Brokerage
|
Recommendation
|
Sentiment
|
|
UBS |
|
|
|
Bear Stearns |
||
|
First
|
Adaptec Three Key Product Lines:
1. Storage Networking Solutions – Storage Networks, 2Gbit Fiber channel adapters, Ethernet, and Infinibrand
2. Server Storage Solution – External storage, DuraStor product line, , SCSI (Small Computer System Interface) and RAID (Redundant Array of Independent Disk) controllers
3. Desktop Connections – USB2.0, 1394 (FireWire), SCSI and RAID adapters for Window and Mac computers and video solution, Toast, GoBack
· Larry Boucher - Founder and Chairman
· Hardware and software that connects PC’s in networks
· Makes CDR-RW Drives, SCSI and SCSI cables, fast Ethernet, RAID, System Recovery Software
· SCSI was 2/3rd of its revenue in 2000
· Fiber optics may erode the SCSI market
· Partnership with Agilent Tech. and Brocade for new fiber channels to connect PC’s, servers, and storage devices
· Spun-off its CD recordable software unit – Roxio
· In 1999, Roxio had a 66% market share of the CD recording market
· (ROXI) on the NASDAQ http://www.roxio.com/
Brokerage
|
Recommendation
|
Sentiment
|
|
Smith Barney |
||
|
Prudential |
||
|
Piper Jaffray |
Adobe Systems (ADBE)
· 3rd largest PC software company in US
· Graphic design, publishing, and imaging software
Adobe Segments:
Graphics – Illustration, digital imaging, digital video software, digital image management and DVD authoring
Cross-Media Publishing – XML (eXtensible Markup Language) – professional publishing
ePaper Solutions Market Opportunity
OEM PostScript and Other – Graphic professionals and publishers
Adobe General Info:
· Adobe Venture Capital – joint venture with Granite Ventures – Stakes in Siebel. EFII, Vignette, Virage, others
· Adobe Illustrator and Acrobat grew by 47% in 1999
· New push into Network Publishing – sharing visual information on all devices and platforms
· Acquired Accelo for $72M – Business form software
· PDF is the most popular file format on the Internet
· Microsoft’s new version of Windows, Longhorn, will offer a document viewer to compete with Adobe’s PDF
· 2004 – Expected operating margins of 31%
· Acquiring Macromedia for $3.4B, a 25% premium – Announced April 2005
· CEO Bruce Chizen will remain as CEO of the combined company
· 2005:
· Seeing strength in its Creative Suite with sales up roughly 20% from 2004 levels
Brokerage
|
Recommendation
|
Sentiment
|
|
Merrill Lynch |
||
|
JP Morgan |
||
|
UBS |
Apple Computer
(AAPL)
Manages its businesses on geographic basis except for retail
·
·
Europe -
Includes Middle East and
·
· Retail Stores
|
|
Apple History and Product
Info:
· Mac:
· 400MHZ Power Mac – based on IBM tech and jointly made by IBM and MOT
·
iMac – All in one design and see-through
plastic, using its G3 chip which is graphically faster than the Pentium II
·
Power Mac G4 – launched July 2000 – sales were
slow out of the gate
·
Mini Mac – Will most likely have chips from
Intel by mid 2006
·
Now using Intel chips
·
Began using Intel chips in January 2006
·
IBM and Freescale Semiconductor previously
supplies all of Mac’s chips
·
Apple OS:
·
Operating system 8.5 has “Sherlock” feature that
allows users to conduct searches using multiple search engines
·
Mac OSX – released test version on Sept. 13,
2000 – not widespread till March 24, 2001 – problem – can’t play DVD’s or burn
CD’s
·
OS X
Version 10.2 (Code Named “Jaguar”) – works with Windows
·
Tiger OS
– Out April 29 2005
·
Features
include:
o Dashboard – pop-up boxes with most used apps
o Spotlight – Search function for all programs
and docs
·
iPod –
Introduced October 2001
·
Market
share:
·
February
2004 - Has a 30% market share for portable MP3 player
·
October
2004 (4Q2004) – 61%
·
First
Half 2005 – Estimated at roughly 80% for whole portable market
·
Total
Revenue Percentage:
· Full year 2003 – 13%
·
February
2004 - 14%
·
October
2004 (4Q2004) – 22.9%
·
Full
year 2004 – 35%
·
April
2005 – 31%
·
Portal
Player – One of the few companies that makes parts for the iPod
·
In 2004 –
Apple sold more than seven million iPods
·
IPod
“Shuffle” – Apple’s new $99 iPod
·
The
success of IPod even took Apple by surprise
·
I don’t
think the success of the iPod can continue in the long term, however, good old
Apple, maybe” – Bill Gates – June 2005
·
Video on
your iPod?
·
Looking
to offer video capabilities for iPod’s in September 2005
·
H-P
halted reselling iPods for Apple which was formed in January 2004 – August 2005
·
H-P
accounted for 5% of iPod sales
·
Under
the terms, H-P can’t make or sale a competing style of iPod until August 2006
·
iTunes
Music store – 1.5M songs available at 99 cents a download
·
Has a
70% market share of all legal music downloads – June 2004
·
Launched
in Europe in June of 2004 and
·
Makes
little margins on the sale – relies on selling the iPod player
·
Has sold
over 300M songs as of April 2005
·
Over 4
billion songs have been sold through iTunes, 125 million TV shows and seven
million movies – December 2007
·
Movie
Rental service – launched January 2008 and will cost $2.99 for older movies and
$3.99 for newer movies.
·
iPhone:
·
Goal of
selling 10 million phones by the end of 2008
·
Has sold
4 million Phones by January 15,2008
Apple Acquisitions and stakes:
Apple General Info:
·
Opened retail computing chains similar to
·
Opened
25 Display Stores throughout the
·
Wants to
have 50 stores open by end of 2002
·
Apple Notables:
·
Shares fell 52% ($27.75) on Friday Sept 29th
2000 due to sales and revenue declines
·
Posted a
$247M fiscal 1stQ2001 loss – first loss in 3 years
·
“In the
mid 1990’s, Apple fell asleep and didn’t out-innovate” – Philip[ Schiller,
Apple’s Sr. VP. Or world-wide product Marketing – April 2005
·
Sells
roughly 3M computers a year
·
Apple
usually provides very conservative financial forecasts that they readily
exceed.
·
Educational sales accounted for 40% of total US
sales in the first half of 2000 – sales are down due to schools slowly
switching over to the windows platform
·
Now #2 behind Dell in this segment
·
eMac –
desktop designed specifically for education
·
Market
share:
·
Worldwide
PC Market share:
· Mid 1980’s – 16%
·
1993 –
9.4%
· 1995 – 8%
· 1996 – 5.4% - Attributed to the release of Windows 95
· 2003 – 2.3%
· 2004 – 2%
·
iTunes –
Sold more than 1M songs at .99 cents each in first week of operation – Was
expecting 1M in first month
·
By December
15 2003 sold more than 25M songs
· H-P will begin selling Apple’s iPod and promoting Apple’s online music stores – January 2004
· H-P’s iPod will be blue with H-P’s logo on it
·
H-P will install Apple’s iTunes music software
on H-P’s consumer PC’s and notebooks
·
iTunes Player – Controls 30% of the market share
for portable music players and 70% market share for commercial music online
·
Has sold 50M songs from inception to February
2004 – 40M to Windows users
·
Will fall short of goal of selling 100M by the end
of April 2004 – Now expecting 70M to 75M
·
Has 70% market share for paid downloaded music
·
2003:
·
2004:
·
2Q2004 –
First time in company history when the they sold more iPods (807,000) than
computers (749,000) during a quarter
·
Mac
computers grew just 5% over the year ago quarter while the PC industry growth
rate was 15 % over the same quarter – April 2004
·
Revenue
break down:
·
April 2004
·
Computers
– 61% of revenue
·
iPod’s –
14% of revenue
·
Peripherals
and software – the remaining
·
October
2004 (4Q2004)
·
Computers
– 50%
·
IPod –
22.9%
·
“The
iPod may be doing well but the rest of Apple’s business is not growing all that
quickly” – Rob Chira – Fulcrum
·
Apple’s
strategy “Focus on growing revenue not world-wide market share” – Peter
Oppenheimer – Apple
·
Music –
Music’s overall reach with Apple brings in 27% of revenue – Fiscal 4Q2004
·
IPod’s
and the “Halo effect:”
o With more people buying iPods, will they now
be inclined to by Mac’s
o If one quarter of iPod users got a Mac, that
would translate to make controlling a 5% market share for PC’s worldwide –
Rebecca Punkle – Morgan Stanley – April 2005
·
Will
begin using Intel chips inside its PC computer line – Announced June 2005
·
The G5
made by IBM gave off too much heat to be used in laptops and could not go
beyond 3ghz
·
Apple
chip purchases only represented 5% of IBM’s chip sales
·
·
Rival to SAP
·
Acquired by Invensys of
Brokerage
|
Recommendation
|
Sentiment
|
|
Merrill Lynch |
||
|
Bear Stearns |
||
|
UBS |
BEA
Systems (BEAS)
·
Database Software and Middleware
·
Application Servers
·
Software packages that makes purchases, tracks orders, and reviews
accounts in a web browser
·
Amazon and Fed Ex are some of the companies using their software
·
Started by three Sun Micro executives – Bill Coleman, Ed Scot and Alfred
Chuang – Thus BEA
·
Acquisitions:
·
WebLogic in 1998
·
Softport Systems
· CrossGain Corp for $30M – nabbing the companies engineers and will have them build Java systems
·
WebLogic Server – World’s number one Java Application Server
·
E-commerce infrastructure software
·
BEA WebLogic E-Business Platform
·
Old CEO William T. Coleman III
· Acquired Softport Systems
· Acquired CrossGain Corp for $30M – nabbing the companies engineers and will have them build Java systems
· Has a 41% market share in web application servers software (IBM 31%, Sun 13%) – 2002
·
Middleware –
No.2 in market share with 10.5%. Behind IBM with 31.8% in 2006
· Venture with Veritas Software – April 2004
· Engineering and marketing alliance to combine some of their software for utility computing
· Utility computing manages several groups of computers into one system
· Acquired by Oracle for $8.5 billion - 2007
·
Oracle had been
trying to acquire BEA for three years
·
Purchase price
represents a 24% premium.
Brokerage
|
Recommendation
|
Sentiment
|
|
Goldman Sachs |
|
|
|
Bear Stearns |
|
|
|
AG Edwards |
BMC Software (BMC) (BMCS)
·
· “Assuring Business Availability” – proactively improving a company’s business through service, reduction in costs, while increasing their value
· Helps customers manage a decentralized IT environment
· CEO Succession:
· CEO Max Watson replaced by Robert Beauchamp in 2001
· Makes operating systems for UNIX and IBM OS/390 mainframes - called Mainview
·
Patrol –
· Web angel – e-commerce web site analysis
· Incontrol – Scheduling and production software as well as password management
· Web DBA – Management through a browser
· Acquired Remedy Software for $355M – Customer support, customer service and help-desk software
·
EMC purchasing the right to BMC’s Patrol Storage
Management – Storage management software (open-system) – June 2003
·
EMC will shutter the software and switch the
customers over to EMC’s
·
BMC to resell EMC’s
· Acquiring Network Associates Software’s Magic Solutions unit for $47M – Makes help desk software
· Acquiring Marimba for $240M – Makes software that automates the installation of software patches – June 2004
· Mainframe business has been shrinking since 2000 and expected to shrink another 20% in 2004
· 2004 Focus:
· Software that automatically fixes failures in systems, computing triage with regards to business and computing activities, and remediation
Brokerage
|
Recommendation
|
Sentiment
|
|
RBC Capital Mkts |
||
|
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BroadVision (BVSN)
·
· World’s leading provider of e-commerce sales and marketing applications (IDC, 2001)
· Internet software for large scale Net business – Billing, commerce, consulting, support
· “Market Maker” – software that lets companies personalize their B2B web presence - also track users and their buying habits
· Customer Relationship Management Software (CRM)
·
Acquired Interleaf
Brokerage
|
Recommendation
|
Sentiment
|
|
CSFB |
||
|
Goldman Sachs |
|
|
|
Merrill Lynch |
Brocade (BRCDE)
(BRCD)
·
Storage
Area Networks (SANs)
o
Data
backup, storage and server consolidation, and business continuance
o
Cheaper
for companies to use than Direct Attached Storage (DAS)
·
Parts
supplier for Data Storage – fiber channel fabric solutions
·
Brocade
Fabric OS – near real time operating system that provides infrastructure for
SAN fabrics
·
SilkWorm
family of switches
o
Connects
servers with storage devices and scales them independently
o
Consolidate
and share servers and storage resources
o
Centralized
data management to handle more data without increasing personnel resources
·
High end
switch – SilkWorm 12000
o Handles data between incompatible networks
and into storage boxes
·
Bought
Rhapsody Networks for $173.4M
·
Overstated
revenue from 2001 to 2004 by $52M due to improper accounting – announced May
2005
·
CEO Gregory
Reyes resigned and replaced by Michael Klayko
o Ex-CEO Gregory Reyes was sentenced to 21
months and fined $15 million with improperly backing dating Brocade stock
options. – Convicted August 2007 and sentenced January 2008
o Brocade will likely sue Mr. Reyes.
o Also convicted was Brocades Human Resources
Director, Stephanie Jensen.
Brokerage
|
Recommendation
|
Sentiment
|
|
Merrill Lynch |
||
|
Lehman Brothers |
||
|
Deutsche Securities |
Celestica
(CLS)
·
Electronic
Manufacturing Service (
·
3rd
largest in the world
·
Was the
Canadian manufacturing arm of IBM – IBM sold it to Onex (OCX.TO) Corp of Toronto in 1996 – Onex
still owns a majority interest
·
Makes servers, storage systems, work stations
and PC’s for Sun and IBM – accounted for between 40%-50% of their revenue in
1999
·
Emphasis on Internet infrastructure and
connection products
Celestica’s
Notables:
·
2000 and
2001 – Operating margin of 3.7% - wants it to be 5%
·
End of 2001 – Has $1.343B in cash – debt to capitalization ratio of 21% - $1B in unused credit
facilities
·
Standing target to reach annual revenue of $20B
in 2003
·
Sun, IBM, and Lucent each represented about 10%
of revenue
·
2001
End-market segmentation
·
Communication
36%
·
Servers
31%
·
Workstations
10%
·
PCs 5%
·
Storage
&Other 18%
Celestica General
Info:
·
Restructuring
in 2001 – 81% of their facilities were in higher-cost geographies – after
restructuring is complete will be down to 45%
·
Closed 18 facilities worldwide in 2001 but spent
$1.9B on acquisitions
·
Manufacturing Motorola handsets, 2 way radios,
and messaging devices, also will be gaining Motorola’s plants in
·
Clients
include: Avaya, Cisco Systems, Dell,
EMC, HP, IBM, Lucent, Motorola, NEC Corporation, Sun Microsystems
·
New Czechoslovakian facility for producing cell
phones with Sagem
·
Bought Omni Industries of
·
Specializes in plastic injection molding
·
Precision plastic components manufacturing
·
Acquired two of NEC’s telecom equipment facilities
in Miyagi and Yamanashi
·
CEO Eugene Polistuk retired January 2004 –
Stephen W. Delany is the new CEO
Brokerage
|
Recommendation
|
Sentiment
|
|
Merrill Lynch |
||
|
CSFB |
|
|
|
CIBC Wrld Mkts |
|
Citrix Systems (CTXS)
· Virtual Workplace Solutions
· Remote Office Connectivity, Application Deployment, Workforce Mobility, Business Continuity
· Makes products that allow programs written for Windows or Unix to be integrated and able to run on servers, so they can be used remotely from other terminals and PC's running on the Internet, intranets, WAN’s, LANs, and wireless networks, and from remote locations
· Software for the client/server
· Product Hydra - gets $100M in royalties from Picasso
· In 1998/1999 had internal management problems – Founder was forced to resign
· Acquired XenSource for $500 million – Zen Source specializes in open-source virtualization.
Compaq Computer (CPQ) (HPQ) Houston, TX CEO Michael D. Capellas http://www.compaq.com/
· Founder Rod Canion
·
Acquired/merged
with Hewlett Packard – 2002 – See Hewlett Packard below
Compaq History:
· Was No. 1 in PC’s sales with 13% market share (Dell had a 12% market share)
· Overtook IBM in 1994
· April 2001 – fell to #2 behind Dell
· Bought Tandem Computer in September 1997 for $4B
· Bought Digital for $8.55B in cash and stock or $57.40 a share in January of 1998
· Digital gave CPQ high-end computers, workstations and internet servers
· Digital located in Maynard Mass - “Massachusetts Miracle”
·
Digital does 1/5 of business in
· Digital doubled the size of CPQ’s NT servers
· DEC has a very large, lucrative service and support business
· Unix based server products, high end corporate and government markets, and lean balance sheets
· DEC brought $1.3 B of cash into the union
· CPQ claimed it could cut DEC components cost by 10
· Digital had leading 64 bit UNIX system – gave CPQ ability to compete in the UNIX arena
· [W][O][R][R][I][E][D][?] – H-P’s advertisement mocking the CPQ/Digital deal
·
Had and alliance w/Cannon to sell computers in
· CPQ first to use 386 chip in 1987
· Reselling computer storage soft and hardware made by Storage Tech
· CPQ will help fund Storage Tech in research – helping CPQ to try and compete against EMC corp.
· Shipping 3 different inkjet printers jointly designed and manufactured with Lexmark International (4th largest seller of computer printers)
· 60% of all PC’s sold to first time buyers were bundled with printers
· In 1998 - Its cheapest computer ($899) was the most profitable unit
· Has 16% of AltaVista - 74% was sold to CMGI – Has a minority stake in CMGI
· CEO Benjamin Rosen replaced by Michael D. Capellas – Mr. Capellas named Chairman in September 2000
· iPaq – Hand-held computer
· As of August 2001 – holds a 9% market share in hand held devices (Palm 60%, Handspring 14%, Sony 7%, H-P 6%)
· With Celera and Sandia National Laboratory – designing a new computer running 100 Trillion operations a second – to help manipulate the discovery of genes
· Being acquired by Hewlett Packard for $26B
· Will become the world’s largest supplier of PC’s and server computers
· Will have a 19% global PC share – Dell has a 13% global share
· Will have a 37% global share for server computers
·
Will control 2/3rd’s of the
Compaq’s Notables:
· PC sales accounts for 50% of their revenue
·
3rd quarter 2000 results were the
best in three years for all divisions
·
In 2000 – had $42.2B in revenue and $1,700M in
net income
·
Forecasted operating profit for 2001 of
$1.16-$1.21 a diluted share and .75 cents a share with sales of $40.4B with
revenue growth of 6%-8%
Brokerage
|
Recommendation
|
Sentiment
|
|
Bear Stearns |
||
|
Prudential |
||
|
Lehman Brothers |
Computer Associates Intl (CA)
· Founded in 1976 and started out making software for mainframes and servers
· Founded by Charles Wang
· Changed name to CA Inc. November 2005
Computer
Associates eBusiness Management
- Six focus areas:
·
·
Security
– eTrust – Identity management, security operations and access management
·
Storage
– BrightStor
·
Portal
and Business Intelligence – CleverPath – Integration of web services for
deployed and wireless of mobile device
·
Application
Life Cycle Management – AllFusion
·
Data
Management and Application Development – Advantage and Jasmine
|
|
Computer
Associates Acquisitions and Divestitures:
·
Tried to take over Computer Sciences
·
Acquired
·
Neugents – Artificial IQ for B2B software
·
Jasmine ii – e-Business platform
·
Sold
subsidiary Accpac International (Had a 90% stake) to the Sage Group for $88M –
Accpac makes business application software
·
Acquired
Netegrity for $430M – a 39% premium – October 2004
·
Makes
security software for access to computer systems
·
Has
sales of $90M over past four quarters from October 2004
·
Acquiring
· Acquiring Niku for $350M – June 2005 – Niku makes service management software
Computer
Associates General Info:
·
Non-mainframe business accounts for 47% of sales
·
ETrust –
Computer Associates security software unit
·
New Business Model and Accounting Methods of
2001:
·
Adopted a “progressive new business model” in
October 2001 claiming that its having difficulties in its business environment
·
The new business model – stretches revenue more
evenly over the length of a software license contract - doesn’t conform to GAAP
format
·
Jan 2002
– SEC started investigating their accounting standards–Later “Busted” in 2003 –
see below
·
New
business model of licensing software on a subscription and month-to-month basis
– This method was GAAP approved
·
Product
revenue is now recognized ratably over the term of the agreement – The portion
of product revenue not yet recognized into revenue is recorded on CA’s balance
sheet as deferred subscription revenue
·
Initially
will result in lower reported revenue and earnings – may reverse if they
acquire more contracts and renewals
·
Proxy fight with Sam Wyly of Ranger Governance –
Wyly sold Sterling Software to CA in March of 2000 for $3.9B
·
Wyly is trying to oust four directors from the
board
·
CA paid
Sam Wyly $10M to drop his proxy battle
·
Feb 2002
– Had lots of commercial paper outstanding and had to draw down on its credit
lines
·
CEO
succession:
·
Charles
Wang stepped down as Chairman – December 2002
·
Charles
Wang handed the CEO reins to Sanjay Kumar, August 2000
·
CEO
Sanjay Kumar resigned April 21, 2004 – Now named Chief Software Architect
·
Interim
CEO’s during the departure of Sanjay Kumar – CA Chairman Louis Panieri (Former
Vice Chairman of Salomon Brothers) and Kenneth Cron
·
New CEO
John Swainson – Ran IBM’s Middleware business and helped develop IBM’s
WebSphere from 1997 to July 2004
·
On-Demand
Computers – UniCenter
·
Server
Provisioning – Reconfigures servers to change business functions automatically
·
Computer
Associates Busted – 2003/2004 Accounting Fallout
·
Government
and SEC launched probe in 2002 and continues on in to 2004
·
Busted
for booking sales in 2000 as revenue before even the deals were completely
landed to meet earnings targets in 2000
·
Busted
also for re-rolling contracts – Urged customers to sign new contracts midway
through a contract term with higher up-front payments making it look like
higher revenue
·
Resulting
Resignations and People involved:
·
CFO Ira
Zar resigned and two other VP executives resigned October 2003 under the
allegations
·
Ira Zar
(CFO), David Rivard and David Kaplan – all pleaded guilty to one count of
Securities Fraud, SEC conspiracy, and Obstruction of Justice – April 2004
·
CEO
Sanjay Kumar resigned April 21, 2004 – Now named Chief Software Architect
·
Sanjay
Kumar left the company June 2004
·
How much
fraud?
·
SEC – CA
improperly recorded $1B in revenue – Announced March 2004
·
Found
that they improperly booked $2B in revenue in 2000 and 2001 and $500M prior to
year 2000 – May 2004
·
NO
change in net income in 2000 and even reduced its loss in 2001
·
Found no
fictitious sales
·
2004 –
Facing joint inquiries, one from Federal Prosecutors, the other from the SEC,
regarding its accounting practices
·
If
Government files criminal charges, CA would be banned from receiving any
government contracts
·
Insiders
and Rumors at the water cooler
·
Insiders
say accounting fraud was “pervasive” in trying to meet Wall Street numbers
·
Rumors
of CA having a policy of “35 day months” to book contracts after quarters
closed
·
September
2004 – Justice department deferring prosecution against the company due to the
company admitted they backdated sales to meet financial projections
·
CEO
Sanjay Kumar and Sales Head Stephen Richards indicted on 10 counts of
securities fraud and obstruction
·
The
outcome:
·
Computer
associates will pay $225M to shareholders in restitution – Announced September
2004
·
New
interim CEO – CA Chairman Louis Panieri (Former Vice Chairman of Salomon
Brothers) and Kenneth Cron – named after Sanjay Kumar resigned – outside search
for CEO is underway
·
May
2004:
·
Indirect
Sales – 10% of CA’s sales
·
International
sales 44% of business – was 36% in 2002
·
May 2004
– Computer Associates will start expensing stock options
·
2005
will be an “investment year” – CEO Louis Panieri
·
“Ultimately
you have a company that is now in purgatory” – Nitsan Hargil – Friedman,
·
Releasing
a new version of Unicenter in 3Q2005 and feeling the effects of customers
waiting for the new version
Brokerage
|
Recommendation
|
Sentiment
|
|
Goldman Sachs |
||
|
Smith Barney |
||
|
JP Morgan |
Computer Science (CSC)
· Data technology consulting, system integration, business reengineering and outsourcing services
·
Mobile telephone service on satellites
·
Alliances with IBM, BEA Systems, Sun
Microsystems, SAP, PeopleSoft and Documentum
Computer Science
Notable Contracts:
·
Outsources to National Security Agency
·
IT service contract for the
·
System Design and Integrations with the CDC,
EPA, IRS
·
System Operation and Outsourcing for Raytheon,
D&B, UK Department of Health, AT&T, United Technologies, DuPont
·
Contract with Sears for IT infrastructure and
support - $200M, 10 year deal – Announced March 2004
·
Increased to $10B in value – June 2004
·
Contract with AON – May 2004 – Seven year
contract worth over $600M
Computer Science
General Info:
·
Revenue
breakdown by segment in 2001
·
Outsourcing - 43.8%
·
Consulting/Professional
services – 34%
·
System
Integration - 21%
·
Revenue Breakdown: FY 2002
·
25%
·
39%
·
25%
·
11% Other International
·
Fiscal year ends March 29
·
9% of revenue is booked as “percentage of
completion accounting”
·
Acquired DynCorp for $600m – March 2003
·
Selling its Health Plans Solution unit to DST
for $324.6M – Announced April 2005
·
Acquiring the 26% of CSA Holdings that it
doesn’t own for $43M, a 50% premium – June 2005
·
Merged with First Consulting Group
CompUSA (CPU) (Now privately held)
·
Owned by Grupo SanBorns (
·
Carlos Slim Helu (
· Has a 1% stake in MO
·
Has a 7.5% stake in Office Max
·
10% stake in Saks
Brokerage
|
Recommendation
|
Sentiment
|
|
CSFB |
|
|
|
First
|
||
|
Raymond James |
· Software that automates technology management for IT departments
Products:
· AdvantEDGE for Microsoft IIS
· Monitors web servers running Microsoft Internet Information Server
· Tracks hardware resources, and Internet stats
· eHealth Suite
· Actively polls SNMP- manages devices to determine their operational parameters
· Four-part client/server based suite
· “Live Health” polls devices in real time to gather performance metrics
· Network Health – monitors hubs, switches, routers, and other network infrastructure
· “Network Health” software
· Provides alerts to network problems,
· Pro Active, polls every 5 min and records errors, then people analyze trends
· Single page clients up to 20,00 elements
· Licensing fee is $10,000-$30,000
· Southwest Airlines loves it
· Competitors: Desktalk and Kaspia Systems, BMC, Entuity Inc.
·
Brokerage
|
Recommendation
|
Sentiment
|
|
Morgan Stanley |
||
|
JP Morgan |
||
|
S.G. Cowen |
Dell Computer Corporation
(DELL)
·
World’s
largest PC maker
·
Now famous model - Carry low inventory, build
when orders arrive
·
Best performing stock of the 90’s
·
“The box that made Mr. Dell a billionaire has
become a commodity…and no longer needs to be replaced every 18 months”
Dell Market Share:
·
King of
the PC throne?:
·
April
2001 became the largest PC maker – Prior was 2nd largest PC
maker with a 12% market share - Compaq had a 13% market share
·
Fell to
No.2 for a few months in late 2002 to HPQ but then regained lead – Dell –
14.9%, HPQ – 15.5%
·
April 2003 - 17%
·
April 2004 – 16.5%
·
December 2004 - 16.8% (H-P 15%, IBM 5.6%)
·
Server
Market Share:
·
No. 1 in market share in the
·
Intel based server market share – 22% (HP 32%,
IBM 18%)
|
|
Dell Notables:
·
2000
·
Missed quarterly projections three times
·
2001
·
Expected
20% revenue growth which was revised down from their earlier estimates of 30%
·
Revised
even further later in the year – profit flat for the year with revenue rising
10%-12%
·
August 2001 – 2ndQ loss – Dell’s first loss in
eight years and only second loss as a publicly traded company
·
2003
·
3Q2003 –
Gross margin of 18.2%
·
2004
·
PC
margins of 8% as of May 2004
·
1Q2004 –
Gross profit margins of 18%
·
Sold over
30M PC’s world-wide in 2004
·
2005
·
Seeing
strength and growth in Europe and
·
18%
world-wide PC market share in 2005
·
18% of
sales from outside of US (SUN gets 46% of sales outside US)
·
PC
business is about 80% of revenue
·
Consumer
sales:
·
2005 –
Consumer sales represent 38% of total sales in the
·
Cash on
hand:
·
January
2005 - $14.1B
·
2006 –
Wants to have $60B in annual revenue
·
All of
Dell manufacturing plants are identical in layout and when a new process is
implemented, its implemented in all plants
Dell General Info:
·
Dell
Venture Unit – provided $1B in 100 companies ranging from internet to storage
·
Dell
Financial Services LP – Dell has a 70% stake, CIT 30% - Off balance sheet unit
for leasing and customer financing
·
DFS will
start underwriting one quarter of its own financing – Announced April 2005
·
CIT
previously handled underwriting the financing
·
By 2010,
Dell will underwrite up to three quarters of its underwriting
·
2004 –
DFS group had $5.7B in leases – In 1999 has $1B
·
Pushing into internet servers and high end
storage – wants to use same inventory practices with them
·
Mr. Dell “We’re going full steam ahead running
at SUN and EMC & we’ll take Compaq out along the way”
·
Say’s EMC stands for “Excess Margin Corporation”
·
Mr. Dell owns a 33,000 square foot estate in
·
September 2001 – now will resell EMC products
and hardware
·
Opened a plant in
·
In
·
In
·
Selling its Web Hosting business to Sprint’s FON
Group – August 2001
·
Pulling back on a large portion of its on-line
initiative – Dell Host
·
“Dell
Marketplace” – with Ariba – B2B marketplace
·
August 2001
– stopping operations of Dell Marketplace and Dell Auctions
·
Dell no
longer selling H-P printers – making its own Dell branded printers and
cartridges by the end of 2002 with Lexmark
·
Selling
unbranded desktop PC’s to US dealers
·
Dell is
the only US PC maker that does not us AMD chips in their computers - 2004
·
Joint
collaboration with EMC to sell EMC’s storage products through 2008
·
EMC and DELL – New networking storage system
called CLARiiON CX200 – stores 2.2T bits
·
Dell now producing 1/3 rd of all of EMC
Clariion’s revenue – June 2003
·
New push into home and consumer electronics
·
Will sell flat-screen TV’s, home theaters, and
MP3 players
·
Will sell music and MP3 on-line thus putting
them in direct competition with Apple
·
New focus on Service – November 2003
·
Claims
to have a 20% lower service cost than competitors and wants service to
contribute $10B in annual revenues
·
Service
has a 30% margin
·
Claims
they can fix 93% to 98% of customers computer problems over the phone – will
subcontract out home visits
·
Michael
Dell stepping down as CEO March 2004 – Replaced by Kevin B. Rollins July of
2004
·
Mr. Dell
has a 9% stake in the company
·
·
Dell
entered
·
Dell
made new subsidiaries in
·
Most
sales in
·
Sell
builds roughly 3M units a year in its
·
Dell
first started selling servers then gradually added PC’s and notebooks
·
Less
than 3% of Dell’s Chinese revenue comes from Chinese consumers
·
PC’s in
·
2005:
·
6% of
Dells online sales are from
·
·
Dell’s
average inventory in
·
In the Early 2000’s it was four days
·
2005 –
Inventory around 30 days
·
·
Dell’s
operations in
Digital Equipment (DEC)
(CPQ) (HPQ)
· Alpha chip –summer of 1998 – clocked faster than 1000 MHz (unprecedented at the time)
·
Sold manufacturing to Intel but remains the
owner of the chip
·
Runs Alta Vista search engine
·
Acquired by CPQ
Brokerage
|
Recommendation
|
Sentiment
|
|
Smith Barney |
||
|
UBS |
||
|
Goldman Sachs |
Electronic Data Systems (EDS)
· Founded by Ross Perot
· Was spun-off from GM in June 1996
· Computer services, consulting, and outsourcing
EDS Units:
· A.T. Kearney – Business consulting unit
·
2001 – The unit grew 15% in Europe, 50% in
· Operations Solutions – IT outsourcing services
· Solutions Consulting - Electronic business and solution consulting
· PLM Solutions – Product lifecycle management – product development, design, manufacturing, planning, product data management, and collaborative commerce offerings
|
|
EDS Acquisitions and Stakes:
· Bought Sabre Holding Outsourcing and Software unit for $670M
· Will run Sabre’s computer system for 10 years
· Unit focuses on airline infrastructure outsourcing business and airline internal technology and infrastructure
· Bought Systematics of Germany for $570M - IT tech., outsourcing and consulting
· Bought Structural Dynamic Research for $950M
· Makes software to design products over the Internet
· Buying the rest of Unigraphics Solution INC it doesn’t already own (14%) for $170M
· Loudcloud paid EDS $63.5M for it Internet hosting business
· Acquiring Feld Group for $89M – IT consulting firm – January 2004
· Looking to sell a minority stake in PLM Solutions unit – October 2003
· Selling its UGS PLM Solutions software unit for $2.05B to Bain Capital, Silver Lake Partners and Warburg Pincus – Unit develops software for product design with large contracts with GM and Boeing – March 2004
· Acquiring a 85% stake in Towers Perin’s HR outsourcing unit for $420M – January 2005
· Unit pulls in $600M a year in revenue
EDS Notable and Stats:
· Had $31.4B in contracts in 2001 – In 2000 had $32.6B
·
25% of EDS’s sales come from
· For 2001 had a growth target of 13%-16% and expected operating profit of 10%
· 40% of their revenue is booked as “percentage of completion accounting”
EDS General Info:
· EDS Contracts:
· Won a 10 yr contract to manage information tech for Sumitomo Bank of CA
· Won a $1.4B contract for 7 yrs from DOW for a communications network for video, wireless and telephone operations
· IT contract for the Navy/Marine Corp Intranet – Awarded in October 2000 and valued at $8.8B (Was a $6.9B contact when fist announced)
· Contract to network and make hacker-proof 4000 Navy locations and linking 345,000 computers and maintain all their computers and network services
· Project thought to start generating cash flow in 2003 – not expected to do this till mid 2005
· $7B contract – Now writing it down and says that it may never make money
· Losses on the contract:
· As of April 2004 – Has lost $1.6B in the deal
· Looking to lose another $400M in 2004 alone
· Through June 30 2004 – EDS has roughly $2B in losses on the contract
· This is make or break for EDS – If it fails, they may possibly have to break up the company
· Sears and McDonalds took EDS out of their bidding for IT contracts due to the problems that have arisen with this contract - 2004
· Navy has itself to blame too. Initially said that there were 5000 programs to transfer, now it reveals that there are 67,000 to transfer
· Navy Marine Corp Intranet Contract – Having to write down the contract for the second time with a total of $678.7M in write-downs
· Contract expected to stop draining cash flow and expected to contribute $100M in 2006
· December 2002 – won a 10 year $4.5B deal with Bank of America
· EDS’s largest contract in 2002
· January 2003 - $1.3B deal with ABN AMRO Holding lasting from 2003-2008
· Won a $4.4B contract for the UK Ministry of Defense – Announced March 2005
· Is EDS’s largest new contract since 2002
· Contract could increase to $7.7B over 10 years
· Will create a new high security network with up to 70,000 PC’s with an addition 80,000 PC’s in later phases
· Won contract over Computer Sciences and other European bids
· Kraft foods outsourced all its IT services to EDS in a $1.7b 7 year deal – May 2006
·
EDS Notable Contacts, Customers, Developments
· General Motors is their largest client and the contract expires in 2006
· GM contributed to $1.8B in revenue in 2004
· Other clients include American Airlines, US Air, WorldCom
·
Has major contracts with the
· November 2002 – Lost huge deal with Proctor & Gamble worth over $7B
· Writing down losses on Dow Chemical contract – May 2004
· WorldCom is one of its biggest clients – WCOM now in bankruptcy
· Contract was around 600M a year to manage their network
· Deal inked in October of 1999 – Contract for $6.4B over 11 years to manage their computers
· US Air – In Bankruptcy – Worth $200M a year or 0.9% of 2001 revenue
· Took a 3Q2004 charge of three cents from the money owed to them from US Air
· Has a contract with AMR which brings in $200M a year – AMR was teetering on bankruptcy in March 2003
· Won contract to manage the computer systems for government offices of British Colombia – Worth $486M over 10 years – Announced November 2004
· Contract singing a key future revenue indicator
· Usually records zero profit on large deals in the early stages, simply matching its expenses with revenue
· On some of their giant long term contracts, EDS paid large sums upfront to buy the clients equipment and take over their employees
· Processes 2.5M ATM transactions a day – 2002
· Provides hosting services for 900 clients, managing 50,000 servers
· Largest mortgage processing outsourcer in the world, handling about 2.3M mortgages a year
· September 29 2002 – stock fell 53% ($19.26) on profit warning and problems with US Air and WCOM
·
October 2002 – “70% of their high profile
contracts are being renegotiated and in 100% of the cases, market prices are
lower that what was in the contract” –
· EDS’s Debt:
· Had to borrow $225M to cover a bad debt on its own stock purchase – November 2002
· April 2003 – Has $5.5B in long-term debt and under-funded pensions
· $4.4B in debt – July 2004
· 2003 – Two birds broke the stone – With concentration in Telecom and the Airline industries – their demise has hurt the fortunes of EDS
· Chairman and CEO Richard Brown fired March 2003 – Replaced by Michael H. Jordan (Former CEO of CBS)
· Brown went after “mega” outsourcing deals – but those deals have high start-up costs that ultimately diminished their value
· Moody downgraded EDS debt to junk status in July of 2004 – claims that EDS has no free cash flow from operations when the cost of capital expenditures and dividends are in the equation
·
“
· EDS had to restate 3Q2003 and 4Q2003
· Free Cash flow announcement of December 2004
· Announced they would have NEGATIVE free cash flow of $222M to $322M instead of projecting free cash flow of $200M to $300M resulting from $522M it spent to settle a loan trust, created in 2001, used to finance the Navy contract
· 2004:
· New contract signings fro 2004 – Has $14.9B in new contracts (EDS expected $17.5B)
· 4Q2004 – Starting to see some progress on their non-performing and problem accounts
· Operating margin – 2.7%
· 2005:
· Looking for profit of 50 cents to 60 cents a share with revenue to be flat
· New Contract signing needs to rise 11% over 2004 levels in order for EDS’s revenue to remain flat and hit their targets
· “If they don’t’ materially improve the signings pace, they’ll continue to shrink” – Rod M. Bourgeois – Sanford C. Bernstein – February 2005
· Hoping to win a large computer outsourcing contract in 2005 with the British Defense Ministry
· Expecting free cash flow of $500M to $700M
·
Up for
· 2007 – Expecting operating margin of 8%
Brokerage
|
Recommendation
|
Sentiment
|
|
Merrill Lynch |
||
|
Lehman Brothers |
||
|
Smith Barney |
|
Electronics For Imaging (EFII)
·
Develops
and markets controllers, servers and Raster Image Processor (RIP) technology to
connect copiers, printers, and digital presses to networks
·
Used by
graphic artists, advertising agencies, print shops and corporations
·
Color
Printing – Fiery Color Server – 1st affordable digital color
printing solution
·
Fiery
Technology provides the digital printing industry with brilliant, precise
color, and advanced networking technology through servers and embedded
controllers
·
PrintMe
Networks
·
Internet
printing solution that allows printing to any printer on the PrintME network
from any wireless device without any cable, drivers or complex set up
·
Assigns
network address to a specific printer
·
Will be
able to send and email to a printer from any wireless device, PDA, two-way
pagers, and mobile phones
·
With
Adobe, Xerox, and Yahoo
·
Released
March 2002
·
EFI
print controllers: Fiery, Splash, EDOX, DocStream
·
Velocity
– Work flow software
·
Enables
variable data printing, load balancing of large jobs to multiple printers,
efficient production of document that combine black & white and color
pages, and automatic cost estimation
·
eBeam - Web-enabled whiteboards
·
Transform
a whiteboard into a web-enabled communications tool
·
Users
can digitally capture meeting notes and diagrams, and then save, edit, and
print them using any PC
·
Acquired
Unimobile May 2002
·
Wireless
messaging software - Delivers secure, real-time, two-way messaging on any
mobile device across multiple network protocols
·
Universal
mobile messaging capabilities to Global 2000 enterprises and telecom operators
·
Competitors:
·
Controllers
– ColorBus, Creo Inc., T/R Systems
·
OEM’s
Canon, H-P, Ricoh, Xerox
·
Fiscal
year ends December 31
·
1/3 of
sales are from Xerox
Brokerage
|
Recommendation
|
Sentiment
|
|
Goldman Sachs |
||
|
UBS |
||
|
CSFB |
|
EMC Corp (EMC)
· World leader in networked information storage, information management software, and information storage infrastructure
· Founded in 1979 by Richard Egan and Roger Marino (the “E” and “M” in EMC)
· Dominant supplier of enterprise storage in open system world
· Maintains, duplicates and cache of electronic data
|
|
EMC Products:
· Symmetrix - High end storage line
· 5700/3700 - Can hold 6 terabytes of info or equivalent of all 100M 1040 tax forms the IRS expects this year
· Combines as many as 128, 47 gigabyte Seagate disk drives
· Cost $4.7M occupying 17.3 sq. feet
· Symmetrix DMX – new line – 2003
· Now supports FICON and iSCSI
· Chameleon
· Network Attached Storage System (NAS), Low priced - costs $82,000
· For smaller applications such as e-mail and small files
· Cellera – NAS
· Storage Area Networks (SAN)
· Network made up only of storage devices - Good for large files
· EMC has a 30% market share in this segment
· Analysts in the 1990’s expected this market to grow 84% annually
· Centera Line
· For archiving unchanging data
· Compliance Edition – Automatically purges information once it has passed their mandatory retention date
· Clariion
· Mid-range (priced) storage line
·
· Marketed by Dell
· NetWin 200 – Venture with Microsoft
· NAS built on MSFT storage platform – for the low-end market
· Sharing software code and design, joining sales and customer service forces and marketing the products together
· Piranha (AX100) – Aimed at small to midsized business and starts around $6000 – marketed by Dell
EMC Notables and Stats:
· 1998 - Had 30% revenue growth in 1998
· 2000
· 62% of total revenue from North America, 26% from Europe, Africa, Middle East, 10% from Asia, 2% Latin America
· Storage hardware grew 43% to $1.81B
· Software sales grew 72% to $483M
· Service grew 50% to $200M
· Net income was $1.78B or $.79 per diluted share
· Internet sales accounted for 6%-12% of sales in 1stQ and 2ndQ 2000
· 2001
· Expected to reach $12B in revenue in 2001 (34% more than in 2000)
· Revised downward to 25%-35% instead of 33%-38% with $12B in revenue
· 2001 revenue was $7.09B – 20% lower than 2000
· Net loss was $508M or $.23 per diluted share
· 2002
· Only 7% of overall sales from open-system storage software
· 2003 – Expected to continue to turn a profit in 2003
· 3Q2003 – 23% of sales from software
· 2005 – Expecting revenue to increase 14% to 16% (Double of what the storage market is predicting) though will find pressure on margins
· 1Q2005 – Has $3B in cash on hand
·
Due it recent rapid growth in 2004 and 2005 in
· Seeing strong growth in their VMware virtualization software
· Releasing a new Symmetrix machine (DMX-3) in September 2005
· New machine can have up to a petabyte of capacity (1M gigs)
· Gross margins:
· 1999 - 57%
· 2000 - 60%
· 2001 – 44.6%
· 3Q2001 – dropped to 37%
EMC Market Share:
· NAS
· Market share in 1999 (Network Appliance – 60.1%, EMC – 21.9%, Auspex – 8.3%)
· SAN
· Market share in 1999 (EMC – 30.2%, IBM 7.9%, Compaq – 7.7%, Other 52.2%)
EMC Acquisitions:
·
Acquired Data General Corporation in 1999
·
CLARiiON
- mid-range information storage systems
·
United expected to break even in 2001
·
Acquired Legato Systems for $1.3B – July 2003
·
Legato is No.3 in backup and recovery software
(No.1 Veritas, No.2 IBM)
·
Will
leave Legato as an independent division
·
Acquiring
Documentum for $1.66B - October 2003
·
Makes
software that tracks and controls access to documents on a network
·
Will
become a unit of EMC
·
VMware
specializes in Server Virtualization – allows software to divest processing
power form a single server to give and give it multiple tasks
·
Will be
operated as a subsidiary
·
Systems
Management Arts is known as SMARTS and monitors network health and remedies
problems
·
Pulled
in $60M in annual revenue
EMC General Info:
·
Used to be the only provider of multi-platform
fiber channel storage systems
·
CEO Joseph M. Tucci replaced Michael Ruttgers
·
Ruttgers is now executive chairman
·
Had patent suits against
·
Dell reselling EMC’s hardware
·
Joint
collaboration with Dell to sell EMC’s storage products through 2008
·
EMC and DELL – New networking storage system
called CLARiiON CX200 – stores 2.2T bits
·
Dell now
producing 1/3 of all of Clariion’s revenue – June 2003
·
Dell
began selling EMC’s network-attached storage in 2005
·
Dell’s
sales of EMC products represented roughly 10% of EMC’s total revenue in 2004
·
“You can’t find a CIO in the world who says “My
information is going down” “– CEO Tucci
·
Purchasing the right to BMC’s Patrol Storage
Management – Storage management software (open-system) – June 2003
·
Will shutter the software and switch the
customers over to EMC’s
·
BMC to resell EMC’s
·
Will give EMC access to BMC’s customers
·
Goal to
build software to contribute to 30% of EMC’s total revenue – The acquisition of
Documentum brings it to roughly 28%
·
Reforming
into a systems software company
·
CEO
Joseph Tucci – “We expect 2004 to be a better year” – January 2004
·
H-P and
EMC:
·
H-P
resold EMC equipment from 1995 through 1999 then switched to
·
H-P
paying EMC $325M over five years due to a sales dispute and the two entered a
cross licensing agreement – Announced May 2005
·
“I still
think over the next three years (from 2005) your high end is a no-growth
market: - Keith Bachman, Bank of America Securities – July 2005
Encad (ENCD) (EK)
·
Color inkjet printer systems
·
Huge printers for banners, posters, exhibit
sings
·
Acquired by Eastman Kodak
Brokerage
|
Recommendation
|
Sentiment
|
|
UBS |
||
|
JP Morgan |
||
|
Pacific Growth Eq. |
E. Piphany Inc. (EPNY)
·
Smart
CRM – Customer Relationship Management Software
·
Tracks
customers profiles and buying patterns, provides tools to find the most
profitable customers and habits
·
Makes Software to help companies sort through
customer data and device marketing campaigns to reach them
·
CRM
analytics
·
E.6 –
Suite of marketing, sales, and service applications, real-time analytics for
CRM
·
Intelligent customer interaction software –
E-customer relationship management
·
New
Brokerage
|
Recommendation
|
Sentiment
|
|
Morgan Stanley |
||
|
CIBC |
||
|
UBS |
Flextronics (FLEX)
·
·
Makes a
wide range of products for OEM’s (Original Equipment manufacturers)
·
Offers companies low-cost, high volume
manufacturing services for their products
·
Flextronic’s
five Industrial Parks are located in low-cost locations such as Latin America,
Asia, and
Flextronic Units:
·
Flextronics
Design – Provides design, engineering and test development services
·
Flextronics
Enterprise Solutions – Implementing global software solutions
·
Flextronics
Logistics – Supply chain planning and design, system integration,
light-manufacturing, distribution, warranty and repair services
·
Flextronics
Network services – Provides design, installation, operations and management of
fixed and mobile telecommunications networks
·
Flextronics
Photonics – Design, industrialization, supply chain management and
manufacturing services for the Optical Component and Optical Networking
industries
·
Flextronics
Semiconductor – ASIC products, IC design services, System on Chip (SOC),
Standard Cell and Gate Array (ASIC) (digital, analog & mixed-signal)
·
Flextronics
Test – Board level and system level testing
·
Multek –
Printed circuit board (PCB) fabrication services
Flextronics
General Info:
·
Has been
acquiring companies that specialize in logistics, installation, and industrial
design
·
Acquired
Wave Optics – makes optical parts
·
Acquired
Fico Fiber Optics – makes optical modules
·
Products
and Companies that use Flextronics
·
Michael
Marks became CEO in 1994 and will step down in January 2006
·
Mr.
Marks will be succeeded by COO Michael McNamara
·
March
2002 – Surpassed Solectron as the world’s largest contract manufacturer in
terms of revenue
·
Expanding
heavily into
·
Silverlake
Partners taking a 3.5% stake in Flextronics
·
Flextronics
has the biggest Chinese footprint among the
·
Acquiring
a 55% stake in Hughes Software Systems for $226M – Hughes Software Systems is a
telecom software maker in
·
Acquiring
Nortel’s manufacturing plants and will produce their products – June 2004
·
2005:
·
Merging its Network Services business with
Telavie (Altor) of
Brokerage
|
Recommendation
|
Sentiment
|
|
Morgan Stanley |
||
|
Bear Stearns |
||
|
Schwab Soundview |
Gateway (GTW)
· 2nd largest direct seller of PC’s
·
Changed name to Gateway from Gateway 2000
·
Gateway Country Stores – People can test drive a
Gateway system at these locations though cannot purchase
·
At its
peak had 274 stores, now down to 192
|
|
Gateway Notables
and Stats:
·
For 2000
– Had $9.6B in revenue and $241M in net income
·
4Q2000 -
net loss and a $200M write down from poor tech investments – earnings 40% less
than expected – Loss in its PC sales for the first time in its history
·
Feb 2001
– Had to restate its 2000 sales and earnings downward – cut earnings by $53M to
$9.6B and lowered net income by $74.5M to $241.5M
·
For 2001
·
Forecasted
revenue growth in 2001 – restated to 10% from earlier estimates of 20% and
profit to be $1.89 per share down from $2.28 per share
·
Expected
sales to be flat throughout 2001 – relied on revenue from software, services
and leasing business sales
·
Will
report operating losses through June 2001and doesn’t expect to retain historic
growth profitability levels until 2002
·
2002 –
1.07B in cash
General Gateway
Info:
·
Ted
Waitt co-founder of Gateway
·
Ted
Waitt owns 31.8% of the company
·
Became
acting CEO after ousting Jeffrey Weitzen and replaced many top execs.
·
Wayne R.
Inouye of eMachines is the new CEO
·
Ted Wait
is Chairman and Gateway’s largest individual shareholder
·
Resigned
as Chairman, June 2005
·
New plan
of cutting costs by offering fewer products, handle their own advertising, and
retrench in retailing and pull back for some international markets
·
August
2001 – Closed operations in Europe, Asia, and
·
Reorganizing
into six business: Computers, Software,
Leasing, Services, Training, and Communication
·
Sales of
service, software, and accessories account for 17% of revenue
·
60% of
annual revenue from PC sales – 2002
·
Another
firm listed it at 87% for 2002
·
January
2003 – SEC considering civil charges for financial reports in 2000
·
February
2001 – Restated results for 2000 downward by $75M
·
April
2003 – acknowledged that it inflated 2000 and 2001 revenue by $500M
·
Reduced
2000 sales by $340M and 2001 sales by $130M
·
Claims
to stem from offering free AOL with some sales
·
November
2003 – Resolution - SEC declared no fines needed
·
“The
Well Letter (SEC Investigation notice) is the least of their worries…the real
problem is that Gateway can’t hold market share profitability” – Dan Young USB
·
2002 –
PC shipment declined 5.4% - Industry
average in 2003 was a positive 3.9%
·
“They
don’t have the wherewithal to be an economically prosperous business in the
long run” “They cannot cut costs at a fast enough rate to compensate for the
continued pressure on average unit prices, they will forever live in the shadows
of Dell and other large players” – Matthew Kaufler, Clover Capital Management
·
2003 –
New restructuring will allow Gateway to turn a profit with sales as few as
550,000 PC’s a quarter
·
“Cutting
costs invariably will hurt its chances of halting the sales nose dive…Gateway
has Dell on one side working them over and H-P on the other side.” Daniel Niles – Lehman Bros.
·
2003 –
No.1
·
Acquiring
eMachines for $235M – February 2004
·
Will
help Gateway increase distribution in consumer locations
·
eMachines
has $1B in annual sales and big retailing presence
·
eMachine’s
CEO Wayne R. Inouye will be CEO
·
eMachines
– 25% market share of retail PC sales in 4Q2003
·
From
2001to the end of 2003 – Gateway has restructured three times with a cumulative
loss of $1.85B
·
In 2001
had sales of $6.1B, In 2003 they had only $3.4B
·
From
2001 to September 2004 – Has had four failed restructurings – all under Ted
Wait
·
·
Gateway
doesn’t expect a profit until 2005
·
Closing all
of its Gateway Country stores – At its peak had 384 locations – 2004
·
Outsourcing
all of its customer service in 2004
·
No
longer will sell consumer electronics and will focus on making PC’s – announced
September 2004
·
“Our
first objective is to fix our core business” – CEO Wayne R. Inouye
·
PC
business represented 72% of Gateways business in 2003
·
Wants 1M
PC sales a quarter – currently around 795,000
·
2004 –
PC margin roughly 8%
·
CEO
Wayne R. Inouye goal is 50% US retail PC market share by 1Q2005 (H-P has 60% market
share while Gateway has 30% in 2004)
HandSpring (PLMO)
(PSRC)
(HAND)
Handspring Products:
· Springboard – New hardware and software platform designed to hold plug-and-play devices
· Allows the Visor to be turned into a mobile phone, MP3 player, etc.
· Hand held that flips open with a cell phone and data communication
Handspring Notables and Stats:
Handspring General Info:
Brokerage
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Recommendation
|
Sentiment
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Merrill Lynch |
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JP Morgan |
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AG Edwards |
Hewlett Packard (HWP) (HPQ) Palo Alto CEO Mark Hurd http://www.hp.com/
· No.2 world-wide in 2004 with 15% market share (Dell 16.8%, IBM 5.6%)
· No.1 Consumer PC maker for 2003
· Was once the No.3 PC maker – then No.2 behind Dell in mid 2003
Acquisitions and Alliances:
· Acquired Apollo Computer in 1989
· Approached and flirted with acquiring Price Waterhouse Coopers consulting unit – fell through
· Invested $100M in Indigo Co. of Netherlands – makes digital color printing systems – will develop high end digital printing systems together
· Acquired Bluestone Software for $468.1M – makes middleware – links separate software applications
· Working with Accenture for consulting and outsourcing
· Bought the computer services unit of Comdisco Inc.
· Bought Storage Apps for $350M – software for servers and infrastructure
· Acquired Compaq Computers for $20.52B - $18.4B
· Will become the world’s largest supplier of PC’s and server computers
· Will have a 19% global PC share – Dell has a 13% global share
· Will have a 37% global share for server computers
·
Will control 2/3rd’s of the
· “If Carly can pull this off, she will go down as one of the greatest CEO’s ever” – Dan Miles – Lehman Brothers
· “People said Compaq merging with DEC was a pig in a python…Well this is going to be a porcupine in a python”
· “All they are creating is a bigger company that isn’t credibly positioned”
· Will use the Compaq computer name for business computers only, H-P for servers
· Walter Hewlett, a H-P board member and the oldest son of founder William Hewlett , waged a proxy battle to try and stop the merger and barely lost in the shareholders vote in March of 2002
· After Walter Hewlett lost the battle and H-P merged with Compaq, he resigned from the board
· Carly CEO, Michael Capellas – President (Mr. Capellas later left to become CEO of MCI)
· Took nine months to combine the two companies
· After nine months, almost $3B in savings form layoffs, office closures and the consolidation of its supply line – Original goal of $2.4B for the first year
· Goals after the merger – strengthen market position, improve it competitiveness and to increase shareholder value
· Acquiring Novadigm for $116M – February 2004 – will help boost its Adaptive Enterprise Strategy
· Acquired Consera Software – private held firm – February 2004 - will help boost its Adaptive Enterprise Strategy
· Acquiring Synstar for $300M – August 2004 – British IT company
· Acquiring Snapfish – Online digital photo printing services (No.3 behind Ofoto (EK) and Shutterfly) – March 2005
|
|
Hewlett Packard
Technology:
· Reorganized their low-end printer organizations and eliminating all full time HWP employees for these printers
· New strain of Java with no licensing fees for Sun’s appliance and consumer devices – Sun sued saying not compatible
· Superdome - high-end computer – has 32 processors, next version will have 64
o Twice as fast as their current V-class server
o Their flagship server
· H-P Netaction - Internet Service Software
o Will use Bluestone software to link Java and MSFT operations for a new open platform
· Embedded and Personal Systems – focus on hand-held devices and smart appliance
· Jornada - Hand held device – Has a 6% market share in hand held devices (Palm 60%, Handspring 14%, CPQ 9%, Sony 7%)
· Patents – In 2004, generating 11 patents a day – In 2001 on three patents a day
· Crossbar Latch – New thinking in chip design that uses two stands of Titanium and Platinum at right angles in junctions to help shrink and speed up for And, Or and Not processing
· NonStop Line – Redundant failsafe computing
o Originally developed at Tandem Computers (Compaq) and later collaborated with Intel in 1994
o Employs fail safes and redundancy for systems and servers that need a high reliance of uptime
o Using Intel’s Itanium line of chips
o Servers called Integrity Non Stop Servers and have up to three redundant features
Hewlett Packard
Notables and Stats:
· Revenue breakdown:
· 2001 - Printers/Printing pulled in 43% of overall revenue with 100% of total profits
· 2002 - Image and Printing 43%, Computing Systems 41%, IT-Services 16%, other 3%
· 2003 – 50% Large companies/government, 28% small and medium business, 22% consumer – July 2003
· 2003 – Printers/Printing pulled in 31% of overall revenue with 79% of total profits
· 2004 – Tech solutions – 36.9%, Personal Systems – 30.4%, Image/Printing – 29.9%, Other 2.9%
· Printers:
· Gets roughly 40% of its revenue from printer sales – see stats above
· Printer market share is 42%
· Considered its crown jewel
· Most printers are sold at a loss – the main driver is toner cartridges - 2003
· Huge push into consumer photo printing from 2003 going forward
· Looking to reduce time to print and increasing quality
· Inkjet Market share:
· 4Q2003 – 57.4% (Lexmark 17.5%, Dell 8.5%, Epson 10.2%)
· 2Q2004 – 48.1% (Lexmark 19.3%, Dell 813.8%, Epson 10.3%)
· Full year 2004 – 47%
· 1Q2005 – 35%
· Laser Jet Market Share:
· Q42003 – 45.7%
· Full year 2004 – 38.9%
·
Printer cartridges (Toner):
· HP toner cartridges - 60% gross profit margin and contributes nearly one in every four dollars to H-P’s net profit – 1990’s
· Combined with CPQ – Toner cartridges now 15% of total company revenue
· All of 2002 operating income of $2.4B was produced from cartridges
· Photo printing consumes 20 times more ink than just a regular colored text page
· 2004 Margins:
· Ink jet cartridges – 60%
· Toner – 50%
·
PC’s
· 25% of its sales are from PC’s and PC servers
· PC market share:
· 1998 – 6.0% (CPQ – 13.1%, Dell – 9.5%)
·
Beginning 2003 - 16% worldwide,
· 2Q2003 – Dell 17.8% - H-P 16.2%
· Full year 2003 – 17% worldwide PC market share
· Full year 2004 – 15.6% (Dell 19%)
· 60% of its consumers buy H-P Pc’s at a retail location with roughly 80% of buyers who purchase online, first check out the machine at a store.
· Servers:
· 1998 -
· Server market share:
· In 1999 had 23% of the UNIX market (SUNW had 28%, IBM 18%)
· Intel based server market share – 32% (IBM 18%, Dell 22%) – 2002
· Server world-wide market share:
· Full year 1998 – 14% (IBM 28.8%, CPQ 12.4%)
· August 2003 - No.2 with 27.4% (No.1 IBM – 30.4%, Sun –18.7%)
· Full year 2004 – 27% (IBM 31%)
· Blade Market – No.1 in the blade market
·
Handheld:
· 2002 – 13.5% global market share (Palm – 36%)
·
H-P has greater market share in Europe, Middle
East, and
· Consumer sales – 34% (Dell 29%)
· Fiscal 4th Q00 – failed to meet earnings expectations – first time Carly Fiorina has not meet expectations since she came on board in July of 1999
·
40% of its sales are from
· 4Q2003 – All units reported profitability
· August 2004 – Missed financial forecasts – Three top execs later fired
· 3Q2004 – 99% of profits from printers
Hewlett Packard General Info:
· “They aren’t as well positioned to benefit from any rebound in spending…their overall competitive situation isn’t strong enough.” – Kim Alexy – PRU - 2002
· New tech strategy of service and enterprise computing – “Adaptive Enterprise”
· Enterprise Computing Group (Enterprise Systems) – Corporate computers – Only unit out of their four units that is posting losses in 2003
· Makes Servers, storage devices and related software
· Unit generates about 20% of annual revenue
· H-P server market share – 29.5%
· Returned to profitability in 4Q2004
· H-P’s PC operating cost are almost two times as much as Dell’s
· The must set prices as much as six weeks in advance to allow its dealers and retailers to advertise – thus they are not able to compete rapidly with pricing pressures from Dell
· Printer business is estimated to be worth around $17 to $20 a share of its total share price – November 2003
· My 2004 – Printer business valued at $21 a share which means that the other business almost have no value – Kevin McClosky – Federated Investors
· In 2004 will begin offering Home Electronics such as plasma and LCD TV’s
· August 2003 – Launched 158 electronic gadgets
· “…We have to watch that these other business don’t hurt the printing franchise” – Jason Maxwell – Trust Company of the West”
· Reducing operations to three units from four
· Technology Solutions Group – Will be run by Ann Livermore – Includes computer services, storage, services, and software
·
Hardware and
· Will begin selling Apple’s iPod and promoting Apple’s online music stores – January 2004
· H-P’s iPod will be blue with H-P’s logo on it
· Will install Apple’s iTunes music software on H-P’s consumer PC’s and notebooks
·
Started selling Linux in
· Management and the PC – They’re not too worried about making a profit on computers, they make money selling the printer
· Since the Merger with Compaq - PC profit margins are around 1% in 2004 (Dell’s are around 8%)
· Focusing less on PC market share and narrowing in on profits. “We won’t sacrifice profitability for market share” – CEO Carly Fiorina
· “Focusing on profitability leads to slower growth but it also leads to more consistent results and performance” – Marty Shagrin – Victory Capital Management
· “H-P continues to face question marks over why it isn’t able to drive upside in profitability – Toni Sacconaghi , Sanford C. Bernstein – May 2004
· Structural Reorganization – January 2005 (Under Carly Fiorina)
· Combining the PC and Printing unit together and will be headed by Vyomesh Joshi (Former Vice President of Printing)
· Will still report PC and Printing numbers separately
· June 2005:
· New CEO, Mark Hurd, separating the PC and Printing units – June 2005
· Printing’s CEO will once again be Vyomesh Joshi
· Personal Systems Group - PC, Handheld’s, Monitors, Workstations will be headed by the former CEO of PalmOne, Todd Bradley
· Thus reversing one of Carly Fiorina’s last initiatives
· Carly Fiorina (Carleton S. Fiorina) was given the title chairman in September 2000
· Carly Fiorina replaced Lew Platt in July of 1999
· Ms. Fiorina is the first outsider to run H-P and came from Lucent (She was President of Lucent’s global service provider business)
· She was the main quarterback and cheerleader behind H-P acquiring Compaq -
· Carly Fiorina “vows” to transform H-P into a major player in consumer digital entertainment
· She reduced H-P’s 83 units down to four
· Carly Fiorina ousted by H-P’s board , February 9 2005
· H-P’s Board first relinquished some of her day to day authority to three other executives (Ann Livermore, Shane Robison and Vyomesh Joshi) a few days prior. She first agreed to then changed her mind and would not give up her power and thus forced the board to terminate her.
· H-P’s stock has been down roughly 50% from when she became CEO to her last day.
· Said that H-P’s board thought she had too much power
· New interim CEO is Robert P. Wayman who was a prior CFO and current H-P board member
· Carly was CEO for 5 ˝ years
· Lewis Platt. Former CEO of HP called Ms. Fiorina’s decision to merge with Compaq – she “doubled down on 16”
· Carly was criticized for creating a matrix-management structure that became frustrating and skewed lines of responsibility. She was also criticized for concentrating too much power in her own office and disdainful of the board.
· H-P’s service business – Unit seen as a “Break-Fix” operation where they repair broken hardware and then do some maintenance which does not translate into “growth” or have a reoccurring factor built into it
· “HP’s printing business wasn’t something people worried about before, but now there’s a chink in the armor…if printing profits deteriorate, that could knock the legs out from under HP” Rub Cihra – Fulcrum – March 2005
· CEO Mark Hurd and H-P:
· Mark Hurd became HP’s new CEO on April 1 2005 – Mr. Hurd was CEO of NCR (National Cash Register), named President of NCR in 2001 and became CEO of NCR in 2003
· Mr. Hurd seen as an operations minded executive and experienced cost cutter
· Looking to make $100M in cost cuts mostly through work force reductions and has lowered profit expectations in 2005
· Mr. Hurd claims HP cost structure is “off the benchmark in many areas” – May 2005
· May write down the acquisition of Compaq – If written down, merger will be seen as a failure
· Mr. Hurd is seen as an operations-orientated CEO and wants the merger of HP and Compaq to work
·
H-P and
EMC:
·
H-P
resold EMC equipment from 1995 through 1999 then switched to
·
H-P
paying EMC $325M over five years due to a sales dispute and the two entered a
cross licensing agreement – Announced May 2005
·
2005 and
the direction under CEO Mark Hurd:
·
Separated
the PC and Printing Unit in June 2004 and making them stand alone Units
·
Pushing
and having H-P focus on digital photography and digital publishing and services
for online photography
·
VJ
Vyomesh (President of H-P Printing) – Goal to double printing revenues over 10
years with 60% of their sales to come
from non-core products rather than its jet printer line
·
In 2005
– Non-core printing products represented 20% of printer sales in 2005
·
Possibility
of developing H-P printing Kiosks
·
Focus on
multipurpose printers and better technology especially in digital photography,
large format and online photo services
·
Focusing
on developing Lightscribe – DVD and CD labeling and licensing to drive makers
·
“If
printing profits deteriorate, that could knock the legs out from under H-P” –
Rob Cihera – Fulcrum Global Partners – June 2005
·
Seeing
an erosion in market share for ink cartridge refills and replacements from
Seiko Epson, Canon, Lexmark, and Dell in first half of 2005
·
Halted
reselling iPods for Apple which was formed in January 2004 under Carly Fiorina
– August 2005
·
H-P
accounted for 5% of iPod sales
·
Under
the terms, H-P can’t make or sale a competing style of iPod until August 2006
·
Entering
the consumer printing kiosk business – Announced August 2005
·
Restructuring
of 2005 – Announced July 2005
·
H-P
laying off 14,500 employees or roughly 10% of their global work force
·
Freezing
their
·
Expecting
to save $300M annually in saving switching to 401K plan
·
Looking
to save $1.9B by 2007
·
Most of
labor cuts will be in support functions in IT and Human Resources
·
Dissolving
their Custom Solution Group (CSG) and turning the units with the group into
separate units
·
“What
H-P is doing is reasonable and makes sense…but I don’t feel its ultimately
going to be enough, especially with the underlying mix shifting in pricing” –
Laura Conigliaro – Goldman Sachs
·
Restructuring
in response to their slowing growth and high cost structure
·
H-P
restored in October of 2004 with the layoff of 150,000 employees
Brokerage
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Recommendation
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Sentiment
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Smith Barney |
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UBS |
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Prudential |
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International Business
Machines (IBM)
· “IBM is all about service and high-tech parts”
· Receives royalties from new chip designs and breakthroughs in chip designs
· Claims to have more Java Programming than SUN itself
· Holds five Nobel Prizes
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|
IBM Units:
IBM Global Service Group
· World’s largest business and information technology consultancy and consulting organization
· Group consist of:
· Systems group – Business solutions – roughly one half of system groups sales
· Personal Systems – PC systems, Printing and POS services
· Technology Group – Semiconductor and tech products
· The Asia-Pacific region accounts for 1/3rd of its total revenue of the group
· Revenue and contribution and gross margin:
· 1999 was36.3% of their revenue
· 2000 provided 38% of IBM’s $88.4B in revenue
· 2001 – 40.7% of their $86B in sales and single largest source of revenue
· 2002 – 44.8% with gross margin of 26.3%
· 2003 – 47.83% with gross margin of 25.2%
· In 2001 signed contracts totaled $51B – six contracts of which exceed $1B
· Backlog of Business is a main indicator of the health of the unit
· 3Q2004 – Backlog of $110B
Hardware Group
· IBM eServers, Enterprise Systems, Personal and Printing Systems
· Revenue and contribution and gross margin:
· 2001 - 38.9% of revenue
· 2002 - 33.8% of revenue and gross profit margin of 27.1%
· 2003 – 31.68% of revenue and gross profit margin of 27.8%
IBM Global Financing – World’s largest provider of I/T financing – over $40B in assets
· IBM Credit Corp - Finance arm
· Revenue and contribution and gross margin:
· 2001 - 4.0% of revenue
· 2002 – 4.0% of revenue and gross profit margin of 56.2%
· 2003 – 3.17% of revenue and gross profit margin of 55.8%
Software – Middleware and OS
·
WebSphere,
· Revenue and contribution and gross margin:
· 2001 – 15.1% of revenue
· 2002 – 16.1% of revenue and gross profit margin of 84.4%
· 2003 – 16.06% of revenue and gross profit margin of 86.5%
· Revenue and contribution and gross margin:
· 2001 – 1.3% of revenue
· 2002 – 1.3% of revenue and gross profit margin of 42.6%
· 2003 – 1.36% of revenue and gross profit margin of 43.4%
Expenses – R&D. Selling, General, and Administrative (SG&A)
IBM Market Share:
· In 1999 had 18% of the UNIX market (HWP 23%, SUNW 28%)
· Mainframes only represent 3% or their revenue but they are highly profitable
· Also sells high margin software and services with their mainframes thus influencing more revenue
· Database market share – Oracle 31%, IBM 30% - see table at bottom of page
· Distributed Database market share – Oracle 63%, IBM 10%, Informix 12% (IBM now acquiring)
· 2002 – Oracle – 39.4%, IBM 33.6%, Microsoft 11%
· Server market share:
· No.1 with 30.4% worldwide, H-P No.2 with 27.4%, Sun No.3 18.7%, Dell No.4 – August 2003
· 2003 – No.1 with 32%
· 2000 – Was 23% and IBM’s lowest in the segment
· Blade market share:
· 35% in 2003 (H-P – 31%)
· Middleware:
· IBM held a 31.8% market share for middleware in 2006. Number 2 is BEA with 10.5%
IBM Products:
·
Main Frames:
·
Fijitsu and
· xServers – In 2001 – First full year of revenue growth since 1989
· Market share: z series – 24.6% for all computers costing more than $250,000 in 2002
· eServer zServer – e-business enterprise server – mainframe server
· eLiza – Computer system that adapts to different computing environments and conditions
· Self-managing systems technology for e-servers product portfolio
· E-utility labs
· T-Rex (z 990eServer) – New Mainframe – May 2003
· Cost $1B to develop
· Main frames only contribute about 3% of all of IBM’s sales but delivers 25% of IBM’s total revenue and 45% of profit from the combination of new mainframe sales and software licensing and fees
· IBM mainframes are down (downtime) an average of 8.7 hours a year while NT servers are down an average of 69.9 hours a year
· Name changes: S/390 (now Z series, which cost $1M+), AS/400 (now I series, cost $20,000-$100,000), RS/6000 (now P series, cost $150,000-$600,000), Netfinity (now X series, cost $10,000-$50,000)
· Servers:
· IBM pServers (Unix servers) – iServers (mid range servers) - xServers (Intel based servers)
· Unix servers – pServers - IBM invented the RISC chip
· S80 is the fastest selling UNIX server in history
· Regatta – new energy efficient Unix server – Power 4 chip
· Will be twice as fast and use the same power needs as Power 3 chip
· Currently the world’s fastest UNIX server
· Intel based server market share:
· 2002 - 18% (HP 32%, Dell 22%)
· 2004 - 19% (HP 32.9%, Dell 22.2%)
· Database Software:
· DB2
· No. 2 after Oracle
· Siebel, SAP, PeopleSoft use their database
· IBM beat Oracle for the first time in 2002 in Relational-Database market share with 36% - Oracle 34% - MSFT 18%
· Attributed to IBM’s acquisition of Informix
·
· Storage Tank – software that manages storage devices
· Now called Total Storage File System
· Tracks data of multiple storage area networks
· Unit pulls in less than 3% of IBM’s total revenue
· 2004 – had 20% market share for total “universe” of storage (H-P – 23%, EMC – 14%)
· 2007 – IBM had roughly 14% while EMC had 22%
·
WebSphere:
· E-commerce middleware
· WebSphere – web site manage software – EBay using the software
· WebSphere Everyplace – Mobile phone technology for connecting to the Internet - Based on Java
· WebSphere Commerce Express – For small to mid-sized business
· PC Business:
· IBM introduced the PC in 1981 and was the market leader until 1994
· PC business accounts for 15% of their revenues
· IBM’s research has obtained $1.7B in licensing deals PC sales – 18% of IBM’s $88.4B in revenue for 2000
·
Sold its PC manufacturing operation in the
· No.3 world-wide in 2004 with 5.6% market share (Dell 16.8%, H-P 15%, IBM 5.6%)
·
Sold PC business to Lenovo (Formerly Legend) of
·
Forming a new PC company and will make it No.3
in the world and headquartered in
· Stock will trade in Honk Kong
· IBM will have a 18.9% stake in the company with IBM only reporting gains or losses from its equity stake on IBM’s balance sheet
· Lenovo can use the IBM brand name for five years on PC’s and Notebooks
· IBM will buy Lenovo’s PCs for their own operations and uses
· “The PC business is rapidly taking on characteristics of the home and consumer electronic industry which favors economies of scales, pricing powers and focus on individual users and buyers” – CEO Samuel J. Palmisano who was once head of the PC division – December 2004
· Results on IBM:
· Expected to boost IBM’s overall profit and eliminate the low-margin and capital intensive PC market
· IBM will focus exclusively on large industrial and government projects
· “We’ll wrap IBM financing and services around Lenovo’s hardware” – CFO Mark Loughridge - December 2004
· Stephen Ward – Will be CEO of new combined entity which will launch in the second half of 2005
· “Like any product in the world, it’s a commodity until someone finds a way to make it better”
· Mr. Ward ran was the general manager of IBM's Personal Systems Group and a 26 year veteran at IBM
· PC Unit had been unprofitable since 2001 with total losses from 2001 to June 30, 2004 of $965M
· IBM is the biggest producer of application specific circuit chips
·
· MQ Series messaging software – business integration software
· Content Management Software – for unstructured databases for digital content
· Lotus Notes – “Office” style suite
· E-sourcing – Delivering complete service online
· Outsourcing your IT needs including storage, processing, the applications, systems management, security, load balancing – all provided over the internet
· Graphic Chips – makes graphic chips for NVidia and the Nintendo Game Cube and co-designing chips with Sony for PlayStation 3
· Power4 chip – First chip with two processors on a single silicon wafer – released in 2004
IBM Notables:
· Somewhat insulated from economic turns because about 40% of their revenues are back logged
· 2000:
· Had a 13% pretax profit margin and a 39% return on equity with $88.4B in revenue and $8,100M in net income
· Spent $5.15B or 5.7% of revenue on R&D
· IBM’s semiconductor unit had $3.5B in sales to external customers
· Overall gross profit margin of 36.7%
· 2001:
· Had $6.4B in cash and equivalents
· Debt level of $27B – 94% of it attributable to Global Finance Business
· 10% of revenue was booked as “percentage of completion accounting”
· 2002:
· Service pulled in $36.4B in revenue – 45% of IBM’s total sales
· Software and Service combined pulled in 61% of their revenue
· 2003:
· 50% of its sales were in the form of foreign currency
· Software division contributed to 35% of its pre-tax income in 2003 while Finance division represented 11%
· Geographic breakdown as percentage of sales in 2003:
·
·
Europe/Middle East/
·
· OEM – 2.96%
· 2005:
· Expects 33% of operating profit will come from services – hardware and profit from servers and PC’s to just 10% of overall profits
· Focusing on Eastern Europe which is seen as high growth and just beginning to enter the IT age
· 2006:
· International revenue was 61% of IBM’s total revenue.
· 2007:
· 60% of IBM’s profits are derived from recurring revenue from long-term service contracts and software licenses.
· At the end of 2007, IBM had roughly $16B in cash.
· International revenue was 63% of IBM’s total revenue.
· 22% of IBM’s revenue came from developing countries.
· Growth is Asia was strong. In Asia, except for Japan, growth was 20% with profits rising 40%.
· 2007 Service-deal backlog at the end of 2007 was $118 billion.
· IBM’s financial Sector accounted for 28% of its business in 2007.
IBM’s Acquisitions, Alliances, Divestitures and Stakes
and Contracts:
· Lotus in 1995 for $3.5B – has a 52% market share for integrated collaborative environments
· Acquired chip maker CommQuest Tech, more efficient, more compact wireless products, CommQuest makes chips for cell phone and radio and satellite
· Acquired commercial outsourcing business of GE capital – Unit manages computer centers and does the tech work for about 30 major corporate clients
· Signed a 10 year agreement to manage GE capitals own mainframe and midrange computer network
· Sold Printer Division (Lexmark)
· Sold PC division to Lenovo – December 2004
· Informix’s database software unit for $1B – July 2001
· Doubled IBM’s database business incorporating it into DB2(a) Universal data base
·
With Seiko Epson – Joint semiconductor making
operation in
· With Peregrine Systems – IBM will sell Peregrine’s services and will host their infrastructure services
· Peregrine now in bankruptcy
·
Merged their hard drive unit into a joint
venture with
·
·
· IBM No. 3 disk drive maker – Hitachi No.4
·
Acquired the consulting arm of
PricewaterhouseCoopers for $3.9B (PwC Consulting) – October 2002
·
Rational Software for $2.1B – makes software
development tools – February 2003
·
Contracts – some highlights:
·
Contract with NTT Telecom of Japan for $15B and
10 years for computer service
·
2002 - American Express paying IBM $4B for 7
years to manage their technology operations
·
JP Morgan - $5B from 2003 – 2010
·
JPM terminated contract September 2004
·
Deutsche Bank - $2.6B for 10 years
·
Talking to Qwest
· Six year $1B service contract with AXA of Paris
·
$679M ten year contract with Bank of Singapore
·
With Sprint – IBM to take over many area of
Sprint’s wireless customer service operations – five year contract – Announce
February 2004
·
Won contract for the University of Pittsburg
Medical Center in April of 2005 that is worth $352M a year for eight years
·
Candle Corp. – estimated cost of $350M to $600M
– June 2004
·
Will be added to
·
Candle had $207M in revenue in 2002
·
Daksh eServices – an Indian call center for
around $100M to $150M – April 2004
·
Venture with Eastman Kodak producing image
sensors for digital cameras – September 2004
·
Danish Deals - $1B ten year deal with two Danish
companies, Danske Bank Group, and A.P. Moller-Maersk Group – Announced December
2004
·
Joint venture with China Great Wall Computer
(IBM will have an 80% stake) to make servers with the venture making IBM’s e
Server x Series for the Asia/Pacific region as well as the OpenPower Server –
announced December 2004
·
Systems Research &Development which makes
software for sharing security sensitive databases used in homeland security and
casinos – January 2005
·
Ascential Software for $1.18B representing an
18% premium – March 2005
·
Ascential makes back-office software and had
$272M in revenue in 2004
·
From 2001 to March 2005 – IBM has acquired 231
software companies
·
INVENT (International
Venture for Nanolithography) – Consortium of companies including AMD, IBM,
Infineon, and Micron with R&D on Nanolithography – Announced July 2005
·
Each company
contributed $50M in a $580M research project based at Nanotech (An Affiliate of
SUNY- Albany)
·
Acquired Cognos
for $4.9B
·
XIV – Israeli
storage technology company with deep roots in the disk drive industry. –
January 2008
·
IBM paid
roughly $300 million, terms were not disclosed on the private company.
·
XIV is headed by
Moshe Yanai who designed EMC’s storage disks in the 1990’s.
·
Mr. Yanai is
credited with taking IBM’s market share from 80% to 35% by designing rival
EMC’s disk storage architecture in roughly a five year period.
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IBM’s Technology and Breakthroughs:
· Chips Technology:
· Made the copper chip used in Apple Power PC 750 and the K6 chip for AMD in the 1990’s
· Perfected 1999 - at the time was 35% faster than all other chips
· Has 30 new patents on SOI and will gain all royalties
· Uses plastic packages to route communication on and off chips
· Developed semiconductor chips that extend the battery life in hand-held devices – laptops could be in standby for years without running down the battery – with Infineon Technology
· Silicon Germanium Chip - SiGe
· Has developed the world’s fastest silicon transistor at 210 GHz – uses silicon germanium
· Low cost and super fast speeds – IBM has 80% of the SiGe market
· Can handle both digital and analog processes
· New chip technology that will be able to spend multiple streams of digital video, etc and will go into Sony’s new game consoles that will be released early 2006
· Uses groups of data that contains certain programming code that can be sent over a network to eight “synergistic” processors
· Uses Rambus Technology
· Mercury Computer using IBM’s new Cell microchip and is IBM first Customer for the Cell – Under a five year contract announced June 2005
· Cell will be used in Sony’s PlayStation 3
· Raytheon, and Boeing said to be looking at the Cell
· Circuitry:
· First to make chips 1/400 the width of human hair or .25 microns
· Uses completely new architecture and circuit design, produces no extra heat and uses conventional testing methods
· July 2002 – Created the world’s fastest semiconductor circuit with speeds over 110 GigaHertz
·
With Xilinx – Manufacturing technology for 90 nm
circuitry – Claims to be superior to Intel’s “
·
Display technology that makes the screen as
sharp as an original photograph – has 9M pixels compared to today’s standard of
780,000
· Magnetic Random Access (MRAM) – stores bits of data with a magnetic charge instead of with electronic charge
· IBM is the leader in developing this technology
· Will be able to store more info with less battery drain
· Electronic Media Management System – uses super distribution to allow digital content to be controlled by the author and have varying characteristic to its use – used with MP3’s, video, etc
· Disk-drive technology
· Using ruthenium layers in disk drives that will quadruple disk drive capacity in two years
· Invented the disk drive in 1956
·
Sold its disk drive unit to
·
Eye scanning technology - With Schiphol Group ––
Biometrics – Will go in
· Carbon Nanotubes
· Outperforming silicon and plans to use them heavily in the future after silicon is at its max
· “Earth Simulator” – Named Asci – purple - $290M contract with the energy department for the new super computer
· Will operate at 100 teraflops – the speed of the human brain
· IBM’s patent portfolio takes in more than $1B a year in licensing revenue
IBM General Info:
· CEO Succession:
· Samuel J. Palmisano – Replaced Louis V. Gerstner Jr. on March 1, 2002
· Louis V. Gerstner Jr. replaced John Akers in 1993
· Making a huge commitment to Linux
· Believe success going forward will require open platforms
· Now selling Linux computers
· Web Hosting
·
230 data centers worldwide - Has a 245,000 sqft.
Web hosting facility in
· One of the world’s largest hosting companies
· Spending $4B to add 50 hosting centers worldwide for its E-sourcing hubs
· E-business hosting centers
·
Invested $5B and built a $2.5B semiconductor
plant in
· Manufacturing the 3000nm wafer
· Middleware – Sees value shifting from the OS to middleware which links all kinds of servers and all the applications with every kind of client device
· Invested billions to create a set of open products that work with every leading platform
· Believes middleware is growing at a 14 annual rate
· Helps customers integrate their applications and processes
· 40% of the software marketplace is middleware
· 2001 – 1st company to receive more than 3000 US patents in one year
· Ended 2001 with its lowest inventories since 1983
· Licensing from patents and other intellectual property brought IBM $1.5B in revenue in 2001
·
With Sanmina – Sanmina will produce their
low-end servers and take over their plants in
· IBM Service Unit
· Former head of Service Unit, John Joyce, left the unit in 2005 to join Silver Lake Partners – A venture firm
· Unit now run by Mike Daniels (IT and Outsourcing) and Ginni Rometty (Consulting and business services)
· Unit saw poor results from lack of demand in 1Q2005
· Intel based server market share – 18% (HP 32%, Dell 22%)
· SAP generates more than $1B of revenue for IBM annually
· IBM beat Oracle for the first time in 2002 in Relational-Database market share with 36% - Oracle 34% - MSFT 18%
· Attributed to IBM’s acquisition of Informix
· With Cisco – new software to manage multiple disk drives as a single unit
·
Contract with Sparkasen Informatik of
· Merged its chip business into the server business – Executives bonuses in the Chip Unit depend on server results – June 2004
·
East Fishkill Chip Plant,
· “The reason we have chip plants is because were in the systems business” – Bill Zeiter, IBM server chief
· Plant posted a $252M loss in 2003 and hasn’t posted results since
· 2005 – IBM claims plant is running at full capacity
· Building chips for Nintendo’s Game Cube, Sony’s PlayStation (Including the new PlayStation 3), Microsoft, Sun, AMD, and NVidia
· One third of the plant’s capacity is dedicated to IBM’s own chips
· Builds Apple’s PowerPC chip (IBM and Motorola (Freescale) designed the chip)
· June 2005 – Apples announced they’d discontinue the use of IBM’s chips in favor of Intel’s
· Sales to Apples only represented 5% of IBM’s total chip sales
· Restructuring:
· Restructured in 2002 (recorded a $2.1B pretax charge) with the exit of its hard drive business and downsized chip business
· Restructuring in May 2005 and will have a $1.3B to $1.7B pretax charge
·
Cutting up to 10,000 jobs mostly in
· Increased the number to job cuts to 14,500 and will take a $1.7B charge
·
Restructuring mostly blamed on troubles in
Europe especially
·
Microsoft
and IBM agreement – Microsoft paying IBM $775M and giving IBM $75M in Microsoft
software – July 2005
·
Suit
claimed that Microsoft overcharged IBM and used discriminating pricing
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Merrill Lynch |
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JP Morgan |
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Morgan Stanley |
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· World’s biggest distributor of PC’, accessory products and supply chain management
· Takes partially completed PC’s from CPQ and IBM and finishes then when orders come in
· Channel Assemble – stores machines that have everything but processors and memory which are most susceptible to price volatility
· Can never match Dell but it is a good technique
· Plant capable of churning out 2M PC’s a ear
· Stocks about 145,00 different products from PC’s, peripherals, printers, scanners, and telecom equipment
· Rival – Merisel
· Gross margin of 5.28%
· Lowest debt to capitalization in the IT distribution industry
·
Ingram Micro
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Iomega (IOM)
· Storages solution based on removable-media technology for home and office computers
· ZIP drives, Jazz Drives, External CD-RW drives
· HDD Portable Hard Drives, HDD External Hard Drives
· NAS Servers – UNIX and Windows
· QuickSync software – Automatic Backup Software
· Continuous back-up of data on Zip disks and other Iomega media
·
Peerless – First out summer 2001 and will store
10 gigs to 20 gigs
· Designed as a portable hard drive
Iomega Notables:
· 1997 - 65% of its $1.73B sales came from its Zip drives
· Iomega makes most of its money on the sale of the disks
· 1stQ1998 - Loss of up to $25M in
· Went on a $100M advertising campaign in 1998
· Victim of rapid growth
· Sales to Ingram Micro represented 16% of total sales in 2001
· 2001 - Saw a 36% decline in revenue and a loss of $93M or $1.74 a share
· Gross margin of 31%
Iomega General Info:
· Had a hard time obtaining and holding on to CEO’s
· On new CEO “ We need different managers at different stages”
· CEO Kim Edwards resigned (GE vet) 3/26/98
· Followed by Bruce Albertson who resigned May 2001
· New CEO Werner Heid
· Competitors – Syquest – and the advent of CD burning and DVD burning
· Competition from traditional hard drive manufactures and inexpensive Asian manufacturing facilities
·
Nomi SA, France, trying to sell zip compatible
disk drives at 30% less – IOM facing stiff legal bills to keep their product
off the market
·
1 for 5 reverse stock split September 28, 2001
·
Moved headquarters to
·
Discontinued Jazz drives, HipZip, FotoShow,
PocketZip, Microdrive, CompactFlash, SmartMedia memory cards
·
Working on a new disk the size of half dollar
that can store 1.5Gigs and cost less that $10 each
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i2
Technologies (ITWO.pk)
(ITWO)
· Supply chain deals with materials flowing through manufacturing to finished products
· Focusing on Value Chain Management
· Forecasts the demand as well as influencing demand based on available supply
· Software locates inefficiencies anywhere in the distribution and production cycle
· Products: i2 Supply Chain Management, i2 Supplier Relationship Management, i2 Customer Relationship Management, i2 Content and TradeMatrix Open Commerce Network
i2 Notables and Stats:
· 39% of business from the high tech industry, 21% CPG & apparel, 15% automotive, metals & paper 10%, other 16%
·
62% of business from US, 15% Asia Pacific, 20%
Europe, Middle East,
· End of 2001 - $726M in cash and equivalent and no short term debt
· Revenue breakdown in 2001
· Software licenses - 46.4% - was 63% of revenue in 2000
· Service - 32.6%
· Maintenance - 21%
i2 General Info:
· Historically did end-to-end supply chain management
· “Stair casing” the supply chain – tailoring it point to point
· Has an online marketplace
· Bought the rest of iStar Systems that it already doesn’t own - online auto parts exchange
· Nike had an embarrassing public complaint against i2 in 2001
· Claimed their software resulted in massive tie ups and loss of revenue
· Working with webMethods and using their software in their applications
· i2 Five.Two – Designed to give companies an integrated family of modular solution that can be rolled out incrementally
· Paying $10M to the SEC for inflating their revenue by $1B – June 2004
· Makes software to store files, manage, move, and protect data on networks
·
Legato is No.3 in backup and recovery software
(No.1 Veritas, No.2 IBM)
·
Acquired by EMC Corp for $1.3B – July 2003
· Will leave Legato as an independent division
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JP Morgan |
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Bear Stearns |
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Lehman Brothers |
Maxtor (MXO) (MXTR)
Three Product Groups:
Maxtor Products:
· Desktop PC and Workstation:
o Fireball drives, DiamondMAX drives
·
o MaXLine Family of ATA hard disk drives
o Atlas – For high-bandwidth applications
· Maxtor Personal Storage – External plug and play storage devices
· Maxtor DV Producer – Video editing package
Maxtor General Info:
· Maxtor once 48% owned by Hyundai
· Acquired Quantum’s disk drive business for $1.3B in April of 2001
· Quantum is No. 1 supplier of hard drives in PC’s - all of their drives are built by Matsushita Kotobuki Electronics – specialize in low end drives
· With Quantum, Maxtor will be the world’s largest disk drive company
· Acquired MMC Technology in September of 2001
McAfee (MCAF)
(NET)
·
Virus
protection and firewalls
·
Merged
with Network Associates
·
See
Network Associates below
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Smith Barney |
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JP Morgan |
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CSFB |
McAfee (MFE) (NETA)
· Formed from the merger of McAfee Associates (MCAF) and Network General Computer (NETA) in 1997 for $1.3B
· Renamed the company Network Associates (NET)
· Changed name in 2004 from Network Associates to McAfee and ticker (NET) to (MFE)
· Network Associates owned 75% of McAfee prior to the merger
· Security and management software
McAfee Products:
· McAfee anti-virus product line
· 4.5M online subscribers – May 2004
· Has a 15.3% market share (Symantec – 64% market share)
· July 2004 – 5.4M total subscribers
· Sniffer Technology – for network and application management solutions
· Strong driver of revenue
· Magic Solutions – IT resource management
· Service desk, software distribution, PC self-healing features, along with asset, change and configuration management
· Remote connectivity
McAfee General Info:
· See Network Associates below for older information
· Acquisitions:
· Trusted Information Systems
· Secure Networks Inc.
·
Dr. Solomon’s Group
·
Acquiring Intruvert Networks for $100M – Hardware and software for firewalls – April 2003
·
Acquiring
Entercept Security Technology for $120M – Makes software for servers – detects
hackers and worms using “signatures”
·
McAfee buying
Foundstone For $80M – August 2004 – Network Security company
·
Jan 2001 – Chairman William Larson , President,
COO, and CFO all quit
·
Sniffer – Troubleshooting computer network software
·
Selling
Sniffer to
·
Will be
renamed Network General
·
March 2003 – Restating 1998, 1999, 2000 again –
The second time of having to restate these years
·
June 2003 – Former VP Terry Davis found guilty
of fraud and overstating revenue
·
Selling
its computer-network management division
·
McAfee
Subscribers:
·
6.3M –
3Q2004
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William Blair |
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Mercury Computer Systems
(MRCY)
· Computer systems for digital signal and image processing:
· Takes streams of sensor data and translates it into visual real-time information and data
· Specializes in computers for military radar
Segments:
· Medical Imaging
· MRI, computed tomography (CT), digital X-ray, positron emission tomography, ultrasound, and digital cardiology modalities systems
· Defense Electronics
· Processing of real-time radar, sonar, and signal intelligence data
· Customers include Lockheed Martin, Northrop Grumman, Raytheon, British Aerospace, Boeing, General Dynamics, TRW
· Wireless Communications
· Focusing on base stations (cell towers) and incorporating sophisticated algorithm programmability and I/O flexibility to expand the wireless spectrum, bandwidth, and signal processing capabilities
· Video and imaging processing
· Audio and video image compression, decompression, and reconstruction
Mercury General Info:
· Radar and Sonar signal processing
· Medical imaging customers include GE Medical Systems, Philips Medical Systems, Siemens, and Marconi
· Computer systems based on RACE++ switch fabric architecture
· PowerPC microprocessors (RISC) – reduced instruction set computing
· Outperform DSP – Digital signal processing chips
· RapidIO architecture
· Developing with Motorola
· Switch fabric interconnect architecture for chip-to-chip and board-to-board communication
· Medical applications is their growth engine while military electronics is a huge part of their business
· Using IBM’s new Cell microchip and is IBM first Customer for the Cell – Under a five year contract announced June 2005
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Merrill Lynch |
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Microsoft (MSFT) Seattle, WA Pres Steve Ballmer http://www.microsoft.com/
· IPO March 1986
Microsoft Core Groups:
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Microsoft Acquisitions, Stakes and Alliances, etc:
· Acquired Mongo Music for $65M – music search engine
·
Acquired
· Makes accounting, financial, payroll, and inventory software for small business – bCentral business applications
· Acquired NCompass Labs of Canada for $36M – manages web sites
· Acquired Navision - May 2002
· Bought Bungie Software and Digital Anvil – both game developers - Bungie makes “Halo”
·
Sold its
Expedia Travel Service to
· Acquired PlaceWare For $200M – January 2003
· Service that lets remote groups view and work on a single project and talk in a “conference call” style
· Joint Ventures:
· Joint venture with Ericsson to develop mobile e-mail software for cell phones – will integrate MSFT’s exchange client with Ericsson’s phone infrastructure – Called Ericsson MSFT Mobil Venture – MSFT has a 30% stake – Ericsson – 70% stake – will launch Jan 2001
· Joint venture with DELL, and Unisys to build voting computers and machines
· Signed software development agreements with Wipro and Infosys of India – November 2004
· Working SAP to collaborate on the two companies competing “office” product offerings – Announced April 2005
· The two companies will integrate the “Office” suite with mySAP suite so that products such as Outlook can be fully integrated with SAP’s Time Management System
· Five year partnership with AT&T for delivering messages and video conferencing over networks across multiple platforms
· Stakes:
·
Invested
$135M in Corel which later can be turned into a 25% stake
·
To work
with MSFT on .Net strategy
· Corel owns WordPerfect which it bought in 95’ from Novell for $124M
· CheckFree - has a 11.3% stake in – financial processing software
· Groove Networks
·
Sendo Holdings of the
· Minority stake in TWX/AOL’s Road Runner – high speed cable internet access
· Has invested $1B in Comcast, $15B in AT&T
· With the merger of AT&T Broadband and Comcast – Will give Microsoft access to cable
· Taking a 10% stake in Immersion Corp. – July 2003
· Buying the rights to SCO Groups Unix technology – MSFT will license SCO’s UNIX patents and source code
· Sold its stake in Telewest Communications for $5M in May 2003 – In 2000, the stake was worth $2.6B
·
Acquiring
· Secret talks in 2003/2004 with merging with SAP – Bought to the public light in June of 2004
· Ended with a major cross licensing agreement with the two sharing trade secrets and allowing the integration of Office with the SAP platform
· Acquiring Sybari Software estimated in between $140M to $180M – February 2005
· Sybari specializes in spam and virus software development in big email systems
· Looking to buy Claria (formerly called Gator Corp) – Large Adware firm who makes Gator – Rumored in June of 2005
· Microsoft has their eye on Claria’s “behavior link” network which puts ads inside web browsers instead of pop-up
· Acquiring FrontBridge Technology within estimated price of $150M to $180M
· FrontBridge specializes in email management and protection for wireless users and will work with Microsoft Exchange Software
· Claims to be in an acquisition mood from 2005 to 2007 and looking at companies in the $300M to $500M range going up to $1B to $2B to help fill out their lines
Microsoft Office Suite:
· Office is Microsoft’s second largest business unit after Windows
· Office commands nearly 90% of the market for such software suites
·
Largest source of MSFT’s revenue – around 33%
·
29% of MSFT’s sales at year ending June 30th
·
Second
largest business behind Windows
·
Office 10 – changed name to Office XP – Launched
May 2001
·
250M plus corporate PC’s use Office – called
their “installed base”
·
Estimates 400M people use office worldwide
·
The future revolves around licensing and upgrade
fees
·
Office System 2003 – out late 2003
·
11th version of office since 1990
· Office 2007
· Working SAP to collaborate on the two companies competing “office” product offerings – Announced April 2005
· The two companies will integrate the “Office” suite with mySAP suite so that products such as Outlook can be fully integrated with SAP’s Time Management System
· Will be called Mendocino
Microsoft Windows:
·
Windows
is Microsoft’s largest business unit
·
Next versions
of windows will also power digital TV sets – set top boxes
·
2001 –
Windows had 94% market share of PC OS – Linux 2.7%
·
Windows
2000 – called Whistler – completely new underlying platform – now called
Windows XP
·
XP
released October 25th 2001 – needs 128 megabytes of RAM
·
Runs on
NT base core
·
“XP” =
experience
·
Window
Vista (Longhorn) – Similar to “
·
New file
system and may not be compatible with older and other 3rd party
programs
·
Will not
contain WinFS – Data Storage format – Announced 2004 but will be included in
later versions
·
Stress
on “Integrated Innovation”
·
Incorporating
a seamless search function all across the Internet and all PC applications
·
Features:
·
Avalon –
3D icons that reveal info about the underlying program/object
·
Indigo –
Developer tools for Internet ecommerce and PC sharing
·
“Info-cards”
– Info that contains users passwords other personal info for purchasing goods
on-line
·
New
style of document viewer to compete with Adobe’s PDF
·
Not
expected to ship until 2006
·
Switched
name from Longhorn to
·
Windows
Sever 2003 – Release date April 24th, 2003
·
XP
Starter Edition – Stripped down XP version for developing countries that will
cost much less – Launching October 2004
·
·
Microsoft
will record revenue all
·
Windows
Market Share:
·
PC’s
·
2003 –
Windows – 94.4% (Linux 2.6%, Mac OS 2.7%)
·
Server:
·
2003 – Windows
– 61.6% (Linux 18.5%, Unix 11.2%, Novel Netware 8.81%)
Microsoft Business
Solutions:
·
·
·
Accounting
and Finance, Analytics and Reporting, CRM, E-Commerce, Human Resources,
Manufacturing, Project Accounting, Retail Management, Supply Chain Management
·
bCentral
– portal – online services for small business
o
Offers
Customer Leads, E-mail marketing and List Builder, Search Engine Submissions,
Web Hosting and E-mail, E-Commerce, Appointment Scheduling and Manager
·
Axapta Software
– for corporate customers with 5000 or more employees
·
Consumer
Relationship Management Software – helps companies monitor customer and track
their purchases
Microsoft Products
and Initiatives:
·
C# (C
Sharp) – Alternative to java
programming
·
MapPoint
Location Server – Cell Phone
software using cell phone signal for mobile tracking – Motorola using tech on
some of its phones
·
Microsoft.Net – Their Internet initiative
·
“Hail Storm” – Internet service which uses an IM
for notification and reminders
·
Will use “Passport for single sign-on’s and will
be compatible with many OS’s
·
Designed to help consumers manage their
interactions on the web
·
Will have a prepaid “wallet” for online payments
·
Hailstorm initiative Shuttered – Early 2005
·
Dropped in favor of using “Info-cards” in
Window’s new version, Longhorn
·
Visual Studio.Net – for building web based
programs
·
Cornerstone of MSFT’s .NET strategy
·
Lagging behind JAVA
·
Uses C#
·
Mobile
Phones, PDA, Gadget software etc.
·
Windows CE – Now called Stinger
·
Allowing Intel, MIPS Technology, and ARM
Holdings to modify the source code of Windows CE
·
Windows/IE
explorer for cell phones – wants to transform the cell phone into a
programmable computer – Competitor is Symbian’s “Pearl”
·
Windows
CE Market share:
·
3Q2003 –
41% (Palm 46.9%)
·
3Q2004 –
48.1% market share of the 2.8M PDA shipments worldwide (Palm 29.8%)
·
Pocket PC
·
Operating system for cell phones and hand held
devices
·
Only H-P, Casio, and Compaq use their OS
·
Market share:
·
Palms OS has an 87% market share – Pocket PC OS –
12% - 2000
·
July 2003 – Palm 54% market share, MSFT 38%
·
“Merlin”
- Pocket-PC 2002 – released October 4th 2001
·
Has spent $300M on R&D for Merlin
·
Microsoft Mobile – New name for mobile OS
·
Working with Flextronics to make a new line of
phones using their “
·
Alcatel will use Microsoft’s software for video
phone communication – Alcatel previously used its own software – Announced
March 2005
·
Symbian now will use licenses for Microsoft’s Exchange software for some of its
email services
·
MSN has
around 9M subscribers
·
Has
10.2% of the dial-up market share
·
MSN
first full year of recording a profit – June 2003 to June 2004
·
MSN
Spaces – Free Blog offered on MSN
·
MSN
·
Plans to
launch in Spring of 2005
·
Search
Engine: Yusuf Mehdi – Head
of Microsoft Search
·
Previously
used Yahoo for search results – developed their own search capabilities in 2004
·
Formal
release – January 2005
·
Unit
took 20 months and $100M to develop their search engine
·
Why are
they now enthusiastic about search?
·
Search
is the second most popular activity behind e-mail
·
With year
ending June 30 2004 – Microsoft pulled in $360M in search related revenue
·
“We will
catch up and surpass” – Steve Balmer on Microsoft’s entry into Search
·
Using
Overture Services (Yahoo) for paid inclusions (Ad placement within results)
·
SharePoint – Allows employees to create a
web portal site in which they can collaborate and communicate real-time – Links
Office, Word, Outlook, Etc.
·
Smart
Displays – With
Viewsonic - Similar to “Tablets” but
aimed at consumers
·
Software
for Servers/SQL Server –
Database that completes with Oracle
·
New
version called “
·
Stores
dissimilar types of data in one place
·
2004 –
Microsoft’s third largest revenue generator with roughly $12B in annual revenue
·
Tablet – Laptop with a writing stylus so you can
write notes on the screen – Cost will be $2000+
·
“Mira” –
similar to tablet but less powerful - $500 - $1000
·
“Lonestar”
– New tablet version out 2004
· MSFT invested $15B in AT&T and was awarded a non-exclusive agreement to supply around 10M set-top boxes for AT&T
· MSFT had to push back the release date till the end of 2000 for delivery – AT&T got mad and went with Liberate Technologies interactive TV set-top boxes instead of MSFT’s
·
Liberate Tech’s software runs on a Motorola PCT-5000
set top box - Provides enhanced programming, email, chat functions
·
Has
invested $10B into cable TV
·
Ultimate
TV – Web TV – had 1M+ users in the early 2000’s
·
Had two
TV tuners and a hard drive
·
Microsoft
shut down Ultimate TV – March 2002
·
April
2002 – Restructured its TV unit and moving away from TV software – “ It’s been
a nine year frustrating process” – MSFT Mr. Mundie
·
New
focus on a programming guide and “
·
Connects
many TV’s and Computers together in the home
·
Microsoft’s
TV Initiatives:
·
MSN TV –
Set-top box that allows users to connect their TV to the Internet
·
“They
have a history of ten years of banging on the door and getting nowhere” – Josh
Bernoff – Forrester Research
·
Microsoft
now working with telecom companies in 2004 to deliver TV content
·
“Foundation”
Software – Software for digital set top boxes – new entry for 2004
·
Acts
similar to an OS system for digital set-top boxes - Internet Protocol TV
·
“This is
going to fundamentally change people’s perception of TV” – Moshe Lichtman, VP
of Microsoft TV on Foundation Software
·
Allows
delivery of video on demand through broadband connections, search capabilities,
software updates, interactive games including card games, and ability to change
content
·
Third
party vendors will be able to add their programs within the OS directly in the
set-top box
·
Comcast
is the only cable company using the software and only uses it in Microsoft’s
home town of
·
Won
contract with Comcast to supply set—top boxes using Microsoft software to their
subscribers – May 2004
· Comcast using Microsoft’s Foundation software
·
Wolfpack - for ensuring the reliability
of databases and other app’s on NT
·
X-Box/Video
Game Unit (Home Entertainment Division) – Gaming devices and software titles
·
Electronic
Arts will be developing most of the games – Sega has signed on now as well
·
X-Box
launched Nov 8 2001 and included a hard drive
·
Most
popular game, Halo, released November 2001 with the X-Box launch
·
Halo has
sold over 5M units as from 2001 to 2004
·
Halo 2
released November 2004
·
Flextronics
producing the X-Box
·
X-Box
Sales – Sold over 20M units
·
Cost
Microsoft roughly $700M in 2001 for development or about 3% of their revenue
·
X-Box
Unit has never turned a profit and has lost roughly $1.2B a year on the unit in
2003 and 2004
·
Microsoft
looses about $100 on every X-Box sold
·
Plans to
spend $2B from 2003 to 2008 on the X-Box
·
X-Box
360
·
X-Box
360 is the successor to the first X-Box and was previously thought to be named
Freon/Xenon
·
Will
have TV capabilities and being able to pause live TV and record shows
·
Thought
to be launched in 2004 – Delayed until late 2005
·
Launched
November 2005
·
X-Box
live – online capabilities – out November 15, 2002
·
Sold
only 274,000 X-Boxes in
·
No. 2
game platform in Europe and the
·
With the
release of Halo 2, Microsoft videogame unit will enter the black for the first
time
·
Sold
6.3M copies of Halo 2 from November 2004 to the end of January 2005
·
Home
Entertainment division has had $4B in operating losses from 2001 to May 2005
attributed mostly to X-Box
·
Head of
X-Box – Robbie Bach
·
X-Box-360
– considered a flop in
Microsoft Notables:
·
Near total dominance of desktop “productivity”
software
·
31% of
its revenues come from Europe, Asia, Middle East, and
·
70% of
their revenue from desktop software
·
Cash:
o
2002 -
$40B in cash
o
July2003
– $49.05B
o
October
2003– $51.6B in cash
o
March
2004 - $56.4B
o
2005 -
$40B in cash – each month pulled in nearly $1B in free cash flow
·
2000:
o
Derived
20% of its revenue in 2000 from server software
o
December
2000 – issued its first profit warning since 1988
·
4Q2002 –
60.22% market share for OS systems for servers (UNIX 14.72%, Linux 13.95%,
Netware 9.3%, Others 1.79%)
·
January
2003 – Announced it would offer its first dividend of 8 cents effective March
2003
·
From
1995 to 1999 – Had revenue growth of 34% with profit growth of 52%
·
From
1999 to 2003 – Had revenue growth of 13% and flat profit growth
·
Year
ends June 30
·
Microsoft’s
own forecasts are usually very conservative compared to the street’s so when
Microsoft seems optimistic, listen.
·
When unearned
revenue is strong at Microsoft, it’s a strong indicator that spending by
businesses on technology is gaining momentum.
·
2007 –
Roughly 60% of its revenue was from outside of the U.S.
Microsoft General
Info:
· Co-founder Paul Allen bought Marcus Cable CO, biggest privately held cable TV system
· Vulcan Ventures – Paul Allen’s Investment/Venture vehicle
·
September
2000 – Paul Allen stepping down off the board
·
Bill
Gates has a 12.3% stake in Microsoft – was 20% in 1999
·
Companies that were started by people who left
Microsoft:
·
Ignition Corp (Venture Cap), CrossGain (XML
software), ViAir (Software for wireless phones)
·
On Leave, Checksafe (online payment), digiMine
(data mining), Avogadro (wireless notification)
· 360 Networks, Tellme Networks (stock quotes, games scores, etc. over the phone)
·
MSFT business leadership team – small group of
elite people who advise Ballmer on strategy and major business issues
·
“The server side is where the growth is going to
come from…The PC desktop story is a 1990’s story”
·
Shifting
towards a revenue model based on subscriptions and recurring fees for their
software products
·
Soon
will become a collection of six loosely related companies with six different
cultures and six different distribution methods
·
“Linux
is our biggest threat” – Ballmer
·
With the
merger of AT&T Broadband and Comcast – Will give Microsoft, with its $16B
investment in the two companies, access to cable
·
Head of
Microsoft Europe – Jean Philippe Courtois
·
Music/Music
Downloads:
·
Browser
war – May 2003 – MSFT paying AOL (Netscape) $750M and giving AOL Internet
Explorer seven year of free royalties for AOL users – Both will now collaborate
with digital rights
·
Litigation
- Notable lawsuits against Microsoft:
·
EU
regulators claim Microsoft is abusing their power and needs to allow source
code to be accessed by competitors for servers
·
EU wants
Microsoft to sell Windows in
·
EU fined
Microsoft $612.7M – a record amount for a single company – March 2004
·
Fine now
up to $643.5M and Microsoft now has to sell Windows without Media Player and
must share their code
·
On
Appeal in Luxemburg
·
Appeal
failed – December 2004
·
Microsoft
must offer Windows without Media Player and share some of Windows code
·
January
2005 – Offering Windows without Media Player in the EU and allowing access to
some source code
·
March
2005 – Fine now $660M
·
June
2005 – Working with the EU and offering some code to developers along with a
version of Window’s without Media Player
·
Microsoft
has settled four of the five major plaintiffs in the EU case as of November
2004
·
Real
Networks still hasn’t been settled – Real Networks filled their suit in
December 2003
·
Sun
Dropping Antitrust suit filed in 2002 revolving around Java
·
Microsoft
will pay Sun $700M to resolve the antitrust case and $350M for patent issues
·
Total
now $1.32B – November 2004
·
Ten year
agreement and will allow the two companies to collaborate on issues such as:
·
Midsize
server computer exchange
·
Reducing
technical gaps
·
Negate
patent cross-licenses
·
Does not
address incompatibilities between their two different web-based software
initiatives
·
Novell
in suite over NetWare. Netware
was industry standard in network software before MSFT’s NT platform came about
·
Microsoft
paying Novell $536M with Novell agreeing to drop out of the EU Antitrust case and
any
·
Novell
will file new antitrust case against Microsoft over Word verse WordPerfect
(Novell owned WordPerfect in the mid 1990’s)
·
Suit
claimed that Microsoft overcharged IBM and used discriminating pricing
·
Stock
buyback of 2004 – July 2004
·
Giving
shareholders $3 a share one-time dividend – Ex-dividend date – November 15
2004, Need to be on record November 17, 2004
·
Buying back
$30B of stock and doubling its dividend to 32 cents a share over four years
·
Valued
at $750M over four years
·
2005:
·
2005
Focus – Top priority is stopping viruses, spam and all malicious threats
·
Expecting
server sales and server software to drive sales in 2005
·
Microsoft
Server Group releasing two new version of SQL server and Visual Studio (Software development
tools)
·
Seeing
strong booking results and deferred software revenue
·
Found a
new COO in august 2005 after position was vacant since 2002
·
New COO
is B. Kevin Turner from Wal-Mart and is now the No.3 person at Microsoft
·
The
former COO Rick Belloro left in 2002 to head Quantum Corp.
·
Working
with British Telecom on delivering TV over high speed line in the
·
Working
with France Telecom on two projects – Announced July 2005
· Full year 2007 internet search market share – 9.8% (Google -58.4%, Yahoo - 22.9%, Time Warner - 4.6%, Ask - 4.3%.
Network Associates (NET) (NETA)
· Name changed to McAfee – See above
· Formed from the merger of McAfee Associates and Network General Computer in 1997 for $1.3B
· Security and management software
Network Associates Products:
· McAfee anti-virus product line
· 4.5M online subscribers – May 2004
· Has a 15.3% market share (Symantec – 64% market share)
· July 2004 – 5.4M total subscribers
· Sniffer Technology – for network and application management solutions
· Strong driver of revenue
· Magic Solutions – IT resource management
· Service desk, software distribution, PC self-healing features, along with asset, change and configuration management
· Remote connectivity
Network Associates General Info:
· Network Associates owns 75% of McAfee (MCAF)
· Trying to go from Antiviral to Network management
· Acquired:
· Trusted Information Systems
· Secure Networks Inc.
·
Dr. Solomon’s Group
·
Jan 2001 – Chairman William Larson , President,
COO, and CFO all quit
·
Sniffer – Troubleshooting computer network software
·
Selling
Sniffer to
·
Will be
renamed Network General
·
Buying back all the shares of McAfee.com – owns
75% of McAfee
·
March 2003 – Restating 1998, 1999, 2000 again –
The second time of having to restate these years
·
June 2003 – Former VP Terry Davis found guilty
of fraud and overstating revenue
·
Acquiring Intruvert Networks for $100M – Hardware and software for firewalls – April 2003
·
Acquiring
Entercept Security Technology for $120M – Makes software for servers – detects
hackers and worms using “signatures”
·
Changing
its name to McAfee - 2004
·
Selling
its computer-network management division
·
McAfee
buying Foundstone For $80M – August 2004 – Network Security company
Brokerage
|
Recommendation
|
Sentiment
|
|
Merrill Lynch |
|
|
|
Prudential |
||
|
B of A Securities |
· Network software – NetWare – was industry standard before MSFT’s NT platform came about
· One of the first to be “taken out” by Microsoft
· Focusing on caching software – Microsoft’s NT has domination on network software
· Formed a new company with Nortel and Accenture called Volera – focus on internet caching products, Novell will be the majority owner
· Acquiring Cambridge Technology Partners for $255M – Consulting firm
·
Eric
Schmitt – old CEO – replaced by Jack Messman of Cambridge Technology
·
Now
competing with another giant in IBM for consulting and service
·
Owned
WordPerfect in the mid 1990’s – Sold to Corel
·
Concentrating
on “Directory” Software – Provides access to other 3rd party
computer programs - 2003
·
Also
focusing on software to do business on the Internet
·
Claiming
they still have OS rights to Unix after they sold to SCO
·
Linux –
January 2003 – Novell adopted the platform as it foundation going forward
·
Netware
sales have been falling 14% a year – this was one of the main reasons for
adopting Linux
·
Acquired
Ximian in August 2003
·
Ximian
has a suite of desktop software that includes a word processor, spreadsheet,
etc
·
Acquiring
SuSE Linux for $210M – November 2003
·
No.2
seller of Linux OS (No.1 RedHat)
·
With
Ximian and SuSE – Novell now has two companies that when put together almost
mirror the basic core of Microsoft on a Linux basis
·
2003 –
Service represented 40% of their revenue – Expecting it to go to 60% by 2006
·
Four of
the six antitrust suits Novel had against Microsoft were thrown out of court
Brokerage
|
Recommendation
|
Sentiment
|
|
Bear Stearns |
|
|
|
Morgan Stanley |
|
|
|
UBS |
Oracle (ORCL)
· 2nd largest software supplier – MSFT #1
· Dominates in the field of databases
Database:
· Object-relational databases
· Database market share – Oracle 31%, IBM 30% - tables have turned – see database breakdown at bottom of page
· Market share:
· 2002 – 39.4% (IBM 33.6%, Microsoft 11%)
· 2006 – 40.5%
Applications Server
· Middleware
· Oracle9iAS – integrated J2EE application Sever
Collaboration Suite
· Gives one mailbox for email, voice mail, faxes and appointments – employees can reach these messages through telephone, web browser, outlook, or remote whiteboards
· Going after Microsoft Exchange Server
E-Business Suite, Outsourcing, Services
|
|
Oracle
Acquisitions and Stakes
· Indicast Software - voice-enabled technology for use on future Oracle software
· PeopleSoft:
· June 2003 – Performing a $5.1B hostile take-over of PeopleSoft – Price when announced
· February 2004 – Justice Department trying to block the merger – Has now approved
· In court to see if judge will lift PeopleSoft’s poison pill and customer rebate program which would create a $2B liability
· PeopleSoft’s old CEO Craig Conway saw Oracle’s original bid as a way to kill the company
· Has placed its final bid at $24 a share ($9.2B) and wants it excepted by November 19 or Oracle will walk away from the deal
· Deal Closed – December 2004 worth $10.3B or $26.50 a share
· 18 month ordeal and paid 66% more than their initial offer in June of 2003
· Larry Ellison
§ “We are the primary consolidator in the software industry”
§ Claims Oracle will peruse further acquisitions and has even mentioned BEA Systems, Siebel, Lawson Software, and Business Objects
· PeopleSoft’s maintenance fees represented roughly 20% of the purchase price
· PeopleSoft’s board rejected five different offers over the 18 months
· SAP is seen as the biggest beneficiary with its increase in market share to 56% in 2004 from 2003’s 51%
· IBM may be the loser – PeopleSoft uses IBM’s Database and Oracle will like switch it to theirs
· Oracle eliminate 5000 PeopleSoft jobs – Announced January 2005
· Oracle will support PeopleSoft lines until 2013 – will roll-out new combined tech in 2007 under Project Fusion
· February 2005 – “Now we’re ready to take SAP on head-to-head” – President Charles Phillps
· Oracle got control of PeopleSoft in December 2004
· PeopleSoft is housed in Oracle’s Business Application Unit
·
Retek -
Submitted a $30M larger bid, for a total of $524M, than SAP for the acquisition
of Retek– March 2005
·
Retek
will bring Oracle into the retail sector where Oracle never had a presence –
Retek analyses consumer buying patterns
·
Oblix –
ID management software firm – March 2005
·
ProfitLogic
– July 2005 – ProfitLogic makes software that tracks and analyses retail
customer buying patterns – The company’s client include Nordstrom, J.C. Penny’s
and Bloomingdales
·
Acquiring
a 41% stake in I-Flex Solutions of India for $900M – August 2005
·
Under
Indian law, Oracle must make a bid to acquire another 20% stake which will
bring the stake to 61%
·
I-flex
Solutions makes financial software for Citigroup and other banks that track
customer behavior and has over 575 customers
·
Acquired
stake from Citigroup Venture Capital
·
BEA
Systems – acquired BEA Systems for $8.5 billion
·
Acquired
at $19.38-per-share price
Oracle
Software Maintenance Revenue:
· Companies can pay on a yearly basis or 15% of the original license agreement for the right to future versions of the software, Or can buy an additional 7% for the right to tech support
· Maintenance revenue was 43% of total revenue for 1Q2003
Oracle General Info:
· Oracle Market Share:
· Distributed Database market share:
· 2001 - Oracle 63%, IBM 10%, Informix 12% (IBM acquired Informix in 2001)
· Business application software:
· February 2004 - 6% (SAP - 20%, PeopleSoft - 7%)
· “Business Software”
· 2004 – 23%
· Service and consulting make up ˝ of it revs
· First Quarter is typically Oracles slowest quarter
· Database technology is referred to as Middleware
· Oracle 11i
· Has over 450 big customers
· Inventory and pay roll processing
·
Oracle
· Dynamic Service Framework – Online marketplace
· “How can a company that sells software designed in part to allow companies to make business projection could be off in its own forecasting?”
·
“Larry has never proven he knows how to run
Oracle” –
· Oracle Notables:
· Fiscal year ends May 31 and its last quarter is traditionally its strongest
· New licensing revenue shows Oracles business momentum
· Fiscal first quarter is typically their weakest – the quarter occurs during summer and after their yearend sales drive in May
· Oracles operating margins are usually higher than its competitors such as SAP due to the higher margins they achieve through their database market
· Revenue and Breakdown
· FY99 revenue of $8.8B, FY00 revenue of $10.1B, FY01 revenue of $10.9B
· 1Q2003 – revenue breakdown - Maintenance revenue 43%, Software Sales 33%, Services 24%
·
Revenue breakdown by region
· Database license revenue 80%, applications 20%
· Oracle Strengths and Weaknesses:
· Service revenue is allowing them to remain profitable
· Database has always been one of Oracle’s major strengths
· Application software presence is seen as weak
· 3Q2005 – Application unit revenue would have declined 16% without the acquisition of and contributions of PeopleSoft
· “If you buy Larry Ellison’s argument that we should focus on the maintenance fee, fine, then apply a 10 times P/E multiple” – “Their growth comes from new licenses… I don’t really know who he’s trying to fool with that honestly” – Jason Brueschke – WSJ – With regards to Oracle becoming a “utility”
· Market share for business application software – SAP - 20%, PeopleSoft - 7%, Oracle - 6% - February 2004
· With PeopleSoft acquisition – Market share is expected to increase to 12% - February 2005
· Oracle and future acquisitions:
· Oracle plans to make several sizable acquisitions that will reach the multibillions in 2004/2005 – Has interest in areas in which they currently don not compete in
· March 2005, Oracle obtained a $3B line of credit for the possible use of acquisitions
Palm Inc. (PALM)
Split into two companies October 2003 - PalmOne (PLMO) & Palm Source (PSRC) – see below
· Founded in 1992, acquired by U.S. Robotics in 1995, U.S. Robotics acquired by 3Com, spun-off from 3Com March 2000
·
Founded by Jeff Hawkins to market his handwriting
recognition program but flopped – sold to
· 97% of its revenue is from selling units – not supplying licenses
Palm Products:
Palm Acquisitions
and Alliances:
· Acquired Smartcode Technology in February 1999 – for wireless initiative
·
Using
· Sony is using its operating system in its handheld PC’s
· Palm and Motorola developing a Palm Pilot with Wireless GSM ability
· Acquired WeSync for $45M – specializes in wireless synchronization technology
· Handspring’s Ms. Dubinsky to take a seat on Palm’s board, Mr. Hawkins to be Palm’s new Chief Technical Officer, Mr. Callihan to head new Palm division
Palm General Info:
· Palm’s OS platform
· In 1999/2000 - 87% of the market used their OS – MSFT pocket PC OS only 12%
· OS market share
· August 2001 – 80% market share of OS, MSFT – 16%
· August 2002 – 50% market share
· Mid 2003- 54% - MSFT 38%
· Their OS is used by Handspring and MOT
· OS5 – using ARM processors
· Handheld Market share:
· In mid 2000 had 80% of the handheld market with about 7M units sold
· January 2001 -Had a 72% market share (Handspring 14%)
· August 2001 - Had a 60% market share (Handspring 14%, CPQ 9%, Sony 7%, H-P 6%)
· August 2002 – 32.2% market share
· 2002 – 36% global market share (H-P – 13.5%)
·
H-P has greater market share in Europe, Middle
East, and
· CEO succession:
· Carl Yankowski resigned – Eric Benhamou became interim CEO
· Reverse stock split October 15, 2002 – 1 for 20
· Split the structure of Palm into two companies – October 2003
· Hardware (Solutions Group) (PLMO)
· Renamed PalmOne Inc. – see below
· Software (Palm Source Inc.) (PSRC)
· Develops and licenses the Palm OS operating systems, communication and personal information management software and software tools for mobile devices
· June 2002 - $300M in cash
· “We’re building one of the strongest pure-play mobile-device companies in the world” – Mr. Bradley – CEO of Palm Hardware
Brokerage
|
Recommendation
|
Sentiment
|
|
Bear Stearns |
||
|
JP Morgan |
||
|
Morgan Stanley |
palmOne (PLMO)
·
Spun off from Palm Inc. in October 2003
·
palmOne is the former Hardware Solution Group of
Palm Inc.
· Chairman is Eric Benhamou – Former CEO of Palm Inc,
· Develops, manufactures and markets handheld devices, add-ons, and peripherals
· Brands include Zire, Tungsten and Treo
· 1Q2004 – Roughly one half of its revenue is from the “Treo” line of phones
· October 2004 – Has a 3.5% market share for “Smart Phones”
Brokerage
|
Recommendation
|
Sentiment
|
|
Needham & Co. |
|
|
|
|
|
|
|
|
|
|
PalmSource
(PSRC)
·
Spun off from Palm Inc. in October 2003
·
PalmSource is the former Software Group of Palm
Inc.
· Develops and licenses the Palm OS operating systems, communication and personal information management software and software tools for mobile devices
· Sony has a 6% stake from a $20M investment
· New OS 5 will be called “Garnet”
· OS 6 for high end devices to be called “Cobalt”
· Licensing its OS software to Sony, which in June, Sony announced that it will exit the handheld market and its Clie product line
· Designing a new OS for smart phones due out in 2005
· Palm OS Market Share:
·
3Q2003 –
46.9% (Windows CE 41%)
· 3Q2004 – 29.8% (Windows CE 48.1%)
· Palm Source buying China MobileSoft for $23M – December 2004
· China MobileSoft makes software for handhelds
Peregrine Systems (PRGN.pk)
(PRGN)
· B-B procurement
· Software to manage business infrastructure
· Manages assets they have purchased including tracking and depreciation of assets – helps companies save costs as they utilize their assets
· Help desk software
· Get2Connect – Software for secure transactions
· Acquired Harbringer, and Extricity Inc.
· Acquiring Remedy for $988M – sales marketing and support software for small to medium sized business
· IBM will sell Peregrine’s services and will host their infrastructure services
· In Chapter 11 – Expected to re-emerge from CH 11 Mid-August of 2003
Brokerage
|
Recommendation
|
Sentiment
|
|
Merrill Lynch |
||
|
Schwab Soundview |
||
|
Prudential |
PeopleSoft (PSFT)
· Human Capital Management, Financial Management, Supply Chain Management, and Customer Relationship Management solutions
· Products designed specifically for use with relational database management systems
· Makes software programs to help companies manage and track their personnel, financial and accounting concerns, sales, and marketing
· Human Resource Software
· First started with the Client/Server system in 1988
· Now completely on the Internet
· Acquired SkillsVillage – Supply chain solutions for both goods and services
· Competitors – BAAN, Sapient, SAP, Oracle and Siebel
· PeopleSoft 8 – pure Internet platform thus no client software to maintain
· 2001 revenue breakdown
· Licensing fee – 31.1%
· Service 63.9%
·
76.3% of revenue from
· Acquired J.D. Edwards for $1.8B – May 2003 – Closed August 2003
· J.D. Edwards makes software that tracks manufacturing typically used in real-estate and construction
· Being acquired by Oracle for $5.1B – Hostile takeover – June 2003
· In court to see if judge will lift PeopleSoft’s poison pill and customer rebate program which would create a $2B liability
· PeopleSoft’s old CEO Craig Conway saw Oracle’s original bid as a way to kill the company
· Oracle has placed its final bid at $24 a share ($9.2B) and wants it excepted by November 19 2004 or Oracle will walk away from the deal
· Shareholders approved the $24 share by 61% but board rebuffed the offer
· Deal Closed – December 2004 worth $10.3B or $26.50 a share
· 18 month ordeal and paid 66% more than their initial offer in June of 2003
· Larry Ellison
§ “We are the primary consolidator in the software industry”
· PeopleSoft’s maintenance fees represented roughly 20% of the purchase price
· PeopleSoft’s board rejected five different offers over the 18 months
· SAP is seen as the biggest beneficiary with its increase in market share to 56% in 2004 from 2003’s 51%
· IBM may be the loser – PeopleSoft uses IBM’s Database and Oracle will like switch it to theirs
· Has $1.9B in cash as of March 31, 2003
· 2003 – Global services accounted for 1/3rd of revenue
· Market share for business application software – SAP - 20%, PeopleSoft - 7%, Oracle - 6% - February 2004
· 2004 – Over 12,000 clients
· CEO Craig A. Conway fired October 2004 – Became CEO in 1999
· Paul Duffield, founder and chairman (He left in 1999) to take over and be co CEO with Kevin Parker
Brokerage
|
Recommendation
|
Sentiment
|
|
Morgan Stanley |
|
|
|
|
|
|
|
|
|
|
Quantum (QNTM) (DSS)
·
Data
protection and network storage systems
·
World’s largest
supplier of tape drives
·
Operated
through two separate business prior to 2002
·
DLT
& Storage Systems group (DSS) and Hard Disk Drive group (HDD)
·
Sold HDD group to Maxtor in April 2001
·
Products:
DLTtape drives, Autoloaders, Automated Tape Libraries, NAS Solutions, DX30 –
disk backup systems with 3TB of capacity
· Sold Disk drive business to Maxtor in 2001
·
Old CEO Michael A. Brown (now chairman) replaced
by Rick Belluzzo
·
Rick was President and COO of Microsoft and left
in 2001, prior to that he was with H-P for 23 years
·
Two segments:
·
DLT Group
·
Tape drives and cartridges
·
Receives royalties from licensing their media
cartridges to other vendors
·
Storage Solutions Group (SSG)
·
Tape automation systems and solutions
·
Tape libraries and autoloaders
·
NAS Solutions
·
Bought Certance (Old unit of Seagate) in January
of 2005
· Quantum loves the new Sarbanes-Oxley requirements which requires companies to back-up important company documents
· Focus on selling companies back-up solution to help comply with Sarbanes-Oxley
Brokerage
|
Recommendation
|
Sentiment
|
|
Merrill Lynch |
||
|
Wachovia |
|
|
|
B of A Securities |
RedHat (RHAT)
· Linux and Linux tools
· Open source operating systems
· Focusing on services for Linux – Had problems selling software, a company would buy one copy then copy it to all their other computers
·
Red Hat Advanced Server -
· Acquired Planning Technologies for $47M – provides professional consulting services
· Revenue derived from subscription and services:
· Subscription revenue from enterprise and embedded customers – 53.6% of revenue
· Service revenue – from open source services and embedded development services – 46.4% of revenue
· December 2002 – Recorded first ever profit
· Deal with IBM to distribute its software
· Acquired Sistina Software – makes storage-infrastructure software
· Restated financial results for 2001-2003 in July of 2004
· CFO resigned one week prior to the announcement
· Now recognizing subscription contracts on a daily basis rather than monthly
· Red Hat Application Server – New entree in applications servers introduced in 2004
· Market Share:
· 69% market share in Linux server market
· Acquiring Netscape Security Solutions assets from Time Warner – October 2004
Research in Motion
Ltd. Waterloo, Ontario, CanadaChairman
and Co- CEO Jim Balsillie
· Settled legal battle with NTP Inc and agreeing to pay $612.5M and agreed to use a back-up system designed by Rimm – March 2006
· 5.5M subscribers – June 2006
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Recommendation
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Sentiment
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Lehman Brothers |
||
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Merrill Lynch |
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Prudential |
Rockwell Automation
(ROK)
· Automation solutions
· Three major business:
· Rockwell Automation Control Systems
· Power and components to control and information platforms to global manufacturing solutions
· Rockwell Automation Power Systems
· Power industrial plants and control of machine movement
· Rockwell FirstPoint Contact
· Customer contact solutions through multiple channels and
· Rockwell Scientific Company - Rockwell Automation has a 50% stake in Rockwell Scientific
Brokerage
|
Recommendation
|
Sentiment
|
|
Morgan Stanley |
||
|
Bear Stearns |
||
|
CIBC Wrld Mkts |
Sanmina – SCI (SANM)
·
Formed
through the merger of Sanmina and SCI Systems in December of 2001
·
Electronics
Contract Manufacture -
·
Concentrates
on higher-margin communication equipment (
·
3/4th
of Sanmina’s revenue were from telecom equipment makers – Nortel, LU, CSCO (Prior
to merger)
·
Has
manufacturing facilities in 22 countries
·
Gets
more than 20% of their revenue from the production of servers and storage
devices
·
Sanmina
Acquisitions:
Brokerage
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Recommendation
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Sentiment
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CIBC Wrld Mkts |
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Prudential |
||
|
JP Morgan |
SAP AG (SAP)
· World’s third largest software supplier
· SAP = “System Application and Product”
· “Enterprise Application” software that automates and ties together companies basic operations and used for efficient manufacturing – orders, purchases, parts, tracking trends, tallies profits – called R3 System
· No.1 maker of business applications
· Has a 51% market share in 2003
SAP Acquisitions
and Stakes:
· Has a 20% stake in Commerce One – up from 5%
· Retek:
· Acquired Retek for $496M – Announced March 2005
· Reteck founded by five former IBM developers
· Oracle submitted a $524M bid for Retek – March 2005
· Business Objects SA
· Acquired Business Objects for $7.03 billion
SAP General Info:
· Problems in 1990’s
· SAP didn't address web platforms – their solution – mySAP.com
·
Nearly all of its
· In fall of 1999, several companies blame SAP’s software for weak earnings due to the software’s problems
· mySAP.com
· e-business platform
· Can only work with SAP programs - big problem there working on
· Working with Commerce One to try and fix its problems with “online marketplaces”
· Accounted for 61% of SAP’s revenues in 3rd quarter 2000
· NetWeaver – Composite Application platform
· 2004 Market share for business software – 55%
· Typically experiences a disappropriate increase in revenue in the 4th quarter
·
42% of revenue derived from outside Europe,
Middle East and
· 2003:
· Expected sales growth of 3% with operating earnings of 23.5%
· 2004 – Looked for operating earnings of 25%
· Had operating margins of 27%
· CEO Hasso Plattner becoming chairman (big rivalry w/Larry Elison of Oracle), New CEO Henning Kagermann
· 2004 – New initiative with Microsoft that will make Microsoft Office compatible with SAP’s software
· Secret talks in 2003/2004 with merging with Microsoft – Bought to the public light in June of 2004
· Ended with a major cross licensing agreement with the two sharing trade secrets and allowing the integration of Office with the SAP platform
· Expecting software licensing revenue to grow 10% in 2004 and remain in the double digits from 2005 and beyond
· SAP’s main driver of revenue is for licensing their software
· 2005:
· Expecting full year 2005 licensing revenue to grow 10% to 15%
· “We are finally at a turning point in the [IT] industry where IT is understood and used as a competitive tool rather than simply a driver of cost efficiency. The year 2005 will be a year of investment for SAP which will help drive growth” – CEO Henning Kagermann, February 2005
· Market share of 58% in 1Q2005 – was 54% in 1Q2004
· Five year road map starting in 2006
· 2007 launch of web-based system for big businesses which uses the Internet to combine various SAP software applications such as payroll supply-chain management. CEO Henning claims it to be the next big thing in enterprise computing
· Mid-sized business – Hosted service or software on servers and readily distributed through the web. SAP sees it as the most functional environment for mid-sized business. Will be in competition will Microsoft and Salesforce.com, and NetSuite (Larry Ellison of Oracle’s privately held company). All done through SAP organic growth rather than buying out other rivals
SCI Systems (SCI) (SANM)
·
Merged
with Sanmina for $4.5B – December 2001
·
See
Sanmina – SCI above
·
World’s
2nd largest contract manufacturer
·
Originally
Space Craft Inc. in 1961 – defense contractor
·
In the
1980’s made IBM’s PC’s
·
Derives
a majority of its revenue from hardware manufacturing for OEM’s (Original
Equipment Manufacturers)
·
37% of
revenue from the PC sector (PC box and assembly) – Now trying to diversify its
business
·
Makes PC
boxes for Dell, H-P (H-P is its biggest
client)
·
Plants
in Asia,
·
Clients
include Ericsson, Nortel and Nokia
·
Competitors:
Solectron, Jabil
·
Taking
over two of Nokia’s manufacturing plants
Brokerage
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Recommendation
|
Sentiment
|
|
Goldman Sachs |
||
|
Bear Stearns |
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|
Morgan Stanley |
|
Seagate Technology (STX) (SEG) Scotts Valley, CA CEO Bill Watkins http://www.seagate.com/
· Manufactures Disc Drives, Recording Heads and Media
· Built first 5.25-inch hard drive in 1980
· Controlled a 30.5% market share in hard disc drives in terms of shipment – December 2002
· Fired CEO and Co-founder Alan Shugart (one of the founding fathers of the hard drive w/IBM)
· Replaced by Steve Luczo
· Has stiff competition in high-end drives in large companies, one of its mainstays in recent years
·
In low end PC’s (home PC’s) regularly beaten to
market by competitors
·
Went private because Seagate had a 33% stake in
Veritas and this was more capitalization than all of SEG components
·
Couldn’t distribute the Veritas stock to its
shareholders without triggering a huge tax liability
·
Sold hard drive operation to Silver Lake
Partners, Texas Pacific Group and August Capital
·
Purchased
the operations for $1.84B
·
The consortium controls 2/3rd of
Seagate and the newly formed SAC
·
Re-entered public market December 2002
·
“Security on hard drives is going to be a very
big deal” – CEO Bill Watkins – June 2005
·
2005 – Moving to perpendicular writing
technology compared to horizontal which was limiting going forward
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|
Sentiment
|
|
UBS |
||
|
Morgan Stanley |
|
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|
Prudential |
Siebel Systems (SEBL)
·
Makes
software that allows business to manage sales over the web, marketing and
customer service applications over the web, and call center software
Siebel Offerings:
Siebel Acquisitions and Stakes:
·
Acquired
Janna Systems for $972M – makes institutional financial software
·
Acquired
Eontec – makes retail-banking software
·
Acquiring
Edocs for $115M – December 2004
·
Edocs
makes CRM software
Siebel General Info:
·
Seibel
was founded in 1993
·
In 2001,
Siebel controlled 72% market share for CRM software
·
62% of
Siebel’s revenue is from
·
Swap
deals accounted for $76.4M or 72% of total software license revenue in 2001
·
Swap
deals represented only 1% of revenue in 2000
·
Doesn’t
have a large revenue cushion from maintenance and consulting work
·
Will
offer its software over the internet as a low-cost monthly service ($70) with
IBM – October 2003
·
IBM will
handle and run the service through its data centers
·
Tom
Siebel stepped down as CEO but will remain as Chairman – May 2004
·
J.
Michael Lawrie is the new CEO
·
Mr.
Lawrie was Senior VP of IBM and managed IBM’s relationship with Siebel
·
J.
Michael Lawrie was fired April 2005 – Didn’t make the year mark
·
George
Shahem is named the new CEO after Mr. Lawrie’s departure – Mr. Shahem was the
CEO of Anderson Consulting (Accenture)
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Silicon Graphics
(SGI)
· High Performance computing, visualizations, and management of complex data
·
Big on graphics,
Silicon Graphics Segments:
·
Servers: Origin Series, Onyx Series,
· Workstations: Silicon Graphics O2+, Graphics Fuel, Octane 2
· Service
Silicon Graphics General Info:
· “Designing systems with visual ratios at their core is our greatest strength”
· Computer systems designed to use MIPS RISC processors and SGI’s IRIX OS (Enhanced UNIX), and Intel processors
· Bought Cray Research in 1996 for $739.2M – maker of super computers
· Sold most of Cray Research to Terra for $50M – Terra as now changed name to Cray
·
MIPS – Microprocessor unit – Spinning it off,
bought it in 92’ for $200M – used in
· (MIPS)
· Plans to focus of communications, entertainment, energy, government contracts, manufacturing, and science
· Restructuring is proving slower and more expensive
· Reducing its reliance on proprietary technology and applying its graphic expertise to match with MSFT and INTC
· 2002 - Focusing on centralized servers “Visual Area Networks” – Allows remote PC users to view and manipulate 3-D images located on other locals
· Revenue breakdown by segment:
· Servers – 38%, Service 36%, Workstation – 18%, Other 9%
·
NASA bought 20 supercomputers, each containing
512 Intel Itanium chips – Project called
·
October 2004 – Surpassed IBM for bragging rights
for the world’s fastest computer with their computer for NASA’s
· November 2004 – IBM’s Blue Gene L now back on top
Brokerage
|
Recommendation
|
Sentiment
|
|
Bear Stearns |
||
|
Schwab Soundview |
||
|
JP Morgan |
|
Solectron (SLR)
·
World’s largest electronics manufacturing
services (
· Makes hardware for other manufactures – world’s largest in terms of revenue
· In the 1990’s their business was heavily concentrated in telecom
Solectron
Acquisitions and Stakes:
·
Acquired NatSteel Electronics of
· Has 11 factories
· Focus on manufacturing of PC and PC related products
· PC manufacturing was 23% of SLR now will be 38% of its business
· With acquisition of Nat Steel will have a total of 70 plants world wide
· Acquired C-Mac Industries – specializes in telecom equipment
· Acquired Shinei Sango – makes electronic-product enclosures (a $35B-$50B market)
· Sold Dy4 Systems unit to Curtis-Wright for $110M – November 2003
·
Acquiring Service Source of the
Solectron General
Info:
· Cell Phone, Telecom, and computer networking equipment accounted for 63% of their revenue in 2000
· Diverse market segments: 2001
· 26% network equipment, 21% Telecom equipment, 15% PC’s/Notebooks, 13% Automotive, Avionics, Industrial Controls, Mainframes, Medical, Semiconductor and test equipment, 13% Mobile Communications, 6% Computer Peripherals, 6% Workstations
· Their 10 largest customers accounted for 70% of net sales in 2001
· Nortel accounted for 13% of their revenue and their biggest customers in 2000
· Top Customers are Ericsson, Nortel, and Cisco
·
Bought two plants from Sony – one in
· Debt recently downgraded to junk status
· Fiscal year ends August 29
· 8% gross margin in 2001
· CEO Koichi Nishimura retired August 31, 2003
· Fiscal 3Q2004 – First profit in 12 quarters of loses, last profitable quarter was 2Q2001
· Restated 2002-2004 results resulting in $20M in tax reductions
Brokerage
|
Recommendation
|
Sentiment
|
|
UBS |
|
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|
Bear Stearns |
||
|
AG Edwards |
Sun Microsystems (SUNW)
· Singularly focused on products and services for network computing - Primarily UNIX
· Network servers, data storage systems, workstations, microelectronics, software systems, service-delivery applications, cross-platform technologies, consulting and support services
· IPO in 1986
Sun Products and Initiatives:
· Java – Cross-platform programming language architecture for building network-centric applications
o Doesn’t receive any money from Java, just some licensing fees, HWP using a new strain of Java without licensing fees
o Java programming are the tools of choice for building web services
· Jini – Software system to link all networked products including consumer devices
o Flopped – not one Jini consumer device is on the market and non are on the drawing board
· Jxta - Software for distributed computing – allows computer and other devices to talk to each other - Launched April 2001
·
· Looking Glass – 3D video display and technology – open sourced
· N1 – Initiative to manage groups of computer networking devices and software
o Will control the companies entire computing infrastructure with lower costs and greater flexibility
o Storage on demand – From Pirus acquisition
· Netra - Low-end servers and server appliances – they use the Linux operating system
·
· Solaris – UNIX Operating Systems
o Solaris 9 OS – launched May 2002
o Solaris 10
§ Will be free to download and have open source code – will have to pay for support
§ Will be able to run Linux programs through “Janus” application
§ Has “Dynamic Tracing” – fixes bottlenecks
o Trusted Solaris
§ Modified version of Solaris OS but with a focus on security for hacking and internal viewing/copying of sensitive files
§ Designed without a root-access capability and leaves an audit trail
§ Marketed to government agencies – now expanding to corporate environment
· Star Office – Office productivity suite
· Sun Blade – Series of workstations
o Sub $1000 UNIX workstation
· Sun Fire - series of computer servers
o Sun Fire 12K (Code name StarKitty) – competes against IBM’s Regatta
o Star Fire - High end enterprise servers
o
o Sun Fire V series – low end servers
o Sun x86 series - LX-50 – entry-level server capable of running both Solaris OS and Linux
§ Uses x86 chips
· Sun ONE – (Open Net Environment) Software architecture, products and associated services for the creation of services on demand standards-based software
o Development platform to compete with Microsoft.NET
o Has spent $3B in R&D for an “open “ internet technology for network centered software
o “Microsoft.NET is the hairball on the internet, as opposed to the hairball on the desktop” – Mr. McNealy
o Sun One Middleware
o Sun ONE studio development
· Sun StorEdge – Storage hardware and software
· UltraSPARC – (UltraSPARC Scalable Processor Architecture) microprocessors
o SPARC Tech – (RISC) reduced instruction set computing
o Ultra Sparc III Severs – Has 1st new major processor in 4 yrs. – released mid 2001
o Texas Instruments produce the chips
Sun’s Acquisitions and Alliances:
· Cobalt Networks for $1.8B – Cobalt makes appliance servers that run the free Linux operating system – low end servers – has the largest market share in server appliances
o Sun believes it will be cheaper to acquire Cobalt than spear head its own operations producing appliance servers
· High Ground Systems for $400M – makes software that manages data on storage systems
· Afara Websystems for $28M – 2002
· Waveset for $136M – Nov. 2003
· Kealia for $93M – Feb 2004
· New alliance with E.Piphany to develop front end software
· CenterRun for $65M – August 2003
· LSCine for $74M – makes storage and file system software
· Pirus Networks for $167M – Nov. 2002 – Data storage - Has a switching device designed to help companies reduce the complexity and cost of their data storage
· Pixo Inc. – makes software for networks for the distribution of software for mobile devices
· With Fijitsu – APL (Advanced Product Line) – a new computer derived from a combination of Sun and Fijitsu lines computer lines – expected launch in mid 2006
· SevenSpacefor $46M – technology for remotely managing computer services for H-P and IBM products – December 2004
· Tarantella for $25M – Makes remote access software - May 2005
· Acquired the intellectual property right of Procom Technology for $50M – Network Attached Storage – May 2005
· Collaborating with Microsoft on workstations
· StorageTek for $4.1B, a 19% premium – Sells tape and disk storage – June 2005
· SeeBeyond for $387M – June 2005
· MySQL – Sweden. Start-up who clients include Google and Facebook who makes open source database software. Purchase price around $1 billion.
Sun General Info:
· 1999
· 45% of their revenue came from workstations
· Had 28% of the UNIX market (HWP had 23%, IBM 18%)
· 2000
·
52% of their sales come from outside the
·
US – 47.4%, Europe 28.7%,
· Worldwide server market share – 17%
· 2001
· July 2001 – reported its 1st quarterly loss in 12 years
· Worldwide server market share – 13.2%
· 2002
· Storage accounts for 15% of annual sales – 50% of sales is servers
·
46% of revenue from the
·
· Sales to GE represented 12% of 2002 net revenue (Scot McNealy is on GE’s Board)
· Computer Systems, Network Storage and other products represent 72.8% of 2002 net revenue – service represented 27.2%
· Gross margin in 2002 – 39.3%
· Server market share: No.3 with 18.7% worldwide (IBM No.1 with 30.4%, H-P No.2 with 27.4%)
· Fiscal year ends June 30
· Cash:
· December 2002 - $5B in cash
· October 2003 - $5.7B
·
Sun has low to medium market growth vs. NT, sub
300
· No longer sell Solaris with Intel’s chips inside
· For 2003 – sees no change in current IT spending environment and has built FY03 around revenue growth in the 10%-15% range
· Co-Founder Bill Joy retired in 2003 as Sun’s Chief Scientist – Now with venture firm Kleiner Perkins Caufield & Beyers
· 2002 – new initiative to promote Linux software and go into general IT consulting
· Regrouping software division into six major product groups: Server, Desktop, mobile devices, utility computing, Developer, Java
· Going with pay per-user fee
· What happened in late 1990’s – Sun spent tons of time and money of its own line of chips but tech budgets shrank during this time period and companies went with the lower cost Intel/AMD chipset servers running on Windows or Linux
· New Initiatives in late 2003:
· Make cheaper simpler computers
· Extend its service offerings beyond repair and maintenance to consulting
· Go towards mobile users with more security and software
· Using AMD’s Opteron chips – announced November 2003
·
Microsoft
Deal of 2004: - Announced April 2004
·
Now at
$1.32B – November 2004
·
Midsize
server computer exchange
·
Reducing
technical gaps
·
Negate
patent cross-licenses
· Does not address incompatibilities between their two different web-based software initiatives
·
Eastman
Kodak in litigation with Sun Microsystems claiming that parts of Sun’s Java
computer language infringes on Kodak’s patents
·
Kodak is
seeking $1B in damages – Filed suit in 2002
· Kodak received the patents from its 1997 purchase of Wang Laboratories software unit
· Suit settled October 2004 – Sun paid Kodak a $92M settlement
· Galaxy Server line – Will use multiple x86 chips and have four to eight times the capacity for current x86 machines
· 2005:
· Opened Java’s source code for server to developers – June 2005
· 2008 – Expects revenue to increase in the low to mid-single digits.
Brokerage
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Recommendation
|
Sentiment
|
|
S.G. Cowen |
||
|
Merrill Lynch |
||
|
JP Morgan |
|
Unisys (UIS) Blue Bell, PA CEO Joseph McGrath http://www.unisys.com/
· Formed with the merger of Burroughs and Sperry in 1986
· Makes big computers that store huge databases known as servers and provides various computer services like custom programming
· 2004/2005 – Now focusing on IT services
· Servers based on proprietary systems
· ES Servers – WinTel servers
· ES/7000/200 server – costs between $250,000 - $1M
· “Many buyers choose Unisys because they want to run nothing but Windows on their computers”
· From 2000 to 2003 – installed only 900 systems
· 2004 – Offering Linux OS on their servers
·
ClearPath Servers/Mainframes –
· Expected to be 40% of profit in 2003
· Stopped making PCs – Resells H-P’s personal computers in some markets
· Service:
· March 2002 was 75% of total revenue
· 1Q2003 – Service represents 80% of revenue and 60% of profits
· Has missed four quarters of earnings in a row since 1999
· Getting out of its low-margin commodity hardware business and government systems
· Feb 2002 – Still making its proprietary CMP mainframes
· Joint venture with DELL and Microsoft to build voting computers and machines
· CPQ and H-P no longer selling Unisys computers
·
55% of its sales from Overseas (outside the
· 2005:
· Being hurt by high pension costs and problems in some of its outsourcing contracts
· Selling one of the two “problem” outsourcing projects and expecting lower IT forecasts through 2005
· Had forecast eps of 50 to 60 cents a share – now revised to 33 cents to 38 cents a share – Announced July 2005
·
Selling its stake in a
· Having major problems with one of its larger contracts – late 2004/January 2005
· CEO Lawrence Weinbach stepped down as CEO January 2005 and is now Chairman, Joseph McGrath is the new CEO
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VA
Software Corporation (LNUX)
·
Changed name from VA Linux Systems July 2001
· Linux systems – makes hardware and PC for Linux operating systems
· Bought Andover.net - runs a collection of Internet sites devoted to Linux
· Halting its hardware business and will focus on support for Linux
· Exited all hardware, professional services and Linux software engineering services to focus on SourceForge collaborative software development (CSD) platform
· SourceForge
· Provides ability to track, measure, and report on software development activity in real-time
Brokerage
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Recommendation
|
Sentiment
|
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CSFB |
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JP Morgan |
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|
Merrill Lynch |
Veritas
Software (VRTS)
(VRTS)
·
· Disaster Recovery, Data Protection, Storage Area Networks (SAN)
·
No.1 in data
backup, archiving software and file system software
·
No.2 in storage
software with a 21.7% market share (EMC 31.8%, Computer Associates 8.8%, H-P
7.6%, IBM, 7.1% - December 2004)
· Acquired Seagate Software NSMG and TeleBackup
· Veritas Backup Exec – No.1 Windows NT/Windows 2000 backup solution
· Old CEO Mark Lesile
· Acquiring Precise Software Solutions for $537M and Jareva Technologies for 62M
· 2004 – Expecting revenue to increase 13%
· Restating revenue and results for 2001 and 2002 as well as revising 2003 due to overstating revenue during these periods – March 2004
· CFO resigned after it was found he forged his resume - 2004
· Venture with BEA Systems Software – April 2004
· Engineering and marketing alliance to combine some of their software for utility computing
· Utility computing manages several groups of computers into one system
· Acquiring Kvault Software for $225M – Email archiving software – September 2004
·
New focus on
grid computing with its acquisitions of Jareva and Precise Software
· Being Acquired by Symantec for $13.5B– December 2004
·
Symantec is the
leader in security software with a 41% market share and is expecting growth in
2005 of 24%
·
Veritas
projected growth for 2005 – 10%
Wang Laboratories (WANG) Gentronics (AEX) euro?
· Changing its name to Wang Global
·
Acquired
Olivetti SPA Olsy Unit – makes it a 17% shareholder of Wang – MSFT 10%
·
OLSY – computer
service business – paid about $430 M
·
Would make Wang
one of the world’s largest computer service providers and triple its size by
adding about $2.3B in annual revenue to its current 1.3B
·
Expands it
comp-service in Europe and
·
Olsy gives huge
presence in
·
Would be able
to compete with IBM, EDS, and HWP
·
Went bankrupt
in 88’ reorganized in 93’ - failed in hardware
Brokerage
|
Recommendation
|
Sentiment
|
|
S.G. Cowen |
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Wipro
Ltd. (WIT)
·
IT consulting and
services, product design services, business process outsourcing
·
Huge Indian
software and IT firm making code for CSCO & GE
·
·
Wipro and GE:
·
Wipro Software
segment received 50% of their revenue from GE
in the 1990’s
·
Wipro Ltd. got
19% of their revenues from GE – now down
to only 5%
·
2002 – 44%
revenue from R&D Services – 38% from Custom Application Development
·
Fiscal year
ends March 31
·
Wipro
Spectramind –
·
Signed software development agreements with Microsoft – November 2004
Brokerage
|
Recommendation
|
Sentiment
|
|
Merrill Lynch |
||
|
S.G. Cowen |
||
|
Goldman Sacs |
|
Xerox
(XRX)
·
Units: Finance
(Xerox Credit Corp), Fuji Xerox (
Xerox Products:
·
Digital copiers
that can be plugged into servers and still be a copier
·
FutureColor –
new giant copier
·
Seven feet tall
and as long as an RV
·
Prints 100
color pages per minute
·
Sells for $500,000
and cuts cost to 5 cents a page
·
XRX has
invested $1B in the machine
·
Rival machine
is Kodak’s and Heidelberger’s NexPress
·
Glossmark –
imprinted hologram produced on a laser printer that is difficult to copy on a
copy machine or scanner
|
|
Xerox Past
Problems:
·
Took a $1B
after tax restructuring charge in 1999
·
Xerox’s Credit
Corp. – having big problems in
·
Had to get a
$7B line of credit through 58 banks for the first time in its history in
October of 2000 due to constraints on its commercial paper which has been
downgraded by rating agencies
·
Has had major
problems with its billing to customers thus lots of backlash and turnover of
clients
·
Debt:
o
Has $4.2B in
short term debt due in less than a year and has $13.3B in long term debt
o
Has $17.2B in
corporate debt as of September 30, 2000
o
Has $16B in
debt as of September 2001 (65% of that is related to financing)
·
Has to take a
$120M charge to cover unpaid customer bills in
o
Now being
blamed on accounting irregularities and the hiding of debt and inflated revenue
·
S&P
downgraded Xerox’s credit rating to junk status – December 2000
·
Paying a $10M
civil penalty and restating earnings for the years 1997-2000 and changing the
way it recognizes lease revenue – April 2002
·
Found they used
improper accounting techniques to accelerate the recognition of more than $3B
in equipment revenue from 1997-2000
·
Found over $6B
in improperly booked revenue from 1997-2001 through premature booking and
boosted pretax profit by $1.41B from 1997-2002
·
Pumped up its
earnings by improperly setting aside various reserves, then gradually adding
them back into earnings to make up for profit shortfalls
Xerox and
General Electric Capital:
·
Joint venture
formed in September 2001
·
Will be called
Xerox Capital Services
·
GE will own 81%
while Xerox owns 195
·
GE Capital will
now be primary provider of equipment financing
·
Will erase $5B
in debt from the books
Xerox
Divestures:
·
Selling its
·
Selling Insight
software and Content Guard software
·
Sold its 5%
stake in Fuji Photo Film for $1.5B
·
Sold its 50%
stake in Fuji Xerox for $1.24B to Fuji Photo Film
·
Selling half of
its worldwide manufacturing operations to Flextronics
Xerox General
Info:
·
Rival – HWP and
Heidelberger Druckmaschinen of
·
“We’re running
on 6.5 cylinders out of 8” Paul Ailaire – ex CEO
·
Xerox CEO’s:
·
Paul Ailaire, Oct, 2000 “ We have an
unsustainable business model” – talking about selling of major units of XRX and
also taking of cutting dividend
·
CEO Paul
Ailaire – replaced by Anne M. Mulcahy
·
CEO Anne
Mulcahy promised to dethrone Heidelberger by the end of 2002
·
Dividend:
·
Oct. 2000 - cut
dividend from $.20 to $.05
·
Stopped its
dividend in summer of 2001 – Started giving out a dividend in 1948
·
Pledged to
shave $1B in expenses by the end of 2001 by selling its stake in Fuji Xerox,
Xerox Financing (Accounts for 60% of its $17.6b in corp. debt), and its manufacturing
in operations in
·
Claimed that
they would return to profitability in the second half of 2001 – didn’t happen
·
Exiting the
small business and home printer market
·
Shuttered
its personal inkjet printers
·
2002:
·
Recorded their
first profit since 1999
·
Expected
revenue to be flat in 2002 and then increase slowly to 5% to 6% annually by
2005
·
End of 2002 –
Had $2.89B in cash
·
Color equipment
sales
·
Higher profit
margins than with black and white
·
Accounts for
25% of total equipment sales
·
2004:
·
2004 key growth
drivers – Digital Office equipment and supplies and high speed digital printing
and color
·
2004 – Color
printers and copiers represented 25% of revenue
·
Why does Xerox
focus on machine sales – after you sell the machines you get “consumables” such
as toner cartridges which have high profit margins
·
Considered as
“post sale” revenue and contributes up to three quarters of Xerox’s revenue
·
2005:
·
Claims that 95%
of their product line has been “refreshed” with new lines in the product cycle
in 2005
·
Dell reselling
their lower-end color office printers
IT General Info
Additional Companies and Specialized Areas
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Indian Software
Developers and IT:
o
Wipro (WIT)
o
InfoSys (INFY) –
o
Satyam Computer
Service
o
HCL Tech
o
Tata
Consultancy and Services
Opens Source
Companies
·
MySQL -
·
Only about 4000
paying customers out of approximately 4M active installations
·
Ximian
·
Bynari
Nanotechnology
players:
·
Nanogen (NGEN)
·
Nanophase Technology
(NANX)
·
Altair
Nonotechnologies (ALTI)
·
Nanometrics (NANO)
·
Zyvex
·
Veeco Industries (VECO)
– Makes nanotech tools
·
Harris & Harris Group (TINY)
– Nanotech venture company
·
FEI Co. (FEIC)
– Nanotech tools
·
Headwaters (HDWR)
·
Kopin (KOPN)
·
Silicon Storage (SSTI)
o Printronix – makes tags that house RFID chips
o Sani Tech
o Navitag Technologies – Tags for shipping containers (Estimated to be a total of 17M containers worldwide)
·
· Unisteel – Makes half of all fasteners in hard drives – supplies Western Digital with 90% of its fasteners, 60% of Seagate’s and Maxtor’s
· Magnecomp – 2nd largest maker of suspension assemblies
· Used in production of read-write heads of disk drives – 18% market share
Additional Companies:
·
Exodus Communications – buying Global Crossing “
o Exodus
is #1 in web hosting size followed by
o Will have a combined 32 internet data centers and over 4000 customers
o Went in Chapter 11
· Grove Networks – Ray Ozzie – Designed Lotus Notes, new company and software called Groove Transceiver - peer-peer desktop platform for groups of people to share their hard drives as many other functions
· AuthenTec – makes finger print recognition devices
·
Psion –
·
Legend Holdings – Hong Kong –
o Changing its name to Lenovo Group in 2004
o Has
27% market share in
· Viisage Technology – Face Recognition technology
·
Quanta Computer – World’s biggest laptop
computer maker –
· Taiwanese companies make more than half of the world’s laptops
· 321 Studios – Has software to copy movie’s and DVD’s onto blank DVD’s
· Opsware Inc (OPSW) – Software for monitoring, metering and allocating computer costs among department in a company – Utility computing – paying for the resources you use
· Zyvex – Nanotube technology
· Edge Technologies – Etremas – Makes Terfenol
· Entropic Communications – technology that uses coaxial cable to transmit data
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Computer odds and ends:
· Corporate PC sales account for 60% of the $141B in PC sales world wide
·
More than 60% of the value of a new computer
purchased in the
·
63% of the homes in the
· Computer makers make an 8% profit on retail PC’s and retailer profits can be 5% or less
· Displays – LCD won out against CRT
o Engineers couldn’t get CRT’s to work and couldn’t mass produce
o Engineers totally reworked LCD and got major improvements
o OLED – Organic Light Emitting Device – next generation
· Infiniband – I/O architecture – better than PCI Bus tech.
o Mellangx
o Infiniswitch
o Banderacom
o Lane15
· Worldwide PC market share - 1Q2003– Dell - 16.9%, H-P - 15.9%, IBM - 5.3%, Toshiba - 3.6% NEC - 3.4%
· Manufacturing disk drives is “the longest-running industrial philanthropy” – Roger Johnson – Former CEO of Western Digital
· Corporate spending on technology accounted for 40% of business investment in 2003
Odds & Ends:
· UNIX operating software has an internal clock that began ticking with the programs release by Bell Labs in 1970
o Unix invented in 1960 at Bell Labs – Novel bought in 1992, then sold to SCO in 1995, SCO sold to Microsoft in 2003
· “Profitless Prosperity” – Ram Memory and disk drives
· A 100 gig PC hard disk can hold 25,000 MP3’s
· “Back office software is like wet cement…Pour it into your business, it hardens, and then you can’t change anything” – Martin Baily – Washington Institute of International Economics
· BlueTooth – Uses radio link in 2.4G radio spectrum to wirelessly connect devices
· Computer outsourcing at the end of 2003 – 5% of all IT service jobs were offshore
o One
in ten
o By 2007 – projected that 23% of all IT service jobs will be offshore
· WiFi – Harris Corp invented – Harris was spun-off from Intersil Corp (biggest maker of Wi-Fi chips)
o WiFi = Wireless Fidelity
· PC (Desktop) V.S. Laptop – total global shipments – Laptop 27% - Desktop 73% - 2003
· Breakdown of what a personal desktop computer costs and its breakdown – March 2004
o Roughly $437 in parts without monitor, printer, keyboard and mouse
o $134 goes to Intel for the processor – 30% to Intel or AMD
o $104 for the disk drive
o RAM - $54
o Remaining hardware, power, case, circuitry - $100
o Windows operating system - $45 – Roughly 10% to MSFT
· Technology is becoming a cyclical sector – Apjit Walia – RBC Capital Markets
· Tech growth – Tech grew at five times GDP in late 1990’s
Database market share:
2000 2001 2002
Oracle 33.8% 32% 39.4%
IBM 30.1% 34.6% 33.6%
MSFT 14.9% 17.8% 11%
Sybase 3.2%
Informix 3%
Others 15%
Storage market share: As of Feb 2002
EMC – 34%
CPQ – 21%
IBM – 10%
Sun – 11%
Storage market share – 2004:
EMC – 23.1%
H-P – 16.6%
IBM – 12.1%
Hitachi/HDS – 8.8%
Sun – 6.2%
Dell – 5.8%
Others – 27.4%
Server Based Email Systems – 2002 market share
MSFT – 43.3%, IBM/Lotus 37.1%, iPlanet 1.8%, Novell 1.3%, Others 16.5%
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Platform Market share - Desktop
Year 2000 2001 2003
Windows 92.1% 93.2% 94.4%
Mac 3.9% 3.1% 2.7%
Linux 1.7% 2.4% 2.6%
Other 2.4% 1.3%
Platform Market share – Server
Year 2000 2001 2003
Windows 41.6% 48.9% 61.6%
Netware 14.7% 11.7% 8.81%
Unix 14.9% 11.6% 11.2%
Linux 25.3% 25.7%* 18.5%
Other 3.6% 2.1%
(*based on paying customers)
PC Market share – 2Q2003 – Dell 17.8% - H-P 16.2%
Server Market Share
Company 2003 2002
IBM 32% 30.4%
H-P 27.2% 27.0%
Sun 11.8% 14.6%
Dell 8.6% 7.4%
Fujitsu Siemens 5.6% 5.2%
Flextronics (FLEX)
Sanmina - SCI Systems (SCI)
Celestica (CLS)
Solectron (SLR)
Unix Server Market Share – 2003
Company Market Share
H-P 36.9%
Sun 30%
IBM 26.4%
Company Market Share
SAP 20.0%
PeopleSoft 6.9%
Oracle 5.5%
MSFT 2.6%
Sage 2.3%