computer hardware industry analysis

COMPUTER HARDWARE INDUSTRY

SEC: DEF, TOPIC NO. 7

PUNYASHLOK DWIBEDY (2012223)

RAHUL MISHRA (2012229)

R SUSHANT SINGH (2012233)

RAKESH DUTTA (2012234)

RASHMI RANI (2012236)

S. PREET KARAN BHATIA (2012250)

SHIVAM KUMAR (2012296)

RAKESH DUTTA © 2014

COMPUTER HARDWARE INDUSTRY IN INDIA

• 32,500 Cr market – Accounting 32% of IT industry in

India

• Some of the industry metrics

• PC unit sold

• $/storage

• Avg. PC revenue

• Price to free cash flow

• Sales/Employee

Computer H/W

Industry

Personal Computers

Network Equip,

Computer Peripherals

Storage Devices

32.50%

13.70%

11.80%

10.40%

2.80%

28.80%

Market Share

HP Lenovo Dell Acer HCL Others

Data source: Gartner, 2013RAKESH DUTTA © 2014

5.0

5 6.3

4 7.3

4

6.8

0 8.0

3 9.3

1 10

.82

11

.31

2006-07, 26%

2007-08, 16%

2008-09, -7%

2009-10, 18%

2010-11, 16%

2011-12, 16%

2012-13, 5%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

-

2

4

6

8

10

12

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Gro

wth

in

%

In M

illion

Units

PC Sales in Volume

Data source: IMRB & MAIT


PRICE TRENDS

0

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WPI vs. Computer & Peripherals Price Index

Wholesale Prices Computers Computer Peripherals

INFINF Index

INWICMPU Index

INWICOPE Index

Data source: Bloomberg


FDI INFLOW

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FDI Inflow

FDI Inflow in India FDI inflows in Computer & IT industries

INFDCUMU

IFDSCOMP

Data source: Bloomberg


POTENTIAL GROWTH


PORTER’S 5 FORCES

Moderate because of

• High price Sensitivity

• Low Player Differentiation

Bargaining power of buyers

Strong due to

• Limited number of suppliers

• Suppliers are large, international companies

Bargaining power of suppliers

Reasonably easy for new entrant to get moderate success because

• Online shopping has grown in popularity over the years.

• Reduced fixed costs for all shoppers.

Threat of new entrant

Reasonably low but

• Replaceable technology for gaming consoles

• Tablet technology

Threat of substitutes

Moderate

• Consumers have numerous options to choose from and switching costs for them are low.

• storage costs are high so quick product turnaround is vital

Rivalry


SWOT

Strengths

• Many companies have strong portfolio offerings.

• Research and development - Patent

• Ex: HP

Weakness

• Alternatives to PC’s

• Computer Manufacturing Industry is a worldwide market and subjected to instability of economies in various countries.

Opportunities

• Opportunities for growth and advancement as developing countries increase their need for technology.

Threats

• Likely decline for PCs

• intense competition between the large companies within the industry which make it difficult for new, smaller companies to become effective.

• Governments all around the world pose threats to this industry because of environmental regulations and currency fluctuations.

S W

O T


COMPUTER H/W WILL GROW AS IT WILL GROW


PRICING POLICIES

• Use price competition as their products have been commoditized.

• Keep product at as many price points as possible

• Examples are LG,LENOVO, ACER.

• Price discrimination

• large corporate, SMEs, personal PCs


PRICING OPTIONS

• Promotional and bundling pricing strategies.

• For example

1. With HP DESKTOP PC worth Rs. 24,990

Get accessories bundle worth Rs. 2873 @ Rs. 999

And three years onsite warranty.

2. With HP ink cartridge worth Rs 317

Free HP Glossy Photo Paper Pack worth Rs 50

3. Printer + Scanner

• EMI Option

• Segment Visitors According to Their Purchasing Power

• Inter-temporal policy


DELL VS. HP


MARKET BARRIERS (ENTRY & EXIT)

• Entry

• Everybody can start a home-based

mail order business for computer parts

• It takes little government permits

• Wholesaler are open for every

reseller

• There is no need to keep large stock

• Exit

• Investment in specialist equipment

• Specialized skills

• High fixed costs


NON-PRICE COMPETITION

• Nibbler Approach

• Go-to-Market Strategy

• Online sales opportunity

• Hardware maintenance services

• Warranty

• Patent Wars

• Apple vs. Samsung

• Embedded Software Licensing

• Hardware(vertical) differentiation is not enough.

• Example APPLE, SONY.RAKESH DUTTA © 2014

COLLUSIVE BEHAVIOR OF EXISTING FIRMSTHE SITUATION WHERE A DUOPOLY ACTS AS A MONOPOLIST

• Methods -

• Bidding Collusion

• Price Fixing

• Establish or adhere to price discounts.

• Hold prices firm.

• Adopt a standard formula for computing prices.

• Maintain certain price differentials between different types, sizes, or quantities of products.

• Adhere to a minimum fee or price schedule.

• Fix credit terms.

• Not advertise prices.

• Technology Collusion: Holding back the release of existing technologies so that people upgrade in small

increments

• Ex: DDR II RAM, Overclocking of CPUs etc.

• Deliberate control of supply to inflate pricesRAKESH DUTTA © 2014

UNIQUENESS

• Existing Secondary Market.

• Ebay, OLX, Quickr

• High R&D expenses.

• Mostly products are vertically differentiated.

• PCs are now like cars - Predefined consumer preferences, price sensitive & self awareness.

• Many repeat purchasers.

• Vendors contend with high bankruptcy rates

• Low inventory.

• No inventory (JIT) – Dell (CCC: -14 days)

• Rapid technological changes lead to disruptive innovation.

• rapid price fluctuations


THE END
