Dell on Financial Markets - Essay Example

International Financial Markets Assignment Overview of Dell Inc. Dell, Gateway, IBM, Compaq and HP (one entity), and Apple are the main rivals in the PC industry, and the competition is fierce (Van Horne, 2005). Dell has been the most innovative by its unique model of the “just-in-time” manufacturing in a bid to meet the needs of the consumers. It is headquartered in Round Rock, Texas in the United States (Van Horne, 2010). It is involved in developing and selling of computers and other computer related products and services. The company bears the name of its founder, Michael Saul Dell. It is one of the largest technological firms in the world. It has a workforce of over 100,000 employees worldwide. Before Dell moved to Round rock it had its main offices in the Arboretum complex in northern Austin, Texas. In 1989 Dell occupied 127,000 square feet in the Arboretum complex. As at 1990 Dell had more than 1,200 employees in its headquarters (Gomez, 2009). In 1993 Dell submitted a document to Round Rock officials, titled "Dell Computer Corporate Headquarters, Round Rock, Texas, May 1993 Schematic Design." Despite the filing, during that year the company said that it was not going to move its headquarters. In 1994 Dell made a move of switching its employees out of the Arboretum to its new acquired offices though it still maintained that it was going to continue to occupy the top floor of the Arboretum and that the companys official headquarters address would continue to be the Arboretum. The upper floor still played a greater role of holding Dells board room meetings; also it was used as a center for its demonstrations and visitor meeting room. For less than one month prior to 29 August, 1994, Dell moved most of its customer support and telephone sales employees to Round Rock. It was later on in 1996 that Dell decided to move to Round Rock, this was due to its high rate of growth which created the need of finding a new place that could allow it to carry out its activities in the best manner possible and also be able to manage its first growing markets globally. Dell has notably has widened its customer base since its inauguration through acquisitions and going for mergers with other companies including Perot Systems and Alien ware. Dell main activities involve selling computers, network switches, servers, data storage devices, software, and computer peripherals. The company is also known for its innovations in delivery administration and electronic commerce. Some of the available outlets in the United States are located in North Carolina, Eden Prairie, Minnesota, Miami, Florida Austin, UK; Manila, Philippines; Chennai, India; Hortolandia, Brazil; Bratislava, Texas; Nashua, New Hampshire, Nashville, Tennessee, Oklahoma City, Oklahoma; Peoria, Illinois, Winston-Salem. Dell has other outlets located abroad which include Penang, Malaysia; Xiamen, China; Bracknell, Slovakia; Lods, Poland and Limerick, Ireland. The US and India are the only countries which have all of Dells business functions and provide support globally, Research and Development, manufacturing, finance, analysis and customer care. Dell has been doing well since its inception in 1984. For instance, in 2000, Dell realized gross revenues of $25 billion and $1.86 in net income. Dell’s ability to repay its current liabilities and maintain enough liquidity can be seen by its current ratio 1.48. Investors have reinvested their funds because of their trust in the company. Thus, it has not paid dividends to stockholders. Here are some of the financial statements for Dell Inc. that give a representation of its performance for the years 2010 and 2012. The statements show that the company has had great performance which is quite evident in its Income statement which shows that it has always been having good profit margins. INCOME STATEMENT DELL INC. For the year ended 2012 Q3 2012 Q2 2012 Q1 2011 Q4 2011 Q3 Period End Date 10/28/2011 07/29/2011 04/29/2011 01/28/2011 10/29/2010 Million USD Million USD Million USD Million USD Million USD Total Revenue 61494.0 52902.0 61101.0 61133.0 57420.0 Cost of Revenue 50098.0 43641.0 50144.0 49462.0 47904.0 Gross Profit 11396.0 9261.0 10957.0 11671.0 9516.0 Selling/General/Administrative Expenses 7234.0 6228.0 6966.0 7538.0 5948.0 Research & Development 653.0 617.0 663.0 610.0 498.0 Depreciation/Amortization 0.0 0.0 0.0 0.0 0.0 Interest Expense (Income), Net Operating 0.0 0.0 0.0 0.0 0.0 Unusual Expense (Income) 76.0 244.0 138.0 83.0 0.0 Other Operating Expenses, Total 0.0 0.0 0.0 0.0 0.0 Operating Income 3433.0 2172.0 3190.0 3440.0 3070.0 Interest Income (Expense), Net Non-Operating Gain (Loss) on Sale of Assets Other, Net 59.0 12.0 -58.0 -19.0 -19.0 Income before Tax 3374.0 2160.0 3248.0 3459.0 3089.0 Income Tax - Total 715.0 591.0 846.0 880.0 762.0 Income after Tax 2659.0 1569.0 2402.0 2579.0 2327.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Equity In Affiliates 0.0 0.0 0.0 0.0 0.0 U.S. GAAP Adjustment 0.0 0.0 0.0 0.0 0.0 Net Income Before Extra. Items 2659.0 1569.0 2402.0 2579.0 2327.0 Total Extraordinary Items 0.0 0.0 0.0 0.0 0.0 Net Income 2659.0 1569.0 2402.0 2579.0 2327.0 STATEMENT OF FINANCIAL POSITION Dell Inc. For the year ended 2012 Q3 2012 Q2 2012 Q1 2011 Q4 2011 Q3 Period End Date 10/28/2011 07/29/2011 04/29/2011 01/28/2011 10/29/2010 Million USD Million USD Million USD Million USD Million USD Assets Cash and Short Term Investments 13838.0 15132.0 14479.0 14365.0 13381.0 Total Receivables, Net 10016.0 10137.0 9401.0 10136.0 9995.0 Total Inventory 1397.0 1346.0 1276.0 1301.0 1294.0 Prepaid Expenses 0.0 0.0 0.0 0.0 0.0 Other Current Assets, Total 3005.0 3043.0 3217.0 3219.0 3118.0 Total Current Assets 28256.0 29658.0 28373.0 29021.0 27788.0 Property/Plant/Equipment, Total - Net 2123.0 2064.0 1987.0 1953.0 1948.0 Goodwill, Net 5493.0 5431.0 5406.0 4365.0 4259.0 Intangibles, Net 1957.0 1866.0 1941.0 1495.0 1553.0 Long Term Investments 2183.0 1048.0 762.0 704.0 662.0 Note Receivable - Long Term 1279.0 1252.0 1123.0 799.0 709.0 Other Long Term Assets, Total 302.0 285.0 196.0 262.0 235.0 Other Assets, Total 0.0 0.0 0.0 0.0 0.0 Total Assets 41593.0 41604.0 39788.0 38599.0 37154.0 Liabilities and Shareholders Equity Accounts Payable 11107.0 11628.0 10442.0 11293.0 11278.0 Payable/Accrued 0.0 0.0 0.0 0.0 0.0 Accrued Expenses 3816.0 3823.0 3590.0 4181.0 3898.0 Notes Payable/Short Term Debt 1831.0 1316.0 816.0 851.0 826.0 Current Port. of LT Debt/Capital Leases 0.0 0.0 0.0 0.0 0.0 Other Current Liabilities, Total 3465.0 3427.0 3282.0 3158.0 3093.0 Total Current Liabilities 20219.0 20194.0 18130.0 19483.0 19095.0 Total Long Term Debt 6430.0 6424.0 6794.0 5146.0 5168.0 Deferred Income Tax 0.0 0.0 0.0 0.0 0.0 Minority Interest 0.0 0.0 0.0 0.0 0.0 Other Liabilities, Total 6731.0 6650.0 6494.0 6204.0 6078.0 Total Liabilities 33380.0 33268.0 31418.0 30833.0 30341.0 Redeemable Preferred Stock 0.0 0.0 0.0 0.0 0.0 Preferred Stock - Non Redeemable, Net 0.0 0.0 0.0 0.0 0.0 Common Stock 12071.0 11992.0 11900.0 11797.0 11674.0 Retained Earnings (Accumulated Deficit) 27472.0 26579.0 25689.0 24744.0 23805.0 Treasury Stock - Common -30884.0 -30284.0 -29154.0 28704.0 28504.0 Other Equity, Total 4.0 49.0 -65.0 -71.0 -162.0 Total Equity 8663.0 8336.0 8370.0 65174.0 63821.0           Total Liabilities & Shareholders’ Equity 42043.0 41604.0 39788.0 96007.0 94162.0 Financial threats and vulnerabilities to Dell Inc. Recession An economic recession occurs when an economy experiences a slow growth. This is attributable to a decline in consumer demand, thus resulting to a drop in sales. A drop in consumer demand is may also be caused by various factors but the most common factors being increase in prices that may be due to an inflationary effect. Buyers of goods tend to be very much sensitive to price changes, this is because they will always fill the pinch whenever they spend more on a good thus opt to go for other less costly or cost saving goods. When there is a decrease in sales businesses stop expanding. Soon afterwards, they stop hiring new workers so as to try and reduce their running costs. By this time, the recession is usually in progress. However, it doesnt affect most people until layoffs begin. When the level of unemployment forms an upward trend as the level of consumer purchases depreciates the pricing of houses also form a downward trend. An example of such a situation was witnessed in the US in the year 2007, when the GDP slowed in the fourth quarter, employment declined leading to an increase in unemployment, housing prices also fell by 10% and also business orders declined. For Dell, recession has had a great impact on its rate of returns as they have had to put in some drastic measures so as to ensure that they try curbing the situation when it occurs. Though recession is renowned to cure inflation, Dell Tech has tries very much to ensure that its prices are consumer friendly and also ensure that their prices are also at par with their competitors, this can be done by trying to ensure that they are one step ahead in quality production and also increase their advertising venues so as to ensure that they maintain their market share always. High Interest Rates High interest rates present a great challenge to most companies. In the early stages of Dell when they were used to going for huge sums of money from banking institutions to finance their activities the rates in the banking institutions posed a lot of challenge as they kept fluctuating with the economic trends thus making business expansion in various countries a big issue to overcome with the escalating rates at hand. Competition Since Dell has numerous outlets in many countries it has always faced great competition from other markets that also offer the same products as they do. What Dell has always done is to ensure that the quality of goods they offer are of the best quality. They also carry out some of the customer oriented schemes that have ensured their customer brand loyalty is always at stake and never to be compromised. The following are some of the ways Dell has been able to cultivate a sustainable competitive advantage. Valuable Capabilities: Dell’s lack of on-hand raw material stocks is an invaluable capability for the future. If there is a paradigm shift in technology and innovation whether small or big, Dell is able to change its strategy timelier than its competitors. Dell has also made a successful entry into accessories and peripherals such as scanners and printers as well as consumer entertainment like televisions and cameras. Costly imitation: Traditionally, Dell was ahead of the curve because of their unique business model. Nonetheless, their lack of forethought in initiating necessary changes in personal computers development has put them in the same position as their competitors. Non-substitutable: As an IT product, the Dell PC is easily substitutable with another make by its competitors. Dell’s advantage over its competitors, however, is the ability to make their products customizable by the order at a lower cost. Their competitors have come up with customizable models but they come at an extra cost Impact of these trends on Dell Inc. The company has tried very much to ensure that its performance is always improving quarterly; this is quite evident where the company tried to minimize the unusual expenses from 244 million USD in the second quarter to 76 million USD in the third quarter, this is later on replicated in its final profits where in the third quarter the firm’s profits are much higher than in the second quarter. The company tries to minimize losses made by insignificant interest rates that led to the firm incurring losses in the previous quarters. In the last two quarters the firm has been able to obtain positive interests that have also had a positive impact to its profits. The company should also improve on its marketing strategies by making its marketing situations unique to their location, membership and philosophy or organizational culture this is because it has numerous outlets in different countries where there is also existing competitors hence to minimize its loses and increase its sales it will have to carry out this, though Dell is incurring some additional costs in research and development it should also improve on its qualities and branding strategies so as to improve on its sales ratio. Dell should also try reaching for other markets where their products are not very much evident so that it can also be at par with other competitors available that also offer the same goods they offer to the public so as to increase their sales and try to minimize on their costs. References: Gomez, R. (2009). Financial markets institutions and financial services. New York: Phi learning PVt.ltd Jordan, W. R. (2004). Fundamental of Corporate Finance (6ed). India: Tata McGraw Hill publishing company ltd. Van Horne, J.C. (2005). Financial Management and Policy (10ed). New York: Prentice Hall International Inc. Van Horne, J. C. (2010). Financial Management (12th Ed). New York: McGraw Hill. Read More