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:
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: • Desktops & Notebooks • Servers & Mainframes • Workstations & Thin Clients • Supercomputers • Mass Storage Devices • Network Equipment • Peripherals • Handheld Devices
Nature of Industry Floppy, CD/DVD Drive Hard-drive Motherboard & CPU Power Source & Cables Extra Peripherals Case
Industry History (1/2) • Start of the industry: 1975. MITS Altair 8080 – First personal computer • Hits maturity by the mid-1990s
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
Business Models • Big Box • Direct • White Box
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
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
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.
Industry Performance • NASDAQ Computer Index (IXCO) • Includes 603 securities from categories: • Computer Hardware • Computer Software • Semiconductors • Computer Services
Industry Key Measures • Profit Margin • Sales Growth • Market Share Growth • Valuation Ratios • Business Capital Spending
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
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
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
Dell Inc. Presented by: Kevin Ridinger
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.
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
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.
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)
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
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
Sales Mix (by Region & Product line) Product-specific
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
Earnings Per Share 2006 FY Forecast: $1.59
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
Financial Statements • Balance Sheet • Income Statement • Cash flow Statement
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
Options (cont.) Impact to earnings using fair value
Performance Comparison 2 Years IXIC = NASDAQ IXK = Nasdaq computers index