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PC Makers

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 perform identical functions

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PC Makers

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

  2. Overview • Industry Analysis • Company Analysis • HP • Apple • Dell

  3. What is a PC • Multipurpose computer system • Assembled from standardized components • Components perform identical functions • Minimal compatibility issues • >90% use Intel based CPUs • Hard drives, graphics cards function similarly • Easy to assemble • All PCs consists of a similar set of components

  4. A Modern PC • Display • Motherboard • CPU (Microprocessor) • Primary storage (RAM) • Expansion cards • Power supply • Optical disc drive • Secondary storage (Hard disk) • Mouse • Keyboard

  5. 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

  6. 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

  7. 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 market by 1990 • Non clones forced out of market • Commodore, Atari, Tandy • Apple sole survivor

  8. 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

  9. Key Success Factors • R&D • Branding • Apple: iPod - 46.3% market share • Competitive cost structure • Dell – direct sales model • Product differentiation • Ancillary services: one stop shopping • Software and hardware sales, not simply PC sales • Technology solutions • After sales service • Extensive product lines • Global expansion • Growth outside of North American market

  10. Worldwide PC Market by Region (2005)

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

  12. Worldwide PC Market by Player (2005)

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

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

  15. 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

  16. IXCO vs XCI, NASDAQ

  17. IXCO vs DJIA, S&P 500

  18. IXCO vs Apple, HP, Dell

  19. Business Models • Direct Sales • Traditional Retail • White Box

  20. 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

  21. 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

  22. Business Models • White box • Niche markets • Local computer reseller • Localized, more personal service • Sells PCs, hardware, software, and services • “nonbranded” – local retailer brand • BTO (build-to-order) • Other services provided • Networking • Installation • Reduced after sales service

  23. Supply Chain

  24. Issues • Change in competitive focus: • Speed and capacity not as important • Useful features • Lengthening replacement cycle period • Increasingly powerful PCs delay practical obsolescence • Second hand machine market (small but growing) • Estimated to reach 110 million units by 2009 • Mobile computing

  25. Issues • Consumer appliances • Easy to use, performs specific functions • Outsourcing of: • Production • After sales service • Decreased quality • Seasonal nature • Stronger in second half of year • Summer: Back to School • Winter: Christmas

  26. Issues • Environmental Issues • Hazardous substances (HS) • Heavy metals (lead, mercury, cadmium, chromium) • Recent legislation • European Union introduced directive to reduce usage • Alberta introduced recycling levy on electronic equipment (Feb 1, 2005) • California considering bill to completely eliminate HS

  27. Recent Developments • Apple • iPod nano and shuffle • Expansion into flash-based markets • Switch to Intel CPUs • New HP CEO • New strategy: technology solutions • Dell acquires Alienware • High-end gaming market

  28. Company Analysis

  29. Snapshot (as of 03-25-06) Source: Nasdaq.com HP Analysis as of March 2006

  30. Agenda • Presentation of the Company • Business Analysis • Financial Analysis • Stock Analysis • Recommendation HP Analysis as of March 2006

  31. 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

  32. 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

  33. 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

  34. 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

  35. Business analysis • Outlook • 7 different business segments • High level of competition • Cost reduction issue • Sales Channels issue HP Analysis as of March 2006

  36. Business Segments • Enterprise Storage and Servers (ESS) • HP Services (HPS) • Software • The Personal System Group (PSG) • The Imaging and Printing Group (IPG) • HP Financial Services (HPFS) • Corporate Investment Technology Solution Group (TSG) HP Analysis as of March 2006

  37. 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

  38. 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 • Compaqwas acquired to strengthen this segment and compete against Dell Source: Wall Street Journal HP Analysis as of March 2006

  39. 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

  40. 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

  41. 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

  42. Business Segments: figures HP Analysis as of March 2006

  43. Business Segments Trends Evolution of Revenue per Segment Over a Three Year Period in m$ Relative Evolution of Revenues per Segment in % HP Analysis as of March 2006

  44. Segment Revenue Trends HP Analysis as of March 2006

  45. Segment Revenue Trends (Cont’d) HP Analysis as of March 2006

  46. Segment Operating Profit Trends HP Analysis as of March 2006

  47. 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

  48. 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

  49. 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

  50. 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

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