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Dell Inc.

Dell Inc. Tina Cecil Nicole Drvar Krista Marko Sandra Markovic. Dell’s setup Customization Leads industry in low costs/prices. HPs setup Mass production Will require significant cost-cutting efforts (post Carly). Dell Vs. HP . Dell Vs. HP – Market Analysis. ACCORDING TO IDC:

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Dell Inc.

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  1. Dell Inc. Tina Cecil Nicole Drvar Krista Marko Sandra Markovic

  2. Dell’s setup Customization Leads industry in low costs/prices HPs setup Mass production Will require significant cost-cutting efforts (post Carly) Dell Vs. HP

  3. Dell Vs. HP – Market Analysis ACCORDING TO IDC: • 2000 Market Share -Dell: 11.5% -HP: 7.8% • 2004 Market Share -Dell: 17.9% -HP: 15.8% • ACCORDING TO GARTNER: • 2004 Market Share -Dell: 16.4% -HP: 14.6%

  4. DELL - Stock Price $40.09 - Avg. Growth 14.58% - PE Ratio 33.97 - PEG 2.26 HP - Stock Price $22.71 - Avg. Growth 9.25% - PE Ratio 19.75 - PEG 2.19 Stock Valuation

  5. Dell Inc. Balance Sheet • Dell increased PP&E by 13.85% in 2005 in order to accommodate increased sales and prepare for future growth. • Dell has sufficient working capital on hand to capitalize on a potential buying opportunity and to remain liquid. • In FY05 Dell restructured L-T debt from a fixed rate of 6.55% to a floating interest rate which lowered the interest rate to 2.06%. • Dell repurchased 119 million shares of common stock in FY05 at a market value of $4.2 billion. This signals to investors the company thinks the stock is undervalued.

  6. Dell Inc. Income Statement GP to Sales Dell: 18.32% 18.22% 17.93% HP: 24.72% 27.11% 26.48% GP as % of COGS Dell: 22.43% 22.28% 21.85% HP: 32.84% 37.19% 36% Operating Expenses as % of GP Dell: 52.81% 53.07% 55.21% HP: 78.60% 82.78% 106.75%

  7. Dell Income Statement (cont.) Operating Profit Margin • Dell: 8.65% 8.55% 8.03% • HP: 5.29% 3.93% -1.79% Return on Investment/Return on Equity • Dell: 47.68% 41.44% • HP: 9.29% 6.74% Return on Assets • Dell: 14.31% 12.44% • HP: 4.64% 3.37%

  8. Inventory and Cash-to-Cash Cycle • Inventory turn Dell: 25.56 times in a year $5.73 in gross profit HP: 2.28 times in a year $0.75 in gross profit • Cash operating cycle Dell: 29.46 days to collect receivables HP: 43.13 days to collect receivables • Result: Dell realizes more in cash inflow for each $1 of inventory than HP

  9. Financial Flexibility • Debt to assets ratio Dell: 72% ; HP: 68.62% • HP assets include intangible assets and goodwill • Dell has no intangible assets or goodwill

  10. Cash Flow From Operations • Liquidity -Dell spent $5.3 billion in cash during fiscal 2005 -HP spent $5.1 billion in cash during fiscal 2004 • Operating Costs -Dell overhead of 10% versus HP overhead of 18%. • Operating Cash Flow to Total Assets -Dell’s Operating Cash Flow to Total Assets = 22% -HP’s Operating Cash Flow to Total Assets = 7%

  11. Cash Flow From Investing Activities • Long Term Assets - During fiscal 2005, Dell spent $525 million in Capital Expenditures - During fiscal 2004, HP spent $2.1 billion in Capital Expenditures • Investing Cash Flow to Total Assets - During fiscal 2005, Dell’s Investing Cash Flow to Total Assets = 22%, while HP’s Investing Cash Flow to Total Assets = 3%.

  12. Cash Flow From Financing Activities • Stock Repurchasing - Dell has spent $1.3 billion so far in its current first quarter of 2006 - Dell spent $4.2 billion on 119 million shares of common stock in fiscal 2005; HP spent $3.3 billion on 208 thousand shares of common stock in fiscal 2004 • Total Cash & Cash Equivalents - Dell’s total cash and cash equivalents increased approximately 9% to $4.7 billion in fiscal 2005. - HP’s total cash and cash equivalents declined approximately 11% to $12.7 billion in fiscal 2004.

  13. Dell Inc. OE Statement • Dividends - Dell has paid no dividends in the past 3 fiscal years - HP paid out $972 million in dividends in fiscal 2004. * HP’s Dividend Payout Ratio for fiscal 2004 = 1.2%

  14. ConclusionWhy Dell is a Better Investment Than HP: • During fiscal 2005, Dell maintained its position as the world’s number one supplier of personal computer systems with performance that continued to outpace the industry. • Strong growth throughout Dell's diversified range of products and services in the fiscal fourth-quarter 2005 led to the company's best ever operating period. • Gartner Inc. in 2005 shows that Dell is now ranked No.1 in the United States in hardware services revenue and No.3 globally. • Dell has been recognized by Fortune magazine as America's most admired company.

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