PCs globally. Although the Compaq and Hewlett-Packard merger of 2002 made Dell lose some ground in the PC market, the company regained its dominance a year later and held the top spot until 2006.

Diversification and Other Major Changes

Back in 2003, Dell Computer Corporation once again changed its name to Dell, Inc. This move signified the company’s strategy of diversifying into other products aside from PCs. A year later, Michael Dell handed over the reigns to Kevin Rollins as company CEO while staying as the corporation’s Chairman. Under Rollins leadership, Dell, Inc. started to distance itself from two major corporations which were instrumental to its stellar rise to PC market dominance – Intel and Microsoft.

Going Downhill

Dell, Inc. maintained dominance in the PC market for years, giving rise to the idea that the company would enjoy being on the top spot in the coming years. However, 2005 sales growth figures showed significant reduction with Dell, Inc. losing a quarter of its stock value. A year later, stock values went further down to 40% from the previous year.

The sudden downhill slide was largely attributed to a fast-maturing PC market. This comprised about 66% of Dell, Inc.’s total sales, which prompted market analysts to suggest that the company start considering market segments beyond PCs in order to generate a more diversified source of sales. Dell, Inc. began to realize that crucial business advantages such as efficient and cost-effective manufacturing processes, and up-selling, are losing its competitive edge.

Another stumbling block was Dell, Inc.’s low support for R&D initiatives. While its competitors were busy improving their processes and coming up with new products, Dell, Inc. showed paltry spending on R&D in comparison to its generated revenues. As the competition explored and profited from diversified sales strategies, the company got left behind since they practically had nothing to offer for the retail segments.

Moreover, Dell, Inc.’s once prized customer service became notorious for its poor satisfaction ratings and long waiting times. Despite efforts to shore up its customer service division, customer satisfaction levels remained dismal. The company image was further tarnished by a battery recall and several domestic investigations and foreign lawsuits.

Is Dell Losing Ground Again?

Based on Dell, Inc.’s most recent market sales data, it has once again posted losses as shares dropped and customers deferred PC purchases due to the Microsoft Windows 8 OS release. In addition, the popularity of mobile computing devices (e.g. iPad, etc.) and smartphones has reduced PC sales even further. For companies who have failed to gain a foothold in this particular market niche, last quarter sales figures look dismal to say the least. Furthermore, sales in the international PC market look dim as several crucial economies including China continue to experience slow growth. Unless Dell, Inc. comes up with something to revitalize its prospects, the outlook is generally grim.

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