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Information Technology Services

Information Technology Services. Frank Huang, Kevin Overholt, Brian Phelan, Wendy Wang 4/30/2014. Agenda. Industry Overview Company Strategies Forecasting Inputs Problems/Adverse Influences Final Valuation Conclusion. Industry Overview. Industry Overview.

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Information Technology Services

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  1. Information Technology Services

    Frank Huang, Kevin Overholt, Brian Phelan, Wendy Wang 4/30/2014
  2. Agenda Industry Overview Company Strategies Forecasting Inputs Problems/Adverse Influences Final Valuation Conclusion

  3. Industry Overview

  4. Industry Overview Providing high-level technological corporate business solutions, including software, data analytic programs, and enterprise resource planning systems (ERPs). Clients include banking institutions, consulting firms, healthcare providers, and academic/research groups. The industry growth is driven mostly by acquisitions of startups with valuable patents. Steady-state growth is expected to be between 3.3-5.0%. Source: ibisworld.com
  5. Industry Overview - Key Drivers Technological Complexity - High Revenue Volatility - Medium Capital Intensity - Medium Barriers to Entry - Low Competition Level - Medium Life Cycle Stage - Growth Regulation Level - Low to None Industry Globalization - Medium Source: ibisworld.com
  6. Industry Overview - Financial Health Industry profit nearing steady ~4% growth rate per annum. Private investment in computers and software is more volatile, but consistently positive at ~5% growth per annum.
  7. Industry Overview - SWOT Analysis
  8. Accenture Originally Arthur Andersen’s consulting arm. Three core product offerings: technology consulting, software development, and outsourcing services. Strengths includeglobal reach, talented employee base, and innovative spirit. Holds numerous patents. Accenture holds no real enterprise assets. From an enterprise perspective, they only have human capital, which is not reflected on the balance sheet. For this reason, Accenture will be scoped out of our analysis of the industry.
  9. HPQ SWOT Analysis
  10. Key Strategies •Slash, Burn, & Trim –Match revenue and expenses –Stay profitable •2012 HPQ restructuring plan –29,000 job cuts –5,000 additional cuts for 2014 –Total 73,000 job cuts since 2008
  11. Segment Revenue
  12. Segment Revenue
  13. HPQ DCF Valuation
  14. Microsoft Overview Operating segments Windows Division Server and Tools Online Services Division Microsoft Business Division Entertainment and Devices Division
  15. MSFT SWOT Analysis
  16. Key Strategies Focus on cloud and enterprises SatyaNadella replaces Steve Ballmer as new CEO in Feb, 2014 Former head of Cloud and Enterprise To be both a devices and services company Accelerate its share of smartphones and feature phones in developed and emerging markets Nokia Devices and Services business acquisition completed in Apr, 2014
  17. Key Assumptions
  18. Valuation-DCF Model
  19. IBM overview IBM manufactures and sells high-end computer hardware and software, while also offering infrastructure, hosting and consulting services. IBM holds more patents than any other US-based company IBM is the largest publisher of business analytics and enterprise software through its Cognos, SPSS, Tivoli and WebSphere brands.
  20. Major operation components The company's major operations consists of five business segments: Global Technology Services and Global Business Services, which the company collectively calls Global Services, Software, Systems and Technology, Global Financing
  21. SWOT Analysis Strengths: Leading provider of IT services Strong R&D capabilities Strong profitability Weaknesses: Weak enterprise mobility and product portfolio Opportunities: Expansion in emerging markets Strategic acquisitions Rising Demand for Cloud computing & Data analytical tools Threats: Intense competition Product elasticity
  22. Growth model 1. Enterprise customers IBM is a major supporter of open-source software (OSS), especially the Linux operating system. IBM's substantial support for OSS is an essential component of the company's long-term growth strategy. By supporting OSS, IBM increases the overall market for software and IT. 2. Strategic acquisitions to capture market trend: Cognos Incorporated-a publisher of business analytics and performance management software-2008 Varicent-a leading provider of analytics software-2012 SoftLayer Technologies-a leading provider of cloud computing infrastructure-7.2013 CSL International-a privately held provider of virtualization management technology-8.2013
  23. Valuation
  24. Forecasting Inputs
  25. EPM
  26. EATO
  27. RNEA
  28. WACC
  29. Problems/Adverse Influences Technology improvements are extremely variable. It is impossible to have an accurate valuation for future technologies that haven’t even been conceived yet. The barriers to entry for IT Services is low. Likelihood of new competitors could adversely impact our valuations. Short-term focus on cloud computing is inherently risky: Security breaches Lack of sustainable competitive advantage Cost of replacing internal servers/computers
  30. Valuation and Recommendation
  31. Industry Conclusion •Firms are comparable but in very different states •MSFT increasing profits and revenue •IBM unprofitable and increasing revenue •HPQ remaining profitable and losing revenue •NO overall conclusion on pricing of IT Services stocks
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