Dell Working Capital Case Study

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In August 1993, Dell reported a $76 million dollar loss for the second quarter of 1993, its first loss. The loss was tied to $71 million in charges relating to the sell-off of excess inventory and the cost of scrapping a disappointing notebook computer line.8 The company also took restructuring charges to consolidate European operations that had become redundant and inefficient. Dell’s profit margin fell to 2% for the first quarter, ending May 2, 1993, – well below the company’s target of 5% that they had achieved or exceeded for 11 consecutive quarters. With $32 million in cash and cash equivalents, analysts thought Dell had enough cash and credit to last at least another year, but many wondered if the company had the resources to keep pace should the battle for market share intensify.9 N

Like many companies, we were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching
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Dell's Working Capital

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In July 1995, Dell became the first manufacturer to convert its entire major product line to the
Pentium technology.13 By that time, in less than two years, the Pentium chip was at 133 MHz – the ninth upgrade. Dell was able to offer faster systems at the same price that rivals were marketing older Pentium technology. Because of its low finished goods inventory, Dell didn’t have to dismantle
PCs to replace the microprocessor when Intel Corporation discovered its Pentium chip was flawed in
1994. It was able to quickly manufacture systems with the “updated” Pentium chip, while others (i.e.,
Compaq) were still selling flawed systems from inventory. In a similar vein, Dell was able to begin shipping its Dell Dimension systems equipped with Microsoft Corporation’s new Windows 95 operating system on August 25, 1995 – the very day Microsoft launched the product. As a direct marketer, Dell was able to bring new component technology to the market within an average of 35 days – a third of the time it took competitors to move a new product through indirect

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