PC Makers

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
• gt90 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

1. Display
2. Motherboard
3. CPU (Microprocessor)
4. Primary storage (RAM)
5. Expansion cards
6. Power supply
7. Optical disc drive
8. Secondary storage (Hard disk)
9. Mouse
10. 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

• RD
• 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, SP 500, and DJIA similar

16
IXCO vs XCI, NASDAQ
17
IXCO vs DJIA, SP 500
18
IXCO vs Apple, HP, Dell
19
Business Models

1. Direct Sales
2. Traditional Retail
3. 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

30
Agenda

• Presentation of the Company
• Business Analysis
• Financial Analysis
• Stock Analysis
• Recommendation

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

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)

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.

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

35
Business analysis

• Outlook
• 7 different business segments
• High level of competition
• Cost reduction issue
• Sales Channels issue

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)
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

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
• Compaq was acquired to strengthen this segment
  and compete against Dell

Source Wall Street Journal
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

40
Segments Description HPFS

• Mission to support and enhance HPs global
  product and service solutions, providing a broad
  range of value-added financial life cycle
  management services

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

42
Business Segments figures
43
Business Segments Trends
Evolution of Revenue per Segment Over a Three
Year Period in m
Relative Evolution of Revenues per Segment in
44
Segment Revenue Trends
45
Segment Revenue Trends (Contd)
46
Segment Operating Profit Trends
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
• gt HP is leader or among the leaders in each
  segment, the harsh competition is therefore a key
  issue for the firm

48
Compaq Acquisition HPs 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

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 didnt occur)

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
• gt HP needs to be more competitive

51
New Trends

• Next generation data center architecture
  emergence of a 247 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

52
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 short-sighted 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

53
Risk Factors That Can Affect The Financials
(Contd)

• IP issue
• RD 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

54
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
• RD
• 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

55
HP Financials Analysis

• Statements of Operations
• Balance Sheet
• Statements of Cash Flows
• Standard Ratios

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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 (RD)

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HP Stock Analysis
Source Yahoo!Finance

• Dividend Policy
• Dividends are paid quarterly and were 0.32 per
  common share in each of fiscal 2005, 2004 and
  2003

62
Stock Trends Over Time
1 year period
5 year period
40 year period
63
HP Vs Dell IBM
64
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)
65
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
1-Nov-05 Am Tech/JSA Research Downgrade Buy Hold
22-Sep-05 Robert W. Baird Initiated   Neutral
7-Sep-05 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
13-Jul-05 Am Tech/JSA Research Initiated   Buy
22-Jun-05 Moors Cabot Initiated   Buy
22-Jun-05 First Albany Downgrade Buy Neutral
10-Jun-05 FTN Midwest Upgrade Neutral Buy
15-Apr-05 Raymond James Initiated   Outperform
5-Apr-05 Caris Company Upgrade Average Above Average
66
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

67
Apple Computer, Inc.
68
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

• Apples original logo

69
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

70
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

71

• 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

72
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

73
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)

74
Executive compensation
75
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

76
Sales by Products
77
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

78
Sales by products
79
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.

80
Geographic segment
81
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
• Japans 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

82
Financial Statement

• Consolidated Balance Sheet
• Consolidated Statement of Operation
• Consolidated Statement of Cash Flows

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Financial summary

• Mar. 24, 2006 Market
• Last Sale 59.96
• Change Net / 0.20 0.33
• Todays High/Low Price  60.94 /   59.03
• Share Volume38,293,616
• 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

90
Stock Information
91
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


92
Strength

• Strong Functional skill
• Untraditional Product Lines iPod, PowerBook
• Increasing RD investment
• Superior Financing Positions high cash reserve
• Marketing high brand recognition
• Human recourse
• Steven Job and his NeXT team

93
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

94
Recommendation

• Sell

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Dell Inc. Stock
DETAILS  

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?symb
olDELLselectedDELL
97
1 Year Performance
Latest price (Mar 24, 2006 1600 EST) 30.06,
Volume 13,011,536
98
Performance Since 1996
99
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
• 2005Dell tops list of "America's Most Admired
  Companies" in Fortune Magazine. Opens third major
  U.S. manufacturing location in Winston- Salem,
  North Carolina

100
Management
101
Management
Kevin B. Rollins President and CEO Age 53 of
Shares owned 17,547
Michael S. Dell Chairman of the Board Age41 of
shares owned 207,983,382
102
Stock Ownership
103
Summary Compensation Table
104
Stock Options
105
Share Repurchase Program

• Dells 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.

106
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.

107
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
108
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.

109
Dell Position Diagram
Target Segments
Value Proposition
How Choices / Activity System / Value Chain
Close integration w/ suppliers
Customized
Build-to-Order
Corporate Customers
Design for Quick Configuration
Minimal Inventory
Large Outside Sales Force
Reliable
Transact directly with customers / Bypass Channel
(i.e. Wholesalers and retailers)
No channel marketing / logistics costs
Dell.com
Low Price
No channel markup
Telephone
Minimal Pre-sales costs
Courtesy of Andrew von Nordenflycht
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Value chain for Dell
Design for ease of manufacture Close integration w/ suppliers JIT Co-location Build-to-Order Ship directly to customers from factory or even from suppliers via 3rd party shipper Direct interaction with customers / No intermediary Online / 800 for corporate SOHO Sales force for corporate Low-cost Support online/800 Outsource on-site support
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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

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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

113
Dell Europe, Middle East and Africa

•  
• 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

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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.
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product groups

• Financial Services
• Dell Financial Services L.P. (DFS), a joint
  venture between Dell and CIT Group, Inc. (CIT).
  

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Risks

• Loss of government contracts and big businesses
• Reliance on suppliers
• International competitions (i.e. Acer, and
  Japanese PC makers)

117
Financial Statements

• Balance Sheet
• Income Statement
• Cash Flow Statement

118
Balance Sheet
119
Income Statement
120
Cash Flow Statement
121
SELECTED FINANCIAL DATA

• Selected Financial Data
• Liquidity, Capital Commitments, and Contractual
  Cash Obligations
• Contractual Cash Obligations
• Investments

122
SELECTED FINANCIAL DATA
123
Liquidity, Capital Commitments, and Contractual
Cash Obligations
124
Contractual Cash Obligations
125
Investments
126
Five-Year Performance Graph
127
Annual Financial Highlights
(in millions, except per-share data) FY06 FY05 FY04 FY03 FY02
           
Net revenue 55,908 49,205 41,444 35,404 31,168
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
Full-year FY
128
Key Statistics

http//finance.yahoo.com/q/ks?sDELL
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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.