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1 Presented by: Doey Au-Yeung Pierrick Chamois Liang Min Huy Le
PC Makers Presented by: Doey Au-Yeung Pierrick Chamois Liang Min Huy Le

2 Overview Industry Analysis Company Analysis HP Apple Dell
Multipurpose computer system Assembled from standardized components Components perform identical functions Minimal compatibility issues Can assemble PC with X power source, Y motherboard, and Z CPU >90% use Intel based CPUs Hard drives, graphics cards function similarly Easy to assemble All PCs consists of a similar set of components

3 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

4 A Modern PC Display Motherboard CPU (Microprocessor)
Primary storage (RAM) Expansion cards Power supply Optical disc drive Secondary storage (Hard disk) Mouse Keyboard

5 Industry Development 1975: Industry start
First viable PC: MITS Altair 8800 Functional, affordable and widely accepted Not really first PC, but commonly regarded as start of industry Prior to the MITS Altair 8080, there were several other PCs that did not reach commercial viability, including the French designed Micral. Technically, the Altair was not the first PC ever built, but it was certainly the first to reach commercial viability (cost effective and affordable) and widespread acceptance, if only by computer hobbyists.

6 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 By 1980, numerous products were in the booming PC market—Apple II, Commodore PET, TRS-80. IBM felt that they were missing out on a lucrative market, and thus ordered the development of the IBM PC. The time to market was an unprecedented (for IBM) one year, made possible by the foregoing of proprietary parts. Only the ROM BIOS was proprietary to IBM, with everything else made from off the shelf products. IBM essentially slapped the IBM brand on a hastily cobbled together product. The downside to using generic components was that once the ROM BIOS was reverse engineered, anyone could assemble a machine with functions identical to that of the IBM PC. Thus the clone market was born. Compaq was the first to successfully clone the IBM PC, producing a 100% compatible clone. Most PC Makers of yesterday and today began as clone makers.

7 Industry Development Mid 1980s: Early 1990s:
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 IBM PC and clones progressively increased their market share, reaching over 50% by This is mostly due to the much lower cost and 100% compatible nature of the clones. The standardization of the platform led to the rise of Microsoft, from MS-DOS to the Windows line of OSs. By the early 1990s, IBM and company held so much of the market that software developers ceased to develop software for other platforms. This led to the decline and eventual demise of other non IBM PC makers, including Commodore, Atari, and Tandy. Apple was able to survive due to the niche market it had carved out, mainly in the educational, desktop publishing, and professional graphics markets.

8 Industry Development Late 1990s: 2000 to present:
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 The dotcom mania had no real effect on the PC industry, as most of the associated spending was in telecommunications infrastructure upgrades. Networking equipment companies like Cisco and Nortel benefited the most from the dotcom boom. On another note, the Y2k crisis led to increased spending on new software and hardware due to the fear of Y2k issues. From 2000 onwards, the market has increasingly become mature. Even IBM could no longer maintain its margins despite its extremely strong brand reputation. There has been a rise in branding and product differentiation efforts. An interesting note is that the PC maker industry has essentially been a mature market from day one, with a highly homogeneous product, simply by design. PCs perform the same functions and is assembled from off the shelf, third party, generic parts that are readily available. Thus, for all sense and purposes, there is no real intrinsic difference between most of the PC products available. The only difference between different PC products was the speed and the storage/processing capacity. Furthermore, it is necessary to recognize that a great portion of the recent decline in PC prices, and the subsequent decline in PC maker profit margins, is directly attributable to the life cycle of the components themselves.

9 Key Success Factors R&D Branding Competitive cost structure
Apple: iPod % 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 R&D and Branding, aka marketing, is critical. Apple is an excellent example, with the iPod and the iMac. Apple was in dire straits in 1997, and would in all likelihood exist only in the history books were it not for Steve Jobs. His introduction of the iMac, and subsequently the iPod, has brought Apple back into the black. Thus far, Apple seems unstoppable in the MP3 player market that the iPod dominates in. Since the products are homogeneous, cost structures, and in turn prices, must be kept competitive as sales are very price sensitive. There is a shift in focus towards providing solutions, rather than simply PCs (hardware). IBM exited the hardware only PC market to concentrate on the more lucrative full service enterprise class solutions business. The North American market is essentially mature and so growth will be found elsewhere.

10 Worldwide PC Market by Region (2005)

11 Worldwide PC Market by Region (2004 vs. 2005)
Source: Gartner Dataquest (January 2006)

12 Worldwide PC Market by Player (2005)

13 Worldwide PC Market by Player (2004 vs. 2005)
Source: Gartner Dataquest (January 2006)

14 EMEA PC Market by Player (2004 vs. 2005)
Source: Gartner Dataquest (January 2006) With the exception of HP and Others, everyone is realizing >25% growth in this emerging market.

15 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

16 IXCO vs XCI, NASDAQ

17 IXCO vs DJIA, S&P 500

18 IXCO vs Apple, HP, Dell

19 Business Models Direct Sales Traditional Retail White Box

20 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 Lower inventory results in reduced overhead, from finance and administration costs to warehouse size savings. Products use non “stale” components, which is important given the rate of obsolescence. Savings are passed to customers thus reducing prices and increasing sales

21 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 Assuming equal selling prices, more middlemen would naturally lead to lower profits relative to a direct seller.

22 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 Most PC Makers run a combination of the above two models. Apple, Gateway have their own distribution channels via own brand stores and/or Big Box retailers, along with direct sales via telephone or internet. The White Box model is centered around nonbranded, customizable built-to-order PCs. Usually lower cost, and fills a specific niche, be it geographic proximity, more personal service, etc. White Box firms sell software, hardware, and services. Increasingly, distributors of components offer assembly services and sometimes even sell directly to the customer. White Box companies usually provide reduced services, especially in the area of after sales support. In particular, software issues are generally not supported.

23 Supply Chain

24 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 Previously, PC makers vied for speed and capacity—the race was on to see who could bring the fastest and largest capacity PCs to market first. More recently, he focus has shifted to features, especially those involving digital home theatres. The PC is finding acceptance as a media (movies, TV, music) and web surfing station. Although PC technology continues to reach new heights, the fact remains that modern PCs today are more than adequate for most needs, excluding video games and professional graphics. So while PCs are obsolete the moment you purchase them (and perhaps even prior to that), from a practical standpoint, the real replacement cycle is lengthening because people are realizing that there is no need to mindlessly keep up with technology. The second hand market is growing at a prodigious rate, and is expected to reach 110 million units shipped by 2009. Mobile computing has really picked up with portable computers recently reaching commodity status. For the first time ever, notebooks from major PC makers dipped below the $1000 mark during the 2005 Christmas season. This increase in affordability has led to the increased adoption of portable PCs, with a great many individuals owning both a desktop PC and a notebook PC. The lack of wireless Internet access points still inhibits growth somewhat.

25 Issues Consumer appliances Outsourcing of: Seasonal nature
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 The PC is expected to stay for quiet some time due to its versatility. Despite this, for a great many people consumer appliances—easy to use, performs specific functions—will be attractive. It is difficult to say if consumer appliances will ever supplant PCs. The prevailing price war atmosphere has driven PC makers to find innovative ways of reducing costs. Outsourcing is one such method, and enjoys widespread use. Toshiba was one of the last to outsource production. The primary issue with outsourcing is that there is an inherent loss of control and quality of both products and service. Dell experienced complaints regarding the quality of customer support after opening several call centers in India.

26 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 Environmental issues are becoming more of a concern. There are various pieces of legislation that have been passed or are under consideration regarding the disposal of electronic equipment. Heavy metals, lead, mercury, cadmium, chromium, are found in most electronic equipment, and represent a serious environmental disposal headache. Some jurisdictions, such as Alberta, have introduced a recycling levy on computer equipment sales, much like a tire levy or environmental levy for the disposal of tires or motor oil. California is even proposing legislation to ban hazardous substances in electronics. The bottom line implications of this are that costs will go up, and those costs will either be borne by the PC makers, the customers, or some combination thereof.

27 Recent Developments Apple New HP CEO Dell acquires Alienware
iPod nano and shuffle Expansion into flash-based markets Switch to Intel CPUs New HP CEO New strategy: technology solutions Dell acquires Alienware High-end gaming market Not really a PC, but it does signify an expansion into other product lines.

28 Company Analysis

29 Snapshot (as of 03-25-06) Source: Nasdaq.com
HP Analysis as of March 2006

30 Agenda Presentation of the Company Business Analysis
Financial Analysis Stock Analysis Recommendation HP Analysis as of March 2006

31 The Company1 1Source: HP website #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 HP Analysis as of March 2006

32 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

33 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 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

34 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

35 Business analysis Outlook 7 different business segments
High level of competition Cost reduction issue Sales Channels issue HP Analysis as of March 2006

36 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

37 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

38 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

39 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

40 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

41 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

42 Business Segments: figures
HP Analysis as of March 2006

43 Business Segments Trends
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

44 Segment Revenue Trends
HP Analysis as of March 2006

45 Segment Revenue Trends (Cont’d)
HP Analysis as of March 2006

46 Segment Operating Profit Trends
HP Analysis as of March 2006

47 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

48 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

49 Compaq Acquisition Description: HP buys Compaq with a $24,17b deal that was effective in May 2002 (in an exchange of 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

50 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

51 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

52 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

53 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

54 HP Strategy Restructuring Plans R&D Global Firm
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

55 HP Financials Analysis
Statements of Operations Balance Sheet Statements of Cash Flows Standard Ratios HP Analysis as of March 2006

56 HP Analysis as of March 2006

57 HP Analysis as of March 2006

58 Major Captions Cash & Cash Equivalent Goodwill Debt
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

59 HP Analysis as of March 2006

60 HP Analysis as of March 2006

61 HP Stock Analysis Dividend Policy Source: Yahoo!Finance
Dividends are paid quarterly and were $0.32 per common share in each of fiscal 2005, 2004 and 2003 HP Analysis as of March 2006

62 Stock Trends Over Time 40 year period 5 year period 1 year period
HP Analysis as of March 2006

63 HP Vs Dell & IBM HP Analysis as of March 2006

64 Multiple Analysis HP Analysis as of March 2006 HP IBM Dell
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 1.06 Price/Sales (ttm) 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

65 Upgrades and Downgrades History
Date Research Firm Action From To 16-Feb-06 Credit Suisse Upgrade Neutral Outperform 13-Jan-06 Goldman Sachs In-Line 11-Jan-06 Prudential Overweight 18-Nov-05 Caris & Company Above Average Buy 14-Nov-05 Bernstein Downgrade Mkt Perform 1-Nov-05 Am Tech/JSA Research Hold 22-Sep-05 Robert W. Baird Initiated 7-Sep-05 UBS 17-Aug-05 First Albany Bear Stearns Peer Perform Banc of America Sec Underweight 13-Jul-05 22-Jun-05 Moors & Cabot 10-Jun-05 FTN Midwest 15-Apr-05 Raymond James 5-Apr-05 Average HP Analysis as of March 2006

66 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” HP Analysis as of March 2006

67 Apple Computer, Inc.

68 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. , Apple fell into financial stress 1997 Steven Job back the company, the company started to recover Apple’s original logo

69 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

70 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

71 “I'm looking for a fixer-upper with a solid foundation
“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

72 Executive Team Steven P. Jobs Co-founder of Apple Computer, Inc.
Occupation: Chief Executive Officer (1997); Chairman, Board of Directors ( ) Others Activities: Co-founder of NeXT Software, Inc. Chairman and CEO of NeXT ( ) Chairman and CEO of Pixar Animation Studios ( ) Board Member of Walt Disney Company (2006) Key Skill: Vision

73 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)

74 Executive compensation

75 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

76 Sales by Products

77 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

78 Sales by products

79 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.

80 Geographic segment

81 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

82 Financial Statement Consolidated Balance Sheet
Consolidated Statement of Operation Consolidated Statement of Cash Flows

83

84

85

86

87

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89 Financial summary Mar. 24, 2006 Market Last Sale$ 59.96
Change Net / % % Today’s High/Low Price :$ 60.94 /  $ 59.03 Share Volume:38,293,616 50 Day Ave. Daily Volume: 35,990,619 Previous Close: $  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 September,2005 (in million dollars) Total Net Sales: $12,931 Total Net Income: $1,335 Total Asset: $11,551 Total Liability: $4,085 Source :

90 Stock Information

91 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

92 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

93 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

94 Recommendation Sell

95

96 Dell Inc. Stock 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.

97 1 Year Performance Latest price (Mar 24, 2006 16:00 EST) $ 30.06, Volume 13,011,536

98 Performance Since 1996

99 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 market 2000: Company sales via Internet reach $50 million per day 2001: For the first time, Dell ranks No. 1 in global market share 2004: Kevin Rollins becomes Dell's next chief executive officer. Michael Dell moves to Chairman of the Board 2005:Dell tops list of "America's Most Admired Companies" in Fortune Magazine. Opens third major U.S. manufacturing location in Winston- Salem, North Carolina

100 Management

101 Management Michael S. Dell Chairman of the Board Age:41
# of shares owned: 207,983,382 Kevin B. Rollins President and CEO Age: 53 # of Shares owned: 17,547

102 Stock Ownership

103 Summary Compensation Table

104 Stock Options

105 Share Repurchase Program
As of February 3, 2006, Dell’s share repurchase program authorized the purchase of up to 1.5 billion shares of common stock at an aggregate cost not to exceed $30 billion. 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. The following are details of repurchases under this program for the fourth quarter of fiscal 2006: 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.

106 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.

107 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.

108 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. Dell’s direct business model allows it to maintain a leading asset management system in comparison to its major competitors. Dell is capable of minimizing inventory risk while collecting amounts due from customers before paying vendors, thus allowing us to generate annual cash flows from operating activities that typically exceed net income.

109 Dell Position Diagram Target Value Segments
Proposition How: Choices / Activity System / Value Chain Close integration w/ suppliers Customized Corporate Customers Build-to-Order Design for Quick Configuration Minimal Inventory Large Outside Sales Force Reliable Transact directly with customers / Bypass Channel (i.e. Wholesalers and retailers) No channel marketing / logistics costs Dell.com Low Price No channel markup Telephone Minimal Pre-sales costs Courtesy of Andrew von Nordenflycht

110 Value chain for Dell Technology Design Development Manufacturing
Procurement Assembly Distribution Transport Inventory Marketing Retailing Advertising Service Parts Labor 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

111 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

112 Dell Asia Pacific - Japan
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

113 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

114 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.

115 product groups Financial Services:
Dell Financial Services L.P. (“DFS”), a joint venture between Dell and CIT Group, Inc. (“CIT”). Dell offers various financing alternatives, asset management services, and other customer financial services for its business and consumer customers in the U.S. through Dell Financial Services L.P. (“DFS”), a joint venture between Dell and CIT Group, Inc. (“CIT”).

116 Risks Loss of government contracts and big businesses
Reliance on suppliers International competitions (i.e. Acer, and Japanese PC makers)

117 Financial Statements Balance Sheet Income Statement
Cash Flow Statement

118 Balance Sheet

119 Income Statement

120 Cash Flow Statement

121 SELECTED FINANCIAL DATA
Liquidity, Capital Commitments, and Contractual Cash Obligations Contractual Cash Obligations Investments

122 SELECTED FINANCIAL DATA

123 Liquidity, Capital Commitments, and Contractual Cash Obligations
In fiscal 2006, we continued to maintain strong liquidity with cash flow from operations of $4.8 billion, compared to $5.3 billion in fiscal We ended fiscal 2006 with $11.7 billion in cash and investments, a decrease of $2.4 billion over the prior fiscal year end. The following table summarizes our ending cash, cash equivalents, and investments and the results of our consolidated statements of cash flows for the past three fiscal years

124 Contractual Cash Obligations

125 Investments As of February 3, 2006, Dell had approximately 385 debt investment positions that had fair values below their carrying values for a period of less than 12 months. The fair value and unrealized losses on these investment positions totaled $2 billion and $27 million, respectively, as of February 3, As of February 3, 2006, Dell had approximately 660 investment positions that had fair values below their carrying values for a period of more than 12 months. The fair value and unrealized losses on these investment positions totaled $2 billion and $45 million, respectively, as of February 3, 2006.

126 Five-Year Performance Graph

127 Annual Financial Highlights (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

128 Key Statistics

129 Recommendation Could 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.


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