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PC Makers

PC Makers. Presenters: Oana Constantin Kevin Ridinger Adam Svoboda Cindy Xia. Agenda. Industry Analysis Company Analysis Dell, Inc. Hewlett-Packard Development Company, L.P. Gateway, Inc. Industry Definition. The personal computer industry consists mostly of assembling and selling:

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PC Makers

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  1. PC Makers Presenters: Oana Constantin Kevin Ridinger Adam Svoboda Cindy Xia

  2. Agenda • Industry Analysis • Company Analysis • Dell, Inc. • Hewlett-Packard Development Company, L.P. • Gateway, Inc.

  3. Industry Definition • The personal computer industry consists mostly of assembling and selling: • Desktops & Notebooks • Servers & Mainframes • Workstations & Thin Clients • Supercomputers • Mass Storage Devices • Network Equipment • Peripherals • Handheld Devices

  4. Nature of Industry Floppy, CD/DVD Drive Hard-drive Motherboard & CPU Power Source & Cables Extra Peripherals Case

  5. Industry History (1/2) • Start of the industry: 1975. MITS Altair 8080 – First personal computer • Hits maturity by the mid-1990s

  6. Industry History (2/2) • New developments beginning with late-1990s: • Rapid decline in PC prices • Consequently decrease in gross profit margins • Acceleration in the product cycle • Faster depreciation of components and finished good inventories • Success of direct-sales/build-to-order strategy • Remodeling of the value chain • Mergers and Acquisitions • HP/Compaq, Lenovo/IBM

  7. 1995 Worldwide Market Share

  8. 2004 Worldwide Market Share

  9. PC Market Growth

  10. PC Unit Sales by Region (millions)

  11. PC Market Segments (Million Units)

  12. PC Market Segment Growth

  13. PC Market Share of Leading Vendors

  14. Business Models • Big Box • Direct • White Box

  15. Big Box Model • Traditional approach, through “brick and mortar” retailers and own stores • Distributors purchase assembled, ready-to-use computers • Allows consumers to touch and feel the product • Higher cost due to high inventories, longer distribution channel • Profit margin eroded

  16. Direct Model • Take customized orders directly from end consumers • Assemble systems as orders come in • Ship the product direct to customers • More efficient, JIT inventory system • Lower costs due both to inventory savings and distribution by-passing • Savings are passed to customers

  17. White Box Model • Combination of Big Box and Direct Sales Strategies • Own distribution facilities • Allows consumers to customize their products while giving them a phisical location to purchase • Highly fragmented, estimated to more than 500 unbranded PC makers • Often sell directly to small businesses looking for a significant price break rather than a big brand machine.

  18. PC Industry Value Chain, 2004

  19. Models of Production for US Sold PCs

  20. Industry Performance • NASDAQ Computer Index (IXCO) • Includes 603 securities from categories: • Computer Hardware • Computer Software • Semiconductors • Computer Services

  21. Industry Performance: 1 Year Nasdaq Computer Index (IXCO)

  22. Industry Performance: 10 Year Nasdaq Computer Index (IXCO)

  23. Industry Key Measures • Profit Margin • Sales Growth • Market Share Growth • Valuation Ratios • Business Capital Spending

  24. Industry Statistics

  25. Recent Developments • Lenovo’s buyout of IBM’s PC unit. • Propelled the company on 3rd place in terms of worldwide market share (7.6%) for the 2nd quarter of 2005 • Apple switches to Intel processors • Lenovo investing $84m in new R&D center in North Carolina • Dell lowering earnings forecast, plus a $300m charge to repair faulty circuit boards • Hewlett-Packard has hired Dell’s CIO, Randy Mott • Soaring Apple stock price due to strong iPod sales

  26. Apple – One Year Stock Price

  27. Apple Sales Growth (millions)

  28. Future Trends – Industry • Pricing competition will become more aggressive • Exit by some smaller players • Further consolidation through mergers and acquisitions • PC shipments expected to grow at 6% per year, but revenues will remain almost flat • Forces players to further innovate and expand product offering such as media center computers and tablet PCs • Faster growth in Europe and Asia segments • Build strong marketing strategy targeting these segments to capture market share

  29. Future Trends – Technology • Continued shift from desktops to notebooks • Shift towards wireless devices • Adaptive hardware technology to support PC virtualization • Continuous movement toward miniaturization and digital enhancement of portable music players and phones

  30. Dell Inc. Presented by: Kevin Ridinger

  31. Fast Facts about Dell Inc. • Trades on NASDAQ, symbol: DELL • One share bought for $8.50 at IPO in 1988 would be worth $3,800 today. • Employs over 61,400 people • Revenues totaled over $52.8 billion for the last four quarters • Market Position: #1 in U.S., #3 in Japan, #2 in Europe • 7 Manufacturing centres spanning the globe, located in United States(3), Brazil, Europe (Ireland), Malaysia, and China. • Nearly one out of every five standards-based computer system sold in the world today is a Dell.

  32. Dell Timeline 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

  33. Management • Michael Dell – Chairman of the Board (founded company in 1984) • Kevin B Rollins – President and CEO since July 2004 (prior he was president and COO of Dell Americas – joined in 1994) • William J. Amelio – Sr. VP Asia-Pacific/Japan (since 2001) • Paul D. Bell – Sr. VP Europe, Middle East & Africa (since 1996) • Joseph A. Marengi, Sr. VP, Americas (since 1996, came from Novell) Many of Dell’s current management came to the company around 1996-97. Based on biographical evidence, many were lured from other high-tech companies, including Novell, HP, Apple, Sun and Texas Instruments.

  34. Strategy • Uses the direct business model(reliant on very efficient manufacturing and supply chain management) • Helps turnover inventory every four days (on average) • Helps ensure the latest technology is offered without keeping outdated products on the ‘shelves’. • Provides customers with single point of accountability • Standards-based (do not support proprietary technologies) • Collaboration with strategic partners • Positively affects both input prices and product leadership • Adding a significant layer of innovation (value-added processes)

  35. Dell’s strategic corporate initiatives for the future • Continued Global Growth • Growth outside of U.S. in largest countries at 30% • Product Leadership • Ex. integrated solutions to businesses (servers, desktops, and now printing) • Enhancing the Customer Experience • Dell value-added services (anti-spyware and virus software and support) • Developing a Winning Culture: • Essential for integrating Dell’s subsidiaries in over 47 countries

  36. Company Structure

  37. Sources of Revenue • Dell designs, develops, manufactures, markets, sells, and supports the follow products: • Servers • Storage • Workstations • Networking • Notebook Computers • Desktop Computers • Printing and Imaging • Software and Peripherals • Dell also offers a variety of services from development and support to professional and fully managed solutions. Dell also has a financial services division which is a joint venture between Dell and CIT group. It organizes financing alternatives for clients

  38. Sales Mix (by Region & Product line) Product-specific

  39. Revenue Growth

  40. Revenue Growth

  41. Costs • Input costs from suppliers (COGS) • Continuing drop in PC prices but what about Dell’s gross margin? • 2001: 17.7%, 2002: 17.9% 2003: 18.2% 2004: 18.3% 2005: 18.6% • Operating Expenses  • marketing, sales and admin. • R&D • Almost zero long-term debt • no service payments

  42. Earnings Per Share 2006 FY Forecast: $1.59

  43. Market Share by Region

  44. Key Financial Analysis Figures • Number of Shares Outstanding • 2.4 billion • Consistently been declining since 2001 (2.7B) • Cash and Short-term Investments/Share • As of Q2 2006: $3.77/share • ROE: 2001: 39.78%, 2002: 24.36% , 2003: 44.32%, 2004: 47.53%, 2005: 47.62% Ratios: • Book value/share = $2.70, Price/Book = 11 • Price/Sales* = 1.4 P/E* = 21 *Calculated using P = $29

  45. Financial Statements • Balance Sheet • Income Statement • Cash flow Statement

  46. Stock Options As of Jan 28, 2005 • Average exercise price has steadily been increasing ($28.99 in 2005, compared to $8.78 in 2001) As of Jan 31, 2003

  47. Options (cont.) Impact to earnings using fair value

  48. One Year Stock Price

  49. 10 Year Trading History

  50. Performance Comparison 2 Years IXIC = NASDAQ IXK = Nasdaq computers index

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