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PC Makers

Presenters:

Oana Constantin

Kevin Ridinger

Adam Svoboda

Cindy Xia

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Industry Definition

The personal computer industry consists mostly ofassembling and selling:

Desktops & Notebooks

Servers & Mainframes

Workstations & Thin Clients

Supercomputers

Mass Storage Devices

Network Equipment

Peripherals

Handheld Devices

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Nature of Industry

Motherboard

& CPUPower

Source &

Cables

Floppy,CD/DVD Drive

Case

Extra

Peripherals

Hard-drive

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Industry History (1/2)

Start of the industry: 1975.

MITS Altair 8080First

personal computer

Hits maturity by the mid-1990s

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Industry History (2/2)

New developments beginning with late-1990s:

Rapid decline in PC prices

Consequently decrease in gross profit margins

Acceleration in the product cycle

Faster depreciation of components and finished good inventories

Success of direct-sales/build-to-order strategy

Remodeling of the value chain

Mergers and Acquisitions

HP/Compaq, Lenovo/IBM

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1995 Worldwide Market Share

10%8%

3%4%

8%

4%

7%

3%3% 3%

47%

Compaq

IBM

Dell

HP

AppleNEC

Packard-Bell

Fujitsu/ICL

Acer

ToshibaOther

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2004 Worldwide Market Share

16%

6%

18%

1%4%

55%

HP/Compaq

IBM

Dell

Fujitsu/Siemens

Acer

Other

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PC Market Growth

US and Worldwide PC Market Growth

1985 1990 1995 2000 2003 2005 2010

U.S. PC Unit Sales (#M) 6.6 9.5 21.4 46.0 48.3 56.6 66.7

U.S. PC Dollar Dales ($B) 17.2 24.5 56.8 86.9 78.1 84.5 86.1

Worldwide PC Unit Sales (#M) 11 24.2 70.1 130 149 181 249

Worldwide PC Dollar Sales ($B) 29.5 71.3 155 247 243 270 302

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PC Unit Sales by Region (millions)

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PC Market Segments (Million Units)

0

20

40

60

80100

120

140

160

1990 1995 2000 2003 2005 2010

Servers (U.S.) Servers (Worldwide)

Desktops (U.S.) Desktops (Worldwide)

Mobile PCs (U.S.) Mobile PCs (Worldwide)

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PC Market Segment Growth

Worldwide PC Market Segment Growth for Desktops,Mobile PCs, and Servers

1990 1995 2000 2003 2005 2010

Desktops 89.9% 81% 74% 68% 63% 55%

Mobile PCs 9.9% 17% 22% 27% 32% 39%

Servers 0.02% 2% 4% 5% 5% 6%

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PC Market Share of Leading Vendors

0

10

20

30

40

50

1990 1995 2000 2003 2005 2010

Dell (USA) HP/Compaq (USA) Dell (WW) HP/Compaq (WW)

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Business Models

Big Box

Direct

White Box

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Big Box Model

Traditional approach, through brick and mortarretailers and own stores

Distributors purchase assembled, ready-to-use

computers

Allows consumers to touch and feel the product

Higher cost due to high inventories, longerdistribution channel

Profit margin eroded

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Direct Model

Take customized orders directly from end consumers

Assemble systems as orders come in

Ship the product direct to customers

More efficient, JIT inventory system

Lower costs due both to inventory savings and

distribution by-passing

Savings are passed to customers

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White Box Model

Combination of Big Box and Direct Sales Strategies

Own distribution facilities

Allows consumers to customize their products while

giving them a phisical location to purchase Highly fragmented, estimated to more than 500

unbranded PC makers

Often sell directly to small businesses looking for a

significant price break rather than a big brand

machine.

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PC Industry Value Chain, 2004

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Models of Production for US Sold PCs

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Industry Performance

NASDAQ Computer Index (IXCO)

Includes 603 securities from categories:

Computer Hardware

Computer Software

Semiconductors

Computer Services

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Industry Performance: 1 Year

Nasdaq Computer Index (IXCO)

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Industry Performance: 10 Year

Nasdaq Computer Index (IXCO)

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Industry Key Measures

Profit Margin

Sales Growth

Market Share Growth

Valuation Ratios

Business Capital Spending

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Industry Statistics

Valuation Ratios Financial Strength

P/E 22.96 Quick Ratio 1.34

P/Sales 1.85 Current Ratio 1.61

P/Book 6.83 LT Debt/Equity 0.31Total Debt/Equity 0.38

Profitability Management Effectiveness

Gross Margin 31.33% ROI 19.28%

Operating Margin 9.22% ROA 9.94%

Net Profit Margin 10.68% ROE 31.35%

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Recent Developments

Lenovos buyout of IBMs PC unit. Propelled the company on 3rd place in terms of worldwide market

share (7.6%) for the 2nd quarter of 2005

Apple switches to Intel processors

Lenovo investing $84m in new R&D center in North

Carolina

Dell lowering earnings forecast, plus a $300m charge

to repair faulty circuit boards Hewlett-Packard has hired Dells CIO, Randy Mott

Soaring Apple stock price due to strong iPod sales

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AppleOne Year Stock Price

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Apple Sales Growth (millions)

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Future TrendsIndustry

Pricing competition will become more aggressive Exit by some smaller players

Further consolidation through mergers and acquisitions

PC shipments expected to grow at 6% per year, but

revenues will remain almost flat Forces players to further innovate and expand product offering

such as media center computers and tablet PCs

Faster growth in Europe and Asia segments Build strong marketing strategy targeting these segments to capture

market share

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Future TrendsTechnology

Continued shift from desktops to notebooks

Shift towards wireless devices

Adaptive hardware technology to support PC

virtualization

Continuous movement toward miniaturization anddigital enhancement of portable music players and

phones

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Dell Inc.

Presented by: Kevin Ridinger
http://www1.us.dell.com/content/products/features.aspx/inspn_1200?c=us&cs=19&l=en&s=dhshttp://www1.ca.dell.com/content/products/compare.aspx/dt_essential?c=ca&cs=CADHS1&l=en&s=dhs

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Fast Facts about Dell Inc.

Trades on NASDAQ, symbol: DELL

One share bought for $8.50 at IPO in 1988 would be worth$3,800 today.

Employs over 61,400 people

Revenues totaled over $52.8 billion for the last four quarters Market Position: #1 in U.S., #3 in Japan, #2 in Europe

7 Manufacturing centres spanning the globe, located in UnitedStates(3), Brazil, Europe (Ireland), Malaysia, and China.

Nearly one out of every five standards-based computer system

sold in the world today is a Dell.

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Dell Timeline

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 Dellmoves to Chairman of the Board

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Management

Michael Dell Chairman of the Board (founded companyin 1984)

Kevin B Rollins President and CEO since July 2004(prior he was president and COO of Dell Americas joinedin 1994)

William J. Amelio Sr. VP Asia-Pacific/Japan (since2001) Paul D. Bell Sr. VP Europe, Middle East & Africa (since

1996) Joseph A. Marengi, Sr. VP, Americas (since 1996, came

from Novell)

Many of Dells current management came to the company around 1996-97.Based on biographical evidence, many were lured from other high-techcompanies, including Novell, HP, Apple, Sun and Texas Instruments.
http://www1.us.dell.com/content/topics/global.aspx/corp/biographies/en/joseph_marengi?c=us&l=en&s=corphttp://www1.us.dell.com/content/topics/global.aspx/corp/biographies/en/kbr_index?c=us&l=en&s=corphttp://www1.us.dell.com/content/topics/global.aspx/corp/biographies/en/msd_index?c=us&l=en&s=corp

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Strategy

Uses the direct business model(reliant on very efficientmanufacturing and supply chain management)

Helps turnover inventory every four days (on average)

Helps ensure the latest technology is offered without

keeping outdated products on the shelves. Provides customers with single point of accountability

Standards-based (do not support proprietary technologies)

Collaboration with strategic partners

Positively affects both input prices and product leadership

Adding a significant layer of innovation (value-addedprocesses)

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Dells strategic corporate

initiatives for the future

Continued Global Growth Growth outside of U.S. in largest countries at 30%

Product Leadership

Ex. integrated solutions to businesses (servers,desktops, and now printing)

Enhancing the Customer Experience Dell value-added services (anti-spyware and virus

software and support)

Developing a Winning Culture: Essential for integrating Dells subsidiaries in over 47

countries

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Company Structure

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Sources of Revenue

Dell designs, develops, manufactures, markets,sells, and supports the follow products:

Notebook ComputersDesktop Computers

Printing and ImagingSoftware andPeripherals

ServersStorage

WorkstationsNetworking

Dell also offers a variety ofservices from development and

support to professional and fully managed solutions.

Dell also has a financial services division which is a joint venture between Delland CIT group. It organizes financing alternatives for clients

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Sales Mix (by Region & Product line)

Product-specific

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Revenue Growth

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Revenue Growth

YearNet Revenue (in

Millions)

2001 $31,888

2002 $31,168

2003 $35,404

2004 $41,444

2005 $49,205

2006 $55,000

2007 $60,000

Net Revenue

0

10000

20000

30000

40000

50000

60000

70000

2001 2002 2003 2004 2005 2006 2007

Fiscal Year

Revenue(inMillions)

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Costs Input costs from suppliers (COGS)

Continuing drop in PC prices but what about Dellsgross margin? 2001: 17.7%, 2002: 17.9% 2003: 18.2% 2004: 18.3%

2005: 18.6%

Operating Expenses- marketing, sales and admin.

- R&D

Almost zero long-term debt no service payments

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Earnings Per Share

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

2001 2002 2003 2004 2005

Year

2006 FY Forecast: $1.59

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Market Share by Region

Fiscal Year Ended

Annual MarketShare: 30-Jan-05 30-Jan-04 31-Jan-03 1-Feb-02

Americas 29.10% 27.70% 24.80% 20.30%

Europe 11.70% 10.50% 9.60% 9.00%

Asia Pacific-Japan 8.30% 7.20% 5.90% 5.00%

Worldwide 17.80% 16.70% 14.90% 12.70%

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Key Financial Analysis Figures

Number of Shares Outstanding 2.4 billion Consistently been declining since 2001 (2.7B)

Cash and Short-term Investments/Share As of Q2 2006: $3.77/share

ROE: 2001: 39.78%, 2002: 24.36% , 2003: 44.32%,2004: 47.53%, 2005: 47.62%

Ratios: Book value/share = $2.70, Price/Book = 11 Price/Sales* = 1.4 P/E* = 21

*Calculated using P = $29

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Financial Statements

Balance Sheet

Income Statement

Cash flow Statement

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Stock Options

Average exercise price has steadily been increasing ($28.99 in 2005, comparedto $8.78 in 2001)

As of Jan 28, 2005

As of Jan 31, 2003

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Options (cont.)

Impact to earnings using fair value

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One Year Stock Price

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10 Year Trading History

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Performance Comparison

IXIC = NASDAQ

IXK = Nasdaq computers index

2 Years

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Model Valuation

With the residual income model: Dells price should be between $15 and $25

depending on the assumptions used.

Since Dell does not pay a dividend we cannotuse dividend models to calculate a price.

The FCFE model also does not work very

well with the stocks that are in Dells industry Produces a price of $6 if the same k from the RI

model is used.

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How does Dell Measure up?

Statistic Industry Average DELL

P/E Ratio (ttm) 28.6 21.14*

Price/Book 10.5 12.75

Net Profit Margin 6.7% 9.2%

Price to FCF 38.5 15*

Return on Equity (ttm) 37.0% 59.18%

Price to Sales 1.81 1.4*

As of Nov 9, 2005

*Lower is better

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Value Drivers (cont.)

Profits Company has turned a profit year after year.

Continued expense reduction and increasingmargins will help contribute to higher profits. Especially as international centres recently expanded into

mature.

Share buy back and continued reduction ingratuitous option issuance to execs

Has a growing and already significant internationalpresence through diversifying it spreads risk ofnational economic/demand slowdowns

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Value Drivers (Cont.)

Growth Market share available abroad in Asia-Pacific and Europe

E-commerce forecasted to increase especially in Asia

Outside of the US, growth was over 30%. Has been strong formany years

Product/service expansion Printing and Imaging revenues rose from 0 to 1.2B in 2005 in just

under 2 years! Positioning themselves strategically within the emerging digital TV

segment, making partnerships with Microsoft and Intel

Technology Changes/PC Replacement

Release of Windows Longhorn may spur people to buy newcomputers with 64-bit capabilities More than 35% of users plan to replace their computers in coming

years (long-term avg. 20%)

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Factors to Consider Quarterly earning announcements

Investors have historically reacted drastically when quarterlynumbers are released

Seasonality and cycles associated with the PC market(almost 60% of sales attributable to PCs)

Foreign Exchange rate risks (38% of revenue from outsideU.S.)

hedging and derivatives

repatriation of profits (in Q4 2005 $4.1 billion)

R&D investment is lower than competitors which might hurtDell in the long-run (especially in service sector)

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1.951.65High Estimate

1.801.55Low Estimate3233No. of Analysts

1.871.59Avg. Estimate

Next YearJan-07

Current YearJan-06

Earnings Est

Recommendation

Analysts:

Current Month Last Month Two Months AgoThree Months

Ago

Strong Buy 8 9 9 8Buy 11 13 12 15

Hold 12 9 9 7

Sell 1 0 0 0

Strong Sell 0 0 0 0

Recent Price Depression due to one quarters earnings forecast is abuying opportunity.

Attractive price vs. Competitors

The company continues to make enormous amounts of money

Limited-Downside potential for price (Share buyback)

Expansion efforts in Asia-Pacific and Europe continue to show value

Good management (experienced) have led Dell on a path of continuedgrowth

Value Drivers (growth & profits) are strong

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Adam J Svoboda

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Background Founded in 1939 by Bill Hewlett and Dave

Packard

First Product: Audio Oscillator

First Customer: Walt Disney

Went Public on: Nov 6, 1957

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Management/Executives Mark Hurd - 2005 - Chief Executive Officer and

President. President and CEO of NCR since 2003(25 years of experience)

Gilles Bouchard - Exec Vice President PSG (in Hpsince 1989)

Vyomesh Joshi - Exec Vice President IPG since1980

Randall D. Mott - Exec Vice President since 2005,with dell for 3 years

IN GENERAL: MOSTLY NEW BUT EXPERIENCED

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Board of Directors Lawrence T. Babbio, Jr. 2002

Patricia C. Dunn - 1998

Richard A. Hackborn - 1992 Mark V. Hurd - 2005

Dr. George A. Keyworth II - 1986

Tom Perkins - 2005

Robert L. Ryan - 2004 Lucille S. Salhany - 2002

Robert P. Wayman - 2005

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Current Events HP takeover of Compaq - $25bn

New CEO Mark Hurd

2005 Profits fall

Compaq acquisition complete

Several other acquisitions have taken place

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Snapshot Compaq

Merger May 7, 2002, largest merger computer industry

merger in history

$25 billion

1 Compaq share = 0.63 HP share

Attempt to eliminate costs by reducing overlap

in sectors Was opposed by both Compaq and HP (family)

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Corporate Objectives Customer loyalty

Profit Market leadership

Growth

Employees

Leaders

Global citizenship

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Products and Services

Desktops and Workstations

Notebooks and Tablet PCs

Printers and multifunctional machines Handhelds and calculators

Monitors and projectors

Fax, Copiers and Scanners

Digital Photography Storage

Servers

Networking

Software

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Market Position

#1 globally in the inkjet, all-in-one and single-function printers,mono and colour laser printers, large format printing, scanners,print servers and ink and laser supplies*

#1 globally in x86*, Windows*, Linux*, UNIX* and bladeservers

#1 in total disk and storage systems

#2 globally in notebook PCs

#1 globally in Pocket PCs

#1 in customer support

#1 position in customer loyalty for ProLiant servers

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HP Business Sectors (PSG) Personal Systems Group

(IPG) Imaging and Printing Group (ESS) Enterprise Storage and Servers

(HPFS) HP Financial Services

(HPS) HP Services

Software

Corporate Investments

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(PSG) Personal Systems

Group Commercial and consumer PCs

Workstations, handheld computer devices and digitalentertainment systems

Calculators

Software services for commercial and consumermarkets

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(IPG) Imaging and Printing

Group

Printing, imaging and publishing

devices

Both for home users andbusinesses

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(ESS) Enterprise Storage

and Servers

Storage and server products

Low and high end scalable servers e.g.Superdome

Enterprise arrays, storage area networks

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(HPFS) HP Financial

Services Leasing, financing, utility and asset recovery

services

Specialized financial services forsmall/medium businesses and educational

and governmental entities.

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(HPS) HP Services

Technology and consulting

Integration services

Managed services

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Software Software solutions including support

Infrastructure, operations and applicationsmanagement

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Labs and business incubation projects.

Revenue is from selling network infrastructureproducts: enhancing computer and enterprise

solutions.

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% Revenue by Sector% of Revenue

0

5

10

15

20

25

30

35

2004 2003 2002

Year

%

ESS

HPS

Software

PSG

IPG

HP Financial


2004 2003 2002

ESS 18.70 19.78 14.10

HPS 17.01 16.75 12.27

Software 1.14 1.05 0.95

PSG 30.39 28.75 19.90

IPG 29.87 30.59 27.60

HP Financial 2.34 2.60 2.31Corporate Investments 0.55 0.47 0.39

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% Profit by Sector% of Profit

-20

0

20

40

60

80

100

120

2004 2003 2002

Year

%

ESS

HPS

Software

PSG

IPG

HP Financial


2004 2003 2002

ESS 3.27 2.93 -10.27

HPS 23.85 28.08 29.72

Software -2.74 -3.92 -11.61

PSG 3.97 0.45 -7.87

IPG 72.65 74.14 112.24

HP Financial 2.36 1.63 -4.47

Corporate Investments -3.36 3.32 -7.74

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Earnings by RegionRevenue overview by region

(in billions, for fiscal year 2003)

Americas

(excluding

U.S.)

6%Japan

4%

Asia Pacific

11%

United States

40%

Europe,

Middle East,

Africa

39%

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Revenue by Region

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Analysis

% increase/decrease in 2003-2004 2002-2003

Revenue 9.37 29.11

Costs 7.86 21.81

Earnings on Operations 45.96 386.17

Net Earnings 37.73 381.17

% increase/decrease in 9 months of 2004 - 2005

Net Revenue 9.000957003

Net Expenses 8.931591637

Earnings from Operations 10.31313819

Net Earnings -17.62261014

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Shares

000 2004 2003 2002 2001

Balance 2,910,760 3,042,761 3,043,733 1,938,828

Issuance 111463

Repurchases 172468 39780 39623

Current 2,907,000,000

Further $4bn buyback approved

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Financials Dividend - $0.08 per quarter

No stock splits since Dec 2000 (2 for 1)

Year Est. EPS (10/05) 1.56

Price/Earnings (Trailing)18.695

Earnings Growth Rate17.200

Relative P/E1.053

Estimated P/E18.300

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The stock as of 10 Nov

2005

Last 28.23 USD

Change -0.31

% Change (1) -1.09%

High 28.63

Open 28.4Low 28.21

Net Volume 7,242,200

52 Wk High 29.51

Date 20/09/2005

52 Wk Low 18.85

Date 11/11/2004

Dividend 0.08

Div Date 12/09/2005

Market Cap 80,879 M

P/E Ratio 26.89

EPS 1.05

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Revenue and EPS (2004)

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Return on Investment

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Stock Performance

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Sector Comparison

F t ff ti f t

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Factors affecting future

performance Competition

Inventory management

Staying on top of technological development

Intellectual property rights

Economic uncertainty

Terrorism

Political changes

business disruptions

Inventory and

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Inventory andDistribution

Big Box

BTO and CTO combined

High end and low end sales

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Competitors by Sector

PSG Dell, IBM. Acer and Fujitsu (Europe)

IPG Very pricing competitive. Xerox, Epson,

Lexmark ESS Rapid technological innovation. IBM,

EMC, Sun Micro

HPS IBM, EDS. Competitive in support and

Consulting. Software BMC, Veritas, Mercury, IBM

HPFS Financing companies: IBM GlobalFinancing, Banks and Financial Institutions

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Moving Forward?

R&D Constant at $3,500million

Revenue increasing BUT so are costs

Profits are sensitive to US$ exchange rate Several Business acquisitions

$5billion authorized for share repurchases ($3bremaining)

Innovative and popular products Predicted fourth Q $22.2-$22.4bn Revenue Up

10%

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Acquisitions

Snapfish Online photo service

Scitex Vision Super-wide digital printing RLX Technologies Software provider

Peregrine Systems Management software

Compaq PC supplier ApplQ open storage area network managemen

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Market Leaders

The largest consumer IT company

The world's largest SMB IT company

A leading enterprise IT company

Also has a significant presence in the public sectoras well as health and education

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Philip Fisher

Production, Marketing, Research and Financial skills

Good

The People FactorNew and old leaders - experienced

Investment characteristics

Very diversified and continually evolving

Price of the investment

Medium

C l i d

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Conclusion and

Recommendation 2005 is a disappointing year

New acquisitions bring a positive light

Share buy-back

WEAK BUY (wait tillfinal results and evaluate!)

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Gateway Inc.Technology You Trust

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Values

Caring, honesty, teamwork, respect,

aggressiveness, efficiency, fun and common

sense.

--- Offering products directly to customers,

providing them with the best value for theirmoney and unparalleled service and support

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Company Background

Founded in 1985 in a farmhouse by Ted Waitt

Went public in 1993 traded on NASDAQ Started trading on NY Stock Ex in 1997

3rd largest PC maker in U.S.

In March 2004, acquired eMachines ($235 million)

Currently 1,900 employees

6% of US market share in consumer segment

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Distribution Channels

Direct distribution: web, phone, retail stores

Indirect distribution: retailers like Costco

Limited resellers in Canada and Mexico

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Products

Computersdesktops, notebooks, all-in-ones, professional PC

Systems (networking, servers and storage) Computer accessories

Mouse, storage, memories, monitors, modems

Consumer electronicsdigital TVs, digital camera, MP3 players, DVD

players

Software

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Competitive Strategies in the 90s

Gateway big box strategy and JIT

Direct +retail

Competitors:

Dells build-to-order, direct only, JIT

Compaqs Build-to-forecast, retail only

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Acquired Advanced Logic Research (ALR) in

1997 and announced its entry into corporate

network server market

Channeled through own retailing stores

Acquired ALR

Strategies in the 21st

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Strategies in the 21st

Century Encountered big loss from 2001

failure of cost leadership strategy

higher cost and lower margin

slow inventory turnover

Branded integrator

offered the fullest range of product andservice

B2B 2003

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Acquiring eMachines

Acquired eMachines in March2004

50 million new Gateway shares

and $30 million cash

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eMachines

Philosophy Build affordable computers for everyone no

compromise PCs that deliver incredible value andperformance.

Market budget-conscious consumers

Products

PCs and peripheral displaysDistribution Channels 3rd party retailers: BestBuy, Office Depot

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eMachines

2cnd largest vendor of desktop through USretailers

low-cost, full-featured computer systems $1.1 billions of sales in 2003

International market in Japan and UK

Wayne Inouye, who joined eMachines in2001 and quickly turned it into money-making business

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What does eMashine bring to GTW

Low cost distribution model and retailrelationaship

Highly efficient and profitable operationmodel

Market shares in consumer desktop sector

International growth opportunities Management team

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After Acquisition

eMachines CEO Wayne Inouye was named CEO ofGateway, succeeding Ted Waitt, who remains

chairman and the company's largest stockholder28.3% shares and plays an active role in long-termstrategic direction, product development andmarketing plans.

Combined management team from both Gatewayand eMachine

A few new members joined management team

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Management

Wayne R. Inouye (eMachine) CEO andPresident

Former president & CEO of eMachine since 2001

Senior vice president of PC merchandising forBestBuy

Scott Bauhofer, Senior vice president

Former senior vice president of BestBuy

bachelor's in history from San Francisco StateUniversity

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Management

Bob Davidson (eMachine)Senior vice presidentU.S. retail

Executive of eMachine P&C development

Former vice president of BestBuy

Ed Fisher(eMashine)Senior vice president

internationalExecutive of eMachine,former Intel sales director

MBA Northwestern University's Kellogg GraduateSchool of Management

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Management

John Goldsberry, (eMachine)senior vice president, CFOJoined Gateway in 2004Former CFO of eMachine, leaded the negotiation with

Gatewaybachelor's degree in Applied Mathematics and a Ph.D. inBusiness Economics from Harvard University

Greg Memo ,(eMachine) Senior Vice President, Products,

Marketing &WebFormer president at CompaqMBA degree from San Jose State University and abachelor's degree in industrial engineering from ArizonaState University.

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Management

Bruce K. Riggs, Senior Vice President, Operations andCustomer careFormer senior vice president of Quanta Computer Inc and Dellbachelor's degree in Economics and Spanish at LawrenceUniversity MBA from from Indiana University

Bruce W. Smith, senior vice president, professional lineFormer senior vice president of Equant, a globaltelecommunications-servicesmaster's degree in history from the University of Virginiabachelor's degree in history from The Johns Hopkins University

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Management

Dan Stevenson, Vice President, DirectJoined Gateway in 2004Former senior director at Apple Computer

MBA from Harvard University and a bachelor's in accountingfrom Purdue University

Mike Zimmerman,(eMachine)Senior Vice President, Customer

Care Services & Quality AssuranceFormer vice president and corporate planning at BestBuyBachelor's degree in business administration and marketing fromNorthwood University.

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Corporate Goals

Profitably grow PC business

Diversify revenue

Increase gross margin with consumerelectronics products

Reduce cost structure

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Modified Strategies

Multi-branding

Keep eMachines original marketing strategy

Closed 188 Gateway owned retail stores Channel through big retailers

New manufacturing model

International markets (Japan, Mexico)

Consolidated supply base

Decrease employees from 7400-1900

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Go-to-market strategy

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Distribution Channels

eMachines brand sold worldwide by retailers

Gateway products directly sold online and by

phone

Gateway products sold in Canada, U.S.,Mexico, and Japan by retailers

Professional line (PCs, servers, service) solddirectly to organizations by sales force

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Breakdown of Sales

BreakDown of Sales

010,000

20,000

30,000

40,000

50,000

60,000

70,00080,000

90,000

Direct Professional Retail

Distribution

Sales 2005

2004

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Net Income

Net Income

-1200

-1000-800

-600

-400

-200

0

200

400

600

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

NetIncome

Series1

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Earning Per Share

EPS

-4

-3

-2

-1

0

1

2

1997

1998

1999

2000

2001

2002

2003

2004

2005

Year

EPS

Series1

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Price to Book Value

Price to Book Value

01

2

3

4

5

6

7

1999 2000 2001 2002 2003 2004 2005

Year

P/B Series1

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Price/Earnings

P/E Ratio

-10

0

10

20

30

40

50

60

1999 2000 2001 2002 2003 2004 2005

Year

P/ERatio

Series1

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Return on Equity

ROE

-3

-2

-1

0

1

2

3

4

5

6

1999 2000 2001 2002 2003 2004 2005

Year

ROE

Series1

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Current Price

Open 3.150 Bid

High 3.190 Ask

Low 3.130 EPS 0.20

Volume 2,314,700 E/P 15.7

52-week H 6.920 Indicatedannual div

0

52-week L 2.350 Yield 0

Last: US$ 3.150 Net Change: US$ 0.000 % Change: 0.00%

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Ratios

EPS Analysis 2003 2004 2005Q1 -0.62 -0.51 -0.01Q2 -0.22 -0.91 0.05Q3 -0.43 -0.16 0.04

Q4 -0.35 -0.02 0.05Year -1.62 -1.60 0.13

Return on Equity This Company Ind. Average S&P 500Q2:2005 -21.04 26.68 14.07Q2:2004 -125.78 21.92 13.78Q2:2003 -33.70 18.71 9.00

Consensus EPS Estimate*Q3 FY05 2005(E) 2006(E)

0.04 0.13 0.20

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One-Year Price Chart

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Against Market

Standard and Poor's 500 Computer Hardware Index

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Five Year Performance

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Share Repurchase

Repurchase of Preferred Stock and

Convertible Note 2004 from America Online,

Series A and C Preferred Stock with a parvalue of $400 million plus 2.7 millioncommon shares, for $315.6 million in cashand credits.

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Value Driver

Profitable eMachine brand sector

eMashines profitable operating model

International market

Underminded by

Failure of integration of the two companies

Competition in international market

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Forecasting

Opportunity to grow in international markets

Maintain relationship with the big buyers

Let us entertain you is the new mantra of

computer industry. Previously, companies

focused solely on creating technology

Competition:

Dell, Apple, HP

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Competitive Landscape
http://www.hoovers.com/global/sample/co/fin/landscape.xhtml?ID=13193&Menu=

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Current Events

Closed three federal deals valued more than$20 million

$1.7 million deal with California HighwayPatrol (CHP)

Hyper-threaded dual-core added

Enters strategic alliance with LEAF Financialand Merrill Lynch

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Philip Fisher Approach

Production,Marketing, Research and Financial skills

Weak

The People FactorHavent been with GTW for a long time

Investment characteristics

Somewhat diversified

Price of the investment

Low

C l i

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Weak Hold

Conclusion

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Documents