Computer Manufacturing Industry Dell Inc. vs. Hewlett-Packard Company Ben Mechak, Mark Wilson, and Bobby Petrone Table of Contents Part I………………………………………………………………………..2 Part II…………………………………………………………………….....8 Part III……………………………………………………………………..10 Part IV…………………………………………………………………….16 Sources……………………………………………………………………24 1 Part 1: Describe Two Publicly Traded Business Rivals 1. In 2010 computer manufactures experienced lower revenue as retail prices fell. Due to intense competition and more productive manufacturing methods, the price per unit dropped. As computers become more common in the workplace the number of people who own computers will rise, but revenue will continue to be low due to the competitive nature of the industry (ibisworld.com, 2010). Two companies in particular are in a very intense rivalry as both of these companies added together make up 53.5% of the market share. Hewlett-Packard (H.P.) and Dell Inc. have been battling to maintain its large market share for the last decade. The two companies that will be examined will be H.P. and Dell. Dell Inc. is a technology company, which offers a broad range of products categories including mobility products, desktop PCs, software, and peripherals, servers, and networking, and storage (ibisworld.com). Dell Inc. was founded by Michael Dell on November 4, 1984. Michael Dell started Dell Inc. in his dorm room while attending the University of Texas. He builds PC-compatible computers built from stock components, which would provide the most effective computing solutions to meet customer needs. In 1988 Dell started to expand globally, in June 1988 the company’s market capitalization grew from $ 30 million to $80 million from its initial public offering of 3.5 million shares of stock. 1989 was the release of Dell’s first true cash cow; the 316 LT laptop computer was revolutionary in the computer industry giving people a reliable portable computer. 1993 was another big year for Dell Inc. with the introduction of the OptiPlex computers. These computers launched them in to the top 5 computer manufactures in the world. In 2002 Dell became a fortune 500 company, while Michael Dell became the youngest CEO of a Fortune 500 company. Dell primarily sold Personal computers and servers up until 2002; Dell Inc. diversified their products and started in to the T.V. hand held, digital/audio players and printers markets. From the years of 2004-2009 Dell acquired several companies that would bring in application development, system integration, and strategic consulting services though operations in the U.S. and 10 2 other countries (dell.com). Currently Dell Inc. controls 26.3% of the computer manufacturing industry and has just acquired key IP in storage systems management, cloud computing and software. Hewlett-Packard Company is a global provider of products, technologies, software, solutions and services to individual consumers and small- and -medium- sized businesses and large enterprises. Hewlett-Packard Company, also known as HP, was founded in 1939 by Bill Hewlett and Dave Packard in Packard home garage. The company’s first initial capital investment was $538; ad in August 1946 HP went public. While HP was not initially a computer manufacturing company they started off making a precision audio oscillator. From the 1940s until the 1990s the company concentrated on making electronic test equipment. They were able to make large profits because their produces were more sensitive, accurate, and precise compared to their competitors. IT wasn’t until the 1970s HP got in to the computer industry starting off their HP 300 business computing server. Also in the 1970s HP was identified by Wired Magazine as the producer of the world’s first mass-produced personal computer. In the 1990’s HP expanded their product line that originally target Universities, research, and business users to reach consumers. The 2000’s sparked a big change in HP with the acquisition of Compaq. After this merger HP became a major player in the lap top market. Currently HP owns 27.3% of the computer manufacturing industry (hp.com). 2. Employment Outlook Dell’s employment outlook is very strong. Over the last 7 years Dell has created 7,000 new jobs. Even though most of these jobs were created in foreign countries, Dell created 1,000 jobs in the U.S. If you are looking to work for Dell there is a high chance that you may end up overseas. Of Dells nearly 46,000 workers 23,000 are stations in other countries. When asked why Dell is doing this Mike Maher (A Dell spokes person) says “We’re going to put out employees where our fastest growth and opportunities for growth are” (Park, 2009). Dell will most likely keep widening due to the very competitive nature of the 3 industry. In order to stay competitive they must outsource their business to keep operation cost low. HP’s job outlook is not as good as Dell’s. Due to the global economic down turn HP was forced to reduce cost within the company. To reduce cost, HP cut over 1,300 jobs in the UK since 2010, and over 6,000 jobs since 2008. As some of the charts show HP has come to a flat constant rate in several financial conditions. In order to be able to compete in this very intense industry HP had to reduce cost, forcing thousands out of a job (Fildes, 2010). Figure 1 HP vs Dell Return on Equity 2006-2010 100 R E T U R N O N E Q U I T Y 91.42 90 80.3 80 70 60 HP 61.82 DELL 50 46.88 40 30.5 30 20 10 0 16.64 19.25 21.51 18.62 9.92 2006 2007 2008 Year 2009 2010 Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. As the graph depicts, HP has a higher ROE then Dell. This is due to the fact that HP is more capable of generation cash internally. Even though Dell has a lower ROE then HP, Dell still has a relatively high ROE. The average in the past decade was 10-15%. In 4 the past 5 years Dell has maintained it ROE at, or higher than the nations average (about.com). Figure 2 HP vs. Dell Stock Price 2006-2010 50 P R I C E I N $ 45 44.94 44.3 44 40 38.65 35 30 25 31.94 25.68 DELL 26.62 HP 20.76 20 15 14.85 10.75 10 5 0 2006 2007 2008 YEAR 2009 2010 A company’s stock price is dependent on the business fundamentals, company and world events, human psychology, and much more. As we can see from the graph, HP’s stock price is much higher than Dells. This is due to the fact that HP offers more products to consumers; also they have had a higher market share the last several years which affects stock price. When looking at Dell’s recent stock prices, we see that they have taken a large hit in the last few years. This is due to the current economic status, and the introduction of substitutes for Dells computers. The introduction of new smart phones, tablets, and advances in lap top technology, Dell has had a hard time keeping up until the year 2010 (howthemarketworks.com) 5 Figure 3 HP vs Dell Total assets 2006-2010 (in $millions) T 140000 O T 120000 A L 100000 A S 80000 S E 60000 T S 40000 $ 20000 124506 113331 81981 23109 HP 114799 88699 25635 DELL 27561 33652 26500 0 2006 2007 2008 YEAR 2009 2010 Total assets is defined as the sum of current and long-term assets owned by a person, company, or other entity. As we can see in this graph HP has a considerable more amount of total assets then Dell does. This is because HP has been in business longer then Dell, and they have acquired more assets. Also HP has more assets because of the diverse products they offer. With more products they must own more machines to produce their projects. Looking at Dell’s line we can see that they have increased their total assets in the last 5 years. This is due to the many acquisitions they have recently been involved with and also due Dell expanding their products to cover a more diverse market share (ibisworld.com). 6 Figure 4 HP vs DELL inventory turnover (ratio) 2006-2010 i n v e n t o r y t u r n o v e r 6 5.653 DELL 5.085 5 4.684 4 3.598 3.574 1.422 1.481 3 HP 2 1 0.977 0.983 1.134 0 2006 2007 2008 YEAR 2009 2010 Inventory turnover rate shows how many times the company’s inventory is sold and replaced over a period of time. The formula to find inventory turnover is sales/inventory. Low turnover implies poor sales and therefore excess inventory. A high ratio implies either strong sales or ineffective buying. As we see in Dell’s inventory ratios in the past 5 years they have declined sharply. This is due to a slowing sales rate due to market factors and buyer power within the industry. Looking at HP’s line we see they have a low turnover rate and this is due to an excess of products (ibisworld.com). 7 Figure 5 HP vs DELL market share 2006-2010 P E R C E N T M A R K E T S H A R E 30 25 20 24 23.8 25.3 27.3 26.3 20.6 HP 17.8 15 15.6 15.1 DELL 14.2 10 5 0 2006 2007 2008 2009 2010 YEAR As the graph shows HP has been a consistent dominate force in the computer industry until the year 2010. In 2010 Dell made a sharp increase in market share due to the affordable prices of their products. As Dell continues to increase its market share the more profit they can see coming towards them (ibisworld.com) PART II: OPPORTUNITY 1. The computer manufacturing industry is a highly competitive, yet lucrative industry consisting of three main products. The industry is broken down into the manufacturing of servers, desktops and portables, with portables holding the largest segment at 48% and desktops being next at 35.1% (Thormahlen 13). For the sake of this report, the main focus will be on the desktop segment. “Desktops 8 refer to traditional tower-case PCs, which are usually paired with separate monitors and keyboard” (Thormahlen 13). There are many external drivers associated with the demand for and success of the desktop manufacturing industry. Some of these key drivers include the domestic price of personal computers, levels of consumer sentiment and corporate profit. Beginning with the changes in domestic prices, “computer manufacturers experience lower revenue as retail computer prices fall. These declining prices are largely the result of more productive manufacturing methods and competition from abroad” (Thormahlen 5). Even though these falling prices are a potential threat to the desktop segment, the computer manufacturing industry has been aware of this threat for well over a decade. As reported in an article from The Washington Times dating back to 1997, “The prices are falling, and they’re falling big time. And more price cuts are coming. The competition in the portable end of the market is intense and will only get hotter as time goes by” (Kellner 1). Not only is the desktop segment affected by falling prices from international competition, but it is also becoming much less preferred to portable computers. Consumer sentiment is also a key factor of opportunity in the computer manufacturing industry. “When consumers are particularly confident, they are more likely to purchase durable goods like computers. This driver is expected to increase during 2011, and is a potential opportunity for the industry” (Thormahlen 5). Corporate profit is also very important when evaluating the potential for success or failure in the computer manufacturing industry. “Companies need to replace their computers periodically because of the rapid rate of technological change in this industry, but their purchase timing can be significantly affected by the level of corporate profit. When companies are losing money or otherwise struggling to survive, they tend to delay making investments in their computing infrastructure” (Thormahlen 5). The computer industry has several drivers determining industry opportunity, but most are drastically affected by the economical situation. Specifically to desktop computers, the biggest threat to opportunity lies in the advancements of the portable computer segment and other rapid technological changes occurring in today’s market such as tablets and smart phones. 9 2. The computer manufacturing industry is one of the most prevalent global industries in today’s market. Computer manufacturers mostly conduct business in North America, Western Europe, Japan and other Asia/Pacific countries while also participating in other markets throughout the rest of the world (S&P). Hewlett-Packard Company, with the largest market share in the computer manufacturing industry of 27.3% (Thormahlen 3), recorded $12,864 million in net desktop revenues for 2009 and $15,478 million for 2010 (10K HP 154). This can be compared to the second largest company, Dell, based on a market share of 26.3% (Thormahlen 3), which recorded $12,947 million in net desktop revenues for 2009 and $14,685 million for 2010 (10K Dell 108). Clearly, these two computer-manufacturing companies dominate the industry in desktop sales and compete very tightly year after year. On a more geographical scale, “Broadly speaking, the 2005-07 period was one of strong unit growth for the PC industry, with the Asia/Pacific (excluding Japan) and rest of world regions leading the charge, often with growth rates exceeding 20%. The industry’s slowdown during 2008-09 hurt growth in every region. From 2010 through 2014, the pattern of the Asia/Pacific region leading growth will return” (S&P). Based on units of PC shipments, the Asia/Pacific region currently (2011) has the largest amount of demand at 130,989 units (thousands) with a market share of 32.3% (S&P). In the Asia/Pacific region, the year-to-year % change was 13.9 from 2008-2009, 31.8 for 2009-2010 and 19.7 from 2010-2011. Forecasts for % growth in units shipped to Asia/Pacific are 17.0 for 2012, 16.5 for 2013 and 16.3 for 2014 (S&P). Even though growth rates of desktop shipments are supposed to slow throughout the next few years, the computer manufacturers themselves are still on a technological road to success. Part III: Industry Analysis 1. The computer manufacturing industry is moderately competitive. Rivalry 10 Rivalry in the computer manufacturing industry is high and increasing. Due to an increase in foreign competition computer manufactures have to cut down on their retail prices in order to stay competitive. As production cost decrease the amount of competition in the industry will rise according to Ibisworld.com. Also the fact that two companies in the industry make up over 50% of the market; there is very intense price completion between companies. For example, a HP desk-top all included computer cost $599.99, and Dell offers an Inspiring 2305 all in one computer similar to the HP computer for the same price of $599.99(dell.com and HP.com). As we can see they sell similar products for similar prices making the rivalry very high with in the computer manufacturing industry. Buyers Buyers have a moderate threat to profitability in the computer manufacturing industry. Because there is little differentiation between the computer companies buyers can choose between more then on similar product. If one were to purchase a new computer they have several different options and because of that they will have a low switch cost rate. Also because people do not buy computers are a regular basis it gives the buyer power on how much they want to spend and what kind of computer they want. Also we find that customers can be loyal to a brand of computers, and are likely to keep up with new technology with higher loyalty to the brand. This is why it is a moderate threat to profitability rather than a low. While switch coast are low brand loyalty is high (ibisword.com). Threats of Entry Aside from the fact that four computer manufacturers hold 77% of the industry revenue, barriers to entry in this industry are low and are expected to remain steady. However, on an industrial scale, computer manufacturing exhibits modest barriers to entry. The ease of entry makes this industry exceptionally price-competitive (IBIS World.) An entrants’ ability to compete may rely on timely supply of products from a limited number of suppliers, who tend to have supply shortages rather than surpluses. It is also tough for entrants to keep down production costs due to their lack in bargaining 11 power. With the noble reputations of the larger companies in the industry, it is often hard for newer companies to develop supplier contracts (S&P.) However, consumers are relatively open to purchasing unknown brands, because of the high component standards required in computer manufacturing. Overall, the threat of entry is low for the computer manufacturing industry. Suppliers Supply chains within the computer manufacturing industry are highly complex and involve many international business relationships. With virtually every manufacturer assembling computers from imported parts such as semiconductors and chips, the cost changes of these components have the strongest effect on whether a company can keep up with competition (S&P.) The largest companies in the computer manufacturing industry operate on a global scale and employ facilities in many different countries (IBIS World.) This movement towards globalization creates high levels of international competition and creates a strong downward pressure on computer prices (IBIS World.) The ability for computer manufacturing companies to quickly adopt new technologies from chip suppliers also plays a key role in the companies’ competitive position. On a larger scale, corporate clients of the computer manufacturing industry tend to favor suppliers that can also handle all of their IT needs, including personal computers, servers, IT support and implementation (IBIS World.) Overall, the magnitude of suppliers for entering the industry is moderate. Substitutes Substitutes are a moderate threat in the computer manufacturing industry (S&P.) Buyers have many options to choose from including smartphones, ipads, and palm pilots. Of these, smartphones are the biggest threats to computers. According to David Lagesse, the smartphone will replace the computer in the next couple of years. The different available apps allow users to customize their smartphones to meet their needs and demands. For instance, smartphones allow users to check their finances, send emails, view videos, review documents, post facebook updates, listen to music, make purchases, use 12 coupons, get directions, and much more (Lagesse.) Along with these apps, Smartphones will also be able to run multiple operating systems and be priced as standard headsets, which means many more individuals will be able to purchase smartphones (Lagesse.) 2. Final Analysis From the research, we have determined that the computer manufacturing industry lands in the industries with 2-3 low level threats. This means, that the computer manufacturing industry has an expected profitability of business average on all Key Success Factors will be about equal to the cost of capital. Of the different forces, rivalry has the highest threat level. As explained in the Key Success Factor section, companies must have strong economies of scale, in order to combat this level of competition. Economies of scale reduces a company’s costs without decreasing the features (which supports high average prices.) If a competitor reduces their average prices, the company can use the lower production costs to give the customers a lower price on their product, thus defending against the rivalry and providing customers with a lower price without reducing the product’s features. 3. A key success factor is any skill a company must be strong at, in order to defend against the high threats of the industry and be successful. Four key success factors that any company in the computer manufacturing industry must be strong at are inventory turnover ratio, economies of scale, effective advertising and branding, and business capital spending. Industry turnover ratio is the ratio that shows the number of times a company’s inventory is sold and replaced over a period of time. Economies of scale is the ability of a company to efficiently produce products, in order to maintain low costs and provide customers with low prices, without reducing the features of a 13 product. Effective advertising and branding is the ability of a company to successfully differentiate themselves from competitors in a highly price sensitive industry. Business capital spending is the ability of a company to spend money on repairing or replacing equipment that is depreciating or losing value that must be used in the everyday business processes of the company. 4. The inventory turnover ratio is calculated by taking Revenue and dividing by the Average Inventory. Dell’s ratio is 52.59 (61,494,000,000/1,176,000,000) and Hewlett-Packard’s ratio is 20.01 (126,033,000,000/6,297,000,000). Economies of scale is calculated by taking Total Costs and dividing it by Revenue. Dell’s Economy of Scale is 1.27 (49,128,000,000/38,599,000,000) and Hewlett-Packard’s Economy of Scale is .74 (92,753,000,000/124,503,000,000). Effective advertising and branding can be calculated by taking Total Advertising and dividing by Revenue. Dell’s ratio is .01 (730,000,000/61,494,000,000) and Hewlett-Packard’s ratio is .01 (1,000,000,000/126,033,000,000). Business capital spending can be calculated taking Capital Spending and dividing it by Depreciation. Dell’s Business Capital Spending is 13.31 (12,912,000,000/970,000,000) and Hewlett-Packard’s Business Capital Spending is 11.56 (55,707,000,000/4,820,000,000). 5. Companies must have strong economies of scale, in order to implement effective cost controls (IBIS World.) With strong economies of scale, companies can compete in industries that compete on price, such as the computer manufacturing industry, according to Dell and HewlettPackard’s 10K forms. By having ineffective cost controls, companies can lose market share, customers, and potential customers, thus, economies of scale is a key success factor in the computer manufacturing industry. The inventory turnover ratio is extremely important in the computer manufacturing industry. In order to compete in this highly competitive market, manufacturers must have a high inventory 14 turnover ratio. According to Dell’s 10K, Dell faces ongoing product and price competition in all areas of the business, as well as the rapid changes in technological advances. Product life cycles are also extremely short in the computer manufacturing industry, so companies must be able to introduce new products quickly, according to Hewlett-Packard’s 10K form. High inventory turnover ratios enable companies to be innovative and provide for advanced products. By being innovative, companies can differentiate themselves from competitors and provide customers with the most current and desired products. With such a high level of competition, it is extremely important that companies provide updated products for their customers, in order to survive the industry. 15 Part IV: Strength Assessment 1. Key Success Factor and Calculation Inventory Turnover Ratio =(Revenue)/(Average Inventory) Higher is Stronger Economies of Scale =(Total Costs)/(Total Assets) Lower is Stronger Effective Advertising and Branding =(Total Advertising Costs)/(Revenue) Lower is Stronger Business Capital Spending =(Capital Spending)/(Depreciation) Dell Inc. Hewlett-Packard =(61,494,000,000)/(1,176,000,000) = 52.29 =(126,033,000,000)/(6,297,000,000) = 20.01 5 1 =(49,128,000,000)/(38,599,000,000) =(92,753,000,000)/(124,503,000,000) = 1.27 = .74 1 5 =(730,000,000)/(61,494,000,000) = .01 =(1,000,000,000)/(126,033,000,000) = .01 3 3 =(12,912,000,000)/(970,000,000) = 13.31 =(55,707,000,000)/(4,820,000,000) = 11.56 5 1 Higher is Stronger Inventory Turnover Ratio: The inventory turnover ratio is extremely important in the computer manufacturing industry. In order to compete in this highly competitive market, manufacturers must have a high inventory turnover ratio. According to Dell’s 10K, Dell faces ongoing product and price competition in all areas of the business, as well as the rapid changes in technological advances. Product life cycles are also extremely short in the computer manufacturing industry, so companies must be able to 16 introduce new products quickly, according to Hewlett-Packard’s 10K form. High inventory turnover ratios enable companies to be innovative and provide for advanced products. By being innovative, companies can differentiate themselves from competitors and provide customers with the most current and desired products. With such a high level of competition, it is extremely important that companies provide updated products for their customers, in order to survive the industry. Inventory turnover ratio is calculated by taking the Revenue and dividing it by the Average Inventory. With the numbers provided by IBIS World, according to the table, Dell has an inventory turnover ratio of 52.29, while Hewlett-Packard has an inventory turnover ratio of 20.01. A company wants a high inventory turnover ratio, especially if it is in a highly competitive industry, where innovation is important. Thus, Dell is much stronger in this area, than Hewlett-Packard. Economies of Scale: Companies must have strong economies of scale, in order to implement effective cost controls (IBIS World.) With strong economies of scale, companies can compete in industries that compete on price, such as the computer manufacturing industry, according to Dell and Hewlett-Packard’s 10K forms. By having ineffective cost controls, companies can lose market share, customers, and potential customers, thus, economies of scale is a key success factor in the computer manufacturing industry. Economies of scale is calculated by taking the Total Costs and dividing it by the Total Assets. With the numbers being provided by IBIS World, according to the table, Dell has an economies of scale of 1.27, while Hewlett-Packard’s economies of scale is .74. The lower the number, the stronger a company is at economies of scale, thus, Hewlett-Packard has a stronger economies of scale than Dell. Effective Advertising and Branding: Companies must be effective at advertising and branding, in order to compete in a highly competitive industry. In the computer manufacturing industry, competition is extremely price sensitive, so companies have to differentiate themselves from competitors, in order to gain market share and survive in the industry (IBIS World.) Without effective advertising, companies 17 cannot compete or last in the computer manufacturing industry. According to IBIS World, effective advertising also allows companies to achieve stronger growth. This is exactly what Dell is looking to do with its’ new advertising efforts. Not only does advertising allow companies to survive and be successful in the computer manufacturing industry, but it creates the branding that is necessary to succeed. “Dell’s goal is nothing less than to turn the company into ‘the most loved brand in the PC industry’” (Worthen.) Effective branding, such as this, differentiates the company from other competitors, which makes it more possible for a company to survive the industry and competition. Effective advertising is calculated by taking the Total Advertising Costs and dividing it by Revenue. A company wants to spend less on advertising for every $1 of revenue, so the lower the ratio; the stronger the company is at advertising. With the total advertising costs provided by Dell and Hewlett-Packard’s 10K forms and the revenue numbers provided by IBIS World, Dell has a ratio of .01, while HewlettPackard has a ratio of .01. With both ratios being the same, both companies are relatively equal in this key success factor. Business Capital Spending: Companies must spend their business capital effectively. Companies must put money into replacing older equipment or repairing broken down equipment, in order to provide customers with up-to-date, high quality products. A company with high capital spending has a higher chance of being successful in the computer manufacturing industry because they can keep up with customers’ changing demands and provide high quality, innovative products (S&P.) Business capital spending ratio is calculated by taking the Total Capital Spending and dividing it by the Depreciation incurred that year. The higher the ratio, the stronger the company is in spending business capital because it means the company is spending more on replacing/repairing equipment than the depreciation being incurred. With the numbers provided by IBIS World, Dell has a business capital spending ratio of 13.31, while Hewlett-Packard has a business capital spending ratio of 11.56. Because Dell has a higher business capital spending ratio, they are much stronger than Hewlett-Packard. 18 Data for Dell (from IBIS World) Fiscal Year End Date Jan 2011 USD Million Currency Units INCOME STATEMENT Operating Revenue Adjustments to Revenue Cost of Sales Gross Operating Profit R & D Expense Selling, Gen. & Administrative Expense EBITDA Depreciation & Amortization Operating Income After Depreciation Interest Income Other Income, Net Special Income/Charges EBIT Interest Expense Pre-Tax Income (EBT) Income Taxes Minority Interest Net Income from Continuing Operations Net Income from Discontinued Operations Net Income from Total Operations Extraordinary Income Losses Income from Cum. Effect of Acctg. Change Other Gains (Losses) Total Net Income Normalized Income Net Income Available for Common Preferred Dividends Dividends Paid per Share (Currency Unit: Dollars) BALANCE SHEET Current Assets Cash and Equivalent Marketable Securities Receivables 19 61494 0 49128 12366 661 7302 4403 970 3433 0 116 0 3549 199 3350 715 0 2635 0 2635 0 0 0 2635 2635 2635 0 0 13913 452 10136 Inventories Other Current Assets Total Current Assets Non-Current Assets Gross Fixed Assets Accumulated Depreciation Net Fixed Assets Intangibles Other Non-Current Assets Total Non-Current Assets Total Assets Current Liabilities Accounts Payable Short Term Debt Other Current Liabilities Total Current Liabilities Non-Current Liabilities Long Term Debt Deferred Income Taxes Other Non-Current Liabilities Minority Interest Total Non-Current Liabilities Total Liabilities Stockholder's Equity Preferred Stock Equity Common Stock Equity Common Par Additional Paid in Capital Cumulative Translation Adjustments Retained Earnings Treasury Stock Other Equity Adjustments Total Capitalization Total Equity Total Liabilities & Stock Equity 1301 3219 29021 4729 2776 1953 5860 1765 9578 38599 11293 851 7339 19483 5146 0 6204 0 11350 30833 0 7766 11797 0 0 24744 -28704 -71 12912 7766 38599 20 Data for Hewlett-Packard (from IBIS World) Fiscal Year End Date Oct 2010 Currency Units USD Million INCOME STATEMENT Operating Revenue 126033 Adjustments to Revenue 0 Cost of Sales 92753 Gross Operating Profit 33280 R & D Expense 2959 Selling, Gen. & Administrative Expense 12585 17736 EBITDA Depreciation & Amortization 4820 Operating Income After Depreciation 12916 Interest Income 0 Other Income, Net -293 Special Income/Charges -1144 11479 EBIT Interest Expense 505 Pre-Tax Income (EBT) 10974 Income Taxes 2213 Minority Interest 0 Net Income from Continuing Operations 8761 Net Income from Discontinued Operations 0 8761 Net Income from Total Operations Extraordinary Income Losses 0 Income from Cum. Effect of Acctg. Change 0 Other Gains (Losses) 0 8761 Total Net Income Normalized Income 9905 Net Income Available for Common 8761 Preferred Dividends 0 Dividends Paid per Share (Currency Unit: Dollars) 0 BALANCE SHEET Current Assets Cash and Equivalent 10929 Marketable Securities 5 Receivables 27570 Inventories 6466 21 Other Current Assets Total Current Assets Non-Current Assets Gross Fixed Assets Accumulated Depreciation Net Fixed Assets Intangibles Other Non-Current Assets Total Non-Current Assets Total Assets Current Liabilities Accounts Payable Short Term Debt Other Current Liabilities Total Current Liabilities Non-Current Liabilities Long Term Debt Deferred Income Taxes Other Non-Current Liabilities Minority Interest Total Non-Current Liabilities Total Liabilities Stockholder's Equity Preferred Stock Equity Common Stock Equity Common Par Additional Paid in Capital Cumulative Translation Adjustments Retained Earnings Treasury Stock Other Equity Adjustments Total Capitalization Total Equity Total Liabilities & Stock Equity 9214 54184 22927 11164 11763 46331 12225 70319 124503 14365 7046 27992 49403 15258 5239 13822 332 34651 84054 0 40449 22 11569 0 32695 0 -3837 55707 40449 124503 22 2. Key Success Factor Dell Inc. Strength Rating Hewlett-Packard Strength Rating 5 Dell Calculation vs. Hewlett-Packard Calculation 52.29 vs 20.01 Inventory Turnover Ratio Economies of Scale 1 1.27 vs .74 5 Effective Advertising and Branding Business Capital Spending Avg. Rating 3 .01 vs .01 3 5 13.31 vs 11.56 1 3.5 1 2.5 3. From the above charts and calculations, Dell Inc. is the company that can create and sustain a competitive advantage in the computer manufacturing industry. Dell is stronger in inventory turnover ratio, competitive in effective advertising and branding, and stronger in effectively spending business capital. Dell Inc. can create an even stronger advantage if they strengthen their economies of scale, the only key success factor that is lower than their competitor, the HewlettPackard Company. 23 Sources Lagesse, David. "How the Phone Is Replacing the Computer." Money: Business And Economy. US News, 2 Apr. 2009. 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