Computer Computer Industry AnalysisIndustry Analysis

Prepared by:Prepared by:Scott BillupsScott Billups Anne HommeAnne Homme

James PorterJames Porter Stephan RogersStephan RogersJerome WadeJerome Wade

IntroductionIntroduction Dominate Economic CharacteristicsDominate Economic Characteristics Six ForcesSix Forces Competitive Position of Major CompetitorsCompetitive Position of Major Competitors Competitive Analysis of Personal Competitive Analysis of Personal

Computer ManufacturesComputer Manufactures PC Industry TrendsPC Industry Trends Key Success FactorsKey Success Factors Industry Prospect and Overall Industry Prospect and Overall

AttractivenessAttractiveness ConclusionConclusion

Dominate Economic Dominate Economic CharacteristicsCharacteristics

1. Market Size1. Market Size 2. Scope of Competitive Rivalry2. Scope of Competitive Rivalry 3. Stage in Life Cycle3. Stage in Life Cycle 4. Number of Companies within the Industry4. Number of Companies within the Industry 5. Customers5. Customers 6. Technology/Innovation6. Technology/Innovation 7. Product Characteristics7. Product Characteristics 8. Scale Economies8. Scale Economies 9. Learning and Experience Effects9. Learning and Experience Effects 10. Capital Requirements10. Capital Requirements 11. Industry Profitability11. Industry Profitability

Market SizeMarket Size The computer industry consists of hardware, software, The computer industry consists of hardware, software,

service and an endless array of products our group chose to service and an endless array of products our group chose to narrow the research to PC’s. narrow the research to PC’s. The worldwide PC market The worldwide PC market finished 2004 on a strong note, with double-digit percentage finished 2004 on a strong note, with double-digit percentage growth for the year, according to research released by IDC growth for the year, according to research released by IDC and Gartner. and Gartner.

U.S. and Worldwide PC Shipments and Growth, 2004-2008U.S. and Worldwide PC Shipments and Growth, 2004-2008 Region 2004 2005 2006 2007 2008Region 2004 2005 2006 2007 2008 USA (M units) USA (M units) Consumer 21.8 23.6 25.6 29.0 32.6Consumer 21.8 23.6 25.6 29.0 32.6 Commercial 36.5 40.3 41.9 46.0 49.4Commercial 36.5 40.3 41.9 46.0 49.4 Total Total 58.3 63.9 67.5 75.0 82.058.3 63.9 67.5 75.0 82.0 Worldwide (M units)Worldwide (M units) Consumer 64.9 78.4 88.4 100.0 111.2Consumer 64.9 78.4 88.4 100.0 111.2 Commercial 114.4 129.4 141.9 157.1 173.3Commercial 114.4 129.4 141.9 157.1 173.3 Total Total 179.2 207.9 230.2 257.1 284.5179.2 207.9 230.2 257.1 284.5

Scope of Competitive Scope of Competitive RivalryRivalry

The competition within the PC industry is The competition within the PC industry is extraordinarily cutthroat. The top extraordinarily cutthroat. The top companies consist of Dell, HP, Apple, companies consist of Dell, HP, Apple, Gateway and Sony. Gateway and Sony.

A few factors of competitive edge:A few factors of competitive edge: • • New technologyNew technology • • Custom built PCsCustom built PCs • • ReliabilityReliability • • Customer Service Customer Service

Stage in Life CycleStage in Life Cycle

The stage of the PC industry life The stage of the PC industry life cycle can be described as mature. cycle can be described as mature. However, the growth of PC sales has However, the growth of PC sales has not decreased due to the not decreased due to the globalization trend taking place globalization trend taking place within the multinational within the multinational corporations. corporations.

Number of Companies Number of Companies within the Industrywithin the Industry

• • DellDell - - The world's #1 direct-sale computer vendor The world's #1 direct-sale computer vendor provides a broad range of computer and entertainment provides a broad range of computer and entertainment products for the consumer and enterprise markets. products for the consumer and enterprise markets.

• • SonySony - - Sony has refocused its approach to selling Sony has refocused its approach to selling computers: Instead of appealing primarily to consumers, it computers: Instead of appealing primarily to consumers, it is now targeting business customers (mostly small and is now targeting business customers (mostly small and medium-sized companies).medium-sized companies).

• • HPHP - - HP's Personal Systems Group (PSG) markets HP's Personal Systems Group (PSG) markets desktop and notebook PCs to consumer, businesses, desktop and notebook PCs to consumer, businesses, government agencies, and schools.government agencies, and schools.

• • AppleApple - - Once the world's top PC maker, Apple Once the world's top PC maker, Apple Computer has been relegated to niche status in a market Computer has been relegated to niche status in a market dominated by "Wintel" machines (computers using dominated by "Wintel" machines (computers using Microsoft Windows software and Microsoft Windows software and IntelIntel processors). processors).

• • GatewayGateway - - Perhaps the purest PC play among the Perhaps the purest PC play among the leading computer makers, Gateway has been hit leading computer makers, Gateway has been hit particularly hard by slowing sales in that industry. particularly hard by slowing sales in that industry.

CustomersCustomers Involving interests of the PC community can be Involving interests of the PC community can be

described as diverse. Advantages consist across the described as diverse. Advantages consist across the board for the PC user. Ranging from music board for the PC user. Ranging from music manipulation, video enhancement, money manipulation, video enhancement, money management, research, school, science and a myriad management, research, school, science and a myriad of others; there are many uses for the PC. Therefore of others; there are many uses for the PC. Therefore this means the customers that buy the computers this means the customers that buy the computers are diverse and use their machines in a variety of are diverse and use their machines in a variety of ways. The computer offers an efficient way of ways. The computer offers an efficient way of running a business, playing a game or managing running a business, playing a game or managing your calendar. The bottom line is that any person your calendar. The bottom line is that any person can find a useful attribute for a computer: which can find a useful attribute for a computer: which provides the industry with revenue higher than the provides the industry with revenue higher than the auto and chemical industries combined. auto and chemical industries combined.

Technology/InnovationTechnology/Innovation

Technologies as well as innovation Technologies as well as innovation are advancing every year, therefore are advancing every year, therefore making the industry fiercer. making the industry fiercer.

Ten years from now chances are Ten years from now chances are there will be few computers in home. there will be few computers in home. Instead, people will be wearing Instead, people will be wearing computers -- implanted, for example, computers -- implanted, for example, in eyeglasses, with the retina as the in eyeglasses, with the retina as the screen -- according to IT pioneer and screen -- according to IT pioneer and futurist Raymond Kurzweil. futurist Raymond Kurzweil.

Product CharacteristicsProduct Characteristics ComponentsComponents:: •• CaseCase - The box all the parts (except monitor, keyboard, mouse, and printer) are - The box all the parts (except monitor, keyboard, mouse, and printer) are

stored in stored in • • Mother BoardMother Board - - The main printed circuit board in the computer, which the CPU The main printed circuit board in the computer, which the CPU

(see below) plugs into (see below) plugs into • • CPU (Central Processing Unit) – The CPU is the actual "brains" of the computer CPU (Central Processing Unit) – The CPU is the actual "brains" of the computer RAM (Random Access Memory) - Like pieces of scratch paper that RAM (Random Access Memory) - Like pieces of scratch paper that

information is temporarily stored on ONLY WHILE you are actually information is temporarily stored on ONLY WHILE you are actually working on the computer.working on the computer.

• • Disk Controller – The Disk Controller allows your computer to interact Disk Controller – The Disk Controller allows your computer to interact with your disk drive storage deviceswith your disk drive storage devices

• • Hard Disk Drive - A STORAGE device, NOT MEMORY! The Hard Disk Hard Disk Drive - A STORAGE device, NOT MEMORY! The Hard Disk Drive is like a filing cabinet - no more, no less. Retrieval is faster, and Drive is like a filing cabinet - no more, no less. Retrieval is faster, and finding things is usually easier, but it is still just a filing cabinet.finding things is usually easier, but it is still just a filing cabinet.

• • Video Display Adapter - Unlike your eyes, it can ONLY OUTPUT the Video Display Adapter - Unlike your eyes, it can ONLY OUTPUT the computer information in the form of a video signal that is human readable computer information in the form of a video signal that is human readable (via the monitor).(via the monitor).

• • Monitor - The actual display you see the words, pictures, and data on. Monitor - The actual display you see the words, pictures, and data on. There are two main types: analog and digital.There are two main types: analog and digital.

• • Input Device - Keyboard, Mouse, Digitizer, Scanner, Pen, Digital Camera, Input Device - Keyboard, Mouse, Digitizer, Scanner, Pen, Digital Camera, etc.etc.

• • Modem - A device that hooks your computer up to the telephone lineModem - A device that hooks your computer up to the telephone line

Scale EconomiesScale Economies

With most multinational corporations there are two With most multinational corporations there are two separate economies operating between the actual separate economies operating between the actual company and the markets. The separate economies company and the markets. The separate economies are internal and external.are internal and external.

InternalInternal: Tech Economy, Managerial Economy, : Tech Economy, Managerial Economy, Financial Economy, Marketing Economy, Research Financial Economy, Marketing Economy, Research & Development& Development

ExternalExternal: The external aspects of scale economies : The external aspects of scale economies consist of the distribution centers and retailers. For consist of the distribution centers and retailers. For example; Apple, Sony or HP manufacture computers, example; Apple, Sony or HP manufacture computers, while retailers arrange for computer deliveries to while retailers arrange for computer deliveries to the customer. One exception is Dell, which has the customer. One exception is Dell, which has excelled in custom-built computers delivered excelled in custom-built computers delivered straight to a consumer’s home. straight to a consumer’s home.

Learning & Experience Learning & Experience EffectEffect

The computer industry is mature and here to stay. The computer industry is mature and here to stay. In the US computers are found in most homes with In the US computers are found in most homes with access to the Internet. Students are taught to use access to the Internet. Students are taught to use computers in school at a young age and computers in school at a young age and competency is only going to increase. competency is only going to increase.

However, there are people who struggle with However, there are people who struggle with applications and user activities such as installing applications and user activities such as installing new drivers or connecting a monitor. One of the new drivers or connecting a monitor. One of the largest complaints within the industry is support. largest complaints within the industry is support. Dell, once again is an exception. Dell observes Dell, once again is an exception. Dell observes great rewards when consumers give praise in great rewards when consumers give praise in regards to customer service. Since the industry is regards to customer service. Since the industry is so mature the complaints are few due to the so mature the complaints are few due to the reliability of the PC. reliability of the PC.

Capital RequirementsCapital Requirements

The capital required to enter and actually compete with The capital required to enter and actually compete with the big names in the computer industry are the big names in the computer industry are ridiculous. Taking into account that HP spent 3.9 ridiculous. Taking into account that HP spent 3.9 billion on research and development last year alone billion on research and development last year alone makes a person think twice about embarking in the makes a person think twice about embarking in the industry. New components and ideas are always industry. New components and ideas are always being developed by the large companies, which few being developed by the large companies, which few can compete. Furthermore, the brand name products can compete. Furthermore, the brand name products distributed by Apple, Dell and HP are household distributed by Apple, Dell and HP are household names. names.

However, if a person is technologically savvy and However, if a person is technologically savvy and creates new language or some sort of new innovation creates new language or some sort of new innovation they could sell the idea to the large companies. This they could sell the idea to the large companies. This would be the most probable situation when would be the most probable situation when attempting to create a profit within the PC business.attempting to create a profit within the PC business.

Industry ProfitabilityIndustry Profitability

The fact remains that the PC industry doesn’t The fact remains that the PC industry doesn’t produce only PC’s. Every company that produce only PC’s. Every company that creates PC’s also has its hand in other creates PC’s also has its hand in other industries and markets. An important question industries and markets. An important question to ask is how profitable is the industry. And to ask is how profitable is the industry. And the answer is billions upon billions upon the answer is billions upon billions upon billions of dollars. The industry is constantly billions of dollars. The industry is constantly redefining itself as well as every other redefining itself as well as every other business on the world due to its deep routes business on the world due to its deep routes within every industry. As for what company within every industry. As for what company ranks the highest in profit at the moment is ranks the highest in profit at the moment is Apple, but the numbers are skewed due to Apple, but the numbers are skewed due to other hardware Apple provides. The industry other hardware Apple provides. The industry is extremely competitive and profitable. is extremely competitive and profitable.

6 Forces6 Forces

SuppliersSuppliers BuyersBuyers Rivalry among Existing FirmsRivalry among Existing Firms Threat of New EntrantsThreat of New Entrants Substitute ProductsSubstitute Products StakeholdersStakeholders Complimentary ProductsComplimentary Products

Suppliers / BuyersSuppliers / BuyersIntel and Microsoft are the two most dominate suppliers in Intel and Microsoft are the two most dominate suppliers in

the PC industry.the PC industry.Suppliers:Suppliers: Intel’s microprocessor chips are used in Intel’s microprocessor chips are used in

approximately 80% of personal computers. approximately 80% of personal computers. Microsoft operating systems are used in 90% of computers, Microsoft operating systems are used in 90% of computers, giving it substantial bargaining power. giving it substantial bargaining power. Given that Microsoft and Intel control the majority of the Given that Microsoft and Intel control the majority of the PC supplier market of major component parts, the business PC supplier market of major component parts, the business world has named the two “Wintel.” world has named the two “Wintel.”

Buyers:Buyers: The strength of the PC buyer has basically evolved The strength of the PC buyer has basically evolved from the personal computer becoming a commodity-like from the personal computer becoming a commodity-like item. item. Backward integration is also a factor in the strengthening Backward integration is also a factor in the strengthening of the PC buyers bargaining Power because more and more of the PC buyers bargaining Power because more and more people are building their own computer systems people are building their own computer systems

Rivalry Among Existing Rivalry Among Existing FirmsFirms

The competition the personal computer The competition the personal computer industry is also an industry that industry is also an industry that resembles ‘follow the leader.’ Follow resembles ‘follow the leader.’ Follow the leader occurs when industry the leader occurs when industry leaders are mimicked by competitors; leaders are mimicked by competitors; and those competitors that do not and those competitors that do not follow will fall off by the wayside. follow will fall off by the wayside. Price Wars: Ex. In 1999 the average PC Price Wars: Ex. In 1999 the average PC cost $ 1,699. Now the average price of cost $ 1,699. Now the average price of a PC is under a thousand dollars.a PC is under a thousand dollars.

Threat of New Threat of New Entrants/StakeholdersEntrants/Stakeholders

TNE: The chances of a new PC vendor entering into TNE: The chances of a new PC vendor entering into the market and gaining significant market share is the market and gaining significant market share is pretty slim, entry barriers are higher now than they pretty slim, entry barriers are higher now than they every have been. Two of those entry barriers that every have been. Two of those entry barriers that are making entry into the PC market so tough are are making entry into the PC market so tough are cost and distribution.cost and distribution.Concentrated: it is estimated by analysts that in the Concentrated: it is estimated by analysts that in the near future the top 5 vendors may control 70% of near future the top 5 vendors may control 70% of the global personal computer market.the global personal computer market.

Stakeholders: Environmentalists and E-waste are the Stakeholders: Environmentalists and E-waste are the major stakeholders for the PC industry; the dumping major stakeholders for the PC industry; the dumping of high-tech trash like computers in landfills. of high-tech trash like computers in landfills. Hewlett-Packard, IBM and Dell have recently Hewlett-Packard, IBM and Dell have recently started up a computer recycle program, recycling in started up a computer recycle program, recycling in all computer brands for a small fee.all computer brands for a small fee.

Substitute ProductSubstitute ProductFunctionality PC/Notebook Cell Phone Handheld devices

PowerPoint X   X

Camera   X X

Mp3 player X X X

Spreadsheets X   X

Word processor X   X

GPS navigation   X X

Email X X X

Competitive Position of Competitive Position of Major CompetitorsMajor Competitors

Net Income

Market Capital

1 B

2 B

3 B

4 B

Dell

Gateway

Hewlett-Packard

25 B 75 B 100 B

Apple

50 B

Soya

Competitor Analysis of Competitor Analysis of PC ManufacturersPC Manufacturers

Dell Inc.Dell Inc.Dell Inc. :Dell Inc. : Founded in 1984Founded in 1984 Mission Statement: “To be the most successful computer Mission Statement: “To be the most successful computer

company in the world at delivering the best customer company in the world at delivering the best customer experience in markets we serve.”experience in markets we serve.”

Next day deliveryNext day delivery No middlemen or intermediate retailersNo middlemen or intermediate retailers

Current Situation:Current Situation: Revenue over $56 billion Revenue over $56 billion Net income of $3.4 billionNet income of $3.4 billion

Hewlett-PackardHewlett-Packard

Hewlett-Packard:Hewlett-Packard: Founded in 1939Founded in 1939 HP’s mission: “To invent technologies and HP’s mission: “To invent technologies and

services that drive business value, create social services that drive business value, create social benefit and improve the lives of customers—with benefit and improve the lives of customers—with a focus on affecting the greatest number of a focus on affecting the greatest number of people possible.” people possible.”

First product was an audio oscillatorFirst product was an audio oscillator Multi component system modelMulti component system modelCurrent Situation:Current Situation: $86 billion in revenue$86 billion in revenue net income of almost $2.4 billionnet income of almost $2.4 billion

Apple ComputerApple Computer

Apple:Apple: Founded in 1976Founded in 1976 Mission statement of Apple is as follows: Mission statement of Apple is as follows:

“Apple will be a leader in providing simple, “Apple will be a leader in providing simple, powerful, high-quality information products powerful, high-quality information products and services for people who learn, and services for people who learn, communicate, and create.”communicate, and create.”

Stylish product innovationStylish product innovation EntrepreneurialEntrepreneurialCurrent Situation:Current Situation: $14 billion in revenue$14 billion in revenue Net income of almost $1.3 billionNet income of almost $1.3 billion

Gateway Inc.Gateway Inc.

Gateway:Gateway: Founded in 1985Founded in 1985 Mission statement of Gateway Inc. is, “To invest in Mission statement of Gateway Inc. is, “To invest in

our communities and future by providing state-of-our communities and future by providing state-of-the-art technology and technical support.” the-art technology and technical support.”

33rdrd largest personal computer company in the largest personal computer company in the United StatesUnited States

Ranked in the top ten worldwideRanked in the top ten worldwide Profit pyramid modelProfit pyramid modelCurrent Situation:Current Situation: $4 billion in revenue$4 billion in revenue Net income of almost $6 millionNet income of almost $6 million

Soyo Group Inc.Soyo Group Inc.

Soyo Group Inc.:Soyo Group Inc.: Founded in 1999Founded in 1999 The mission statement of Soyo is, “To The mission statement of Soyo is, “To

capitalize on Soyo’s market position as a capitalize on Soyo’s market position as a leading distributor of computer and leading distributor of computer and networking products by increasing networking products by increasing penetration of existing markets through penetration of existing markets through acquisitions and expanding into new acquisitions and expanding into new markets.” markets.”

Computer peripheral devicesComputer peripheral devicesCurrent Situation:Current Situation: $38 million in revenue$38 million in revenue Net income of almost $540 thousandNet income of almost $540 thousand

PC Industry TrendsPC Industry Trends Increasing Clock SpeedIncreasing Clock Speed Mass CustomizationMass Customization OutsourcingOutsourcing Electronic CommerceElectronic Commerce Current Trends and IssuesCurrent Trends and Issues Demand DynamicsDemand Dynamics Changing Profit DynamicsChanging Profit Dynamics Market and Distribution TrendsMarket and Distribution Trends New Product and Technology DirectionsNew Product and Technology Directions New Business StrategiesNew Business Strategies

Key Success FactorsKey Success Factors

PC Industry ServicesPC Industry Services Technology ServicesTechnology Services Consulting and IntegrationConsulting and Integration Managed ServicesManaged Services

Industry Prospect and Industry Prospect and Overall AttractivenessOverall Attractiveness

Factors that make the Industry Factors that make the Industry AttractiveAttractive

Factors that make the Industry Factors that make the Industry UnattractiveUnattractive

Special Industry Problems and Special Industry Problems and IssuesIssues

Profit OutlookProfit Outlook

ConclusionConclusion

Dell Leads Dell Leads Global MarketGlobal Market Diversify the WorkforceDiversify the Workforce New InnovationsNew Innovations PC Improves SocietyPC Improves Society