Whose Notebook PC Business Is Most Valuable?

Based on our Discounted Cash Flow (DCF) analysis of the notebook PC businesses of Apple (AAPL), HP (HPQ) and Dell (DELL), we've estimated that Apple's notebook business is more valuable than that of HP and Dell combined. Apple's higher valuation is driven by three factors: (1) higher average notebook pricing compared to HP and Dell (2) growing market share (3) higher margins (making Apple notebooks more profitable).

Notebook PC Valuation

Apple: $22 billion
HP: $12 billion
Dell: $6 billion

For all three companies, the notebook PC business is more valuable than the desktop business given the on-going shift in demand from desktops to notebooks so figures above also give you a sense of the comparison for their overall PC businesses.


Key Valuation Metrics

	Avg. Notebook Pricing (2009)	Notebook Market Share (2009)	Notebook Margins (2009)
Dell	$814	13%	~5%*
HP	$714	21%	7.5%*
Apple	$1,200	5%	33%**

Source: Trefis estimates
* EBITDA margin estimate
** Gross margin estimate


Additional Detail on Trefis Forecasts

Pricing: We expect pricing to continue to decline for all three notebook makers.

• Apple: $1,200 in 2009 to $699 by the end of the forecast period
• HP: $715 to $526
• Dell: $814 to $413

Market Share: We expect Apple to have the largest market share gain while HP has a small gain and Dell has a small decline

• Apple: 5% in 2009 to 10% by the end of forecast period
• HP: 22% to 23%
• Dell: 13% to 12%

Margins: We expect Apple margins to decline but still remain relatively high overall and that HP will continue to have higher margins than Dell

• Apple (Gross Profit): Decreasing from 33% to 30%
• HP (EBITDA margin): Increasing from 7.5% to 8.5%
• Dell (EBITDA margin): remaining around 5%

Disclosure: No positions

Comments

[Stefan Sida...:]

Not sure where average notebook sale price of $1,200 comes from. I get $1,313 by dividing total notebook revenue by unit shipped:
($9,474 B)/(7,214M units).

Nov 06 03:39 PM

[bobthenoob:]

"Apple: $1,200 in 2009 to $699 by the end of the forecast period"

$699 Average laptop price from Apple? This must be your first time covering AAPL.

Nov 06 09:03 PM

[jcr2:]

The problem with this analysis is that it only includes hardware. Dell, by far, more than Apple or HP sells its notebooks to corporate customers - their mix of consumer notebooks is still small.

With the sales to corparte customers comes managed and upsell services opportunities - such as customer factory integration, onsite installation, systems and overall asset management, upsell warranties, cloud based business services, etc. The margin from these businesses are high and not included as part of the hardware reporting. Basically, the hardware is pulling a lot of other business which is also a recurring stream. This is a business model that Apple completely lacks, and where HP has a much smaller mix.

Nov 06 09:07 PM

[bluemarlin1402:]

You are an idiot. Apple will never have a $699 ASP for notebooks. Where did you get such an outrageous number?

Nov 06 09:42 PM

[dvd:]

"...$699 by the end of the forecast period" I can see that or even less. Current MacBooks should be there by 2030. Or were you forecasting to 2020, 2050?

Nov 07 12:01 AM

[macrelated:]

What is the forecast period?

Nov 07 07:14 PM

[Trefis:]

To clarify some of the questions above, we conducted our DCF analysis using a seven year forecast period. You can see additional detail at Trefis.com where you can also modify our forecasts (e.g. pricing, market share, margins) to see what the value would be based on your own beliefs. If you don't have access to the site, you may request an invite at Trefis.com.

Nov 07 09:34 PM

[Jon T:]

7 years is a long, long way out, especially in this business.

For example, I doubt Dell will even exist in 7 years...

As they say with forecasting, no-one will ever come back and say you got that wrong!

Your price for Mac laptops might be correct, if you include new family additions such as the forthcoming Slate/MacTouch product expected in 2010.

I do doubt Apple will have margins under 32%, with increased market share and volume, I expect their buying power to increase rather than diminish, so expect 35% plus.

Nov 08 06:54 AM

[dmeharc:]

Overall your approach has much merit - but for what purpose? My company, Valt.X Technologies, is introducing Cyber Secure Computers based on an ultra security chip we have developed. As we approach HP, Dell, Apple and others we will be promoting the value our technology brings - increased margins, market share and market cap. Users pay $125-150 for our chip which replaces anti-malware software - our chip works with absolute certainty.

Dell has a $29 Billion market cap and $2.2 Billion Net Tangible Assets while Apple has $175 Billion market cap and $27.2 Billion Net Tangible Assets. Dell's future business is forecast worth $27 Billion while Apples is forecast worth $148 Billion (Market Cap minus Net Tangible Assets)

Nov 08 09:43 AM

[GSlusher:]

Care to bet your life on that? I.e., if any computer using your chip experiences any problem from malware over, say, 7 years, would you commit ritual suicide in public? If your answer is "No," don't use words like "absolute certainty."

On Nov 08 09:43 AM dmeharc wrote:

> our chip works with absolute certainty.

Nov 08 06:40 PM

[jack dee:]

This is all silly. "notebook PC " is just a name given to a seg of a seg of a market.

Or did they mean laptop?


Because if this is really about notebooks, then it is a waste, notebook are just small laptops, and netbooks are just rubbish notebooks,

And all the while laptops will blend twist turn with lots of new names and still be computers that you can take with you.

Perhaps in a few years we will all be talking about apple branded GOOGTEL machine... :)

Nov 09 05:17 PM