Late 1990s Expansion
After a loss of $36 million in 1994, Dell rebounded spectacularly, reporting profits of $149 million in 1995. That year, the company introduced Pentium-based notebook computers and a popular dual-processor PC. The company grew by almost 50 percent that year and the next, raising its market share to approximately 4 percent and entering the company into the ranks of the top-five computer sellers in the world.
Expansion continued on many fronts in 1996. Dell introduced a line of network servers and was soon the fastest-growing company in that sector. The company also opened a manufacturing facility in Penang, Malaysia. The most important development that year, however, was Dell's expansion into selling directly to consumers over the Internet. Within three years, Dell was selling $30 million a day over the Internet, which would come to account for 40 percent of the company's overall revenue. Dell achieved enviable efficiencies using the Internet to coordinate the orders of consumers with its own orders of parts from suppliers. The company's web site also provided technical support and allowed consumers to track their orders from manufacturing through delivery.
Dell continued its exponential growth in 1997 and 1998, reaching profits of $944 million in 1998. The company introduced new products and services, including a line of workstations, a leasing program for individual consumers, and a line of storage products under the PowerVault brand. Dell also expanded its manufacturing facilities in the United States and in Europe. In 1998 it established a production and customer center in Xiamen, China, raising the number of its overseas plants to three. By the time Dell sold its ten millionth computer in 1997, it was a close fourth behind IBM, Hewlett-Packard, and Compaq in the computer industry. By mid-1998, it had captured 9 percent of the market and the number two spot.
Following on the success of its direct sales over the Internet, Dell opened an online superstore of computer-related products in 1999. Gigabuys.com offered low-priced computer hardware, software, and peripherals from various companies in the industry, although Dell continued to sell its own products at www.dell.com. The company also expanded its Internet offerings in 1999 with Dellnet, an Internet access service for Dell customers. Two more manufacturing facilities were added to the firm's global production network that year, located in Nashville, Tennessee; and Eldorado do Sul, Brazil. For the fiscal year ending in January 2000, Dell reported net income of $1.86 billion on total revenues of $25.26 billion.
Early 2000s: Surviving Global PC Downturn, Diversifying
When the global PC industry fell into its worst slump ever during 2000, Dell responded by initiating a price war to which its rivals were slow to respond, providing Dell with a chance to further increase its market share. As a result, by 2001 Dell managed to gain for the first time the top spot globally in PC sales, with a 13 percent worldwide share. The downturn also triggered the creation of a more formidable competitor in the form of Hewlett-Packard, which acquired Compaq during this period. Dell also responded to the PC slump by aggressively pushing into the market for Internet servers, a more profitable sector than that of PCs. It launched another price war on the low end of the server market, which cut into its margins somewhat but enabled it to gain share. Dell targeted other higher-margin sectors as well. It continued its push into the storage market in late 2001 by entering into an alliance with EMC Corporation to develop a new line of data-storage systems, and it entered the market for low-end networking gear used by small businesses, launching its PowerConnect line of network switches in 2001. Finally, Dell stayed solidly in the black--while its rivals were losing money--via a major cost-cutting program. The company made the first significant layoffs in its history, slashing 5,700 jobs from the payroll during 2001 and taking nearly $600 million in charges relating to restructuring actions. The charges reduced profits, but Dell still managed to record net income of $1.78 billion on revenues of $31.17 billion for 2002.
Although Michael Dell remained firmly in charge of the company he had founded as chairman and CEO, Kevin B. Rollins was increasingly taking over the day-to-day operations at Dell Computer and had been instrumental in the maneuvers that had enabled the company to gain ground on its rivals during the industry slump. Rollins had consulted for Dell while employed with the consulting firm Bain & Company, before joining Dell in 1996 as a senior vice-president. He was named vice-chairman in 1997 and then became president and chief operating officer in 2001. Rollins's assumption of the operating reins enabled Michael Dell to concentrate more on long-range, strategic planning.
Continuing to seek new avenues for growth--as it aimed to double revenues to $60 billion by fiscal 2007--Dell Computer diversified further. During 2002 the company entered the handheld computer market by launching its Axim line of personal digital assistants (PDAs). Early in 2003 it debuted its own line of printers aimed at both businesses and consumers. Later that year Dell gained a toehold in the cutthroat consumer electronics industry by introducing LCD flat-panel televisions, digital music players, and an online music service. With businesses keeping a tight rein on their PC spending, Dell in 2002 attempted to gain further sales from consumers by setting up kiosks at shopping malls where customers could see and try out Dell computers, printers, and other products before placing their orders online or by phone. Early in 2003, in a trial run, the company set up its first Dell store-within-a-store inside of a Sears, Roebuck & Company outlet.
The corporation's widening interests took a quite concrete form in mid-2003 through the shortening of the firm's name to simply Dell Inc. Dell's diversification, coupled with large increases in shipments of high-profit-margin products such as servers, notebook computers, and storage equipment, propelled the company to new heights in 2004. Net income surged 25 percent that year, hitting $2.65 billion, while revenues jumped 17 percent, to $41.44 billion. Soon after these stellar results were released, Michael Dell, the person with the longest-running tenure as CEO of a major U.S. computer company, announced that he would relinquish his CEO title to Rollins in July 2004 but would remain actively involved in the company as chairman.
Ken Rollins enjoyed a few years of success as CEO until he stepped down in early January 2007 after 5 quarters of earnings below Wall Street expectations and increasing consumer complaints of poor customer service and faulty components being used in the manufacturing process. Upon his departure, Michael Dell stepped back in as CEO, where he remains until the time of this writing (March 2013).
However, Michael Dell has been unable to substantively transform the business model in an era of decreasing PC purchases, and the rise of Apple. By the late 2000s, Dell's "configure to order" approach to manufacturingâ€”delivering individual PCs configured according to specifications set by the consumer, from US manufacturing facilities was no longer competitive with high-volume Asian contract manufacturers. PCs have become a commodity which sells in the hundreds of dollars as opposed to the thousands when Dell enjoyed its greatest success.
As a result of declining market share, lower earnings, and unsustainable business models - Michael Dell has sought to transform the company's reliance upon the commoditized PC market, by entering the server and software business. But Dell has been unable to convince the markets that it will successfully transform into the post-PC era. As a result, in 2013, Dell announced a leveraged buyout deal which would take the company private again. This would allow the company to restructure without the onerous burdens of higher taxes and shareholder expectations. The price represents a small premium over the current share prices around $13.50 a share, and much lower than the high water mark of $65 a share.
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