personal computer industry final version
DESCRIPTION
Analysis of the Personal Computer Industry involving four major competitors.TRANSCRIPT
- 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
- 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:
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- Profit margin for return on assets
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- Total asset turnover
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- Return on assets
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- Profit margin for return on common equity
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- Total asset turnover
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- Capital structure leverage, and
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- 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
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- 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
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- 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:
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- Innovation
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- Reliability
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- Quality
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- 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