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Dell Technologies Company’s Analysis Report

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Updated: May 1st, 2021

Company Background

Dell Technologies is a US-based company specializing in digital transformation through the provision of focused and customized IT infrastructure and solutions. Through the successful merger with EMC, the company has been able to create highly stratified IT solutions through its subdivisions such as Virtustream, VMware Inc., Clients Solution Group Boomi Inc., and RSA Information Security (United States Securities and Exchange Commission, 2018).

Among the notable focused technology solutions include all-flash arrays, data centers, hyper-converged infrastructure, and hybrid cloud among others. The company has embraced innovation in the product and service charter. Among the notable products or services designed, developed, manufactured, and sold by Dell Technologies are categorized into VMware, client solutions, and infrastructure solutions.

The client solution products include personal computers, branded peripherals, notebooks, projectors, and monitors among others. These products are designed and manufactured by the company. The second category of product charter is the infrastructure solutions offering information storage in the form of big data and cloud solutions through its Virtustream (United States Securities and Exchange Commission, 2018). The last category of product or service charter is VMware, which provides networking, mobility, cloud, compute, and security-related infrastructure software to different businesses. For instance, the vSphere, vSAN, vRealize, and VMware Cloud are successful product lines. All the products and services sold by the company are produced or created internally.

Company Sales, Inventory, and Accounts Receivable

From 2015 to 2018, sales have steadily increased for Dell as evident by rising net revenue from $54,142,000 to $78,660,000 in the three years (United States Securities and Exchange Commission, 2018). The rising sales could be attributed to expanded markets, increased product ranges, and a diverse market approach. For instance, in the last three years, Dell has introduced or modified more than ten different product lines to increase its market presence.

The inventory has also steadily increased in the last three years from $8,901,000 in 2016 to $23,387,000 in 2018 (United States Securities and Exchange Commission, 2018). The rise in inventory could be attributed to the increasing cost of doing business associated with a company dependent on new technology. Moreover, the global economic swings have increased inflation, which translates to the high cost of running a business.

Lastly, the account receivable has also experienced positive growth of about 10% annually for the last three years. The increase in accounts receivable could be associated with the benefits of Dell’s expansionary business strategies rolled out in 2015 and product diversification. In addition, the company’s 2016 operational efficiency streamlining strategies seem to be paying off (United States Securities and Exchange Commission, 2018). The sales, accounts receivable, and inventory is positively related, that is an increase in one element results in a similar displacement on the other two elements. For instance, sales determine the value of account receivables and vice versa.

Risk Factors Associated with Dell

Dell Technologies operate in a dynamic market characterized by several risks. The first risk is potential competitive pressures, which may affect the profitability, revenues, and share position. Since the company operates in a highly advanced business environment characterized by innovative software and hardware services that are perfect substitutes, Dell is threatened by the activities of aggressive competitors such as HP. For instance, the risk of competitive pricing, product diversification, and innovation might reduce the profits if the company does not have effective ways of encountering competition.

Another challenge is an overreliance on third-party vendors who supply components of different products for the company. Due to limited or single-sourcing contracts, an event of failure on the part of these vendors might adversely affect the aspects of cost, reliability, delivery, and availability of Dell’s products in the market. At present, the company has a complex supply chain that is dependent on the activities of these vendors. The third risk Dell is facing is the unpredictable global economic conditions and currently financial instability in the business market. Due to persistent unfavorable market swings as a result of past and possible global financial meltdown, Dell is faced with the risk of reduced profitability or net revenue.

The company’s success at present and in the future is heavily dependent on its ability to effectively execute its short and long-term growth strategies. Any failure on the side of business planning or strategy execution might have diverse business effects in terms of competitiveness, sustainable financial performance, and customer satisfaction. Over the years, Dell has applied merger and acquisition as a business strategy for expanding market presence and increasing revenues (United States Securities and Exchange Commission, 2018).

When the company fails to effectively implement the acquisition or merger strategy, it is exposed to diverse operational challenges and potential increment in the cost of doing business. Since most of Dell’s product and service lines are dependent on technological innovation, a potential challenge in managing the transitional process in the creation of more advanced or effective options might jeopardize the product performance in the market, which translates to reduced profits.

Lastly, the company is faced with the risks of inability to sustain the international market revenue, which currently accounts for 51% of Dellโ€™s total revenues (United States Securities and Exchange Commission, 2018). Miscalculations in the internationalization business strategies might have serious and long-term negative effects on the company’s net revenues. For instance, a change in the global market seasonal trends will have a direct impact on Dell’s sales mix that integrates customer, product, and geographical location.

Income Statement Discussion

The five items in Dell’s income statement are net revenues, gross margin, operating loss, earnings per share, and net cash provided by operating activities. Net revenue has increased steadily for the last three years. The gross margin has equally increased from the year 2015 to 2018. However, the operating loss reduced by more than 30% over the three years. The DHI Group’s basic earnings per share experienced positive growth in the same dimension over the last three years.

Lastly, the net cash provided by operating activities experienced fluctuations characterized by a decrease in 2016 and a steady increase in the following years. The increase in revenues, gross margins, net cash provided for operating activities, and earnings per share could be attributed to the increased profitability of the company in the last three years (United States Securities and Exchange Commission, 2018). For instance, the revenue stream expanded steadily over the same period. As a result, the operating loss had to reduce due to increase revenue or strengthened equity or company capitalization.

Disclosure Requirements

Dell Technologies has to disclose the foreign currency risks and interest rate risks. Since the company is based in the US and listed on NASDAQ, it is required to provide full disclosure using the US GAAP accounting standards. Dell has to report any deviation. This explains why Dell keeps referring to the existing non-GAPP measures in disclosing fair competition practices in the financial statement.

The company made two departures from the US GAAP standards in recognizing revenues and costs associated with sales. Another departure was noted in determining gross profit and revenue. The company added back differed related costs and revenue with a residual value guarantee (United States Securities and Exchange Commission, 2018). In addition, the non-cash interest and stock-based compensation are expunged from non-GAAP expenses and per share information.

Reference

United States Securities and Exchange Commission. (2018). Dell Technologies Inc. Web.

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