Consumer

Over the past year, we have discussed some of the changes in our Consumer Segment, including our strategy to expand our product portfolio, as well as expand our retail and global footprint.  Coming off our recent analyst meeting, we thought it would be timely to further delve into the distinctive brands that represent the Consumer product portfolio and its on-going expansion. 

The thought behind our product expansion and new brand architecture was to enhance our efforts to be more precise in targeting specific user needs, preferences and price bands as opposed to our past practice of utilizing only a few platforms to serve a wider array of customer needs.  This allows Dell to offer greater choice and establish clear value propositions for each brand in our direct and retail businesses.  In addition to offering more choice, this expansion supports our growth plans and helps to improve our relative cost position, as systems are designed around specific components and features for a given usage model. 

There are five main brands that comprise the consumer line-up:  Dimension, Inspiron, Studio, Alienware and Adamo.  These brands run the full spectrum of the consumer space from entry level to high performance.  The Dimension represents the "value" space, and provides accessibility to technology and features that enable a price point for the cost sensitive consumer.  The Inspiron brand is more about expression and designed for those who value simplicity and personalization.  The Studio line takes personalization another step with digital customization.  It is aimed at unleashing the multimedia experience with enhanced graphics and audio performance.  For those interested in a premium, luxury experience, we introduced our Adamo line this past spring.  This line places significant emphasis on precision craftsmanship and premium materials that provides an uncompromised, sleek design.  There is one other aspect of the line-up with respect to the XPS moniker, which indicates that a particular model is at the top of that brand in terms of performance and feature sets.

Our last brand in the consumer line-up is Alienware, which is dedicated to gamers.  It is about delivering an immersive gaming experience with best-in-class performance and speed.  Gamers demand and seek out performance innovation, and we are confident that Alienware will continue to be the top destination in their quest. As with XPS moniker, the Alienware brand deploys a similar value proposition with the ALX moniker, which designates a product as the "best of the best" in the Alienware portfolio. 

You should expect Dell to continue to build out each of these brands with additional models as we expand our retail and direct businesses.  Our models have undergone significant style and industrial design changes over the past two years, and we are focused on design leadership going forward.  With this new brand architecture, we have set the foundation to sell more systems into more geographies and outlets.  This sets up our larger goal of becoming more competitive from a cost standpoint as we work to deliver improved profitability and continued growth in the consumer segment.  We believe we are starting to see progress on a number of fronts both in product recognition and in unit sales.  Our consumer products have won over 14 product design awards in the first half of this year.  Ed Boyd and his team, as well as the design team from the commercial side of the business in the last year won more design awards in one year than the previous 24 years combined.  In addition, our consumer segment has posted double-digit percentage unit gains each of the last four quarters, with WW share of 9.3% as of the end of Q1 per IDC.

The netbook is a product category that has received considerable attention over the past several months from the media and investment community, so I wanted to share Dell's point of view on it.  We see this relatively new product as another category of the notebook market and one that is growing rapidly.  In Dell's case, the Inspiron Mini line is an excellent way for us to continue down the path of expanding the number of product platforms designed around specific customer needs and cost points.  As for the opportunity, Wall Street analysts estimate netbooks may reach 20 to 30 million units in calendar 2009 while IDC expects total notebook units for 2009 to be approximately 148 million on a worldwide basis.  Thus, netbooks are certainly a meaningful and growing part of the overall notebook market with the potential to represent 13 to 20% of total notebook units shipped worldwide this year.  Revenue and profit share will be lower given the lower average selling prices for netbooks.

 Dell entered this category last fall and currently offers three products in the "netbook" segment in 9, 10 and 12-inch screen sizes.  Consistent with Dell's overall consumer approach to differentiate based on industrial design as well as specific functionality in each price point, the Mini line-up is stylish and packed with solid mobility features including integrated 3G mobile broadband connectivity.  Dell has also established key cellular broadband partnerships in North America and Western Europe and recently announced a deal in which China Mobile will offer 3G broadband on the Mini 10 inch netbook in China.

 We view netbooks as incremental to conventional notebooks with some differences in usage by mature and emerging geographies.  In mature markets, we believe netbooks will principally function as secondary devices.  People looking for basic email, web access and social networking functions may favor the small screen sizes, keyboards and lower power footprint.  They also serve as an excellent travel companion device for those who are highly mobile and looking for a smaller form factor on the road.  However, a traditional notebook is generally a better option for consumers looking to perform functions such as photo and video editing or use productivity software applications such as Office.   In emerging markets we believe that many first-time and value conscious users may be attracted to netbooks as they offer basic functionality at an attractive price point.  Netbook usage may find its way into other areas besides consumer, such as schools and education.  Though this may act to reduce overall hardware average selling prices, it also presents an excellent opportunity to increase the addressable industry opportunity and raise margins through attached services, software, etc.

 Overall, there are different usage models and applications that will drive people towards different sized devices and technologies.  This is a quickly evolving space that will see the introduction of more powerful and more efficient processors from the likes of Intel, so we will watch this play out.  Regardless of where these technology improvements take us, Dell's direct relationships with its customers, allow us to deliver what customers want and take them where they want to go with the proper features, whether it is mobile broadband, keyboard configuration, screen size, etc.  The growth in this space looks to outpace that of traditional notebooks over the next several years, and Dell will be a part of that growth.

Thanks for joining us on Dell Shares.  Coming off an exciting Consumer Electronics Show, where Dell recently announced a variety of products including the new Studio XPS laptops, XPS 625, and preview of G-Series monitors, there is a significant buzz surrounding the consumer business.  I recently spoke with Ron Garriques, President of Dell Global Consumer, to discuss some of the exciting new products in Dell’s consumer portfolio and to gain some insight with respect to the customer sets that are addressed by each of them.  Ron’s walks us through the different Dell brands, customer usage models, and growing emphasis on industrial design in the company.  In this conversation, I ask Ron about Dell’s expanding number of platforms, retail channel strategy, convergence trends in mobility and thoughts on the evolution of the business and P&L. 

I invite you to watch the v-log.  We will respond to your questions and comments posted on this blog site as well as via email and over the phone. We look forward to hearing from you!