2010

Written Analysis and Communication II

Group I Alok Dwivedi 2010PGP025 Angshuman Das 2010PGP039 Ankit Gupta 2010PGP047 GunjanTomar Jagdeep Singh 2010PGP140 Periayyasaravana Kumar 2010PGP241 Ram Nivas R 2010PGP296 Sayan Majumder 2010PGP443

[CASE ANALYSIS: APPLE INC. IN 2010]

The document contains about the case of Apple Inc., the challenges it faced in the market, what are the possibilities they had and how did they managed to influence the profitability.

Rivalry within the PC industry

The rivalry within the PC industry was intense and 4 vendors Hewlett-Packard, Dell, Acer and Lenovo made up 55% of worldwide shipments. It was a complex market and growth was driven by price competition, new products fuelled by expanding capabilities and innovation and greater Internet penetration and demand in emerging markets. Despite the tremendous volume growth in this sector, revenue growth for all manufacturers were not in tandem due to decline in average selling prices(ASPs). Average profit margins for most PC manufacturers fell below 5% due to increasing standardization of key components whose prices kept falling. A shift in the distribution model from dealers to direct buying from manufacturers, superstores, electronic retailers and Web-based retailers increased the buying power of the consumer and the competition between manufacturers to tap into the retail boom.

Role of suppliers
Suppliers in the PC industry were of two types: those who made products with many sources (eg, memory chips, keyboards etc) and those who made products with few sources ( eg, microprocessors and OS). The first category products were competitively priced and the second category was dominated by two behemoths of their respective areas Intel in microprocessors and Microsoft in OS. Most PC manufacturers had a collaborative relationship with these two suppliers who commanded over 80% and 90% of the market share respectively in their product lines. The standardization of these components led to great cost cutting on R & D for most manufacturers. The price of CPUs where Intel held sway declined on a year on year basis; however the speed and technology kept improving leading manufacturers to offer faster machines at more competitive prices whereas Microsofts Windows 7 version was the fastest selling OS in history.

Power of Buyers
Buyers had a wide option in buying within the PC industry. Basically they were categorized into five categories and each category had their own preference in features and buying channel. Home consumers and Small and medium business customers bought from super stores and White Box channel. Corporate and large enterprises bought directly from manufacturer. In 1990s, more knowledgeable PC customers moved away from full-service customers.

Barriers to entry
Severe competition from established players and low average profit margin with strong competition from Taiwan and China would be a barrier for the entry player. Establishing a retail presence and developing a distribution strategy is difficult for a new player.

Key factors
Industrys opportunities and challenges Reducing Average selling price, nearly 8% per year between 1999 and 2005 and average profit margin that fell below 5%. White Box market which represents about 30% of overall market and increasing dominance of it. Consumer electronics started to capture the functionality of PC and these digital devices would subsequently pose a challenge for PC market. Provision of complementary software, content and hardware would increase the value of the computer. Retail presence and distribution strategy of PC manufactures Innovation and R&D spending which is a mere 1% with many PC manufacturers

Substitutes in PC industry and their effect on PC market

New substitute to personal computer were expensive laptop computers which gained attention in late 1980.These laptops gained popularity and captured market share and by 2009 they represented 57 percent of the market. Moreover, a new product sub category of laptops called net-books became popular in the downturn of 2009. These net-books had limited storage capacity and were low priced which attracted a lot of price sensitive buyers. Apart from laptop and net-books smart-phones and PDAs worked as handheld computers allowing the user to check and send emails, browse internet and manage their online lives. These substitutes posed a serious threat to PCs in the long term and could even wipe out PCs from the market because these alternate devices were technologically more advanced, more compact and mobile. More number of buyers was attracted towards these devices and their willingness to buy PCs was decreasing significantly.

Complements in PC industry and their effect on PC industrys profitability

Complementary products included complementary software, contents and hardware. Software included word processing, presentation graphics and internet browsing. Complementary hardware included printers, speakers, headphones and gaming consoles. There was a significant increase in the number of software for PCs, even firms like google offered free application software. Complementary hardware became cheaper as compared to 1980 and there was a vast array of complementary hardware available. These complementary products added value to a PC and as a result of lowering in the price of these products and their wider variety and availability they have increased the profitability of the PC industry.