In addition to the America's, your company also did well in the European market.
The company was able to fortify its No. 2 annual share position. In calendar 2003, your company held a 10.5% market share compared to 9.6% market share in 2002 ("Dell Annual Report 2004"). In deed the company's globel presence is increasing at a remarkable rate.
In 2004 your company's Gross margin as a percentage of net revenue increase to 18.2%, compared to 17.9% in 2003 and 17.7% in 2002("Dell Annual Report 2004"). In addition, your company's cost savings initiative drove the year-over-year improvement for fiscal 2004 and 2003 ("Dell Annual Report 2004").
The company also made a concerted effort to improve margins by implementing four main cost reduction initiatives ("Dell Annual Report 2004"). These cost reduction initiatives affect warranty costs, manufacturing costs, design costs, and operating expenses ("Dell Annual Report 2004"). In addition, the cost savings initiatives also incorporate providing some customer technical support and back-office tasks from cost effective locations and driving more capable tools and processes throughout the world ("Dell Annual Report 2004"). According to the annual report
Dell's general practice is to aggressively pass on declines in costs to its customers in order to add customer value while increasing market share. Dell currently expects the component cost and competitive pricing environment will continue to be challenging. However, management believes that the strength of Dell's direct-to-customer business model, as well as its strong liquidity position, makes Dell better positioned than its competitors to continue profitable market share growth in any business climate ("Dell Annual Report 2004")."
Cash flow from operations allowed your company to further strengthen its liquidity ("Dell Annual Report 2004"). This is evident with a cash flow from operations of $3.7 billion, which is an increase from the $3.5 billion reported in fiscal 2003 ("Dell Annual Report 2004"). Furthermore, your company ended fiscal 2004 with $11.9 billion in cash and investments, which showed an improvement of $2.0 billion over fiscal year 2003. The chart below (taken from "Dell Annual Report 2004") is illustrative of your company's ending cash, cash equivalents, and investments as well as the results of Dell's consolidated statements of cash flows for 2004, 2003 and 2002:
All of the aforementioned strengths have allowed the company to remain a dominant force in the computer hardware industry.
The company's position as the most profitable company in the computer hardware industry is evidence that the company does not have many weaknesses ("Dell Annual Report 2004"). However, a few weaknesses were found in the annual report. The first of which is the decline in revenue growth during fiscal 2004, in comparison to fiscal 2003 ("Dell Annual Report 2004"). This decline was a result of the increased force of the competitive pricing environment coupled with your company's concentration on profitable growth ("Dell Annual Report 2004"). In addition, although the company produced strong year-over-year net unit growth of 67% in the area of consumer notebook computers during fiscal 2004, the growth was somewhat offset by a 13% year-over-year decrease in average revenue per-unit sold due to a change in product mix in favor of lower-priced systems ("Dell Annual Report 2004").
Another area of weakness was found in the decrease in investment income for fiscal 2004, in comparison fiscal 2003 ("Dell Annual Report 2004"). The main reason for this decrease was the decrease in interest rates on investments, offset by an increase in investments and cash equivalents throughout the year ("Dell Annual Report 2004"). The annual report explains that the fiscal 2002 loss in inclusive of a $260 million impairment charge in the second quarter for other-than-temporary decreases in fair value of Dell's venture investments ("Dell Annual Report 2004").
These decreases were caused by investees' inability to implement their business plans and the conditions of the market ("Dell Annual Report 2004").
As in previous years, your company has an opportunity to expand its profitability by adding additional products to the already existing product line. According to the annual report, "opportunity exists for Dell's continued profitable growth by increasing its presence in existing markets, entering new markets, and pursuing additional product and service opportunities ("Dell Annual Report 2004")."
In existing markets such as the United Kingdom, Japan and China, the company has the opportunity to gain a greater percentage of the market share and the number one positions. It also has the opportunity to expand its product line in certain existing markets. The company is also yet to expand into some new markets; there are countries where Dell computers are not yet sold. In addition, the company has the opportunity to create new products and offer new services. It also has the opportunity to apply the company's strategy of cost savings to the LCD televisions that it offers. If the company could find a way to reduce the price of this product the way to reduce the price of PC's, it could easily dominate that industry as well.
Dell also has an opportunity to gain a greater percentage of the market share with its printers. The company has already been able to grab the third position in this market. By expanding the product line and further reducing the price of the product and the ink, the company could gain more of the market share.
One might think that because Dell is the number one company in the computer hardware industry, the threats to the company's infrastructure and overall financial condition are minimal. However, the reason company's success is greatly associated with the risk the company has taken. The same risks that made the company successful also threaten the continued success of the firm. One of the largest threats to the company is an even more significant price war between the leading firms in the industry. Because there is very little differentiation of products from one firm to another, consumers will choose the product with the lowest price and the best service. Therefore, Dell cannot insure investors that it can maintain the share of the market that it currently possesses (Full SEC Annual Report).
Another factor that serves as a threat to your company is the general economic condition and business conditions. These conditions are a threat because they could result in a decrease in net revenue (Full SEC Annual Report). Your Annual report asserts that the company's net revenue could decline based on economic conditions in America and other countries (Full SEC Annual Report). Since technology purchases tend to be more of a luxury item, when there are adverse economic conditions technology sales tend to suffer (Full SEC Annual Report).
Another threat could potentially be the company's inability to handle periodic product transition (Full SEC Annual Report). One of the formidable characteristics of the technology industry is the rapid changes in technological advancements (Full SEC Annual Report). This includes the introduction of new products, the reduction in the cost of products and the short life cycle of products (Full SEC Annual Report). If Dell cannot provide consumers with the technological products that they desire sales and profitability will suffer (Full SEC Annual Report).
There is also a threat associated with the potential inability of your company to manage its inventory levels to minimize excess inventory. In addition, there are certain risks and uncertainties associated with international sales. In 2004, 36% of Dell's net revenue came from outside the United States. In order to remain a successful company Dell must pursue growth in the international market (Full SEC Annual Report). However, such growth comes with risks and uncertainties including local economic and labor conditions, unexpected changes in the regulatory environment, political instability, fluctuations in foreign currency exchange rates, tax laws, and trade protection measures (Full SEC Annual Report).
Another threat to Dell is failure in the complex infrastructure the company has created. The company's infrastructure is the lifeblood of the organization and allows the company to maintain its dominance as the low cost leader (Full SEC Annual Report). If there is a disruption in this infrastructure caused by a computer virus, hackers, security failure (customer information), telephone system failure, or a manufacturing failure the company will not be able to meet its obligations, which will increase cost, void sales and affect the reputation of the company (Full SEC Annual Report). Such failures could have a lasting impact on the company depending on the gravity of the failure.
Problems in the supply chain could also threaten the profitability of the company (Full SEC Annual Report). For instance, if the company cannot get the components needed to produce its products, there could be an adverse affect on sales and thus profitability (Full SEC Annual Report).
This is a particular problem for Dell because it has relationships with many single source suppliers (Full SEC Annual Report). Therefore, in some cases if a component is not available from that supplier, no alternative is readily available (Full SEC Annual Report).