Dell released its annual warts-and-all disclosure of every possible risk a public company faces and in the report, the company has suggested that slowing PC sales are a risk to its strategy of becoming an infrastructure technology leader.
The company said. “Dell Technologies’ business could suffer if Dell Technologies does not develop and protect its proprietary intellectual property or obtain or protect licenses to intellectual property developed by others on commercially reasonable and competitive terms.”
“Dell Technologies expects its strategic transformation to an essential infrastructure solutions provider to take more time and investment, and the investments it must make are likely to result in lower gross margins and raise its operating expenses and capital expenditures.”
Despite the dip in the recent years in PC sales, the company’s chunk of revenue came from PC sales as the document said, “For Fiscal 2017, Dell Technologies’ Client Solutions business generated approximately 60% of Dell Technologies’ net revenue, and largely relied on PC sales.”
“Moreover, revenue from Client Solutions absorbs Dell Technologies’ significant overhead costs and allows for scaled procurement. As a result, Client Solutions remains an important component in Dell Technologies’ broad transformation strategy.”
Interestingly, the document also listed the possible outcome of the declining PC sales.
“Dell Technologies continues to rely on Client Solutions as a critical element of its business, Dell Technologies also anticipates an increasingly challenging demand environment in Client Solutions and intensifying market competition. Current challenges in Client Solutions stem from fundamental changes in the PC market, including a decline in worldwide revenues for desktop and laptop PCs, and lower shipment forecasts for PC products due to a general lengthening of the replacement cycle for PC products and increasing interest in alternative mobile solutions.”
“PC shipments worldwide declined 5.7% during calendar year 2016, and further deterioration in the PC market may occur. Other challenges include declining margins as demand for PC products shifts from higher-margin premium products to lower-cost and lower-margin products, particularly in emerging markets, and significant and increasing competition from efficient and low-cost manufacturers and from manufacturers of innovative and higher-margin PC products.”
The built-to-order has been a key driving factor behind the company’s success over the years and the low cost manufacturers are definitely considered by the company as the document said, “the built-to-order model that Dell Technologies historically has used is losing competitiveness in an environment where profit pools are moving toward lower-margin segments primarily based on a build-to-stock model.”
If the PC sales figure goes down with the rates similar to preceding years’, then the company is likely to face a tough time ahead since smartphones and related devices are taking over everyday computing needs.
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