BUSINESS INFORMATION MANAGEMENT COURSE: NATIONAL DIPLOMA IN BUSINESS (LEVEL 6) TITAL: ASSIGNMENT ON 5 YEARS ANALYTICAL PERFORMANCE AND GROWTH

FOR THE COMPANY D ELL INC. SUBMITTED BY: SEEMA BULEKHA STUDENT ID: 4235 SUBMITTED TO: MR. MATT DREW

DATE: 20th JULY 2011

TABLE OF CONTENTS EXECUTIVE SUMMARY...........................................................4 KEY STRAGY ISSUES..............................................................4 ORGANIZATION CHARACTERISTICS.................................................... ..................5 ORGANIZATION HISTORY..............................................6 INDUSTRY CHARACTERISTICS........................................................ .....................7 COMPETITIVE LANDSCAPE........................................................... ..............................8 CURRENT POSITIONING AND STRATEGY................................................ .............9 MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PU RCHASES OF EQUITY SECURITIES.................................................... ....................... 11 RISK FACTORS AFFECTING DELL BUSINESS AND PROSPECTS.............................. ....................... 19 OPTIONS AND RECOMMENDED STRATEGY....................................... 20 CONCLUSION...................................................................... 21

I. EXECUTIVE SUMMARY Dell has experienced tremendous growth over the past twenty years. Throughout th is period, Dell has continued to raise its standards of excellence. The values, mission and vision of the company facilitate the achievement of these illustriou s goals. The purpose of this document is to evaluate the internal and external e

nvironments and Dells position within this competitive landscape. Based upon this analysis, a recommended conclusion will be outlined which will guide Dell 5 yea rs performance summary. The key competencies of Dell are customer focus, manufacturing processes, supply chain management, customer selection, acquisition and retention, customer servi ce and human capital management. Dells strategy has been to match its core compet encies with key industry success factors. The PC industry is facing increasingly strong worldwide competition leading to r educed differentiation among competitors and increased price sensitivity among c onsumers. Although Dell has seen considerable growth, the company is beginning t o lose its competitive edge in critical business segments. Specifically, Dell ne eds to improve in the following areas: customer service, customization options, increased marketing presence and retail solutions tailored to the global environ ment. Dells ability to adapt in these business segments will ultimately determine its ability to maintain its predominant position. The recommended conclusion for Dell is to reinvigorate its differentiation advan tage. Ultimately, the company must get back to basics. This requires the firm to realign its core competencies with the needs of a global marketplace. II. KEY STRATEGY ISSUES Dell is facing multiple strategic issues which may impede on the companys top pos ition in the computer hardware market. This section addresses the four key strat egic issues that Dell should address in order to maintain its prominent market p osition. First, Dell faces slow growth for its primary product: the personal computer (PC ) in a saturated U.S. market. The majority of U.S. corporate and education PCs w ill be replacement units affected by a technological upgrade cycle within the ne xt two years. Therefore, as Dell attempts to maintain its dominant position, the company should focus on product customization and superior relationships with s uppliers. This strategy enabled Dells past success but had become diluted over th e last five years. The company should continue to improve itself in these areas in order to remain the top computer hardware differentiator. Second, the erosion of Dells brand value continues due to the perception of decli ning customer service. Although the company prides itself on superior customer s ervice, recent surveys suggest that Dells results recently declined in this busin ess segment. Dells executives are aware that quality customer service is a key el ement of the companys success and are reportedly working towards improvements. Third, Dells inability to serve all market needs due to the current strategy of l imited vendors in its supply chain. Dell brings few products to market and lever ages technology created by other companies effectively and efficiently. Dell als o remains committed to chip supplier, Intel. Although this enables Dell to offer PCs at high value to consumers, it also limits the companys ability to supply di verse customers. The company should consider enabling itself to offer more custo mized products by increasing relationships with more diverse suppliers. Finally, Dells market footprint extends primarily to mature markets in the U.S., European and Japan. The global market for PCs continues to growcreating additiona l opportunities for Dell. For Dell to compete in growing computer markets around the world including Latin America, China and other countries in Asia the compan y should enhance its expertise in customizing its products. This would enable it to expand its market niche of product differentiator outside of the U.S. III. ORGANIZATION CHARACTERISTIC Dell, Inc. has experienced tremendous growth since Michael Dell founded the comp any with only $1,000 in his University of Texas dorm-room. Today, Dell has globa l revenues of nearly $50 billion and employs more than 55,000 individuals. Despi te this tremendous growth, the organization has remained committed to its core v alues. The Soul of Dell creates an ethical framework in which people are the commo n thread which links the organizations current position and future aspirations. The organizations mission is to be the most successful computer company in the worl d at delivering the best customer experience in the markets we serve (Soul of Del l, 2006).The vision of the company is: to lead in all regions we serve. The founda

tion of our success is the same in the United Kingdom and France, China and Japa n, Canada and other countries. Customers want technology products that are relev ant to them, offer great value and can be easily purchased and used. Thats what o ur team around the globe consistently delivers (Fiscal2005 in Review, 2005). Cons idering variations in customer preferences throughout the world, this vision may not allow Dell the flexibility to meet varying customer needs throughout its gl obal marketplace. The organization, which is exceedingly results driven, has set one major goal th rough 2007. That goal, which was increased by $20 billion, is to reach $80 billi on in revenue by the end of 2007. Despite a recent decline in PC sales, the revi sed goal was established to reflect increases in service and storage revenues. I n addition, the organization believes it stands to benefit from increased sales in emerging markets. Dell is a flat organization which operates on open communication and demands res ults. Employees at every level are given the freedom to pursue and develop new a nd more efficient ways of completing tasks without prior approval from upper man agement. If successful, new strategies are shared and initiated across the organ ization. Likewise, open communication creates a results driven organization. The organization believes that each employee should know exactly where he/she stand s with regards to meeting organizational goals. To facilitate this, employees ar e rated every six months by their peers. These surveys are instrumental for acco untability. Those employees that earn excellent ratings on their surveys are rew arded with high appraisals. Conversely, those that receive poor ratings expect s ub standard appraisals. Dells culture is a meritocracy in which leadership rewards achievement. As noted, Dell leadership relies heavily upon surveys to evaluate, reward, retain and pro mote high performers. The organization feels that this method provides an honest , open assessment of employee accomplishment and potential. This assessment, whi ch is based upon open communication and honesty, creates a culture that is compe titive, hard working and loyal to the organization. Dell utilizes key strategic partnerships to maintain efficiencies in its operati ons. Dell currently partners with Intel for 100% of its chips. While this single source partnership has allowed Dell to contain its costs and maintain consisten t supplies, it has also limited the customer choice. Dell also partners with Costco, Sams Club, QVC Inc. and Target in an effort to br oaden its customer base. Additional production partnerships include Lexmark, Fuj i Xerox, Kodak, Samsung and EMC. Rather than spend significant dollars on R&D, D ell relies heavily upon the technological developments of its partners and compe titors to recreate successful technologies. Dells value chain is considered to be the gold-standard of the industry. The orga nizations model relies heavily on technology and its employees to achieve its suc cess. With regards to inbound logistics, the organization maintains just-in-time inventories through shared EDI systems. The organizations ability to maintain fo ur day inventory levels are among the most cost effective of any company. The or ganization also looks to its employees to maintain efficiencies. As noted, Dells culture encourages its employees to develop more efficient ways of doing busines s. Within operations, employee developed initiatives have saved the organization billions of dollars and quadrupled productivity over the last 4 years. Dells direct-selling business model revolutionized the computer industry. IV. ORGANIZATION HISTORY Dell Inc. is a holding company that conducts its business worldwide through its subsidiaries. It designs, develops, manufactures, markets, sells and supports a wide range of products which are customized to individual customer requirements which include mobility products, desktop personal computers, software and periph erals, servers and networking, services and storage. The company operates throug h four segments: Large Enterprise, Public, Small and Medium Business and Consume r. The Large Enterprise segment delivers innovative products and services throug h data center and cloud computing solutions. The Public segment focuses on simpl ifying IT, providing faster deployment of IT applications, expanding enterprise

and services offerings, and strengthening partner relations. The Small and Mediu m Business segment is focused on helping small and medium-sized businesses get t he most out of their technology by offering open, capable, and affordable soluti ons, innovative products and customizable services and solutions. The Consumer s egment is focused on what customers want from the total technology experience of entertainment, mobility, gaming and design. It was founded by Michael S. Dell i n May 1984 and is headquartered in Round Rock, TX. 10 V. INDUSTRY CHARACTERISTICS AND MACRO FORCES Technological forces have the most significant influence on the computer hardwar e industry. The phenomenon called the upgrade cycle is one of the most influential macro forces on the computer industry. The upgrade cycle drives waves of new pu rchases among business and consumer customers as technological change transpires . Some industry analysts assess that 50% of computer hardware product profits ar e created during the first 3 6 months of sales. In2006, Microsoft is set to rele ase the Vista operating system which is likely to catalyse an upgrade cycle among business and consumer customers. Customers increasingly choose a single vendor to meet all of their computer need s and technology upgrades. For a computer hardware company to remain competitive , all customers needs must be efficiently satisfied. We recommend that Dell focus on turn-key technology solutions in order to maintain its superior differentiator status within the industry. National forces are increasingly important in a computer companys ability to main tain its competitive edge, both in terms of the manufacturing process and improv ing sales. Computer companies are increasingly shifting their manufacturing oper ations outside of the U.S. to take advantage of a growing business and consumer market for their products as well as cheaper operating costs. Government, social and physical forces influence the computer hardware industry, however, these macro forces are significantly less important than those discuss ed in prior paragraphs. Governments throughout the world represent an opportunit y for computer hardware companies, including Dell, as they aim to develop and de liver more services to their citizens. Social forces, including holiday, back-to -school sales and a summer business slowdown in Europe also drives sales in this industry. The physical environment has very little impact on the computer indus try since all computer parts are artificially manufactured. However, adverse wea ther can negatively impact the competitive edge of a company such as Dell, which relies on just in time inventory methods as well as direct sales to its customers . The electronic computer manufacturing industry is mature in Japan, the U.S. and Europe. Growth opportunities remain among certain target populations within thos e areas and significant areas of market expansion are likely to occur in Latin A merica, Asia, and the Middle East. However, computer hardware companies are like ly to continue the trend towards consolidation for the foreseeable future. Merge rs and acquisitions have characterized this industry over the last few years inc luding Lenovo Groups purchase of IBMs PC division in 2005 and HPs 2002acquisition o f Compaq. Pricing in the computer manufacturing industry is extremely competitive. IT refl ects the rapid pace of technological change and decreasing PC costs. Since 2000, the prices of chips and disk drives declined and the standardization of primary components of PCs led to a decline in PC prices. Direct sellers, including Dell , have traditionally been able to under-price indirect sellers in the industry i ncluding Compaq and HP. However, most PC vendors now offer a desktop model for l ess than $500 and a laptop for $700. Key success factors for companies in this industry continue to evolve as the ind ustry matures. Specifically, they include: Competitive prices Superior relationships with suppliers Product customization for business and consumer customers Quality customer service

 Excellent cost structure Dells business model incorporates many of these key factors; the company is worki ng to improve customer service and product customization. There are also significant opportunities for computer hardware manufacturers inc luding expansion into peripheral markets and products such as printers. Dell ent ered this market in 2003. However, threats to the computer hardware industry are strongprimarily, stiff competition among top industry players such as HP. The computer and peripherals industry is firmly entrenched in the maturity stage of the life cycle. Companies in this stage, including Dell, experience stable s ales, slight growth, and decreasing production costs. In order to remain at the forefront of the competition, computer hardware companies should focus on proces s innovationan arena where Dell has succeeded. Specifically, Dell adopted a custo mer-focused approach with a closely managed supply chain and cash-flow process. Dells low-cost, direct sales model shaped its position in the industry and other companies have struggled to copy this innovation. As Dell and other computer har dware companies continue to manoeuvre the challenges of the mature life cycle st age, they will need to remain focused on process innovation and creating busines s and consumer customer value to maintain its status as industry leader. VI. COMPETITIVE LANDSCAPE Understanding the external environment is key to successfully competing in the c omputer hardware industry. Porters Five Forces of Competition provide a framework for Dell to outline the bargaining power of suppliers and customers, the threat of new entrants, the threat of substitutes and the intensity of competition. In this industry, the bargaining power of suppliers is high due to the limited num ber of suppliers for key components. For instance, Intel sells 90%of the micropr ocessors used in PCs and Microsoft provides 85-90% of the operating systems. In addition, 80% of the worlds laptops are assembled in Taiwan. Likewise, the bargai ning power of customers is also high due to the fact that PCs are now commoditie s. Nearly all PCs contain the same components or the same type of components. Ho wever, customers power remains limited because consumers may be willing to pay a premium to computer companies that are able to provide technological solutions. Alternatively, the threat of new entrants is low. The1990s saw a significant lev el of growth, but the early 2000s have shown signs of contraction within the ind ustry. The threat of substitutes is also low since the only available substitute for a Windows-based PC is an Apple Macintosh. Finally, the intensity of competi tion is high since there are relatively few competitors in the market. However, they all offer the same basic products and must compete on price. Next, Dell mus t analyze its competitors to determine the best way for it to successfully compe te in the computer hardware industry. Dells main competitors include: HP, IBM and Sun Microsystems (Sun). In the PC market, Dell competes primarily against HP. I t held the #2 spot (behind Dell) as of the 3rd quarter of 2005. HP is also doing well in Asia-Pacific, growing its market share by 250 basis points in the same quarter. However, HP appears to be focusing lesson its PC division, enabling Del l to increase its own market share.IBM recently sold its PC division to Lenovo, but remains a strong competitor in the server market. In addition, its 2002 purc hase of PCs consulting division provided it with an established services organiza tion. The combination of IBMs server line and its consulting arm allow it to prov ide services that Dell cannot. Sun competes predominantly in the server market. It held the #3 spot in the UNIX server market in the 2nd quarter of 2005. It rec ently added personnel to improve its services offerings and created alliances wi th Electronic Data Systems Corp and Computer Services Corp. Sun also added the G alaxy server line to regain market share but its continuing financial weaknesses may allow Dell to take server market share. Dell and its competitors were analyzed in terms of their sales, liquidity, asset management, profitability and operations. IBM and HP have far outpaced Dell and Sun in terms of sales. For instance, IBM earned $92 billion compared to Dells $4 9 billion in 2005. The current ratio reveals Sun as the most liquid competitor. Its current ratio of 1.51 surpassed that of HP (1.38), IBM (1.31) and Dell (1.20 ). Although this implies that Sun is more capable of repaying short-term assets

than any of its main competitors, this analysis reflects information available p rior to Suns 2005 acquisition of Storagetek. Asset turnover measures the firms ability to use its assets to create sales. With a ratio of2.12, Dell outpaces its competition. For every dollar of total assets , it earned $2.12 in sales. Alternatively, HP has a ratio of 1.12, IBMs totalled 0.90 and Suns equalled 0.78. Four profitability measures were evaluated: gross profit margin, net profit marg in, return on equity and return on assets. IBM and Sun earned the highest gross profit margins in 2005with 42.7% and 41.5%, respectively. This implies that IBM and Sun are better at controlling input costs than HP and Dell. IBMs large consul ting division generates greater sales with fewer inputs resulting in higher prof itability. However, Dells gross profit margin trended upward over the past three years indicating that Dell has either increased its prices or improved its contr ol of input costs. Net profit margin paints a different picture. Sun actually earned a negative net profit margin despite its high gross profit margin. The other three competitors earned steady margins over the past three years. However, IBM still posted the highest marks (8.8% in 2005 and 2004and 8.5% in 2003). Return on equity shifts the focus from IBM to Dell. In 2005, Dells ROE totalled 4 6.9%, IBMs was 26.4%, HP equalled 6.5% and Sun earned -1.6%. Return on assets pre sents a similar view of the companies. Dell is once again in the lead with 13.1% , compared to IBMs 7.9%, HPs 3.1% and Suns -0.8% in 2005. Dell is obviously the bes t at turning its assets into net sales. The final category analyzed was operations more specifically, inventory turnover . For manufacturing companies, this is a critical measure of success. Too much i nventory can lead to companies holding obsolete inventory, while too little may mean that customers will turn to competitors. As expected, Dell outperformed its competitors. In 2005, it turned its inventory over 107 times! In contrast, IBMs ratio was 28 times. Dell is not as large in terms of total sales or as liquid as some of its competitors, but it has proven to be the most effective in terms of cost and asset management. VII. PRESENT POSITIONING AND STRATEGY Dell competes in several international and domestic markets and currently produc es a wide variety of products. Adding a PC and server product line based on AMD microprocessors Developing a showroom style storefront in developing markets Expanding consulting services to include business services Dell s addition of a product line based on AMD microprocessors would enable the company to service th e entire market of PC users. Dell s exclusive use of Intel processors has limited the company s ability to ma tch the high end products that its competitors are offering. This leaves Dell co ntinuing to serve the low-end portion of the market and out of the very profitab le high-end portion of the market. In addition, as AMD gains market share on Int el, Dell will encounter pressure on its own market share. Dell currently is the largest worldwide provider of PCs based on the strength of its U.S. business. In international markets, Dell is currently second or third, but has struggled to gain market share with its direct sales business model. Issues in developing cou ntries include lack of credit cards and buying habits that involve touching and seeing before purchasing. Without gaining market share in these large markets, D ell could surrender its top position to competitors such as Lenovo, who are alre ady entrenched in these markets. Developing a showroom style storefront would enable Dell to compete effectively against its competitors in these countries. The showroom allows Dell to maintain its competitive advantages while simultaneously meeting the societal needs of t he developing markets. It will be a place for Dell to exhibit its product and co nduct sales for later delivery. Dell will retain its ability to customize its pr oducts and maintain its build-to-order efficiencies. Dell s efficiency has made the firm a player in business infrastructure services . However, the company is viewed as a leader in providing value, not necessarily complete or creative solutions. By moving into business consulting, Dell may be

able to develop more extensive relationships with companies. These relationship s could help grow Dell s core business through better understanding of client s needs and stronger ties to Dell, rather than to their current consulting partner : HP, IBM, and Intel. Due to its varied product portfolio, Dell cannot be cast into one particular qua drant of either the Boston Consulting Group Growth-Share matrix or the McKinsey 9-cell. Each business group must be looked at separately in order to accurately portray its business prospects. Employees In recession 2009 as per the above graph analysis, Dell applied a range of optio ns to reduce its costs, including a hiring freeze, cutting contract employees, s everance packages, the five-day furlough and, if necessary, more layoffs. But at present in 2011, Dell became stable and hired more employees. VIII. ITEM-1 MARKET FOR REGISTRANT S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Common Stock Dell common stock is listed on the NASDAQ Global Select Market of The NASDAQ Sto ck Market LLC under the symbol DELL. Information regarding the high and low sale s prices per share of our common stock for Fiscal 2011 and Fiscal 2010, as repor ted by the NASDAQ Global Select Market, is set forth below: Holders At March 4, 2011, there Shareholders Other institutional Mutual fund holders Individual stakeholders were 29,320 holders of record of Dell common stock. 43.06% 33.32% 14.32%

Dividends Dell.Inc. have never declared or paid any cash dividends on shares of their comm on stock and currently do not anticipate paying any cash dividends in the immedi ate future. Any future determination to pay cash dividends will be at the discre tion of their Board of Directors. Purchases of Common Stock Dell Inc. have a share repurchase program that authorizes them to purchase share s of common stock in order to increase shareholder value and manage dilution res ulting from shares issued under their equity compensation plans. However, they d o not currently have a policy that requires the repurchase of common stock in co njunction with share-based payment arrangements. The following table sets forth information regarding their repurchases or acquisitions of common stock during t he fourth quarter of Fiscal 2011 and the remaining authorized amount of future p urchases under our share repurchase program: Stock Performance Graph The following graph compares the cumulative total return on Dell s common stock during the last five fiscal years with the S&P 500 Index and the Dow Jones US Co mputer Hardware Index during the same period. The graph shows the value, at the end of each of the last five fiscal years, of $100 invested in Dell common stock or the indices on February 3, 2006, and assumes the reinvestment of all dividen ds. The graph depicts the change in the value of their common stock relative to the indices at the end of each fiscal year and not for any interim period. Histo rical stock price performance is not necessarily indicative of future stock pric e performance. ITEM 2 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with "Part I I Item 3 Management s Discussion and Analysis of Financial Condition and Results of Operations" and "Part II Item 4 Financial Statements and Supplementary Data"

and are derived from Dell.Inc. audited consolidated financial statements includ ed in "Part II Item 4 Financial Statements and Supplementary Data" or in their p reviously filed Annual Reports on Form 10-K. ITEM 3 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS O F OPERATIONS This section should be read in conjunction with "Part II Item 4 Financial Statem ents and Supplementary Data." OVERVIEW Dell.Inc. are a leading integrated technology solutions provider in the IT indus try. Dell.Inc. built the reputation through listening to customers and developin g solutions that meet customer needs. They are focused on providing long-term va lue creation through the delivery of customized solutions that make technology m ore efficient, more accessible, and easier to use. Customer needs are increasing ly being defined by how they use technology rather than where they use it, which is why Dell.Inc. businesses are globally organized. Their four global business segments are Large Enterprise, Public, Small and Medium Business ("SMB"), and Co nsumer. They also refer to our Large Enterprise, Public, and SMB segments as "Co mmercial." Their globally organized business units reflect the impact of globali zation on their customer base. A key component of their business strategy is to continue shifting their portfol io to products and services that provide higher-margin and recurring revenue str eams over time. As part of this strategy, they emphasize expansion of their ente rprise solutions and services. They group our services with similar demand, econ omic and delivery profiles into three categories: transactional; outsourcing; an d project-based. Their enterprise products include servers, networking, and stor age products. The growth of our enterprise solutions and services business has c ontributed to improvements in their operating margins. They are focusing on product leadership by developing next generation capabiliti es for client products, which include there mobility and desktop PC products. Th ey employ a collaborative approach to product design and development in which th eir engineers, with direct customer input, design innovative solutions and work with a global network of technology companies to architect new system designs, i nfluence the direction of future development, and integrate new technologies int o their products. Through this collaborative, customer-focused approach, they st rive to deliver new and relevant products and services to the market quickly and efficiently. They have also been focusing on improving the profitability of the ir client products by improving their supply chain execution and simplifying the re product offerings. The majority of Dell.Inc. products are now produced by con tract manufacturers. All regions of their global business experienced revenue increases in Fiscal 201 1. Emerging countries with a vast majority of the world s population represent s ome of their most attractive growth markets. In recent years, we have increased their investment in Brazil, Russia, India, and China and have tailored their pro ducts and services to meet the specific needs of customers in these countries. Dell.Inc. supplement organic growth with a disciplined acquisition program targe ting businesses that will expand their portfolio of enterprise solutions offerin gs. Dell.Inc. emphasize acquisitions of companies with portfolios that they can leverage with their global customer base and distribution. They followed there a cquisition of Perot Systems Corporation ("Perot Systems") in late Fiscal 2010 wi th a number of acquisitions throughout Fiscal 2011,which extended their core cap abilities in a variety of enterprise solutions offerings, including storage, sys tems management appliances, virtual infrastructure management, SaaS application integration, and cloud-based medical records management. The comparability of th eir results of operations for Fiscal 2011 compared to Fiscal 2010 and Fiscal 200 9 are affected by these acquisitions, primarily our acquisition and ongoing inte gration of Perot Systems. See their Services discussion under "Results of Operat ions Revenue by Product and Services Categories" below for a comparison of Dell s Services revenue for Fiscal 2011 compared to the prior years results of Dell Services and Perot Systems.

Presentation of Supplemental Non-GAAP Financial Measures In this management s discussion and analysis, they use supplemental measures of their performance, which are derived from there consolidated financial informati on but which are not presented in there consolidated financial statements prepar ed in accordance with accounting principles generally accepted in the United Sta tes of America ("GAAP"). These financial measures, which are considered "non-GAA P financial measures" under SEC rules, include there non-GAAP gross margin, nonGAAP operating expenses, non-GAA below for information about their use of these non-GAAP financial measures, including their reasons for including the measures, material limitations with respect to the usefulness of the measures, and a reco nciliation of each non-GAAP financial measure to the most directly comparable GA AP financial measure. ITEM-4 RESULTS OF OPERATIONS Consolidated Operations The following table summarizes Dell.Inc. consolidated results of operations for each of the past three fiscal years: During Fiscal 2011, Dell.Inc. total net revenue increased 16% year-over-year wit h increases across all there Commercial segments, and a slight increase in there Consumer segment. Commercial segments increased 20% year-over-year, and represe nted approximately 80% of our total net revenue during Fiscal 2011. The recovery in the economy during Fiscal 2011 helped strengthen demand from there Commercia l customers as the corporate refresh cycle continued, particularly for our Large Enterprise and SMB customers. Demand from there Consumer customers softened dur ing late Fiscal 2011 compared to late Fiscal 2010 when the launch of Windows 7 i ncreased demand for their Consumer client products. Dell. Inc. profitability has been improving sequentially for the past four quart ers, with stronger results in the latter half of Fiscal 2011. The improving prof itability was in part due to growth in their enterprise solutions and services b usiness. For Fiscal 2011, enterprise solutions and services revenue, including t he contribution from Perot Systems, grew 27% year-over-year to $17.6 billion, an d gross margins generated from this category grew 24% year-over-year. They belie ve these solutions are customized to the needs of users, easy to use, and afford able. They have also improved profitability in their client product business by simplifying their product offerings, optimizing our supply chain, and improving pricing discipline during this period of favorable component cost environment. T hey will remain focused on profitability by continuing their efforts to provide IT solutions to their customers in areas such as enterprise solutions and servic es, and will continue to utilize their flexible supply chain to enhance the prof itability of their client products. Revenue Fiscal 2011 compared to Fiscal 2010 Product Revenue Product revenue increased year-over-year by 14% for Fiscal 2011. Dell.Inc. product revenue performance was primarily attributable to improved cu stomer demand as a result of increased global IT spending from there Commercial customers across all product categories as well as a shift in mix to higher pric ed products. Services Revenue, including software related Services revenue, including softwar e related increased year-over-year by 25% for Fiscal 2011. There services revenue performance was attributable to a 36% year-over-year incr ease in services revenue and an increase of 7% in software related services reve nue during Fiscal 2011. The increase in services revenue was primarily due to th eir acquisition of Perot Systems in the fourth quarter of Fiscal 2010, which was integrated into their Public and Large Enterprise segments. During Fiscal 2011, revenue from the U.S. increased 14% to $31.9 billion and rep resented 52% of total net revenue. Revenue from outside the U.S. increased 19% t o $29.6 billion and represented 48% of total net revenue. Revenue from Brazil, R ussia, India, and China, which there refer to as "BRIC," increased 38% year-over-year, on a combined basis, for Fiscal 2011. Tota

l revenue from BRIC has been increasing sequentially since the fourth quarter of Fiscal 2009 and represented 12.3% of their total net revenue for Fiscal 2011 co mpared to 10.5% in the prior year. They are continuing to expand into these and other emerging countries that represent the vast majority of the world s populat ion, tailor solutions to meet specific regional needs, and enhance relationships to provide customer choice and flexibility. They manage their business on a U.S . dollar basis and utilize a comprehensive hedging strategy intended to mitigate the impact of foreign currency volatility over time. As a result of their hedgi ng programs, the impact of currency movements was not material to their total ne t revenue for Fiscal 2011, Fiscal 2010, or Fiscal 2009. Fiscal 2010 compared to Fiscal 2009 Product Revenue Product revenue and unit shipments decreased year-over-year by 1 7% and 6%, respectively, for Fiscal 2010. There product revenue performance was primarily attributable to a decrease in customer demand from there Commercial se gments and lower average selling prices in our Consumer segment. Services Revenue, including software related Services revenue, including softwar e related increased year-over-year by 5% during Fiscal 2010. The increase in ser vices revenue was largely due to their acquisition of Perot Systems, which contr ibuted $588 million in services revenue during the fourth quarter of Fiscal 2010 . Excluding the contribution by Perot Systems, services revenue decreased 2%. Th ere service offerings have traditionally been tied to the sale of hardware; ther efore, the 6% decline in hardware demand negatively impacted Dell.Inc services r evenue. Outside the U.S., Dell.Inc. experienced a 16% year-over-year revenue decline for Fiscal 2010 compared to an approximate decline of 11% in revenue for the U.S. d uring the same period. Revenue outside the U.S. represented approximately 47% of net revenue for Fiscal 2010. At a consolidated level, BRIC revenue increased 4% during Fiscal 2010. Gross Margin Fiscal 2011 compared to Fiscal 2010 Products During Fiscal 2011, product gross margins increased in absolute dollars year-over-year and in gross margin percentage. Product gross margin percentage increased from 14.1% for Fiscal 2010 to 15.9% for Fiscal 2011. Decreasing compon ent costs, improved pricing discipline, better sales and supply chain execution, and improved quality resulting in favorable warranty experience contributed to the year over-year increase in product gross margin percentage. Dell.Inc. have c reated a flexible supply chain that has improved their supply chain execution an d have simplified our product offerings. Additionally, in the second half of Fis cal 2011, we began to benefit from decreasing component costs, particularly for memory and displays. They expect this favorable component cost environment will moderate in the first half of Fiscal 2012. Services, including software related During Fiscal 2011, Dell.Inc. services gros s margin increased in absolute dollars compared to the prior fiscal year, althou gh there gross margin percentage decreased. The decrease in gross margin percent age for services, including software related was primarily due to a higher mix o f outsourcing and project-related services. Dell.Inc. gross margin rate for serv ices, including software related, is driven by their transactional services, whi ch consist primarily of their extended warranty sales, offset by lower margin ca tegories such as outsourcing and project-related services. There extended warran ty services are more profitable because they sell extended warranty offerings di rectly to customers rather than through a distribution channel. Total gross margin for Fiscal 2011 increased 23% to $11.4 billion on a GAAP bas is and 22% to $11.7 billion on a non-GAAP basis from Fiscal 2010. Gross margin o n a GAAP basis for Fiscal 2011 and Fiscal 2010 includes the effects of amortizat ion of intangible assets, severance and facility action costs, and acquisition-r elated charges. As set forth in the reconciliation under "Non-GAAP Financial Mea sures" below, these items are excluded from the calculation of non-GAAP gross ma rgin for Fiscal 2011 and Fiscal 2010. Amortization of intangible assets included in gross margin increased 84% to $278 million for Fiscal 2011. The increase in amortization of intangibles for Fiscal 2011 was primarily due to an increase in

intangible assets of $1.2 billion in Fiscal 2010 related to their acquisition of Perot Systems. Severance and facility action costs included in gross margin dec reased 78% to $53 million during Fiscal 2011. The decrease in severance and faci lity action costs was due to a decrease in cost reduction activities from Fiscal 2010. While they believe that we have completed a significant portion of their manufacturing transformation, they expect to implement additional cost reduction measures depending on a number of factors, including end-user demand for their products and services and the continued simplification of their sales organizati ons and supply and logistics chain. Additional cost reduction measures may inclu de selected headcount reductions, as well as other cost reduction programs. Fiscal 2010 compared to Fiscal 2009 Products Product gross margin decreased in absolute dollars and in gross margin percentage during Fiscal 2010. The decline in gross margin dollars was attributa ble to softer demand, change in sales mix, and lower average selling prices. Add itionally, during Fiscal 2010, gross margins were negatively impacted by compone nt cost pressures. Services, including software related During Fiscal 2010, Dell.Inc. services gros s margin decreased in absolute dollars compared to the prior fiscal year with a corresponding decrease in gross margin percentage. Their solution services offer ings faced competitive pricing pressures, resulting in lower gross margin percen tages. Total gross margin for Fiscal 2010 decreased 15% to $9.3 billion on a GAA P basis and 14% to $9.6 billion on a non-GAAP basis from Fiscal 2009. Gross marg in on a GAAP basis for Fiscal 2010 includes the effects of severance and facilit y action costs, amortization of intangible assets, and acquisition-related charg es. Gross margin on a GAAP basis for Fiscal 2009 includes the effects of severan ce and facility action costs, amortization of intangible assets, and stock optio n accelerated vesting charges. As set forth in the reconciliation under "Non-GAA P Financial Measures" below, these items are excluded from the calculation of no n-GAAP gross margin for Fiscal 2010 and Fiscal 2009. Amortization of intangible assets included in gross margin increased 156% to $151 million for Fiscal 2010. The increase in amortization of intangibles for Fiscal 2010 was primarily due to an increase in intangible assets from there acquisition of Perot Systems in Fis cal 2010 discussed above. Severance and facility action costs included in gross margin increased 62% to $236 million during Fiscal 2010 due to our migration to contract manufacturers and closures of certain manufacturing facilities. For Fis cal 2009, they incurred $104 million in certain stock-based compensation charges related to accelerated options that had an exercise price greater than the curr ent market stock price. Included in gross margin on a GAAP basis is $16 million from these stock options accelerated vesting charges, which are excluded from th e calculation of their non-GAAP gross margin. They did not have any accelerated stock option expenses in Fiscal 2010. Top Executives Michael S. Dell Chairman & Chief Executive Officer Brian T. Gladden Chief Financial Officer & Senior Vice President Jeffrey W. Clarke Vice Chairman-Operations & Technology Ronald V. Rose Senior VP-eCommerce& Information Technology Bradley R. Anderson, MBA Senior Vice President-Enterprise Product Group Stock Price Forecast The 33 analysts offering 12-month price forecasts for Dell Inc have a median tar get of 19.00, with a high estimate of 25.00 and a low estimate of 13.00. The med ian estimate represents a +14.80% increase from the last price of 16.55. IX. RISK FACTORS AFFECTING DELL BUSINESS AND PROSPECTS There are numerous significant risks that affect Dell business, operating result s, financial condition, and prospects. Many of these risks are beyond their cont rol. These risks include those relating to: Intense competition; There cost efficiency measures;

 Their ability to manage effectively the change involved in implementing there st rategic initiatives; Their ability to manage solutions, product, and services transitions in an effec tive manner; Adverse global economic conditions and instability in financial markets; Their ability to generate substantial non-U.S. net revenue; Weak economic conditions and additional regulation affecting their financial ser vices activities; Their ability to achieve favorable pricing from there vendors; Their ability to deliver quality products and services; There reliance on vendors for products and components, including reliance on sev eral single-sourced or limited-source suppliers; Successful implementation of their acquisition strategy; There product, customer, and geographic sales mix, or seasonal sales trends; Access to the capital markets by them and some of their customers; Loss of government contracts; Temporary suspension or debarment from contracting with U.S. federal, state, and local governments as a result of their settlement of the SEC investigation; Customer terminations, of or pricing changes in, services contracts, or their fa ilure to perform as we anticipate at the time they enter into services contracts ; Their ability to develop, obtain or protect licenses to intellectual property de veloped by them or by others on commercially reasonable and competitive terms; Information technology and manufacturing infrastructure disruptions or breaches of data security; Their ability to hedge effectively their exposure to fluctuations in foreign cur rency exchange rates and interest rates; Counterparty default; Unfavourable results of legal proceedings; Expiration of tax holidays or favorable tax rate structures, or unfavourable out comes in tax audits and other tax compliance matters; Their ability to attract, retain, and motivate key personnel; Their ability to maintain strong internal controls; There compliance with current and changing environmental and safety laws; and The effect of armed hostilities, terrorism, natural disasters, and public health issues. X. OPTIONS AND RECOMMENDED STRATEGY X.1. Focus on innovation While many of its competitors are working feverishly to develop the next generat ion of technology, Dell has been waiting. To date, the firm s strategy has been to recreate technology .In many cases, companies that do their own R&D are able to stay ahead of the industry through the development of new products. Putting more emphasis on R&D has some potential benefits. Through increased R&D spending, Dell may be the first to introduce products to market and establish fi rst mover advantage. Dell s recognizable brand-name would allow it to expand int o new products and potentially create insurmountable barriers to entry for its c ompetition. However, an increased emphasis on R&D would distance the company from its core c ompetencies. Increasing R&D changes its focus from mass customization of mature products to smaller batches and product introduction and growth. Additionally, i t would force the company from its direct sales model, as new products require m ultiple distribution channels to ensure they are available to customers as quick ly as possible. Currently Dell s strength is the sales of mature products throug h mass production, bringing quality and price without the cost of R&D. X.2. Divesting As is the nature of many larger companies, Dell is competing in several differen t product markets. Divesting products or services that the company is not compet ing near the top of the market will increase internal focus. Divesting of these assets or divisions could occur through identifying a competitor and selling the business, or by spinning a division into its own company. The key benefit of th

is strategy is the improved focus on core business. Stripping away these segment s would enable Dell to become more streamlined. Specifically, it would require a ll segments to work for similar customer bases. Establishing a singular customer focus to each employee allows Dell to leaps in product creativity and adds more than value to its brand. As a complete solutions provider, Dell is uniquely positioned to meet a full ran ge of customer needs. Divesting portions of their business, especially in its gr owing infrastructure segment, could potentially limit growth. Removing component s from Dell s network will mean that as business grows, Dell would utilize exter nal resources to satisfy customer s requests, limiting the effectiveness of Dell s competitive advantage. A single Dell branded solution is more likely to posit ion Dell as a differentiated service company. X.3. Expansion into services This strategy encourages Dell to move into business consulting. This is a new bu siness segment for Dell and would open a potentially new revenue stream. Given t he firm s internal success at manufacturing and value-chain efficiencies, Dell w ould have a respected reputation as a consultant. While application of these the ories may be difficult at other firms, Dell s expertise and proven track record would provide differentiation in a crowded market. Movement into the services business places Dell against largely entrenched compe titors. These competitors have levels of expertise that Dell cannot currently ma tch, placing it at a competitive disadvantage. While Dells specific knowledge wou ld help it enter the market, its ability to service the complete market would be limited. Likewise, a limited market would not allow a stable revenue stream, ma king this business segment questionable. Ultimately, a move towards business con sulting would distance the company from its core competencies. This move would l imit focus from core businesses and distract the company from its position of ex cellence. X.4. Reinvigorate Differentiation Advantage This strategy encourages Dell to return to its core competencies and calls for t he company to get back to basics. It pushes the company to improve upon those comp etencies which helped differentiate it from the beginning. Specifically, improve ments will include the enhancement of customer service, the addition of supplier s, new marketing campaigns, the modification of retail sales and the expansion o f turn-key solutions. This strategy seeks to widen Dell s competitive advantage through the further refinement of its existing X.5. Recommended Strategy Dell considers customer service and support to be a key differentiator. The comp any, which prides itself on this segment of business, has consistently ranked #1 in the industry. Not surprisingly, this segment represents a significant and ex panding revenue stream for the firm. However, Dells lead in customer service and support has declined in recent years. Declining training and the outsourcing of customer service and support has damaged its reputation. To rectify this problem , Dell must improve its customer service representatives selection process, ensur ing they are easily understood and well trained. By improving this segment of bu siness Dell can once again clearly differentiate itself from rivals HP and IBM.7 XI. CONCLUSION Dells Share Performance Dell shares are down over 60% over the past year and have been hit harder by the recession than U.S. competitors like Apple (AAPL) and Hewlett Packard (HPQ). At first glance, this may lead you to believe that an opportunity may exist here t o buy a company that has been unfairly punished. But, what you might miss is tha t Dells stock has been in a 5-year funk outclassed significantly by its domestic competitors. Not only has Dell failed to match its competitors (Apples ridiculous performance aside), it has actually consistently provided negative shareholder return over t he last five years. Why has the market been so unfair to Dell? Dell is seemingly s ynonymous with the PC market and no one can deny that this market continues to b

e a stronghold for global growth despite a slowdown in Q1 2009. Dell, in fact, m aintains a strong #2 market share position. To find the answer, lets take a look at Dells performance. Dells Operations Taking a quick look at historical financial provided by Grindstone Research. I f ind two interesting trends here. Despite the fact that worldwide PC shipments ha ve never grown less than 9.5% year over year (2008, 2007, 2006, and 2005) since 2005, Dells revenues have grown at just a 4% CAGR over the same time period. Furt hermore, operating margins collapsed and stayed depressed after 2007 signalling an inability to effectively capture increasing volumes in the industry without g iving up pricing. Clearly, something is awry over at Dell. My guess without having spent a lot of time analyzing Dells product offerings is that, having entered the PC market as a low cost competitor, the Company never i nvested in the R&D capacity to drive differentiation and new product innovation in the way that HP and Apple have over the last few years. Unfortunately, with t he emergence of Taiwanese and Chinese computer manufacturers like Acer and Lenov o, Dell, being a U.S. based manufacturer, lost its cost advantage and has lost i ts pricing strength and has been forced to take lower margins in hopes of protec ting market share, the last competitive advantage it has. Dells Valuation Despite poor performance justifying a handicap on its valuation, Dell is actuall y trading seemingly outrageous valuations relative to peers. At $10.31 per share , the stock trades at 8.5x forward earnings and at a 3.0x EV/EBITDA multiple, un heard of for even the most mature of businesses let alone one in a growth indust ry (General Mills (GIS) for reference trades at 12x forward earnings and 9.9x EV /EBITDA). More fundamentally, Dells cash and short term investments stand out on its balanc e sheet. It has $10.8 billion in cash and short term equivalents which equates t o about $5.54 in cash value on its balance sheet. 53% of its share price support ed by cash on the books? Thats even more ridiculous than the 25% cash support in Apples share price. The difference, however, lies in the working capital needs of the two businesses as well as the operational performance of the two businesses. As Ive discussed b efore, cash on the balance sheet can be used for many reasons. To support the bu siness, investments in growth, or dividends to shareholders. In the case of Appl e, management has proven that it can manage the business as a going concern whil e generating the free cash flow necessary to not only maintain but grow the comp anys cash balance. This has lead to many investors believing that nearly all of A pples cash balance could be freely distributed as additional return. For Dell, however, it seems that declining revenues between 2008 and 2009 create d a $2.5 billion working capital drain that halved operating cash flow. This mak es Dells $3 billion in net working capital (current assets ex cash current liabil ities) a more significant worry. Conservatively, the Company should reserve at l east a portion of cash to cover this need. Next, due to the Companys lagging perf ormance versus competitors, it would seem that some investment in R&D or restruc turing will be necessary to either better differentiate its products or rational ize its cost structure. How management allocates this capital will ultimately sa crifice immediate cash value in the Companys valuation for potential ROI on manag ements strategic initiatives. This uncertainty, especially given managements lackl ustre recent history, is enough that we must handicap the rest of Dells cash valu e to some degree. Investment Conclusion To me, Dell warrants a wait and sees approach. While the stock has $5.50 in cash support, many questions remain about the long term viability of the Companys bus iness model. Im not calling the Companys going concern into question but, if recen t performance is any indication, competition could ultimately force the business to fundamentally reset as a significantly less profitable, commoditized manufac turer as opposed to the tech industry giant it seemed poised to be become earlie r this decade. In that case, $10/share would seem an appropriate valuation provi

ded management protect current asset value, but knowing the mentality of most pu blicly traded companies, much effort and cash will be expended before a Company like Dell accepts such a place in the PC supply chain and, as a result, I am unc omfortable with the margin of safety on Dell even at $10/share at least until th e Company defines its long term strategy or global PC shipments rebound so stron gly that the rising tide cant help but carry Dell out of its gloom (in the latter case, better opportunities will still probably exist through the purchase of co mpetitors stocks).