Computer Industry Analysis Essay Example

and professional computers, telecommunications and medical equipment, industrial machinery, consumer appliances, electronic components, semiconductorsWhile the major players in this industry are large companies that are diversified in other industry segments, 61. 4% of the computer and peripheral’s industry is made up of smaller ventures that reflect the industry’s fragmented construction.

Companies like HP and Toshiba have managed to enter many of the different sectors within the computer technology industry, but others have specialized their efforts like Cisco Systems which focuses on IP networking systems2.The industry can be defined in two separate but interrelated components: the computer hardware sector which accounts for 75.2% of the industry and the computer storage & peripherals sector which represents the other 24. 8%2. This report will focus on the computer hardware section of the industry which includes computers and the components that make up the technology. The progression of the computer hardware sector has been steady in recent years due to the continual increase in global home computer sales, along with other emerging trends that will be discussed later in this paper.Hewlett Packard and Dell Computer have been market leaders in this area by developing personalized home computers that appeal to consumer’s individual tastes and needs, but each firm differentiates itself based on unique marketing efforts. The following sections will discuss the Computer Hardware sector of the larger Computers and Peripherals Industry and will examine the trends that have shaped the industry and continue to direct the motives of its major players.

Review of Industry History- Computer Hardware SectorSome strategically important trends that are currently shaping the computer hardware sector of the industry include: Broadband penetration: The increase in internet availability and

access for consumers around the world has led to online shopping, bill pay, research, and hundreds of other functions that are enabled by faster broadband service. This increase in personal usage has driven the demand for personal computers, and it has created a new standard of individual computing.Multi-media enabled hardware: Computer hardware that is enabled to run multi-media functions has grown in popularity since the introduction of legal music downloads and multimedia enabled web pages.

The high demand for hardware that has these functions has enabled manufacturers to charge higher prices, while requiring companies to invest heavily in research and development to stay updated on the current media trends. Market in Asia-Pacific: The large, untapped customer base in Asia, India, and Africa is an emerging market for the computer hardware industry in the future. This market is not as saturated as he U.S. and Europe and it is just starting to develop an interest in computer technologies. This sector of the world provides the industry’s largest opportunity for growth outside of the maturing United States market. Pressures to produce at a lower price: The computer hardware manufacturers are under pressure to produce components at a lower price as many companies are moving their production operations to the Asia Pacific region. This brings challenges like lack of quality control or oversight in these countries, but it allows companies to increase their shrinking margins.Mobility: Consumers have become increasingly mobile due to the availability of the wireless internet, and this has created a larger demand for notebook personal computers.

The sales of notebook computers has increased over the past few years, and have made the desktop computer a technology of

the past. With the falling prices of notebooks computers, computing on the go has become more widespread than ever, and the availability of wireless hotspots in major cities, hotels, airports and has fueled the desire for increased mobility. Gartner Inc. confirms that U.S. desktop sales have declined over the past few years and notebook shipments are expected to increase to 36. 9 million in 2008, up 6. 7 million units from 2007.

Increased personalization: As consumers are demanding notebook computers to keep pace with their mobile lifestyles, they are also interested in personalizing their devices to their own tastes. Plastics manufacturers for the computer hardware sector are moving to create differentiation among their products by incorporating color and interesting designs into the devices.Personalization is also taking place in the form of all-in-one systems at a receptionist's desk, smaller notebooks with built-in cellular devices, and large-screen notebooks for college students. ''Cloud Computing'- New advances in data management have led to the development of distant servers called clouds that contain all of the information traditionally store on a computer hard-drive. This new innovation leads many to believe that there will be an emergence of low cost, “cloud-centric” machines whose data is managed on distant servers rather than the actual machine.

Many say that this low cost option could threaten the business of current industry leaders like HP, Dell, and Microsoft who now offer computers with an increasing number of features and storage. With this strategy of providing a lot of features on each machine becoming obsolete, a new market is opened for computer makers. Some major changes in the computer hardware industry’s development include: Defensive Mergers: The computer hardware

industry has become very competitive as of late and this situation has caused an increase in companies that are participating in defensive mergers to combat intense price competition.Computer leader Hewlett Packard purchased Compaq Computers recently so that the company could continue to maintain market share by decreasing some of the rivalry within the industry.

The culture of consolidation within the industry has led to the emergence of an elite group of multinational companies that have a large share of the international market and control most of the industry resources. In the personal computing segment Dell Computers and Hewlett Packard have risen to the top of sector; however smaller companies are still able to enjoy sales over the $1 billion mark. Microsoft/Intel Control: Since most of the personal computers in today’s market run on a version of Microsoft’s operating system and contain an Intel processor, these companies largely control the PC sales cycles. When these companies decide to release a new edition to their product, customers are often driven to purchase a new PC that will support the new software or hardware component; thus, computer hardware cycles follow Microsoft and Intel’s actions.

These actions cause the computer hardware companies to be dependent on the industry cycles and lead to lower margins.Most of the hardware companies make the majority of their revenues on high end computing equipment and support services. Emergence of Netbooks- In the computer hardware industry, a new smaller and more affordable device is available as a choice for light users. The netbook is a new computer that is intended to be a vehicle to surf the web and check email priced at around $300. Many market

leaders are experiencing thin margins in selling the traditional computer, and some, like HP, are entering into the netbook market.Another product set to enter the market in the coming months is a “net-top” which will be a desktop version of the computer specifically intended for internet usage.

While this product is innovative and is projected to sell 40 million units a year by 2011, these units may threaten many companies already low margins. Some challenges and issues the industry has faced recently include rapidly improving technology and the switch of importance from hardware to software applications. While these changes pose a threat to the existing perations of the economy, the industry has found ways to combat against these problems. Both the size and functionality of new hardware systems is improving exponentially, and this is resulting in very short product lifecycles for PC hardware.

The challenge for most manufacturers in the industry is keeping up with the continually growing demand that the market has for the latest technologies. Although hardware has been a growing segment over the evolution of this industry, much of the innovation focus is now turned to the developments of software systems.While the hardware sector has reached maturity and there are not as many cutting edge changes taking place, there is still much room for advancement in the software realm. To combat these problems that the industry is facing due to its growth and maturity level, PC manufacturers who traditionally focused on hardware are now developing software and additional peripherals like printers and mp3 players. Companies are also finding that to combat the low profit margins and small level of changes that are taking place

in the industry, they can create value by using contract manufacturers.

These companies do everything but assemble the final PC and allow Original Equipment Manufacturers to cut costs and minimize risk. Contract manufacturers like Flextronics, Solectron, Hon Hai, Precision Industry and Quanta deal with the complex component supply chains and allow hardware companies to focus their efforts on advertising and selling the product3 III. Analysis of Industry Forces Within the Computer Hardware Industry, there are a number of technological changes and advancements entering the industry, which include touchscreen technology and the concept of “Going Green” with energy efficient and environmentally friendly computers.Based off of Apple Inc. ’s iPhone, an immensely popular portable phone and entertainment device that relies solely on touchscreen technology, Hewlett-Packard is using that same technology in a line of desktop and notebook computers.

“‘We're focused on recognizing the potential of touch now,’ said Phil McKinney, the chief technology officer for [Hewlett-Packard’s] laptop-making Personal Systems Group. ‘We see touch as the almost preferred method for non-technical users. ’”10 Industry forecasters agree with Phil McKinney.Industry tracker iSuppli predicts that number of touchscreen devices, within the next five years, will exceed 800 million. This amount is approximately double the current number available today. Over the same time frame, analysts also expect spending on touchscreen devices to increase 33%, from $4.8 to $6. 4 billion. 10 Hewlett-Packard is not the only firm, however, to utilize future demand forecasts of consumer touchscreen technology. According to Ben Charny of the Wall Street Journal, “Microsoft Corp.has fueled the move, too. The software titan said in June that it is adding touchscreen capabilities to its next operating system, which is due around

2010. No. 2 computer maker Dell already has an array of touchscreen products, including flat-panel monitors for $618. And it, too, has been revving up new touchscreen products.

” 10 The inclusion of touch functions likely will prompt even further adoption of the technology and propel this technological trend. Increases in energy efficiency and recyclable materials are another major trend in the computer hardware industry.The Green Grid, formed in February 2007, is an international non-profit organization formed for the advancement of energy efficiency in the computer industry. The mission statement of the organization explains The Green Grid as a global consortium dedicated to developing and promoting increased energy efficiency by defining and developing energy efficient standards, measurement methods, and new technologies to improve performance against the defined metrics.

In addition, The Board of Directors of The Green Grid consists of members representing AMD, APC, Dell, Hewlett-Packard, IBM, Intel, Microsoft, and Sun Microsystems. The joint effort in this project by every major firm in the industry shows a strong dedication to the promotion and advancement of a “green industry”. In conjunction with efforts related to The Green Grid, Hewlett-Packard announced this past July that it had beaten its deadline by six months to recycle one billion pounds of electronics. As a result, the firm has created a new goal of reaching two billion pounds of recycled electronics by 2010.Susanne Sonderhoff, marketing manager for corporate, social and environmental responsibility at Hewlett-Packard describes her companies efforts as, “… a really strong baseline, but one of the important parts of our effort is that it's built around collaboration .

.. with suppliers, customers and other partners. ” 9 Other green strides for

HP in the past year have included removing the mercury fluorescent tubes in its notebook computers, making them 95% recyclable, and designing products that use fewer metals. HP estimates that, through new design efforts, the metal saved in a one-year period could be used to construct another Eiffel Tower.

Resource constraints in the industry continue to revolve around the shortage of educated Management Information Systems personnel. While the amount of new MIS graduates into the market is increasing, since the technology bust of the late 1990’s, demand still outweighs supply. Until this demand can be met, advancements in programming and technology will be delayed in reaching the market. Many computer hardware firms also receive their materials from contract manufacturers like Taiwan-based Hun Hai and Singapore-based Flextronics.

These are multi-billion dollar companies that build electronic devices for major firms such as Hewlett-Packard, Microsoft, IBM, Cisco Systems and Apple, who in turn assemble these products. With the recent Flextronics-Solectron buyout, only a few computer hardware contract-manufacturing firms now dominate the market. As a result, any issues involving labor, production, or contracts within the manufacturer can significantly impact the number of assembled devices that firms in the industry rely on to assemble and sell their product line.Individual firms within the industry, as well as the industry as a whole, are subject to reliance on these contract manufacturers.

San Francisco-based InformationWeek recently published an article stating that, “Computer maker Hewlett-Packard sees Africa as one of its fastest-growing markets, expecting the world's poorest continent to rival India for IT outsourcing within a decade. ” Further explaining the Africa market, Rainer Koch, Managing Director for Hewlett-Packard Africa, reported sales rising 25 percent year-on-year in

Africa.In addition, the International Monetary Fund estimates a 6. 5 percent economic growth rate in Africa for 2008. Earlier this year, it was also reported that, in addition to the growth of Africa, HP now earns more than fifty percent of its annual revenue in foreign markets.

Like many other firms in the industry, HP is capitalizing on the tremendous growth occurring international markets. In 2007, HP reported revenue increases of 17 percent in the Asia-Pacific region, 19 percent in Eastern Europe, the Middle East, and Africa, as well as a 37 percent revenue ncrease in Brazil, Russia, India, and China. 11 Comparatively, growth in the United States market has been on a steady decline in desktop and laptop personal computers. Industry analysts predict the 2008 U. S. growth rate in desktop computers to be around.

7 percent and 8. 5 percent for laptop computers. While growth in laptop computers is expected to increase slightly over the next few years in the United States, forecasted growth levels for desktop computers, over the next five years, are approximately 4. 0% and laptop computer growth forecasts are only slightly higher, at 5.percent, over that same time period. 12, 13 Firms in the industry recognize the saturation of U. S. markets, which is why a significant portion of their sales efforts has refocused on emerging overseas markets. IV. Assessment of Competitive Forces The computer hardware industry would be considered oligopolistic in nature, where a handful of sellers dominate the industry market share.

The key players in the computer hardware industry that make up for the vast majority of U. S. market share, include Hewlett-Packard, Dell, Toshiba, Apple, Gateway, Compaq, and Acer.With

Hewlett-Packard’s acquisition of Compaq, they are the market share industry leader in both desktop and laptop computers, with combined market share numbers at 19.5% and 32. 4% respectively. 12, 13 One of the chief barriers in the industry is the high cost of entry combined with an already saturated U. S. market. New firms interested in entering the market can benefit most by opening production shops in emerging markets, such as Africa, Eastern Europe, and Southeast Asia, along with strong marketing campaigns in each of these markets respectfully.

Another major competitive trend affecting the industry is consolidation.Mergers and acquisitions, such as Hewlett-Packard’s purchase of rival Compaq and Acer’s purchase of Gateway have great affected the industry. With this trend set to continue, the dynamic of the industry will shift from a handful of medium sized firms to a few large firms that will dominate market share and have the ability to force smaller firms into buyouts or ceasing of operations. V.

Evaluation of Marketing Practices When looking to penetrate markets with a particular product, firms in the computer and peripheral industry must turn to the marketing mix.The marketing mix, or the 4 P’s, consists of a firm’s product, price, promotion, and place. Firms must evaluate each of the 4 P’s individually and in apply them in congruence to help ensure their product satisfies its target market. Product: Firms in the computer and peripheral industry must first decide the type of product they want to offer.

For our purposes we focus solely on computers, which include supercomputers, the most powerful and capable for complex use, workstations, used primarily for business applications, and personal computers, desktops or laptops intended for

use by a single person.Supercomputers, workstations, and personal computers fall into one of two categories, classified by their intended use, commercial or consumer. Commercial computers are intended for use by business enterprises and are optimized in such a way to make business activities more efficient. Consumer computers have an intended use for groups or individuals outside the business enterprise and are optimized for gaming, leisure, and multimedia use. Computers falling in the consumer category tend to be more aesthetically pleasing, accommodating a variety of buyer tastes.

Commercial and consumer computers are also offered according to their functionality. These computers can be built to specification to include basic, moderate, or advanced technology, escalating in price at each level allowing firms to appeal to buyers of all needs. The major players in the computer and peripheral industry offer one or both of these types of computers to end-users. Price: Once a firm develops their product they must decide at what price it should be sold.

Firms in the computer and peripheral industry may operate in various price structures which allows them access to a multitude of buyers.Firms may compete on price or product differentiation, according to their firm’s vision. Firms competing solely on price have taken the cost leadership approach, selling their product below their competitor’s prices. When firms take the approach of product differentiation the price of their product resembles the perception of customer tastes. They believe consumers will pay more for their product for its perceived benefits.

They key players in the computer and peripheral industry each choose a strategy according to their vision, competing on price or differentiating their product.Apple is a company that competes solely on

the differentiation of its products, as their prices are in the upper echelon in comparison to other firms. Their customers are willing to pay a higher price because they perceive it to have benefits other firms cant provide. Dell computers primary method of sales has allowed them to sell their computers at a lower cost than their competitors. The computer manufacturing industry has become relatively standardized, It is not uncommon for firms in the computer and peripheral industry to offer price discounts for large quantity orders, preseason orders, and long-term commitments.Consequently, the price strategy employed by companies can determine the type of market they plan to penetrate.

Promotion: Once a firm has made their product and price decisions they must evaluate how to expose their product to the intended market. Firms in the computer and peripheral industry can promote their product in several ways, including advertisement, sales promotions, and PR. The most common way firms promote their product is through advertisement. Most advertising in the computer and peripheral industry comes in the form of television commercials, magazines, Internet websites, or newspapers.

One example of promotion through advertisement would be HP’s recent endorsement of celebrities in their commercials, some of which feature Jay-Z, Shaun White, and Jerry Seinfeld. Another form of promotion firms can use is that of sales promotions. Many firms in the computer and peripheral industry have sales promotions around holiday seasons and back to school when the number of potential buyers is at its peak. Sales promotions can also come from technological change.

Technology industries can change at a moments notice leaving companies with “old” equipment and in such a case firms may employ sales promotions.Finally,

firms may use promotion in the form of Public Relations (PR). A firm like HP is in the news for a variety of reasons; one example of PR would be their recent award for environmentally friendly notebooks. Public relations can be an effective tool to expose firms to potential customers. It is not uncommon for firms in the computer and peripheral industry to spend a significant amount of time and money on the promotion of their products, as it is one of the best ways gain consumer awareness. Place:Once a firm has assessed a products price and promotion they must decide on the distribution of their product.

The major participants in the computer and peripheral industry distribute their products in one of three ways; direct, indirect, or both. 15 Direct distribution is the method in which the manufacturer sells its product directly to customers without the use of retailer. This may be through a firm’s online store, physical store, or by telephone. Indirect distribution is the method in which a manufacturers product is sold through another party.These distribution points can be in the form of retailers, resellers, or distribution partners.

Firms in the industry must strike a balance between direct and indirect distribution. Direct distribution can lower a firm’s cost but leaves out the exposure indirect distribution offers. Firms that sell through direct distribution exclusively may be at a significant disadvantage to those firms who sell both direct and indirectly. 15 The marketing mix has proven to be vital in the success of firms in the computer and peripheral industry.With the increase in competition between firms in recent years it is critical for firms to stand out

among the crowd, and the marketing mix helps firms do exactly that. The marketing mix forces firms to evaluate each major category of marketing activity in detail to assess the markets needs and how to satisfy those needs.

The implementation of the marketing mix gives firms a better understanding of the target market and their needs and ultimately increases the likelihood that their product will emerge over competing firms.