PC Makers Presented by: Doey Au-Yeung Pierrick Chamois Liang Min Huy Le
Dec 11, 2015
PC Makers
Presented by:Doey Au-YeungPierrick ChamoisLiang MinHuy Le
Overview
Industry Analysis
Company Analysis HP Apple Dell
What is a PC
Multipurpose computer system Assembled from standardized components
Components perform identical functions Minimal compatibility issues >90% use Intel based CPUs Hard drives, graphics cards function similarly
Easy to assemble
All PCs consists of a similar set of components
A Modern PC
1. Display2. Motherboard3. CPU
(Microprocessor)4. Primary storage
(RAM)5. Expansion cards6. Power supply7. Optical disc drive8. Secondary
storage (Hard disk)
9. Mouse10. Keyboard
Industry Development
1975: Industry startFirst viable PC: MITS Altair 8800Functional, affordable and widely acceptedNot really first PC, but commonly regarded as
start of industry
Industry Development
1981: IBM PC Late entry
Time constraints Third party hardware and software components
Only ROM BIOS proprietary Reverse engineering
Easy to mimic (clone) Clones would perform functions of the original Lower cost
PC Makers began as clone makers Compaq first 100% compatible clone
Industry Development
Mid 1980s: IBM PC and clones dominant Standardization of platform
One common hardware and software base Software: Microsoft
Early 1990s: IBM and Co held 84% of market by 1990 Non clones forced out of market
Commodore, Atari, Tandy Apple sole survivor
Industry Development
Late 1990s: Dotcom mania: small real effect on PC industry
Mostly networking equipment manufacturers (Cisco, Nortel) Y2k: increased PC spending due to compatibility fears
2000 to present: Steady decline in PC prices Component life cycle critical
Decline in PC prices mainly due to decline in component prices
PC industry homogeneous from day one
Key Success Factors
R&D Branding
Apple: iPod - 46.3% market share Competitive cost structure
Dell – direct sales model Product differentiation
Ancillary services: one stop shopping Software and hardware sales, not simply PC sales Technology solutions
After sales service Extensive product lines
Global expansion Growth outside of North American market
Worldwide PC Market by Region (2005)
Source: Gartner Dataquest (January 2006)
EMEA33.2%
US30.7%
AP19.6%
LA6.7%
Canada3.0%
Japan6.7%
Worldwide PC Market by Region (2004 vs. 2005)Source: Gartner Dataquest (January 2006)
Region
2005 Shipment
s
2005 Market
Share (%)
2004 Shipment
s
2004 Market
Share (%) GrowthEMEA 72,649 33.2 62,014 32.7 17.1
US 67,151 30.7 62,443 32.9 7.5AP 42,777 19.6 33,947 17.9 26.0LA 14,711 6.7 11,671 6.2 26.0
Japan 14,662 6.7 13,635 7.2 7.5Canada 6,583 3.0 5,829 3.1 12.9Totals 218,533 100.0 189,539 100.0 15.3
Worldwide PC Market by Player (2005)
Source: Gartner Dataquest (January 2006)
Dell16.8%
HP14.5%
Lenovo6.9%Acer
4.6%
Others53.3%
Fujitsu/Siemens3.8%
Worldwide PC Market by Player (2004 vs. 2005)Source: Gartner Dataquest (January 2006)
Firm
2005 Shipment
s
2005 Market
Share (%)
2004 Shipment
s
2004 Market
Share (%) GrowthDell 36,764 16.8 31,009 16.4 18.6HP 31,792 14.5 27,623 14.6 15.1
Lenovo 15,054 6.9 12,937 6.8 16.4Acer 10,154 4.6 6,425 3.4 58.0
Fujitsu/Siemens 8,326 3.8 7,144 3.8 16.5Others 116,443 53.3 104,401 55.1 11.5Totals 218,533 100.0 189,539 100.0 15.3
EMEA PC Market by Player (2004 vs. 2005)Source: Gartner Dataquest (January 2006)
Firm
2005 Shipment
s
2005 Market
Share (%)
2004 Shipment
s
2004 Market
Share (%) GrowthHP 11,536 15.9 9,966 16.1 15.8Dell 8,453 11.6 6,584 10.6 28.4Acer 6,523 9.0 4,359 7.0 49.6
Fujitsu/Siemens 5,383 7.4 4,230 6.8 27.3NEC 2,816 3.9 1,904 3.1 47.9
Others 37,937 52.2 34,971 56.4 8.572,648 100.0 62,014 100.0 17.1
IXCO
NASDAQ Computer Index Movement between IXCO, NASDAQ
Composite and AMEX Computer Technology Index (XCI) almost identical
Movement between IXCO, S&P 500, and DJIA similar
IXCO vs XCI, NASDAQ
IXCO vs DJIA, S&P 500
IXCO vs Apple, HP, Dell
Business Models
1. Direct Sales
2. Traditional Retail
3. White Box
Business Models
Direct Sales Sell directly via phone or internet JIT Inventory system Advantage: Lower cost structure
Reduced inventory → lower storage and financing costs Increased product quality → products use non “stale” components Ability to customize → increased customer satisfaction Less middlemen → lower prices thus increasing sales Reduced overhead → no brick and mortar retail outlets to maintain
Disadvantage: customers cannot preview product
Business Models
Traditional Retail Sell via retail distribution chain Big Box stores Main methodology used Advantage: Customers preview product prior to purchase
Increased efficiency: economies of scale realized from mass producing one product
Disadvantage: inventory issues – either shortage or excess More middlemen → lower margins Increased overhead → if it operates own brand stores
Business Models
White box Niche markets Local computer reseller
Localized, more personal service Sells PCs, hardware, software, and services
“nonbranded” – local retailer brand BTO (build-to-order) Other services provided
Networking Installation
Reduced after sales service
Supply Chain
Issues
Change in competitive focus: Speed and capacity not as important Useful features
Lengthening replacement cycle period Increasingly powerful PCs delay practical
obsolescence Second hand machine market (small but
growing) Estimated to reach 110 million units by 2009
Mobile computing
Issues
Consumer appliances Easy to use, performs specific functions
Outsourcing of: Production After sales service Decreased quality
Seasonal nature Stronger in second half of year
Summer: Back to School Winter: Christmas
Issues
Environmental Issues Hazardous substances (HS)
Heavy metals (lead, mercury, cadmium, chromium)
Recent legislation European Union introduced directive to reduce usage Alberta introduced recycling levy on electronic equipment
(Feb 1, 2005) California considering bill to completely eliminate HS
Recent Developments
Apple iPod nano and shuffle
Expansion into flash-based marketsSwitch to Intel CPUs
New HP CEONew strategy: technology solutions
Dell acquires AlienwareHigh-end gaming market
Company Analysis
HP Analysis as of March 2006
Snapshot (as of 03-25-06)
Source: Nasdaq.com
Total Revenue $86,696,000,000Operating Income $3,689,000,000
Earnings Before Interest and Tax $3,759,000,000Net Income $2,398,000,000
Total Assets $77,317,000,000Long Term Debt $3,392,000,000
Total Equity $37,176,000,000
Profit Margin 3%After Tax ROE 6%
Last Sale $ 33.17Shares Outstanding 2,828,423,000
Market Value $ 93,818,790,910P/E Ratio 36.05
Dividend Amount $ 0.32Beta 1.71
Annual EPS Est: $1.95
HP Analysis as of March 2006
Agenda
• Presentation of the Company
• Business Analysis
• Financial Analysis
• Stock Analysis
• Recommendation
HP Analysis as of March 2006
The Company1
• #1 globally in the inkjet, all-in-one and single function printers, mono and color laser printers, large-format printing, scanners, print servers and ink and laser supplies
• #1 globally in x86, Windows®, Linux and UNIX servers
• #1 in total disk and storage systems
• #2 globally in notebook PCs, Pocket PCs, workstations and blade servers
• Awarded Outstanding Customer Service for Consumers
• #1 position in server brand loyalty for ProLiant servers
1Source: HP website
HP Analysis as of March 2006
Background
• 1939: Bill Hewlett and David Packard founded the company– First product: the resistance-capacitance audio oscillator– First Client: Walt Disney Studio
• 1947: HP is incorporated
• 1957: The company goes public ($16 per share)
• 1961: The company is listed on the NYSE
• 1962: HP appears in the Fortune 500
• 1989: HP is listed on Tokyo stock Exchange
• 1997: HP becomes one of the 30 stocks that comprise the DJIA
• 1998: Compaq acquires DEC
• 2001: HP and Compaq announce their merger (effective in May 2002)
HP Analysis as of March 2006
The CEO
• Mark HURD (2005) – is chief executive officer and president of HP and also a member of the company's board of directors.
• Hurd previously spent 25 years at NCR Corp., culminating in his two-year tenure as chief executive officer and president.
• Hurd was named president of NCR in 2001 and was given additional responsibilities as chief operating officer in 2002. Prior to that, he spent three years as head of the company's Teradata data-warehousing division. Earlier, he held a variety of general management, operations, and sales and marketing roles. Hurd began his career at NCR as a field salesman in 1980.
• Hurd is a member of the Technology CEO Council, a coalition of chairmen and chief executive officers of IT companies, which develops and advocates public policy positions on technology and trade issues.
• He earned a bachelor's degree in business administration in 1979 from Baylor University.
HP Analysis as of March 2006
Executive Team: A Mix between insiders and outsiders
• Ann O. BASKINS (1982) - Senior Vice President, General Counsel and Secretary (1999)
• Gilles BOUCHARD (1989) - Executive Vice President, Global Operations (2001)
• Todd Bradley - Executive Vice President, Personal Systems Group
• Vyomesh (VJ) Joshi (1980) - Executive Vice President, Imaging and Printing Group (1999)
• Ann Livermore (1982) - Executive Vice President, Technology Solutions Group (1995)
• Cathy Lyons - Executive Vice President and Chief Marketing Officer
• Randall (Randy) D. Mott - Executive Vice President and Chief Information Officer
• Marcela Perez de Alonso (2004) - Executive Vice President, Human Resources (2004)
• Shane Robison (Ex-Compaq) - Executive Vice President and Chief Strategy and Technology Officer
• Robert P. Wayman (1969) - Executive Vice President and Chief Financial Officer (1984)
HP Analysis as of March 2006
Business analysis
• Outlook– 7 different business segments
– High level of competition
– Cost reduction issue
– Sales Channels issue
HP Analysis as of March 2006
Business Segments
• Enterprise Storage and Servers (ESS)
• HP Services (HPS)
• Software
• The Personal System Group (PSG)
• The Imaging and Printing Group (IPG)
• HP Financial Services (HPFS)
• Corporate Investment
Technology
Solution
Group
(TSG)
HP Analysis as of March 2006
Segments Description: TSG
• Mission: to coordinate the Enterprise offerings across organizations to allow customers to manage and transform their business and IT environments
• Consists of:– ESS
– HPS: provides a portfolio of multi-vendor IT services, including technology services, consulting and integration and managed services.
– Software: provide management software solutions
HP Analysis as of March 2006
Segments Description: PSG
• Mission: to provide commercial PCs, consumer PCs, workstations, handheld computing devices, digital entertainment systems, calculators and other related accessories, software and services for the commercial and consumer markets
• Compaq was acquired to strengthen this segment and compete against Dell
Source: Wall Street Journal
HP Analysis as of March 2006
Segments Description: IPG
• Mission: to provide imaging and printing systems for printer hardware, printing supplies and scanning devices, providing solutions across customer segments for individual consumers to small and medium businesses to large enterprises
HP Analysis as of March 2006
Segments Description: HPFS
• Mission: to support and enhance HP’s global product and service solutions, providing a broad range of value-added financial life cycle management services
HP Analysis as of March 2006
Segments Description: Corporate Investments
• This segment is managed by the Office of Strategy and Technology and includes HP labs and certain business incubation projects.
• Revenue is attributable to the sale of certain network infrastructure products and to the licensing of HP Technologies to third parties
HP Analysis as of March 2006
Business Segments: figures
2005 2004PSG 26,741 24,622 HPS 15,536 13,848 ESS 16,701 15,074 IPG 25,155 24,199
HPFS 2,102 1,895 Software 1,077 933
Corp Invt & other 523 449 87,835 81,020
delta 1,139 1,115
2005 2004PSG 30.44% 30.39%HPS 17.69% 17.09%ESS 19.01% 18.61%IPG 28.64% 29.87%
HPFS 2.39% 2.34%Software 1.23% 1.15%
Corp Invt & other 0.60% 0.55%100% 100%
Revenue Breakdown
Revenue Breakdown (%)
2005 2004PSG 2.7 4.7 HPS 2.1 1.9 ESS 2.0 0.8 IPG 1.2 2.2
HPFS 0.3 - Software 0.2 0.2
Corp Invt & other - (0.4) 8.5 9.4
2005 2004PSG (0.8) - HPS (0.5) (0.6) ESS - - IPG 0.1 (0.8)
HPFS 0.1 0.1 Software 0.1 -
Corp Invt & other 0.5 (0.4) (0.5) (1.7)
Growth in Net Revenue
Gross Margin
HP Analysis as of March 2006
Business Segments Trends
0
5000
10000
15000
20000
25000
30000
2003 2004 2005
PSG HPS ESS IPG HPFS Software Corp Invt & other
0
5
10
15
20
25
30
35
2003 2004 2005
PSG HPS ESS IPG HPFS Software Corp Invt & other
Evolution of Revenue per Segment Over a Three Year Period in m$
Relative Evolution of Revenues per Segment in %
HP Analysis as of March 2006
Segment Revenue Trends
HP Analysis as of March 2006
Segment Revenue Trends (Cont’d)
HP Analysis as of March 2006
Segment Operating Profit Trends
HP Analysis as of March 2006
Competitors
• ESS: IBM, EMC, DELL
• HPS: IBM (Global Services), Accenture
• Software: BMC, Computer Associate Int. Inc., IBM Trivoli
• PSG: Dell, Toshiba, Apple, Lenovo, Gateway, Fujitsu
• IPG: Lexmark Int., Xerox, Epson, Canon USA, Dell
• HPFS: IBM (Global financing), financial institutions
=> HP is leader or among the leaders in each segment, the harsh competition is therefore a key issue for the firm
HP Analysis as of March 2006
Compaq Acquisition: HP’s answer to the Dell Threat
• Dell has literally eaten the market shares of HP, Compaq and IBM– IBM sold its computer business
to Lenovo
– HP acquired Compaq
HP Analysis as of March 2006
Compaq Acquisition
• Description: HP buys Compaq with a $24,17b deal that was effective in May 2002 (in an exchange of 0.6325 shares of HP common stock for each outstanding share of Compaq common stock)
• Objective: C. Fiorina, CEO who led the acquisition, wanted to reinforce the distribution channels of HP, counter the Dell upsurge that forced IBM to quit the market and give HP some scale effects to cut the costs in PSG and HPS
• Consequences– HP is selling worldwide and enjoy an impressive sales force– In three years HP financials are strong despite the importance of the merger– But the marriage is painful and the integration leads to several restructuring
plans, layoffs and to a complex organization not efficient enough for the market standards (expected scope effects – between IPG and PSG – and scale effects – cost synergies in PSG and HPS – didn’t occur)
HP Analysis as of March 2006
Current Challenges
• Complex IT organization with a matrix-based infrastructure– Opacity in the accountancy
– Slow decision-making
• Cost competition– Retirement program
– Workforce reduction
– Dissolution of CSG
=> HP needs to be more competitive
HP Analysis as of March 2006
New Trends
• Next generation data center architecture: emergence of a 24*7 automated, lights-out data center. An environment that will need to be highly secure, highly automated and remotely accessed and managed
• Always on mobile computing: convergence of voice and data services, people will be more mobile and the bandwidth will increase. Driving this revolution requires advanced devices, but also infrastructure, services and solid go-to-market partnerships
• Ubiquitous printing and imaging: color-use is increasing, multifunction printer and copier markets are converging… HP is investing worldwide in this sector
• Go-to-market model: HP tries to improve its ability to cross sell, up sell and drive solution sales
HP Analysis as of March 2006
Risk Factors That Can Affect The Financials
• Harsh competition– Competitive pricing of products needs low costs
– Threat of substitutes is high
• Sensitivity of the sales to customer requirements: HP is short-sighted and must develop, manufacture and market products on uncertain markets
– Need to know the new technological trends
– Quality issue with new products
• Managing the technology transitions is cumbersome– Short product life cycles
– Difficulty to have the good timing of product and services
HP Analysis as of March 2006
Risk Factors That Can Affect The Financials (Cont’d)
• IP issue– R&D is the core business of HP
– The firm is global and weather difficulties to protect its Intellectual Rights in some regions
• Product distribution management– Potential conflict btw direct and indirect sales channels
• Sales cycle makes the planning and inventory management difficult– High depreciation rate of inventories
HP Analysis as of March 2006
HP Strategy
• Restructuring Plans– 15,300 employees left or are expected to leave within 2007
– As of October 31, 2005, the total cost was $5.74bn
• R&D– $3.5bn
– HP patent portfolio includes over 30,000 patents
• Global Firm– Over than 60% of the net revenue in fiscal 2005 came from outside the
US
HP Analysis as of March 2006
HP Financials Analysis
• Statements of Operations
• Balance Sheet
• Statements of Cash Flows
• Standard Ratios
HP Analysis as of March 2006
In USD million 2005 2004 2003 2002 2001
Products 68,945 64,127 58,826 45,878 38,059 Services 17,380 15,389 13,768 10,390 6,765
Financing Income 371 389 467 320 402 Net Revenue 86,696 79,905 73,061 56,588 45,226
Cost of Products 52,550 48,359 43,619 34,127 28,824 Cost of Services 13,674 11,791 10,031 7,477 4,688
Financing Interest 216 190 208 189 236 Research Development 3,490 3,506 3,651 3,368 2,753
Selling, General and Administrative 11,184 11,024 11,012 8,763 6,668 Pension Curtailment (199) - - - -
EBITDA 5,781 5,035 4,540 2,664 2,057 Amortization of Purchased Intangible Assets 622 603 563 402 174
EBIT 5,159 4,432 3,977 2,262 1,883 Restructuring Charges 1,684 114 800 1,780 384
Acquisition-related Charges - 54 280 701 25 In-process Research and Development Charges 2 37 1 793 35
Cost and Expenses 83,223 75,678 70,165 57,600 43,787
Earnings (loss) from Operations 3,473 4,227 2,896 (1,012) 1,439
Interest and Other, net 189 35 21 52 171 Net Losses on Divestitures - - - - (53)
Gains (losses) on Investments On Early Extinguishment Of Debt
(13) 4 (29) (75) (366)
Dispute Settlement (106) (70) - 14 (400)Earnings (loss) Before Taxes 3,543 4,196 2,888 (1,021) 791
Provision for (benefit from) taxes 1,145 699 349 (118) 111 Cumulative Effect Of Change On Accounting
Principle, net of taxes - - - - (272)
Net Earnings (loss) 2,398 3,497 2,539 (903) 408
Net Earnings (loss) per ShareBasic 0.83 1.16 0.83 -0.36 0.35
Diluted 0.82 1.15 0.83 -0.36 -0.14Weighted Average Shares Used to Compute
Net Earnings (loss) per ShareBasic 2879 3024 3047 2499 1936
Diluted 2909 3055 3063 2499 1974
HP Analysis as of March 2006
in USD million 2005 2004 2003 2002 2001
Cash and Cash Equivalent 13,911 12,663 14,188 11,192 4,197 Short-Term Investments 18 311 403 237 139
Accounts Receivables 9,903 10,226 8,921 8,456 4,488 Financing Receivables 2,551 2,945 3,026 3,453 2,183
Inventory 6,877 7,071 6,065 5,797 5,204 Other Current Assets 10,074 9,685 8,351 6,940 5,094
Current Assets 43,334 42,901 40,954 36,075 21,305
Property, Plant ans Equipment 6,451 6,649 6,482 6,924 4,397 Long-Term Financing Receivables And Other Assets 7,502 6,657 8,030 7,758 6,126
Goodwill 16,441 15,828 14,894 15,089 667 Purchased Intangible Assets 3,589 4,103 4,356 4,864 89
Total Assets 77,317 76,138 74,716 70,710 32,584 Acquisition-related Charges
Note Payable and Short-Term Borrowings 1,831 2,511 1,080 1,793 1,722 Accounts Payable 10,223 9,377 9,285 7,012 3,791
Employee Compensation And Benefits 2,343 2,208 1,755 2,012 1,477 Taxes On Earnings 2,367 1,709 1,599 1,529 1,818
Deferred Revenue 3,815 2,958 2,496 3,260 1,867 Accrued Restructuring 1,119 193 709 1,309 82
Other Accrued Liabilities 9,762 9,632 8,545 7,395 3,207 Current Liabilities 31,460 28,588 25,469 24,310 13,964
Long-Term Debt 3,392 4,623 6,494 6,035 3,729 Other Liabilities 5,289 5,363 5,007 4,103 938
Preferred Stock, $0.01 par value (300 shares authorized; none issued)
0 0 0 0 0
Common Stock, $0.01 par value (9600 shares authorized; and 3043 shares issued and
outstanding, respectively)
28 29 30 30 19
Additional Paid-In Capital 20490 22129 24587 24660 200Retained Earnings 16679 15649 13332 11973 13693
Accumulated Other Comprehensive Loss -21 -243 -203 -401 41Stockholders' Equity 37176 37564 37746 36262 13953
Total Liabilities and Stockholders' Equity 77317 76,138 74716 70710 32584
HP Analysis as of March 2006
Major Captions
• Cash & Cash Equivalent– HP is a “Cash Cow” (cf. CF statements)
– Jobs Act October, 2004: $7.5b repatriated in the US
– Strong Cash Position to cover the significant cash outlays expected in fiscal 2006 associated with the restructuring actions and company bonus payments
• Goodwill– No impairment of Goodwill existed as of August 1, 2005 or August 2, 2004
– The substantial amount of Goodwill is due to Compaq Acquisition as of May 2, 2002
• Debt– Excluding the debt associated with the leasing business there is virtually no
operational debt. Conservative structure due to the risky core business of HP (R&D)
HP Analysis as of March 2006
In USD million 2005 2004 2003Cash Flows from Operatin Activities
Net Earnings 2,398 3,497 2,539
Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities
Depreciation and Amortization 2,344 2,395 2,527 (Benefit) Provision for Doubtful Accounts - Accounts and
Financing Receivables(22) 98 102
Provision for Inventories 398 367 391 Restructuring Charges 1,684 114 800
Pension Curtailment Gain (199) - - Acquisition-related Charges, Including In-process Research and
Development2 91 281
Deferred Taxes on Earnings (162) 26 (279) Other, Net 1 89 141
Change in Assets and LibailitiesAccounts and Financing Receivables 666 (696) 88
Inventory (208) (1,341) (638) Accounts Payable 846 3 2,257 Taxes on Earnings 748 (32) 53
Restructuring (247) (601) (1,240) Other Assets and Liabilities (221) 1,078 (965)
Net Cash Provided by Operating Activities 8,028 5,088 6,057
Cash Flows from investing ActivitiesInvestment in Property, Plant and Equipment (1,995) (2,126) (1,995)
Proceeds from Sale of Property, Plant and Equipment 542 447 353 Purchases of Available-for-Sale Securities and Other Investments (1,729) (3,964) (596)
Maturities and Sales of Available-for-Sale Securities and Other Investments
2,066 4,313 875
Payment made in Connection with Business Acquisitions, Net (641) (1,124) (149) Net Cash Used in Activities (1,757) (2,454) (1,512)
Cash Flows from Financing ActivitiesRepayment of Commercial Paper and Notes Payable, Net (1) (172) (223)
Issuance of Debt 84 9 749 Payment of Debt (1,827) (285) (829)
Issuance of Common Stock Under Employee Stock Plans 1,161 570 482 Repurchase of Common Stock (3,514) (3,309) (751)
Dividends (926) (972) (977) Net Cash Used In Financing Activities (5,023) (4,159) (1,549)
Increase (Decrease) in Cash and Cash Equivalents 1,248 (1,525) 2,996 Cash and Cash Equivalents at the Beginning of Period 12,663 14,188 11,192
Cash and Cash Equivalents at the End of Period 13,911 12,663 14,188
HP Analysis as of March 2006
STANDARD FINANCIAL RATIOS 2005 2004 2003 2002 2001
Profitability RatiosNet operating Margin (EBITDA) EBITDA / Sales 6.67% 6.30% 6.21% 4.71% 4.55%profit margin net income / sales 2.77% 4.38% 3.48% -1.60% 0.90%return on assets net income / assets 3.10% 4.59% 3.40% -1.28% 1.25%return on equity net income / equity 6.45% 9.31% 6.73% -2.49% 2.92%
Asset Utilization Ratiosasset turnover sales / assets 1.12 1.05 0.98 0.80 1.39inventory turnover cost of goods sold / inventory 9.66 8.53 8.88 7.21 6.49accounts receivable turnover sales / accs. rec. 8.75 7.81 8.19 6.69 10.08accounts payable turnover costs of goods sold / accs. pay. 6.50 6.43 5.80 5.96 8.90
inventory conversion period 365 / inventory turn. 37.78 42.77 41.10 50.63 56.28accs. rec. collection period 365 / accs. rec. turn. 41.69 46.71 44.57 54.54 36.22accs. payable collection period 365 / accs. pay. turn. 56.16 56.72 62.93 61.24 41.00
cash-conversion cycle 23.31 32.76 22.75 43.93 51.50
MEASURES OF LIQUIDITYcurrent ratio current assets / current liabilities 1.38 1.50 1.61 1.48 1.53acid-test curr. assets less inventory / curr. liab. 1.16 1.25 1.37 1.25 1.15times interest earned EBIT / interest 27.30 126.63 189.38 43.50 11.01
FINANCIAL LEVERAGEdebt-to-equity Debt / Equity 0.14 0.19 0.20 0.22 0.39Debt net - to equity -0.23 -0.15 -0.18 -0.09 0.09debt-to-assets Debt / Assets 0.07 0.09 0.10 0.11 0.17assets-to-equity Assets / Equity 2.08 2.03 1.98 1.95 2.34
THE LEVERS OF PERFORMANCEROE is the product of the following 6.45% 9.31% 6.73% -2.49% 2.92%profit-margin 0.03 0.04 0.03 -0.02 0.01asset-turnover 1.12 1.05 0.98 0.80 1.39assets-to-equity 2.08 2.03 1.98 1.95 2.34ROE 6.45% 9.31% 6.73% -2.49% 2.92%
HP Analysis as of March 2006
HP Stock Analysis
• Dividend Policy– Dividends are paid quarterly and were
$0.32 per common share in each of fiscal 2005, 2004 and 2003
Forward Annual Dividend Rate5: 0.32Forward Annual Dividend Yield5: 1.00%Trailing Annual Dividend Rate3: 0.32Trailing Annual Dividend Yield3: 0.10%5 Year Average Dividend Yield5: 1.60%
Payout Ratio5: 35%Dividend Date3: 5-Apr-06
Ex-Dividend Date5: 13-Mar-06Last Split Factor (new per old)2: 2:01
Last Split Date3: 30-Oct-00
Dividends & Splits
Beta: 1.6252-Week Change3: 67.61%
S&P500 52-Week Change3: 10.96%52-Week High (16-Feb-06)3: 34.5252-Week Low (28-Mar-05)3: 19.650-Day Moving Average3: 32.74
200-Day Moving Average3: 29.96
Stock Price History
Average Volume (3 month)3: 12,703,300Average Volume (10 day)3: 11,225,300
Shares Outstanding: 2.83BFloat: 2.82B
% Held by Insiders 4: 3.57%% Held by Institutions 4: 70.00%
Shares Short (as of 10-Mar-06)3: 42.76MShort Ratio (as of 10-Mar-06)3: 2.9
Short % of Float (as of 10-Mar-06)3: 1.50%Shares Short (prior month)3: 47.58M
Share Statistics
Source: Yahoo!Finance
HP Analysis as of March 2006
Stock Trends Over Time
1 year period5 year period40 year period
HP Analysis as of March 2006
HP Vs Dell & IBM
HP Analysis as of March 2006
Multiple Analysis
HP IBM Dell
Trailing P/E (ttm, intraday) 35.86 17.1 20.6
Forward P/E (fye 31-Oct-07) 14.94 13.19 15.74
PEG Ratio (5 yr expected) 1.36 1.36 1.06
Price/Sales (ttm) 1.06 1.43 1.25
Price/Book (mrq) 2.6 3.96 17.12
Enterprise Value/Revenue (ttm) 0.99 1.53 1.09
Enterprise Value/EBITDA (ttm) 11.371 8.08 12.55
HP and Dell carry an insignificant amount of debt and therefore we can consider their ratios to be unleveraged (and therefore comparable)
HP Analysis as of March 2006
Upgrades and Downgrades History
Date Research Firm Action From To
16-Feb-06 Credit Suisse Upgrade Neutral Outperform
13-Jan-06 Goldman Sachs Upgrade In-Line Outperform
11-Jan-06 Prudential Upgrade Neutral Overweight
18-Nov-05 Caris & Company Upgrade Above Average Buy
14-Nov-05 Bernstein Downgrade Outperform Mkt Perform
1-Nov-05 Am Tech/JSA Research Downgrade Buy Hold
22-Sep-05 Robert W. Baird Initiated Neutral
7-Sep-05 UBS Upgrade Neutral Buy
17-Aug-05 First Albany Upgrade Neutral Buy
17-Aug-05 Bear Stearns Upgrade Peer Perform Outperform
17-Aug-05 Banc of America Sec Upgrade Neutral Buy
17-Aug-05 Prudential Upgrade Underweight Neutral
13-Jul-05 Am Tech/JSA Research Initiated Buy
22-Jun-05 Moors & Cabot Initiated Buy
22-Jun-05 First Albany Downgrade Buy Neutral
10-Jun-05 FTN Midwest Upgrade Neutral Buy
15-Apr-05 Raymond James Initiated Outperform
5-Apr-05 Caris & Company Upgrade Average Above Average
HP Analysis as of March 2006
Recommendation: Weak BUY
• Why– The Company is recovering from the Compaq Acquisition– New Management Team, Restructuring Plans, Costs Cutting Strategy
that simplifies the business…– Conservative Financial structure that provides good dividends: cash
reserves, no debt.
• BUT– 2005 has not come up to the market expectations– The core Businesses (IPG and PSG) are growing because of the
weakness of the dollar. HP is still struggling to keeps its leadership– The ROE is still low and volatile– The Company still fights to change its image of “old HP”
Apple Computer, Inc.
History • January 3,1977 incorporated by
Steven Wozniak and Steven Jobs.• 1984, introduction of Macintosh
computer series• 1985, Steven Job left Apple• 1990, contracted with Microsoft
on licensing MS Windows I OP system.
• 1994-1996, Apple fell into financial stress
• 1997 Steven Job back the company, the company started to recover
• Apple’s original logo
Current Business• PC: The Apple is the only company in
computer industry that is capable of designing and developing entire PC system including microprocessor and operation system.
• Diversification: The Apple is world leading manufacturer and marketer of digital music players
• Digital Hub: The Apple believes that computer system is the integration of all advanced digital devices including MP3 players, PDAs, cellular phones, digital camcorders, digital cameras, CD/DVD players, and other electronic consumer devices
Current Business• Key Customer Groups:
– Education– Creative Professionals – Students– Government Agencies
• Distribution– Apple Sales Consultant program– Online Sales– Retail Store
• Reporting Segments– American ( North and South
American)– Europe( Europe, Africa and
Middle East)– Japan– Other ( Asia-Pacific except
Japan)• Manufacturing
– Company owned manufacturing facility in Cork, Ireland.
– External vendors in Fremont, California, Fullerton, California, Taiwan, Korea, China, and the Czech Republic
– Assembling line in China
“I'm looking for a fixer-upper with a solid foundation. Am willing to tear down walls, build bridges, and light fires. I have great experience, lots of energy, a bit of that "vision thing" and I'm not afraid to start from the beginning. ”
----Steven P. Jobs
Executive Team
• Steven P. Jobs• Co-founder of Apple Computer, Inc.• Occupation: Chief Executive Officer (1997);
Chairman, Board of Directors ( 1976-1986)• Others Activities:
– Co-founder of NeXT Software, Inc.– Chairman and CEO of NeXT (1985-1997)– Chairman and CEO of Pixar Animation Studios
(1986-2006)– Board Member of Walt Disney Company
(2006)• Key Skill: Vision
Executive Team• Peter Oppenheimer: Chief Financial Officer, Executive Vice
President( since 2004)
• Timothy D Cook: Executive Vice President, Worldwide Sales and Operations (since 1998)
• Nancy R. Heinen: Senior Vice President, General Counsel and secretary (since 1997)
• Ronald B. Johnson: Senior Vice President , Retailing
• Jonathan Rubinstein: Senior Vice President, iPod Dividsion (since 1997)
• Philip W. Schiller: Senior Vice President, Worldwide Product Marketing( since 1997)
• Bertrand Serlet: Senior Vice President, Software Engineering( since 2003
• Sina Tamaddo: Senior Vice President, Applications( since 1997)
• Dr. Avadis Tevanian: Chief Software Technology Officer (since 1997)
Executive compensation
Product Lines
Desktops iMac, eMac, Mac mini, Power Mac and Xserver
Portables iBook and Pwerbook
iPod iPod, iPod mini, iPod shuffle and iPod nano
Peripherals and other hardware
Apple-Branded and third party displays , wirless connectivity and networking solutions and other hardware accessories
Software, service and other sales
Branded operating syste, application software, third-party software,AppleCare and internet services
Sales by Products
Unit Sales
Sales by Products
•Net sales per unit = Total net sales of a product/ Total unit-sales of a product•Measures average price•iPod: increase sales by large discount
Sales by products
Net Sal es of Products
0
1000
2000
3000
4000
5000
2005 2004 2003
Year
Net
Sale
s (
in
mill
ions
)
Desktops
Portabl es
i Pod
Other musi crel ated productsand servi esPer i pheral andother hardware
Sof tware,servi ces andothers
Sales by Products
• Total net sales increased by 68% in fiscal year 2005• Sales of iPod increased of 248% compare to that of 2004
– Demand was driven by the introduction of iPod Nano
– Demand of iPod subjects to internal conflict among different iPod products
– iPod price decreased by 32% in 2005
• Net Sales of Macintosh system increased by 27% – Sales were stimulated by the introduction of Power G5 microprocessor
and Mac mini series of desktop
– Professional notebook( PowerBook series ) still have strong demand on the market
– Low sales on low price Mac
• Expansion of Retail segment contributes to overall sales increase.
Geographic segment
Segment Sales
• American segment sales raised about 64% in fiscal year 2005– American segment represent approximately 47%-49% of total sales of
the company.
– 11% of sales growth can attribute to growth of professional notebook
– 30% of growth can attribute to the introduction of new Mac systems (G5 based Mac) and iPod
• Japan’s net sales went up by 36%– iPod, G5 and Mac mini contribute to the sales increase in Japan.
• 38 new retail store were opened in 2005 and total number of retail store were 124 at September 2005
Financial Statement
• Consolidated Balance Sheet
• Consolidated Statement of Operation
• Consolidated Statement of Cash Flows
Financial summaryMar. 24, 2006 MarketLast Sale$ 59.96• Change Net / % 0.20 0.33%• Today’s High/Low Price :$ 60.94 /
$ 59.03• Share Volume:38,293,616• 50 Day Ave. Daily Volume:
35,990,619• Previous Close: $ 60.1652 • Wk High / low: $ 86.40 / $ 33.11• Shares Outstanding: 848,612,000• Market Value: $ 50,882,775,520• P/E Ratio :32.24• Forward P/E (1yr) :22.92• Earning per Share :$ 1.86
• Beta: 1.3• NSDAQ Official Open Price : $ 60.27• Date of NASDAQ Official Open
Price: Mar. 24, 2006• NASDAQ Official Close Price:
$ 59.96• Date of NASDAQ Official Close
Price: Mar. 24, 2006. 24, 2006
September,2005 (in million dollars)• Total Net Sales: $12,931• Total Net Income: $1,335• Total Asset: $11,551• Total Liability: $4,085Source : www.nasdaq.com
Stock Information
Stock Information
Stock Exchange NASDAQ and Frankfurt Stock Exchange (Germany)
Symbol Ticket APPL (NASDAQ) and APCD (Germany)
Time of IPO December 12, 1980 (NASDAQ)
Stock Split History •May 15, 1987(2-for-1)•June 21, 2000 (2-for-1)•February 18, 2005(2-for-1)
Dividend History No dividend for last five years
Stock Repurchase Authorized repurchase up to $283 millions of common stock as of February 18,2005
Strength • Strong Functional skill
– Untraditional Product Lines: iPod, PowerBook
– Increasing R&D investment
– Superior Financing Positions: high cash reserve
– Marketing: high brand recognition
• Human recourse
– Steven Job and his NeXT team
Challenging • Supplier power
– Single or limited source of supply for key component – Intel became one of the microprocessor supplier
• Uncertain Demand– US educational market – Overall demand for IT products is decreasing– Self Cannibalization of iPod products
• Lawsuit– The company currently involves in 26 lawsuits in North American and Europe – Claims includes patent infringement, false advertising and unfair business
practices– The financial effect is still unknown
Recommendation
Sell
Dell Inc. Stock
http://quotes.nasdaq.com/asp/SummaryQuote.asp?symbol=DELL&selected=DELL
DETAILS
Dell, a Delaware corporation, was founded in 1984 by Michael Dell
Dividends Dell has never declared or paid any cash dividends on shares of its common stock and currently does not anticipate paying any cash dividends in the immediate future.
1 Year Performance
Latest price (Mar 24, 2006 16:00 EST) $ 30.06, Volume 13,011,536
Performance Since 1996
History
1984: Michael Dell founds Dell Computer Corporation 1987: International expansion begins with opening of subsidiary in United Kingdom 1988: Dell conducts initial public offering of company stock (3.5 million shares at
$8.5 each)1993: Enters into Asia-Pacific region with subsidiaries in Australia and Japan 1996: Company begins major push into the server market2000: Company sales via Internet reach $50 million per day 2001: For the first time, Dell ranks No. 1 in global market share2004: Kevin Rollins becomes Dell's next chief executive officer. Michael Dell moves
to Chairman of the Board2005:Dell tops list of "America's Most Admired Companies" in Fortune Magazine.
Opens third major U.S. manufacturing location in Winston- Salem, North Carolina
Management
Kevin B. RollinsPresident and CEOAge: 53# of Shares owned: 17,547
Michael S. DellChairman of the BoardAge:41# of shares owned: 207,983,382
Management
Stock Ownership
Summary Compensation Table
Stock Options
Share Repurchase Program
• Dell’s share repurchase program was announced on February 20, 1996; up to 1.5 billion shares of common stock at an aggregate cost not to exceed $30 billion are currently authorized to be purchased.
• As of February 3, 2006, 123 million shares of common stock at an aggregate cost of $4.4 billion were available for future purchases under the share repurchase program.
Business Strategy
Customers can purchase custom-built products and custom-tailored services.
• Allows customers to customize products.• Strong sales representatives to deal with large businesses and government
institutions.
Dell is a low-cost leader.
Direct-Sales Model:• Sells products both to consumers and corporate customers via the Internet and
the telephone network.
• Takes orders directly from customers.• Eliminates wholesale and retail dealers that add unnecessary time and cost.• Dell maintains a negative cash conversion cycle through use of this model.
Business Strategy• Cash conversion cycle: The cash conversion cycle is the number of days
between paying for raw materials and receiving the cash from the sale of the goods made from that raw material.
• Dell has a negative cash conversion cycle because it receives payment from customers before it has to pay suppliers.
http://en.wikipedia.org/wiki/Cash_conversion_cycle
Cash conversion cycle
• Direct business model allows Dell to minimizing inventory risk while collecting amounts due from customers before paying vendors. This enables the company to generate annual cash flows from operating activities that typically exceed net income.
Value Proposition
Customized
Reliable
Low Price
Build-to-Order
How: Choices / Activity System / Value Chain
No channel marketing /
logistics costs
No channel markup
Minimal Pre-sales costs
Minimal Inventory
Transact directly with customers /
Bypass Channel (i.e. Wholesalers
and retailers) Dell.com
Target Segments
Corporate Customers
Dell Position Diagram
Large Outside Sales
Force
Close integration w/ suppliersDesign for
Quick Configuration
Telephone
Courtesy of Andrew von Nordenflycht
Technology
DesignDevelopment
Manufacturing
ProcurementAssembly
Distribution
TransportInventory
Marketing
RetailingAdvertising
Service
PartsLabor
• Design for ease of manufacture
•Close integration w/ suppliers
•JIT
•Co-location
•Build-to-Order
•Ship directly to customers from factory – or even from suppliers
• via 3rd party shipper
•Direct interaction with customers / No intermediary
Online / 800 for corporate & SOHO
-Sales force for corporate
•Low-cost Support
•online/800
•Outsource on-site support
Value chain for Dell
Dell Americas• Headquarters: Round Rock, Texas• Manufacturing facilities: Austin, Texas, Nashville, Tennessee, Winston-Salem,
North Carolina, Eldorado do Sul, Brazil
• Revenue (last four quarters): $36.4 billion • Q4 Y/Y revenue growth: 10 percent • Market position: No. 1 in United States*• Number of employees: 31,100• Regional offices in: • Argentina• Brazil• Canada• Chile• Colombia• El Salvador• Mexico• Panama• Puerto Rico
• Headquarters: Singapore• Manufacturing facilities: Penang, Malaysia; Xiamen, China• Revenue (last four quarters): $6.6 billion• Q4 Y/Y revenue growth: 21 percent• Market position: No. 3 A/P*; No. 3 Japan* • Number of employees: A/P 19,400; Japan 1,100• Regional offices in: Australia, China, Hong Kong India, Indonesia, Japan Korea, Malaysia, Philippines Singapore, Taiwan, Thailand
Dell Asia Pacific - Japan
Dell Europe, Middle East and Africa
• Headquarters: Bracknell, U.K.• Manufacturing facilities: Limerick, Ireland• Revenue (last four quarters): $12.9 billion• Q4 Y/Y revenue growth: 18 percent• Market position: No. 2 in Europe*• Number of employees: 13,600• Regional offices in: • Austria, Bahrain, Belgium, Czech Republic• Denmark, Finland, France, Germany• Greece, Hungary, Ireland, Israel, Italy• Morocco, Netherlands, Norway, Poland• Romania, Russia, Portugal, Scotland• Slovakia, South Africa, Spain, Sweden• Switzerland, Turkey, United Arab Emirates
Revenues by Segment
Americas: Revenue declined from 69% in 04 to 67% and 65% in 05 & 06 respectively.EMEA: Increased of 1% every year since 2004. Asia-Pacific-Japan: Increased of 1% every year since 2004.
product groups
Product Line Revenue (in billions) Feb 3, 2006
38%
25%
15%
10%
9% 3%Desktop PCs
Mobility
Softw are & Peripherals
Servers & Netw orking
Enhanced Services
Storage
Financial Services:
• Dell Financial Services L.P. (“DFS”), a joint venture between Dell and CIT Group, Inc. (“CIT”).
Risks
• Loss of government contracts and big businesses
• Reliance on suppliers
• International competitions (i.e. Acer, and Japanese PC makers)
Financial Statements
• Balance Sheet
• Income Statement
• Cash Flow Statement
Balance Sheet
Income Statement
Cash Flow Statement
SELECTED FINANCIAL DATA
• Selected Financial Data
• Liquidity, Capital Commitments, and Contractual Cash Obligations
• Contractual Cash Obligations
• Investments
SELECTED FINANCIAL DATA
Liquidity, Capital Commitments, and Contractual Cash Obligations
Contractual Cash Obligations
Investments
Five-Year Performance Graph
(in millions, except per-share data)
FY06 FY05 FY04 FY03 FY02
Net revenue $55,908 $49,205 $41,444 $35,404 $31,168
Operating income $4,789 $4,254 $3,544 $2,844 $2,271
Net income $3,825 $3,323 $2,645 $2,122 $1,780
Earnings per share $1.56 $1.29 $1.01 $0.80 $0.65
Closing stock price $29.26 $41.06 $33.44 $23.86 $26.80
Full-year FY
Annual Financial Highlights
Key Statistics
http://finance.yahoo.com/q/ks?s=DELL
RecommendationCould buy now but better to wait until autumn then:
Buy
• New Microsoft OS, Vista, soon to be released in early 2007.
• Potential deal with AMD.
• Potential deal with Google.