Financial analysis for smartphone industry

After a heat discussion, our team chose the gifted remember patience for the following two reasons. Firstly, tele bid is a signifi tail assemblyt communicating instrument around the world today. International Telecommunication compass north predicts that the number of cubicle phones would exceed the number of human beings in 2014. Secondly, with the change magnitudely functions of hurt phone, it plays a vital role in the relevant industries. The thrive development of offend phone manufacture also accele calculates the development of a nonher(prenominal) industries such as the cell phone battery industry and cell phone game industry. . 1 Industry Analysis We are talk ab step up smart phone industry specifically. The newly formed competitory food marketplace includes hardware manufacturing, operate ashess and content. feeling back on the history, leading of those fields have changed a lot, as Monika, Motorola and RIM have been transc breaked by orchard apple tree, Samsung and otherwise shops. Apply Porters five force analysis to smart phone industry. Starting from threat of entry, software faces this more because of open platforms. Floods of capitals are needful for R and ope dimensionn levels, thus this threat is moderately high.Substitutes akin Pads, bank billbook computer and laptops have entered the market causing the threat. Threat also comes from suppliers, fragmented cut and the effortfuly of vertical integ balancen have impeded companionship dineroing. only when the threat is low overall. Meanwhile, buyers also impact threat by dissimilar demands and high bargaining power. All these four threats take in a high threat of rivalry. Brand and c one timentrated market also matter. For the industry status, in 2011, the smart phone application market was about employ 6. 7 one million million which is expected to be USED 1 55 billion with CARR of almost 55% from 2011 to 2017.In addition, worldwide changes of smart phones to end users totaled 968 one million million units in 2013, an amplification of 42. Percent from 2012. Sales of smart phones accounted for 53. 6 percent of overall mobile phone sales in 2013 which accounts for 75. 8% of the overall mobile handset revenue. 1. 3 Firm definition We choose six companies in smart phone industry to do some(a) analysis. They are Sony, apple, Samsung, ETC, Black Berry and Monika. The firms we choose represent contrary level of capital punishment in the industry. apple and Samsung are outstanding firms with higher enlighten income and greater positiveness.MONIKA, SONY and blackberry are firms once created brilliant achievements besides suffer from ailing business in the diachronic 3 years. ETC is a newly brought-in competitor with advanced technology in developing smart phones. The six firms experienced different types of history. Samsung struggled with poor quality and inferior products in its earlier propagation. Apple detectmed to flex grad ually since it was established. On the contrary, Blackberry and MONIKA were once outstanding in the industry. SONY (SONY Ericson) left behind(predicate) when transforming from mobile phones to smart phones.ETC has a short history. Most of the firms experienced several important mergers or science in the sometime(prenominal)(a) 5 years. Badly-performed firms shrink while well-performed ones expand their equines by proper selling plans or encyclopaedisms. Some important events are as follows. Microsoft stated to acquire Ionians mobile business and large amounts of visible portfolios with 7. 17 billion dollars. Blackberry made an announcement that the corpo proportionalityn agreed to be acquired by Fairfax Financial Holdings at the harm of 47 billion, though the selling plan move arounds out to be failed.SONY and Ericson were incorporated into Sony Mobile Communications. 2. Past murder analysis Note Risk free rate US. Government wed rate for 5 years Expected market commit h istoric industry return for 5 years 2. 1 Samsung 013 is a hear year for Samsung, possessing the biggest market helping in smart phone for 31. 5% ahead of 15. 5% for Apple. For the first sq in 2013, PEE balance reduced from 9. 09% to 6. 99% and it rose to 7. 30% in SQ. For the capital structure, 93. 2% was financed by paleness and bond took up 6. 7%. Stock return for 2013 is -3. 7%. Move to past areas. PIE ratio experienced biggest decrease from 1 1. 88% to 7. 04%. Stock return is waving from 2. 98% to 28. 53%. Now concentrate on past areas. PEE ratio as 1 1. 88% peaked in 2011 standing out from a general d stimulatewardly trend. Besides, the releasing of GALAXY Tab 3 and GALAXY Note 10. lot register derangement rate ratio higher. The peak for debt to equity ratio appeared in 2011 which is 0. 1446 and the trend is downward. Stock return in 2009 is highest for 64. 42%. The comprise of equity for Samsung is 27. 63% be beat upn its current genus Beta is 1. 12.For the divid end policy, the handout ratios are 12. 3%, 9. 3%, 6. 0%, 5. 1% and 7. 11%respectively since 2009. The most recent dividend pay date is on August 26, painting out 75. 4 million USED. On July 17 2012, Samsung acquired the handset operations of CARS Pl, and invested a 4. 9% peril in the telephoner later. It is the largest acquisition case for Samsung since the 1997 uncial crisis. Actually, Samsung realizedd 5 acquisitions in 2012 which is more frequent than before. Acquisitions progress appears in net income come up from in 2011 to and to in 2012 and 2013.Inventions also declined from 3,859,994 to 2,918,234 until 2013. Samsung sold a record 86 million smart phones in Quaff 2013 and widened its lead over Apple selling 51 million for phone 5. 2. 2 Monika In 2013, Monika had a minus PEPS, showing that Monika didnt do well in 2013. The origin derangement was about 6. 0, lower than the industry mediocre (about). hard roe was negative. The debt/asset ratio was 72. 59%. The dividend per distribute was O in 2013. The melodic phrase return was 97% in 2013 and the cost of equity for Monika is 8. 66%, given its current beta is 1. 3. spirit at the past 3 years, we find Debt/Equity ratio of Monika was increasing constantly. The ROE ratio was always negative over the past leash years, decrease from 2011 to 2012 and increasing from 2012 to 2013. The dividend per apportion reduced from 0. 33 in 2011 to 0. 13 in 2012, then too in 2013. The stock return increase from -55% in 2011 to -23% in 2012, then to 97% in 2013. Considering the past five years performance, we find that Monika did quite an a respectable put-on in 2009 and 010 because its PIE ratios were positive and really high.The dividend per share decreased from 0. 41 in 2009 to 0. 31 in 2010. The trend of dividend per share from 2009 to 2013 is declining. The stock return increase from 2009 to 2013 while it was negative from 2009 to 2012. As for important events, on September 3rd, 2013, Microsoft declared to acquire Ionians mobile business and a large amount of patent portfolios with 7. 17 billion dollars. The stock price of Monika soared from about 3 dollars per share to about 8 dollars per share from August 29th, 2013 to November 18th, 2013.We compare the financial performance of the third bum out and fourth quarter of 2013 and find that net income increased a lot from -91 millions to -millions of dollars. 2. 3 Apple In 2013, Apple had a perfect performance. The ROE (about 0. 3064) and PIE ratio (about 15. 21) are both three times higher than the industry average, Besides, the inventory turnover of Apple is about 83, Apple is already well-known for its supply chain. The keep companys 40. 31% of assets came from debt and 59. 69% of assets came from equity. The of apostolic in 2013 is 0. 74, and the cost of capital for pontifical is 22. 3 percent in 2013.In the past 3 years, the current ratio and price- dough ratio did not change a lot, barely ROE decrease sharply in 2013, and the debt/equity decreased in 2012 and increased in 2013, meaning that the company issued more stocks than bonds in 2012. The annual stock return 0. 013 in 2013, 0. Tent 2012, and 0. 243 in 2011. feel back over 5 years, the ROE increased from 2009 to 2012 and decreased in 2013. The inventory turnover went up sharply from 2012 and went down a smaller in 2013, which is partially because of the phone asss massive success. In addition, PAPAL began gravid shareholders a quarterly dividend of $2. Per share in 2012. This dividend yield is about 1. 2% higher than the industry average. Apples business philosophy is to acquire small companies that can be easily integrated into existing company projects, so Apple did more than 60 small acquisitions in the last decades. Apple merge plenty of software makers including Sir. After the acquisition, Sir has been an intelligent personal assistant and was introduced as a feature of the phone AS. This technical innovation has been a huge success s o that more than 50% profit of Apple company came from phone in 2012. 2. ETC 013 is a struggle year for ETC, we can see that most of the draw ratios of the company are downstairs the industry average, profitability measures are almost all negative, and ROE are -1. 67, indicating that ETC failed to earn luxuriant profit to even cover its expense. The high Debt/equity ratio (1. 22) makes its stock risky. The of ETC in 2013 is 1. 88, while the industry average is only 1. 12. High makes the cost to raise capital high too. The cost of capital for ETC is 10. 13 percent in 2013. Looking back over 3 years, we found that Itchs profit has been declining since 2011, inventory turnover declined from 12. 8 to 7. 0 due to the poor sale and management problem. The annual stock return -0. 525 in 2013, 0. 064 2012, and -0. 392 in 2011. Looking back over 5 years, it is clear that the business boomed during 2009 and 2011, and started to fall behind since then. The sale increased by about 1 11% fro m 2009 to 2010, precisely stock price has fallen by 90 percent since then. Besides, the company prescribed at least 50% of the total dividend be distributed as cash dividend, it pay dividend in July or August every year. ETC entrust that acquisitions are the key to help ETC quickly grow to compete with its competitors.So ETC played out more than $700 lions on acquisition in 2010 and 2011 trying to gain market share. Major mergers include SO Graphics, Beats Electronics LLC, and etc. However, Itchs acquisition schema didnt work well as expected. Those deals neither helped ETC to boost its daub go out or to win the law suit, the sale have also been decreasing since the requested of 2011. 2. 5 Sony From 2009 to 2013, Sony had gone through a road of difficult and twists. In 2013, Sony didnt have a well performance. Its current ratio, ROE and inventory turnover ratio is under industry average.To be specific, its inventory turnover ratio is the final. Through its PEE ratio is strange ly high, I conceptualize it mostly related to the small profit number. Looking back over 3 years, we can see most ratio, including ROE and inventory turnover ratio, had a peak in 2012. Especially ROE had a semivowel from 2011 to 2012. There are four reasons. First, Sony Corp. acquired the re principal(prenominal)ing 50% stake from elm Ericson Telethon ABA on February 15, 2012, which made mobile phone sales increased a lot. Last, the yen de think ofd. Looking back over 5 years, the current ratio and ROE had a drop until 2011.The inventory turnover ratio had a peak in 2010 while he debt-equity ratio increased until 2012. Actually, Sony had negative net income for consecutive four years. Not only it is a ending of disasters such as JP Tsunami, but also it is because the yen appreciate and digital products from Japan were shocked by other goods. The stock return ratio of Sony from 2009 to 2011 has dropped from 0. 5 to -0. 47. However, it began to increase then. The ratio in 2013 is a bout 0. 15. It is consistent with what ROE shows. The cost of equity is 52. 72%. It is large due to the high progress (29. 64%) and high risk (beta-?I . 2). 2. 6 Blackberry 2013 is not a pleasant year for Blackberry. The ability to generate profit is remote behind its peer competitors. PEPS and ROE of the firm are -1. 23 and -6. 61% due to the negative net income. However, the current ratio highly preceding(prenominal) the industry average (about 1. 09). Stocks risk of Blackberry is low, measured in of 0. 48. found on p, the cost of capital is 3. 70%. On account of the unwholesome performance over the year, annual stock return in 2013 is -0. 426. Looking back to the past three-year performance, Blackberry dropped from its recent peak in 2011 to historical worst.Blackberry experienced a terrible service interrupt in Cot, 2011, which in earnest damaged the rim reputation and directly caused the following bad performances. blood declined sharply in 2012, with falling ROE and PEE ratio. In review the performance in last five years, we could see that even under unpleasant financial crisis, Blackberry still could hold itself. PEE ratio was 17. 1 in 2009 and 10. 0 in 2012, both showing a good prospect, however, the ratio then began to decrease sharply later 2010. yearbook stock return was at first positive in 2009(0. 19), but it has fallen below zero ever since. Inventory turnover is quite stable during the whole period. No dividend has been strutted during recent five years because of the bilk performance. Most important series of restructuring events in Blackberrys history appeared in the year 2013. blackberry bush first announced to have r for all(prenominal) oneed a potential acquisition agreement with its biggest shareholder Fairfax Financial on Seep 23rd, after this good news, the stock price of BlackBerry shot up 0. 6 dollars. that the potential acquisition plan didnt last for a long time.In Novena, 2013 BlackBerry declared the breakdown of the se lling plan. By pm Novo 4th, the stock price of BlackBerry has dropped 1. 44 dollars (18. 53%). 3. Future performance analysis . 1 master formal Pro formal of Cash Flow Pro formal of Balance Sheet & Income Statement Note Erg (regression) W-M (weighted-moving-average manner) Final ( lowest forecast) We complete the pro formal by three steps. First step is to do an autoregressive analysis to forecast the entropy of 2014 and 201 5 through the historical data from 2009 to 2013. Then, we computed the weighted average by giving the weight of 0. 5, 0. 1, 0. 15, 0. 3, and 0. 4. Finally, we find some forward looking data predicted by economic forecasters on the cyberspace and use moving weighted average method acting to postulate final data which are more efficient. What is more, if on that point is no forward looking data, we use weighted average on the regressive result and average result. We combined two different methods to do the forecast. Because every method has it is own drawbac k. For the regression method, it cannot show that the modish data, which indicates the trends more accurately, is more vital than the forward one.And the weighted average can overcome this drawback by giving the latest data more weights. But for some items like income, we think the result of regression method is more accurately. So we combined these two methods by using weighted average. 3. 2 Recommendation We divided the analysis of future(a) performance of PAPAL into two parts The analysis of data and the analysis of reality. Firstly, Let us focus on the forecast data. We analyze three kinds of vital data measuring the performance of PAPAL. The first one is earnings per share (PEPS), which reflects the ability of company to generating profit.We forecast this data by regression, which is to presage the net income and shares and do a Multivariate regression. The result is around 45. Then, there are five websites give out the PEPS estimate around 47. 9. We give them weights and g et the final data of 47. . PEPS is the dollar value of earnings per each outstanding share of a companys common stock. Higher PEPS means that the company can generate more net income by each share and it can use less capital to get higher profit. Besides, the dividend whitethorn be high because of the high PEPS. The forecast data 47. In 201 5 is higher than todays data and it is reliable, because the net income and the shares are both increasing and the increasing speed of shares is slowly. So the performance of PAPAL leave behind be mend in the future. The second one is PIE ratio. We use the weighted average method to get PIE in 201 5, which is 13. 2, and we also use the regression method to get it, which is 13. 44. We find that the forecast PIE ratio in Yahoo is 13. 07, which is not a high one. Theoretically speaking, a stock with low PIE ratio is a good one to enthronization, because the purchase cost is low.Besides, we think the value of PAPAL is underestimated now because of the high PEPS and the low PIE ratio. The price of stock will go up in the future. The third one is ROE, which shows how well PAPAL uses investment funds to earnings growth. We use the weighted average method to get ROE in 201 5, which is 36. 34%, and we also use the regression method to get it, which is 38. 6%. The average number is 37. 6%. ROE measures the rate of return on the shareholders equity of the stock owners, which measures a firms ability of generating gain from every unit of shareholders equity.Generally speaking, ROES more than 10% are strikeed good. Besides, the ROE of PAPAL is a reliable one, because the debt asset ratio is not high. In conclusion, we preach that stockholders could hold Pals stock for a long time because of the low PIE ratio and the high ROE. Performance we forecasted originates from two reality parts, one is expected increase found on past and current situations and the other is unexpected hangs including authoritative and unsystematic risks al ign with future. The anticipated two opportunities for Apple are study as following.The global market for smart phone will grow in few years based on GIG omen and the annual sale is expected to increase from 1 billion in 2013 to 1 . Billion in 2017. Until the end of 2013, the SIS system accounted for 41. 2% and Android is 51. 9% comparatively. This intense rising user trend will amplify the market pie. The other is the cooperation with China Mobile. Above million fixing customers of China Mobile will assist the sales rise for Apple. unthought systematic risk consists of interest rate risk and foreign capital risk. The company typically invests in highly-rated securities and changes in U.S. Interest rates hazard the interest earned on the companys cash, cash equivalents and marketable securities, the fair value of those securities, as well as costs associated with hedging. In the third quarter of 2013, the company issued $17. 0 billion of long-term debt, which included $3. 0 bi llion of floating-rate notes. In addition, Apple is a net receiver of foreign currencies and changes in exchange rates, particularly strengthening of U. S. Lars will negatively affect its net sales and gross margins expressed as U. S. Dollars originally. Unsystematic risk involves Apples intimate specific performance.New products release like will be a main source. The attraction of next generation Apple phone is controversial and based on past dissatisfying sales of phone and pad, their growth rate closely held constant. Some people concern its innovation without Jobs but some analysts note that the bigger size for phones will eliminate advantage of Android system brands like Samsung. Charm of wearing new product which is twitch concretely is also worth anticipating ND we may get some indicts from the approaching WAD held in Los Angels. Beyond this, Apple will increase purchase of stocks and issuance of dividends.According to Sanford C. Bernstein prediction, Apple will issue BI B dollars dividends in 2015. This will increase the value of stocks held on shareholders if the PEE ratio increased after the issuance. 4. Relative Performance According to the comparison of 5 key ratios, the underperforming corporations are SONY, Blackberry, ETC and MONIKA. Most of the firm shared common problems in several aspects as lack of innovative products and inventory management, while mom have deprecative faults in designing strategies. Relative performance and recommendations are as follows.According to the lowest inventory turnover ratio of Sony among its industry peers, one recommendation for Sony is to turn over its inventory quickly. It can improve its supply chain, manage efficiently to product appropriately. Due to the fast update of digital products, long inventory turnover period will enlarge the risk and the cost. Besides, 3. 1% of the market share is so small compared with Samsung and Apple that its ROE cant increase smoothly. The key to increase its market sh are is to launch the new production. Only by creating great mobile phones like phone, can Sony rebuild its Sony Time.Similar problems appeared in Blackberry and Monika. Most of Blackberrys profitability ratios as PEE, ROE and PEPS are under industry average due to firms negative net income. The reasons are lack of good-natured application programs and disappointing new product. Apples phone and Googles Android squeezed the market share of Blackberry smart phone. The newly launched table PC was also not satisfying with simple functions but high selling price. Blackberry should not only depend on its good reputation in email recessing system, but focus more on users entertainment experience like fancy interface and programs.Besides, Blackberry is the only one who ignores the prospect in China. To recover from declining tendency, a competitive product is required to open its Chinese market. The negative ROE and low inventory turnover ratio indicates that MONIKA is losing funds . The reason is that the product of Monika is not as popular as that of other leading companies like Apple and considered to be lack of innovation, and its Simian operating system (until 2013) is not advocated by developers. So Monika should increase funding for look for and develop products that appeal the consumers.Given that the mobile phone business of Monika was acquired by Microsoft on April 5th, 2014 (the acquisition was started on September 3rd, 2013), Microsoft should learn a lesson from the failure of Monika. ETC has been struggling in China due to price competition and limited distribution. many another(prenominal) people think the wrong high-end market strategy got ETC into trouble. To get out of woods, ETC may need to forget its strategy on high-end market and consider a partnership (merger) with another smart phone company that could append synergy.Chinese smart phone makers sell products domestically because they have weak brand awareness in other regions, but ETC has e stablished solid brand awareness in the United States and Europe, which Chinese handset makers could capitalize on. And ETC could get resources to get through this situation and look for new chances for development. So a merger with Chinese films could be a win-win. 5. Conclusion From the perspective of companies in the smart phone industry Considering the fast speed of development of Asia-Pacific market, each company should strive to evolve Asia-Pacific market.Moreover, the target market of the company must be effective. As for products, companies should develop the products that satisfy consumers preference. From the perspective of investors The smart phone industry has a great development potential, so investors have genuine investment opportunities in this industry. But investors should cautiously determine the invested companies. We recommend selecting invested companies concord to their past and future financial performance, the fitness between their products and the prefer ence f the market, the market strategies and so on.