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HP Invents: Financial Analysis for the Savvy Investor Corporate Objectives n Provide products, services and solutions of the highest quality and deliver more value to our customers that earns their respect and loyalty. n 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. n 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. Strategic Areas of Involvement n Imaging and Personal Systems Group (IPSG) n HP Financial Services (HPFS) n Corporate Investments n Technology Solutions Group (TSG) n Enterprise Storage and Servers (ESS) n HP Services (HPS) n Software Products and Services n Personal Computers and Access Devices n Apple IPod – by HP n Notebooks n IT Infrastructure n New Contract with NASDAQ n Global Services n Imaging and Printing n Relationship with Dreamworks (Shrek 2, et al.) n Relationship with National Gallery, London, to preserve Master Pieces Competitors n Dell n Lexmark n Xerox n Veritas n IBM n BMC Software, Inc. Risks n The ability to develop, manufacture and market products and services that meet customer requirements for innovation and quality. n The ability to effectively manage the transition of the company’s products and services due to technological innovations. n The ability to continue to license and enforce the company’s intellectual property rights on which the business depends. n The stability of general economic conditions, including but not limited to, foreign currency exchange rate risk. The Old Guard n Carleton S. Fiorina – Former Chairman and Chief Executive Officer (1999-2005) n Primarily responsible for the 2002 acquisition of Compaq n January 24, 2005 – Management reorganizes, redistributing some of Fiorina’s day-to-day responsibilities n February 9, 2005 – Fiorina Resigns The New Guard n Mark Hurd – New Chief Executive Officer and President, as of 3/29/05. n Previously spent 25 years with NCR Corp., culminating in two-year tenure as CEO n As CEO of NCR, generated 6.0 billion in revenue in fiscal year 2004, up 7 percent from ’03, and net income rose nearly fivefold to 290 million. HP Financial Data FY 2004 Revenue Report Actual Revenue ’05 Y/Y Increase n Storage & Servers 4.047 billion 9% increase n HP Services 3.815 billion 20% increase n Software 240 million 18% increase n Personal Systems 6.873 billion 11% increase n Imaging & Printing 6.067 billion 3% increase n HP Financial Services 555 million 26% increase n All increases are from FY 2003 FY 2004 Profit Report Profit % Profit Inc. from ‘03 n Storage & Servers 71 million 1.8% n HP Services 281 million 7.4% n Personal Systems 147 million 2.1% n Imaging & Printing 932 million 15.4% n HP Financial Services 45 million 8.1% 2005 Statements n Q1 2005 Revenue of 21.5 billion, a 10% increase from Q1 2004 n HPQ estimates Q2 revenue to be between 21.2 – 21.6 billion n HPQ estimates Q2 non-GAAP Earnings Per Share to be 0.35 – 0.37 HP v. Industry/Sector HPQ Industry Sector S&P 500 ETR 14.18 17.20 28.25 30.26 ETR 5 yrs 16.45 18.73 31.80 33.46 Long Term 0.12 0.12 0.18 0.63 Debt/Equity Total Debt Equity 0.19 0.18 0.24 0.80 Dividend Payout 27.21 19.91 8.43 29.39 Ratio The buzz on the street… n DELL stock is down 8% in the year to date n HPQ stock has seen an 11% increase since naming Mark Hurd the new CEO on March 29, 2005 n DELL has scaled back their estimated 2005 growth rate n DELL’s goal is to achieve 80 billion dollars of annual revenue by 2007… HPQ already exceeds that amount. n First Albany Analyst Services upgraded HPQ to a buy rating and estimates a $25 price target n HPQ was just awarded a 5 year contract with the United States Air Force When Compared to Dell… Quick Ratios HPQ Dell n Debt to Assets 0.5066 0.7206 n Debt to Equity 1.0270 2.5800 n Working Capital 14.313 billion 2.761 billion n Effective Tax Rate 14.18% 31.54% n ETR 5yr Average 16.45% 29.68% S&P Evaluation HPQ DELL n Earnings and Dividend Rank A- B+ n Fair Value Rank 4+ 5+ n Investability Quotient 95 100 n Technical Evaluation Bullish* Bearish** n Relative Strength Rank 84% 48% n * S&P Star Report has ranked HPQ bullish since March 2005 n ** S&P Star Report has ranked DELL bearish since February 2005 6 Month Stock Performance: HP v. Dell v. DJIA Comparisons HP Dell Current Ratio: 1.5 1.2 Earnings Growth 37.7% 15.0% PEG 1.39 1.05 PE 18.64 32.19 BETA 1.78 1.64 WHY HP? n HP Makes More Things More Possible n HP is the leader in the Science of almost Limitless Possibilities n Because With HP - Everything Is Possible! Questions??
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