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Business Analysis & Assessment Assignment 2. Company names (and registered addresses) and industrial classification (product tree). International business Machines (NYSE: IBM) The company has global presence and is Headquartered: I should start by saying that according to the corporate website web International Business Machines Corporation (IBM), was incorporated in June 1911, and currently uses advanced information technology (IT) to provide customer solutions and is a leader in computing industry around the globe. IBM operates primarily in a single industry using several segments that create value by offering a variety of solutions that include: technologies, systems, products, services, software, customer financing. Organizationally, IBM's major operations are comprised of a Global Services segment; Three hardware product segments: Systems Group, Personal Systems Group and Technology Group; IBM also possesses Software segment; a Global Financing segment, and an Enterprise Investments segment. The segments are determined based on several factors, including customer base, homogeneity of products, technology and delivery channels.
One should remember that IBM offers its products through its global sales and distribution organizations across the globe. The sales and distribution organizations have both a geographic focus (in the both Americas, Europe/Middle East/Africa and Asia Pacific) and a specialized and global industry focus with the help of the Internet. In addition, these IBM organizations include a global sales and distribution effort devoted exclusively to small and medium-sized businesses. IBM also offers its products through a variety of third-party distributors and resellers.
Hewlett-Packard HP (NYSE: HPQ) The company has global presence yet is Headquartered: 3000 Hanover Street Palo Alto, CA 94304 Phone: (650) 857 - 1501 Fax: (650) 857 - 5518 Official corporate web Site: web According to the companys website web Hewlett-Packard Company (HP), was incorporated in 1947, as a global provider of products, technologies, solutions and services to consumers and businesses. The HP offers: span information technology (IT) infrastructure, personal computing and access devices, global services. imaging and printing. HP has five business segments that attempt to cover different niches of the computing industry and add up to the companys competitive advantage: the Imaging and Printing Group (IPG), provides customers world wide with digital imaging and publishing systems, printing supplies and consulting services. the Personal Systems Group (PSG), provides commercial personal computers (PCs), consumer PCs, workstations, a range of handheld computing devices, digital entertainment systems, calculators and software. the Enterprise Systems Group (ESG), provides customers critical servers, industry-standard servers, storage and software solutions.
HP Services (HPS) provides a comprehensive, integrated portfolio of IT services including customer support, consulting and integration and managed services. HP Financial Services (HPFS). provides value-added financial services, IT solutions, for the purchase of hardware, software and services. In the summer of 2002, HP acquired Compaq Computer Corporation, a provider of IT products, services and solutions for enterprise customers.
In July of 2003, the HP bought Pipe Beach AB, a provider of speech-based products and technology that enable the delivery of interactive voice solutions. Thus, the company managed to increase its size and the efficiency, so critical in the competitive market. Types of business activities (for both companies). A short paragraph summarizing the products produced or services provided (for each company). International Business Machines (IBM) Speaking about types of businesses, I should note, IBM owns, or is licensed under a number of patents, which vary in duration, relating to its numerous product lines.
IBM businesses employ a variety of components, supplies and raw materials from a substantial number of suppliers around the world, which truly makes the company a global producer / consumer . IBM operates in more than 160 countries worldwide and derives more than half of its revenues from sales outside the United States. IBM's revenues are affected by such factors as the introduction of new products, the length of the sales cycles and the seasonality of technology purchases. Please refer to the companys products / services : Personal Computing: Desktop computers Notebooks / laptop computers Workstations Palm-and-hand-held devices Monitors for computers.
Servers: Mainframes Midranges Blades/Clusters Intel/AMD processor-based Unix/Windows based Software: For servers and individual (application) users Business suits Decision support systems and business integration software. Security, Software development, ecommerce, portals, wireless, storage monitoring, etc. Storage (disks, micro disks, hard disks, tape systems, etc. ) Upgrades, accessories, computer component parts and constituents. IBM certified used equipment (refurbished computers).
Microelectronics (processors for other companies, toys, etc. ) Networking Printing systems: printers, plotters, iso graphs, holographs, etc. Point-of-sale (POS) equipment for shops and supermarkets. Thin clients for users worldwide. Hewlett-Packard (HP) I should start by saying that HP Financial Services is designed to enhance the Company's worldwide sales efforts by delivering financial services and asset management capabilities to the customers and provide them with short-term financing of the HP purchases. Imaging and Printing Group present a large number of printing / imaging devises together with fax machines and newspaper presses Supplies group presents the separate constituent computer parts, together with toners, cartridges, and special paper. Consulting services are used to properly assess the customers needs for HP products and to advice them on the proper products HP also produces personal PC, laptops / notebooks , handheld and palm devices.
The workstations produced by HP (or Compaq which is not a part of HP) can use Windows/Unix/Linux OSs HP servers include (RISC), HP-UX, Itanium, AlphaServer, Open VMS and Tru 64 servers that compete with the IBM servers. Also HP produces various CD burners, DVD drives as well as other storage devices. HP financial products include loans for and leases of HP equipment. Financial analysis (for a minimum of 2 years). Analysis of the financial performance of each company (IBM and HP). Horizontal of IBM: Speaking the horizontal analysis of IBM over the period of two years, I should note the company has shown some amazing data.
Although the total sales declined (- 2. 3 %) over the two year period, the sales of the global services and software increased by 4 % and 1 % correspondingly. HP on the other hand witnessed a 64 % decline in Net income which makes us understand that the two companies (HP and IBM) are rather correlated in their activity on the market. It is rather probable that the greater decline in Net income for HP as compared to IBM is contributed by the differences in two companies betas. For HP beta was 1. 65 and for IBM it was only 1. 3. Also we have noticed that the majority of IBM costs over the period of 2002 - 2001 were reduced on average by some 5 %, with global financing experiencing the largest cost declines (- 16. 4 %).
For HP, one was not able to find data specific for each operation unit, yet overall, HP managed to reduce the costs by 4. 6 % which certainly is worth noting. The total expense on the other hand increased for IBM by 11 % which offset the cost reductions IBM obtained during this period. Net income of IBM declined by some 50 % in 2002 and totals over USD 3. 5 billion. HP saw a major litigation expense in 2002 which reduced the income by 14 million. Still the total assets of the IBM company increased by over 6 % over this years period. HP managed to increase its assets by 8 % over the same period.
Trend: Speaking about the trends for the both companies (IBM and HP) I should note that currently the companies are doing rather well, and the small decline in sales is mostly due to some market fluctuations. The Net income of IBM over the past 5 years increased by 25 %, and for HP it increased by 30 % (adjusted for acquisitions of 2002 - 2003). One should also remember that the two companies increased their investment in marketable securities by 10 % (IBM) and 8 % (HP) as well as reduced their inventory over the 5 year period by 20 % (IBM) and 15 % (HP). The both companies also reduced their liabilities, in the short run by 8 % and 5 %, correspondingly while increasing their long-term liabilities by 15 % (IBM) and 10 % (HP) to benefit from the historically low interest rates for the period. Vertical: The vertical analysis conducted for both companies, IBM and HP have shown us better how each constituent of the income statement is related to the Net sales in order to highlight the most important areas as well as areas of lesser importance.
For instance, global services and hardware account for over 77 % of the total sales at IBM and thus should be paid the most attention to by the management. Global financing accounts only for 4 % of sales making it less important to management. For HP the sale of Hardware and Supplies also account for 71 % of total sales making these two areas of strategic importance to the company if it wants to remain stable in its development. ratio analyses: (show all calculations). Liquidity ratios: Current asset ratio = current assets / current liabilities = IBM = 41652 / 34550 = 1. 2 HP = 27450 / 23310 = 1. 17 - ACID test = (cash+marketable securities+A/R) /current Liabilities = IBM = (5382 + 593 + 9915) / 34550 = 0. 45 HP = (2634 + 253 + 4245) / 23310 = 0. 31 The acid test shows that both companies are not adequately prepared to meet their short term payments and might have some liquidity problems.
The quick ratio is normal for both companies. Activity Ratios: A/R turnover = net sales / average A/R = IBM = 30, 284 / ( (9915 + 9101) / 2) = 3. 185 HP = 14, 132 / ( (4245 + 4008) / 2) = 3. 42 Asset turnover = net sales / average total assets = IBM = 30284 / ( (96484 + 90303) / 2) = 0. 324 HP = 14132 / ( (47233 + 45205) / 2) = 0. 305 From the activity ratios we see that HP is better using the assets employed with respect to the A/R turnover, while lagging behind IBM in Asset turnover. Profitability ratios: Profit margin on sales = Net income/Net sales = IBM = 3579 / 30284 = 0. 1181 HP = 1732 / 14132 = 0. 1225 ROA = net income / average total assets = IBM = 3579 / ( (96484 + 90303) / 2) = 0. 038 HP = 1732 / ( (47233 + 45205) / 2) = 0. 037 From the ratios above we see that the two companies are rather similar in profitability with HP being slightly more profitable on sales while IBM more profitable with respect to the total assets, which signifies that IBM better utilizes its assets. Coverage ratios: Debt to assets = debt / total assets = IBM = (19986) / 96484 = 0. 207 HP = (11342) / 47233 = 0. 24 Debt to equity = debt / equities = IBM = (19986) / 22782 = 0. 87 HP = (11342) / 14232 = 0. 79 From the coverage ratios one sees that the two companies are rather well covered and are still able to take up more debt without damaging the financial position. Although IBM somewhat lagged behind HP in debt / equity ratio, it is still within the limits of what is called well-covered meaning that both companies are not likely to experience any long term financial problems with repayment of debt.
Non-financial analysis (for a minimum of 2 years). Cost: IBM does not attempt to compete solely on cost basis and therefore is not seen as a cheap or discounted brand. It still manages to have high volumes and high profits without lowering price for not reason. HP on the other hand utilizes cost leadership strategy thus making its products usually sold somewhat below the market Quality: IBM uses high performance design, and provides its goods with superior features, and reliability.
IBM also manages to provide consistent quality. HP focuses primarily on consistent quality while still abandoning for the time being the high performance design as IBM uses. Time: IBM uses a standard of 5 business days delivery time, while HP uses 3 day delivery time. Both companies present on-time delivery 97 % of time.
Flexibility: Both IBM and HP attempt to use Customization that Dell company is famous for in the computer market. One should note that HP currently provides more choices to the customers. Volume flexibility, is present on both companies in equal proportions. Taking into account the fact that both companies reduced the output in the past 2 years, their factories are still under-deployed and can quickly accelerate to reach the needed volume should the market need it. QCDF Detailed measures of Performance It is impractical to review all possible measures in manufacturing or service. However, it is possible to overview some of the most important measures relating to quality, cost, delivery and time (QCDF).
Company potential. Comparison of strengths, weaknesses and future prospects of both companies based on both the financial and non-financial analyses. IBM Strengths: Broad product range Great number of patents Global presence Different markets Constant quality improvement Weaknesses: Much of what is produced is produced in the USA, which poses extra costs on the company The company does not engage in merge / acquisition activities and thus potentially risks to be overtaken itself by some competitor at some point of time. HP Strengths: Penetration of new and emerging markets in asia and eastern Europe. Conducted a recent attempt to shift about 25 % of its production to Taiwan plant, which is expected to contribute to further cost minimization.
Cost leadership strategy is likely to benefit HP in the long run. Broad product lines. Good customer support Current acquisitions proved to be successful for the overall company. Weaknesses: Currently because of profit margins lower than that of the IBM HP is not able to generate that much of free cash that should be used to new products development. 20 % of its patents expire in 2004, meaning that if HP does not create new patents by then, it would then fail to compete with lower (discount) producers. Investor potential. Comparison of the attractiveness of investment in both companies.
Both companies, IBM and HP appear to be rather profitable nowadays. IBM over the period of 5 years had repeatedly outperformed the market as represented by the S&P 500 and constantly assumed leading positions in the industry. The current economic decline appears to be temporary and without much data available that should depress the stock value. IBM is a blue chip and a buy stock. HP over the past 3 years underperformed the market as shown by S&P 500, yet was on par with other industry players. The financial ratios which are similar to IBMs signify that the company has great prospects and a Buy signal for investors.
Its new product lines aimed at making color photo prints at home certainly should boost the company sales in 2004. Employee potential. Comparison of the attractiveness of employment in both companies. It should be noted that the employment opportunities at both IBM and HP are rather attractive to people world wide. For instance HP hires over 140, 000 people across the globe and speaks 12 language inside the company. The New Invent logo used on virtually all HP products of 2003 certainly signifies the corporate concern for high quality bright individuals.
IBM on the other hand constantly stresses the fact that people do make a difference and just like HP offers a variety of positions worldwide already on its website. Both companies seem to enjoy hiring new college graduates and always get involved in continuing education of their people. I should note that although I would probably prefer a job at IBM simply because it is a blue chip company, I also enjoy HP quality and own a Compaq computer. Limitations of the analysis.
discussion of the factors inhibiting the effective comparison of any aspect of company performance and wellbeing. Certainly people are not perfect and therefore it is impossible to think that a given analysis is able to provide information better than people who actually work at the two companies. I should note that as external users of information, we are not very free as to what to read about the companies under our consideration. In other words, much of the information about the companys jobs, finance, product ranges and strategies we obtain from the company-related sources which may be manipulative.
We still remember that 2 weeks prior to collapse of Enron, Nortel or WorldCom, the financial statements of them appeared sound. The public relations department is what the company uses to assure that the clients and potential investors are constantly are exposed to good news about the two companies. This gives us another food for thought. Conclusions.
In conclusion one should remember that leading the diversified pack of companies in the computing industry is computing kingpin IBM, whose success serves as an example to companies such as Hewlett-Packard (HP) that bolster themselves against a volatile hardware market with product and market breadth. Not exclusive to the Western hemisphere, the bigger-is-better strategy is also practiced by a number of Japanese conglomerates (most notably NEC, Fujitsu, and Toshiba). Bigger does not mean invincible, however. One need look no further than Xerox for an example of how far the mighty can fall. HP and Dell rule the consumer PC market, HP through retail channels and Dell using its pioneering direct sales model.
In a robust economy leading hardware companies look to global expansion, seeking opportunities in countries such as China, where markets have yet to be saturated. Consolidation is not limited to prosperous periods because during lulls, consolidation, often in the form of asset buyouts, sweeps the industry as hardware makers await the next upswing. Hewlett-Packard's historic merger with Compaq Computer may serve as the ultimate example of a defensive acquisition. References and bibliography.
web web web web (prepaid archive on ibm and hp) web web
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