Dell

Dell’sdirect sales business model growth has slowed significantly over recent years.The company is now building a new strategic plan with an indirect sales modeland has been investing significant dollars in software, services and other IP.The challenge for Dell will be for dell to maintain its existing profit marginswhy directing resources to new products and services. To ’stop the bleeding’dell is cutting costs and headcount (by 10%). However, by adding new servicessurely the company’s high profit margins in hardware will be impacted, evenwith the reduction in expenses. This will have obvious impact on the company’soverall earnings growth.


Dell’s Profit Margins:
Gross Margin - 17.3%
Pre-Tax Margin - 6.1 %
Net Profit Margin - 4.5 %
5Yr Gross Margin (5-Year Avg.)- 17.8%
5Yr PreTax Margin (5-Year Avg.)- 8.0 %
5Yr Net Profit Margin (5-YearAvg.) - 5.9%


HOW WILL A SHIFT IN THE PRODUCTSOR SERVICES YOUR COMPANY PROVIDES EFFECT YOUR PROFIT MARGIN? HOW WILL THESECHANGES EFFECT SHAREHOLDER VALUE?
Gartner research provides the following‘recommendations’ to Dell and Dell’s End-users:


Recommendations toDell:

Cost improvements alone will not be enough for thecompany to improve growth significantly. Dell needs to continue efforts toimprove its service and support offerings, partner relationships, and investin hardware and software that is unique to the company. It also needs to marketthose capabilities effectively once they are enhanced. In combination withthose steps, Dell will need to seek cost gains where possible, to see sustainedbenefits to its business.

Recommendations toDell End-users:

Continue to treat Dell as a reliable provider ofcost-competitive computer technology. However, expect Dell to approach youabout broader service and solution engagements. Be cautious about these engagementsuntil Dell establishes a track record of success.
Dell’sEarnings Report Reflects Shift in Strategy. [Gartner]
Profit Margin Notes (see TheBottom Line on Margins, [Investopedia] for more information):
Gross Profit Margin- or gross margin for short - tells us the profit a company makes on its costof sales, or cost of goods sold. In other words, it indicates how efficientlymanagement uses labor and supplies in the production process. GrossProfit Margin = (Sales - Cost of Goods Sold)/Sales
Operating Profit Margin- By comparing earnings before interest and taxes (EBIT) to sales, operatingprofit margins show how successful a company’s management has been in generatingincome from the operation of the business. Operating Profit Margin= EBIT/Sales