PC Makers
Presenters:
Oana Constantin
Kevin Ridinger
Adam Svoboda
Cindy Xia
Agenda
• Industry Analysis
• Company Analysis
• Dell, Inc.
• Hewlett-Packard Development Company, L.P.
• Gateway, Inc.
Industry Definition
• The personal computer industry consists mostly of
assembling and selling:
•
•
•
•
•
•
•
•
Desktops & Notebooks
Servers & Mainframes
Workstations & Thin Clients
Supercomputers
Mass Storage Devices
Network Equipment
Peripherals
Handheld Devices
Nature of Industry
Floppy,
CD/DVD Drive
Hard-drive
Motherboard
Power
Source &
Cables
& CPU
Extra
Peripherals
Case
Industry History (1/2)
• Start of the industry: 1975.
MITS Altair 8080 – First
personal computer
• Hits maturity by the mid-1990s
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
1995 Worldwide Market Share
3% 3%
3%
7%
4%
47%
8%
4%
3%
8%
10%
Compaq
IBM
Dell
HP
Apple
NEC
Packard-Bell
Fujitsu/ICL
Acer
Toshiba
Other
2004 Worldwide Market Share
16%
6%
55%
18%
1%
4%
HP/Compaq
IBM
Dell
Fujitsu/Siemens
Acer
Other
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
PC Unit Sales by Region (millions)
PC Market Segments (Million Units)
160
140
120
100
80
60
40
20
0
1990
1995
Servers (U.S.)
Desktops (U.S.)
Mobile PCs (U.S.)
2000
2003
2005
2010
Servers (Worldwide)
Desktops (Worldwide)
Mobile PCs (Worldwide)
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%
PC Market Share of Leading Vendors
50
40
30
20
10
0
1990
Dell (USA)
1995
2000
HP/Compaq (USA)
2003
Dell (WW)
2005
2010
HP/Compaq (WW)
Business Models
• Big Box
• Direct
• White Box
Big Box Model
• Traditional approach, through “brick and mortar”
retailers and own stores
• Distributors purchase assembled, ready-to-use
computers
• Allows consumers to touch and feel the product
• Higher cost due to high inventories, longer
distribution channel
• Profit margin eroded
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
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.
PC Industry Value Chain, 2004
Models of Production for US Sold PCs
Industry Performance
• NASDAQ Computer Index (IXCO)
 Includes 603 securities from categories:
Computer Hardware
Computer Software
Semiconductors
Computer Services
Industry Performance: 1 Year
Nasdaq Computer Index (IXCO)
Industry Performance: 10 Year
Nasdaq Computer Index (IXCO)
Industry Key Measures
• Profit Margin
• Sales Growth
• Market Share Growth
• Valuation Ratios
• Business Capital Spending
Industry Statistics
Valuation Ratios
P/E
Financial Strength
22.96 Quick Ratio
1.34
P/Sales
1.85 Current Ratio
1.61
P/Book
6.83 LT Debt/Equity
0.31
Total Debt/Equity
Profitability
Gross Margin
0.38
Management Effectiveness
31.33% ROI
19.28%
Operating Margin
9.22% ROA
9.94%
Net Profit Margin
10.68% ROE
31.35%
Recent Developments
• Lenovo’s buyout of IBM’s 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 Dell’s CIO, Randy Mott
• Soaring Apple stock price due to strong iPod sales
Apple – One Year Stock Price
Apple Sales Growth (millions)
Future Trends – Industry
• 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
Future Trends – Technology
• Continued shift from desktops to notebooks
• Shift towards wireless devices
• Adaptive hardware technology to support PC
virtualization
• Continuous movement toward miniaturization and
digital enhancement of portable music players and
phones
Dell Inc.
Presented by: Kevin Ridinger
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 United
States(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.
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 Dell moves
to Chairman of the Board
Management





Michael Dell – Chairman of the Board (founded company
in 1984)
Kevin B Rollins – President and CEO since July 2004
(prior he was president and COO of Dell Americas – joined
in 1994)
William J. Amelio – Sr. VP Asia-Pacific/Japan (since
2001)
Paul D. Bell – Sr. VP Europe, Middle East & Africa (since
1996)
Joseph A. Marengi, Sr. VP, Americas (since 1996, came
from Novell)
Many of Dell’s current management came to the company around 1996-97.
Based on biographical evidence, many were lured from other high-tech
companies, including Novell, HP, Apple, Sun and Texas Instruments.
Strategy

Uses the direct business model (reliant on very efficient
manufacturing and supply chain management)





Standards-based (do not support proprietary technologies)
Collaboration with strategic partners


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
Positively affects both input prices and product leadership
Adding a significant layer of innovation (value-added
processes)
Dell’s strategic corporate
initiatives for the future

Continued Global Growth


Product Leadership


Ex. integrated solutions to businesses (servers,
desktops, and now printing)
Enhancing the Customer Experience


Growth outside of U.S. in largest countries at 30%
Dell value-added services (anti-spyware and virus
software and support)
Developing a Winning Culture:

Essential for integrating Dell’s subsidiaries in over 47
countries
Company Structure
Sources of Revenue

Dell designs, develops, manufactures, markets,
sells, and supports the follow products:
•Servers
•Storage
•Workstations
•Networking
•Notebook Computers
•Desktop Computers
•Printing and Imaging
•Software and
Peripherals
•Dell also offers a variety of services from development and
support to professional and fully managed solutions.
Dell also has a financial services division which is a joint venture between Dell
and CIT group. It organizes financing alternatives for clients
Sales Mix (by Region & Product line)
Product-specific
Revenue Growth
Revenue Growth
Net Revenue
70000
Revenue (in Millions)
60000
50000
40000
30000
20000
10000
0
2001
2002
2003
2004
Fiscal Year
2005
2006
2007
Year
Net Revenue (in
Millions)
2001
$31,888
2002
$31,168
2003
$35,404
2004
$41,444
2005
$49,205
2006
$55,000
2007
$60,000
Costs


Input costs from suppliers (COGS)
Continuing drop in PC prices but what about Dell’s
gross margin?


Operating Expenses 
-

2001: 17.7%, 2002: 17.9% 2003: 18.2% 2004: 18.3%
2005: 18.6%
marketing, sales and admin.
R&D
Almost zero long-term debt

no service payments
Earnings Per Share
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
2001
2002
2003
2004
2005
Year
2006 FY Forecast: $1.59
Market Share by Region
Fiscal Year Ended
Annual Market
Share:
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%
8.30%
7.20%
5.90%
5.00%
17.80%
16.70%
14.90%
12.70%
Asia Pacific-Japan
Worldwide
Key Financial Analysis Figures

Number of Shares Outstanding



Cash and Short-term Investments/Share




2.4 billion
Consistently been declining since 2001 (2.7B)
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
Financial Statements



Balance Sheet
Income Statement
Cash flow Statement
Stock Options
As of Jan 28, 2005
As of Jan 31, 2003

Average exercise price has steadily been increasing ($28.99 in 2005, compared
to $8.78 in 2001)
Options (cont.)
Impact to earnings using fair value
One Year Stock Price
10 Year Trading History
Performance
Comparison
2 Years
IXIC = NASDAQ
IXK = Nasdaq computers index
Model Valuation

With the residual income model:

Dell’s price should be between $15 and $25
depending on the assumptions used.

Since Dell does not pay a dividend we cannot
use dividend models to calculate a price.

The FCFE model also does not work very
well with the stocks that are in Dell’s industry

Produces a price of $6 if the same k from the RI
model is used.
How does Dell Measure up?
Statistic
Industry Average
DELL
P/E Ratio (ttm)
28.6
21.14*
Price/Book
10.5
12.75
6.7%
9.2%
38.5
15*
37.0%
59.18%
1.81
1.4*
Net Profit Margin
Price to FCF
Return on Equity (ttm)
Price to Sales
*Lower is better
As of Nov 9, 2005
Value Drivers (cont.)

Profits


Company has turned a profit year after year.
Continued expense reduction and increasing
margins will help contribute to higher profits.



Especially as international centres recently expanded into
mature.
Share buy back and continued reduction in
gratuitous option issuance to execs
Has a growing and already significant international
presence  through diversifying it spreads risk of
national economic/demand slowdowns
Value Drivers (Cont.)

Growth
 Market share available abroad in Asia-Pacific and Europe



Outside of the US, growth was over 30%. Has been strong for
many years
Product/service expansion



E-commerce forecasted to increase especially in Asia
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 new
computers with 64-bit capabilities
More than 35% of users plan to replace their computers in coming
years (long-term avg. 20%)
Factors to Consider


Quarterly earning announcements
 Investors have historically reacted drastically when quarterly
numbers 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 outside
U.S.)
 hedging and derivatives
 repatriation of profits (in Q4 2005 $4.1 billion)
R&D investment is lower than competitors which might hurt
Dell in the long-run (especially in service sector)
Recommendation
•Recent
Price Depression due to one quarter’s earnings forecast is a
Analysts:
buying opportunity.
Current Year
Next Year
Earnings Est
Jan-06
•Attractive price vs. Competitors
Avg. Estimate
1.59
Jan-07
1.87
• The company
continues to make enormous
amounts
of money
No. of Analysts
33
32
Low Estimate potential for price (Share
1.55
1.80
• Limited-Downside
buyback)
High Estimate
1.65
1.95
•Expansion efforts in Asia-Pacific and Europe continue to show value
Three Months
management
(experienced)
Dell
on aAgo
path of continued
Current
Month
Lasthave
Month ledTwo
Months
Ago
•Good
growth
Strong Buy
8
9
Buy
•Value
Drivers (growth11& profits) are13strong
9
8
12
15
Hold
12
9
9
7
Sell
1
0
0
0
Strong Sell
0
0
0
0
Adam J Svoboda
Background

Founded in 1939 by Bill Hewlett and Dave
Packard

First Product: Audio Oscillator

First Customer: Walt Disney

Went Public on: Nov 6, 1957
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 Hp
since 1989)

Vyomesh Joshi - Exec Vice President IPG since
1980

Randall D. Mott - Exec Vice President since 2005,
with dell for 3 years
IN GENERAL: MOSTLY NEW BUT EXPERIENCED

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
Current Events

HP takeover of Compaq - $25bn

New CEO – Mark Hurd

2005 – Profits fall

Compaq acquisition complete

Several other acquisitions have taken place
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)


Corporate Objectives







Customer loyalty
Profit
Market leadership
Growth
Employees
Leaders
Global citizenship
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
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 blade
servers

#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
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
(PSG) Personal Systems
Group

Commercial and consumer PC’s

Workstations, handheld computer devices and digital
entertainment systems

Calculators

Software services for commercial and consumer
markets
(IPG) Imaging and Printing
Group
 Printing,
imaging and publishing
devices
 Both
for home users and
businesses
(ESS) Enterprise Storage
and Servers

Storage and server products

Low and high end scalable servers e.g.
Superdome

Enterprise arrays, storage area networks
(HPFS) HP Financial
Services

Leasing, financing, utility and asset recovery
services

Specialized financial services for
small/medium businesses and educational
and governmental entities.
(HPS) HP Services

Technology and consulting

Integration services

Managed services
Software

Software solutions including support

Infrastructure, operations and applications
management
Corporate Investments

Labs and ‘business incubation’ projects.

Revenue is from selling network infrastructure
products: enhancing computer and enterprise
solutions.
%
% of Sector
Revenue
% Revenue by
35
30
25
20
ESS
HPS
Software
15
10
5
0
PSG
IPG
HP Financial
2004
2003
2002
Corporate Investments
Year
2004
2003
2002
ESS
18.70
19.78
14.10
HPS
17.01
16.75
12.27
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
2.31
Corporate Investments
0.55
0.47
0.39
Software
% of Profit
% Profit by Sector
120
ESS
100
HPS
%
80
Software
60
PSG
40
IPG
20
HP Financial
0
-20
2004
2003
2002
Corporate Investments
Year
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
2.36
1.63
-4.47
-3.36
3.32
-7.74
HP Financial
Corporate Investments
Earnings by Region
Revenue overview by region
(in billions, for fiscal year 2003)
Europe,
Middle East,
Africa
39%
Americas
(excluding
U.S.)
6%
United States
40%
Japan
4%
Asia Pacific
11%
Revenue by Region
Analysis
% increase/decrease in
9 months of 2004 - 2005
Net Revenue
9.000957003
Net Expenses
8.931591637
Earnings from Operations
10.31313819
-17.62261014
Net Earnings
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
Shares
000’
Balance
2004
2003
2002
2001
2,910,760
3,042,761
3,043,733
1,938,828
Issuance
Repurchases
111463
172468
39780
39623
Current – 2,907,000,000
Further $4bn buyback approved
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
The stock as of 10 Nov
2005
52 Wk High
Last
Change
% Change (1)
High
Open
Low
Net Volume
28.23 USD
-0.31
-1.09%
28.63
28.4
28.21
7,242,200
Date
29.51
20/09/2005
52 Wk Low
Date
18.85
11/11/2004
Dividend
0.08
Div Date
12/09/2005
Market Cap
P/E Ratio
EPS
80,879 M
26.89
1.05
Revenue and EPS (2004)
Return on Investment
Stock Performance
Sector Comparison
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
Distribution

Big Box

BTO and CTO combined

High end and low end sales
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 Global
Financing, Banks and Financial Institutions
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 ($3b
remaining)
Innovative and popular products
Predicted fourth Q $22.2-$22.4bn Revenue – Up
10%
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
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 sector
as well as health and education
Philip Fisher




Production, Marketing, Research and Financial skills
Good
The People Factor
New and old leaders - experienced
Investment characteristics
Very diversified and continually evolving
Price of the investment
Medium
Conclusion and
Recommendation



2005 is a disappointing year
New acquisitions bring a positive light
Share buy-back
WEAK
BUY
final results and evaluate!)
(wait till
Gateway Inc.
Technology You Trust
Values
Caring, honesty, teamwork, respect,
aggressiveness, efficiency, fun and common
sense.
--- Offering products directly to customers,
providing them with the best value for their
money and unparalleled service and support
Company Background
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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
Distribution Channels
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Direct distribution: web, phone, retail stores
Indirect distribution: retailers like Costco
Limited resellers in Canada and Mexico
Products
 Computers
desktops, notebooks, all-in-ones, professional PC
Systems (networking, servers and storage)
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Computer accessories
Mouse, storage, memories, monitors, modems
 Consumer electronics
digital TVs, digital camera, MP3 players, DVD
players

Software
Competitive Strategies in the 90’s
Gateway’ big box strategy and JIT
Direct +retail
Competitors:
Dell’s build-to-order, direct only, JIT
Compaq’s Build-to-forecast, retail only
Acquired ALR
Acquired Advanced Logic Research (ALR) in
1997 and announced its entry into corporate
network server market
Channeled through own retailing stores
Strategies in the 21st
Century
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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 and
service
B2B 2003
Acquiring eMachines
Acquired eMachines in March
2004
 50 million new Gateway shares
and $30 million cash
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eMachines
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Philosophy
Build affordable computers for everyone – no
compromise PCs that deliver incredible value and
performance.
Market
budget-conscious consumers
Products
PCs and peripheral displays
Distribution Channels
3rd party retailers: BestBuy, Office Depot
eMachines
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2cnd largest vendor of desktop through US
retailers
low-cost, full-featured computer systems
$1.1 billions of sales in 2003
International market in Japan and UK
Wayne Inouye, who joined eMachines in
2001 and quickly turned it into moneymaking business
What does eMashine bring to GTW
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Low cost distribution model and retail
relationaship
Highly efficient and profitable operation
model
Market shares in consumer desktop sector
International growth opportunities
Management team
After Acquisition
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eMachines CEO Wayne Inouye was named CEO of
Gateway, succeeding Ted Waitt, who remains
chairman and the company's largest stockholder
28.3% shares and plays an active role in long-term
strategic direction, product development and
marketing plans.
Combined management team from both Gateway
and eMachine
A few new members joined management team
Management
Wayne R. Inouye (eMachine) CEO and
President
Former president & CEO of eMachine since 2001
Senior vice president of PC merchandising for
BestBuy
Scott Bauhofer, Senior vice president
Former senior vice president of BestBuy
bachelor's in history from San Francisco State
University
Management
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Bob Davidson (eMachine) Senior vice president
U.S. retail
Executive of eMachine P&C development
Former vice president of BestBuy
Ed Fisher (eMashine)Senior vice president
international
Executive of eMachine,former Intel sales director
MBA Northwestern University's Kellogg Graduate
School of Management
Management
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John Goldsberry, (eMachine)senior vice president, CFO
Joined Gateway in 2004
Former CFO of eMachine, leaded the negotiation with
Gateway
bachelor's degree in Applied Mathematics and a Ph.D. in
Business Economics from Harvard University
Greg Memo ,(eMachine) Senior Vice President, Products,
Marketing &Web
Former president at Compaq
MBA degree from San Jose State University and a
bachelor's degree in industrial engineering from Arizona
State University.
Management
Bruce K. Riggs, Senior Vice President, Operations and
Customer care
Former senior vice president of Quanta Computer Inc and Dell
bachelor's degree in Economics and Spanish at Lawrence
University MBA from from Indiana University
Bruce W. Smith, senior vice president, professional line
Former senior vice president of Equant, a global
telecommunications-services
master's degree in history from the University of Virginia
bachelor's degree in history from The Johns Hopkins University
Management
Dan Stevenson, Vice President, Direct
Joined Gateway in 2004
Former senior director at Apple Computer
MBA from Harvard University and a bachelor's in accounting
from Purdue University
Mike Zimmerman,(eMachine) Senior Vice President, Customer
Care Services & Quality Assurance
Former vice president and corporate planning at BestBuy
Bachelor's degree in business administration and marketing from
Northwood University.
Corporate Goals
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Profitably grow PC business
Diversify revenue
Increase gross margin with consumer
electronics products
Reduce cost structure
Modified Strategies
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Multi-branding
Keep eMachine’s 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
Go-to-market strategy
Distribution Channels
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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) sold
directly to organizations by sales force
Breakdown of Sales
Sales
BreakDown of Sales
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2005
2004
Direct
Professional
Distribution
Retail
Net Income
Year
2005
2004
2003
2002
2001
2000
1999
1998
600
400
200
0
-200
-400
-600
-800
-1000
-1200
1997
Net Income
Net Income
Series1
Earning Per Share
EPS
2
1
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
EPS
0
-1
-2
-3
-4
Year
Series1
Price to Book Value
Price to Book Value
7
6
P/B
5
4
Series1
3
2
1
0
1999 2000 2001 2002 2003 2004 2005
Year
Price/Earnings
P/E Ratio
60
P/E Ratio
50
40
30
Series1
20
10
0
-10
1999 2000 2001 2002 2003 2004 2005
Year
Return on Equity
ROE
ROE
6
5
4
3
2
1
0
-1
-2
-3
Series1
1999 2000 2001 2002 2003 2004 2005
Year
Current Price
Last: US$ 3.150
Net Change: US$ 0.000 % Change: 0.00%
Open
High
3.150
3.190
Bid
Ask
Low
3.130
EPS
0.20
Volume
2,314,700
E/P
15.7
52-week H
6.920
0
52-week L
2.350
Indicated
annual div
Yield
0
Current Ratios
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P/E Ratio9.26
Beta Coefficient1.87
Earnings per Share0.34
Market Cap (billion)1.17 B
Shares Outstanding371,165,000
Ratios
EPS Analysis
Q1
Q2
Q3
Q4
Year
Return on Equity
Q2:2005
Q2:2004
Q2:2003
Consensus EPS Estimate*
Q3 FY05
0.04
2003
-0.62
-0.22
-0.43
-0.35
-1.62
This Company
-21.04
-125.78
-33.70
2005(E)
0.13
2004
-0.51
-0.91
-0.16
-0.02
-1.60
2005
-0.01
0.05
0.04
0.05
0.13
Ind. Average
26.68
21.92
18.71
2006(E)
0.20
S&P 500
14.07
13.78
9.00
Financial Statement
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Income statement
Balance sheet
Cash flow statement
One-Year Price Chart
Against Market
Standard and Poor's 500 Computer Hardware Index
Five Year Performance
Share Repurchase
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Repurchase of Preferred Stock and
Convertible Note 2004 from America Online,
Series A and C Preferred Stock with a par
value of $400 million plus 2.7 million
common shares, for $315.6 million in cash
and credits.
Value Driver
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Profitable eMachine brand sector
eMashine’s profitable operating model
International market
Underminded by
Failure of integration of the two companies
Competition in international market
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
Current Events
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Closed three federal deals valued more than
$20 million
$1.7 million deal with California Highway
Patrol (CHP)
Hyper-threaded dual-core added
Enters strategic alliance with LEAF Financial
and Merrill Lynch
Philip Fisher Approach
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Production,Marketing, Research and Financial skills
Weak
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The People Factor
Haven’t been with GTW for a long time
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Investment characteristics
Somewhat diversified
Price of the investment
Low
Conclusion
Weak Hold