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PC Makers
Presented by:
Doey Au-Yeung
Pierrick Chamois
Liang Min
Huy Le
Overview

Industry Analysis

Company Analysis
 HP
 Apple
 Dell
What is a PC


Multipurpose computer system
Assembled from standardized components
 Components



Minimal compatibility issues
>90% use Intel based CPUs
Hard drives, graphics cards function similarly
 Easy

perform identical functions
to assemble
All PCs consists of a similar set of components
A Modern PC
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Display
Motherboard
CPU
(Microprocessor)
Primary storage
(RAM)
Expansion cards
Power supply
Optical disc drive
Secondary
storage (Hard
disk)
Mouse
Keyboard
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
Industry Development

1981: IBM PC
 Late entry
 Time constraints
 Third party hardware and software components



Only ROM BIOS proprietary
Reverse engineering
Easy to mimic (clone)


Clones would perform functions of the original
Lower cost
 PC Makers began as clone makers
 Compaq first 100% compatible clone
Industry Development

Mid 1980s:
 IBM PC and clones dominant
 Standardization of platform
 One common hardware and software base
 Software: Microsoft

Early 1990s:
 IBM and Co held 84% of
 Non clones forced out of
 Commodore, Atari, Tandy
 Apple sole survivor
market by 1990
market
Industry Development

Late 1990s:
 Dotcom mania: small real effect on PC industry
 Mostly networking equipment manufacturers (Cisco, Nortel)
 Y2k: increased PC spending due to compatibility
fears

2000 to present:
 Steady decline in PC prices
 Component life cycle critical
 Decline in PC prices mainly due to decline in component
prices
 PC industry homogeneous from day one
Key Success Factors


R&D
Branding


Competitive cost structure


Apple: iPod - 46.3% market share
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)
LA
6.7%
Japan
6.7%
Canada
3.0%
EMEA
33.2%
AP
19.6%
US
30.7%
Worldwide PC Market by Region
(2004 vs. 2005)
Source: Gartner Dataquest (January 2006)
Region
EMEA
US
AP
LA
Japan
Canada
Totals
2005
2005
2004
2004
Shipment Market Shipment Market
s
Share (%)
s
Share (%)
72,649
33.2
62,014
32.7
67,151
30.7
62,443
32.9
42,777
19.6
33,947
17.9
14,711
6.7
11,671
6.2
14,662
6.7
13,635
7.2
6,583
3.0
5,829
3.1
218,533
100.0
189,539
100.0
Growth
17.1
7.5
26.0
26.0
7.5
12.9
15.3
Worldwide PC Market by Player
(2005)
Source: Gartner Dataquest (January 2006)
Dell
16.8%
HP
14.5%
Others
53.3%
Fujitsu/Siemens
3.8%
Acer
4.6%
Lenovo
6.9%
Worldwide PC Market by Player
(2004 vs. 2005)
Source: Gartner Dataquest (January 2006)
2005
2005
2004
2004
Shipment Market Shipment Market
Firm
s
Share (%)
s
Share (%)
Dell
36,764
16.8
31,009
16.4
HP
31,792
14.5
27,623
14.6
Lenovo
15,054
6.9
12,937
6.8
Acer
10,154
4.6
6,425
3.4
Fujitsu/Siemens 8,326
3.8
7,144
3.8
Others
116,443
53.3
104,401
55.1
Totals
218,533
100.0
189,539
100.0
Growth
18.6
15.1
16.4
58.0
16.5
11.5
15.3
EMEA PC Market by Player (2004
vs. 2005)
Source: Gartner Dataquest (January 2006)
2005
2005
2004
2004
Shipment Market Shipment Market
Firm
s
Share (%)
s
Share (%)
HP
11,536
15.9
9,966
16.1
Dell
8,453
11.6
6,584
10.6
Acer
6,523
9.0
4,359
7.0
Fujitsu/Siemens 5,383
7.4
4,230
6.8
NEC
2,816
3.9
1,904
3.1
Others
37,937
52.2
34,971
56.4
72,648
100.0
62,014
100.0
Growth
15.8
28.4
49.6
27.3
47.9
8.5
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





“nonbranded” – local retailer brand
BTO (build-to-order)
Other services provided



Localized, more personal service
Sells PCs, hardware, software, and services
Networking
Installation
Reduced after sales service
Supply Chain
Issues

Change in competitive focus:
 Speed and capacity
 Useful features

not as important
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
 Summer: Back to School
 Winter: Christmas
year
Issues

Environmental Issues
 Hazardous

Heavy metals (lead, mercury, cadmium, chromium)
 Recent



substances (HS)
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 markets
 Switch

New HP CEO
 New

to Intel CPUs
strategy: technology solutions
Dell acquires Alienware
 High-end
gaming market
Company Analysis
Snapshot (as of 03-25-06)
Source: Nasdaq.com
T o ta l Re v e n u e
$86,696,000,000
O p e ra tin g In c o me
$3,689,000,000
Ea rn in g s Be fo re In te re s t a n d T a x
$3,759,000,000
N e t In c o me
$2,398,000,000
T o ta l A s s e ts
$77,317,000,000
Lo n g T e rm D e b t
$3,392,000,000
T o ta l Eq u ity
$37,176,000,000
Pro fit M a rg in
3%
A fte r T a x RO E
6%
La s t Sa le
$ 33.17
Sh a re s O u ts ta n d in g
2,828,423,000
M a rke t Va lu e $ 93,818,790,910
P/E Ra tio
36.05
D iv id e n d A mo u n t
$ 0.32
Be ta
1.71
A n n u a l EPS Es t:
$1.95
HP Analysis as of March 2006
Agenda
•
•
•
•
•
Presentation of the Company
Business Analysis
Financial Analysis
Stock Analysis
Recommendation
HP Analysis as of March 2006
The Company1
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
Background
• 1939: Bill Hewlett and David Packard founded the company
– First product: the resistance-capacitance audio oscillator
– First Client: Walt Disney Studio
•
•
•
•
•
•
•
•
1947: HP is incorporated
1957: The company goes public ($16 per share)
1961: The company is listed on the NYSE
1962: HP appears in the Fortune 500
1989: HP is listed on Tokyo stock Exchange
1997: HP becomes one of the 30 stocks that comprise the DJIA
1998: Compaq acquires DEC
2001: HP and Compaq announce their merger (effective in May 2002)
HP Analysis as of March 2006
The CEO
• Mark HURD (2005) – is chief executive officer and president of HP
and also a member of the company's board of directors.
•
•
•
•
Hurd previously spent 25 years at NCR Corp., culminating in his two-year tenure as chief executive officer
and president.
Hurd was named president of NCR in 2001 and was given additional responsibilities as chief operating
officer in 2002. Prior to that, he spent three years as head of the company's Teradata data-warehousing
division. Earlier, he held a variety of general management, operations, and sales and marketing roles. Hurd
began his career at NCR as a field salesman in 1980.
Hurd is a member of the Technology CEO Council, a coalition of chairmen and chief executive officers of
IT companies, which develops and advocates public policy positions on technology and trade issues.
He earned a bachelor's degree in business administration in 1979 from Baylor University.
HP Analysis as of March 2006
Executive Team: A Mix between
insiders and outsiders
•
Ann O. BASKINS (1982) - Senior Vice President, General Counsel and Secretary (1999)
•
Gilles BOUCHARD (1989) - Executive Vice President, Global Operations (2001)
•
Todd Bradley - Executive Vice President, Personal Systems Group
•
Vyomesh (VJ) Joshi (1980) - Executive Vice President, Imaging and Printing Group (1999)
•
Ann Livermore (1982) - Executive Vice President, Technology Solutions Group (1995)
•
Cathy Lyons - Executive Vice President and Chief Marketing Officer
•
Randall (Randy) D. Mott - Executive Vice President and Chief Information Officer
•
Marcela Perez de Alonso (2004) - Executive Vice President, Human Resources (2004)
•
Shane Robison (Ex-Compaq) - Executive Vice President and Chief Strategy and
Technology Officer
•
Robert P. Wayman (1969) - Executive Vice President and Chief Financial Officer (1984)
HP Analysis as of March 2006
Business analysis
• Outlook
–
–
–
–
7 different business segments
High level of competition
Cost reduction issue
Sales Channels issue
HP Analysis as of March 2006
Business Segments
•
•
•
•
•
•
•
Enterprise Storage and Servers (ESS)
HP Services (HPS)
Software
The Personal System Group (PSG)
The Imaging and Printing Group (IPG)
HP Financial Services (HPFS)
Corporate Investment
HP Analysis as of March 2006
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
HP Analysis as of March 2006
Segments Description: PSG
• Mission: to provide commercial PCs, consumer PCs, workstations,
handheld computing devices, digital entertainment systems, calculators
and other related accessories, software and services for the commercial
and consumer markets
• Compaq was acquired to strengthen this segment and compete against
Dell
Source: Wall Street Journal
HP Analysis as of March 2006
Segments Description: IPG
• Mission: to provide imaging and printing systems for printer hardware,
printing supplies and scanning devices, providing solutions across customer
segments for individual consumers to small and medium businesses to large
enterprises
HP Analysis as of March 2006
Segments Description: HPFS
• Mission: to support and enhance HP’s global product and service
solutions, providing a broad range of value-added financial life cycle
management services
HP Analysis as of March 2006
Segments Description: Corporate
Investments
• This segment is managed by the Office of Strategy and Technology and
includes HP labs and certain business incubation projects.
• Revenue is attributable to the sale of certain network infrastructure
products and to the licensing of HP Technologies to third parties
HP Analysis as of March 2006
Business Segments: figures
G ro w th in N e t R e ve n u e
R e ve n u e B re a kd o w n
2005
2004
PSG
2.7
4.7
PSG
26,741
24,622
HP S
2.1
1.9
HP S
15,536
13,848
ESS
2.0
0.8
ESS
16,701
15,074
IP G
1.2
2.2
IP G
25,155
24,199
HP FS
0.3
-
HP FS
2,102
1,895
S oftw are
0.2
0.2
S oftw are
1,077
933
-
(0.4)
C orp Invt & other
523
449
8.5
9.4
87,835
81,020
1 ,1 3 9
1 ,1 1 5
C orp Invt & other
2005
d e lta
G ro ss M a rg in
2004
R e ve n u e B re a kd o w n (%)
2005
2004
PSG
(0.8)
-
HP S
(0.5)
(0.6)
ESS
-
-
IP G
0.1
(0.8)
HP FS
0.1
0.1
S oftw are
0.1
-
C orp Invt & other
0.5
(0.4)
(0.5)
(1.7)
HP Analysis as of March 2006
2005
2004
PSG
30.44%
30.39%
HP S
17.69%
17.09%
ESS
19.01%
18.61%
IP G
28.64%
29.87%
HP FS
2.39%
2.34%
S oftw are
1.23%
1.15%
C orp Invt & other
0.60%
0.55%
100%
100%
Business Segments Trends
30000
Evolution of Revenue per Segment
Over a Three Year Period in m$
25000
20000
15000
10000
5000
0
2003
PSG
2004
HPS
ESS
IPG
HPFS
2005
Software
Corp Invt & other
35
30
25
20
15
10
5
Relative Evolution of Revenues per
Segment in %
0
2003
PSG
2004
HPS
HP Analysis as of March 2006
ESS
IPG
HPFS
2005
Software
Corp Invt & other
Segment Revenue Trends
HP Analysis as of March 2006
Segment Revenue Trends (Cont’d)
HP Analysis as of March 2006
Segment Operating Profit Trends
HP Analysis as of March 2006
Competitors
•
•
•
•
•
•
ESS: IBM, EMC, DELL
HPS: IBM (Global Services), Accenture
Software: BMC, Computer Associate Int. Inc., IBM Trivoli
PSG: Dell, Toshiba, Apple, Lenovo, Gateway, Fujitsu
IPG: Lexmark Int., Xerox, Epson, Canon USA, Dell
HPFS: IBM (Global financing), financial institutions
=> HP is leader or among the leaders in each segment, the harsh competition is
therefore a key issue for the firm
HP Analysis as of March 2006
Compaq Acquisition: HP’s answer to
the Dell Threat
• Dell has literally eaten the market
shares of HP, Compaq and IBM
– IBM sold its computer business
to Lenovo
– HP acquired Compaq
HP Analysis as of March 2006
Compaq Acquisition
• Description: HP buys Compaq with a $24,17b deal that was effective in May
2002 (in an exchange of 0.6325 shares of HP common stock for each outstanding
share of Compaq common stock)
• Objective: C. Fiorina, CEO who led the acquisition, wanted to reinforce the
distribution channels of HP, counter the Dell upsurge that forced IBM to quit the
market and give HP some scale effects to cut the costs in PSG and HPS
• Consequences
– HP is selling worldwide and enjoy an impressive sales force
– In three years HP financials are strong despite the importance of the merger
– But the marriage is painful and the integration leads to several restructuring
plans, layoffs and to a complex organization not efficient enough for the market
standards (expected scope effects – between IPG and PSG – and scale effects –
cost synergies in PSG and HPS – didn’t occur)
HP Analysis as of March 2006
Current Challenges
• Complex IT organization with a matrix-based infrastructure
– Opacity in the accountancy
– Slow decision-making
• Cost competition
– Retirement program
– Workforce reduction
– Dissolution of CSG
=> HP needs to be more competitive
HP Analysis as of March 2006
New Trends
• Next generation data center architecture: emergence of a 24*7
automated, lights-out data center. An environment that will need to be highly
secure, highly automated and remotely accessed and managed
• Always on mobile computing: convergence of voice and data services,
people will be more mobile and the bandwidth will increase. Driving this revolution
requires advanced devices, but also infrastructure, services and solid go-to-market
partnerships
• Ubiquitous printing and imaging: color-use is increasing, multifunction
printer and copier markets are converging… HP is investing worldwide in this
sector
• Go-to-market model: HP tries to improve its ability to cross sell, up sell and
drive solution sales
HP Analysis as of March 2006
Risk Factors That Can Affect The
Financials
• Harsh competition
– Competitive pricing of products needs low costs
– Threat of substitutes is high
• Sensitivity of the sales to customer requirements: HP is shortsighted and must develop, manufacture and market products on uncertain
markets
– Need to know the new technological trends
– Quality issue with new products
• Managing the technology transitions is cumbersome
– Short product life cycles
– Difficulty to have the good timing of product and services
HP Analysis as of March 2006
Risk Factors That Can Affect The
Financials (Cont’d)
• IP issue
– R&D is the core business of HP
– The firm is global and weather difficulties to protect its Intellectual
Rights in some regions
• Product distribution management
– Potential conflict btw direct and indirect sales channels
• Sales cycle makes the planning and inventory management
difficult
– High depreciation rate of inventories
HP Analysis as of March 2006
HP Strategy
• Restructuring Plans
– 15,300 employees left or are expected to leave within 2007
– As of October 31, 2005, the total cost was $5.74bn
• R&D
– $3.5bn
– HP patent portfolio includes over 30,000 patents
• Global Firm
– Over than 60% of the net revenue in fiscal 2005 came from outside the
US
HP Analysis as of March 2006
HP Financials Analysis
•
•
•
•
Statements of Operations
Balance Sheet
Statements of Cash Flows
Standard Ratios
HP Analysis as of March 2006
In U S D m illion
2005
2004
2003
2002
2001
P roduc ts
68,945
64,127
58,826
45,878
38,059
S ervic es
17,380
15,389
13,768
10,390
6,765
F inanc ing Inc om e
371
389
467
320
402
N e t R e ve n u e
86,696
79,905
73,061
56,588
45,226
C os t of P roduc ts
52,550
48,359
43,619
34,127
28,824
C os t of S ervic es
13,674
11,791
10,031
7,477
4,688
F inanc ing Interes t
216
190
208
189
236
R es earc h D evelopm ent
3,490
3,506
3,651
3,368
2,753
S elling, G eneral and A dm inis trative
11,184
11,024
11,012
8,763
6,668
P ens ion C urtailm ent
(199)
-
-
-
-
5,035
4,540
2,664
2,057
E B IT D A
5,781
A m ortiz ation of P urc has ed Intangible A s s ets
622
603
563
402
174
E B IT
5,159
4,432
3,977
2,262
1,883
R es truc turing C harges
1,684
114
800
1,780
384
A c quis ition-related C harges
-
54
280
701
25
In-proc es s R es earc h and D evelopm ent C harges
2
37
1
793
35
C o st a n d Ex p e n se s
83,223
75,678
70,165
57,600
43,787
Ea rn in g s (lo ss) fro m O p e ra tio n s
3,473
4,227
2,896
(1,012)
1,439
Interes t and O ther, net
189
35
21
52
171
N et Los s es on D ives titures
-
-
-
-
(13)
4
(29)
(75)
(366)
(400)
G ains (los s es ) on Inves tm ents O n E arly
(53)
E x tinguis hm ent O f D ebt
-
14
Ea rn in g s (lo ss) B e fo re T a x e s
D is pute S ettlem ent
3,543
(106)
4,196
(70)
2,888
(1,021)
P rovis ion for (benefit from ) tax es
1,145
699
349
(118)
C um ulative E ffec t O f C hange O n A c c ounting
-
-
-
2,398
3,497
2,539
791
111
-
(272)
P rinc iple, net of tax es
N e t Ea rn in g s (lo ss)
(903)
408
N e t Ea rn in g s (lo ss) p e r S h a re
B as ic 0.83
1.16
0.83
-0.36
0.35
D iluted 0.82
1.15
0.83
-0.36
-0.14
B as ic 2879
3024
3047
2499
1936
D iluted 2909
3055
3063
2499
1974
W e ig h te d A ve ra g e S h a re s U se d to C o m p u te
N e t Ea rn in g s (lo ss) p e r S h a re
HP Analysis as of March 2006
in U S D m illion
2005
2004
2003
2002
2001
C as h and C as h E quivalent
13,911
12,663
14,188
11,192
S hort-Term Inves tm ents
18
311
403
237
4,197
139
A c c ounts R ec eivables
9,903
10,226
8,921
8,456
4,488
F inanc ing R ec eivables
2,551
2,945
3,026
3,453
2,183
Inventory
6,877
7,071
6,065
5,797
5,204
O ther C urrent A s s ets
10,074
9,685
8,351
6,940
5,094
C u rre n t A sse ts
43,334
42,901
40,954
36,075
21,305
P roperty , P lant ans E quipm ent
6,451
6,649
6,482
6,924
4,397
Long-Term F inanc ing R ec eivables A nd O ther A s s ets
7,502
6,657
8,030
7,758
6,126
G oodw ill
16,441
15,828
14,894
15,089
667
P urc has ed Intangible A s s ets
3,589
4,103
4,356
4,864
89
T o ta l A sse ts
77,317
76,138
74,716
70,710
32,584
N ote P ay able and S hort-Term B orrow ings
1,831
2,511
1,080
1,793
1,722
A c c ounts P ay able
10,223
9,377
9,285
7,012
3,791
E m ploy ee C om pens ation A nd B enefits
2,343
2,208
1,755
2,012
1,477
Tax es O n E arnings
2,367
1,709
1,599
1,529
1,818
D eferred R evenue
3,815
2,958
2,496
3,260
1,867
A c c rued R es truc turing
1,119
193
709
1,309
82
O ther A c c rued Liabilities
9,762
9,632
8,545
7,395
3,207
C u rre n t L ia b ilitie s
31,460
28,588
25,469
24,310
13,964
L o n g -T e rm D e b t
3,392
4,623
6,494
6,035
3,729
O th e r L ia b ilitie s
5,289
5,363
5,007
4,103
938
A c quis ition-related C harges
P referred S toc k , $0.01 par value (300 s hares
0
0
0
0
0
28
29
30
30
19
A dditional P aid-In C apital
20490
22129
24587
24660
200
R etained E arnings
16679
15649
13332
11973
13693
authoriz ed; none is s ued)
C om m on S toc k , $0.01 par value (9600 s hares
authoriz ed; and 3043 s hares is s ued and
outs tanding, res pec tively )
A c c um ulated O ther C om prehens ive Los s
-21
-243
-203
-401
41
S to ckh o ld e rs' Eq u ity
37176
37564
37746
36262
13953
T o ta l L ia b ilitie s a n d S to ckh o ld e rs' Eq u ity
77317
74716
70710
32584
76,138
HP Analysis as of March 2006
Major Captions
• Cash & Cash Equivalent
– HP is a “Cash Cow” (cf. CF statements)
– Jobs Act October, 2004: $7.5b repatriated in the US
– Strong Cash Position to cover the significant cash outlays expected in fiscal
2006 associated with the restructuring actions and company bonus payments
• Goodwill
– No impairment of Goodwill existed as of August 1, 2005 or August 2, 2004
– The substantial amount of Goodwill is due to Compaq Acquisition as of May 2,
2002
• Debt
– Excluding the debt associated with the leasing business there is virtually no
operational debt. Conservative structure due to the risky core business of HP
(R&D)
HP Analysis as of March 2006
In USD million
Cash Flows from Operatin Activities
Net Earnings
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities
Depreciation and Amortization
(Benefit) Provision for Doubtful Accounts - Accounts and
Financing Receivables
Provision for Inventories
Restructuring Charges
Pension Curtailment Gain
Acquisition-related Charges, Including In-process Research and
Development
Deferred Taxes on Earnings
Other, Net
Change in Assets and Libailities
Accounts and Financing Receivables
Inventory
Accounts Payable
Taxes on Earnings
Restructuring
Other Assets and Liabilities
Net Cash Provided by Operating Activities
Cash Flows from investing Activities
Investment in Property, Plant and Equipment
Proceeds from Sale of Property, Plant and Equipment
Purchases of Available-for-Sale Securities and Other Investments
Maturities and Sales of Available-for-Sale Securities and Other
Investments
Payment made in Connection with Business Acquisitions, Net
Net Cash Used in Activities
Cash Flows from Financing Activities
Repayment of Commercial Paper and Notes Payable, Net
Issuance of Debt
Payment of Debt
Issuance of Common Stock Under Employee Stock Plans
Repurchase of Common Stock
Dividends
Net Cash Used In Financing Activities
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of Period
Cash and Cash Equivalents at the End of Period
2005
2004
2003
2,398
3,497
2,539
2,344
(22)
2,395
98
2,527
102
398
1,684
(199)
2
367
114
91
391
800
281
(162)
1
26
89
(279)
141
666
(208)
846
748
(247)
(221)
8,028
(696)
(1,341)
3
(32)
(601)
1,078
5,088
88
(638)
2,257
53
(1,240)
(965)
6,057
(1,995)
542
(1,729)
2,066
(2,126)
447
(3,964)
4,313
(1,995)
353
(596)
875
(641)
(1,757)
(1,124)
(2,454)
(149)
(1,512)
(1)
84
(1,827)
1,161
(3,514)
(926)
(5,023)
(172)
9
(285)
570
(3,309)
(972)
(4,159)
(223)
749
(829)
482
(751)
(977)
(1,549)
1,248
12,663
13,911
(1,525)
14,188
12,663
2,996
11,192
14,188
HP Analysis as of March 2006
S T A N D A R D F IN A N C IA L R A T IO S
2005
2004
2003
2002
2001
P ro fita b ility R a tio s
N et operating M argin (E B ITD A )
E B ITD A / S ales
6.67%
6.30%
6.21%
4.71%
4.55%
net inc om e / s ales
2.77%
4.38%
3.48%
-1.60%
0.90%
return on as s ets
net inc om e / as s ets
3.10%
4.59%
3.40%
-1.28%
1.25%
return on equity
net inc om e / equity
6.45%
9.31%
6.73%
-2.49%
2.92%
s ales / as s ets
1.12
1.05
0.98
0.80
1.39
c os t of goods s old / inventory
9.66
8.53
8.88
7.21
6.49
s ales / ac c s . rec .
8.75
7.81
8.19
6.69
10.08
c os ts of goods s old / ac c s . pay .
6.50
6.43
5.80
5.96
8.90
profit m argin
A sset U tiliz atio n R atio s
as s et turnover
inventory turnover
ac c ounts rec eivable turnover
ac c ounts pay able turnover
inventory c onvers ion period
365 / inventory turn.
37.78
42.77
41.10
50.63
56.28
ac c s . rec . c ollec tion period
365 / ac c s . rec . turn.
41.69
46.71
44.57
54.54
36.22
ac c s . pay able c ollec tion period
365 / ac c s . pay . turn.
56.16
56.72
62.93
61.24
41.00
23.31
32.76
22.75
43.93
51.50
c urrent as s ets / c urrent liabilities
1.38
1.50
1.61
1.48
1.53
c urr. as s ets les s inventory / c urr. liab.
1.16
1.25
1.37
1.25
1.15
27.30
126.63
189.38
43.50
11.01
0.14
0.19
0.20
0.22
0.39
-0.23
-0.15
-0.18
-0.09
0.09
D ebt / A s s ets
0.07
0.09
0.10
0.11
0.17
A s s ets / E quity
2.08
2.03
1.98
1.95
2.34
R O E is the produc t of the follow ing
6.45%
9.31%
6.73%
-2.49%
2.92%
profit-m argin
0.03
0.04
0.03
-0.02
0.01
as s et-turnover
1.12
1.05
0.98
0.80
1.39
as s ets -to-equity
2.08
2.03
1.98
1.95
2.34
RO E
6.45%
9.31%
6.73%
-2.49%
2.92%
c as h-c onvers ion c y c le
M EA S U R ES O F L IQ U ID IT Y
c urrent ratio
ac id-tes t
tim es interes t earned
E B IT / interes t
F IN A N C IA L L EV ER A G E
debt-to-equity
D ebt / E quity
D ebt net - to equity
debt-to-as s ets
as s ets -to-equity
T H E L EV ER S O F P ER F O R M A N C E
HP Analysis as of March 2006
HP Stock Analysis
Source: Yahoo!Finance
• Dividend Policy
S toc k P r ic e His tor y
– Dividends are paid quarterly and
were $0.32 per common share in each
of fiscal 2005, 2004 and 2003
Be ta :
1.62
52-W e e k Ch a n g e :
67.61%
S& P500 52-W e e k Ch a n g e :
10.96%
52-W e e k H ig h (16-Fe b -06) :
34.52
52-W e e k Lo w (28-M a r-05) :
19.6
50-D a y M o v in g A v e ra g e :
32.74
200-D a y M o v in g A v e ra g e :
29.96
3
3
3
3
3
3
D ivide nds & S plits
S har e S tatis tic s
Fo rw a rd A n n u a l D iv id e n d Ra te :
0.32
A v e ra g e Vo lu me (3 mo n th ) :
12,703,300
Fo rw a rd A n n u a l D iv id e n d Yie ld :
1.00%
A v e ra g e Vo lu me (10 d a y ) :
11,225,300
T ra ilin g A n n u a l D iv id e n d Ra te :
0.32
Sh a re s O u ts ta n d in g :
2.83B
T ra ilin g A n n u a l D iv id e n d Yie ld :
0.10%
Flo a t:
2.82B
5 Ye a r A v e ra g e D iv id e n d Yie ld :
1.60%
% H e ld b y In s id e rs :
3.57%
Pa y o u t Ra tio :
35%
% H e ld b y In s titu tio n s :
70.00%
D iv id e n d D a te :
5-A p r-06
Sh a re s Sh o rt (a s o f 10-M a r-06) :
42.76M
Ex-D iv id e n d D a te :
13-M a r-06
Sh o rt Ra tio (a s o f 10-M a r-06) :
2.9
La s t Sp lit Fa c to r (n e w p e r o ld ) :
2:01
Sh o rt % o f Flo a t (a s o f 10-M a r-06) :
1.50%
La s t Sp lit D a te :
30-O c t-00
Sh a re s Sh o rt (p rio r mo n th ) :
47.58M
5
5
3
3
5
5
3
5
2
3
3
3
4
4
3
3
HP Analysis as of March 2006
3
3
Stock Trends Over Time
1 year
5
40
yearperiod
period
HP Analysis as of March 2006
HP Vs Dell & IBM
HP Analysis as of March 2006
Multiple Analysis
HP
IBM
Dell
Trailing P/E (ttm, intraday)
35.86
17.1
20.6
Forward P/E (fye 31-Oct-07)
14.94
13.19
15.74
PEG Ratio (5 yr expected)
1.36
1.36
1.06
Price/Sales (ttm)
1.06
1.43
1.25
Price/Book (mrq)
2.6
3.96
17.12
Enterprise Value/Revenue (ttm)
0.99
1.53
1.09
Enterprise Value/EBITDA (ttm)
11.371
8.08
12.55
HP and Dell carry an insignificant amount of debt and therefore we
can consider their ratios to be unleveraged (and therefore
comparable)
HP Analysis as of March 2006
Upgrades and Downgrades History
Date
Research Firm
Action
From
To
16-Feb-06
Credit Suisse
Upgrade
Neutral
Outperform
13-Jan-06
Goldman Sachs
Upgrade
In-Line
Outperform
11-Jan-06
Prudential
Upgrade
Neutral
Overweight
18-Nov-05
Caris & Company
Upgrade
Above Average
Buy
14-Nov-05
Bernstein
Downgrade
Outperform
Mkt Perform
Am Tech/JSA Research
Downgrade
Buy
Hold
1-Nov-05
22-Sep-05
Robert W. Baird
Initiated
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
Am Tech/JSA Research
Initiated
Buy
22-Jun-05
Moors & Cabot
Initiated
Buy
22-Jun-05
First Albany
10-Jun-05
7-Sep-05
13-Jul-05
Neutral
Downgrade
Buy
Neutral
FTN Midwest
Upgrade
Neutral
Buy
15-Apr-05
Raymond James
Initiated
5-Apr-05
Caris & Company
Upgrade
HP Analysis as of March 2006
Outperform
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”
HP Analysis as of March 2006
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 Sales of Products
Net Sales ( in
millions)
5000
Desktops
Portables
4000
3000
iPod
2000
1000
0
2005
2004
Year
2003
Other music
related products
and servies
Peripheral and
other hardware
Software,
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 summary
Mar. 24, 2006 Market
Last 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: $4,085
Source : www.nasdaq.com
Stock Information
Stock Information
Stock Exchange
NASDAQ and Frankfurt Stock Exchange (Germany)
Symbol Ticket
APPL (NASDAQ) and APCD (Germany)
Time of IPO
December 12, 1980 (NASDAQ)
Stock Split History •May 15, 1987(2-for-1)
•June 21, 2000 (2-for-1)
•February 18, 2005(2-for-1)
Dividend History
No dividend for last five years
Stock Repurchase Authorized repurchase up to $283 millions of
common stock as of February 18,2005
Strength
•
•
Strong Functional skill
– Untraditional Product Lines: iPod, PowerBook
– Increasing R&D investment
– Superior Financing Positions: high cash reserve
– Marketing: high brand recognition
Human recourse
– Steven Job and his NeXT team
Challenging
•
•
•
Supplier power
– Single or limited source of supply for key component
– Intel became one of the microprocessor supplier
Uncertain Demand
– US educational market
– Overall demand for IT products is decreasing
– Self Cannibalization of iPod products
Lawsuit
– The company currently involves in 26 lawsuits in North American and Europe
– Claims includes patent infringement, false advertising and unfair business
practices
– The financial effect is still unknown
Recommendation
Sell
DETAILS
Dell Inc. Stock
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.
http://quotes.nasdaq.com/asp/SummaryQuote.asp?symbol=DELL&selected=DELL
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 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
Management
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
Stock Ownership
Summary Compensation Table
Stock Options
Share Repurchase Program
• Dell’s share repurchase program was announced on
February 20, 1996; up to 1.5 billion shares of common stock at an
aggregate cost not to exceed $30 billion are currently authorized
to be purchased.
• As of February 3, 2006, 123 million shares of common stock at an aggregate
cost of $4.4 billion were available for future purchases under the share
repurchase program.
Business Strategy
Customers can purchase custom-built products and custom-tailored
services.
•
•
Allows customers to customize products.
Strong sales representatives to deal with large businesses and government
institutions.
Dell is a low-cost leader.
Direct-Sales Model:
•
Sells products both to consumers and corporate customers via the Internet and
the telephone network.
•
•
•
Takes orders directly from customers.
Eliminates wholesale and retail dealers that add unnecessary time and cost.
Dell maintains a negative cash conversion cycle through use of this model.
Business Strategy
• Cash conversion cycle: The cash conversion cycle is the number of days
between paying for raw materials and receiving the cash from the sale of
the goods made from that raw material.
• Dell has a negative cash conversion cycle because it receives payment
from customers before it has to pay suppliers.
http://en.wikipedia.org/wiki/Cash_conversion_cycle
Cash conversion cycle
• Direct business model allows Dell to minimizing inventory risk
while collecting amounts due from customers before paying vendors.
This enables the company to generate annual cash flows from
operating activities that typically exceed net income.
Dell Position Diagram
Target
Segments
Corporate
Customers
Value
Proposition
How: Choices / Activity System / Value Chain
Build-to-Order
Customized
Design for Quick
Configuration
Minimal Inventory
Reliable
No channel
marketing /
logistics costs
Close integration
w/ suppliers
Transact directly
with customers /
Bypass Channel
(i.e. Wholesalers
and retailers)
Large Outside
Sales Force
Dell.com
Low Price
No channel
markup
Telephone
Minimal Pre-sales
costs
Courtesy of Andrew von Nordenflycht
Value chain for Dell
Technology
Manufacturing
Design
Development
• Design for
ease of
manufacture
Procurement
Assembly
•Close
integration w/
suppliers
•JIT
•Co-location
•Build-to-Order
Distribution
Transport
Inventory
•Ship directly to
customers from
factory – or
even from
suppliers
• via 3rd party
shipper
Marketing
Retailing
Advertising
•Direct
interaction with
customers / No
intermediary
Online / 800 for
corporate &
SOHO
-Sales force for
corporate
Service
Parts
Labor
•Low-cost
Support
•online/800
•Outsource onsite support
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
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
Dell Europe, Middle East
and Africa
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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
9%
Desktop PCs
3%
Mobility
10%
38%
Sof tw are & Peripherals
Servers & Netw orking
Enhanced Services
15%
Storage
25%
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
Annual Financial Highlights
(in millions, except pershare data)
FY05
FY04
FY03
FY02
$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
Net revenue
Full-year FY
FY06
Key Statistics
http://finance.yahoo.com/q/ks?s=DELL
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.