History of Dell

Michael Dell founded Dell Computer Corporation, doing business as PCs Limited, [1] in 1984 while a student at the University of Texas at Austin.[2] Operating from Michael Dell's off-campus dormitory room at Dobie Center,[3] the startup aimed to sell IBM PC-compatible computers built from stock components. Michael Dell started trading in the belief that by selling personal computer systems directly to customers, PCs Limited could better understand customers' needs and provide the most effective computing solutions to meet those needs.[4] Michael Dell dropped out of college upon completion of his freshman year at the University of Texas at Austin in order to focus full-time on his fledgling business, after getting about $1,000 in expansion-capital from his family.[5] As of April 2021, Michael Dell's net worth was estimated to be over $50 billion.[6]

In 1985, the company produced the first computer of its own design — the "Turbo PC", sold for US$795[7][8] — containing an Intel 8088-compatible processor running at a speed of 8 MHz. PCs Limited advertised the systems in national computer magazines for sale directly to consumers, and custom assembled each ordered unit according to a selection of options. This offered buyers prices lower than those of retail brands, but with greater convenience than assembling the components themselves. Although not the first company to use this business model, PCs Limited became one of the first to succeed with it. The company grossed more than $73 million in its first year of trading.

The company dropped the PC's Limited name in 1987 to become Dell Computer Corporation and began expanding globally. At the time, the reasoning was this new company name better reflected its presence in the business market, as well as resolved issues with the use of “Limited” in a company name in certain countries.[9] The company set up its first international operations in Britain; eleven more followed within the next four years. In June 1988, Dell Computer's market capitalization grew by $30 million to $80 million from its June 22 initial public offering of 3.5 million shares at $8.50 a share.[10] In 1989, Dell Computer set up its first on-site service programs in order to compensate for the lack of local retailers prepared to act as service centers.

In 1990, Dell Computer tried selling its products indirectly through warehouse clubs and computer superstores, but met with little success, and the company re-focused on its more successful direct-to-consumer sales model. In 1992, Fortune magazine included Dell Computer Corporation in its list of the world's 500 largest companies, making Michael Dell the youngest CEO of a Fortune 500 company at that time.

In 1993, to complement its own direct sales channel, Dell planned to sell PCs at big-box retail outlets such as Wal-Mart, which would have brought in an additional $125 million in annual revenue. Bain consultant Kevin Rollins persuaded Michael Dell to pull out of these deals, believing they would be money losers in the long run.[11] Margins at retail were thin at best and Dell left the reseller channel in 1994.[12] Rollins would soon join Dell full-time and eventually become the company President and CEO.

Originally, Dell did not emphasize the consumer market, due to the higher costs and low profit margins in selling to individuals and households; this changed when the company's Internet site took off in 1996 and 1997.[5] While the industry's average selling price to individuals was going down, Dell's was going up, as second- and third-time computer buyers who wanted powerful computers with multiple features and did not need much technical support were choosing Dell. Dell found an opportunity among PC-savvy individuals who liked the convenience of buying direct, customizing their PC to their means, and having it delivered in days. In early 1997, Dell created an internal sales and marketing group dedicated to serving the home market and introduced a product line designed especially for individual users.[12]

From 1997 to 2004, Dell steadily grew and it gained market share from competitors even during industry slumps. During the same period, rival PC vendors such as Compaq, Gateway, IBM, Packard Bell, and AST Research struggled and eventually left the market or were bought out.[13] Dell surpassed Compaq to become the largest PC manufacturer in 1999. Operating costs made up only 10 percent of Dell's $35 billion in revenue in 2002, compared with 21 percent of revenue at Hewlett-Packard, 25 percent at Gateway, and 46 percent at Cisco.[14] In 2002, when Compaq merged with Hewlett-Packard (the fourth-place PC maker), the newly combined Hewlett-Packard took the top spot for a time but struggled and Dell soon regained its lead. Dell grew the fastest in the early 2000s.[15]

In 2002, Dell expanded its product line to include televisions, handhelds, digital audio players, and printers. Chairman and CEO Michael Dell had repeatedly blocked President and COO Kevin Rollins's attempt to lessen the company's heavy dependency on PCs, which Rollins wanted to fix by acquiring EMC Corporation; a move that would eventually occur over 12 years later.[16]

In 2003, at the annual company meeting, the stockholders approved changing the company name to "Dell Inc." to recognize the company's expansion beyond computers.[17]

In 2004, the company announced that it would build a new assembly-plant near Winston-Salem, North Carolina; the city and county provided Dell with $37.2 million in incentive packages; the state provided approximately $250 million in incentives and tax breaks. In July, Michael Dell stepped aside as chief executive officer while retaining his position as chairman of the board.[18] Kevin Rollins, who had held a number of executive posts at Dell, became the new CEO. Despite no longer holding the CEO title, Dell essentially acted as a de facto co-CEO with Rollins.[16]

Under Rollins, Dell purchased the computer hardware manufacturer Alienware in 2006. Dell Inc.'s plan anticipated Alienware continuing to operate independently under its existing management. Alienware expected to benefit from Dell's efficient manufacturing system.[19]

In 2005, while earnings and sales continued to rise, sales growth slowed considerably, and the company stock lost 25% of its value that year.[20] By June 2006, the stock traded around US$25 which was 40% down from July 2005—the high-water mark of the company in the post-dotcom era.[21][22]

The slowing sales growth has been attributed to the maturing PC market, which constituted 66% of Dell's sales, and analysts suggested that Dell needed to make inroads into non-PC business segments such as storage, services, and servers. Dell's price advantage was tied to its ultra-lean manufacturing for desktop PCs,[23] but this became less important as savings became harder to find inside the company's supply chain, and as competitors such as Hewlett-Packard and Acer made their PC manufacturing operations more efficient to match Dell, weakening Dell's traditional price differentiation.[24] Throughout the entire PC industry, declines in prices along with commensurate increases in performance meant that Dell had fewer opportunities to upsell to their customers (a lucrative strategy of encouraging buyers to upgrade the processor or memory). As a result, the company was selling a greater proportion of inexpensive PCs than before, which eroded profit margins.[13] The laptop segment had become the fastest-growing of the PC market, but Dell produced low-cost notebooks in China like other PC manufacturers which eliminated Dell's manufacturing cost advantages, plus Dell's reliance on Internet sales meant that it missed out on growing notebook sales in big box stores.[21] CNET has suggested that Dell was getting trapped in the increasing commoditization of high volume low margin computers, which prevented it from offering more exciting devices that consumers demanded.[23]

Despite plans of expanding into other global regions and product segments, Dell was heavily dependent on U.S. corporate PC market, as desktop PCs sold to both commercial and corporate customers accounted for 32 percent of its revenue, 85 percent of its revenue comes from businesses, and sixty-four percent of its revenue comes from North and South America, according to its 2006 third-quarter results. U.S. shipments of desktop PCs were shrinking, and the corporate PC market, which purchases PCs in upgrade cycles, had largely decided to take a break from buying new systems. The last cycle started around 2002, three or so years after companies started buying PCs ahead of the perceived Y2K problems, and corporate clients were not expected to upgrade again until extensive testing of Microsoft's Windows Vista (expected in early 2007), putting the next upgrade cycle around 2008.[25][26] Heavily dependent on PCs, Dell had to slash prices to boost sales volumes, while demanding deep cuts from suppliers.[16]

Dell had long stuck by its direct sales model. Consumers had become the main drivers of PC sales in recent years,[26] yet there had a decline in consumers purchasing PCs through the Web or on the phone, as increasing numbers were visiting consumer electronics retail stores to try out the devices first. Dell's rivals in the PC industry, HP, Gateway and Acer, had a long retail presence and so were well poised to take advantage of the consumer shift.[27] The lack of a retail presence stymied Dell's attempts to offer consumer electronics such as flat-panel TVs and MP3 players.[23] Dell responded by experimenting with mall kiosks, plus quasi-retail stores in Texas and New York.[25]

Dell had a reputation as a company that relied upon supply chain efficiencies to sell established technologies at low prices, instead of being an innovator.[16][27][28] By the mid-2000s many analysts were looking to innovating companies as the next source of growth in the technology sector. Dell's low spending on R&D relative to its revenue (compared to IBM, Hewlett Packard, and Apple Inc.)—which worked well in the commoditized PC market—prevented it from making inroads into more lucrative segments, such as MP3 players and later mobile devices.[20] Increasing spending on R&D would have cut into the operating margins that the company emphasized.[15] Dell had done well with a horizontal organization that focused on PCs when the computing industry moved to horizontal mix-and-match layers in the 1980s, but by the mid-2000 the industry shifted to vertically integrated stacks to deliver an end-to-end IT product, and Dell lagged far behind competitors like Hewlett Packard and Oracle.[24]

Dell's reputation for poor customer service, since 2002, which was exacerbated as it moved call centers offshore and as its growth outstripped its technical support infrastructure, came under increasing scrutiny on the Web. The original Dell model was known for high customer satisfaction when PCs sold for thousands but by the 2000s, the company could not justify that level of service when computers in the same lineup sold for hundreds.[29] Rollins responded by shifting Dick Hunter from the head of manufacturing to head of customer service. Hunter, who noted that Dell's DNA of cost-cutting "got in the way," aimed to reduce call transfer times and have call center representatives resolve inquiries in one call. By 2006, Dell had spent $100 million in just a few months to improve on this and rolled out DellConnect to answer customer inquiries more quickly. In July 2006, the company started its Direct2Dell blog, and then in February 2007, Michael Dell launched IdeaStorm.com, asking customers for advice including selling Linux computers and reducing the promotional "bloatware" on PCs. These initiatives did manage to cut the negative blog posts from 49% to 22%, as well as reduce the "Dell Hell" prominent on Internet search engines.[21][30]

There was also criticism that Dell used faulty components for its PCs, particularly the 11.8 million OptiPlex desktop computers sold to businesses and governments from May 2003 to July 2005, that suffered from faulty capacitors.[31] A battery recall in August 2006, as a result of a Dell laptop catching fire caused much negative attention for the company though later, Sony was found responsible for the manufacturing of the batteries, however spokesman for Sony Yoshikazu Ochiai said the problem concerned the combination of the battery with a charger, which is specific to Dell in this case.[32]

2006 marked the first year that Dell's growth was slower than the PC industry as a whole. By the fourth quarter of 2006, Dell lost its title of the largest PC manufacturer to rival Hewlett Packard whose Personal Systems Group was invigorated thanks to a restructuring initiated by their CEO Mark Hurd.[20][33][34]

In August 2005, Dell became the subject of an informal investigation by the U.S. SEC.[35] In 2006, the company disclosed that the U.S. Attorney for the Southern District of New York had subpoenaed documents related to the company's financial reporting dating back to 2002.[36] The company delayed filing financial reports for the third and fourth fiscal quarter of 2006, and several class-action lawsuits were filed.[37] Dell Inc's failure to file its quarterly earnings report could have subjected the company to de-listing from the NASDAQ,[38] but the exchange granted Dell a waiver, allowing the stock to trade normally.[39] In August 2007, the Company announced that it would restate its earnings for fiscal years 2003 through 2006 and the first quarter of 2007 after an internal audit found that certain employees had changed corporate account balances to meet quarterly financial targets.[40] In July of 2010, the SEC announced charges against several senior Dell executives, including Dell Chairman and CEO Michael Dell, former CEO Kevin Rollins, and former CFO James Schneider, "with failing to disclose material information to investors and using fraudulent accounting to make it falsely appear that the company was consistently meeting Wall Street earnings targets and reducing its operating expenses." Dell, inc. was fined $100 million, with Michael Dell personally fined $4 million.[41]

After four out of five quarterly earnings reports were below expectations, Rollins resigned as president and CEO on January 31, 2007, and founder Michael Dell assumed the role of CEO again.[42]

On March 1, 2007, the company issued a preliminary quarterly earnings report showing gross sales of $14.4 billion, down 5% year-over-year, and net income of $687 million (30 cents per share), down 33%. Net earnings would have declined even more if not for the effects of eliminated employee bonuses, which accounted for six cents per share. NASDAQ extended the company's deadline for filing financials to May 4.[43]

Dell announced a change campaign called "Dell 2.0," reducing the number of employees and diversifying the company's products.[27][44] While chairman of the board after relinquishing his CEO position, Michael Dell still had significant input in the company during Rollins' years as CEO. With the return of Michael Dell as CEO, the company saw changes in operations, the exodus of many senior vice-presidents and new personnel brought in from outside the company.[25] Michael Dell announced a number of initiatives and plans (part of the "Dell 2.0" initiative) to improve the company's financial performance. These include elimination of 2006 bonuses for employees with some discretionary awards, reduction in the number of managers reporting directly to Michael Dell from 20 to 12, and reduction of "bureaucracy". Jim Schneider retired as CFO and was replaced by Donald Carty, as the company came under an SEC probe for its accounting practices.[45]

On April 23, 2008, Dell announced the closure of one of its biggest Canadian call-centers in Kanata, Ontario, terminating approximately 1100 employees, with 500 of those redundancies effective on the spot, and with the official closure of the center scheduled for the summer. The call-center had opened in 2006 after the city of Ottawa won a bid to host it. Less than a year later, Dell planned to double its workforce to nearly 3,000 workers add a new building. These plans were reversed, due to a high Canadian dollar that made the Ottawa staff relatively expensive, and also as part of Dell's turnaround, which involved moving these call-center jobs offshore to cut costs. [46] The company had also announced the shutdown of its Edmonton, Alberta office, losing 900 jobs. In total, Dell announced the ending of about 8,800 jobs in 2007–2008 — 10% of its workforce.[47]

By the late 2000s, Dell's "configure to order" approach of manufacturing—delivering individual PCs configured to customer specifications from its US facilities was no longer as efficient or competitive with high-volume Asian contract manufacturers as PCs became powerful low-cost commodities.[48][49] Dell closed plants that produced desktop computers for the North American market, including the Mort Topfer Manufacturing Center in Austin, Texas (original location)[50][51] and Lebanon, Tennessee (opened in 1999) in 2008 and early 2009, respectively. The desktop production plant in Winston-Salem, North Carolina, received US$280 million in incentives from the state and opened in 2005, but ceased operations in November 2010. Dell's contract with the state required them to repay the incentives for failing to meet the conditions, and they sold the North Carolina plant to Herbalife.[52][53][54] Most of the work that used to take place in Dell's U.S. plants was transferred to contract manufacturers in Asia and Mexico, or some of Dell's own factories overseas. The Miami, Florida, facility of its Alienware subsidiary remains in operation, while Dell continues to produce its servers (its most profitable products) in Austin, Texas.[49] On January 8, 2009, Dell announced the closure of its manufacturing plant in Limerick, Ireland, with the loss of 1,900 jobs and the transfer of production to its plant in Łodź in Poland.[55]

The release of Apple's iPad tablet computer had a negative impact on Dell and other major PC vendors, as consumers switched away from desktop and laptop PCs. Dell's own mobility division has not managed success with developing smartphones or tablets, whether running Windows or Google Android.[56][57] The Dell Streak was a failure commercially and critically due to its outdated OS, numerous bugs, and low resolution screen. InfoWorld suggested that Dell and other OEMs saw tablets as a short-term, low-investment opportunity running Google Android, an approach that neglected user interface and failed to gain long term market traction with consumers.[58][59] Dell has responded by pushing higher-end PCs, such as the XPS line of notebooks, which do not compete with the Apple iPad and Kindle Fire tablets.[60] The growing popularity of smartphones and tablet computers instead of PCs drove Dell's consumer segment to an operating loss in Q3 2012. In December 2012, Dell suffered its first decline in holiday sales in five years, despite the introduction of Windows 8.[61]

In the shrinking PC industry, Dell continued to lose market share, as it dropped below Lenovo in 2011 to fall to number three in the world. Dell and fellow American contemporary Hewlett Packard came under pressure from Asian PC manufacturers Lenovo, Asus, and Acer, all of which had lower production costs and were willing to accept lower profit margins. In addition, while the Asian PC vendors had been improving their quality and design—for instance, Lenovo's ThinkPad series was winning corporate customers away from Dell's laptops—Dell's customer service and reputation had been slipping.[62][63] Dell remained the second-most profitable PC vendor, as it took 13 percent of operating profits in the PC industry during Q4 2012, behind Apple's Mac that took 45 percent, seven percent at Hewlett Packard, six percent at Lenovo and Asus, and one percent for Acer.[64]

Dell attempted to offset its declining PC business, which still accounted for half of its revenue and generates steady cash flow,[65] by expanding into the enterprise market with servers, networking, software, and services.[66] It avoided many of the acquisition write-downs and management turnover that plagued its chief rival Hewlett Packard.[57][67] Dell also managed some success in taking advantage of its high-touch direct sales heritage to establish close relationships and design solutions for clients. Despite spending $13 billion on acquisitions to diversify its portfolio beyond hardware,[68] the company was unable to convince the market that it could thrive or made the transformation in the post-PC world,[67] as it suffered continued declines in revenue and share price.[69][70][71][72] Dell's market share in the corporate segment was previously a "moat" against rivals but this has no longer been the case as sales and profits have fallen precipitously.[73]

After several weeks of rumors, which started around January 11, 2013, Dell announced on February 5, 2013, that it had struck a $24.4 billion leveraged buyout deal, that would have delisted its shares from the NASDAQ and Hong Kong Stock Exchange and taken it private.[74][75][76] Reuters reported that Michael Dell and Silver Lake Partners, aided by a $2 billion loan from Microsoft, would acquire the public shares at $13.65 apiece.[77] The $24.4 billion buyout was projected to be the largest leveraged buyout backed by private equity since the 2007 financial crisis.[78] It is also the largest technology buyout ever, surpassing the 2006 buyout of Freescale Semiconductor for $17.5 billion.[78]

The founder of Dell, Michael Dell, said of the February offer "I believe this transaction will open an exciting new chapter for Dell, our customers and team members".[79] Dell rival Lenovo responded to the buyout, saying, "the financial actions of some of our traditional competitors will not substantially change our outlook."[79]

In March 2013, the Blackstone Group and Carl Icahn expressed interest in purchasing Dell.[80] In April 2013, Blackstone withdrew their offer, citing deteriorating business.[81][82] Other private equity firms such as KKR & Co. and TPG Capital declined to submit alternative bids for Dell, citing the uncertain market for personal computers and competitive pressures, so the "wide-open bidding war" never materialized.[68] Analysts said that the biggest challenge facing Silver Lake would be to find an "exit strategy" to profit from its investment, which would be when the company would hold an IPO to go public again, and one warned "But even if you can get a $25bn enterprise value for Dell, it will take years to get out."[83]

In May 2013, Dell joined his board in voting for his offer.[84] The following August he reached a deal with the special committee on the board for $13.88 (a raised price of $13.75 plus a special dividend of 13 cents per share), as well as a change to the voting rules.[85] The $13.88 cash offer (plus a $.08 per share dividend for the third fiscal quarter) was accepted on September 12[86] and closed on October 30, 2013, ending Dell's 25-year run as a publicly-traded company.

After the buyout, the newly private Dell offered a Voluntary Separation Program that they expected to reduce their workforce by up to seven percent. The reception to the program so exceeded the expectations that Dell may be forced to hire new staff to make up for the losses.[87]

On November 19, 2015, Dell, alongside ARM Holdings, Cisco Systems, Intel, Microsoft, and Princeton University, founded the OpenFog Consortium, to promote interests and development in fog computing.[88]

On October 12, 2015, Dell Inc. announced its intent to acquire EMC Corporation in a cash-and-stock deal valued at $67 billion, which has been considered the largest-ever acquisition in the technology sector. As part of the acquisition, Dell would take over EMC's 81% stake in the cloud-computing and virtualization company VMWare.[89] This would combine Dell's enterprise server, personal computer, and mobile businesses with EMC's enterprise storage business in a significant Vertical merger of IT giants. Dell would pay $24.05 per share of EMC, and $9.05 per share of tracking stock in VMware.[90][91][92]

On September 7, 2016, Dell Inc. completed the merger with EMC Corp., which involved the issuance of $45.9 billion in debt and $4.4 billion common stock.[93][94] At the time, some analysts claimed that Dell's acquisition of the former Iomega could harm the LenovoEMC partnership.[95]

In July 2018, Dell announced intentions to become a publicly traded company again by paying $21.7 billion in both cash and stock to buy back shares from its stake in VMware, offering shareholders roughly 60 cents on the dollar as part of the deal.[96][89] In November, Carl Icahn (9.3% owner of Dell) sued the company over plans to go public.[97] As a result of pressure from Icahn and other activist investors, Dell renegotiated the deal, ultimately offering shareholders about 80% of market value. As part of this deal, Dell once again became a public company, with the original Dell computer business and Dell EMC operating under the newly created parent, Dell Technologies.[89]

In January 2021, Dell reported $94 billion in sales and $13 billion operating cash flow during 2020.[89]