Computer Industry

The Computer And Peripherals Industry is composed of a diverse group of companies. It produces a wide range of products for sale to just about all businesses and consumers. The industry tends to lead the economic cycle, and is very competitive.

This industry markets a wide range of products and services, many of which are tied to mainframe and server computers, personal computers, and storage devices.

A number of offerings include gear to connect this hardware, both within a company and between businesses, suppliers, customers, and consumers. Keyboards and trackballs are other products, for example. In addition, some of the hardware providers offer services, such as installing and managing a business’ information technology operations, or hosting applications on an enterprise’s own computers that can be accessed by its customers. Others in the industry are wholesale distributors of computer products and services.

This is a growth industry. Businesses and governments have long been computerizing more and more of their work to increase competitiveness and efficiency. And, with the rise of the Internet, home computers, used to stay connected with friends and business, have become a necessity. The market should continue to grow. Businesses have to store and manage an increasing amount of data because of competitive needs.

Too, whereas in the past, the data stored was primarily words and numbers, which take up relatively little storage space, now more capacity-hungry audio and video material is being computerized and stored. It should be noted that this industry is somewhat recession-resistant, since many of its products and services can save money. Still, these companies certainly are not immune to economic downturns, since users can postpone buying a new computer and, as employees are laid off, fewer new machines are needed.

Main activities in the industry’s value chain:

The market for personal computers is highly competitive. The personal computer industry is highly competitive and is characterized by aggressive pricing practices, downward pressure on gross margins, and frequent introduction of new products, short product life cycles, and continual improvement in product price/performance characteristics, price sensitivity on the part of consumers, and a large number of competitors.

Over the past several years, price competition in the market for personal computers has been particularly intense. The Company’s competitors who sell Windows-based personal computers have aggressively cut prices and lowered their product margins in order to gain or maintain market share in response to weakness in demand for personal computing products that began in the second half of calendar 2000. The Company’s results of operations and financial condition have been, and in the future may continue to be, adversely affected by these and other industry-wide pricing pressures and downward pressures on gross margins.

Attractiveness of Computer Industry:

The threat of new entrants to this market must be examined in two lights. There are an extremely large number of small competitors, would lead you to expect there to be fierce competition on price. While there is great likelihood of new entrants to the market, they offer significant risk with small returns and almost no growth opportunity. Large-scale new entrants are much less likely for the same reasons. This means that the threat of significant new entrants is normal. Threat of New Entrants: Normal

Pressure from substitutes comes primarily from the growing capabilities of mobile devices. As devices such as the Blackberry® and iPhone® grow in capability they are expected to grow in popularity and displace PCs from many of their traditional roles (see Forces Driving Change – page 20). Pressure from Substitutes: Normal

Competitive pressures from supplies are almost non-existent in this market. Most of the inputs are commodity items, and the remainder (CPU / GPU) is facing their own competitive pressures to sell as many units as possible. The only pressure that may come from suppliers is preferential treatment of important PC manufacturers in times of shortage, such as during the release of new items. In recent years this has been reduced due to the fact that most of the cutting- edge chips are aimed at high-performance computing which does not represent a large market segment. This allows the chip makers time to ramp up production without facing market shortages. Pressure from Suppliers: Weak

Buyers are in the driver’s seat in this market. With the commoditization of computer hardware, the lack of differentiation due to the standardization of the operating system, and the high-level of performance that is normal with most hardware on the market today, there is almost no switching cost for the buyer. This has led to an erosion of brand loyalty and extreme price sensitivity. Pressure from Buyers: Fierce

In total, the five forces indicating a moderate level of competitive pressure. Moderate competitive pressure is common in many industries. This is neutral with respect to the attractiveness of this market.