Hewlett-PackardChad Dodge & Joe Barnes4/14/2008<br />Contents TOC o "
h z u History PAGEREF _Toc196013596 h 4Mission Statement Analysis PAGEREF _Toc196013597 h 6Customer Loyalty PAGEREF _Toc196013598 h 6Profit PAGEREF _Toc196013599 h 7Market Leadership PAGEREF _Toc196013600 h 7Growth PAGEREF _Toc196013601 h 8Employee Commitment PAGEREF _Toc196013602 h 9Leadership Capability PAGEREF _Toc196013603 h 9Global Citizenship PAGEREF _Toc196013604 h 10Industry and Competitive Analysis PAGEREF _Toc196013605 h 11Dominant Economic Characteristics PAGEREF _Toc196013606 h 12Driving Forces PAGEREF _Toc196013607 h 18Key Success Factors PAGEREF _Toc196013608 h 19Five Forces Analysis PAGEREF _Toc196013609 h 21Rivalry Between Firms PAGEREF _Toc196013610 h 21Force of Buyers PAGEREF _Toc196013611 h 22Force of Suppliers PAGEREF _Toc196013612 h 22Force of New Entrants PAGEREF _Toc196013613 h 23Force of Substitutes PAGEREF _Toc196013614 h 23Company Situation Analysis PAGEREF _Toc196013615 h 24Corporate Strategy PAGEREF _Toc196013616 h 24Generic Strategy PAGEREF _Toc196013617 h 25How Well Is This Strategy Working? PAGEREF _Toc196013618 h 26SWOT Analysis PAGEREF _Toc196013619 h 30Cost Competitiveness PAGEREF _Toc196013620 h 34Diversification Efforts PAGEREF _Toc196013621 h 35Financial Analysis PAGEREF _Toc196013622 h 36Market Share PAGEREF _Toc196013623 h 36% Change in Sales PAGEREF _Toc196013624 h 36Operating Margin PAGEREF _Toc196013625 h 37Net Profit PAGEREF _Toc196013626 h 37Net Profit Margin PAGEREF _Toc196013627 h 38Working Capital % Change PAGEREF _Toc196013628 h 38Long Term Debt % Change PAGEREF _Toc196013629 h 39Shareholders Equity % Change PAGEREF _Toc196013630 h 39Return on Total Capital PAGEREF _Toc196013631 h 40Return on Shareholders’ Equity PAGEREF _Toc196013632 h 40Gross Profit Margin PAGEREF _Toc196013633 h 41Operating Profit Margin PAGEREF _Toc196013634 h 41Net Profit Margin PAGEREF _Toc196013635 h 41Return on Total Assets PAGEREF _Toc196013636 h 42Return on Capital Employed PAGEREF _Toc196013637 h 42Earnings Per Share PAGEREF _Toc196013638 h 42Current Ratio PAGEREF _Toc196013639 h 43Quick Ratio PAGEREF _Toc196013640 h 43Inventory to Net Working Capital PAGEREF _Toc196013641 h 43Debt To Asset Ratio PAGEREF _Toc196013642 h 44Debt To Equity Ratio PAGEREF _Toc196013643 h 44Long Term Debt to Equity Ratio PAGEREF _Toc196013644 h 45Times Interest Earned PAGEREF _Toc196013645 h 45Inventory Turnover PAGEREF _Toc196013646 h 45Fixed Asset Turnover PAGEREF _Toc196013647 h 46Total Asset Turnover PAGEREF _Toc196013648 h 46Accounts Receivable Turnover PAGEREF _Toc196013649 h 46Average Collection Period PAGEREF _Toc196013650 h 47Price Earnings Ratio PAGEREF _Toc196013651 h 47Dividend Payout Ratio PAGEREF _Toc196013652 h 48Cash Flow Per Share PAGEREF _Toc196013653 h 48Strategic Issues Identifications and Recommendations PAGEREF _Toc196013654 h 49Works Cited PAGEREF _Toc196013655 h 52<br />History<br />4562475370840Hewlett-Packard was started in 1939 by Dave Packard and Bill Hewlett in a small one car garage behind Packard’s house. At the time it was started HP had $538 in working capital and little more than a couple hundred dollars worth of assets. It was in this garage that HP’s legacy was born, when Bill and Dave created the first HP product – the Audio Oscillator HP200A. Following the invention of their first product, the pair moved into a small building down the road from their famed garage and hired their first employees. The first true purchase of HP’s products came when Walt Disney ordered 8 of the audio oscillators for use in production of its movies. Another milestone was reached in 1940 when HP sent out its first ever Christmas bonus in the amount of $5. This Christmas bonus set the tone for all bonuses to come, as it quickly turned into a production bonus and soon helped to shape the company wide profit sharing plan that HP adapts. In 1942 HP builds its first ever company owned building, and in order to protect themselves, build it so that it can be easily converted to a convenience store should the electronics industry fail. One of the most important milestones for the company was reached in 1947 as HP became a true Corporation. HP also caught attention for their Management by Walking Around and Open Door Policy programs. In 1957 HP had its initial public offering of stock and wrote their first set of corporate objectives which set the tone for their management style as a company. In 1958 HP made its first sizeable acquisition when they purchased F.L. Moseley Company which further expanded their product line. The late 50’s and 60’s were an extremely important time for HP as a company as it was during this time that they became a global company by building a manufacturing plant in Germany. It was also during this time that they created their Division Separation structure where they separated profit and loss accountability between divisions. This division was thought to help keep employees nimble while fostering motivation and creativity. During the 60’s HP further developed itself by entering into the medical field with the purchase of Sanborn Company. They also had their stock listed on the New York and Pacific Stock exchanges and were listed in Fortune 500’s top companies at 460. It was also during the 60’s that HP created its first computer, which was used in house to control company tests. HP also creates their first scientific calculator around this time which gains critical success. Further helping promote HP products Dave Packard was appointed U.S. Deputy Secretary of Defense in 1969. In 1977 John Young became president of HP replacing Bill Hewlett. In the early 80’s HP took much more interest in the personal computing industry as it was during this time that they create the first mass marketed personal computer. They also enter into creating printers for use with their personal computers, the printers HP manufactured during this time set the standard for the direction in which printers would evolve. In 1987 Bill Hewlett retired as vice chairman of the board of directors, his son Walter Hewlett and David W Packard (son of Dave Packard) step up to take his place. In 1992 Lew Platt became HP president and CEO who was the first president and CEO of HP to not be a member of the Hewlett or Packard family. In 1993 Dave Packard relinquishes his chair of the board of director’s position to Lew Platt. Possibly one of the most damaging events hits HP in 1996 when Dave Packard one of the original founders dies. In 1999 Carly Fiorina becomes President and CEO of HP. In 2002 HP merged with Compaq Computer. This merger created an $87 billion entity which operates in more than 160 countries and has almost 150,000 employees! Quite a change from a company which 70 years ago started in a 1 car garage shack with 2 college kids who had $500 to work with! CITATION Hew19 l 1033 (Hewlett Packard Company)<br />Mission Statement Analysis<br /><ul><li>Hewlett-Packard has seven corporate objective areas, customer loyalty, profit, market leadership, growth, employee commitment, leadership capability, and global citizenship CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P). These seven areas allow HP to have a much narrower view into their future based upon where they want to go, what changes they will be faced with in the future, and how these future changes affect their current standings in the market. Even with these focused objectives HP doesn’t go so far as to put their blinders on because these objectives also give them enough room to change quickly in order to take advantage of any opportunities and/or hindrances they may face in the future due to driving forces and other possibilities.</li></ul>Customer Loyalty<br />“To provide products, services and solutions of the highest quality and deliver more value to our customers that earns their respect and loyalty CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).”<br />HP feels that the fact they have been successful for all these years is based upon the simple fact that they have built customer loyalty by providing the best quality to their customers and causing them to want to come back. This loyalty they have formed has led them to the top and they strive to continue earning people’s respect and loyalty into the future. This is a key thing in any business, but when you are dealing in an industry like HP it is critical because of the fact that each customer will probably only need one computer for a few years so when you sell a customer that first, third, or fifth computer you want to make sure that they will come back when they want another computer. All of HP’s ads now show how their computers live up to the “PC” name and that they have listened to what customers believe is most important for them and therefore HP has created top of the line technology that is customized for each and every person. This objective is designed to ensure that HP will always strive throughout the future to change in order to best meet customer’s needs because even with top-notch technology if the computer doesn’t do what I need it to easily and efficiently then I don’t want it CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).<br />Profit<br />“To achieve sufficient profit to finance our company growth, create value for our shareholders and provide the resources we need to achieve our other corporate objectives CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).”<br />Profitability ties into every aspect of a business because it gives you the funds needed to expand and meet your businesses needs, not to mention you really can’t have a business without a profit. HP focuses on keeping profits up through the balancing of long and short-term objectives. You do not want to focus too fully on long-term goals if you cannot even reach your short-term ones first so this keeps them striving for more, but keeps their goals reasonable at the same time. Also HP’s profits allow them to reinvest in their company and provides the ability to invest in new opportunities and fix any possible problems that they may face at any given time in the future. With better sustained profits HP is able to become more flexible without facing huge costs. Most importantly profit allows HP to achieve their other corporate objectives CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).<br />Market Leadership<br />“To grow by continually providing useful and significant products, services and solutions to markets we already serve—and to expand into new areas that build on our technologies, competencies and customer interests CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).”<br />This objective focuses on HP’s strive and need to be the best in their industry. They plan on being number one in their industry, or at least to be number two, but in the end they play to win. Being number one in your own industry is everyone’s goal, but in the computer industry this is no small feat. With new technological breakthroughs happening everyday computers become obsolete in nearly a year. With this in mind HP recognizes that there are, and always will be, more areas that they can contribute to in order to get an edge over other companies than they will ever be able to contribute to. This again keeps their goals high and broad, but at the same time keeps them in a reasonable spectrum so they do not spend too much time and money on every aspect of their industry, when they would be much more successful focusing on the key areas to boost their market share and lead them to stardom CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).<br />Growth<br />“To view change in the market as an opportunity to grow; to use our profits and our ability to develop and produce innovative products, services and solutions that satisfy emerging customer needs CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).”<br />Growth is a general goal of all business’s but objective means for HP that they need to take smart, calculated risks that will inevitably lead to change in the industry if they succeed, but not fully crash the company if they fail. In order to do so HP studies the trends of the industry currently and deciding what is needed to be done in order to meet current needs, or what could be done to curve those needs to benefit HP, or even to go above and beyond customer’s needs, if possible at that time. HP being an extremely large company has a great ability to survive even during economic downturns and constantly strives to turn any economic cycle, whether good or problematic, into favorable events for HP CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).<br />Employee Commitment<br />“To help HP employees share in the company's success that they make possible; to provide people with employment opportunities based on performance; to create with them a safe, exciting and inclusive work environment that values their diversity and recognizes individual contributions; and to help them gain a sense of satisfaction and accomplishment from their work CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).”<br />HP recognizes that in order for them to succeed they have to start at the beginning. You cannot have an excellent and high quality product if your employees aren’t motivated and working to their potential to make the great products. HP strives for full employee commitment to all projects so that no matter what your title, or tenure is you are making a major contribution to the company. Their employees are constantly learning and are provided with lifelong classes in technology so that everyone can stay up to date with current technology so that HP can easily reach the top of their industry and hold the title CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).<br />Leadership Capability<br />“To develop leaders at every level who are accountable for achieving business results and exemplifying our values CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).”<br />This strategy expands upon HP’s employee commitment to creating leaders at every level of their company. By having leaders at every level HP ensures that everyone will be constantly, and fairly, judged upon their actions so that they can be congratulated upon for their successes and their failures can quickly be brought out into the open and properly handled early. With proper, inspiring, leaders HP’s vision is easily turned into action and therefore they can keep ahead of everyone else because their work flows near perfectly at every level of their business. By continually striving to better themselves HP’s leaders shaped the company into the success that they are now CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).<br />Global Citizenship<br />“Good citizenship is good business. We live up to our responsibility to society by being an economic, intellectual and social asset to each country and community in which we do business CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).”<br />HP feels that the betterment of society should never be set on a few people’s shoulders and be left as their burden alone, it should be everyone’s goal to better society and this leads to their beliefs on proper citizenship. HP strives to have the highest of standards whether it be honesty, quality, or integrity no matter what country or region they are dealing with and they feel this is the critical path to customer loyalty as well as stakeholder loyalty. This “boy scout” approach has led HP through the years and by being a proper citizen in every country they deal in HP is welcomed openly by each country to do business and has built up a huge pool of stakeholders and loyal customers leading to their ultimate success at this time CITATION Hew081 l 1033 (Hewlett-Packard Development Company, L.P).<br />Industry and Competitive Analysis<br />This strategic map shows that at this time Hewlett-Packard holds the highest market share worldwide in their industry due mostly to the fact that they are the most diversified firm. They are quickly followed by Dell who isn’t as diversified, but who base most of their sales on computers and like HP hold a relatively lower price with the plan of offering a lower cost for a higher quality product. Apple Inc. holds the highest price as they are firm believers in providing the best quality even if it costs them more since they are a fully differentiated firm. Apple’s new campaigns against PC’s is proving to be working as their market share is rising, but at the end of 2007 hadn’t quite reached the amount of Dell, or HP, but they are still doing extremely well as they do not rely on as many different product lines as Dell and HP to create these sales. IBM is basically solely based upon servers for businesses so they do not have as much diversification, but they base their company on a slightly higher price, but offer excellent quality in their products as well as service. Gateway is the lowest on all accounts being based fully on computers. They focus on having extremely low prices with their eMachine line, but they are not seeing the market share of the other businesses due to past problems with their computers.<br />Dominant Economic Characteristics<br />The market for computers and peripherals is extensive with many competing companies jockeying for sales of a wide variety of products and services. The industry is expecting a market of nearly $12.01 billion dollars in connectors in 2011. Though the market is experiencing a slight down turn at the present time, the estimated outlook shows a 10-year compounded growth rate of nearly 9% in dollar value and roughly 10% in expected unit growth. According to John MacWilliams—a computer industry analyst—the computer industry is “characterized by several very significant business and technology forces, which affect its nature as a hardware market, its connector content, market growth and business attractiveness.” These forces according to MacWilliams include:<br /><ul><li>Computers and peripherals have been among the fastest growing markets in the electronics sector
Interconnect technology, software, and new “killer applications” have driven the market
The replacement cycle is of great significance to the computer and peripheral market, and is helping to drive growth
Prices are among the most deflationary with unit growth higher than dollars
This markets nature is “growth/cyclical,” with business cycles amplified by inventory overhangs
Future growth many depend heavily on emerging markets such as China, India and South America
Market segments include specialty areas where customization is key CITATION Mac07 l 1033 (MacWilliams)</li></ul>The fact that computer peripherals and software are driving the market should be of no surprise. Many people are driven to buy computers because of the software and connectors that they can use with the computer. In many cases picking a computer that is brand specific isn’t as important as picking a computer based on its specifications in order to provide the best ability for running the software that the consumers wish to use. This is a challenging aspect for computer makers as they must ensure that the computers they design are capable of producing the same quality of performance as competitors in order to run the applications that most consumers look to use. The replacement cycle is also no surprise as a top mention due to the fact that the industry is continually changing. A computer bought in January, will in many cases be considered antique to the computers that are produced in August due to the innovations and technological advances in that short period of time. These advances help to push growth in the industry as many people seek to have the newest “killer applications” and peripherals that they can get. Computers which have peripherals and parts which are more easily replaced with the newest technology are the ones that many consumers look to purchase. Due to the ever changing technology and rapid replacement, price and consumer demand also plays a large role in the growth of the industry. Consumers consistently demand more from their computers and applications in daily life, with demand driving higher it is without a doubt that growth of the industry would continue to move forward. Due to the extreme innovation over the years it is of no surprise that many analysts consider the industry to be in its adulthood or maturity phase. It is becoming harder for companies to make new and innovative products for the industry as there is already so much out there. Much of what we see now is just a revamping of products that are already available. Computer hard drives are a good example of this; the hard drives are being created larger now rather than having differing traits in the production. With the industry reaching its maturity and so many households already buying into the industry, it is going to be hard for companies to have continued growth. With that being said it is of no surprise that the industry may come to depend on emerging markets for continual growth. Countries which are becoming more “modern” will without a doubt be looking to enrich their lives with much of the technology that we have come to depend on here in the West. If the industry is truly coming to maturity then it will need to use aspects of customization to continue its sales. Customization will become more important with the maturity level of the computer industry. Companies looking to boost sales will need to find ways to customize their products to fit a person’s particular attitude, way of life, etc. Consumers will be more willing to buy a product that they feel has been customized just for them CITATION Mac07 l 1033 (MacWilliams).<br />Within the computer industry there are many sectors that are important for companies to know about. Many people think of the computer and peripherals industry as an industry for things such as desktops, notebooks, mice, and keyboards. However the industry is much larger than just those things that are typically thought about. The industry also includes products such as:<br />Handheld devices – PDAs, GPS<br />Smart Phones<br />Notebook/Tablet computers<br />Desktop computers<br />Workstations<br />Entry level, mid-range, enterprise servers and mainframes<br />Scientific/technical and super computers<br />Computer peripherals<br />Storage systems<br />Networking equipment<br />Industrial and other computer equipment CITATION Mac07 l 1033 (MacWilliams)<br />As you can see the computer and peripheral industry is a vast environment with many segments. With this vast array of segments within the industry it is easy to pick out certain segments which are the leaders and which ones are becoming more of a dog. The Smart Phone segment of the industry—which includes such devices as the blackberry—has seen an explosion in consumer demand over recent years. Other segments such as networking equipment, and enterprise servers and mainframes have also seen a rise in demand. This rise in networking and enterprise demand can for all intents and purposes be attributed to the need of businesses to increase their efficiency and cut costs CITATION Nie08 l 1033 (Niemond).<br />The peripheral portion of the industry has depended on standardization for its continued growth. Activities such as a standard drivers, motherboards, sockets, and connectors have enabled companies to create peripherals which are usable across the industry in most types of computer systems CITATION Mac07 l 1033 (MacWilliams). <br />From 2001-2006 the computer industry grew at a rate of approximately 13%, but as mentioned earlier, over the next 10 year period the rate is expected to shrink to around 9%. The segments of the industry which will be seeing the most growth are expected to include: mobile devices, low cost systems, wireless applications, desktop super computers and peripheral equipment. Interestingly enough individual companies such as Apple are expected to emerge as new leaders in the industry CITATION Mac07 l 1033 (MacWilliams).<br />In relation to investments, Value Line ranks individual stocks within the industry to be a relatively good investment for both the short and midterm. The computer and peripherals industry saw a rather awkward 2007 with much of the growth occurring late in the year. The GDP of the United States saw rises of .6% in the first quarter, 3.8% in the second quarter and 4.9% in the third quarter. This rise in GDP was mirrored by the rise in the spending of businesses on computer equipment and software, as spending rose .3% in the first quarter, 4.7% in the second quarter and 6.2% in the third quarter. As is the case with most industries, the housing market fiasco reared its ugly head in the computer industry causing a slowing of sales as people tightened their pockets in fear. Sadly, as seen on Value Line, many industry analysts have a rather uncertain outlook for the industry in 2008 as it is thought that the housing markets will continue to cause turmoil through 2008 and into 2009. The only savior may be that businesses as a whole will continue to operate and require products from computer and peripheral manufacturers. Companies such as Hewlett-Packard who make not only personal computers but servers for business are expected to see sales and earnings of somewhere between 7.5% and 9.5%. As a whole the computer and peripheral industry is expected to see sales of roughly $445600 in millions for 2008 and around $542000 in millions for 2010-2012. <br />Competitive forces within the industry are remarkably strong as many companies look to overpower their competitors. Major competitors in the market include HP and Dell who at the present time are conquering much of the industry and also Gateway, Sony, E-Machine and Apple. Depending upon the segment, IBM and Sun are competitors also included in this industry. Competition is cut throat in the industry as product differentiation is relatively nonexistent at this point. All companies offer customizable products, however the customization options between companies are all relatively the same. It is safe to say that products are rather weakly differentiated. A visit to Dell.com and Hp.com will lend you very similar results in price and options in regards to your personal computing needs. Though there is a range of options in regards to which company you purchase your computer from, the suppliers that the companies use are relatively the same for most products. Processors for example are limited to a choice between AMD and Intel. Operating system options are the same across the board for most of the personal computing industry as Microsoft has managed to create somewhat of a monopoly as almost all systems have a Windows operating system. The only way to get away from Windows is to purchase from Apple who uses a separate operating system. With supply options so limited, it is forcing companies to use customer service and other forms of services to differentiate themselves from competitors.<br />Companies who are looking to enter into the industry are typically unable to do so as large capital requirements are needed. Companies who wish to compete on a global scale with Hewlett-Packard and Dell are going to find that it is impossible to get started and get their name out. The larger companies have not only the name brand recognition but they can also partake in economies of scale purchases as they may be able to buy a million motherboards whereas a smaller company may only be able to buy ten thousand. Companies who are looking to enter into the peripheral market and compete against companies such as SanDisk on the other hand have a much easier time as the capital requirements are far less and consumers are more easily swayed to buy non name brand products for purchases. These smaller companies may also be able to use economies of scale as they may be able to purchase a larger quantity of a particular part for their products as they may not cost as much capital. While it is relatively hard to enter the market, depending in which segment you plan to partake in, it is easy to remove yourself from the industry. Typically competitors are more than willing to buy each other out as that will mean less competition in the industry. HP completing its purchase of competitor Compaq is a good example of the ease in which a company can “exit” the industry.<br />Consumer purchases in the industry seem to typically be dominated by two main factors: price and name brand recognition CITATION Con08 l 1033 (Consumers). A survey of 30 consumers saw price and name brand recognition as their main guidelines for purchasing products within the industry. When buying computer systems consumers go by the reputation of the company and also by the price of the products. When buying peripherals consumers use the same basis for their decisions with price playing a more important role for smaller purchases.<br />Driving Forces <br />There are many driving forces in the Computer & Peripherals industry that a company pursuing profits must acknowledge. One of the main driving forces is innovation. Customers are always looking for the next big product to hit the market that they can take advantage of in their everyday lives. Products such as wireless keyboards and small “flash drives” or “jump drives” as they are called have had a significant impact on the way consumers conduct their lives in relation to their use of computers. These small drives allow for ease of mobility between computers, allowing users to transport their all important files between their machines. Price is also a very significant force in the industry as consumers are constantly looking for the best possible machines at the lowest possible price. Price is an important driving force especially at the current time due to a weak economy and people spending more money than ever on necessitates which leaves them with less money for buying extra goods. Large corporations who are one of the greatest consumers of computers and peripherals are experiencing large setbacks due to the current market situation, this is causing those large corporations to be tighter with their expenditures and reducing the amount of product that they can and will buy. With the majority of the population being of an age where they have had little to no contact with computers it is also extremely important that computers be simple and easy to use. Those from the baby boom era are typically less inclined to be able to use computers to their full potential because of the computers complicated nature. Another aspect that tends to drive much of society in today’s day and age is the “greening” of many products. Computer manufacturers don’t escape the pressure of environmentally minded people. Manufacturers must keep in mind that at some point the computers and peripherals that they produce will need to be disposed of, and they must be ready for the disposal of those products. Computer makers must also be mindful of the electric energy that is needed to run their computers—though this is not a factor in all consumer purchases, it is still a factor that does play a part in purchase habits of some consumers.<br />The continual replacement factor of products in this industry also drives and shapes the industry. The main products—desktops, notebooks and other hardware—are continually evolving and as a result consumers and companies are continually upgrading and changing their systems. This continual evolution of the products has consumers pushing for easier upgrade methods and some standardization.<br />Key Success Factors<br />Many times you see companies fail within a specific industry when it seems that they have done everything right. In many cases the reason for this is that they have ignored some very key success factors for their industry. <br />An industry's key success factors (KSF's) are those competitive factors that most affect industry members' ability to prosper in the marketplace... KSF's by their very nature are so important to future competitive success that all firms in the industry must be competent at performing or achieving them or risk becoming an industry also-ran. CITATION McC08 l 1033 (McCabe)<br />Key success factors are useful analytical tools for analyzing an industry in which a business competes. These factors are also useful for the competitive strength assessments and comparing a business to its rivals within the industry.<br />There are many factors that can make or break a company within the computer & peripherals industry. The main factor that companies must be mindful of is cost. Those companies who are unable to keep their costs low will be forced to charge higher prices for the products and in many cases will lose out to the competition. If a company is able to keep their costs low enough to match that of their competitors then they stand a very good chance if all other aspects are equal. Companies who can bring their costs below that of their closest competitors will be able to do even better. Interestingly enough, computer manufacturers must be careful to keep costs low, but not drop the prices too low on their products. Typically low prices translate to better sales, however if a manufacturer drops prices too low they run the risk that the product will be seen as cheap and inferior. <br />A second key success factor for companies within the industry is keeping a good image in the eyes of the consumer. This industry is saturated with rivals who offer computers which are all very similar. If a company lacks a quality image in the eyes of consumers they are bound to lose out on potential profits. In order to keep a good quality image, manufacturers must produce products good in quality, safe and provide good customer support among other things. Many companies have extremely good products, but they are unable to provide quality support for their products which drive people away. Keeping a good image in the eyes of the consumers will both allow HP to attract new customers who will be thankful for the quality products and services while also keeping loyalty high among repeat consumers.<br />A third factor in a company being successful is the ease in which repairs can be done. Computers which can be easily repaired by the owner of the computer without having to send it back to the company are going to be important. A great example of this is that Professor Sousa had some trouble with his laptop the night before a large paper was due for his Masters Degree program, he called Dell and a technician guided him through repair over the phone. The repair entailed completely taking the laptop apart and then putting it back together! The technician was able to guide Professor Sousa through the entire process and saved the paper and the Masters Degree. It is for this reason that Prof. Sousa is very thankful and is a repeat customer for Dell. If HP is to continue to be successful they need to make sure that they could do the same thing if one of their representatives was put in the same position.<br />The fourth key success factor for HP is proper management of its resources. This goes deeper than just keeping their costs low, this entails proper management of asset chains, employees, suppliers and other aspects of the company. Due to the ever changing environment of its industry, HP must keep up its strategy of just in time inventory control. They need to ensure a close relationship is kept with their suppliers not just to keep their costs low, but to make sure that the suppliers provide the best quality parts and time services. This will ensure that all parts put into their computers are of the highest quality possible. HP’s management style “The HP Way” as it has come to be known is extremely important in keeping the employees both on task and involved in all aspects of the business. They must continue to use their Management By Walking Around and Open Office policies in order to keep morale high and foster the creativity that they need from their employees.<br />Five Forces Analysis<br />Rivalry Between Firms<br />This is the strongest force of the five in Porter’s Model because there is huge rivalry between firms on price and product loyalty and even with strong growth in the industry every firm fights hard to win new customers and competes for market share. Hewlett-Packard competes at many levels and with diverse products they have to fight firms on many fronts. IBM is their major competitor with servers and with IBM’s specialization on servers it can be very hard for HP to compete and they have to invest significant amounts of time and money on R&D and on keeping their systems up-to-date if they wish to keep their name above IBM. With printers HP is winning out with their huge line of printers and the ability to make their printers compatible with every computer so that they can keep their product in as many homes and business as possible. Computers are a huge industry on their own and with many competitors seeking the best quality and value HP is hard pressed to keep their computers, laptops, and notebooks ahead of competitors in order to ensure that their product is used the most. Everywhere that HP turns in their industry they are faced with competitors and it is a constant battle to keep their brand name the one of choice amongst others.<br />Force of Buyers<br />The next strongest force is the force of buyers and this is just slightly lower than rivalry. Every company in this industry is faced with the task of making their brand the best and the most customizable to customers’ needs if they wish to stay ahead. With low switching costs as most computers are compatible with other brand’s products (I have a Dell computer at home and an HP printer for example) it is hard to keep up with customers’ needs. It is hard to win customers and if one of your products proves problematic the news spreads quickly and a company can easily lose a large group of people. Apple Inc. has a current campaign against windows showing that their computers have nowhere near the problems and windows and since HP is a windows based system they are faced with many future issues because of this.<br />Force of Suppliers<br />For HP force of suppliers is relatively low and at the same time is moderate because many of their products can easily be backwardly integrate and create the parts they need in order to produce their products. On the other hand for computers you have to use either Intel processors or AMD processors so they have few suppliers for certain parts. HP is huge and they are a huge customer so when they buy products it is in abundance and they are important customers so they have little worry of the companies they purchase from raising prices sky-high out of fear of losing such a huge customer. In general this industry has huge R&D departments and HP is no different. With large amount of time and money invested in this department Hewlett-Packard can easily find was to produce new products with lower costs so they do not affect their bottom line.<br />Force of New Entrants<br />The computers and peripherals industry requires huge amounts of capital in order to be established and since most companies are global competitors the industry is un-attractive for new entrants and would be very costly to even try and enter. This makes this a very weak force because HP and other companies have built a name and it would be hard for a new “no name” company to try and enter the market. Also each company has invested heavily into R&D in order to get where they are and a new company would have to just “tag along” for a long time before they could invest the kind of money and time needed to get ahead in this industry. The fact alone that there are huge economies of scale in the industry is also a good reason for companies to steer clear of this industry.<br />Force of Substitutes<br />This is the weakest force in the industry because there are really few substitutes that HP is faced with. Customers can get the new smart phones if they want to be able to surf the web, e-mail, and chat with friends, but in the end computers are the easiest and most efficient ways of doing these things and with laptops/notebooks customers can do business and access these things from almost everywhere. In the gaming segment customers can use Microsoft’s Xbox, Nintendo, and/or Playstation to game, but this is only a slight deterrence from purchasing a computer.<br />In the end Porter’s Five Forces show this is a very unattractive industry to be entering into, but with the huge growth and the ability to see huge profits makes it a very good industry to already be in as HP is.<br />Company Situation Analysis<br />Corporate Strategy<br />Hewlett-Packard is focused on market share growth and company profitability throughout the future of the business. They plan on achieving this by creating an exceptional workplace for their employees and self-fulfilling jobs for their employees on every level so that everyone is a part of the big picture and HP wants to make sure they know it. With the increase of employee morale Hewlett-Packard will see much better employee involvement and also much better results from their work as they will become much more efficient and employees will strive to find new and better ways of providing their services and products to their customers. HP also is looking to be a true global citizen with a large spread across the global market, but at the same time they want to integrate themselves into other countries instead of forcing their way into the market. By being a good citizen in other countries and focusing on their people’s specific needs HP can integrate itself into more areas than its competitors and ensure that they will have the upper hand in this growing and highly competitive market. With these two aspects and the strong ideas of providing customers with the best products and services Hewlett-Packard is efficiently setting themselves up as a flexible company who can easily adapt to change, whether it be taking advantage of new technological breakthroughs, or if it is changing some of their products to face some new threats that may arise Hewlett-Packard plans to be ready to get past these events and come out on top CITATION Hew082 l 1033 (Hewlett-Packard Company).<br />Generic Strategy<br />It is hard to set Hewlett-Packard into one generic strategy because although they strive to provide the best products in the highly price competitive market they are in they also sometimes appear to be a best cost provider. Hewlett-Packard strives to provide people with exceptional quality at lower prices which would seem to fit into a best cost strategy, but in the end they do not solely focus on this because they do not want to have to substitute any quality in order to provide a slightly lower price. In the end HP’s generic strategy follows the differentiation generic strategy to attract customers and increase their market share. In the technology world everyone is competing heavily with you and if a company doesn’t make an active attempt at separating themselves from the group then there will be little differentiation in this industry. HP has a wide range of products ranging from handheld devices to cameras to vast supercomputers and it is important for them to raise themselves above the “rabble.” When just looking at PCs it is easy to see how brand names can get mixed together into being all the same and “just another computer.” Most computers run the same operating system of Windows, except if you use a Mac, so the logo on the computer often times could mean little to nothing for people. Also there are many smaller computer companies other than HP, or Dell who charge much less for their computers, but they do not offer anywhere near the quality of service, or product as HP. Differentiation is key to Hewlett-Packard’s success if they do not wish to have to leave quality in service and product behind. Often times people look for cheap computers, which are offered by HP, but when it comes down to it even another hundred dollars is more than worth it for a computer that is guaranteed to run longer, be more efficient, and comes with much better customer service. <br />How Well Is This Strategy Working?<br />HP’s market share is hard to analyze based upon the industry it is in because of the fact that most of its competitors are not direct competitors and specialize in certain niches while HP looks at the broad industry. This leads to gains and losses in certain aspects of the market share in the industry, but compared to their main competitor Dell they have been increasing market share. Last year Dell held at about 14-15% market share worldwide for PCs, but dropped 9% on their notebooks sector, while HP maintained at 17-18% for PCs and their notebooks increased. This shows that the strategy is doing a good job when you are looking at the market share aspect.<br />Next is the look at Hewlett-Packard’s profit margin to see if it is progressively increasing, decreasing, and how good their profit margin is in comparison to Hewlett-Packard’s competitors. This is a look at Hewlett-Packard’s gross profit margin and that of three of its competitors, Dell, Apple Inc. and IBM.<br />Gross Profit2007% Change2006% Change2005HP24.63%0.43%24.53%3.86%23.61%IBM42.24%0.85%41.89%4.49%40.09%Apple33.97%17.20%28.98%-0.13%29.02%Dell19.09%15.20%16.57%-6.88%17.80%<br />- Figures courtesy of Yahoo! Finance<br />This shows that HP is having a positive change in gross profit even if it is a small one like they had from ’06 to ’07. Compared to Apple and IBM they do not have as high of a gross profit, but they are much higher in percentage compared to Dell, who is a much more direct competitor on all fronts. With IBM and Apple they are more focused on computers, but Dell competes with them in almost every area and this chart shows that Hewlett-Packard is doing a much better job of managing their cost of goods sold than Dell. It is quite obvious that Hewlett-Packard’s current strategy is working exceedingly well and they are having little problems based upon these figures.<br />The third question is to look at the net profit margin of Hewlett-Packard in order to tell if the company is doing well, or not. In order to take this one step further HP will be compared to the same competitors as their gross profit margin. A look into the net profit margin shows:<br />Net Profit2007% Change2006% Change2005HP6.97%3.01%6.76%144.47%2.77%IBM10.55%1.58%10.38%19.26%8.71%Apple14.56%41.42%10.30%7.46%9.58%Dell4.82%7.16%4.50%-29.59%6.39%<br />- Figures courtesy of Yahoo! Finance<br />This shows that HP had a huge jump from ’05 to ’06 and they are still growing from ’06 to ’07. This is a good sign for the strategy because it shows that HP is a successful business and an increasing profit margin with an increase in sales and profit is always a good sign especially with the problems we are facing in the economy at this time.<br />In comparison to their competitors HP’s profit margin is only higher than Dell, but this is also due to the fact that most of the other companies do not have as much of a product spread as HP so it is much easier for them to grow in the few areas they are focused on. Still even with their large product line Hewlett-Packard is keeping up with growth compared to the other companies which a sure sign that their strategy is working. When looking above at the gross profit it becomes quite noticeable that although IBM and Apple have higher gross and net profits in 2007 especially both are faced with a higher percentage of costs after they pay the CGS. This is another good sign for HP because they are doing a better job at managing most of their costs compared to their other leading competitors which is a very important in every business and shows that they are doing extremely well with their current strategy.<br />The next important part of Hewlett-Packard’s performance is what their credit rating is. According to Standard and Poor’s Hewlett-Packard has an A credit rating and an A-1 commercial paper rating. This is an excellent rating showing that Hewlett-Packard is basically almost a completely safe investment which will ensure that they will receive huge amounts of investments due this fact. This is just another factor proving that their strategy is working perfectly. With this excellent of a rating Hewlett-Packard is soaring high in their industry as an extremely successful company CITATION Sta07 l 1033 (Standard & Poor's).<br />The fifth and final sign of a good strategy is if HP’s sales are growing faster, or slower than the industry. This chart shows HP’s sales growth compared to the industry in millions of dollars:<br />Sales Growth2007% Change2006% Change2005HP10428613.78%916585.72%86696Industry41450010.02%3767346.83%352654<br />Value Line<br />It is obvious here that HP is staying near, or above the industry in growth over the past three years and although they were a little slower from 2005 to 2006 they quickly caught up in growth to 2007. HP’s bounce back to growing faster than the industry is a sure-fire sign of a good strategy. They are a continually growing company and with the ability to expand faster than the industry they are proving that they are very successful and have an excellent chance of expanding their market share over other companies.<br />Hewlett-Packard’s strategy is definitely working well for them at this time and just the fact that they have been able to see strong growth in this time of financial turmoil for many people is a strong indicator for them. Through globalization and high quality products and services HP has been able to take a lower hit from economy problems and by not being based in just a couple countries they are able to generate more customers and sales from countries that are not faced with the economic turmoil that we are in the United States. With the current strategy they are able to grow at a rate higher than, or very close to the industry and this gives them an edge of many of their competitors showing that their strategy has been well implemented and fits well with their industry’s current conditions. They are able to deal with driving forces and are not afraid of change because they have set themselves up successfully to face new threats and to capitalize on opportunities such as the new campaign for a true “PC” by having ads out for how their computers fit our lives no matter what we may need to do with them. HP’s cutting edge technology and ability to reach many customers on different product levels as well as location makes sure that they will be able to address key success factors and make sure that they will be able to fulfill these without any trouble.<br />SWOT Analysis<br />StrengthsBrand Name IdentificationLargest in IndustryFortune 500 CompanyDiversifiedEconomies of ScaleTechnologyGlobalMarket ShareStrong Imaging & Printing backgroundMarketingSelling online/in storeIntegrated Bid DeskOpportunitiesExpansion in Emerging MarketsInnovation/R&DPartnerships (Celebrities, Other Companies)Gaining Market ShareIntegrated Bid DeskTechnology is a strong marketGaming industryWeaknessesAccount ManagementSoftwareComplacencyNo real specializationThreatsSelf DestructionIntense CompetitionPoor EconomySpecialization<br />Hewlett-Packard like all companies has its strengths and weaknesses. For HP one of its biggest strengths is its brand name recognition. Due to its long life span HP has been able to get its name out to people around the world. They have established a good brand name through having good quality products and being industry leaders. They are one of the largest companies in their industry and have been on the Fortune 500 lists on many occasions. Also in their favor are their diversification efforts, HP has 4 main product lines including imaging and printing, personal computing systems, enterprise systems and IT services CITATION Tho03 l 1033 (Thompson and Gamble). Being that it is such a vast company HP has the ability to take advantage economies of scale which allow it to buy mass quantities of product at lower prices. They also have a vast array of technology including a highly successful printing and image segment of their company. HP markets its products on a global scale and uses partnerships with many different celebrities to promote their products. They offer their products for sale both online and in store allowing them to take part in multiple niches’ which other players are unable to reach. In recent years they have also created such amazing systems as the Integrated Bid Desk which they use to create bids for installing their systems for large scale business consumers CITATION Bus06 l 1033 (Business Week). Also in HP’s favor is that they have a large share of the market in which they compete, their second closes competitor is about roughly 10% behind them in market share for the current year.<br />As is the case with any company Hewlett-Packard has its weaknesses. For HP one of their main weaknesses that have garnered the most attention is their lack of good account management and weak software segment. The software segment alone is far behind that of its competitor IBM, with IBM software revenues at a staggering $16 billion and HP’s software revenue at a tiny $1 billion CITATION Bus06 l 1033 (Business Week). Also hurting HP is its image of becoming complacent. Many analysts have feared that because HP has made some significant strides in quality and in other areas that they will become complacent as they will believe that they have accomplished so much.<br />Opportunities are abound for companies such as Hewlett-Packard. Though many feel that the industry is moving towards its maturity, there are still many households which do not have a computer or have older machines that need replacement. Computers are becoming more of a staple in everyday life for people of all ages. Students need computers in order to complete research assignments and want them for communication with their friends and gaming. Adults can use the computers to help do finances, make purchases, keep schedules, do research, working, communication with friends and family, playing games and scrapbooking just to name a few. Since computers are becoming so important for people in their everyday lives there will without a doubt continue to be rising personal computer sales. There is also a rising demand in emerging markets such as China and South America. This demand in rising markets may be even more of an opportunity for HP than the current market in places such as the United States. People in these emerging markets will be looking to buy computers and much to the favor of Hewlett-Packard, none of these people will currently own a computer. With none of the people owning computers and the technology finally becoming more available to them, it will be no surprise to see purchases of computers sky rocket. Hewlett-Packard has always had a very strong research and development team at their company. This strong team will provide many opportunities for HP if they can continue to provide new innovative products faster than that of competing companies. This strong R&D team has the opportunity to be aided by strong partnerships, such as the recent partnerships that we have seen HP partake in with celebrities. HP has had a very strong marketing campaign in which they air television commercials which are centered on a celebrity’s personal computer that they created for themselves and you can buy. This is a strong campaign as it allows consumers to buy the same product that their favorite tennis stars or actor has bought. Possibly one of HP’s leading opportunities for large scale businesses is their development of their Integrated Bid Desk. This Integrated Bid Desk has allowed HP to create a turnaround time of one day on bids for complex computer systems for large companies. The creation of such a desk has created endless opportunities for HP as they now have a turnaround time of just a single day on large bids as compared to the previous turnaround time of 2 weeks. The ability to turn bids over in a much quicker time means that they will not lose out on sales as they may have in the past due to their slower turnaround time. If HP can create other such departments that speed up segments of their operation they will without a doubt be able to capitalize further on their markets.<br />It is quite possible that Hewlett-Packards largest threat in the industry is themselves. HP has been plagued with internal problems for some time. Upon their merger with Compaq there were many rumors of infighting among high ranking members of the company and since then there have been numerous mini scandals. In 2006 for example there was the ever popular scandal concerning the mole within HP’s board of directors who was leaking information about the company to outsiders. The scandal was not so much to do with the mole leaking information, what garnered news was the way in which HP tried to figure out who the mole was, as they used many illegal activities to spy on members of the board and figure out who the mole was CITATION Whi06 l 1033 (White). Another instance of HP being their own worst enemy comes in the form of their lack of customer service in some cases with their products. For instance, throughout 2007 many consumers had problems with the wireless capability of their notebook computers. While consumers complained, HP did little to nothing to help fix problems. It wasn’t until late 2007 that HP finally admitted there was a problem and attempted to do something about it. This lack of action for so long caused consumers to lose trust in HP’s products and caused consumers to move away from HP products CITATION Far07 l 1033 (Farrell). Intense competition in its industry is also a threat to HP’s success. The industry itself is extremely tight in regards to PC sales as it is hard to differentiate a product due to the lack suppliers that companies may choose for their computers. With HP having to use basically the same parts as Dell—Windows, AMD/Intel—it is harder to HP to find ways to differentiate their products. With little to no differentiation it is hard to sell your product over a competitor’s product. Also a threat to HP is the slowing economy. With consumer tightening their pockets due to the slumping housing markets and overall poor economy health consumers of personal computers may be slowing their purchases as they don’t have money. HP needs to make sure they take this into account and try to cut costs in order to provide low priced personal computers for the slumping markets.<br />Cost Competitiveness<br />Gross Profit2007% Change2006% Change2005HP24.63%0.43%24.53%3.86%23.61%IBM42.24%0.85%41.89%4.49%40.09%Apple33.97%17.20%28.98%-0.13%29.02%Dell19.09%15.20%16.57%-6.88%17.80%<br />- Figures courtesy of Yahoo! Finance<br />Net Profit2007% Change2006% Change2005HP6.97%3.01%6.76%144.47%2.77%IBM10.55%1.58%10.38%19.26%8.71%Apple14.56%41.42%10.30%7.46%9.58%Dell4.82%7.16%4.50%-29.59%6.39%<br />- Figures courtesy of Yahoo! Finance<br />By looking back at these figures it is obvious that IBM and Apple Inc. are doing better on keeping material costs low because they have a much higher gross profit than HP does. It appears that HP, although improving upon costs, has slipped far behind these two competitors in the area of cost of goods sold and back in 2005 Apple Inc. wasn’t doing much better than Hewlett-Packard. When looking at Dell we see a whole different perspective because HP has been managing these costs much better than Dell over the years and even with Dell’s current jump from 2006 to 2007 they are unable to catch up to Hewlett-Packard in this area.<br />When looking at net profit margin IBM and Apple Inc. are again beating HP, but the gap has lessened significantly. Although Apple Inc. has a huge lead over HP in gross profit percentage they have a much higher percentage of costs beyond costs of goods sold that lead them to a net profit margin that is nowhere near as far above HP as their gross profit margin is. IBM is faced with the same problem and Dell is once again left behind by Hewlett-Packard’s performance in net profit margin.<br />Diversification Efforts<br />Hewlett-Packard uses a related diversification effort based upon the industry they are in. They offer products lines that are computers, notebooks, laptops, but they also offer computer accessories such as printers, keyboards, and other computer peripherals. HP doesn’t stop there though they also use digital cameras and digital camera pictures as well as software so that you can use your computer to print pictures, or to store them. Hewlett-Packard also has servers and supercomputers for businesses to further their product line and reach more customers. <br />Hewlett-Packard has been very successful in their industry and very successful with their products. Their major sales go to their printers, servers, and supercomputers. Their other segments aren’t doing poorly, but their major sales go to these three areas. Hewlett-Packard is focusing as well on which segments are worth investing in and which ones should be dropped so they are not allowing themselves to waste a lot of money in dead dogs essentially. They are having a little trouble in the personal computer industry, but with their new approach on this segment are allowing themselves to make-up some of the lost sales and improve their position. IBM has also been moving in on their server segment, but HP is battling them well and is holding up against them.<br />HP is doing will with their diversified stance and we think it does make sense for them to continue on with this kind of product line. Most of their sales falls into their printer segment, but if they lost some of their other product lines they would see nowhere near the sales they are now so it would not make much sense at all for them to go to being a single-line producer when they are doing so well diversifying. They do need to look through their product line and more than likely drop a few products that are dead dogs, but no matter what a company does there will always be certain products, or product lines that will eventually fall from grace and need to be dropped so it is not a bad sign that they have a few products that need to be dropped, or changed.<br />Financial Analysis<br />Market Share<br />2003200420052006200720082010-2012HP24.59%24.22%24.58%24.33%25.16%25.02%23.89%Dell13.95%14.92%15.85%15.24%14.75%14.47%15.68%<br />In 2003 HP had a market share of 24.59% which can be computed by dividing their 2003 sales of $73061(in millions) to the industry sales of $297151(in millions) compared to Dell which had a market share of 13.95%. HP has seen a relatively stable hold on market share right around 24-25% since 2003. The forecast for 2010-2012 shows HP’s market share beginning to slip however, with Dell picking up roughly 1% over its previous 2 year share.<br />% Change in Sales<br />.03-04.04-05.05-06.06-07.07-0808-(10-12)HP9.4%8.5%5.7%13.8%6.9%16.1%Dell18.7%13.6%2.7%6.5%5.5%31.8%Industry11.0%6.9%6.8%10.0%7.5%21.6%<br />HP has seen a rather erratic change in sales from year to year over the last 5 year period. As seen here, the change in sales fell between years up to 06-07 and then shot up, but ultimately falling back down for 07-08. However in their favor their expected change in sales goes back up between 08-10/12. Though the % change in sales has been rather irregular for HP their close competitor Dell has seen a very similar pattern and so has the industry. In industries favor is that while the % change in sales has fallen, the industry s a whole has still seen continued growth, and as seen by future predictions up through2012 the industry is predicted to remain somewhat steady in growth. Much of the problem in sales can be linked to the economy downturn in recent years.<br />Operating Margin<br />2003200420052006200720082010-2012HP9.7%9.3%9.1%9.7%12.0%11.5%12.5%Dell9.2%9.3%9.3%6.2%6.6%7.0%8.0%Industry10.7%10.6%10.5%10.7%10.5%10.5%11.0%<br />Hewlett-Packard has done a great job in the last 2 years of keeping its operating margins as a company high. While the margins within certain segments—the personal computer segment for instance—is relatively lower, they have been able to keep their operating margin higher than the industry and higher than competitor Dell. The forecast for 2010-2012 is also looking good for them as they will continue to keep their margins higher than that of competitors and the industry as a whole.<br />Net Profit<br />2003200420052006200720082010-2012HP ($mill)35574067470857617264824010395Dell ($mill)2645332338252583294731604600Industry ($mill)15947181732193922868244002660035700<br />Hewlett-Packard’s net profit seems to be doing extremely well as it is consistently higher than the net profits of its competitor Dell. However looking at these numbers on their own really doesn’t tell us much. While it is good to have a high net profit, it is more important to know how you have received that higher net profit. For instance, if Chad sells a product he bought for $100 for $200 he then made a profit of $100. If Joe sells a product he bought for $5 for $105 he too made a profit of $100. Though both Chad and Joe made the same profit, it was Joe who used his products more efficiently to create that net profit. This is important information that needs to be known and considered when looking at net profit margins, as just looking at the net profits alone can be misleading.<br />Net Profit Margin<br />2003200420052006200720082010-2012HP4.9%5.1%5.4%6.3%7.0%7.4%8.0%Dell6.4%6.8%6.8%4.5%4.8%4.9%5.4%Industry5.4%5.5%6.2%6.1%5.9%6.0%6.6%<br />Hewlett-Packard was behind the ball in regards to their profit margin until around 2006 though they seem to have higher profits than both the industry and competitor Dell. In 2006 however they were able to bring their net profit margin up above Dell’s and also above that of the industry. They have been steadily becoming more profitable since their turnaround in 2006 and the estimated profit margin growth from 2008 to 2010-2012 is at the same rate as that of the industry, however it is .1% faster than its competitor Dell is growing.<br />Working Capital % Change<br /> 03-04 04-05 05-06 06-07 07-0808-(10-12)HP-0.37%-17.04%4.55%-34.41%30.56%40.26%Dell-35.57%20.74%-36.96%-3.99%30.77%Industry10.48%10.40%-4.35%0.95%5.93%20.08%<br />HP’s working capital has been on a rollercoaster ride over the years as can be seen in the percent change. Working capital is found by subtracting the current liabilities of a company from its current assets. The difference between the two shows how efficient and how healthy the company is in short term. Positive working capital means the company is doing well while negative means that the company is unable to pay for its short term liabilities with its current assets. Using the % change method we can see by how much the company is going up or down in regards to its working capital. We can see from the above numbers that HP’s working capital has gone down by .37%, 17% and almost 35% in previous years. However in their favor is the outlook that they will be able to move forward and have decent capital gains over the next few years. These working capital gains are caused by a rise in current assets, a fall in current liabilities or some combination of the two.<br />Long Term Debt % Change<br /> 03-04 04-05 05-06 06-07 07-0808-(10-12)HP-28.81%-26.63%-26.59%80.60%-6.04%-24.05%Dell0.00%-0.20%12.90%-36.38%24.31%122.22%Industry-14.90%-3.52%5.73%4.09%3.72%7.53%<br />HP has been doing extremely well for the most part since 2003 of cutting their debt. Seeing negative numbers in the % change category for the majority of the years is a great thing. These negative numbers show that there has been a decrease in debt over the years with the exception being between the years of 2006 and 2007. A look at the exact numbers shows that in 2003 Hewlett-Packard had long term debt of around $6494(in millions) and by 2006 had their long term debt down to $2490(in millions). This means that over the 3 year period HP was able to cut their debt in more than half. Thought they picked up some extra debt in 2007, the outlook through 2012 shows them reducing that debt by significant amounts. To me HP seems to have some issues with getting themselves into debt, but they are able to act quickly and remove themselves from that hole.<br />Shareholders Equity % Change<br /> 03-04 04-05 05-06 06-07 07-0808-(10-12)HP-0.48%-1.03%2.60%1.00%8.41%13.20%Dell3.26%-36.33%7.51%-15.86%59.97%268.20%Industry4.29%3.71%2.86%-6.00%2.06%21.38%<br />This shows the change over time of the shareholders equity as a percentage. HP’s % change seems to be rather sporadic; however they have been much less sporadic than the change of their competitor Dell. The same seems to be said when comparing HP to the Industry. HP seems to be moving in the right direction with their stockholder equity as they are having a positive percent change. Unfortunately for them their competitor Dell is also headed in the same direction however they are traveling at a much faster rate of change.<br />Return on Total Capital<br />2003200420052006200720082010-2012HP8.5%9.9%11.8%14.3%17.1%18.0%20.5%Dell39.1%47.7%82.9%51.9%72.0%49.5%20.0%Industry11.7%13.2%15.6%15.7%17.5%18.5%21.0%<br />Hewlett-Packards return on capital has been getting progressively better since its 2003 numbers. Unlike competitor Dell, Hewlett-Packard has been moving in one direction with their return and that is up. In 2007 HP got close to matching the industries return on capital numbers and they are predicted to stay close to the industry through 2010-2012. While these figures show that Dell has done better in this category over previous years, their returns have been sporadic jumping from high highs to low highs. Their forecast through 2010-2012 has them losing significant ground and actually falling behind HP.<br />Return on Shareholders’ Equity<br />2003200420052006200720082010-2012HP9.4%10.8%12.7%15.1%18.9%19.5%22.0%Dell42.1%51.2%92.6%58.2%78.9%53.0%21.0%Industry14.3%15.7%18.2%18.5%21.0%22.5%25.0%<br />This ratio is a measure of a corporation’s profitability that shows the profit that a company realizes from the investments made by its shareholders. This ratio is extremely useful in comparing a company to its competitors. This formula follows a similar pattern to that of the return on capital ratio. HP has been steadily rising from its 2003 position while Dell has seen sporadic movements in theirs which 2010-2012 estimates show Dell as ending below HP. <br />Gross Profit Margin<br />2007200624.36%24.25%<br />This is an important ratio to show if the company is having trouble with the amount they spend on costs of goods sold and to see if they are improving on keeping their costs low. HP has a very good GPM and they saw a slight increase from 2006 to 2007 which may be small, but with quickly raising prices and inflation this is a good sign. This shows that HP has a good handle on their CGS and is always important for a business because if you spend too much just to make the product you will never be able to be a profitable business.<br />Operating Profit Margin<br />200720068.37%7.18%<br />Hewlett-Packard’s operation margin is fairly high and since in 2007 only about 16% of their sales go to expenses such as wages it shows that they are keeping their costs lower still and it makes it so that they can easily pay for their interest and taxes as will be shown in the next equation. Again they have shown some improvement year to year and there is much more difference in their operating margin showing they are getting a good grip on their costs.<br />Net Profit Margin<br />200720066.97%6.76%<br />HP’s net profit margin is fairly high and by looking at their operation margin it is obvious that they can easily pay their interest and taxes and in 2007 their NPM almost matches their operating margin percentage in 2006 which is an excellent sign. Again they are seeing a growth in their profit margin so HP is keeping their costs under control all around well.<br />Return on Total Assets<br />200720068.71%8.33%<br />This ratio is an indicator of how well a company utilizes its assets to create earnings. Return on Assets shows you which earnings were generated using assets. The number is typically dependent on the industry and can vary significantly over time. For these reasons it is usually best to compare a company’s ROA to previous year numbers. HP brought their return on assets up during 2007 over previous year’s numbers which means that they are now earning more money on fewer assets.<br />Return on Capital Employed<br />200718.2%<br />HP has a return on capital employed of around 18% which is paled in comparison to Dell’s nearly 72%. Return on capital employed is a similar equation to the return on assets; however it takes into account different sources of financing that the company maintains. This ratio is commonly used as a measure for comparing performance between companies and assessing whether a business generates sufficient returns to pay for its cost of capital. The downfall of this ratio is that it measures the value of return against the book value of assets rather than the market value. This leads to older businesses having higher ratios than that of newer businesses.<br />Earnings Per Share<br />20072006Earnings Per Share – Basic2.762.23Earnings Per Share – Diluted2.682.18<br />This is the portion of profits that is allocated to outstanding shares of common stock. The ratio itself is used to compare profitability of companies. There are two forms of earnings per share that are popularly used, basic and diluted. Typically diluted earnings per share are a more commonly used ratio as it is more accurate in determining true EPS. Earnings per share are widely considered to be one of the most important variables in determining the price of a share of stock. HP’s EPS of 2.76 per share in 2007 is towering over Dell’s expected EPS of .36 per share for the first quarter of 2008.<br />Current Ratio<br />200720061.211.35<br />The current ratio measures a company’s ability to pay short term obligations. For HP they have seen a slight fall in the current ratio over the past year due to both a fall in current assets and a rise in current liabilities. Though HP’s current ratio has fallen slightly, the ratio is still above 1 which is the recommended level. <br />Quick Ratio<br />200720061.01.13<br />The quick ratio also known as the acid test ratio is an indicator of the company’s short term liquidity. HP’s quick ratio in 2006 was 1.13 and 1.0 in 2007 so there was a small dip in the quick ratio, but HP maintains their ratio above 1 still which is still good. The main cause of the slump in the quick ratio is due to the rise in current liabilities and fall in current assets like the current ratio, but it also was lowered by higher inventories in 2007 as compared to 2006.<br />Inventory to Net Working Capital<br />200720060.9870.624<br />This ratio shows that from 2006 to 2007 HP is facing the fact that their inventory is tying up more of their funds and working capital. Although they are not doing horribly they really need to watch this because this high of a figure could mean that they are ordering and/or building up too much inventory and need to lower their levels. It is important for a business to keep inventory level relatively low, but at the same time a company needs to make sure they are not hindering sales with insufficient inventory.<br />Debt To Asset Ratio<br />200720060.090.10<br />Hewlett-Packards debt to asset ratio has fallen slightly over its 2006 figure of .10 to .9 which is not a significant change. The debt to asset ratio gives us a good idea of how much of the company’s assets are financed by its debt. The lower a company’s debt to asset ratio the better as this means that they have less outstanding debt to worry about. The higher the ratio goes the more risk a company assumes as increasing interest rates rise. Higher debts mean more worry from creditors when making purchases. Hewlett-Packard is well under 1 which means they are in good position. <br />Debt To Equity Ratio<br />20072006.21.21<br />This equation measures the company’s financial leverage, generally lower ratios are better. Higher ratios typically mean that companies are using debt to finance growth spurts, which results in higher interest expenses. Hewlett-Packards debt to equity ratio remained constant between 2006 and 2007 at .21. A quick look at Yahoo! Finance shows that the industry is hovering right around a .5 debt to equity ratio. Debt to equity ratios can be somewhat misleading as there is no set number across the board which can hold true for all companies as a number for them to be under. Some industries such as auto makers will have a much higher ratio than that of the computer industry due to the capital intensiveness.<br />Long Term Debt to Equity Ratio<br />2007200612.97%6.53%<br />This is an excellent debt to equity ratio because this shows that the majority of their assets are financed by equity instead of debt so they have plenty of room to borrow in the need arises. HP has seen an increase in this ratio, but even with this increase it is still low so they will just need to watch their debt to make sure that they do not build up too much because a company has to be ready to face any threat that may arise and sometimes it calls for serious funds being used that may only be accessible through debt. Without the proper capacity to take on more debt a company may be faced with the in ability to address the issue and therefore see serious negative implications.<br />Times Interest Earned<br />20072006 19.64Times10.83times<br />Times interest earned is an indication of the extent to which earnings are available to meet interest payments. The lower a times interest earned, the less earnings are available to meet interest payments. HP’s times interest earned has gone up dramatically over the last year which indicates that HP is moving into a better position in relation to its vulnerabilities by interest rates.<br />Inventory Turnover<br />2007200612.98times11.83times<br />Inventory turnover goes along with the previous equation some and as it is shown, but this equation is showing that although Hewlett-Packard may have a lot of funds tied up in inventory it is still turning over at a decent rate and is actually increasing which is always a good sign. This is due to the fact that they are trying to keep inventory levels relatively low and with increased sales to boot they are effectively turning over their inventory at a faster rate than the previous year.<br />Fixed Asset Turnover<br />2007200613.37times13.36times<br />Fixed asset turnover is to see how effectively HP’s fixed assets generate sales for the company. As you can see by the figures HP’s fixed assets are being used very well and even though the ratio is staying fairly steady they are seeing high turnover and are using their fixes assets efficiently.<br />Total Asset Turnover<br />200720061.18times1.12times<br />This is basically the same as fixed asset turnover but takes in account current assets as well. This turnover is still good seeing as it is above 1 so HP is still using their total assets well to generate their sales and aren’t seeing a negative change in turnover. A company never wants to have too much money tied up in assets because if your turnover isn’t above 1 then you are seeing negative implications from the amount of assets you currently have.<br />Accounts Receivable Turnover<br />200720067.77times8.43times<br />This ratio is used as a measure of how well a company is collecting its debt and extending credit. The higher the ratio goes it is implied that the company operates more on a cash basis or that their accounts turnover quickly and that they are efficient in collecting accounts. That being the case lower ratios would obviously show that a company is performing poorly in regards to account collection. As seen above HP’s accounts receivable is starting to turnover slower than in previous years, however looking at Dell’s turnover for 2007 which was estimated to be around 8.5 times shows that while HP is low they may not be in that bad of condition for 2007.<br />Average Collection Period<br />2007200646.97days43.30days<br />On its own average collection period is a useless ratio as it is all about having something to compare the collection periods against. From looking at the collection periods of HP over the last 2 years shows us that their collection periods have increased from 43.3 days to almost 47 days which is not good. This increase of 4 days means that HP is having trouble collecting from its consumers.<br />Price Earnings Ratio<br />200715.51<br />P/E ratios are used to evaluate a company’s current share price compared to it’s per share earnings. Higher P/E ratios show that investors expect to receive higher earnings growth from their investments with the company. HP’s P/E for 2007 was around 15.51 while Dell’s P/E for the same time was around 14.9 showing that investors expected a higher earnings growth from HP than Dell. While this ratio is important it is also important to note that decisions on investing should not be made solely on this measure as there are some draw backs that need to be understood about the P/E ratio.<br />Dividend Payout Ratio<br />200710.95<br />This is a measure of the percentage of dividends paid to shareholders. This ratio provides an estimate of how the earnings payout as dividend payments. Higher dividend payout ratios are typically more sought after as higher ratios mean more dividends for the earnings. Investors who are looking for shares with high dividend payouts will look for companies with higher dividend payout ratios, however they should never let this ratio alone make their decision.<br />Cash Flow Per Share<br />2007 $ 4.32 <br />Cash flow per share is similar to earnings per share but typically is thought of as a more reliable source of information than earnings per share. This is due to the fact that earnings per share are more easily manipulated. HP’s cash flow per share seems pretty strong in comparison to that of Dells who have a cash flow per share of $1.74 but is paled in comparison to IBM’s $11.28 per share.<br />Overall Hewlett-Packard has performed financially well since 2003 with all things considered. They have been on somewhat shaky ground due to their merger with Compaq in 2002 which took the industry somewhat by storm. For HP they took on quite a bit of debt from Compaq with the merger but it also propelled them to number 1 in many categories. Even with the recent merger HP is leading competitors such as Dell and IBM in certain key categories such as market share, net profit, and net profit margin and operating margins. Dell has an extremely strong printing and imaging segment which helps to keep them aloft in rough waters. While HP has been beaten in software sales, server sales and their personal computing sectors are somewhat lacking, they have established a well known brand name and are quite capable of making a resurgence in each of the categories they are somewhat behind in. Overall I think Hewlett-Packard would be a great investment and have a very good future ahead of them. They weather a huge storm during the merger that took place with Compaq and have opportunities abound for them in the future.<br />Strategic Issues Identifications and Recommendations<br />There are many issues that face Hewlett-Packard in different segments of the industry in which they participate. In the server and software segments, HP faces stiff competition from rival IBM who is currently leading in this niche of the general industry. HP needs to concern themselves with catching up and surpassing IBM in these two segments if they wish to truly prosper. Their main strategy for doing this must include customer service and not becoming complacent after making large strides. This is a huge segment in their industry and should be heavily considered when HP distributes out money for which segments they want to invest in most. They do not want to let this pass to the wayside because since they are already heavily involved in this industry if they focus more R&D they can easily catch up to IBM and possibly surpass them in next few years. By far HP is a much larger firm and with proper focus they can really boost sales in this segment.<br />In the personal computing segment of the industry HP faces both stiff competition and have a hard time differentiating themselves from lead competitors due to the nature of the business. Personal computers typically use many of the same products (i.e. Windows, AMD/Intel) causing companies to have to differentiate on customer service and image rather than on the specifications of computers. HP must keep themselves aware of any problems with lines of their computers and work quickly to fix the problems. They cannot afford to keep having troubles such as they did with the wireless cards on certain models of their notebooks. Having a problem with a certain product line is not the end of the world, all companies have this problem at some point, but it’s how the problem is fixed that makes the difference. HP also needs to keep themselves aware of the economy in which they are operating. Right now the economy is at a low point and consumers are having little to no money for buying products that HP offers. That being said HP needs to make sure that they offer low price range products that will enable them to keep bringing in a profit during these slower times. By offering the lower priced products they can ensure future business as people will undoubtedly be looking to upgrade to bigger and better things along the line. Gateway is looking a strong gains at this time due to the low price of their eMachines and this should be a focus for HP as well because if they can cut into this niche even if it’s only for the short run to get past this time of economic turmoil they can easily boost their market share. Those same consumers will also be looking to buy peripherals to use in conjunction with their products. Furthermore being that HP operates across a wide industry of products they need to be aware of not just competitors across the board but also aware of competitors that are specializing in certain products. A company such as IBM that is specializing in software or servers is going to have more capital to put toward a single product line than HP who is spreading capital over a range of different products. That specializing company will also have more time to put research and development of that product line. This is where it becomes important for HP to evaluate all of their product lines and really make the tough decisions of which lines are not worth the money that is invested in them. If they can focus on the strong segments and cut out the poorly performing ones HP will see a huge gain for their company in sales, loyalty, and market share.<br />While HP has issues that it faces it also has many opportunities for expansion in both foreign markets and in its home market. They need to ensure that their product quality is of the highest degree and that their image is of the same quality. Through research and development opportunities they may be able to take the industry by storm as Dell seems to faltering in their day to day operations. It is important to take advantage of the failings of other companies. It may seem cut-throat, but if HP takes advantage of this and properly invests their money they will surely beat out their competitors, even if they specialize in certain segments.<br />Works Cited BIBLIOGRAPHY Business Week. HP's Ultimate Team Player . 30 January 2006. 2 April 2008 <http://www.businessweek.com/magazine/content/06_05/b3969071.htm>.Consumers, Computer. Computer Purchasing Habits Chad Dodge and Joe Barnes. 2 April 2008.Farrell, Nick. 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