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Apple vs Dell an Analysis of Two Leading Information Technology Providers

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This paper provides the historical background and financial data of two of the leading information technology (IT) corporations in the United States. Going beyond their humble beginnings to the present, an analysis is made of their current financial performance. This serves to compare and contrast the differing business strategies of the two financial juggernauts. The two companies are direct competitors in the IT market place. Developing cutting edge software that is futuristic and enticing is what Apple does best.

Apple has the ability to offer a diverse product line that caters toa ide variety of consumers. pecially tech sawy earlier adapters. Dell’s marketing approach is to create a product line that is affordable and easily used by the general computing public. Audit reports, ratios, cash flows and Income statements are analyzed to gain a clearer picture of which marketing strategy is proving to be the more successful. Corporate Histories and Strategies: In 1976, high school friends Steven Jobs and Stephen Wozniak shared a common love and interest in electronics. In their early stages, Apple I & II were designed as a hobby. Apple I was actually created in Steven’s bedroom.

They would showcase the computers at the Homebrew Computer Club (of which they were members) as a demonstration (Apple Museum, 2011)”. The highlights were the video screens, and the fact that it used few chips to operate (during this time keyboards and video screens were not well established). The blue prints/schematics were passed around freely for all to see. Stephen would go to the homes of friends and help them build their own. Their computer displays would take place at club meetings, showcasing new features and additions. Dell, Inc. began in 1984, when then freshman pre-med student Michael Dell used 1000 dollars to fund PC’s Limited.

Working in an off-campus dorm room at the University of Texas in Austin, Michael Dell had a goal to produce IBM compatible computers from stock components to suit individual customer needs. Michael Dell bought parts from wholesalers, than sold the finished computers by mail order at very low prices. One similarity both Apple and Dell shared was their early and rapid success. Dell had plans to make computers that could be customized with specialized components to build a computer system to accommodate individual requirements and give the customer exactly what they wanted.

By ordering the components wholesale and selling directly to the consumer, Dell eliminated the need for retailers to serve as middle-men (which cut into his profits). Initially, Apple would build the computers at night in their garage. Their plan was to sell the circuit boards to members of their club. Before they had the opportunity to do this, Apple received a $50,000 order from a local vendor. This drastically changed their plans. The initial financing was used to build one hundred computers that cost a little over a hundred dollars per system to build. The plan was to purchase the parts needed on a 30 day credit term.

Surprisingly enough, with no established credit, or collateral, Steve persuaded the vendor to do Just that. With parts secured, they began to test the computers in the garage. There was a ten day turn-around to produce a new computer. Throughout the process, they received positive feedback and much needed exposure; the product emerged to become one of the most innovative creations of all times. Dell computers (IBM clones) were built from stock parts as they were ordered. In 1985, the founder dropped out of school, got a family loan for $300,000 dollars and began to focus all his effort on the new company.

Later the same year the company introduced its first non IBM clone computer, the Turbo PC. The computer utilized an Intel 8088 processor that ran at an impressive (at the time) speed of 8MHz. It sold in the United States for $795 dollars. The computer systems, which were advertised in computer magazines nationally, were purchased through direct sales. Given a list of options, the customers choose the components they wanted and the computers were built as they were ordered. This process, known as the direct business model, allowed the meteoric rise of Dell Computer.

The company was able to provide great ricing, which proved to be much lower than the competition. The company’s business formula proved to be a great success and in the first year of trading they grossed more than $73 million dollars. Ironically, the incredible financial success achieved so quickly actually served as one of the largest hurdles. The biggest challenges the company faced were keeping up with the demand for Dell products, while keeping overhead low. Ireland became the first of many international operations in 1987. In 1988 they assumed a new company name, Dell Computer Corporation.

This company with humble beginnings grew from a $30 million dollar ompany to a $90 million dollar company. Dell’s attempt to market their computers via warehouse club stores and superstores did not meet with success. The buying public preferred the ability to choose and build the machine that they wanted, as opposed to the limitations of the direct sales approach and in 1988, Dell Computer Corporation went public, selling market shares for $8. 50. Apple’s products are sold to several different markets i. e. SMB, education, enterprise, government and artistic.

They are also sold in many different venues; retail stores, on-line, third-party wholesalers, and resellers (Apple, Inc. “. As recent as 2010, Apple reported a net profit of 14,013. 00 million dollars during the fiscal year ended September 2010, an increase of 70. 16% over 2009. It “designs, manufactures, and markets a range of personal computers, mobile communication devices, portable digital music and video players as well as sells a variety of software to include services, peripherals, networking solutions and third party digital content and applications (Apple, Incr.

Apple is committed to providing its customers with products that are user friendly. Their business advantage is that they have the ability to design and develop heir own operating systems, hardware, and application software. The company believes continual investment in research and development is critical to the development and enhancement of innovative products and technologies. Additional, the Company’s strategy includes expanding its distribution network to effectively reach more customers and provide them with a high-quality sales and post-sales support experience.

While Dell Inc. has experienced some troubles in the past few years, the company continues to be one of the largest computer manufacturers in the world. This is primarily due to customer satisfaction and competitive pricing. While other companies have implemented direct sales, Dell Inc. continues to be the most successful at it. Management Reports: Apple’s financial statements and related disclosures are in conformity with U. S. generally accepted accounting principles (GAAP).

Critical accounting policies and estimates are related to revenue recognition, valuation and impairment of marketable securities, inventory valuation and inventory purchase commitments, warrant costs, income taxes, and legal and other contingencies (APPL)”. The Audit Committee believes its policies and procedures should remain flexible n order to best react to changing conditions and to ensure to the Directors and Stockholders that the accounting and reporting practices of the Company are in accordance with all requirements and are of the highest quality.

Apple’s Audit and Finance Committee of its Board of Directors reviews its auditors every five years, and in 2009 they decided to change firms for the remaining of fiscal year 2009. Apple noted that the audit reports did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. KPMG was released from their role and Ernst & Young LLP was selected for the remainder year. On January 25, 2010 filed a form IO- KIA to amend its form 10-K for the year ended to reflect the retrospective adoption of the new accounting principles.

Quarterly reports on Form 10-Q for periods prior to the quarter ended December 26, 2009 do not reflect the new accounting principles. The new accounting principles significantly change how the Company accounts for certain revenue arrangements that include both hardware and software elements. Their audit was in accordance with the standards of the Public Company Accounting Oversight Board (United States).

The consolidated balance sheet present fairly, in all material respects, the consolidated financial position of Apple Inc. September 26, 2009, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with U. S. generally accepted accounting principles. They were also audited in accordance with the standards of the Public Company Accounting Oversight Board (United States). The consolidated financial statements, Apple Inc. has retrospectively adopted the Financial Accounting Standards Board’s amended accounting standards related to revenue recognition for arrangements with multiple deliverables and arrangements that include software elements.

Apple’s Internal Control over Financial Reporting was also audited by Ernst & Young. “The audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing other procedures as they considered necessary in the circumstances.

In our opinion, Apple Inc. aintained, in all material respects, effective internal control over financial reporting as of September 26, 2009, based on the COSO criteria” apple. ic] Corporate Analysis: Based on the information provided in each company’s financial statements, Apple proves to be the most financially stable. When comparing the two income statements, it can be noted that Dell generates more revenue, but spends more than 80% of it in the manufacturing and delivery of their products. Apple spends a more efficient 65% or less in manufacturing and delivery. The two companies appeal to different target markets. Dell provides a quality, low cost, and user friendly product; Apple is more technologically driven at a higher price point.

If Dell were able to raise their product lines contribution margin by further streamlining their manufacturing and delivery process, they would have the potential to be more profitable then Apple. Based on the financial information given, Apple is the superior performer. If Dell could reduce their Cost of Revenue to 40-50% of their Total Revenue, the situation would be reversed. Profitability of the two companies is drastically different. Apple is averaging around 40% compared to Dell’s 18%.

This means Apple is able to apply 40% of each sales dollar toward covering costs and add to profits. Dell is contributing about half of the amount of Apple. This means that Apple is more efficient with its actual dollar per sale. There is a high degree of contrast in the Liquidity of the two organizations. Apple has over twice the liquidity of Dell. Liquidity is the amount a company can cover debt or maturing payments. If current assets are greater than current liabilities then the assets are considered to be liquid (meaning readily able to turn into cash to pay debt).

The object is to have a high current ratio to be able to over debt as it matures. Leverage is the act of balancing debt to equity. The goal is not to maximize but to balance, in order to utilize when needed depending on the nature of the business. Apple and Dell were relatively close, maintaining a range of 25% to 35%. There was one outlier with Dell. In 2009 the return on equity was at 58%. This was a very percentage as it shows the shareholders are getting their return. However the next year shows a tremendous now this could be due to heavy investing.

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