US Personal Computer Industry Presented by : Leslie Ling Philip Lam Winnie Liu.
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Transcript of US Personal Computer Industry Presented by : Leslie Ling Philip Lam Winnie Liu.
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US Personal Computer Industry
Presented by : Leslie Ling
Philip Lam
Winnie Liu
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1975 1975 : Humble beginning as : Humble beginning as hobby computer kits in the hobby computer kits in the spring of 1975 spring of 1975
1990’s 1990’s
Tech boomTech boom
PC Industry DevelopmentPC Industry Development
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AMEX Computer Hardware Index (INDEX) 2002-2004
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5 Year Comparison between NASDAQ 5 Year Comparison between NASDAQ and NASDAQ Computer Indexand NASDAQ Computer Index
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1 Year Comparison between NASDAQ 1 Year Comparison between NASDAQ and NASDAQ Computer Indexand NASDAQ Computer Index
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S&P500 vs. Computer IndustryS&P500 vs. Computer Industry
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PC Market Segments ( by PC Market Segments ( by products)products)
U.S. and Worldwide PC Market Segments
Unit Sales 1990 1995 2000 2003 2005 2008
U.S. PC Server Sales (#M) 0.04 0.51 2.5 2.7 3.3 4.2
U.S. Desktop PC Sales (#M) 8.4 16.8 33.1 31.3 34.3 35.2
U.S. Mobile PC Sales (#M) 1.1 4.1 10.4 14.2 19.0 23.2
Worldwide PC Server Sales (#M) 0.06 0.94 5.5 7.1 9.4 13.4
Worldwide Desktop PC Sales (#M) 21.7 47.1 96.2 102.1 116.9 135.3
Worldwide Mobile PC Sales (#M) 2.4 10.0 27.9 40.1 54.6 74.0
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PC Market Segments (by regions)PC Market Segments (by regions)
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U.S. and Worldwide PCs-in-Use U.S. and Worldwide PCs-in-Use and PC Sales Per 1,000 People and PC Sales Per 1,000 People
Table 1.3 U.S. and Worldwide PCs-in-Use and PC Sales Per 1,000 People
1990 1995 2000 2003 2005 2008
U.S. PC Sales Per 1,000 People 38.2 81.0 163.5 165.0 188.9 201.8
U.S. PCs-in-Use Per 1,000 People 192.2 324.1 629.5 744.0 788.4 867.9
Worldwide PC Sales Per 1,000 People 4.6 10.2 21.4 23.7 28.0 33.4
Worldwide PCs-in-Use Per 1,000 People 18.7 39.8 86.1 117.0 138.7 175.2
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World wide PC Vendor Market World wide PC Vendor Market ShareShare
2003 Market Share (%)
14%
5%
4%
3%
59%
15%
Dell
Hewlett-Packard
IBM
Fujitsu/FujitsuSiemens
Toshiba
Others
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US PC Vendor Market ShareUS PC Vendor Market Share2003 Market Share (%)
27%
19%
5%4%
3%
42%
Dell
Hewlett-Packard
IBM
Gateway
Apple
Others
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U.S. and Worldwide PC Market U.S. and Worldwide PC Market Growth Growth
0
25
50
75
100
125
150
175
200
225
250
1975 1980 1985 1990 1995 2000 2003 2005 2010
U.S. PC Sales (#M)
Worldwide PC Sales (#M)
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U.S. and Worldwide PC Market U.S. and Worldwide PC Market Growth Growth
0
50
100
150
200
250
300
350
1975 1980 1985 1990 1995 2000 2003 2005 2010
U.S. PC Revenues ($B)Worldwide PC Revenues ($B)
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Business ModelsBusiness Models
Big Box Stores vs. J.I.T. delivery Big Box Stores vs. J.I.T. delivery Continuous Innovation Continuous Innovation Cost LeadershipCost Leadership DifferentiationDifferentiation
Own Brand Retail storesOwn Brand Retail storesConsultingConsultingStripped Service – White BoxesStripped Service – White Boxes
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Business ModelsBusiness Models
Big Box Stores vs. J.I.T. delivery Big Box Stores vs. J.I.T. delivery Low-cost Leader Low-cost Leader Product DifferentiationProduct Differentiation Continuous InnovationContinuous Innovation
Own Brand Retail storesOwn Brand Retail storesWhite Boxes CompetitionWhite Boxes Competition
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PC Life CyclePC Life Cycle
Customers demand convenience and value for Customers demand convenience and value for their moneytheir moneyThe need for speed has been diminishedThe need for speed has been diminished(Ebay)-market for second-handed machine(Ebay)-market for second-handed machineReplacement cycle changed from every 2-3 Replacement cycle changed from every 2-3 years to every 5 yearsyears to every 5 yearsMachines are upgradeableMachines are upgradeable
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Key Success FactorsKey Success Factors
Innovation – R&D “TABLET PC”Innovation – R&D “TABLET PC”Product differentiationProduct differentiationBrandingBrandingCompetitive pricingCompetitive pricingConstantly reexamine the way to do Constantly reexamine the way to do businessbusinessAfter sales serviceAfter sales serviceExtensive product and service linesExtensive product and service lines
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Future Consideration - ThreatsFuture Consideration - Threats
Commodity like marketCommodity like market Products differ very littleProducts differ very little Constant downward price pressureConstant downward price pressure
Death of the PCDeath of the PC
Longer replacement cycleLonger replacement cycle
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Future Consideration - TrendsFuture Consideration - Trends
Branching out into ancillary services – IBMBranching out into ancillary services – IBM
Global expansionGlobal expansion
Acquisitions and mergersAcquisitions and mergers
Switch to LinuxSwitch to Linux Cheap and open source operating softwareCheap and open source operating software
Look for smaller, cheaper and more task-Look for smaller, cheaper and more task-specific piecesspecific pieces
Demand for wireless productsDemand for wireless products
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International Business Machines
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Mission Statement“ At IBM, we strive to lead in the creation, development and manufacture of the industry's most advanced information technologies, including computer systems, software, networking systems, storage devices and microelectronics.
We translate these advanced technologies into value for our customers through our professional solutions and services businesses worldwide.”
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Company History
• IBM was incorporated in the state of New York on June 15, 1911 as the Computing-Tabulating-Recording Company (C-T-R)
• C-T-R's name was formally changed to International Business Machines Corporation (IBM) on
February 14, 1924
• 1944- Automatic Sequence Controlled Calculator
• 1950s- IBM 701, IBM 650 Magnetic Drum Calculator, FORTRAN
• 1960s- System/360, Customer Information Control System (CICS)
• 1971- Floppy Disk
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Management Team
Samuel Palmisano- Chairman of the Board, President, CEO; 31 years at IBM
Nicholas M. Donofrio- Senior VP, Technology & Manufacturing; 37 years at IBMDoug T. Elix- Senior Vice President & Group Executive, Sales and Distribution; 35 years at IBM Mark Loughridge- Chief Financial Officer, Senior VP; 27 years
at IBMEdward Lineen- Senior VP, General Counsel; 34 years at IBM Abby Kohnstamm- Senior VP, Marketing; 11 years at IBM J. Randall MacDonald- Senior VP, Human Resources; 4 years
at IBM
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Products• Hardware: Servers, storage, personal systems,
printing systems
• Software: DBS (Information Management), Lotus, Tivoli, WebSphere
• Services: Comprehensive IT services
• Finances: leading provider of financing and asset management services to companies selling or acquiring IT related products and services
• Research: Develop, market and deliver leading chip technologies and services
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New Strategies
• Continual Innovation of IBM
• Growth-driven
• Reduce presence in retail PCs, application software, hard disk-drives… etc.
• On-demand business strategy
• Creating new leadership instead of defending existing ones
• Supply Chain Improvement
• Business Transformation Outsourcing
• Acquisitions
• Growth in Emerging Countries
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Revenue by Business Segment
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Revenue by Areas
42%
33%
22%
3%
Americas
Europe, MiddleEast & AfricaAsia Pacific
OEM
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Stock SummaryExchange NYSE
Index Membership S&P 500, Dow Jones Industrials
Last 94.45
52 Week High 100.43
52 Week Low 81.90
Average Daily Volume 4.908 million
Shares Outstanding 1.665 billion
Market Capitalization 157.2 billion
Trailing P/E 20.10
Dividend Yield 0.80%
Institutional Ownership 55.40%
Book Value/ Share 17.84
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1-Year Price Trend
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1-Year Comparison with DJ Computer Index
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5-Year Price Trend
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5-Year Comparison with DJ Computer Index
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Balance Sheet
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Income Statement
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Cash Flow Statement
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Revenue (5-Year)
83,334 85,089 83,067 81,186
89,131
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1999 2000 2001 2002 2003
Revenue
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Net Income (5-Year)
7,3597,874 8,146
5,334
7,613
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1999 2000 2001 2002 2003
Net Income
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EPS (10-Year Trend)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
EPS
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ROE & ROA (10-Year Trend)
0
5
10
15
20
25
30
35
40
45
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
ROA ROE
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Pricing Ratios (10-Year)
0
5
10
15
20
25
30
35
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Price to Book P/ E
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Profit Margin (10-Year)
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Profit Margin
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First 3 Quarters of 2004
1st Quarter1st Quarter 2nd Quarter2nd Quarter 3rd Quarter3rd Quarter
SalesSales 22,25022,250 23,15323,153 23,42923,429
Gross Operating ProfitGross Operating Profit 9,1919,191 9,6529,652 9,8079,807
Net IncomeNet Income 1,6021,602 1,9881,988 1,8001,800
Diluted EPSDiluted EPS 0.930.93 1.161.16 1.061.06
Comparing to 2003:
• Revenue increased by 9%
• Pretax income increased by 10%
• Diluted EPS increased by 13%
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Growth Comparison
0%
5%
10%
15%
20%
25%
30%
35%
40%
3rd QuarterSales
5-Year SalesAverage
EPS (YTD)
IBM
Industry:DiversifiedComputerSystems
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Price Comparison
0
5
10
15
20
25
30
P/E Price/Sales Price/Book
IBM
Industry:DiversifiedComputer Systems
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Profitability Comparison
0
5
10
15
20
25
30
35
40
45
CurrentGrossMargin
CurrentProfit
Margin
5-YearGrossMargin
5-YearProfit
Margin
IBM
Industry: DiversifedComputer Systems
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Financial Condition Comparison
0
2
4
6
8
10
12
14
16
18
Debt/Equity CurrentRatio
LeverageRatio
Book Valueper Share
IBMIndustry
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Return Comparison
0
5
10
15
20
25
30
35
ROE ROE (5-YAverage)
ROA ROA (5-YAverage)
IBMIndustry
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Executive Compensation Summary
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Stock Option & SAR Grants in Last Fiscal Year
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Options / SAR Exercised & Year-end Values
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Earnings Estimate
2004 Q42004 Q4 2005 Q12005 Q1 2004 2004 20052005
Estimated EPSEstimated EPS 1.741.74 1.071.07 4.994.99 5.525.52
Growth RateGrowth Rate 11.53%11.53% 14.73%14.73% 15.08%15.08% 10.44%10.44%
IBMIBM IndustryIndustry S&P 500S&P 500
Last 5 YearsLast 5 Years 5.30%5.30% 5.30%5.30% 3.20%3.20%
20052005 10.20%10.20% 10.20%10.20% 6.40%6.40%
Next 5 yearsNext 5 years 10.30%10.30% 15.10%15.10% 6.00%6.00%
Earnings Growth Rates
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Strengths and Weaknesses
Strengths• Earnings growth in the past year has increased rapidly• Good Performance in 2004• High consistency across the board• Good future growth prospects • Stable dividend income• High profit margin
Weaknesses• Strong Competition • Higher debt ratios than industry average• High goodwill
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Analysts’ Recommendations
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Our Recommendation
HOLD
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Present by Winnie Liu
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>> Qualitative Analysis>> Qualitative Analysis - - ManagmentManagment - - productproduct - market position- market position - major competitor- major competitor>> Key developments and Analysis>> Key developments and Analysis - - HP & Compaq MergerHP & Compaq Merger>> Fundamental analysis>> Fundamental analysis - Ratio analysis- Ratio analysis - Financial statements analysis- Financial statements analysis>> >> RecommendationRecommendation
HP: AgendaHP: Agenda
< < < <
AG
EN
DA
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Qualitative AnalysisQualitative Analysis
>> Management>> Management
>> company's activities>> company's activities --- product--- product --- market position --- market position --- major competitor--- major competitor
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ManagementManagement>> Carly Fiorina : --- Chairman and CEO --- Joining HP in July 1999
--- Prior to joining HP, spent
nearly 20 years at AT&T and Lucent Technologies
--- Fiorina has previously served on the boards of Cisco Systems, Kellogg Company and Merck & Company.
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Main executive teamMain executive team>> Gilles Bouchard, --- CIO & Executive Vice President of Global Operations --- Joined HP 1990. >> Robert P. Wayman,
CFO & Executive Vice President & Joined HP 1969. a member of the Policy Council of the Tax Foundation , the Financial
Executives Institute and the Council of Financial Executives of the >> Shane V. Robinson,
Executive Vice President and Chief Strategy and Technology Officer
Joined Compaq 2000. was senior vice president and chief technology officer of Strategy and
Technology at Compaq Computer Corporation also spent seven years at Apple Computer Corporation
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>> Desktops & workstations
>> Notebooks & tablet PCs
>> Printing & multifunction
>> Handheld devices>> Monitors & Projectors
>> Fax, copiers & scanners>> Fax, copiers & scanners>> Digital photography>> Digital photography>> Entertainments>> Entertainments>> Storage>> Storage
Products
> > > >
PR
OD
UC
TS
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Market Market positionposition
> > > >
< < < <
MA
RK
ET
PO
SIT
ION
•HP is the second largest PC HP is the second largest PC •vendor with 16.2% of the vendor with 16.2% of the •worldwide market in the Q3 2004.worldwide market in the Q3 2004.•In the United States, HP holds In the United States, HP holds the No. 2 position with 20.3 the No. 2 position with 20.3 percent of the marketpercent of the market•HP Commands No. 1 Position in HP Commands No. 1 Position in Worldwide Notebook PC Market Worldwide Notebook PC Market •#1 globally in inkjet, all-in-one #1 globally in inkjet, all-in-one
and single-function printers, monand single-function printers, mono and color laser printers, large fo and color laser printers, large format printing, scanners, print seormat printing, scanners, print servers, and ink and laser supplies*rvers, and ink and laser supplies*•#1 globally in x86*, Windows*, #1 globally in x86*, Windows*, Linux*, UNIX* and Blade servers*Linux*, UNIX* and Blade servers***
•#1 in total disk storage syste#1 in total disk storage systems*ms*•#2 globally in notebook PCs*#2 globally in notebook PCs*•#1 globally in Pocket PCs*#1 globally in Pocket PCs*•#1 in customer support**#1 in customer support**•#1 position in customer satisf#1 position in customer satisfaction for ProLiant serversaction for ProLiant servers
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HP: major competitorsHP: major competitors
HPQ DELL IBM Industry
Market Cap: 60.64B 99.79B 157.23B 37.90M
Employ ees: 142,000 53,000 319,273 126
Rev. Growth (ttm): 29.10% 17.10% 9.80% 13.80%
Revenue (ttm): 79.90B 47.26B 94.74B 36.95M
Gross Margin (ttm): 24.48% 18.22% 37.10% 35.04%
EBITDA (ttm): 4.76B 4.37B 15.33B -382.00K
Oper. Margins (ttm): 5.20% 8.56% 11.22% 1.12%
Net Income (ttm): 3.50B 3.12B 8.11B -768.00K
EPS (ttm): 1.149 1.21 4.703 N/A
PE (ttm): 17.48 33.03 20.08 26.32
PEG (ttm): 1.30 1.31 1.89 1.25
PS (ttm): 0.77 2.13 1.67 1.16
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Key development & AnalysisKey development & Analysis
2001:2001: HP and Compaq Computer Corp. agree to a $21 HP and Compaq Computer Corp. agree to a $21 billion merger. The Hewlett family voices its opposition to billion merger. The Hewlett family voices its opposition to the deal, as do various employees and shareholders. the deal, as do various employees and shareholders.
2002 May:2002 May: Despite opposition, HP completes its Despite opposition, HP completes its purchase of Compaq, which the firm claims will result in purchase of Compaq, which the firm claims will result in $2.5 billion in savings. Cost cutting measures include the $2.5 billion in savings. Cost cutting measures include the elimination of overlapping products and 15,000 jobs.elimination of overlapping products and 15,000 jobs.
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Key development & AnalysisKey development & Analysis
HP AND COMPAQ MERGERHP AND COMPAQ MERGER
Before MergerBefore Merger
Hewlett-Packard
Founded: 1938 Employees: 86,200 2001 Revenues: $45.2bn 2001 profits: $408m CEO: Carly Fiorina
Compaq
Founded: 1983 Employees: 63,700 2001 Revenues: $33.5bn 2001 loss: $785m CEO: Michael Capellas
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Key development & AnalysisKey development & Analysis
HP AND COMPAQ MERGER
May 7, 2002 the largest merger in the history
of computer industry
Value of the deal at $25 billion
1 Compaq share = 0.6325 HP share
Change ticker symbol from HWP to HPQ
Compaq brand essentially disappear
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Key development & AnalysisKey development & Analysis
HPQ
Year 2002:Projected annual revenue: $78.7 billion actual : $56.6billionNumber of employees: 150,000 actual : 145,000Number of planned layoffs: 15,000 over two years.Board of directors: Seven members from the old HP, five from Compaq.
After Merger
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1. Financial Summary1. Financial Summarycompany symbol HPQexchange NYSE
Last Price (11/09/04) 20.08
Change -0.18
% Change -0.89%
Volume 10,307,000
Avg Daily Volume 10,391,818
Day's High 20.34
Day's Low 20.08
52 Week High 26.28
52 Week Low 16.08
Fundamental Data
P/E 17.48
Earnings/Share 1.06
Dividend/Share 0.32
Current Div. Yield 1.59%
Market Cap. 60.64B
Tot. Shares Out. 3.02 Bil
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Financial AnalysisFinancial Analysis
Five-Year REVENUE FiguresFive-Year REVENUE Figures
Growth Rates % HP Industry S&P 500
Sales (Qtr vs year ago qtr) 8.9 2.3 11.3
Sales (5-Year Annual Avg.) 12.33 4.25 4.8
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EPS(3 year)EPS(3 year)Earnings Per Share - Quarterly Results
FY (10/04) FY (10/03) FY (10/02)
1st Qtr $0.30 $0.24 $0.25
2nd Qtr $0.29 $0.22 $0.12
3rd Qtr $0.19 $0.10 ($0.67)
4th Qtr NA $0.28 $0.20
Total $0.78 $0.84 ($0.10)
Growth Rates % HP Industry S&P 500
EPS (YTD vs YTD) 43.5 35.8 26.6
EPS (Qtr vs year ago qtr) 97.3 -10.7 12.1
EPS (5-Year Annual Avg.) NA -19.37 0.48
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Hewlett-Packard Company: Hewlett-Packard Company: Earnings EstimatesEarnings Estimates (EPS) (EPS)
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Hewlett-Packard Company: Hewlett-Packard Company: Earnings Growth RatesEarnings Growth Rates
Earnings Growth Rates
Last 5 Years FY 2005 FY 2006 Next 5 Years 05 P/E
HP -4.40% 10.80% 14.70% 10.70% 15.50
Industry -4.40% 10.80% 14.70% 12.50% 18.80
S&P 500 3.20% 20.10% 6.40% 6.00% 17.80
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P/E RationP/E Ration
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Costs and Revenue Control Costs and Revenue Control
Profit Margins % HP Industry S&P 500Gross Margin 27.3 36.5 47.7
Net Profit Margin 4.2 4.6 7.6
5Yr Gross Margin (5-Year Avg.) 30.2 39.4 47.5
5Yr Net Profit Margin (5-Year Avg.) 3.5 5.4 5.6
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ROE ROE
Investment Returns % HP Industry S&P 500
Return On Equity 8.4 11.3 14.5
Return On Equity (5-Year Avg.) 7.8 15.1 12.1
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Financial statement AnalysisFinancial statement Analysis
>> Income statement>> Income statement
>> Balance sheet>> Balance sheet
>> Cash flow statement>> Cash flow statement
>> Revenue & Profit>> Revenue & Profit
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Twelve months ended October 31,
2004 2003(a) Net revenue $ 79,905 $ 73,061 Costs and expenses:
Cost of sales 60,340 53,858 Research and development 3,506 3,651 Selling, general and administrative 11,024 11,012 Amortization of purchased intangible assets 603 563 Restructuring charges 114 800 Acquisition-related charges 54 280 In-process research and development charges 37 1 Total costs and expenses 75,678 70,165
Earnings from operations 4,227 2,896 Interest and other, net 35 21 Gains (losses) on investments 4 (29) Dispute settlement (70) - Earnings before taxes 4,196 2,888 Provision for taxes 699 349 Net earnings $ 3,497 $ 2,539
Income statementIncome statement
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Net revenue break down Revenue Breakdown by segment
2004 2003Net Revenue
Enterprise Storage and Servers 15,152$ 14,593$ Software 922 774HP Services 13,778 12,357
Technology Solutions Group 29,852 27,724Imaging and Printing Group 24,199 22,569Personal Systems Group 24,622 21,210Financing 1,895 1,921Corporate Investments 449 344
Total Segements 81,017 73,768
Eliminations of inter-segement net revenueand other -1,112 -707
Total HP Consolidated 79,905$ 73,061$
Twelve months endedOctober 31,
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Earning break downEarning break down
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Balance sheetBalance sheetOctober
31,October 31,
2004 2003
ASSETS
Current assets:
Cash and cash equivalents $12,663 $14,188
Short-term investments 311 403
Accounts receivable, net 10,226 8,921
Financing receivables, net 2,945 3,026
Inventory 7,071 6,065
Other current assets 9,685 8,351
Total current assets 42,901 40,954
Property, plant and equipment, net 6,649 6,482
Long-term financing receivables and other assets 6,657 8,030
Goodwill and purchased intangibles, net 19,931 19,250
Total assets $76,138 $74,716
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and short-term borrowings $2,511 $1,080
Accounts payable 9,377 9,285
Employee compensation and benefits 2,208 1,755
Taxes on earnings 1,709 1,599
Deferred revenue 4,348 3,665
Accrued restructuring 193 709
Other accrued liabilities 9,632 8,545
Total current liabilities 29,978 26,638
Long-term debt 4,623 6,494
Other liabilities 3,973 3,838
Stockholders' equity 37,564 37,746
Total liabilities and stockholders' equity $76,138 $74,716
Balance sheet (ctn)Balance sheet (ctn)
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Cash flow Cash flow
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Cash flow (con’t) Cash flow (con’t)
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Price HistoryPrice History
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RECOMMENDATIONRECOMMENDATION•The annul EPS is above industry annul EPS
•The revenue growth rate is above industry revenue growth rate
•Second position in the industry
•The projected earning growth rate is below industry average
•Although the current profit margin is higher than the previous year, it’s still below industry average margin
•P/E to growth ratio suggested stock might have been overvalued
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RecommendationRecommendation
HOLDHOLD
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DELL INCDELL INC
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Company OverviewCompany Overview
Founded in 1984 by Michael DellFounded in 1984 by Michael Dell Direct sales modelDirect sales model Offers an extensive selection of software Offers an extensive selection of software
and peripheralsand peripherals Sell its products worldwide and Sell its products worldwide and
manufacture in six location throughout the manufacture in six location throughout the worldworld
Rank #1 in worldwide market share with Rank #1 in worldwide market share with 18.3% and also #1 in US market share 18.3% and also #1 in US market share with 33.3%with 33.3%
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Direct Sales ModelDirect Sales Model
Communicate directly with our customerCommunicate directly with our customer• In person, via Internet or by phoneIn person, via Internet or by phone• In 2001, sales via Internet reach $50 million In 2001, sales via Internet reach $50 million
per dayper day Five basic tenets:Five basic tenets:
• Build-to-orderBuild-to-order• Low-cost leaderLow-cost leader• Most efficient path to the customerMost efficient path to the customer• Standards-based technologyStandards-based technology• Single point of accountabilitySingle point of accountability
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Products and ServicesProducts and Services
Products:Products:• Desktop and notebook computersDesktop and notebook computers• Servers and workstationsServers and workstations• Storage, printing and imaging systemStorage, printing and imaging system• Software, peripheral and networking productsSoftware, peripheral and networking products
Services:Services:• Managed and professional servicesManaged and professional services• Deployment and support servicesDeployment and support services• Training and certification servicesTraining and certification services
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Executive Compensation SummaryExecutive Compensation Summary
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Revenue by Product Line and Revenue by Product Line and RegionRegion
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Net RevenueNet Revenue
12.318.2
25.331.9 31.2
35.441.4
0
10
20
30
40
50
1998 1999 2000 2001 2002 2003 2004
Net revenue (in billions)
2004: 1-yr. growth rate: 17.1 percent
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Net IncomeNet Income
0.9
1.51.7
2.2
1.2
2.1
2.6
0
0.5
1
1.5
2
2.5
3
1998 1999 2000 2001 2002 2003 2004
Net income (in billions)
2004: 1-yr.growth rate: 24.6%
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Operating ExpensesOperating Expenses
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Earning per ShareEarning per Share
$0.17
$0.32
$0.53
$0.68
$0.84
$0.48
$0.82
$1.03
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
1997 1998 1999 2000 2001 2002 2003 2004
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ROEROE
65.973
62.9
31.439.8
26.5
43.5 42.1
0
10
20
30
40
50
60
70
80
%
1997 1998 1999 2000 2001 2002 2003 2004
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Average Price to EarningsAverage Price to Earnings
14.9
26.1
59.2
70.8
45.251.4
33.229.6
0
10
20
30
40
50
60
70
80
1997 1998 1999 2000 2001 2002 2003 2004
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Valuation Ratios ComparisonValuation Ratios Comparison
33.0329.27
2.13 1.91
17.06
8.77
0
5
10
15
20
25
30
35
P/E (ttm) P/Sales (ttm) P/Book (mrq)
Dell
Industry
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Financial Strength (mrq)Financial Strength (mrq)
1.112
1.36
0.086
0.42
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Current Ratio Total Debt/Equity
Dell
Industry
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Profitability (ttm)Profitability (ttm)
8.56 8.83
6.61
9.66
0
2
4
6
8
10
Operating Margin % Net Profit Margin %
Dell
Industry
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Management Effectiveness (ttm)Management Effectiveness (ttm)
15.929.08
51.48
31.59
0
10
20
30
40
50
60
ROA % ROE %
Dell
Industry
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GrowthGrowth
25.6
47.2
20.422.4
14.6
1.9
17.918.5
0
10
20
30
40
50
This Year(11/2004)
Next Year(11/2005)
Last 5Years
Next 5Years
Dell
Industry
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Worldwide GrowthWorldwide Growth
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Cash Flows Data Summary (in millions)
Period2003
2002
2001
2000
Net cash flows from operating activities:
3670 3538 3797419
5
Net cash flows from investing activities:
(2814)
(1381)
(2260)
(757)
Net cash flows from financing activities:
(1383)
(2025)
(2702)
(2305)
Net (decrease) / increase in cash and cash equivalents:
85 591 (126
9)110
1
Cash and cash equivalents at end of period:
4317 4232 3641 491
0
Net free cash flows: 3160 2973 3008 278
5
Net free cash flows: Cash flows from operations less capital expenditures less tax benefit from employee stock plans
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10 year Price Chart10 year Price Chart
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1 year Price Chart1 year Price Chart
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1 year comparison to NASDAQ 1 year comparison to NASDAQ Computer IndexComputer Index
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2 year chart with indicators2 year chart with indicators
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Current FinancialsCurrent FinancialsAs of November 19, 2004As of November 19, 2004Company Symbol
DELL
Exchange Market
NASDAQ
Price $39.97
52 Week High
$40.97
52 Week Low
$31.14
Volume 12,951,300
Market Cap 99.79 B
EPS $1.21
P/E 33.03
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Analyst RecommendationsAnalyst Recommendations(www.zacks.com)(www.zacks.com)
DELL INC. (NASDAQ)
Analyst RatingsCurren
tOne Month
AgoTwo Months
AgoThree Months
Ago
Consensus (Mean) 1.73 1.81 1.65 1.57
Strong Buy 11 11 12 12
Buy 8 8 8 7
Hold 5 4 4 3
Sell 0 0 0 0
Strong Sell 0 1 0 0
Average Recommendation (1=Buy, 5=Sell)
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RecommendationRecommendation
Dell’s fiscal 2004 was the most successful Dell’s fiscal 2004 was the most successful year of the 20 year since their founding:year of the 20 year since their founding:• Product shipment grow 26%, nearly three times Product shipment grow 26%, nearly three times
the average of other companiesthe average of other companies• Revenues increased 17% to $41.4 billion, while Revenues increased 17% to $41.4 billion, while
total sales by the rest of the industry declinedtotal sales by the rest of the industry declined• Operating expenses accounted just for 9.7%, it Operating expenses accounted just for 9.7%, it
was the lowest full year rate in the historywas the lowest full year rate in the history• EPS were up 26% to $1.01; competitors lost EPS were up 26% to $1.01; competitors lost
moneymoney
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Recommendations (Cont.)Recommendations (Cont.)
For the 26 weeks ended 7/30/04:For the 26 weeks ended 7/30/04:• Revenues rose 20% to $23.25 billionRevenues rose 20% to $23.25 billion
Reflect increased product shipments in all Reflect increased product shipments in all geographic marketsgeographic markets
• Net income rose 36% to $1.53 billionNet income rose 36% to $1.53 billion Reflects a leveling off of R&D expensesReflects a leveling off of R&D expenses
From the analysis, the growth was From the analysis, the growth was expected to continue in the expected to continue in the upcoming yearsupcoming years
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Recommendations (Cont.)Recommendations (Cont.)
BUYBUY