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

PC Makers

Presented by:Doey Au-YeungPierrick ChamoisLiang MinHuy Le

Overview

Industry Analysis

Company Analysis HP Apple Dell

What is a PC

Multipurpose computer system Assembled from standardized components

Components perform identical functions Minimal compatibility issues >90% use Intel based CPUs Hard drives, graphics cards function similarly

Easy to assemble

All PCs consists of a similar set of components

A Modern PC

1. Display2. Motherboard3. CPU

(Microprocessor)4. Primary storage

(RAM)5. Expansion cards6. Power supply7. Optical disc drive8. Secondary

storage (Hard disk)

9. Mouse10. Keyboard

Industry Development

1975: Industry startFirst viable PC: MITS Altair 8800Functional, affordable and widely acceptedNot really first PC, but commonly regarded as

start of industry


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


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


Late 1990s: Dotcom mania: small real effect on PC industry

Mostly networking equipment manufacturers (Cisco, Nortel) Y2k: increased PC spending due to compatibility fears

2000 to present: Steady decline in PC prices Component life cycle critical

Decline in PC prices mainly due to decline in component prices

PC industry homogeneous from day one

Key Success Factors

R&D Branding

Apple: iPod - 46.3% market share Competitive cost structure

Dell – direct sales model Product differentiation

Ancillary services: one stop shopping Software and hardware sales, not simply PC sales Technology solutions

After sales service Extensive product lines

Global expansion Growth outside of North American market

Worldwide PC Market by Region (2005)

Source: Gartner Dataquest (January 2006)

EMEA33.2%

US30.7%

AP19.6%

LA6.7%

Canada3.0%

Japan6.7%

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

Region

2005 Shipment

s

2005 Market

Share (%)

2004 Shipment

s

2004 Market

Share (%) GrowthEMEA 72,649 33.2 62,014 32.7 17.1

US 67,151 30.7 62,443 32.9 7.5AP 42,777 19.6 33,947 17.9 26.0LA 14,711 6.7 11,671 6.2 26.0

Japan 14,662 6.7 13,635 7.2 7.5Canada 6,583 3.0 5,829 3.1 12.9Totals 218,533 100.0 189,539 100.0 15.3

Worldwide PC Market by Player (2005)

Source: Gartner Dataquest (January 2006)

Dell16.8%

HP14.5%

Lenovo6.9%Acer

4.6%

Others53.3%

Fujitsu/Siemens3.8%

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

Firm

2005 Shipment

s

2005 Market

Share (%)

2004 Shipment

s

2004 Market

Share (%) GrowthDell 36,764 16.8 31,009 16.4 18.6HP 31,792 14.5 27,623 14.6 15.1

Lenovo 15,054 6.9 12,937 6.8 16.4Acer 10,154 4.6 6,425 3.4 58.0

Fujitsu/Siemens 8,326 3.8 7,144 3.8 16.5Others 116,443 53.3 104,401 55.1 11.5Totals 218,533 100.0 189,539 100.0 15.3

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

Firm

2005 Shipment

s

2005 Market

Share (%)

2004 Shipment

s

2004 Market

Share (%) GrowthHP 11,536 15.9 9,966 16.1 15.8Dell 8,453 11.6 6,584 10.6 28.4Acer 6,523 9.0 4,359 7.0 49.6

Fujitsu/Siemens 5,383 7.4 4,230 6.8 27.3NEC 2,816 3.9 1,904 3.1 47.9

Others 37,937 52.2 34,971 56.4 8.572,648 100.0 62,014 100.0 17.1

IXCO

NASDAQ Computer Index Movement between IXCO, NASDAQ

Composite and AMEX Computer Technology Index (XCI) almost identical

Movement between IXCO, S&P 500, and DJIA similar

IXCO vs XCI, NASDAQ

IXCO vs DJIA, S&P 500

IXCO vs Apple, HP, Dell

Business Models

1. Direct Sales

2. Traditional Retail

3. White Box

Business Models

Direct Sales Sell directly via phone or internet JIT Inventory system Advantage: Lower cost structure

Reduced inventory → lower storage and financing costs Increased product quality → products use non “stale” components Ability to customize → increased customer satisfaction Less middlemen → lower prices thus increasing sales Reduced overhead → no brick and mortar retail outlets to maintain

Disadvantage: customers cannot preview product

Business Models

Traditional Retail Sell via retail distribution chain Big Box stores Main methodology used Advantage: Customers preview product prior to purchase

Increased efficiency: economies of scale realized from mass producing one product

Disadvantage: inventory issues – either shortage or excess More middlemen → lower margins Increased overhead → if it operates own brand stores

Business Models

White box Niche markets Local computer reseller

Localized, more personal service Sells PCs, hardware, software, and services

“nonbranded” – local retailer brand BTO (build-to-order) Other services provided

Networking Installation

Reduced after sales service

Supply Chain

Issues

Change in competitive focus: Speed and capacity not as important Useful features

Lengthening replacement cycle period Increasingly powerful PCs delay practical

obsolescence Second hand machine market (small but

growing) Estimated to reach 110 million units by 2009

Mobile computing

Issues

Consumer appliances Easy to use, performs specific functions

Outsourcing of: Production After sales service Decreased quality

Seasonal nature Stronger in second half of year

Summer: Back to School Winter: Christmas

Issues

Environmental Issues Hazardous substances (HS)

Heavy metals (lead, mercury, cadmium, chromium)

Recent legislation European Union introduced directive to reduce usage Alberta introduced recycling levy on electronic equipment

(Feb 1, 2005) California considering bill to completely eliminate HS

Recent Developments

Apple iPod nano and shuffle

Expansion into flash-based marketsSwitch to Intel CPUs

New HP CEONew strategy: technology solutions

Dell acquires AlienwareHigh-end gaming market

Company Analysis

HP Analysis as of March 2006

Snapshot (as of 03-25-06)

Source: Nasdaq.com

Total Revenue $86,696,000,000Operating Income $3,689,000,000

Earnings Before Interest and Tax $3,759,000,000Net Income $2,398,000,000

Total Assets $77,317,000,000Long Term Debt $3,392,000,000

Total Equity $37,176,000,000

Profit Margin 3%After Tax ROE 6%

Last Sale $ 33.17Shares Outstanding 2,828,423,000

Market Value $ 93,818,790,910P/E Ratio 36.05

Dividend Amount $ 0.32Beta 1.71

Annual EPS Est: $1.95


Agenda

• Presentation of the Company

• Business Analysis

• Financial Analysis

• Stock Analysis

• Recommendation


The Company1

• #1 globally in the inkjet, all-in-one and single function printers, mono and color laser printers, large-format printing, scanners, print servers and ink and laser supplies

• #1 globally in x86, Windows®, Linux and UNIX servers

• #1 in total disk and storage systems

• #2 globally in notebook PCs, Pocket PCs, workstations and blade servers

• Awarded Outstanding Customer Service for Consumers

• #1 position in server brand loyalty for ProLiant servers

1Source: HP website


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)


The CEO

• Mark HURD (2005) – is chief executive officer and president of HP and also a member of the company's board of directors.

• Hurd previously spent 25 years at NCR Corp., culminating in his two-year tenure as chief executive officer and president.

• Hurd was named president of NCR in 2001 and was given additional responsibilities as chief operating officer in 2002. Prior to that, he spent three years as head of the company's Teradata data-warehousing division. Earlier, he held a variety of general management, operations, and sales and marketing roles. Hurd began his career at NCR as a field salesman in 1980.

• Hurd is a member of the Technology CEO Council, a coalition of chairmen and chief executive officers of IT companies, which develops and advocates public policy positions on technology and trade issues.

• He earned a bachelor's degree in business administration in 1979 from Baylor University.


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)


Business analysis

• Outlook– 7 different business segments

– High level of competition

– Cost reduction issue

– Sales Channels issue


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)


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


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


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


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


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


Business Segments: figures

2005 2004PSG 26,741 24,622 HPS 15,536 13,848 ESS 16,701 15,074 IPG 25,155 24,199

HPFS 2,102 1,895 Software 1,077 933

Corp Invt & other 523 449 87,835 81,020

delta 1,139 1,115

2005 2004PSG 30.44% 30.39%HPS 17.69% 17.09%ESS 19.01% 18.61%IPG 28.64% 29.87%

HPFS 2.39% 2.34%Software 1.23% 1.15%

Corp Invt & other 0.60% 0.55%100% 100%

Revenue Breakdown

Revenue Breakdown (%)

2005 2004PSG 2.7 4.7 HPS 2.1 1.9 ESS 2.0 0.8 IPG 1.2 2.2

HPFS 0.3 - Software 0.2 0.2

Corp Invt & other - (0.4) 8.5 9.4

2005 2004PSG (0.8) - HPS (0.5) (0.6) ESS - - IPG 0.1 (0.8)

HPFS 0.1 0.1 Software 0.1 -

Corp Invt & other 0.5 (0.4) (0.5) (1.7)

Growth in Net Revenue

Gross Margin


Business Segments Trends

0

5000

10000

15000

20000

25000

30000

2003 2004 2005

PSG HPS ESS IPG HPFS Software Corp Invt & other

0

5

10

15

20

25

30

35

2003 2004 2005

PSG HPS ESS IPG HPFS Software Corp Invt & other

Evolution of Revenue per Segment Over a Three Year Period in m$

Relative Evolution of Revenues per Segment in %


Segment Revenue Trends


Segment Revenue Trends (Cont’d)


Segment Operating Profit Trends


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


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


Compaq Acquisition

• Description: HP buys Compaq with a $24,17b deal that was effective in May 2002 (in an exchange of 0.6325 shares of HP common stock for each outstanding share of Compaq common stock)

• Objective: C. Fiorina, CEO who led the acquisition, wanted to reinforce the distribution channels of HP, counter the Dell upsurge that forced IBM to quit the market and give HP some scale effects to cut the costs in PSG and HPS

• Consequences– HP is selling worldwide and enjoy an impressive sales force– In three years HP financials are strong despite the importance of the merger– But the marriage is painful and the integration leads to several restructuring

plans, layoffs and to a complex organization not efficient enough for the market standards (expected scope effects – between IPG and PSG – and scale effects – cost synergies in PSG and HPS – didn’t occur)


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


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


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


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 Strategy

• Restructuring Plans– 15,300 employees left or are expected to leave within 2007

– As of October 31, 2005, the total cost was $5.74bn

• R&D– $3.5bn

– HP patent portfolio includes over 30,000 patents

• Global Firm– Over than 60% of the net revenue in fiscal 2005 came from outside the

US


HP Financials Analysis

• Statements of Operations

• Balance Sheet

• Statements of Cash Flows

• Standard Ratios


In USD million 2005 2004 2003 2002 2001

Products 68,945 64,127 58,826 45,878 38,059 Services 17,380 15,389 13,768 10,390 6,765

Financing Income 371 389 467 320 402 Net Revenue 86,696 79,905 73,061 56,588 45,226

Cost of Products 52,550 48,359 43,619 34,127 28,824 Cost of Services 13,674 11,791 10,031 7,477 4,688

Financing Interest 216 190 208 189 236 Research Development 3,490 3,506 3,651 3,368 2,753

Selling, General and Administrative 11,184 11,024 11,012 8,763 6,668 Pension Curtailment (199) - - - -

EBITDA 5,781 5,035 4,540 2,664 2,057 Amortization of Purchased Intangible Assets 622 603 563 402 174

EBIT 5,159 4,432 3,977 2,262 1,883 Restructuring Charges 1,684 114 800 1,780 384

Acquisition-related Charges - 54 280 701 25 In-process Research and Development Charges 2 37 1 793 35

Cost and Expenses 83,223 75,678 70,165 57,600 43,787

Earnings (loss) from Operations 3,473 4,227 2,896 (1,012) 1,439

Interest and Other, net 189 35 21 52 171 Net Losses on Divestitures - - - - (53)

Gains (losses) on Investments On Early Extinguishment Of Debt

(13) 4 (29) (75) (366)

Dispute Settlement (106) (70) - 14 (400)Earnings (loss) Before Taxes 3,543 4,196 2,888 (1,021) 791

Provision for (benefit from) taxes 1,145 699 349 (118) 111 Cumulative Effect Of Change On Accounting

Principle, net of taxes - - - - (272)

Net Earnings (loss) 2,398 3,497 2,539 (903) 408

Net Earnings (loss) per ShareBasic 0.83 1.16 0.83 -0.36 0.35

Diluted 0.82 1.15 0.83 -0.36 -0.14Weighted Average Shares Used to Compute

Net Earnings (loss) per ShareBasic 2879 3024 3047 2499 1936

Diluted 2909 3055 3063 2499 1974


in USD million 2005 2004 2003 2002 2001

Cash and Cash Equivalent 13,911 12,663 14,188 11,192 4,197 Short-Term Investments 18 311 403 237 139

Accounts Receivables 9,903 10,226 8,921 8,456 4,488 Financing Receivables 2,551 2,945 3,026 3,453 2,183

Inventory 6,877 7,071 6,065 5,797 5,204 Other Current Assets 10,074 9,685 8,351 6,940 5,094

Current Assets 43,334 42,901 40,954 36,075 21,305

Property, Plant ans Equipment 6,451 6,649 6,482 6,924 4,397 Long-Term Financing Receivables And Other Assets 7,502 6,657 8,030 7,758 6,126

Goodwill 16,441 15,828 14,894 15,089 667 Purchased Intangible Assets 3,589 4,103 4,356 4,864 89

Total Assets 77,317 76,138 74,716 70,710 32,584 Acquisition-related Charges

Note Payable and Short-Term Borrowings 1,831 2,511 1,080 1,793 1,722 Accounts Payable 10,223 9,377 9,285 7,012 3,791

Employee Compensation And Benefits 2,343 2,208 1,755 2,012 1,477 Taxes On Earnings 2,367 1,709 1,599 1,529 1,818

Deferred Revenue 3,815 2,958 2,496 3,260 1,867 Accrued Restructuring 1,119 193 709 1,309 82

Other Accrued Liabilities 9,762 9,632 8,545 7,395 3,207 Current Liabilities 31,460 28,588 25,469 24,310 13,964

Long-Term Debt 3,392 4,623 6,494 6,035 3,729 Other Liabilities 5,289 5,363 5,007 4,103 938

Preferred Stock, $0.01 par value (300 shares authorized; none issued)

0 0 0 0 0

Common Stock, $0.01 par value (9600 shares authorized; and 3043 shares issued and

outstanding, respectively)

28 29 30 30 19

Additional Paid-In Capital 20490 22129 24587 24660 200Retained Earnings 16679 15649 13332 11973 13693

Accumulated Other Comprehensive Loss -21 -243 -203 -401 41Stockholders' Equity 37176 37564 37746 36262 13953

Total Liabilities and Stockholders' Equity 77317 76,138 74716 70710 32584


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)


In USD million 2005 2004 2003Cash Flows from Operatin Activities

Net Earnings 2,398 3,497 2,539

Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities

Depreciation and Amortization 2,344 2,395 2,527 (Benefit) Provision for Doubtful Accounts - Accounts and

Financing Receivables(22) 98 102

Provision for Inventories 398 367 391 Restructuring Charges 1,684 114 800

Pension Curtailment Gain (199) - - Acquisition-related Charges, Including In-process Research and

Development2 91 281

Deferred Taxes on Earnings (162) 26 (279) Other, Net 1 89 141

Change in Assets and LibailitiesAccounts and Financing Receivables 666 (696) 88

Inventory (208) (1,341) (638) Accounts Payable 846 3 2,257 Taxes on Earnings 748 (32) 53

Restructuring (247) (601) (1,240) Other Assets and Liabilities (221) 1,078 (965)

Net Cash Provided by Operating Activities 8,028 5,088 6,057

Cash Flows from investing ActivitiesInvestment in Property, Plant and Equipment (1,995) (2,126) (1,995)

Proceeds from Sale of Property, Plant and Equipment 542 447 353 Purchases of Available-for-Sale Securities and Other Investments (1,729) (3,964) (596)

Maturities and Sales of Available-for-Sale Securities and Other Investments

2,066 4,313 875

Payment made in Connection with Business Acquisitions, Net (641) (1,124) (149) Net Cash Used in Activities (1,757) (2,454) (1,512)

Cash Flows from Financing ActivitiesRepayment of Commercial Paper and Notes Payable, Net (1) (172) (223)

Issuance of Debt 84 9 749 Payment of Debt (1,827) (285) (829)

Issuance of Common Stock Under Employee Stock Plans 1,161 570 482 Repurchase of Common Stock (3,514) (3,309) (751)

Dividends (926) (972) (977) Net Cash Used In Financing Activities (5,023) (4,159) (1,549)

Increase (Decrease) in Cash and Cash Equivalents 1,248 (1,525) 2,996 Cash and Cash Equivalents at the Beginning of Period 12,663 14,188 11,192

Cash and Cash Equivalents at the End of Period 13,911 12,663 14,188


STANDARD FINANCIAL RATIOS 2005 2004 2003 2002 2001

Profitability RatiosNet operating Margin (EBITDA) EBITDA / Sales 6.67% 6.30% 6.21% 4.71% 4.55%profit margin net income / sales 2.77% 4.38% 3.48% -1.60% 0.90%return on assets net income / assets 3.10% 4.59% 3.40% -1.28% 1.25%return on equity net income / equity 6.45% 9.31% 6.73% -2.49% 2.92%

Asset Utilization Ratiosasset turnover sales / assets 1.12 1.05 0.98 0.80 1.39inventory turnover cost of goods sold / inventory 9.66 8.53 8.88 7.21 6.49accounts receivable turnover sales / accs. rec. 8.75 7.81 8.19 6.69 10.08accounts payable turnover costs of goods sold / accs. pay. 6.50 6.43 5.80 5.96 8.90

inventory conversion period 365 / inventory turn. 37.78 42.77 41.10 50.63 56.28accs. rec. collection period 365 / accs. rec. turn. 41.69 46.71 44.57 54.54 36.22accs. payable collection period 365 / accs. pay. turn. 56.16 56.72 62.93 61.24 41.00

cash-conversion cycle 23.31 32.76 22.75 43.93 51.50

MEASURES OF LIQUIDITYcurrent ratio current assets / current liabilities 1.38 1.50 1.61 1.48 1.53acid-test curr. assets less inventory / curr. liab. 1.16 1.25 1.37 1.25 1.15times interest earned EBIT / interest 27.30 126.63 189.38 43.50 11.01

FINANCIAL LEVERAGEdebt-to-equity Debt / Equity 0.14 0.19 0.20 0.22 0.39Debt net - to equity -0.23 -0.15 -0.18 -0.09 0.09debt-to-assets Debt / Assets 0.07 0.09 0.10 0.11 0.17assets-to-equity Assets / Equity 2.08 2.03 1.98 1.95 2.34

THE LEVERS OF PERFORMANCEROE is the product of the following 6.45% 9.31% 6.73% -2.49% 2.92%profit-margin 0.03 0.04 0.03 -0.02 0.01asset-turnover 1.12 1.05 0.98 0.80 1.39assets-to-equity 2.08 2.03 1.98 1.95 2.34ROE 6.45% 9.31% 6.73% -2.49% 2.92%


HP Stock Analysis

• Dividend Policy– Dividends are paid quarterly and were

$0.32 per common share in each of fiscal 2005, 2004 and 2003

Forward Annual Dividend Rate5: 0.32Forward Annual Dividend Yield5: 1.00%Trailing Annual Dividend Rate3: 0.32Trailing Annual Dividend Yield3: 0.10%5 Year Average Dividend Yield5: 1.60%

Payout Ratio5: 35%Dividend Date3: 5-Apr-06

Ex-Dividend Date5: 13-Mar-06Last Split Factor (new per old)2: 2:01

Last Split Date3: 30-Oct-00

Dividends & Splits

Beta: 1.6252-Week Change3: 67.61%

S&P500 52-Week Change3: 10.96%52-Week High (16-Feb-06)3: 34.5252-Week Low (28-Mar-05)3: 19.650-Day Moving Average3: 32.74

200-Day Moving Average3: 29.96

Stock Price History

Average Volume (3 month)3: 12,703,300Average Volume (10 day)3: 11,225,300

Shares Outstanding: 2.83BFloat: 2.82B

% Held by Insiders 4: 3.57%% Held by Institutions 4: 70.00%

Shares Short (as of 10-Mar-06)3: 42.76MShort Ratio (as of 10-Mar-06)3: 2.9

Short % of Float (as of 10-Mar-06)3: 1.50%Shares Short (prior month)3: 47.58M

Share Statistics

Source: Yahoo!Finance


Stock Trends Over Time

1 year period5 year period40 year period


HP Vs Dell & IBM


Multiple Analysis

HP IBM Dell

Trailing P/E (ttm, intraday) 35.86 17.1 20.6

Forward P/E (fye 31-Oct-07) 14.94 13.19 15.74

PEG Ratio (5 yr expected) 1.36 1.36 1.06

Price/Sales (ttm) 1.06 1.43 1.25

Price/Book (mrq) 2.6 3.96 17.12

Enterprise Value/Revenue (ttm) 0.99 1.53 1.09

Enterprise Value/EBITDA (ttm) 11.371 8.08 12.55

HP and Dell carry an insignificant amount of debt and therefore we can consider their ratios to be unleveraged (and therefore comparable)


Upgrades and Downgrades History

Date Research Firm Action From To

16-Feb-06 Credit Suisse Upgrade Neutral Outperform

13-Jan-06 Goldman Sachs Upgrade In-Line Outperform

11-Jan-06 Prudential Upgrade Neutral Overweight

18-Nov-05 Caris & Company Upgrade Above Average Buy

14-Nov-05 Bernstein Downgrade Outperform Mkt Perform

1-Nov-05 Am Tech/JSA Research Downgrade Buy Hold

22-Sep-05 Robert W. Baird Initiated Neutral

7-Sep-05 UBS Upgrade Neutral Buy

17-Aug-05 First Albany Upgrade Neutral Buy

17-Aug-05 Bear Stearns Upgrade Peer Perform Outperform

17-Aug-05 Banc of America Sec Upgrade Neutral Buy

17-Aug-05 Prudential Upgrade Underweight Neutral

13-Jul-05 Am Tech/JSA Research Initiated Buy

22-Jun-05 Moors & Cabot Initiated Buy

22-Jun-05 First Albany Downgrade Buy Neutral

10-Jun-05 FTN Midwest Upgrade Neutral Buy

15-Apr-05 Raymond James Initiated Outperform

5-Apr-05 Caris & Company Upgrade Average Above Average


Recommendation: Weak BUY

• Why– The Company is recovering from the Compaq Acquisition– New Management Team, Restructuring Plans, Costs Cutting Strategy

that simplifies the business…– Conservative Financial structure that provides good dividends: cash

reserves, no debt.

• BUT– 2005 has not come up to the market expectations– The core Businesses (IPG and PSG) are growing because of the

weakness of the dollar. HP is still struggling to keeps its leadership– The ROE is still low and volatile– The Company still fights to change its image of “old HP”

Apple Computer, Inc.

History • January 3,1977 incorporated by

Steven Wozniak and Steven Jobs.• 1984, introduction of Macintosh

computer series• 1985, Steven Job left Apple• 1990, contracted with Microsoft

on licensing MS Windows I OP system.

• 1994-1996, Apple fell into financial stress

• 1997 Steven Job back the company, the company started to recover

• Apple’s original logo

Current Business• PC: The Apple is the only company in

computer industry that is capable of designing and developing entire PC system including microprocessor and operation system.

• Diversification: The Apple is world leading manufacturer and marketer of digital music players

• Digital Hub: The Apple believes that computer system is the integration of all advanced digital devices including MP3 players, PDAs, cellular phones, digital camcorders, digital cameras, CD/DVD players, and other electronic consumer devices

Current Business• Key Customer Groups:

– Education– Creative Professionals – Students– Government Agencies

• Distribution– Apple Sales Consultant program– Online Sales– Retail Store

• Reporting Segments– American ( North and South

American)– Europe( Europe, Africa and

Middle East)– Japan– Other ( Asia-Pacific except

Japan)• Manufacturing

– Company owned manufacturing facility in Cork, Ireland.

– External vendors in Fremont, California, Fullerton, California, Taiwan, Korea, China, and the Czech Republic

– Assembling line in China

“I'm looking for a fixer-upper with a solid foundation. Am willing to tear down walls, build bridges, and light fires. I have great experience, lots of energy, a bit of that "vision thing" and I'm not afraid to start from the beginning. ”

----Steven P. Jobs

Executive Team

• Steven P. Jobs• Co-founder of Apple Computer, Inc.• Occupation: Chief Executive Officer (1997);

Chairman, Board of Directors ( 1976-1986)• Others Activities:

– Co-founder of NeXT Software, Inc.– Chairman and CEO of NeXT (1985-1997)– Chairman and CEO of Pixar Animation Studios

(1986-2006)– Board Member of Walt Disney Company

(2006)• Key Skill: Vision

Executive Team• Peter Oppenheimer: Chief Financial Officer, Executive Vice

President( since 2004)

• Timothy D Cook: Executive Vice President, Worldwide Sales and Operations (since 1998)

• Nancy R. Heinen: Senior Vice President, General Counsel and secretary (since 1997)

• Ronald B. Johnson: Senior Vice President , Retailing

• Jonathan Rubinstein: Senior Vice President, iPod Dividsion (since 1997)

• Philip W. Schiller: Senior Vice President, Worldwide Product Marketing( since 1997)

• Bertrand Serlet: Senior Vice President, Software Engineering( since 2003

• Sina Tamaddo: Senior Vice President, Applications( since 1997)

• Dr. Avadis Tevanian: Chief Software Technology Officer (since 1997)

Executive compensation

Product Lines

Desktops iMac, eMac, Mac mini, Power Mac and Xserver

Portables iBook and Pwerbook

iPod iPod, iPod mini, iPod shuffle and iPod nano

Peripherals and other hardware

Apple-Branded and third party displays , wirless connectivity and networking solutions and other hardware accessories

Software, service and other sales

Branded operating syste, application software, third-party software,AppleCare and internet services

Sales by Products

Unit Sales

Sales by Products

•Net sales per unit = Total net sales of a product/ Total unit-sales of a product•Measures average price•iPod: increase sales by large discount

Sales by products

Net Sal es of Products

0

1000

2000

3000

4000

5000

2005 2004 2003

Year

Net

Sale

s (

in

mill

ions

)

Desktops

Portabl es

i Pod

Other musi crel ated productsand servi esPer i pheral andother hardware

Sof tware,servi ces andothers

Sales by Products

• Total net sales increased by 68% in fiscal year 2005• Sales of iPod increased of 248% compare to that of 2004

– Demand was driven by the introduction of iPod Nano

– Demand of iPod subjects to internal conflict among different iPod products

– iPod price decreased by 32% in 2005

• Net Sales of Macintosh system increased by 27% – Sales were stimulated by the introduction of Power G5 microprocessor

and Mac mini series of desktop

– Professional notebook( PowerBook series ) still have strong demand on the market

– Low sales on low price Mac

• Expansion of Retail segment contributes to overall sales increase.

Geographic segment

Segment Sales

• American segment sales raised about 64% in fiscal year 2005– American segment represent approximately 47%-49% of total sales of

the company.

– 11% of sales growth can attribute to growth of professional notebook

– 30% of growth can attribute to the introduction of new Mac systems (G5 based Mac) and iPod

• Japan’s net sales went up by 36%– iPod, G5 and Mac mini contribute to the sales increase in Japan.

• 38 new retail store were opened in 2005 and total number of retail store were 124 at September 2005

Financial Statement

• Consolidated Balance Sheet

• Consolidated Statement of Operation

• Consolidated Statement of Cash Flows

Financial summaryMar. 24, 2006 MarketLast Sale$ 59.96• Change Net / % 0.20 0.33%• Today’s High/Low Price :$ 60.94 /

$ 59.03• Share Volume:38,293,616• 50 Day Ave. Daily Volume:

35,990,619• Previous Close: $ 60.1652 • Wk High / low: $ 86.40 / $ 33.11• Shares Outstanding: 848,612,000• Market Value: $ 50,882,775,520• P/E Ratio :32.24• Forward P/E (1yr) :22.92• Earning per Share :$ 1.86

• Beta: 1.3• NSDAQ Official Open Price : $ 60.27• Date of NASDAQ Official Open

Price: Mar. 24, 2006• NASDAQ Official Close Price:

$ 59.96• Date of NASDAQ Official Close

Price: Mar. 24, 2006. 24, 2006

September,2005 (in million dollars)• Total Net Sales: $12,931• Total Net Income: $1,335• Total Asset: $11,551• Total Liability: $4,085Source : www.nasdaq.com

http://www.nasdaq/

Stock Information

Stock Information

Stock Exchange NASDAQ and Frankfurt Stock Exchange (Germany)

Symbol Ticket APPL (NASDAQ) and APCD (Germany)

Time of IPO December 12, 1980 (NASDAQ)

Stock Split History •May 15, 1987(2-for-1)•June 21, 2000 (2-for-1)•February 18, 2005(2-for-1)

Dividend History No dividend for last five years

Stock Repurchase Authorized repurchase up to $283 millions of common stock as of February 18,2005

Strength • Strong Functional skill

– Untraditional Product Lines: iPod, PowerBook

– Increasing R&D investment

– Superior Financing Positions: high cash reserve

– Marketing: high brand recognition

• Human recourse

– Steven Job and his NeXT team

Challenging • Supplier power

– Single or limited source of supply for key component – Intel became one of the microprocessor supplier

• Uncertain Demand– US educational market – Overall demand for IT products is decreasing– Self Cannibalization of iPod products

• Lawsuit– The company currently involves in 26 lawsuits in North American and Europe – Claims includes patent infringement, false advertising and unfair business

practices– The financial effect is still unknown

http://dutchcelt.nl/images/uploads/apple-intel.gif

Recommendation

Sell

Dell Inc. Stock

http://quotes.nasdaq.com/asp/SummaryQuote.asp?symbol=DELL&selected=DELL

DETAILS

Dell, a Delaware corporation, was founded in 1984 by Michael Dell

Dividends Dell has never declared or paid any cash dividends on shares of its common stock and currently does not anticipate paying any cash dividends in the immediate future.

1 Year Performance

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

Performance Since 1996

History

1984: Michael Dell founds Dell Computer Corporation 1987: International expansion begins with opening of subsidiary in United Kingdom 1988: Dell conducts initial public offering of company stock (3.5 million shares at

$8.5 each)1993: Enters into Asia-Pacific region with subsidiaries in Australia and Japan 1996: Company begins major push into the server market2000: Company sales via Internet reach $50 million per day 2001: For the first time, Dell ranks No. 1 in global market share2004: Kevin Rollins becomes Dell's next chief executive officer. Michael Dell moves

to Chairman of the Board2005:Dell tops list of "America's Most Admired Companies" in Fortune Magazine.

Opens third major U.S. manufacturing location in Winston- Salem, North Carolina

Management

Kevin B. RollinsPresident and CEOAge: 53# of Shares owned: 17,547

Michael S. DellChairman of the BoardAge:41# of shares owned: 207,983,382

Management

Stock Ownership

Summary Compensation Table

Stock Options

Share Repurchase Program

• Dell’s share repurchase program was announced on February 20, 1996; up to 1.5 billion shares of common stock at an aggregate cost not to exceed $30 billion are currently authorized to be purchased.

• As of February 3, 2006, 123 million shares of common stock at an aggregate cost of $4.4 billion were available for future purchases under the share repurchase program.

Business Strategy

Customers can purchase custom-built products and custom-tailored services.

• Allows customers to customize products.• Strong sales representatives to deal with large businesses and government

institutions.

Dell is a low-cost leader.

Direct-Sales Model:• Sells products both to consumers and corporate customers via the Internet and

the telephone network.

• Takes orders directly from customers.• Eliminates wholesale and retail dealers that add unnecessary time and cost.• Dell maintains a negative cash conversion cycle through use of this model.

http://en.wikipedia.org/wiki/Internet

http://en.wikipedia.org/wiki/Telephone

http://en.wikipedia.org/wiki/Cash_conversion_cycle

Business Strategy• Cash conversion cycle: The cash conversion cycle is the number of days

between paying for raw materials and receiving the cash from the sale of the goods made from that raw material.

• Dell has a negative cash conversion cycle because it receives payment from customers before it has to pay suppliers.

http://en.wikipedia.org/wiki/Cash_conversion_cycle

http://en.wikipedia.org/wiki/Material

http://en.wikipedia.org/wiki/Money

Cash conversion cycle

• Direct business model allows Dell to minimizing inventory risk while collecting amounts due from customers before paying vendors. This enables the company to generate annual cash flows from operating activities that typically exceed net income.

Value Proposition

Customized

Reliable

Low Price

Build-to-Order

How: Choices / Activity System / Value Chain

No channel marketing /

logistics costs

No channel markup

Minimal Pre-sales costs

Minimal Inventory

Transact directly with customers /

Bypass Channel (i.e. Wholesalers

and retailers) Dell.com

Target Segments

Corporate Customers

Dell Position Diagram

Large Outside Sales

Force

Close integration w/ suppliersDesign for

Quick Configuration

Telephone

Courtesy of Andrew von Nordenflycht

Technology

DesignDevelopment

Manufacturing

ProcurementAssembly

Distribution

TransportInventory

Marketing

RetailingAdvertising

Service

PartsLabor

• Design for ease of manufacture

•Close integration w/ suppliers

•JIT

•Co-location

•Build-to-Order

•Ship directly to customers from factory – or even from suppliers

• via 3rd party shipper

•Direct interaction with customers / No intermediary

Online / 800 for corporate & SOHO

-Sales force for corporate

•Low-cost Support

•online/800

•Outsource on-site support

Value chain for Dell

Dell Americas• Headquarters: Round Rock, Texas• Manufacturing facilities: Austin, Texas, Nashville, Tennessee, Winston-Salem,

North Carolina, Eldorado do Sul, Brazil

• Revenue (last four quarters): $36.4 billion • Q4 Y/Y revenue growth: 10 percent • Market position: No. 1 in United States*• Number of employees: 31,100• Regional offices in: • Argentina• Brazil• Canada• Chile• Colombia• El Salvador• Mexico• Panama• Puerto Rico

• Headquarters: Singapore• Manufacturing facilities: Penang, Malaysia; Xiamen, China• Revenue (last four quarters): $6.6 billion• Q4 Y/Y revenue growth: 21 percent• Market position: No. 3 A/P*; No. 3 Japan* • Number of employees: A/P 19,400; Japan 1,100• Regional offices in: Australia, China, Hong Kong India, Indonesia, Japan Korea, Malaysia, Philippines Singapore, Taiwan, Thailand

Dell Asia Pacific - Japan

Dell Europe, Middle East and Africa

• Headquarters: Bracknell, U.K.• Manufacturing facilities: Limerick, Ireland• Revenue (last four quarters): $12.9 billion• Q4 Y/Y revenue growth: 18 percent• Market position: No. 2 in Europe*• Number of employees: 13,600• Regional offices in: • Austria, Bahrain, Belgium, Czech Republic• Denmark, Finland, France, Germany• Greece, Hungary, Ireland, Israel, Italy• Morocco, Netherlands, Norway, Poland• Romania, Russia, Portugal, Scotland• Slovakia, South Africa, Spain, Sweden• Switzerland, Turkey, United Arab Emirates

Revenues by Segment

Americas: Revenue declined from 69% in 04 to 67% and 65% in 05 & 06 respectively.EMEA: Increased of 1% every year since 2004. Asia-Pacific-Japan: Increased of 1% every year since 2004.

product groups

Product Line Revenue (in billions) Feb 3, 2006

38%

25%

15%

10%

9% 3%Desktop PCs

Mobility

Softw are & Peripherals

Servers & Netw orking

Enhanced Services

Storage

Financial Services:

• Dell Financial Services L.P. (“DFS”), a joint venture between Dell and CIT Group, Inc. (“CIT”).

Risks

• Loss of government contracts and big businesses

• Reliance on suppliers

• International competitions (i.e. Acer, and Japanese PC makers)

Financial Statements

• Balance Sheet

• Income Statement

• Cash Flow Statement

Balance Sheet

Income Statement

Cash Flow Statement

SELECTED FINANCIAL DATA

• Selected Financial Data

• Liquidity, Capital Commitments, and Contractual Cash Obligations

• Contractual Cash Obligations

• Investments

SELECTED FINANCIAL DATA

Liquidity, Capital Commitments, and Contractual Cash Obligations

Contractual Cash Obligations

Investments

Five-Year Performance Graph

(in millions, except per-share data)

FY06 FY05 FY04 FY03 FY02

Net revenue $55,908 $49,205 $41,444 $35,404 $31,168

Operating income $4,789 $4,254 $3,544 $2,844 $2,271

Net income $3,825 $3,323 $2,645 $2,122 $1,780

Earnings per share $1.56 $1.29 $1.01 $0.80 $0.65

Closing stock price $29.26 $41.06 $33.44 $23.86 $26.80

Full-year FY

Annual Financial Highlights

Key Statistics

http://finance.yahoo.com/q/ks?s=DELL

RecommendationCould buy now but better to wait until autumn then:

Buy

• New Microsoft OS, Vista, soon to be released in early 2007.

• Potential deal with AMD.

• Potential deal with Google.

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

Documents

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