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

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

2 Overview Industry Analysis Company Analysis  HP  Apple  Dell

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 1. Display 2. Motherboard 3. CPU (Microprocessor) 4. Primary storage (RAM) 5. Expansion cards 6. Power supply 7. Optical disc drive 8. Secondary storage (Hard disk) 9. Mouse 10. 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

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

7 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

8 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

9 Key Success Factors R&D Branding  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

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)

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


17 IXCO vs DJIA, S&P 500

18 IXCO vs Apple, HP, Dell

19 Business Models 1. Direct Sales 2. Traditional Retail 3. 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

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

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

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

25 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

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

27 Recent Developments Apple  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

28 Company Analysis

29 HP Analysis as of March 2006 Snapshot (as of ) Source:

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

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

32 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 : 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)

33 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 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 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.

34 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)

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

36 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)

37 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

38 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

39 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

40 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

41 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

42 HP Analysis as of March 2006 Business Segments: figures

43 HP Analysis as of March 2006 Business Segments Trends Evolution of Revenue per Segment Over a Three Year Period in m$ Relative Evolution of Revenues per Segment in %

44 HP Analysis as of March 2006 Segment Revenue Trends

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

46 HP Analysis as of March 2006 Segment Operating Profit Trends

47 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

48 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

49 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 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)

50 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

51 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

52 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

53 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

54 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

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

56 HP Analysis as of March 2006


58 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)

59 HP Analysis as of March 2006


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

62 HP Analysis as of March 2006 Stock Trends Over Time 1 year period5 year period40 year period

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

64 HP Analysis as of March 2006 Multiple Analysis HPIBMDell Trailing P/E (ttm, intraday) Forward P/E (fye 31-Oct-07) PEG Ratio (5 yr expected) Price/Sales (ttm) Price/Book (mrq) Enterprise Value/Revenue (ttm) Enterprise Value/EBITDA (ttm) HP and Dell carry an insignificant amount of debt and therefore we can consider their ratios to be unleveraged (and therefore comparable)

65 HP Analysis as of March 2006 Upgrades and Downgrades History DateResearch FirmActionFromTo 16-Feb-06Credit SuisseUpgradeNeutralOutperform 13-Jan-06Goldman SachsUpgradeIn-LineOutperform 11-Jan-06PrudentialUpgradeNeutralOverweight 18-Nov-05Caris & CompanyUpgradeAbove AverageBuy 14-Nov-05BernsteinDowngradeOutperformMkt Perform 1-Nov-05Am Tech/JSA ResearchDowngradeBuyHold 22-Sep-05Robert W. BairdInitiated Neutral 7-Sep-05UBSUpgradeNeutralBuy 17-Aug-05First AlbanyUpgradeNeutralBuy 17-Aug-05Bear StearnsUpgradePeer PerformOutperform 17-Aug-05Banc of America SecUpgradeNeutralBuy 17-Aug-05PrudentialUpgradeUnderweightNeutral 13-Jul-05Am Tech/JSA ResearchInitiated Buy 22-Jun-05Moors & CabotInitiated Buy 22-Jun-05First AlbanyDowngradeBuyNeutral 10-Jun-05FTN MidwestUpgradeNeutralBuy 15-Apr-05Raymond JamesInitiated Outperform 5-Apr-05Caris & CompanyUpgradeAverageAbove Average

66 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”

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. 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 DesktopsiMac, eMac, Mac mini, Power Mac and Xserver PortablesiBook and Pwerbook iPodiPod, 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







89 Financial summary Mar. 24, 2006 Market Last Sale$ Change Net / % % Today’s High/Low Price :$ / $ Share Volume:38,293, Day Ave. Daily Volume: 35,990,619 Previous Close: $ Wk High / low: $ / $ 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 : $ Date of NASDAQ Official Open Price: Mar. 24, 2006 NASDAQ Official Close Price: $ 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 ExchangeNASDAQ and Frankfurt Stock Exchange (Germany) Symbol TicketAPPL (NASDAQ) and APCD (Germany) Time of IPODecember 12, 1980 (NASDAQ) Stock Split HistoryMay 15, 1987(2-for-1) June 21, 2000 (2-for-1) February 18, 2005(2-for-1) Dividend HistoryNo dividend for last five years Stock RepurchaseAuthorized 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


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

102 Stock Ownership

103 Summary Compensation Table

104 Stock Options

105 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.

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.Internettelephone 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 conversion cycle

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.materialscash 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.

109 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) Target Segments Corporate Customers Dell Position Diagram Large Outside Sales Force Close integration w/ suppliers Design for Quick Configuration Telephone Courtesy of Andrew von Nordenflycht

110 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 3 rd 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

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 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

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 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”).

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 Selected Financial Data Liquidity, Capital Commitments, and Contractual Cash Obligations Contractual Cash Obligations Investments


123 Liquidity, Capital Commitments, and Contractual Cash Obligations

124 Contractual Cash Obligations

125 Investments

126 Five-Year Performance Graph

127 (in millions, except per- share data) FY06FY05FY04FY03FY02 Net revenue$55,908$49,205$41,444$35,404$31,16 8 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

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 Potential deal with AMD. Potential deal with Google.

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