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Tech Industry Drivers [INTA-GB.2307]

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I have discontinued teaching this course.

Overview

This course will teach you how to identify core drivers of tech companies and how tech companies differ in the execution of their business plans to exploit these drivers. The structure of the course is similar to the Business Drivers of Industries course except that this course is focused on the tech industry.

 

This course counts towards the following specializations:

 

You should take this course if you are interested in working at a tech company (strategy, product management, corporate finance, business development, digital marketing), tech banking, buy-side and sell-side research focused on tech, private equity/venture capital focused on tech, or starting your own tech company. Even if you believe that you will not be looking at financial statements, it is still good idea to understand how strategic choices and execution translate into financial outcomes.

 

The course will cover about 60 tech companies separated into 12 groups (see outline below). Some of the interesting companies (e.g., AirBnb and Uber) are not public yet, so their financials are not available. Therefore, these companies will be covered once they go public.

 

The course will be 25% lecture and 75% case presentations. Each team will be assigned one company per week and each team will present its analysis to the class after discussing the analysis with me.

 

Your will learn to analyze a company in the following sequence:

 

The course will be a hands-on course and your attendance in each class will be mandatory unless you have sought prior permission to be absent. Valid reasons for being absent are recruiting, weddings, and medical or family emergencies. Absences due to leisure travel, extended vacations, or sheer lassitude will be penalized. Grading will be based 50% on class participation and 50% on final project presentation.

How this course differs from existing courses

This is a new type of course. To clarify its role, I will now explain how it differs from the following existing courses.

 

Strategy: We will discuss the factors that influence strategy. We will illustrate the application of frameworks you have learned in your strategy courses to a wide array of companies and industries.


Financial statement analysis (FSA): The focus of my course is on a broad financial overview of industries, not on a detailed analysis of financial statements. The latter is reserved for the FSA course. The following attributes make my course different from the FSA courses.


Modeling: We will not build any financial statement models in the course. However, you will use excel for certain assignments — basic knowledge of excel is sufficient.


Valuation: We will discuss value drivers but we will not build a valuation model and actually value companies.


No new accounting concepts beyond the core accounting course will be needed or discussed. However, the course does require you to read financial statements every week, which requires accounting knowledge.

Six key drivers

The course highlights how and why businesses differ along the six key drivers listed below:

Size

How do we measure size? Market cap, or sales, assets, or number of employees? What are the merits or demerits of each metric? Is the industry fragmented or do a few large firms dominate it? What are the reasons for such patterns? For example, how do economies of scale and scope affect the distribution of sizes? What role do network externalities play in industry consolidation? How do the bigger firms differ from the smaller firms in the industry? How does size affect risk and return?

Growth

What are the drivers of growth? How does growth affect the business model of a company? How does growth affect the financing of a company? What do we know about the rate at which an innovation is adopted by a wider market?

Margins

What are the major components of costs as a percentage of sales? What are the drivers of margins? For example, is the margin driven by pricing power, conversion efficiency, or purchasing power? Is the company primarily driven by the success of its R&D, the efficiency of its production, or the successful marketing of its products to customers? How do the margins change as a company matures? How do companies offset low margins with high volumes, and vice versa? How does that affect its hiring and management practices?

Volume or net asset turnover

How asset intensive is the business model? Does it create barriers to entry? What risks does it create? How does it affect the financing needs of the companies in that industry? Are the revenue-generating assets listed on the balance sheet?

Business risk

How does the extent of fixed costs, i.e., operating leverage, affect the business model of a company? Does it lead to ruinous price competition in a down cycle? Which costs are fixed in the short-run vs. the long run? How does a company mitigate the risks arising from fixed costs?


Is the business cyclical? What do we know about business cycles? What risks do they create? How does fiscal and budgetary policy change in response to business cycles? How does that affect the business we are trying to understand? Is its business model sustainable enough to survive the downturn of a business cycle? Can and how does a company mitigate the risk of down cycles? How does cyclicality affect the financing of a company?


Is the business regulated? Why? What aspects of regulation must it manage in order to be successful? How does that affect risk?

Financial risk

How much financial leverage do companies in the industry have? Is there a wide variation? How have the business risk, industry cycle, corporate performance, and the financial policy affected the leverage? What types of debt do the companies have? How does leverage change over the life cycle of a company? Why do industries differ in their borrowing costs? What is the company’s credit rating? How have the business risk and the extent of leverage affected the borrowing costs? How has debt structuring affected the interest rate?

Help and Office

Materials

Attendance

Grading

Schedule


# Industry Companies
1 Overview
  • How do tech companies differ from other commercial and industrial companies
2 Chips and components
  • Intel
  • Advanced Micro Devices
  • Broadcom (Avago)
  • Micron
  • Qualcomm
  • NVIDIA
  • Texas Instruments
  • Samsung
3 Personal hardware
  • Apple
  • [Samsung: Included above]
  • Panasonic
  • Motorola
  • Foxconn
  • HP
  • Lenovo
4

Enterprise hardware and cloud

  • Cisco
  • IBM
  • Canon
  • EMC
  • Amazon
  • Google
  • Microsoft
  • VMWare
5 Packaged software and gaming
  • Microsoft
  • Adobe
  • Intuit
  • Electronic Arts
  • Activision
6

Enterprise software

 

  • Oracle
  • SAP
  • IBM
  • Salesforce
7

Software consulting

 

  • Accenture
  • Infosys
  • Cap Gemini
  • Booz Allen Hamilton
  • Computer Sciences Corporation
8

Telecommunications

  • AT&T
  • Verizon
  • Sprint
  • T-Mobile
  • CenturyLink
  • China Mobile
  • Softbank
  • Level 3 Communications
9

Social media and

advertising-based revenues

  • Facebook
  • LinkedIn
  • Twitter
  • Tencent
  • Google
  • Baidu
10

Fintech

 

 

 

  • Visa
  • Mastercard
  • Paypal
  • ADP
  • Lending Club
11

ECommerce

  • Amazon
  • EBay
  • Alibaba
  • Priceline
12

Upcoming Companies

[This will change each semester.]

  • GoDaddy
  • Fitbit
  • Square
  • Match Group
  • GrubHub