SWOT, and PESTLE Analyses of Virgin Media - Assignment Example

?Introduction The Virgin group is the United Kingdom’s largest private holdings. The group has diversified into a total of 63 businesses including Airlines, Media and communication, health clubs and music stores. The paper analyzes the strategies of Virgin Media, a subsidiary of Virgin group and a company listed in London Stock Exchange. The company has a market cap of GBP 5.50 billion with share price of GBP 1707. Its parent group, the Virgin group is the most diversified group in UK. In this paper we would analyze the strategies of the company with the help of tools like SWOT and PESTLE and study its impact on the financial performance of the company with he help of ratio analysis. SWOT Analysis The primary strength of Virgin is its strong presence in the market. It could be realized that it’s the number one brand in UK with strong presence in Europe and US. In US is has performed while competition with the giants like Apple TV and Google TV. A growing tendency for consumers to access increasingly personalized on-demand content has spawned various devices and gadgets seeking to provide an integrated experience across a proliferating number of online and mobile platforms, has encouraged Virgin Media to come up with innovative technologies in the market with regard to media and communications. The company is the largest providers in UK in terms of residential broadband internet, TV and telephone services if compared by number of customers. (VMED Annual Report, 2010) Another Strength of VMED is its advanced and excellent Research & Development capability, efficient and effective supply chain, and mass production at a competitive production cost. These competitive strategies of VMED have helped it to become a market leader in many products. In 2010, VMED launched TiVo set top boxes, thereby developing next generation set top boxes by partnering with TiVo Inc (VMED Annual Report, 2010). This was a shear display of Research initiatives of the company. With the use of technologies like e-commerce, the company had created an efficient supply chain which helps it with seamless flow of information and products among resources. Mass production done by VMED helps it achieve economies of scale thereby increasing operating profits of the company. The primary weakness of the company is that it is investing a lot of amount in restructure activities involving spin-off of certain subsidiaries and disposal of assets. In Jun-10, the company also sold British Sky Broadcasting as well as Kestrel Broadcasting as a part of its restructuring and disposal activities (VMED Annual Report, 2010). In the same year company also recognized impairment charges from such transactions. These activities may be beneficial for the long wrong if executed correctly but they reduce profit making capability of the company. The company should concentrate more on the activities involving expansion and research for innovative technologies. Another Weakness of VMED is its low market share in emerging economies. To be a cash cow for the future every technology company should be in search for opportunities in the emerging markets as they give the advantage of escalated growth compared to developed markets where growth stagnates after a point of time. It should be noted that VMED has a low presence in emerging economies e.g. India whilst many other companies like Apple and Sony are aggressively gaining market share in these countries. To retain market capitalization VMED needs to expand its operations aggressively to emerging countries. Primary opportunity for VMED is expanding into markets with the help of joint ventures, tie-up and agreement with other companies. This would give VMED the advantage of achieving economies of scale and also act as a risk hedging activity while entering new markets. It could be realized from the fact that in 2009, VMED entered into patent cross license agreement with IBM (VMED Announcements, 2011). The Consumer Electronics Association, an industry trade group, expects US sales of connected TVs to grow from about 3.2 million units in 2010 (about 9% of all sets sold) to 5.2 million in 2011, en route to about 16.3 million in 2016 (about 52%). Meanwhile, the popularity of tablets continues to grow following the April 2010 launch of Apple’s iPad, which sold nearly 15 million units by the end of 2010 to become the best-selling tablet computer. Other potential tablet market competitors include the Galaxy Tab (from Samsung), PlayBook (Research in Motion), Streak (Dell Inc.), Zoom (Motorola), Slate (Hewlett-Packard Co.), as well as a tablet from Taiwan-based HTC Corp (Trillion dollar forecast for gadgets sale, 2011). Sudden changes in technology pose a major threat to a technology company like VMED. The industry is driven with innovations, wherein marketers provide value for innovations and a technology becomes outdated in a very short period of time. The companies like Intel, Microsoft, VMED and Google have always resorted to find innovative technologies to sustain the market share. VMED though has an effective R&D wing continuously striving for innovation, but a new technology from another company can significantly impact the market share of the company. As discussed above, VMED should look forward towards collaborating to use resources. Another external threat to the company is increased global warming. As the global warming is increasing at an alarming range the governments of many countries are announcing strict regulations related to electronic products and the products that use specific components like lead cadmium. Though VMED has always tried to global citizen restraining from the usage of harmful components, but certain impositions can have significant impact in the revenues of the company. PESTEL Analysis An organizations’ business environment encompasses both the external environment and the internal environment. An organization has to analyze the external environment in order to operate effectively in the market. The PESTLE analysis performs the political, economic, social, technological, legal and economic analysis of VMED. This is done as follows: Political Political forces influence the legislations and government rules and regulations under which a company operates. Every company faces particular constraints in the form of antitrust laws, fair trade decisions, tax provision minimum usage legislation, and pollution and pricing policies etc. Political risks are high in Technology Company like VMED. The factors like informational display, privacy issues and information sharing are impacted by political, legal and governmental forces of that country. Economic This includes forces at national and regional level that affects the company. VMED is incorporated in UK through Macro-Economic forces in the country have a little impact of the company. Every market is unique and consumption pattern changes as the way consumers changes in various segments of the market. VMED is technology companies build on a global platform where factors like inflation rates, interest rate and current exchange rates in bear some impact, but such impact can’t be considered influential. As the interest rates are slashed as a result of recession in the economy, the company could borrow money at a cheaper interest rate. Same is the case with changes in current exchange rates. Social Being a technology company, socio-cultural forces impact the company’s operations as VMED network spans across various countries and continents. Information display, privacy issues and information sharing across people in different countries depends upon the socio-cultural forces operating in that country. It can be argued that if VMED spans in network to the country like India (For e.g.) it has to keep in mind the culture of people there and whether the current configuration of the company is best suited for operating in that country. Technological Being a information Technology company, technological forces impacts the company in a big way. Technology sector in the US includes more than 140,000 companies with combined annual revenue of about $900 billion. AT&T, IBM, Intel, Adobe, VMED, and Microsoft are the major companies(2010). “Industry concentration is high in many segments with the largest 50 participants generating more than 60% of the segment revenue” (2010). Scientific discoveries and new product developments form the basis of profitability in this industry. Both large and small companies can compete successfully – the mammoths have access to capital and marketing and the miniatures have domain-specific expertise. In the period Aug-10 to Jan-11, the Application Software industry has been on a bullish trend before being thrust into a bearish mode in the wake of the European sovereign debt crisis. Legal Legality has a role to play in operations of any company that intends to span globally. VMED has expanded its business across continents and political and legal policies of the countries can well decide on the fate on how the company can operate within a country. As discussed earlier factors like informational display, privacy issues and information sharing are impacted by political, legal and governmental forces of that country. Information rights are stringent in case of countries like US, India and UK. Results from political and legal developments have a significant effect on the operations of VMED. Environmental The environmental forces do not have a significant role to play in the operations of the company. When the company was incorporated, its primary target was young generation which wanted to connect to each other in spite of differences in physical boundaries. With the growing aging populating, the company has also shifted its focus to people of senior age groups. Ratio Analysis Ratios are best tool for measuring liquidity, solvency, profitability and management efficiency of the firm. The ration analysis helps in analyzing the probable casual relationships among different items after analyzing the past results. These ratios are derived after analyzing the past results and helps management to prepare budgets, to formulate policy and to prepare future action of plan. Ratio analysis also helps in making inter firm comparison and also comparisons between different divisions of the company. Ratio analysis of VMED is as follows: 2008 2009 2010 Operating Margin % -0.18 4.96 7.1 ROCE % 0.59 3.84 6.27 ROE % -21.91 -15.93 -3.64 Net Gearing % 266.72 371.37 437.98 Interest Cover x 0.07 0.44 0.64 Quick Ratio r 0.64 0.78 0.67 Current Ratio r 0.7 0.79 0.69 Top CATV Systems Companies by Market Cap Company Symbol Price Change Market Cap P/E British Sky Broadcasting Group PLC BSY.L 831.00  0.00% 3.62B 353.92 Comcast Corporation CMCSA 24.29  1.38% 67.44B 18.83 DIRECTV DTV 46.10  0.55% 36.46B 18.58 Viacom, Inc. VIA-B 47.55  0.32% 28.39B 27.63 Time Warner Cable Inc. TWC 72.41  0.08% 24.86B 19.89 Virgin Media, Inc. VMED.L 1,707.00  2.22% 5.50B N/A Source : < http://in.finance.yahoo.com/q/in?s=VMED.L> MED.L vs. Industry Leaders Statistic Industry Leader VMED.L VMED.L Rank Market Capitalization BSY.L 3.62B 5.50B / 41 P/E Ratio (ttm) BSY.L 353.92 N/A / 41 PEG Ratio (ttm, 5 yr expected) CHTR 9.70 0.49 / 41 Revenue Growth (Qtrly YoY) PNTV.PK 108.10% 6.60% / 41 EPS Growth (Qtrly YoY) WIG1.DE 1189.90% N/A / 41 Long-Term Growth Rate (5 yr) SEAC 46.00% 125.00% / 41 Return on Equity (ttm) BSY.L 203.81% -12.28% / 41 Long-Term Debt/Equity (mrq) 482.026 / 41 Dividend Yield (annual) SJR 4.80% N/A N/A Currency in GBp. Source : < http://in.finance.yahoo.com/q/in?s=VMED.L> Five Forces Analysis Bargaining power of suppliers: The suppliers of the company include the technology providers, partners, money lenders, and raw material providers. With such a high market capitalization and being largest in UK, VMED enjoys high bargaining power over its suppliers. Bargaining power of customers: With the biggest company in its segment, it could be argued that VMED have a high bargaining power over its customers. This includes the acceptance of features provided by the company by customers including applications, security features and rights. Threats of new entrants: The threat of new entrants looms the company in big way. Not surprisingly, pay TV providers are increasingly jumping on the bandwagon. For example, in 2011 Comcast Corp. plans to offer an integrated multi-platform viewing experience on Samsung Smart TVs and the Android-powered Samsung Galaxy Tab—as well as in-home streaming for live and on-demand content—with iPads and other Android-powered tablets to follow. Later this year, Time Warner Cable Inc. plans to deliver its entire programming lineup to customers with Internet-connected Bravia high-definition televisions (HDTVs) from Sony Corp., which is on track to sell more than 50 million Internet-enabled TVs, Blu-ray disc players, and PlayStation 3 game consoles by the end of the 2011 first quarter. Threat of substitute products: Worldwide IT spending has been into a negative turnaround ever since the global financial crisis spread its wings. The financial meltdown led to reduced IT spending throughout the globe in 2009. According to advisory firms Gartner and Forrester, “the European sovereign debt crisis and a weaker euro will cause companies and governments in that geography to curtail IT spending for 2010”(2010). With the new technologies and more of media and communication spending there is a high risk of substitute products. Competitive rivalry within the industry: All the above factors when combined decide on the competitive rivalry of the organization within the industry. Competitive rivalry in the social communication and technology industry is growing for VMED day by day. References Debt Crises. (2010). Retrieved Mar 12, 2011, from martinfrost.ws: www.martinfrost.ws/htmlfiles/july2010/bn1593.html Porter Five Forces. (n.d.). Retrieved Mar 10, 2011, from www.mindtools.com: http://www.mindtools.com/pages/article/newTMC_08.htm Trillion dollar forecast for gadgets sale. (2011, Jan 4). Retrieved Apr 20, 2011, from www.spacedaily.com: http://www.spacedaily.com/reports/Trillion-dollar_forecast_for_gadget_sales_999.html US Technolgy Sector Analysis. (2010, Jun). Retrieved Mar 10, 2011, from www.reuters.com: http://www.reuters.com/article/2010/06/22/idUS176099+22-Jun-2010+BW20100622 Virging Media Financials. (2011). Retrieved Apr 20, 2011, from tools.morningstar.co.uk: http://tools.morningstar.co.uk/uk/stockreport/default.aspx?tab=11&SecurityToken=0P0000E24B]3]0]E0WWE$$ALL&Id=0P0000E24B&ClientFund=0&CurrencyId=GBP VMED Annual Report 2010. (2010). Retrieved Apr 20, 2011, from legacy.10kwizard.com: http://legacy.10kwizard.com/files_side.php?sym=VMED&smonth=4&sday=19&syear=2010&emonth=4&eday=19&eyear=2011&form_auto=10-K&qsession=1&exp=&qsession=1&qsessid=0 VMED Industry. (2011, Apr). Retrieved Apr 20, 2011, from finance.yahoo.com: http://in.finance.yahoo.com/q/in?s=VMED.L Read More