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Value Chain Assignment Continued October 1, 2008 2008 MBA/ENG 290G International Competition in Technology.

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Presentation on theme: "Value Chain Assignment Continued October 1, 2008 2008 MBA/ENG 290G International Competition in Technology."— Presentation transcript:

1 Value Chain Assignment Continued October 1, MBA/ENG 290G International Competition in Technology

2 Team 1

3

4 PC Market Source: Gartner and Team 1 estimates 1Q 2008 Global PC Market Share

5 Other Semiconductor Markets Sources: Deutsche Bank and Lyra Research Mobile PhonesDigital Cameras

6 Market Analysis Slowing global PC shipment growth Developed markets nearly fully reliant on replacement sales Room for growth remains in developing economies Mobile phone shipments totaled >1B in 2007 Slowing growth (5-10% per year) through 2010 Emphasis on cost reduction for emerging economies Consumer electronics revenue to grow 6.1% in 2008 Medical devices market shows strong growth Top 25 companies reported 9.7% revenue growth in 2007 (sales of $173.5 billion) E.g. Sales of electronic handheld blood pressure devices to reach $793 million by 2010

7 Foundry Industry Background (1) Semiconductors are critical components in many electronics Highly competitive Pure-play: TSMC, UMC, SMIC, Chartered Integrated: TI, IBM Cyclical nature of industry Y2Y Growth: 2003: 18%, 2004: 28%, 2005: 7%, 2006: 9%, 2007: 3% Economic conditions Seasonal demands Customer shifts between internal and outsourcing

8 Foundry Industry Background (2) Substantial fixed-capital expenditures Cost of new fab about $3-$5 billion Dependent on financing ability to implement growth plan History of loss, Question in profitability, and high level of debt makes financing not easy Need to maintain high fab utilization, overcapacity during downturn hurts net income Dependent on technology partner to advance technology TI: Analog and Mixed signal technology development remain in-house, Exit process development, and rely on Foundry partners instead UMC: In-house R&D augmented by patent cross-licensing agreements with other companies Dependent on small amount of customers

9 Major Customers TSMC Fabless: Altera, Broadcom, Marvell, Microsoft, nVIDIA, Qualcomm, etc ~67% Integr. Dev. Manuf.: Adv. Micro Devices, Analog Devices, Freescale, etc. ~33% UMC Infineon, LSI Logic, STMicroelectronics, TI, AMD etc Top 10 accounts for 60%, top 2 accounts for ~13.5% each SMIC: TI, IBM, Broadcom, Infineon, Samsung, Toshiba 5 largest customers account for ~60% of revenue Chartered Broadcom and AMD each contributes more than 10% Top 10 accounts for 72%, top 5 accounts for 61% Texas Instrument Nokia, L.M. Ericsson

10 Geographic Breakdown TICharteredSMIC UMCTSMC

11 Major Suppliers TSMC (silicon wafers) Shin-Etsu Handotai and SUMCO Corporation (JA), Siltronic (GE), MEMC Electronic Materials (US), and Formosa SUMCO Technology (TW) ~90% UMC (silicon wafers, equipments, chemicals) Silicon wafer: Shin-Etsu, MEMC Electronic Materials, Inc. SMIC (silicon wafers, gases, chemicals) Largest supplier ~14% and top 5 suppliers ~48% of all raw materials purchases Chartered Limited number of suppliers, lead time of ~ 15 months Technology partners: IBM, Infineon, Samsung, Freescale, Toshiba, ST Micro. Texas Instrument Toppan (photomask), Siltronic (bare wafers), Varian Semiconductor Equipment Associates (ion-implanters)

12 Financial Ratios TISMICTSMCCharteredUMC Profitability Revenue Growth-3.04%5.48%2.11%-4.36%1.14% Gross Margin53.00%9.87%44.12%19.16%20.78% EBITDA Margin32.66%-0.58%59.43%35.70%17.37% Net Income Margin19.20%-1.23%22.21%7.50%14.97% Liquidity Ratios Quick Ratio Debt/Value Ratio Management Return on Assets (ROA) Power Accounts Payable Days Accounts Receivable Days Inventory Inventory Turnover Days Equity Enterprise Value/Revenue Enterprise Value/EBITDA Price/Earnings Price/Earnings to Growth Earnings per Share

13 Profitability Analysis

14 TISMICTSMCCharteredUMC Income Statement Last Reported Total Revenue13, , , , , Total Revenue Reported 1 Year Earlier14, , , , , Cost of goods sold6, , , , , Gross Profit7, , Operating Expenses3, Operating Income (a.k.a. EBIT)3, , Depreciation & Amortization1, , EBITDA4, , Net Income2, , Balance Sheet Total Assets12, , , , , Cash and Cash Equivalents1, , , Current Assets6, , , , , Accounts Receivable1, Inventory1, Total Liabilities12, , , , , Long term Debt , Minority Interest Preferred Stock Current Liabilities2, , , Accounts Payable Stock Market Number of Shares (in millions)1,41718, , , , Market Price Market Capitalization51, , , , , Enterprise Value50, , , , , Financial Data

15 Team 2

16 Disk Drive Industry Analysis Industry Statistics Global Computer Storage and Peripherals - $135.9 billion. Storage - $80. US Computer Storage and Peripherals - $60.3 billion in Hard Disk Drives - $24.3 billion. External drives is the fastest growing segment - $3.5 billion in 2007 to $9.8 billion in Major Players Seagate (Maxtor), Western Digital. Captive suppliers - Hitachi, Fujitsu, Samsung. New Markets Communications equipment - $125 billion. Consumer electronics - $264 billion. Changes in Industry Commodity product, constant innovation. SG&A ↑, R&D ↑, COGS ↑, Rev ↑, G Margin ↑.. Move to consumer electronics & data security. Move from PC solutions to mobile solutions. Major Customers

17 Financial Model Seagate 2008 Seagate 2007 Seagate 2006 Western Digital 2008 Western Digital 2007 Western Digital 2006 Revenue Growth10.61%18.96%17.99%32.28%20.61%16.17% Gross Margin25.22%19.23%23.21%21.54%16.46%19.10% EBITDA Margin10.46%4.95%10.04%17.57%11.43%12.12% Net Income Margin9.93%8.04%9.12%10.74%10.31%9.10% Quick Ratio Debt/Value Ratio Return on Assets (ROA) Accounts Payable Days Accounts Receivable Days Inventory Turnover Days Enterprise Value/Revenue Enterprise Value/EBITDA Price/Earnings Price/Earnings to Growth Earnings per Share Western Digital growing faster and with higher margins. They have also taken less debt Very similar cash cycle. Inventory better managed by Western Digital Current Market Price: Seagate = $12.12 and Western Digital = $21.32

18 Financial Model for Next Year Source: Google Finance, Yahoo Finance, Seagate & WD 2008 Quarter results & MarketWatch Analyst estimates Industry is not growing! Poor results for Seagate estimated, Western Digital stays stable. Seagate 2009 (projected)WD 2009 (projected) Profitability Revenue Growth0%5% Gross Margin14%21% EBITDA Margin10%16% Net Income Margin5.4%10.70% Liquidity Ratios Quick Ratio Debt/Value Ratio Management Return on Assets (ROA) Power Accounts Payable Days6668 Accounts Receivable Days4245 Inventory Inventory Turnover Days4528 Equity Enterprise Value/Revenue Enterprise Value/EBITDA Price/Earnings Price/Earnings to Growth Earnings per Share

19 Team 3

20

21

22

23 Team 4

24 Graphics/Display Chips Industry Analysis Christian Huth Lakshmi Jagannathan Christopher Quek Daisuke Tanaka John Michael Wyrwas

25 Market analysis for graphic/display chips shows a stable market dominated by big players  Use of graphic chips in a broad spectrum of products  Strong R&D leads to continuous improvement of chip performance  Cost effective manufacturing  Reduced sales and general expenses Overall decreasing prices CAGR(05-07) 19% CAGR(05-07) 15% Overall stable market size with strong volume growth and declining prices GPU chips are increasingly used in other applications Changes in industry lead to cheaper chips with higher performance and an overall very competitive situation Source: Jon Peddie Research; team analysis

26 Geographic Breakdowns, Suppliers, and Customers NVidia TSMC, United Micrelectronics Corporation (UMC), Chartered, SMIC, Austria Micro Systems (Manufacturing) Advanced Semiconductor Engineering, Amkor, JSI Logistics, King Yuan Electronics, Siliconware Precision Industries, Limited (SPIL), STATS ChipPAC (Assembly, Testing and Packaging) CEMs. Distributors, Motherboard manufacturers, Add-in board manufacturers AMD/ATI TSMC, UMC, Chartered (Manufacturing) Advanced Semiconductor Eng, AMKOR, King Yuan, SPIL (Test Assembly) Celestica, FOXCON, PC Partner (Packaging) OEMs – Dell, HP(10%), AIB’s (Add-in Board Retailers) Zoran TSMC (Manufacturing) Advanced Semiconductor Eng (Test and Assembly) BenQ, Canon, HP, Samsung, Tosibha, Flextronics, Maxtek Intel Sumitomo (Wafers), NTK (Packaging) Dell, HP Trident UMC, SPIL (Manufacturing) 3 rd Party Contractors (Test and Packaging) OEM’s (Samsung, Midoriya, Philips), ODM’s, and System Integrators Worldwide Suppliers Geographic Breakdown Customers

27 Financial Analysis

28 Team 5

29 Group 5: Varun Boriah Sonia Fereres Dilip Joseph Brendan Quinn Ada Zheng PC Value Chain: Flash Memory

30 R & D Assembly & Testing Services Flash Memory 1. NAND : Data Storage 2. NOR : Program Execution Semi- conductor Samsung 32% Toshiba 20% Hynix 13% Spansion 10% Intel 9% Controller Wafers TSMC,SMIC, Tower, UMC Memory Wafers Major Suppliers Toshiba, Ardentec StatsChipPac, SPIL, United Test, Flextronics SanDisk slotMusic OEM Mobile Phone, audio/video players & digital camera makers Ericsson, Sony, Microsoft, Kodak Apple : 3rd largest OEM buyer of Flash memory ($1.2b) Distri- bution End Users Retail is 2/3 of SanDisk revenues WalMart : 19.6% of Lexar sales BestBuy : 11% of SanDisk sales Major Customers US Japan EMEAAPAC & rest $3.4b Geographic Spread 2008 is projected to be a bad year. Pressures: Rapidly declining Price/MB due to commoditization & excessive competition Competing standards R&D is expensive and risky Reactions Pursuing future growth opportunities –Mobile Phones, Video players, E- books, GPS, NetBooks –SSD replacing HDD –Developing regions Consolidation –Micron > Lexar –Samsung > SanDisk (trying) Joint Ventures –Micron+Intel, SanDisk+Toshiba Move mfg to lower cost locations Move up value chain $14b $8b 2007 $22b SanDisk : $3.9b,19% growth in 2007 Grew 41% in 2006 and 30% in % growth Industry Size

31 Flash Memory Market Samsung 32% Toshiba 20% Hynix 13% Spansion 10% Intel 9% Q Flash Memory Market Share Types –NAND Flash (Storage)  $13.9b revenue 2007 Samsung, Toshiba, Hynix(Intel + Micron), Sandisk –NOR Flash (Mobile Devices)  $8b revenue 2007 Spansion,Samsung, Numonyx (Intel+STMicroelec.) Market Growth: one of the fastest semiconductor growing segments New Market Perspectives: consumer electronics (Sandisk’s SlotMusic, audio players, Livescribe's Pulse smartpen, GPS traffic navigation, game consoles, ebooks), portable computing (PDAs, Netbooks), replacement for HDD (SDD), multifunction mobile phones. Major Customers (SanDisk): OEM/ODMs (Mobile Phone, audio/video players & digital camera makers: Siemens, Ericsson, Sony, Microsoft, Matsushita, Kodak), Retailers worldwide. –Apple (flash-memory based iPods): world's 3 rd largest OEM buyer of NAND flash memory in 2007, purchases of $1.2 billion, representing 13.1 percent of the global market Major Suppliers (SanDisk): Memory Wafers (Samsung, Hynix), Controller Wafers (UMC, Towers, SMIC, TSMC), Sort & Test (Toshiba, Ardentec), Assembly (SanDisk, Silicon Precision Industries), Final Test (SanDisk, Flextronics, SPIL). Pressures: Rapidly declining ASP/MB (3rd year of 60% annual ASP decline), economic slowdown, cyclic semiconductor industry downturns, commoditization and fierce competition. Latest News: –Projected flat revenue growth for 2008 (slowdown from 2007) –Samsung recently tried to buy SanDisk, who rejected the offer despite plummeting stock prices

32 Detailed Slides

33 Flash Memory Value Chain R & D Semi- conductor Assembly & Testing OEMServicesDistri- bution § PC Market Industry Size, Growth, Competitor Concentration § New market industry size and growth (Cell phones, MP3 players, pdas, servers etc.) § What changes are going on in the industry and what areas are facing pressures (compare SG&A, R&D and COGS for year over year trends). § Major customers for each company § Geographic breakdown (US, EMEA, Asia) for each company § Major suppliers to the industry

34 Market Size & Growth NAND Flash = one of fastest. Application: storage. NAND = Samsung, Toshiba, Hynix (Intel + Micron) Revenue 2007: $13.9b NOR flash = flat & declining revenues. Application: program execution, key component in mobile phones. NOR = Spansion, Intel, Samsung, ST (ST + INTel = Numonyx) Revenue 2007: $8b Ref : MARKET PROJECTION/GROWTH Semiconductor /memory chip index: “Statement” : As 2008 shapes up to be a poor year for NAND, suppliers are likely to look back at 2007 with nostalgia. In 2007, NAND flash memory revenue grew by 12.5 percent to reach $13.9 billion. Six of the Top-8 suppliers achieved revenue growth for the year. Along with Intel and Micron, Toshiba and STMicroelectronics managed to outgrow the market and gain share

35 Q Flash Memory Market Share Total Q3 07 Revenue = $6.06b Samsung Toshiba Hynix Spansio n Intel ST Micro n MacronixSilicon Storage Tech Sharp 32.2% 19.7% 13.3% 10.1% 9.1% % growth from Q3 06 = 24.9% Src: iSuppli Flash Memory Market Shares, 2008 Competition

36 Competition – Comparing with SanDisk Toshiba, Hynix, IM Flash, Micron, Samsung, STMicro A-Data, Buffalo, Chips and More, Dane-Elec, Elecom, FUJI, Hagiwara, Imation Corporation, or Imation, Memorex, I/O Data, Kingmax, Kingston, Kodak, Lexar, Panasonic, Netac, PNY, RITEK, Samsung, Sony, Toshiba, Tradebrands, Transcend, Verbatim phase-change technology, charge-trap flash, millipedes/probes New Storage Technologies Semiconductor Manufacturers HDDs Seagate, Western Digital, Hitachi Content Services iTunes, Rhapsody Memory Card & USB drive Manufacturers Apple, ARCHOS, Creative, Microsoft, Samsung and Sony Digital Audio/Video Players

37 New Growth Markets Consumer Electronics –GPS : On-board GPS will be a multi-billion dollar industry –Video Players : More memory required as video players gain popularity –E-Books : a new market –Digital Interactive TV –Intelligent pens Portable Computing –Emerging NetBook category : Sales predicted to rise too 18m in 2009 from 0.5m in 2007 (Src: Taiwan MIC) –PDAs Multifunction Mobile Phones –Smart phones = 28% of US shipments –80% of cell phones will have memory slots by 2012 (Gartner) –$8b for NOR flash SSD as replacement for HDD –10% share of HDD market = huge rise in Flash demand –1 in 5 computing devices to have SSD by 2011/12 (Gartner) –In both servers (better R/W speeds) and laptops (lighter) Developing countries –Rising demand for consumer electronics from 1b strong middleclass in 10 years –OLPC

38 Pressures Rapidly declining Price/MB –Commoditization & excessive competition –Supply glut –3 rd year of 60% annual ASP decline –Production savings cannot keep up –Slowing economy –Falling US consumer confidence Cyclic semiconductor industry downturns Competing standards R&D is expensive and risky –Expiry of key patents –New technology crucial to decrease costs and overcome commoditization Consolidation –Micron acquired Lexar –Samsung trying to acquire SanDisk Joint Ventures –Micron-Intel IM Flash JV –SanDisk JV with Toshiba –Capital efficient model for capacity expansion to drive scale –R&D co-development reduces cost Shift to low cost locations –For example, away from Japan Move up the value chain –Avoid depending on OEMs like Apple and Sony for hit products –Sansa MP3 players –SanDisk slotMusic – SD cards preloaded with music albums Changes

39 Major Customers Src: iSuppli OEM Semiconductor Spend Analysis tool. SanDisk & Lexar 10-K Retail BestBuy accounts for 11% of sales WalMart accounts for 19.6% of sales North America : BestBuy, CircuitCity, Walmart, Costco Europe & Asia : Duttenhofer, Hama, Nokia, Ericsson, Twinmos, Zenitron Retail is 2/3 of SanDisk’s total revenues OEMs & ODMs Sells cards under Kodak Brand Mobile Phone, audio/video players & digital camera makers: Siemens, Ericsson, Sony, Microsoft, Matsushita, Kodak Apple (world’s 3rd largest OEM buyer of Flash memory, $1.2b, 13.1% of global market) buys directly from semiconductor manufacturers like Samsung, Hynix Common

40 Revenues by Geography ($m) 2007 $5688m $3444m * Includes Micron DRAM sales $852m Including subsidiary

41 Major Suppliers Memory WafersController Wafers Sort & Test AssemblyFinal Test JV with Toshiba provides a captive supplier from which SanDisk got 95% of its requirements in 2007 Samsung and Hynix guarantee a fraction of their output TSMC, SMIC, Tower, UMC Toshiba, Ardentec SanDisk, StatsChipPac, Silicon Precision Industries SanDisk, SPIL, United Test Beautiful Enterprises Flextronics, GlobalBrands Mfg, StatsChipPAC Parent Micron JV with Intel Captive supplier: JV with Tech Semiconductor Detailed information about Lexar’s suppliers was not available in the Lexar/Micron 10-Ks or online

42 Micron

43 Products Our products –Removable cards –USB drives –Embedded –Digital media players –slotMusic Primary Markets –Consumer –Mobile phones –Digital Audio and Video players –Computing Sales Channels –Retail – Americas, Europe, Middle East and Africa, APAC, Japan –OEM – manufacturers of mobile phones, digicams, PCs, GPS, gaming devices. 190% increase in no of MB sold., 60% reduction in ASP/MB Unit sales increase 75% in Strongest unit growt coming from mobile cards. Retail – Mobile cards and USB flash drivees.

44 Team 6

45 PC Market: Dell, HP, Acer, Lenov, Asus Team 6 Ankit Gupta Wan-Lin Tseng Toru Yamagishi Nuttapong Chentanez Jim Miller

46 PC Market Market Size & Growth ▫ $32.8B in 2008, with 7.2% growth ▫ >50% from HP, Dell, Acer, Lenovo New markets: Net-books, WiMAX, 3.5G phones, Advanced LED Changes: Major customers: Mostly business-business Geographics breakdown: Major suppliers: CPU: Intel, AMD Logic IC: Winbond, Newland Graphics: NVIDIA, AMD, Intel, Sis PCG: NPC, Yahsin Conectors Foxconn, AMP DRAM: Winbond, Qimonda, Hynix, NPC Monitor: Samsung, LG DellHPLenovoAcerAsus US EMEA Asia I

47 Financials

48 Team 7

49 Dell, HP, Acer, Asus, and Lenovo Value Chain (cont.) KC Chen, Anthony Goodrow, Andrew Liao, Piyapat Tantiwong, Sha Tao (Team 7)

50 PC Market Size and Growth Changes and Pressure Increased COGS ratio 1. Price cut to maintain the market share when PC industry gets mature 2. Increased operation costs running cutting edged fab Increased COGS, R&D and SG&A ratios 1. Price cut to gain market share 2. Increased operation costs running cutting edged fab 3. More R&D and marketing resources allocated to new products Increased R&D and SG&A ratio 1. More R&D and marketing resources allocated to new products, eg. EEE PC CPU 2. COGS ratio stable probably because of fabless model COGS48.1%44.8%41.2% R&D15.0%15.3%13.4% SG&A14.1%15.9%14.8% COGS62.4%47.5%57.5% R&D30.7%20.0%19.0% SG&A22.8%19.0%16.9% COGS76.5%75.0%76.0% R&D15.4%12.0%13.0% SG&A13.7%13.0%12.0% New Market- Handset New Market- WLAN

51 Competitor Analysis

52 Intel CorpAMDVIAFreescale (MOT) Profitability Revenue Growth7.70%-9.73%11.89%6.05%-3.52%14.48%10.52%-1.14%-11.13%8.11% Gross Margin51.92%51.49%59.36%37.62%49.44%40.90%25.33%24.38%33.22%42.99% EBITDA Margin23.41%17.47%33.21%-25.94%13.98%24.81%2.76%2.86%7.64%-20.43% Net Income Margin18.20%14.26%22.31%-56.19%-2.94%2.82%-5.53%0.66%-28.08%-31.36% Liquidity Ratios Quick Ratio Debt/Value Ratio N/A Management Return on Assets (ROA) Power Accounts Payable Days Accounts Receivable Days Inventory Inventory Turnover Days Equity Enterprise Value/Revenue N/A Enterprise Value/EBITDA N/A Price/Earnings N/A Price/Earnings to Growth N/A Earnings per Share N/A Comparable Companies Analysis

53 Intel Corp AMD VIA Freescale (MOT) Income Statement Last Reported Total Revenue38, , , , , , , , Total Revenue Reported 1 Year Earlier35, , , , , , , , Cost of goods sold18, , , , , , , , Gross Profit19, , , , , , , , Operating Expenses11, , , , , , , , Operating Income (a.k.a. EBIT)8, , , , , , Depreciation & Amortization , , , EBITDA8, , , , , , Net Income6, , , , , , Balance Sheet Total Assets55, , , , , , , , Cash and Cash Equivalents7, , , , , Current Assets23, , , , , , , , Accounts Receivable2, , , , Inventory3, , , , Total Liabilities12, , , , , , , , Long term Debt1, , , , , , , , Minority Interest Preferred Stock0.00 Current Liabilities8, , , , , , , , Accounts Payable2, , , , , Stock Market Number of Shares (in millions)5, , , , ,333.38N/A Market Price N/A Market Capitalization150, , , , , , , N/A Enterprise Value145, , , , , , N/A Comparable Companies Analysis

54 Team 8

55 Operating Systems Market Analysis MBA 290G Prof. Charles Wu Fuat E. Celik Gopal Chaudhoory Ignacio Contreras Francois Gallet Camilo Mendez

56 PC and OS Market Sizing: PC Market * (# Units) 1 OS Market PC OS (# Units) 2 OS Market Smart Phones OS (# Units) 3 Industry Size (Year 2008) 293 millions Consumer (111) Commercial (176) 1.1 billion (Total) 293 millions 140 millions Growth rate 11 % annually 52% annually Competitor Concentration Dell (34%) HP (20%) Gateway (7%) Apple (5%) Others (30%) Windows (91%) Mac (7%) Linux (1%) Others (1%) Symbian (57%) Linux (17%) RIM (15%) Windows (10%) Others(1%) *PCs include Desktop, Notebook, Ultra Portable, and x86 Servers. 1 IDC's Worldwide Quarterly PC Tracker (Sept.14, 2006) and Dell, HP, Apple Annual report. 2 Operating System Market Share by Ron Schenone and MSFT and Apple annual report. 3 Symbian Market Round-up.

57 Industry Challenges ChallengeEffect on Sales Effect on Op. Margin Effect on COGS Effect on R&D Notes Open Source ↓↓→ ↓ Challenge for MSFT. R&D decreases due to free collaboration from developers IP Violation ↓↓↑ ↑ Anti-Piracy features increase COGS. Opportunity for new models in emerging markets Virtualization ↑↑↓ ↑ More OS licenses in the same computer Cloud Computing / SAAS ↓↓→ → Destroys value of the OS transforming the computer into a dumb terminal Smartphone Devices ↑↑→ ↑ Several players (NOK, GOOG) destroying the value of the OS in phones to block MSFT dominance

58 Major Customers MSFT – No concerns in disclosing customers due to strong positioning APPLE – Pursuing direct strategy and reducing dependence on retailers RED HAT – No significant customers in the Linux services model SUN – OS used to support own products, no major OS customers

59 Revenues by geography US is still a critical market for all companies Apple and Sun numbers reflect hardware or services sales (OS is bundled) Apple retail sales are mostly US sales  Opportunity overseas

60 OS Industry Suppliers No relevant material suppliers in this knowledge-based industry  Developers (individuals and companies) can be considered the most important suppliers  IP licenses as a supply may become relevant in the future – especially for smartphone OSes

61 Summary of OS Manufacturer Financials Microsoft (MSFT)  Windows OS for PCs and handhelds  OS Industry leader  OS is major business component Apple (AAPL)  Mac OS and Safari for Computers and iPhone  Small presence in OS market  No “OS sales” – preinstalled sales only Sun Microsystems (JAVA)  Solaris OS  OS makes a small, but growing, part of business Red Hat (RHT)  Linux OS, wide applications  Tiny player  Focus on support/service Major handheld OS producer, Symbian, is privately held by Nokia  No data available

62 Summary of OS Manufacturer Financials

63 Team 9

64 64 PC Value Chain Group 9 James An Zishan Khan James Su Boaz Ur

65 CompanyMain Businesses Competitors To Specific Businesses CustomersGeographic Breakdown Operations & Revenue Intuit Payroll and PaymentsMicrosoft, ADP Tax customers, small and medium sized businesses, accounting professionals, small and medium sized financial institutions, retail Mainly located in U.S.. A few offices in the U.K. and Canada. International total net revenue was less than 5% for 2007 (of ~2.7B), 2006, 2005 TaxH&R Block, TaxCut Financial InstitutionsFidelity Symantec SecurityCisco, McAfee, Microsoft, Trend Micro Businesses, government, individuals, retail Operates in 40 countries. Revenue: 53% Americas, 33% EMEA, 14% Asia in 2008 Storage and Server Management HP, IBM, Microsoft, Oracle, Sun Adobe Creative SolutionsApple, Google, Microsoft Creative professionals, businesses, government, retail Operates in 31 countries. Revenue: 48% Americas, 32% EMEA, 20% Asia in 2008 Business Productivity Solutions Microsoft, IBM Highly competitive industry because products are quickly made obsolete. Revenues and earnings are seasonal. The industry is composed of large multiple software companies and specific software companies Emerging industry growth is in data loss prevention, endpoint virtualization, Software-as-a-Service and consumer services. The SG&A, R&D, and COGS for all three companies increased from 2006 to Intuit had the largest expenditure increase in R&D. Symantec in SG&A. Adobe in COGS. Each company has its own manufacturing suppliers and distributors. Most of the software was developed in-house or gained through acquisition.

66 Comparable Companies Analysis Application Software (in thousands, except per share amounts) CompanyTickerStock Price Shares Outst. Market CapTotal Debt Enterprise Value Price/Earnings (close on 9/29/08) IntuitINTU ,5459,830,0661,119,48510,121, SymantecSYMC ,38715,629,3867,118,91120,858, AdobeADBE ,40920,656,4351,063,69320,773, Total Net RevenueEBITDA Intuit3,070,9742,672,9472,293,010867,267796,170692,294 Symantec4,654,0893,983,5403,161,5231,426,3891,331,185913,781 Adobe2,803,1872,282,8431,853,7431,173,049859,115811,209 EarningsCash and cash equivalents Intuit476,762440,003416,963827,8331,303,6711,197,200 Symantec463,850404,380156,8521,890,2252,559,0342,315,622 Adobe723,807505,809602,839946,422772,500420,818 Team 9 – James An, Zishan Khan, James Su, Boaz Ur *All information taken from most recent company 10-K’s.

67 Team 9 – James An, Zishan Khan, James Su, Boaz Ur *All information taken from most recent company 10-K’s. Financial Ratio’s based on New Financial Model

68 Team 10

69 TEAM 10 Anirban Sen Elihu Luna-Thomas Raluca Scarlat Yilun Hu (Alan) Retail Electronics Industry

70 The global computer and electronics retail sector grew by 6.7% in 2007 to reach a value of $489.9 billion Reasons for growth: technological advancements lowering the cost of more standardized products, and increased borrowing

71 Market Segmentation Asia-Pacific is the largest computer and electronics retail sector, accounting for 30.5% of the global sector’s value.

72 Market Insights  Highly fragmented, but with oligopolies in many individual countries: UK: Dixons, Curry’s and Comet US: Best Buy, RadioShack and CompUSA  New entrants are unlikely to arrive on a large scale due to incumbent adversity and economies of scale  Retail brand loyalty is comparatively weak, buyers are sale hunters  Supermarkets are beginning to carve out a slice of the market share  Sony and Apple provide single-brand stores to showcase their latest products

73 Value Chain  A large sway of the power is in the hands of the suppliers  Biggest suppliers, such as Compaq and Panasonic, use their influence to shape what is sold on the shop forecourt and at what price  Capital spent on advertising and marketing is colossal  Costs for switching from one supplier to another are influenced by long-term contacts, as market players are often tied down for a certain period of time to ensure long-run efficacy  Backward integration appears unlikely due to the highly technical and specialized nature of the products supplied for sale  Fixed costs on the surface seem low but outlay is needed to secure deals with suppliers

74 Comparative Company Analysis

75 Best Buy 2008Best Buy 2007Best Buy 2006 Profitability Revenue Growth10.22%14.15%11.07% Gross Margin23.85%24.40%25.05% EBITDA Margin6.85%6.98%6.81% Net Income Margin3.52%3.83%3.70% Liquidity Ratios Quick Ratio Debt/Value Ratio Management Return on Assets (ROA) Power Accounts Payable Days Accounts Receivable Days Inventory Inventory Turnover Days Equity Enterprise Value/Revenue Enterprise Value/EBITDA Price/Earnings Price/Earnings to Growth Earnings per Share

76 Best Buy Best Buy 2008Best Buy 2007Best Buy 2006 Income Statement Last Reported Total Revenue40, , , Total Revenue Reported 1 Year Earlier35, , , Cost of goods sold30, , , Gross Profit9, , , Operating Expenses7, , , Operating Income (a.k.a. EBIT)2, , , Depreciation & Amortization EBITDA2, , , Net Income1, , , Balance Sheet Total Assets12, , , Cash and Cash Equivalents1, , Current Assets7, , , Accounts Receivable Inventory4, , , Total Liabilities12, , , Long term Debt Minority Interest Preferred Stock0.00 Current Liabilities6, , , Accounts Payable , Stock Market Number of Shares (in millions)412 Market Price Market Capitalization15, , , Enterprise Value14, , ,563.72

77 Wal Mart 2008Wal Mart 2007Wal Mart 2006 Profitability Revenue Growth7.96%10.48%7.68% Gross Margin24.36%24.24%23.86% EBITDA Margin7.47%7.44%7.48% Net Income Margin3.36%3.24%3.60% Liquidity Ratios Quick Ratio Debt/Value Ratio Management Return on Assets (ROA) Power Accounts Payable Days Accounts Receivable Days Inventory Inventory Turnover Days Equity Enterprise Value/Revenue Enterprise Value/EBITDA Price/Earnings Price/Earnings to Growth Earnings per Share

78 Wal Mart Wal Mart 2008Wal Mart 2007Wal Mart 2006 Last Reported Total Revenue378, , , Total Revenue Reported 1 Year Earlier348, , , Cost of goods sold286, , , Gross Profit92, , , Operating Expenses70, , , Operating Income (a.k.a. EBIT)21, , , Depreciation & Amortization6, , , EBITDA28, , , Net Income12, , , Total Assets163, , , Cash and Cash Equivalents5, , , Current Assets47, , , Accounts Receivable3, , , Inventory35, , , Total Liabilities163, , , Long term Debt29, , , Minority Interest1, , , Preferred Stock0.00 Current Liabilities58, , , Accounts Payable30, , , Number of Shares (in millions)3,630 Market Price Market Capitalization217, , , Enterprise Value243, , ,513.60

79 Circuit City2008Circuit City2007Circuit City2006 Profitability Revenue Growth-5.84%7.37%9.55% Gross Margin20.66%23.56%24.41% EBITDA Margin1.59%1.46%1.42% Net Income Margin-2.72%-0.06%1.22% Liquidity Ratios Quick Ratio Debt/Value Ratio Management Return on Assets (ROA) Power Accounts Payable Days Accounts Receivable Days Inventory Inventory Turnover Days Equity Enterprise Value/Revenue Enterprise Value/EBITDA Price/Earnings Price/Earnings to Growth Earnings per Share

80 Circuit City Circuit City2008Circuit City2007Circuit City2006 Last Reported Total Revenue11, , , Total Revenue Reported 1 Year Earlier12, , , Cost of goods sold9, , , Gross Profit2, , , Operating Expenses2, , , Operating Income (a.k.a. EBIT) Depreciation & Amortization EBITDA Net Income Total Assets3, , , Cash and Cash Equivalents Current Assets2, , , Accounts Receivable Inventory1, , , Total Liabilities2, , , Long term Debt Minority Interest0.00 Preferred Stock0.00 Current Liabilities1, , , Accounts Payable Number of Shares (in millions)168 Market Price Market Capitalization , , Enterprise Value , ,955.48


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