Technology · Technology Hardware
Technology Hardware Sector Primer
A 43-page primer plus Excel valuation model on technology hardware: the product cycle, working capital in days, mid-cycle margins and a reverse DCF.
2026 Edition · data as of October 2026
- pages
- 43
- sections
- 17
- model sheets
- 13
Choose a format
PDF only
The full primer
£25 / ~$32
- 43 pages, 17 sections
- Worked examples and applied cases
- 2026 Edition, data as of October 2026
Excel model
Valuation template
£45 / ~$58
- 13 sheets (.xlsx)
- Runs the primer's worked valuations live
PDF + Excel model Best value
Both files together
£59 / ~$76
- The 43-page primer
- The 13-sheet Excel model
- £70 bought separately · £11 less
Complete Technology Library
All three Technology industries: three primers, three Excel models (Software, Technology Hardware, and Semiconductors).
Inside the primer
The 17-section contents, a worked valuation page, and the Excel dashboard.
Contents
- 01 How Hardware Makes Money
- 02 The Company Types
- 03 The Product Cycle
- 04 Segments: Product and Recurring Lines
- 05 Revenue Drivers: The Generic Build
- 06 Gross Margin, Fixed Costs and Contract Manufacturing
- 07 Working Capital Through the Cycle
- 08 Capex, Invested Capital and ROIC
- 09 Valuation Frameworks and the Mid-Cycle Rule
- 10 Worked Example: The Device Brand DCF
- 11 Worked Examples: Networking, Contract Manufacturing, Storage
- 12 Sensitivities
- 13 The Reverse DCF
- 14 The Companies in This Primer
- 15 Key Metrics and Screening
- 16 Risks, Red Flags and a Case Study
- 17 Glossary and Cheat Sheet
Worked examples and applied cases · 43 pages · 17 sections · 4 worked valuations
The Excel model
Educational material. This primer and its model are not investment advice or a recommendation to buy or sell any security, and they are not personalised. Worked valuations use illustrative calibrations, not fair-value estimates for any company.
A hardware company builds or buys a physical product and sells each unit once, so it pays for components and stock before its customer pays, and demand comes in waves as customers replace phones, PCs and switches on a cycle. Margins are thin or swing with how full the factories run. How much cash the business needs depends on who funds its working capital. So a hardware valuation models units and price through the product cycle, counts working capital in days, and strikes the terminal value on a normal year rather than the latest one.
Worked example: a hardware DCF on a fictional device brand
Take a fictional phone and computer brand with $60B of revenue, a fifth of it from services, a four-year replacement cycle and suppliers who fund its stock. Units grow 2% a year on trend, the cycle index swings 8% either side of it, and services come from a 400M installed base at a 50% attach rate. The primer runs ten years at a 9.09% WACC and strikes the terminal value on mid-cycle cash flow, with 2.5% growth.
| Step | Amount |
|---|---|
| Year-1 revenue (81.6M units at $606, plus services) | $61.50B |
| Year-1 free cash flow (NOPAT $10.62B after stock pay and tax) | $10.63B |
| PV of years 1-10 free cash flow at 9.09% | $74.80B |
| Terminal free cash flow on a 24.1% mid-cycle operating margin | $12.54B |
| PV of terminal value (2.5% growth) | $79.70B |
| Enterprise value | $154.50B |
| Plus net cash | $5.00B |
| Equity value | $159.50B |
| Value per share (1.50B shares) | $106.33 |
Year 10 falls on a cycle peak. Struck on that year's margin, the terminal would give $107.04 a share against $106.33 on the mid-cycle margin, a small gap because services and supplier funding steady the brand's cash. The rule matters far more for the fictional storage maker, whose fixed cost base takes operating margin from 6.5% at the trough to 20.9% at the peak. Its terminal struck on the trough gives $11.00 a share; on the peak, $34.77; on mid-cycle, $25.02.
The primer also values a networking maker with an order book and a contract manufacturer on the same schedule, runs the sensitivity grids, and reverses each valuation from an illustrative price. The Excel model runs all four on your own inputs.
Who funds the working capital: filed figures
Hardware companies split on who carries the stock and the receivables. These figures are as filed, each for the fiscal year shown, with the days computed from year-end balances so every one recomputes from a single filing.
| Company and fiscal year | Cash conversion cycle | Gross margin | What it shows |
|---|---|---|---|
| Apple FY2025 | -71 days | 46.9% | Suppliers fund the stock and the receivables |
| Dell FY2026 | -37 days | 20.0% | A thin product margin, with suppliers funding the business |
| Jabil FY2025 | 6 days, after receivables sold | 8.9% | A thin margin earned on fast-turning capital |
| Seagate FY2026 | 36 days | 45.6% | Gross margin was 18.3% in FY2023 |
| Cisco FY2026 | 81 days | 64.5% | Subscriptions were 50.5% of revenue |
| Amphenol FY2025 | 94 days | 36.9% | Gross margin of 30.98% to 36.88% over FY2016 to FY2025 |
| Arista FY2025 | 256 days | 64.1% | 253 days of inventory; two end customers at 26% and 16% of revenue |
Turn the days into dollars before judging them. A day of Dell's FY2026 revenue was about $0.31B, so collecting five days faster would release about $1.6B of cash. Jabil's 6-day cycle in FY2025 came after it sold about $1.3B of receivables; without the sales it would have been about 22 days.
Which model mode values which hardware business
| Business | Mode | How the mode handles it |
|---|---|---|
| Phone, PC, server or storage-system brand | Device brand | Units times price through the cycle, plus a recurring line on the installed base |
| Printers and peripherals with supplies | Device brand | Supplies are the recurring line: installed base times attach rate times revenue per unit |
| Networking or test and measurement maker | Networking equipment | Product and recurring lines, plus an order book that leads revenue |
| Contract or original design manufacturer | Contract manufacturer (EMS) | Pass-through revenue; a design manufacturer takes a higher gross margin input |
| Storage or component maker | Storage and components | A fixed share of cost of goods; acquired growth enters only as a unit-growth input you must justify |
| Technology distributor | Distributor | End-market volume times its share; gross margin is the resale spread |
What the full primer adds
The primer builds from how hardware makes money and the company types to the product cycle as a unit curve, the product and recurring lines, then gross margin on a part-fixed cost base, working capital in days and the capex growth needs. Four fictional companies are valued from first input to value per share: a device brand, a networking maker, a contract manufacturer and a storage maker, with sensitivities and a reverse DCF. Filed figures for seven listed companies follow, each with its fiscal year, then thirteen screens, the red flags and a case study setting Dell against Jabil.
Free guides cover the individual pieces: negative cash conversion cycles, the cash conversion cycle by company, purchase commitments against inventory, EMS margins and ROIC, mid-cycle margins, gross margin ranges, product against services margin and PC and smartphone replacement cycles. Research profiles for Apple, Dell, Cisco, Arista, Seagate, Amphenol and Jabil read the same measures from filed results.
The companion Excel model spans thirteen sheets. It runs the four fictional companies, and a column for a company of your own in any of five modes, through the same ten-year schedule: units, the cycle index and price build revenue, the fixed share of cost of goods moves gross margin, days set working capital, and the terminal value is struck at mid-cycle. Change an input and the valuation rebuilds from the first year; the reverse DCF reads the margin and unit growth a typed price requires, and the sensitivity grids re-run the model in every cell.
Sheets: Quick Start, Instructions, Dashboard, Assumptions, Inputs, Paths, Engine, Value, Reverse DCF, Sensitivity, Working Capital, Cycle, Grid Runs.
Technology hardware valuation: free guides
- Negative Cash Conversion Cycles in Hardware
- Cash Conversion Cycle by Hardware Company
- Purchase Commitments vs Inventory in Hardware
- EMS Economics: Thin Margins and ROIC
- Mid-Cycle Margins for Hardware Companies
- Gross Margin Ranges in Hardware Since FY2016
- Hardware Product vs Services Gross Margin
- PC and Smartphone Replacement Cycles
Technology hardware valuation FAQ
- How do you value a technology hardware company?
- With a ten-year DCF that carries the product cycle, then a terminal value struck on what the business earns in a normal year. Revenue is trend units times a cycle index times price, plus a recurring line from the installed base. Gross margin moves with the cycle because part of cost of goods is fixed, working capital runs in days, and capex funds growth. The primer's fictional device brand comes out at $106.33 a share on a 9.09% WACC.
- What is a mid-cycle margin in hardware valuation?
- The margin a business earns in a normal year, averaged across whole cycles, trough to trough, over at least ten years of filings. The primer strikes the terminal value on it rather than on the last forecast year, which may sit at a peak or a trough. For the fictional storage maker, the same forecast and WACC give $34.77 a share with the terminal on the peak-year margin, $25.02 on mid-cycle and $11.00 on the trough.
- What does a negative cash conversion cycle mean?
- Days sales outstanding plus days inventory outstanding, less days payables outstanding, comes out below zero: the business collects from customers and turns its stock before it pays its suppliers, so the suppliers fund it and growth releases cash. Apple's cycle was -71 days in FY2025 and Dell's -37 days in FY2026; Arista's was +256 days in FY2025. The primer computes the days from year-end balances and shows how sold receivables shorten a filed cycle: Jabil's 6 days would be about 22 without the sales.
- How does a reverse DCF work on a cyclical hardware company?
- It holds every input but one and solves for the setting at which value equals a price. The primer reverses the mid-cycle operating margin and trend unit growth, then sets the answer beside the filed margin history. At an illustrative $44.88, the fictional storage maker needs a 21.0% mid-cycle margin for ever, above the model's own peak-year margin of 20.9%, so that price treats the best year of the cycle as normal.
See this methodology applied to a real company:
Apple (AAPL) →