US Personal Computer Industry

Presented by : Leslie Ling

Philip Lam

Winnie Liu

1975 1975 : Humble beginning as : Humble beginning as hobby computer kits in the hobby computer kits in the spring of 1975 spring of 1975

1990’s 1990’s

Tech boomTech boom

PC Industry DevelopmentPC Industry Development

AMEX Computer Hardware Index (INDEX)  2002-2004

5 Year Comparison between NASDAQ 5 Year Comparison between NASDAQ and NASDAQ Computer Indexand NASDAQ Computer Index

1 Year Comparison between NASDAQ 1 Year Comparison between NASDAQ and NASDAQ Computer Indexand NASDAQ Computer Index

S&P500 vs. Computer IndustryS&P500 vs. Computer Industry

PC Market Segments ( by PC Market Segments ( by products)products)

 U.S. and Worldwide PC Market Segments

Unit Sales 1990 1995 2000 2003 2005 2008

U.S. PC Server Sales (#M) 0.04 0.51 2.5 2.7 3.3 4.2

U.S. Desktop PC Sales (#M) 8.4 16.8 33.1 31.3 34.3 35.2

U.S. Mobile PC Sales (#M) 1.1 4.1 10.4 14.2 19.0 23.2

Worldwide PC Server Sales (#M) 0.06 0.94 5.5 7.1 9.4 13.4

Worldwide Desktop PC Sales (#M) 21.7 47.1 96.2 102.1 116.9 135.3

Worldwide Mobile PC Sales (#M) 2.4 10.0 27.9 40.1 54.6 74.0

PC Market Segments (by regions)PC Market Segments (by regions)

U.S. and Worldwide PCs-in-Use U.S. and Worldwide PCs-in-Use and PC Sales Per 1,000 People and PC Sales Per 1,000 People

Table 1.3   U.S. and Worldwide PCs-in-Use and PC Sales Per 1,000 People

  1990 1995 2000 2003 2005 2008

U.S. PC Sales Per 1,000 People 38.2 81.0 163.5 165.0 188.9 201.8

U.S. PCs-in-Use Per 1,000 People 192.2 324.1 629.5 744.0 788.4 867.9

Worldwide PC Sales Per 1,000 People 4.6 10.2 21.4 23.7 28.0 33.4

Worldwide PCs-in-Use Per 1,000 People 18.7 39.8 86.1 117.0 138.7 175.2

World wide PC Vendor Market World wide PC Vendor Market ShareShare

2003 Market Share (%)

14%

5%

4%

3%

59%

15%

Dell

Hewlett-Packard

IBM

Fujitsu/FujitsuSiemens

Toshiba

Others

US PC Vendor Market ShareUS PC Vendor Market Share2003 Market Share (%)

27%

19%

5%4%

3%

42%

Dell

Hewlett-Packard

IBM

Gateway

Apple

Others

U.S. and Worldwide PC Market U.S. and Worldwide PC Market Growth Growth

0

25

50

75

100

125

150

175

200

225

250

1975 1980 1985 1990 1995 2000 2003 2005 2010

U.S. PC Sales (#M)

Worldwide PC Sales (#M)

U.S. and Worldwide PC Market U.S. and Worldwide PC Market Growth Growth

0

50

100

150

200

250

300

350

1975 1980 1985 1990 1995 2000 2003 2005 2010

U.S. PC Revenues ($B)Worldwide PC Revenues ($B)

Business ModelsBusiness Models

Big Box Stores vs. J.I.T. delivery Big Box Stores vs. J.I.T. delivery Continuous Innovation Continuous Innovation Cost LeadershipCost Leadership DifferentiationDifferentiation

Own Brand Retail storesOwn Brand Retail storesConsultingConsultingStripped Service – White BoxesStripped Service – White Boxes

Business ModelsBusiness Models

Big Box Stores vs. J.I.T. delivery Big Box Stores vs. J.I.T. delivery Low-cost Leader Low-cost Leader Product DifferentiationProduct Differentiation Continuous InnovationContinuous Innovation

Own Brand Retail storesOwn Brand Retail storesWhite Boxes CompetitionWhite Boxes Competition

PC Life CyclePC Life Cycle

Customers demand convenience and value for Customers demand convenience and value for their moneytheir moneyThe need for speed has been diminishedThe need for speed has been diminished(Ebay)-market for second-handed machine(Ebay)-market for second-handed machineReplacement cycle changed from every 2-3 Replacement cycle changed from every 2-3 years to every 5 yearsyears to every 5 yearsMachines are upgradeableMachines are upgradeable

Key Success FactorsKey Success Factors

Innovation – R&D “TABLET PC”Innovation – R&D “TABLET PC”Product differentiationProduct differentiationBrandingBrandingCompetitive pricingCompetitive pricingConstantly reexamine the way to do Constantly reexamine the way to do businessbusinessAfter sales serviceAfter sales serviceExtensive product and service linesExtensive product and service lines

Future Consideration - ThreatsFuture Consideration - Threats

Commodity like marketCommodity like market Products differ very littleProducts differ very little Constant downward price pressureConstant downward price pressure

Death of the PCDeath of the PC

Longer replacement cycleLonger replacement cycle

Future Consideration - TrendsFuture Consideration - Trends

Branching out into ancillary services – IBMBranching out into ancillary services – IBM

Global expansionGlobal expansion

Acquisitions and mergersAcquisitions and mergers

Switch to LinuxSwitch to Linux Cheap and open source operating softwareCheap and open source operating software

Look for smaller, cheaper and more task-Look for smaller, cheaper and more task-specific piecesspecific pieces

Demand for wireless productsDemand for wireless products

International Business Machines

Mission Statement“ At IBM, we strive to lead in the creation, development and manufacture of the industry's most advanced information technologies, including computer systems, software, networking systems, storage devices and microelectronics.

We translate these advanced technologies into value for our customers through our professional solutions and services businesses worldwide.”

Company History

• IBM was incorporated in the state of New York on June 15, 1911 as the Computing-Tabulating-Recording Company (C-T-R)

• C-T-R's name was formally changed to International Business Machines Corporation (IBM) on

February 14, 1924

• 1944- Automatic Sequence Controlled Calculator

• 1950s- IBM 701, IBM 650 Magnetic Drum Calculator, FORTRAN

• 1960s- System/360, Customer Information Control System (CICS)

• 1971- Floppy Disk

Management Team

Samuel Palmisano- Chairman of the Board, President, CEO; 31 years at IBM

Nicholas M. Donofrio- Senior VP, Technology & Manufacturing; 37 years at IBMDoug T. Elix- Senior Vice President & Group Executive, Sales and Distribution; 35 years at IBM Mark Loughridge- Chief Financial Officer, Senior VP; 27 years

at IBMEdward Lineen- Senior VP, General Counsel; 34 years at IBM Abby Kohnstamm- Senior VP, Marketing; 11 years at IBM J. Randall MacDonald- Senior VP, Human Resources; 4 years

at IBM

Products• Hardware: Servers, storage, personal systems,

printing systems

• Software: DBS (Information Management), Lotus, Tivoli, WebSphere

• Services: Comprehensive IT services

• Finances: leading provider of financing and asset management services to companies selling or acquiring IT related products and services

• Research: Develop, market and deliver leading chip technologies and services

New Strategies

• Continual Innovation of IBM

• Growth-driven

• Reduce presence in retail PCs, application software, hard disk-drives… etc.

• On-demand business strategy

• Creating new leadership instead of defending existing ones

• Supply Chain Improvement

• Business Transformation Outsourcing

• Acquisitions

• Growth in Emerging Countries

Revenue by Business Segment

Revenue by Areas

42%

33%

22%

3%

Americas

Europe, MiddleEast & AfricaAsia Pacific

OEM

Stock SummaryExchange NYSE

Index Membership S&P 500, Dow Jones Industrials

Last 94.45

52 Week High 100.43

52 Week Low 81.90

Average Daily Volume 4.908 million

Shares Outstanding 1.665 billion

Market Capitalization 157.2 billion

Trailing P/E 20.10

Dividend Yield 0.80%

Institutional Ownership 55.40%

Book Value/ Share 17.84

1-Year Price Trend

1-Year Comparison with DJ Computer Index

5-Year Price Trend

5-Year Comparison with DJ Computer Index

Balance Sheet

Income Statement

Cash Flow Statement

Revenue (5-Year)

83,334 85,089 83,067 81,186

89,131

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1999 2000 2001 2002 2003

Revenue

Net Income (5-Year)

7,3597,874 8,146

5,334

7,613

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1999 2000 2001 2002 2003

Net Income

EPS (10-Year Trend)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

EPS

ROE & ROA (10-Year Trend)

0

5

10

15

20

25

30

35

40

45

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

ROA ROE

Pricing Ratios (10-Year)

0

5

10

15

20

25

30

35

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Price to Book P/ E

Profit Margin (10-Year)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Profit Margin

First 3 Quarters of 2004

1st Quarter1st Quarter 2nd Quarter2nd Quarter 3rd Quarter3rd Quarter

SalesSales 22,25022,250 23,15323,153 23,42923,429

Gross Operating ProfitGross Operating Profit 9,1919,191 9,6529,652 9,8079,807

Net IncomeNet Income 1,6021,602 1,9881,988 1,8001,800

Diluted EPSDiluted EPS 0.930.93 1.161.16 1.061.06

Comparing to 2003:

• Revenue increased by 9%

• Pretax income increased by 10%

• Diluted EPS increased by 13%

Growth Comparison

0%

5%

10%

15%

20%

25%

30%

35%

40%

3rd QuarterSales

5-Year SalesAverage

EPS (YTD)

IBM

Industry:DiversifiedComputerSystems

Price Comparison

0

5

10

15

20

25

30

P/E Price/Sales Price/Book

IBM

Industry:DiversifiedComputer Systems

Profitability Comparison

0

5

10

15

20

25

30

35

40

45

CurrentGrossMargin

CurrentProfit

Margin

5-YearGrossMargin

5-YearProfit

Margin

IBM

Industry: DiversifedComputer Systems

Financial Condition Comparison

0

2

4

6

8

10

12

14

16

18

Debt/Equity CurrentRatio

LeverageRatio

Book Valueper Share

IBMIndustry

Return Comparison

0

5

10

15

20

25

30

35

ROE ROE (5-YAverage)

ROA ROA (5-YAverage)

IBMIndustry

Executive Compensation Summary

Stock Option & SAR Grants in Last Fiscal Year

Options / SAR Exercised & Year-end Values

Earnings Estimate

2004 Q42004 Q4 2005 Q12005 Q1 2004 2004 20052005

Estimated EPSEstimated EPS 1.741.74 1.071.07 4.994.99 5.525.52

Growth RateGrowth Rate 11.53%11.53% 14.73%14.73% 15.08%15.08% 10.44%10.44%

IBMIBM IndustryIndustry S&P 500S&P 500

Last 5 YearsLast 5 Years 5.30%5.30% 5.30%5.30% 3.20%3.20%

20052005 10.20%10.20% 10.20%10.20% 6.40%6.40%

Next 5 yearsNext 5 years 10.30%10.30% 15.10%15.10% 6.00%6.00%

Earnings Growth Rates

Strengths and Weaknesses

Strengths• Earnings growth in the past year has increased rapidly• Good Performance in 2004• High consistency across the board• Good future growth prospects • Stable dividend income• High profit margin

Weaknesses• Strong Competition • Higher debt ratios than industry average• High goodwill

Analysts’ Recommendations

Our Recommendation

HOLD

Present by Winnie Liu

>> Qualitative Analysis>> Qualitative Analysis - - ManagmentManagment - - productproduct - market position- market position - major competitor- major competitor>> Key developments and Analysis>> Key developments and Analysis - - HP & Compaq MergerHP & Compaq Merger>> Fundamental analysis>> Fundamental analysis - Ratio analysis- Ratio analysis - Financial statements analysis- Financial statements analysis>> >> RecommendationRecommendation

HP: AgendaHP: Agenda

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Qualitative AnalysisQualitative Analysis

>> Management>> Management

>> company's activities>> company's activities --- product--- product --- market position --- market position --- major competitor--- major competitor

ManagementManagement>> Carly Fiorina : --- Chairman and CEO --- Joining HP in July 1999

--- Prior to joining HP, spent

nearly 20 years at AT&T and Lucent Technologies

--- Fiorina has previously served on the boards of Cisco Systems, Kellogg Company and Merck & Company.

Main executive teamMain executive team>> Gilles Bouchard, --- CIO & Executive Vice President of Global Operations --- Joined HP 1990. >> Robert P. Wayman,

CFO & Executive Vice President & Joined HP 1969. a member of the Policy Council of the Tax Foundation , the Financial

Executives Institute and the Council of Financial Executives of the >> Shane V. Robinson,

Executive Vice President and Chief Strategy and Technology Officer

Joined Compaq 2000. was senior vice president and chief technology officer of Strategy and

Technology at Compaq Computer Corporation also spent seven years at Apple Computer Corporation

>> Desktops & workstations

>> Notebooks & tablet PCs

>> Printing & multifunction

>> Handheld devices>> Monitors & Projectors

>> Fax, copiers & scanners>> Fax, copiers & scanners>> Digital photography>> Digital photography>> Entertainments>> Entertainments>> Storage>> Storage

Products

> > > >

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Market Market positionposition

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•HP is the second largest PC HP is the second largest PC •vendor with 16.2% of the vendor with 16.2% of the •worldwide market in the Q3 2004.worldwide market in the Q3 2004.•In the United States, HP holds In the United States, HP holds the No. 2 position with 20.3 the No. 2 position with 20.3 percent of the marketpercent of the market•HP Commands No. 1 Position in HP Commands No. 1 Position in Worldwide Notebook PC Market Worldwide Notebook PC Market •#1 globally in inkjet, all-in-one #1 globally in inkjet, all-in-one

and single-function printers, monand single-function printers, mono and color laser printers, large fo and color laser printers, large format printing, scanners, print seormat printing, scanners, print servers, and ink and laser supplies*rvers, and ink and laser supplies*•#1 globally in x86*, Windows*, #1 globally in x86*, Windows*, Linux*, UNIX* and Blade servers*Linux*, UNIX* and Blade servers***

•#1 in total disk storage syste#1 in total disk storage systems*ms*•#2 globally in notebook PCs*#2 globally in notebook PCs*•#1 globally in Pocket PCs*#1 globally in Pocket PCs*•#1 in customer support**#1 in customer support**•#1 position in customer satisf#1 position in customer satisfaction for ProLiant serversaction for ProLiant servers

HP: major competitorsHP: major competitors

HPQ DELL IBM Industry

Market Cap: 60.64B 99.79B 157.23B 37.90M

Employ ees: 142,000 53,000 319,273 126

Rev. Growth (ttm): 29.10% 17.10% 9.80% 13.80%

Revenue (ttm): 79.90B 47.26B 94.74B 36.95M

Gross Margin (ttm): 24.48% 18.22% 37.10% 35.04%

EBITDA (ttm): 4.76B 4.37B 15.33B -382.00K

Oper. Margins (ttm): 5.20% 8.56% 11.22% 1.12%

Net Income (ttm): 3.50B 3.12B 8.11B -768.00K

EPS (ttm): 1.149 1.21 4.703 N/A

PE (ttm): 17.48 33.03 20.08 26.32

PEG (ttm): 1.30 1.31 1.89 1.25

PS (ttm): 0.77 2.13 1.67 1.16

Key development & AnalysisKey development & Analysis

2001:2001: HP and Compaq Computer Corp. agree to a $21 HP and Compaq Computer Corp. agree to a $21 billion merger. The Hewlett family voices its opposition to billion merger. The Hewlett family voices its opposition to the deal, as do various employees and shareholders. the deal, as do various employees and shareholders.

2002 May:2002 May: Despite opposition, HP completes its Despite opposition, HP completes its purchase of Compaq, which the firm claims will result in purchase of Compaq, which the firm claims will result in $2.5 billion in savings. Cost cutting measures include the $2.5 billion in savings. Cost cutting measures include the elimination of overlapping products and 15,000 jobs.elimination of overlapping products and 15,000 jobs.

Key development & AnalysisKey development & Analysis

HP AND COMPAQ MERGERHP AND COMPAQ MERGER

Before MergerBefore Merger

Hewlett-Packard

Founded: 1938 Employees: 86,200 2001 Revenues: $45.2bn 2001 profits: $408m CEO: Carly Fiorina

Compaq

Founded: 1983 Employees: 63,700 2001 Revenues: $33.5bn 2001 loss: $785m CEO: Michael Capellas

Key development & AnalysisKey development & Analysis

HP AND COMPAQ MERGER

May 7, 2002 the largest merger in the history

of computer industry

Value of the deal at $25 billion

1 Compaq share = 0.6325 HP share

Change ticker symbol from HWP to HPQ

Compaq brand essentially disappear

Key development & AnalysisKey development & Analysis

HPQ

Year 2002:Projected annual revenue: $78.7 billion actual : $56.6billionNumber of employees: 150,000 actual : 145,000Number of planned layoffs: 15,000 over two years.Board of directors: Seven members from the old HP, five from Compaq.

After Merger

1. Financial Summary1. Financial Summarycompany symbol HPQexchange NYSE

Last Price (11/09/04) 20.08

Change -0.18 

% Change -0.89% 

Volume  10,307,000

Avg Daily Volume 10,391,818

Day's High 20.34

Day's Low 20.08

52 Week High  26.28

52 Week Low  16.08

Fundamental Data 　

P/E 17.48

Earnings/Share 1.06

Dividend/Share  0.32

Current Div. Yield  1.59%

Market Cap.  60.64B

Tot. Shares Out.  3.02 Bil

Financial AnalysisFinancial Analysis

Five-Year REVENUE FiguresFive-Year REVENUE Figures

Growth Rates % HP Industry S&P 500

Sales (Qtr vs year ago qtr) 8.9 2.3 11.3

Sales (5-Year Annual Avg.) 12.33 4.25 4.8

EPS(3 year)EPS(3 year)Earnings Per Share - Quarterly Results

FY (10/04) FY (10/03) FY (10/02)

1st Qtr $0.30 $0.24 $0.25

2nd Qtr $0.29 $0.22 $0.12

3rd Qtr $0.19 $0.10 ($0.67)

4th Qtr NA $0.28 $0.20

Total $0.78 $0.84 ($0.10)

Growth Rates % HP Industry S&P 500

EPS (YTD vs YTD) 43.5 35.8 26.6

EPS (Qtr vs year ago qtr) 97.3 -10.7 12.1

EPS (5-Year Annual Avg.) NA -19.37 0.48

Hewlett-Packard Company: Hewlett-Packard Company: Earnings EstimatesEarnings Estimates (EPS) (EPS)

Hewlett-Packard Company: Hewlett-Packard Company: Earnings Growth RatesEarnings Growth Rates

Earnings Growth Rates

Last 5 Years FY 2005 FY 2006 Next 5 Years 05 P/E

HP    -4.40%    10.80%    14.70%    10.70%    15.50

Industry    -4.40%    10.80%    14.70%    12.50%    18.80

S&P 500    3.20%    20.10%    6.40%    6.00%    17.80

P/E RationP/E Ration

Costs and Revenue Control Costs and Revenue Control

Profit Margins % HP Industry S&P 500Gross Margin 27.3 36.5 47.7

Net Profit Margin 4.2 4.6 7.6

5Yr Gross Margin (5-Year Avg.) 30.2 39.4 47.5

5Yr Net Profit Margin (5-Year Avg.) 3.5 5.4 5.6

ROE ROE

Investment Returns % HP Industry S&P 500

Return On Equity 8.4 11.3 14.5

Return On Equity (5-Year Avg.) 7.8 15.1 12.1

Financial statement AnalysisFinancial statement Analysis

>> Income statement>> Income statement

>> Balance sheet>> Balance sheet

>> Cash flow statement>> Cash flow statement

>> Revenue & Profit>> Revenue & Profit

Twelve months ended October 31,

2004 2003(a) Net revenue $ 79,905 $ 73,061 Costs and expenses:

Cost of sales 60,340 53,858 Research and development 3,506 3,651 Selling, general and administrative 11,024 11,012 Amortization of purchased intangible assets 603 563 Restructuring charges 114 800 Acquisition-related charges 54 280 In-process research and development charges 37 1 Total costs and expenses 75,678 70,165

Earnings from operations 4,227 2,896 Interest and other, net 35 21 Gains (losses) on investments 4 (29) Dispute settlement (70) - Earnings before taxes 4,196 2,888 Provision for taxes 699 349 Net earnings $ 3,497 $ 2,539

Income statementIncome statement

Net revenue break down Revenue Breakdown by segment

2004 2003Net Revenue

Enterprise Storage and Servers 15,152$ 14,593$ Software 922 774HP Services 13,778 12,357

Technology Solutions Group 29,852 27,724Imaging and Printing Group 24,199 22,569Personal Systems Group 24,622 21,210Financing 1,895 1,921Corporate Investments 449 344

Total Segements 81,017 73,768

Eliminations of inter-segement net revenueand other -1,112 -707

Total HP Consolidated 79,905$ 73,061$

Twelve months endedOctober 31,

Earning break downEarning break down

Balance sheetBalance sheetOctober

31,October 31,

2004 2003

ASSETS

Current assets:

Cash and cash equivalents $12,663 $14,188

Short-term investments 311 403

Accounts receivable, net 10,226 8,921

Financing receivables, net 2,945 3,026

Inventory 7,071 6,065

Other current assets 9,685 8,351

Total current assets 42,901 40,954

Property, plant and equipment, net 6,649 6,482

Long-term financing receivables and other assets 6,657 8,030

Goodwill and purchased intangibles, net 19,931 19,250

Total assets $76,138 $74,716

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Notes payable and short-term borrowings $2,511 $1,080

Accounts payable 9,377 9,285

Employee compensation and benefits 2,208 1,755

Taxes on earnings 1,709 1,599

Deferred revenue 4,348 3,665

Accrued restructuring 193 709

Other accrued liabilities 9,632 8,545

Total current liabilities 29,978 26,638

Long-term debt 4,623 6,494

Other liabilities 3,973 3,838

Stockholders' equity 37,564 37,746

Total liabilities and stockholders' equity $76,138 $74,716

Balance sheet (ctn)Balance sheet (ctn)

Cash flow Cash flow

Cash flow (con’t) Cash flow (con’t)

Price HistoryPrice History

RECOMMENDATIONRECOMMENDATION•The annul EPS is above industry annul EPS

•The revenue growth rate is above industry revenue growth rate

•Second position in the industry

•The projected earning growth rate is below industry average

•Although the current profit margin is higher than the previous year, it’s still below industry average margin

•P/E to growth ratio suggested stock might have been overvalued

RecommendationRecommendation

HOLDHOLD

DELL INCDELL INC

Company OverviewCompany Overview

Founded in 1984 by Michael DellFounded in 1984 by Michael Dell Direct sales modelDirect sales model Offers an extensive selection of software Offers an extensive selection of software

and peripheralsand peripherals Sell its products worldwide and Sell its products worldwide and

manufacture in six location throughout the manufacture in six location throughout the worldworld

Rank #1 in worldwide market share with Rank #1 in worldwide market share with 18.3% and also #1 in US market share 18.3% and also #1 in US market share with 33.3%with 33.3%

Direct Sales ModelDirect Sales Model

Communicate directly with our customerCommunicate directly with our customer• In person, via Internet or by phoneIn person, via Internet or by phone• In 2001, sales via Internet reach $50 million In 2001, sales via Internet reach $50 million

per dayper day Five basic tenets:Five basic tenets:

• Build-to-orderBuild-to-order• Low-cost leaderLow-cost leader• Most efficient path to the customerMost efficient path to the customer• Standards-based technologyStandards-based technology• Single point of accountabilitySingle point of accountability

Products and ServicesProducts and Services

Products:Products:• Desktop and notebook computersDesktop and notebook computers• Servers and workstationsServers and workstations• Storage, printing and imaging systemStorage, printing and imaging system• Software, peripheral and networking productsSoftware, peripheral and networking products

Services:Services:• Managed and professional servicesManaged and professional services• Deployment and support servicesDeployment and support services• Training and certification servicesTraining and certification services

Executive Compensation SummaryExecutive Compensation Summary

Revenue by Product Line and Revenue by Product Line and RegionRegion

Net RevenueNet Revenue

12.318.2

25.331.9 31.2

35.441.4

0

10

20

30

40

50

1998 1999 2000 2001 2002 2003 2004

Net revenue (in billions)

2004: 1-yr. growth rate: 17.1 percent

Net IncomeNet Income

0.9

1.51.7

2.2

1.2

2.1

2.6

0

0.5

1

1.5

2

2.5

3

1998 1999 2000 2001 2002 2003 2004

Net income (in billions)

2004: 1-yr.growth rate: 24.6%

Operating ExpensesOperating Expenses

Earning per ShareEarning per Share

$0.17

$0.32

$0.53

$0.68

$0.84

$0.48

$0.82

$1.03

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

1997 1998 1999 2000 2001 2002 2003 2004

ROEROE

65.973

62.9

31.439.8

26.5

43.5 42.1

0

10

20

30

40

50

60

70

80

%

1997 1998 1999 2000 2001 2002 2003 2004

Average Price to EarningsAverage Price to Earnings

14.9

26.1

59.2

70.8

45.251.4

33.229.6

0

10

20

30

40

50

60

70

80

1997 1998 1999 2000 2001 2002 2003 2004

Valuation Ratios ComparisonValuation Ratios Comparison

33.0329.27

2.13 1.91

17.06

8.77

0

5

10

15

20

25

30

35

P/E (ttm) P/Sales (ttm) P/Book (mrq)

Dell

Industry

Financial Strength (mrq)Financial Strength (mrq)

1.112

1.36

0.086

0.42

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Current Ratio Total Debt/Equity

Dell

Industry

Profitability (ttm)Profitability (ttm)

8.56 8.83

6.61

9.66

0

2

4

6

8

10

Operating Margin % Net Profit Margin %

Dell

Industry

Management Effectiveness (ttm)Management Effectiveness (ttm)

15.929.08

51.48

31.59

0

10

20

30

40

50

60

ROA % ROE %

Dell

Industry

GrowthGrowth

25.6

47.2

20.422.4

14.6

1.9

17.918.5

0

10

20

30

40

50

This Year(11/2004)

Next Year(11/2005)

Last 5Years

Next 5Years

Dell

Industry

Worldwide GrowthWorldwide Growth

Cash Flows Data Summary (in millions)

Period2003

2002

2001

2000

Net cash flows from operating activities:

3670 3538 3797419

5

Net cash flows from investing activities:

(2814)

(1381)

(2260)

(757)

Net cash flows from financing activities:

(1383)

(2025)

(2702)

(2305)

Net (decrease) / increase in cash and cash equivalents:

85 591 (126

9)110

1

Cash and cash equivalents at end of period:

4317 4232 3641 491

0

Net free cash flows: 3160 2973 3008 278

5

Net free cash flows: Cash flows from operations less capital expenditures less tax benefit from employee stock plans

10 year Price Chart10 year Price Chart

1 year Price Chart1 year Price Chart

1 year comparison to NASDAQ 1 year comparison to NASDAQ Computer IndexComputer Index

2 year chart with indicators2 year chart with indicators

Current FinancialsCurrent FinancialsAs of November 19, 2004As of November 19, 2004Company Symbol

DELL

Exchange Market

NASDAQ

Price $39.97

52 Week High

$40.97

52 Week Low

$31.14

Volume 12,951,300

Market Cap 99.79 B

EPS $1.21

P/E 33.03

Analyst RecommendationsAnalyst Recommendations(www.zacks.com)(www.zacks.com)

DELL INC. (NASDAQ)

Analyst RatingsCurren

tOne Month

AgoTwo Months

AgoThree Months

Ago

Consensus (Mean) 1.73 1.81 1.65 1.57

Strong Buy 11 11 12 12

Buy 8 8 8 7

Hold 5 4 4 3

Sell 0 0 0 0

Strong Sell 0 1 0 0

Average Recommendation (1=Buy, 5=Sell)

RecommendationRecommendation

Dell’s fiscal 2004 was the most successful Dell’s fiscal 2004 was the most successful year of the 20 year since their founding:year of the 20 year since their founding:• Product shipment grow 26%, nearly three times Product shipment grow 26%, nearly three times

the average of other companiesthe average of other companies• Revenues increased 17% to $41.4 billion, while Revenues increased 17% to $41.4 billion, while

total sales by the rest of the industry declinedtotal sales by the rest of the industry declined• Operating expenses accounted just for 9.7%, it Operating expenses accounted just for 9.7%, it

was the lowest full year rate in the historywas the lowest full year rate in the history• EPS were up 26% to $1.01; competitors lost EPS were up 26% to $1.01; competitors lost

moneymoney

Recommendations (Cont.)Recommendations (Cont.)

For the 26 weeks ended 7/30/04:For the 26 weeks ended 7/30/04:• Revenues rose 20% to $23.25 billionRevenues rose 20% to $23.25 billion

Reflect increased product shipments in all Reflect increased product shipments in all geographic marketsgeographic markets

• Net income rose 36% to $1.53 billionNet income rose 36% to $1.53 billion Reflects a leveling off of R&D expensesReflects a leveling off of R&D expenses

From the analysis, the growth was From the analysis, the growth was expected to continue in the expected to continue in the upcoming yearsupcoming years

Recommendations (Cont.)Recommendations (Cont.)

BUYBUY