1. PERSONAL COMPUTER INDUSTRY Claire Schnitzius Thanh Vo
Mustafa Shah Tuan Hoang GROUP 17
2. INDUSTRY ANALYSIS
Saturated, increasingly narrow profit margins
Source of competition is price and company reputation
Average net profit margin in the industry is 7.3%
Average debt to equity ratio is .4
DUDE YOUR GETTING A DELL
3. THE COMPANIES
We chose to analyze Dell, Hewlett-Packard, Apple, and
Palm.
4. BUSINESS STRATEGY
Palm strategy To become a leader in mobile computing, with
emphasis on hand-held products
HP strategy To make doing business with customers easier;
transforming industry is an opportunity to grow
Dell-Combining direct customer model with highly efficient
manufacturing and supply chain management organization
Apple- To bring its customers around the world compelling new
products and solutions with ease-of-use, seamless integration, and
innovative industrial design
5. PROFITABILITY
ROA explains how effectively companies convert money they have
to invest into net income
ROA can be misleading when analyzing technology companies
because people and technologies dont appear as assets for the
company, since R&D must be expensed
R&D is essential to technologically innovative firms
6. PROFITABILITY RATIOS
Profitability Ratios include:
Profit margin for return on assets
Total asset turnover
Return on assets
Profit margin for return on common equity
Total asset turnover
Capital structure leverage, and
Return on common equity
7. PROFIT MARGIN FOR ROA 10.3 9.5 3.2 Apple 23.3 6.2 .8 Palm
6.9 4.8 4.7 HP 6.4 6.2 6.4 Dell 2006 2005 2004 %
8.
9. ASSET TURNOVER FOR ROA 1.3 1.9 5.6 Apple 1.6 1.5 1.5 Palm
1.2 1.1 2.1 HP 2.4 2.3 2.4 Dell 2006 2005 2004 %
10.
11. RETURN ON ASSETS 13.9 18.3 17.9 Apple 37.0 9.5 1.2 Palm 8.0
5.5 9.8 HP 15.5 14.4 15.3 Dell 2006 2005 2004 %
12.
13. PROFIT MARGIN FOR ROCE 10.3 9.5 3.2 Apple 23.3 6.2 .8 Palm
6.9 4.8 4.7 HP 6.4 6.2 6.4 Dell 2006 2005 2004 %
14.
15. ASSET TURNOVER FOR ROCE 1.3 1.9 5.6 Apple 1.6 1.5 1.5 Palm
1.2 1.1 2.1 HP 2.4 2.3 2.4 Dell 2006 2005 2004 %
16.
17. CAPITAL STRUCTURE LEVERAGE 1.6 2.0 1.8 Apple 1.3 1.6 1.7
Palm 2.1 2.1 2.0 HP 4.4 3.3 3.1 Dell 2006 2005 2004 %
18.
19. RETURN ON COMMON EQUITY 22.8 35.8 30.4 Apple 46.9 14.7 2.1
Palm 16.9 11.2 19.9 HP 67.5 47.8 47.5 Dell 2006 2005 2004 %
20.
21. SG&A EXPENSES AS A PERCENTAGE OF NET INCOME 16.3 17.2
23.1 Apple 15.8 16.6 19.9 Palm 12.3 12.9 13.1 HP 9.2 8.7 8.6 Dell
2006 2005 2004 %
22.
23. R&D EXPENSES AS A PERCENTAGE OF NET INCOME 3.9 4.0 5.9
Apple 8.6 7.1 7.3 Palm 4.0 4.0 4.5 HP .8 .9 1.1 Dell 2006 2005 2004
%
24.
25. NET PROFIT MARGIN 9.3 8.5 3.2 Apple 21.3 5.2 -2.3 Palm 6.8
2.8 4.4 HP 6.4 6.2 6.4 Dell 2006 2005 2004 %
26.
27. REVENUE GROWTH 38.6 68.3 Apple 24.3 33.8 Palm 5.7 8.5 HP
13.6 18.7 Dell 2006 2005 %
28.
29. LIQUIDITY
Ability to convert an asset to cash quickly
Significant for the personal computer industry because of the
variable revenues
Lack of consistency in earnings
30. CURRENT RATIO 2.2 3.0 2.7 Apple 1.6 1.7 1.6 Palm 1.4 1.4
1.5 HP 1.1 1.2 .98 Dell 2006 2005 2004
31.
32. QUICK RATIO 1.7 2.6 2.0 Apple 1.5 1.6 1.4 Palm 1.1 1.1 1.2
HP .9 1.1 .8 Dell 2006 2005 2004
33.
34. SOLVENCY
Ability of an entity to pay its debts with available cash
Trend in the industry is to use equity financing instead of
heavy debt financing
35. TOTAL LIABILITIES TO TOTAL ASSETS 42.0 35.5 85.8 Apple 8.3
36.4 34.7 Palm 53.5 51.9 50.7 HP 82.1 72.0 67.4 Dell 2006 2005 2004
%
36.
37. LONG TERM DEBT TO SHAREHOLDER EQUITY 7.5 8.1 6.7 Apple 9.1
57.3 53.2 Palm 6.5 9.1 12.3 HP 12.2 7.8 8.0 Dell 2006 2005 2004
%
38.
39. OPERATING CASH FLOW TO TOTAL LIABILITIES 39.3 72.7 36.3
Apple 65.0 38.0 -4.8 Palm 27.0 20.4 26.4 HP 27.1 35.7 31.1 Dell
2006 2005 2004 %
40.
41. RISK
Competition levels of industry make profit margin
predictability difficult
Customer demand and desire for innovation could affect revenue
and profit margin
Innovation must be maintained
Also have to maintain and enforce intellectual property rights
and be aware of infringing upon intellectual property
Revenues and profitability fluctuate dramatically overtime,
which makes forecasting extremely difficult
Analysis of the industry is not an easy task, but following
traditional analysis methods is one option
42. RISK
Cisco was suing Apple and Steve Jobs for trademark infringement
over the iPhone name
Dell filed form 12b-25 with the SEC, which is a notification of
late filing of the annual report
Exploding batteries in Dell notebooks was another major
issue
HP settled civil charges over a corporate spying scandal with
the California State Attorney Generals Office
43. Z-SCORE AND BANKRUPTCY PROBABILITY 2.68 .37% 2.91 .18% 3.37
.04% Apple 1.5 6.2% .7 23.4% 3.7 .01% Palm 2.0 2.6% 1.7 3.9% 1.8
4.0% HP 5.9 .03% 7.1 .03% 7.2 .03% Dell 2006 2005 2004
44. CONCLUSION
Sustainability of the industry is assured
Success of an individual company depends a lot on its ability
to meet customer demand:
Innovation
Reliability
Quality
Affordability
Struggle with the balance between profits and maintaining
customers
Companies in a niche market have a high probability of being
bought out by industry leaders