Since the emergence of PC’s primarily as desktops in the ass and ass, the industry has seen reduce expansion & innovation, in the form of laptops, notebooks, and net books. Growth was increased by lowered prices and expanding technology and the industry roared through the early sass. 2010 saw the arrival of the pad which gained significant ground for tablets which actually have been In the PC market since the ass. In 2011 came another category of laptops called ultra books which were ultra- thin, lightweight, and high-performance.
It has yet to be seen how the market will shift again In coming years based on new Innovations as well as substitutes Like smartness. So just how competitive has the PC industry been globally over the ears? The total shipments (in millions) by PC manufactures from 2000 to 2011 have increased greatly. In 2000, we saw total shipments of PC’s increase from 128. MM to 352. MM in 2011. That is a 174. 2% growth over that time span. Worldwide PC revenue has increased in that same period from $251 billion in 2000 to $329 billion in 2011.
With the PC industry expected to grow as new innovations and products come along, the 201 5 estimate in global revenue for the industry is around $383 billion. On the surface, these numbers look very attractive and appealing to potential competitors. But, It’s Important to take In account the costs the industry Incur and how revenue and volume growth have slowed down. The PC Industry Is very price competitive. Firms and manufactures are looking for ways to lower prices and lower costs while increasing volume growth. The industry has a very low average profitability.
By 2011, the average PC manufactures’ net profit margin was 5%. For example, in 2009 Haps PC business was the lowest operating business segment in the entire company. Selling at an average price of $1323. 40 per Mac, Apple gained a profit of $370. 55 for every Mac sold. Compare that to the average selling price per PC for HP of $650 with a gained profit of only $52. Even though HP sold 5 times as many PC units as Apple in IQ of 2009, Apple’s price discipline proved to be superior to that of HP which has led to Apple becoming one of the most valued companies. The PC industry is very competitive and cutthroat.
In Just the 21st century alone we have seen the market share leader change four times. Compact led the sass market until HP acquired the company In short time after. HP led the market share In 2002 at 16%. A back and forth fight occurred over the next couple of years between HP and Dell eventually paving HP as king of the Hill. That is of course until the most recent years have seen slightly better than HP. Dell and Acre account for the other two top PC vendors as these four companies combined to make up 53. 6% of the worldwide shipments in 2011. China became one of the largest and fastest growing PC markets in the world.
The fact that Leno has a 35% share in this market can explain its’ increasing presence in the world market. The Leno market share leadership doesn’t come as a surprise when one looks at the statistics for PC’s in-use for the main regions of the world. The sass showed North America with a slight lead in units of PC’s in-use with just fewer than 200 million. That quickly changed in 2008 through 2011 as Asia-Pacific became the outright leader in PC units. Estimations have the Asian Pacific region to use more than 800 million units by 2015. That is more than twice the next leading region.
How attractive is the PC industry? Early Years An analysis of the PC industry requires the use of Michael Porter’s Five Forces model to help understand the profit potential of the PC industry and how firms can position themselves to gain and sustain competitive advantage. The rule of thumb is that that stronger the forces, the lower the industry’s profit potential. This makes this industry less attractive. Let’s take a look at the PC industry’s early years related to the first force, Threat of Entry. Threat of Entry In the early years of the PC Industry, IBM was the dominant force.
The threat of entry was low at this time. But, as the combination of Windows SO and the Intel microprocessor became the standard (Winter), the threat of entry increased moderately. Vim’s system was relatively open and easy for producers to copy. This was seen when the thousands of manufactures built their own PC’s. Capital requirements to enter were low because of the standard model. Michael Dell formed Dell in the early ass out of his dorm room. The products were also not differentiated. There were relatively little exits barriers as well.
In the early years when a company wasn’t profitable, it had no problem dropping out of the market as seen with the thousands of manufactures funneling only to a handful. Finally, no dominate brands or players were established yet. IBM PC like clones controlled most of the market share in the ass. For these reasons there was a moderate threat of entry. The Power of Buyers The power of the buyer in early years was moderate to high. The sass brought more knowledgeable PC consumers including individual and group buyers. One of the main buyers are corporate buyers, or buyers buying for large companies.
These consumers were very price sensitive meaning they were usually looking for good deals and the lowest price. These types of buyers plus large businesses, governments, and schools buy computers in large volumes which gave them a lot of in the early stages of being established. Also direct sale to consumer from manufactures and the “white box” channel became popular and increased the power r the buyer. The Power of Suppliers Suppliers to the PC industry were either those that made products with many sources or those that made products with few sources.
The latter type of suppliers, producers of microprocessors and operating systems, had a high bargaining power. The two chief firms that produced these products were Intel and Microsoft, respectively. Intel commanded almost 80% of the PC CPU market share. In the early years, they had a lot to say on setting prices, costs, etc. Even with emerging competitors, Intel has remained the market leader in microprocessors with a cognizable brand, economies of scale, and state of the art technology. Like Intel, Microsoft has dominated the SO market. About 85-90% of all PC’s ran on some version of Windows in the late 20th century.
Both Intel and Microsoft’s dominating presence in the early years started with MOM, but quickly shifted to the “Winter” era of the ass. With thousands of manufactures using these two companies mainly, it’s easy to see why the bargaining power of these two suppliers is so high. Substitutes were few and their product was important to the input of the buyer’s product. Threat of Substitutes The threat of substitutes in the PC industry during the early years was relatively low. PC’s as desktops were innovative and monumental for their time. There was nothing else quite like it.
The demand for the Internet, lower prices for products, and expanding capabilities for PC’s all supported the fact that threats of substitutes for the PC industry was low. With this technology and innovation being relatively new, it isn’t often that substitutes start being produced in the early years. It’s when the market is in the mature stage that substitutes become popular. This is seen with Smartness and other SEC today. Though, the PC industry did adapt to changes by creating new products themselves such as the emergence of laptops. Rivalry Among Competing Firms With almost every industry comes intense and cutthroat competition.
Especially in the early years, companies are Jockeying for strategic position and competition advantage. From the thousands of manufactures using the cloned IBM PC emerged a select few firms who went on to be the market leaders that found a winning formula. As we will see later though, that formula may not always be profitable in the long- run. The competition is cutthroat because of the slow growth, lowering of prices, and innovation of products from certain firms. It’s the competition of price that especially makes the competition in this industry so intense.
As time went on, the industry seemed to be slowing down a little bit. The decade starting in the early sass’s saw a slowing volume growth, which was followed by a slowing revenue growth. As mentioned in the case, the average selling prices (ASP) of the PC’s declined “by a compound annual rate of 8-10% per year from the early sass’s through 2005” (page 5). Most of the companies in the industry had to reduce costs in other places, most of them turning to reduced R funding to combat the tougher mimes. To move further in the industries age, the ASP for the PC dropped 25% in a 3- year span from 2008-2009. Http:,’/’. P. N. R;. N’. Satanist. Com/chart/1766/global- PC- mind gusty-continues-downward rd-trend/ This downturn forced companies to start looking outside of the box for new and improved products that would drive revenues up and get consumers once again excited for portable computers. Right around the time of the economic downturn in 2009, lightweight mini notebooks were made. They made a huge first impression, as more than “40 million notebooks sold in 2009″(pig. 5). However, these notebooks didn’t dead the market for too long, as in 2010 the pad was released and dramatically reduced the sale of the mini notebooks.
Threats of Outside Competition During the later stages of the PC industry, the outside competition has decreased dramatically. Many of the smaller companies that were trying to succeed in the early days realized they wouldn’t be able to cut it, and that is why now you only have your handful of companies that are still on top of the industry. Leno, Dell, HP, and Acre accounted for over 50% of the shipments in 2011, showing that most of the market shares as a PC manufacturer in 2011, showing how difficult in can be.
Threat of Substitutes There are many threats that have popped up when looking in the later stages of the industry. Instead of only having online capabilities on a PC,you can now browse the web on your phone, ‘pad, or even small gaming systems. Anything can be used to search the web, therefore making for the number of substitutes to rise. If the price of one PC is too high for a consumer, there are multiple ways of which he can accomplish what he needs. Whether you need to take notes for a class or stream a movie, almost any smart device in today’s world will have the capabilities.
There is definitely a rivalry between the big PC producing firms. In this cutthroat environment, everyone is trying to come out with the magic formula that will increase efficiency, lower costs, and ultimately produce a better product for the consumer. The “follow the leader” system seems to be in place, as companies routinely copy the past successes and try to make small adjustments to make their product rare and hard to imitate. The Power of The Buyer The buyer continues to have much power when it comes to the PC industry. Consumers know what they want as well as what price they are willing to pay.
As reviewed in the substitute part, consumers can find what they need almost anywhere, so in order for a company to be profitable in this industry, it must come out with innovative items at a reasonable price that consumers feel is fair. The competitive advantages that companies create verses others are the reasons as to those companies that succeed rather than fail. Firms Profitability in the PC Industry As seen in exhibit 5 below, the main operating measures seem to be varied between the different companies. Apple’s gross margins have increased from 21% to 41% during the period between 1997 and 2011.
However, Dell and Haps gross margins have decreased during that same time. As apple grows, the other competitors seem to be falling behind. We believe this is because of the innovation that Apple has compared to the rest of the industry. The new ideas partnered with the following of the company allow for a great combination. The PC profits grow with apple because of the brand name along example, everything that you do on you Apple PC can be synced with you phone. Apple’s Other Industries MPH Players In 2001, Apple had entered the MPH market by introducing the pod as part of their haft towards a digital hub strategy.
The introduction of the pod set Apple on its explosive progression in the growth of the company. The pod separated itself from other MPH players due to its sleek and simple design and large storage. The first pod has the ability to store up to “1 ,OHO songs in your pocket” while the competitor’s products only stored about an hour of music. The next year Apple introduced the second-generation pod which had an increased storage that could hold up to 4,000 songs. Over the next several years, Apple continued to introduce new designs and products to their pod family.
By partnering their innovating pod products with their exclusive tunes library and App store they have been apple to control more than 70% of the U. S. MPH market. The market for Amps is a much more attractive market compared to the PC market due to the PC’s cutthroat competition. Within the PC market, Apple is in competition with four large competitors which accounted for almost 54% of shipments worldwide. These four PC vendors are Hewlett-Packard, Dell, Leno, and Acre. They all have well-established positions in the market. When Apple entered the MPH market, no competitor had strong hold.
Apple was able to differentiate themselves with innovative products and strategies. By producing pod accessories, pod was able to sell $1 dollar in add-on products for every $3 dollars spent on an pod. Another feature that helped Apple emerge itself to the top of the MPH market was the compatibility with Windows along with its own ISO software. This compatibility helped launch the tunes Music Store which has over 10 billion songs sold as of 2010; completely changing the way music is purchased. Although the MPH market is not as competitive as the PC market, we see less total gross sales per year s other technology materializes.
Smart Phone Along with entering the MPH market, Apple had entered the smart phone market in 2007 by launching the first phone. The industry for mobile phones at the time were dominated by short life cycle products with sophisticated technology that Apple had not experienced. Although the outlook to enter the mobile phone market seemed risky, Apple was able to revolutionize the entire phone market with a differentiated product. Steve Jobs was quoted saying in January of 2007 “Every once in a while a revolutionary product comes along that changes everything.
Today, we’re introducing three revolutionary products of this class. The first one is a widespread pod with touch controls. The second is a revolutionary mobile phone. And the third is a breakthrough Internet communications device…. These are not three separate devices, this is one device, and we are calling it phone”. In over five quarters, the original phone had over 6 million units sold with their exclusive network operator, AT&T. Apple would continue to develop and introduce new versions of their phone, along with changing agreements with network operators so that the phone could expand its market capacity.
Four years after the first phone was launched, the product attributed to 44% of Apple’s total revenue. Parallel to the PC industry, software systems. Manufacturers such as Samsung, LEG, Motorola, and ETC all created their own operating systems and designed their own hardware giving them the opportunity to be considered by consumers. In 2012, the greatest threat to the Apple in the smart phone industry was developed by Google. This threat has become known as the Android platform, a platform that is open and free for other manufacturers to use. This gave Apple competitors a chance to compete with the Apples differentiated App Store.
Manufacturers, such as ETC and Samsung, were able to develop phones that were very competitive and in some aspects superior to the phone all while using the Android platform. Http://commons. Wakefield. Org/wick/File:World-Wide-Smartened-Market-Share. Pang Above is a chart showing the trends of operating system market share worldwide from 2007 to 2011. In 2007, we can see the ISO market share start to increase as the phone was introduced. Recent trends have shown that the Android operating system s increasing in market share each year since Google has developed the platform.
In Quarter 3 of 2011, the android platform has climbed to roughly 53% of the market. This is due the capabilities of open and free platform able to collaborate with smart phones manufactured by Apple’s competitors. Over the years, the intense competition within the smartened industry has led to lawsuits based on design and intellectual properties. Steve Jobs has become one of the most aggressive Coos in terms of legal action. He is quoted in saying “l will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android, because it’s a stolen product.
I’m willing to go to thermonuclear war on this. They are scared to death, because they know they are guilty’. Tablet the pad. The pad was another Apple innovation that had uncertainty in market demand before its launch. In 2010, when apple released the pad, an entirely trivial market had emerged into one of the most demanded technological markets. The market is referred to as the tablet market, which was led by the pad. In the first week on the market, the pad sold over 450,000 units. In February 2012, over 55 million nits of pads had been sold.
Similar to the PC industry, Apple had an early Jump on competitors, but it was only a matter of time before competitors would catch on. In late 2010, Android based tablets had been introduced to the market to compete with Apple’s pad. Three main threats to the pad are manufacturers using Google’s Android, Amazon using an open Android version, and Microsoft-based tablets. Amazon’s tablet had been able to grab 14% of the market by quarter 4 in 2011. Competition in the tablet market in 2012, is similar to the cutthroat competition seen in the smartened and PC industries.