The Computer Hardware industry is a growth industry that includes companies that design and manufacture personal and large-scale computers, as well as other information technology devices. The increased use of the Internet has led to increased growth and spending in this industry, and the computer hardware industry is projected to grow 8. 4% between 2009 and 2014 (“Computer hardware industry,” 2010). With a promising future and strong supplier bargaining power, it is an intelligent strategic move for companies to enter the computer hardware industry. Structure of the Industry
The Computer Hardware industry is defined as an industry that includes companies that design and manufacture personal and large-scale computers, peripheral devices, data storage systems and networking equipment (“Computer hardware industry,” 2010). This U. S industry accounts for 32. 8% of the global computer hardware market value. Widespread use of the Internet has stimulated demand for information technology (IT) products and services, resulting in increased spending. Currently, total spending on computer hardware represents one-fifth of the worldwide spending on information technology (“Industry profile,” 2010).
The industry is broken down into three main segments: computers, peripherals and devices, and storage devices. The computers segment consists of desktops and laptops, while the peripherals and devices segment includes computer peripherals, PDAs, organizers, calculators and satellite navigation systems. The storage devices segment includes memory sticks, CD packs, hard disks and other data storage devices (“Computer hardware in the united states,” 2010). Key Categories The United States Computer Hardware industry had total revenue of $63.
3 billion in 2009, and computer sales proved to be the most profitable, with revenues of $27. 4 billion. Peripherals and devices generated revenues of $24. 8 billion, while storage devices had revenues of $11. 1 billion. As shown in the chart above, computers accounted for 43. 3% of the market share, peripherals and devices accounted for 39. 2% of the market, while storage devices accounted for 17. 6% of the market. Key Companies The key companies that contribute to most of this industry’s revenue in the United States include Acer Inc. , Apple Inc. , Dell, Inc.
and Hewlett-Packard Company (“Computer hardware industry in the united states,” 2010). Acer, Inc. recorded revenue of $17,347 million in 2009, which was an increase of 5. 1% from 2008. Its net income was $343 million for the same year, displaying a 2% profit margin. Acer’s major brands include Acer, Gateway, Packard Bell, eMachines, Aspire, Veriton, Altos and TravelMate (“Acer, inc. company profile,” 2010). Apple, Inc. recorded revenues of $42,905 million in 2009, which was a 14. 4% increase from the previous fiscal year. Its net income was $8,235 million in 2009; a 19. 2% profit margin for the company.
Apple’s major brands include Apple, Macintosh, Mac, iPhone, iPad, iPod, iTunes, iTunes Store, QuickTime, Apple TV and MobileMe (“Apple, inc. company profile,” 2010). Dell, Inc. had revenues of $52, 902 in 2010, which was a decrease of 13. 4% when compared to the $61,101 million of revenue in 2009. Dell, Inc. had a profit margin of 2. 7% in 2010, and 4. 1% in 2009. Dell’s major brands include Alienware, Dimension, Inspiron, Latitude, Optiplex, Precision, Vostro, XPS, PowerEdge and PowerConnect (“Dell, inc. company profile,” 2010). Hewlett-Packard Company (HP) recorded revenues of $114,552 million in 2009, which was a decrease of 3.
2% compared to 2008. The company’s net income was $7,660 million in 2009 and their profit margin was 6. 7% for the same year. HP’s major brands include HP, LaserJet and Compaq (“Hewlett-Packard company profile,” 2010). Key Brands Each company offers different brands as well as different items within each brand. Acer, Inc. is one of the leading manufacturers of IT hardware products in the world and primarily sells its products under the brands of Acer, Gateway, Packard Bell and eMachines. The business series desktops include the Veriton brand while the consumer desktops include the Aspire brand.
The notebooks offered by Acer include three major brands: Aspire, Travelmate and Extensa. The company also provides Aspire series netbooks. Servers and storage products are sold under the brands of Altos and Acer, while Acer’s LCD monitors include brands such as Ferrari, Premium home, High Definition, and Excel. Acer’s desktops, notebooks and displays are offered under the brands of Gateway and eMachines. The company also offers PackardBell brand products, including desktops, notebooks, netbooks, MP3 players, monitors and storage devices (“Computer hardware in the united states,” 2010).
Apple offers numerous product lines under many different brand names. The iPhone product line includes the iPhone 3G and 3GS as well as Apps for iPhone. The iPod brand includes a line of portable digital music players, including the iPod shuffle, iPod nano, iPod classic, iPod touch and accessories. Apple’s Mac brand offers a long line of products, some of which include the MacBook, MacBook Pro, Macbook Air, Mac Pro, iMac, Mac mini, Xserve and Mac OS X. Apple’s application software includes iLife, iWork, Final Cut Studio, Logic Studio and FileMaker.
The brands of Safari, QuickTime and MobileMe encompass Apple’s internet software and services (“Apple, inc. company profile,” 2010). Dell, Inc. designs, develops, manufactures, markets, sells and supports information technology systems and services. Dell’s products and services can be categorized into six different divisions: desktop PCs, mobility products, software and peripherals, servers and networking, services and storage. The desktop PC division includes brands such as XPS, Alienware, OptiPlex, Inspiron, Vostro and Precision.
The XPS and Alienware product lines target customers that want the best experiences and designs available, while the OptiPlex brand is designed for business, government and institutional customers. Inspiron targets consumers with entertainment needs, while the Vostro brand is designed in a way that provides technology and services to fit the needs of small businesses. The Dell Precision desktops are for professional users that are certified to run difficult applications. Dell’s mobility products division offer notebooks under the brands of XPS, Alienware, Inspiron, Latitude, Vostro and Precision.
The software and peripheral division offers Dell-branded products including, but not limited to, printers, televisions, laptop accessories, networking and wireless products, digital cameras, power adapters, and scanners. Dell’s servers and networking division offers numerous servers and networking products. It includes the PowerEdge line of servers and the PowerConnect brand to connect computers and servers in different networks (“Computer hardware in the united states,” 2010). Hewlett-Packard (HP) is one of the leading global providers of technology products, software, solutions and services and mainly operates under its own brand name.
HP conducts its business through seven different business segments: enterprise storage and servers (ESS), services, HP Software, the personal systems groups (PSG), the imaging and printing group (IPG), HP Financial Services (HPFS) and corporate investments. The ESS division provides a large amount of storage and server solutions. The industry standard servers run mainly on Windows, Linux and Novell and use Intel and Advanced Micro Devices processors. HP Software offers service-provider software and services and consists of media solutions and business intelligence solutions.
PSG is the number one provider of personal computers in the world. This division provides commercial and consumers PCs, workstations, handheld computing devices, calculators, software and services. This segment is broken down into two categories: commercial clients, which include commercial desktops, notebooks and workstation operations, and consumer clients, which include consumer desktops and notebooks. The commercials PCs include the HP Compaq business desktops, notebooks, tablet PCs, mini notebooks and mobile workstations. The consumer PCs includes the HP and Compaq division of consumer desktops, notebooks and mini notebooks.
The IPG segment is one of the top imaging and printing systems in the world for printer hardware and printer supplies. HP’s printer supplies include LaserJet toner, inkjet cartridges and other printing-related media. HPFS provides leasing, financing as well as financial asset management services for customers both local and global. HP’s corporate investments include Hewlett-Packard Labs and other business projects (“Computer hardware in the united states,” 2010). There are numerous factors that affect computer hardware pricing strategies and sales trends.
Consolidation has played a major role in pricing in the computer hardware market. Despite the fact that micro chip prices continue to decrease and component prices are steadily declining, the industry’s consolidation has enabled computer companies to minimize operating expenses. However, consolidation has been a major factor in contributing to a more intensely competitive pricing environment that continues to affect all categories of the computer hardware market. Currently, the largest merger in the industry was the May 2002 acquisition of Compaq by Hewlett-Packard,
which was valued at $19 billion. Other major merges include when Gateway acquired eMachines in 2004 for $250 million, and when Acer purchased Gateway in 2007 for about $710 million (“Industry profile,” 2010). Throughout the past couple of years, prices have continued to fall in the Computer Hardware industry, specifically in the desktop market due to an increase in demand for notebooks and netbooks. In the late 1990s, all major companies offered a PC that cost less than $1,000, and by 2006, desktops could be purchased for less than $500 and laptops for less than $700.
According to technology market researcher Forrester Research, United States household PC penetration was more than 80% in 2010, and almost half of U. S households had more than one PC (“Industry profile,” 2010). Penetration pricing is used to lower the price of products to make them more available to consumers, and many companies were not only utilizing this type of pricing strategy to stay competitive, but also to reflect the fact that the total cost of a PC is not in the up-front price paid for the PC but in the cost of the maintenance and support of the computer after it is purchased (“Industry profile,” 2010).
Distribution Products and brands in the Computer Hardware industry are sold through numerous different distribution channels. In some cases, computer hardware manufacturers rely on retailers to sell their product to consumers, while in other cases the manufacturers sell their products to the consumer directly through retail stores and the Internet. Computer hardware is also sold by retailers who offer a wide range of products, such as department stores. Acer’s products are sold by leading retailers, Internet retailers and channel partners in the United States, Canada, China, Europe, Japan and Mexico.
Apple provides online distribution of third-party music, audio books, music videos, short films and television shows. The company distributes its products worldwide through online stores, retail stores, direct sales force, as well as third-party wholesalers and resellers. Dell has recently begun to use an indirect sales channels strategy by offering its products through large retailers in different countries. Originally, Dell only offered its products and services directly to customers via dedicated sales representatives, telephone-based sales and on the company’s website at www. dell. com.
In 2007, Dell decided to sell its products through indirect sales channels, such as retail stores, in several different countries, and is now located in 24,000 retail locations worldwide. Dell has strategic relationships with numerous major retail stores, some of which include Staples, Wal-Mart and Best Buy. Hewlett-Packard focuses its distribution to companies around the world and operates development and manufacturing facilities in the United States, the United Kingdom, Israel, Ireland, the Netherlands, china, India, Japan and Singapore (“Computer hardware in the united states,” 2010).
Porter’s 5 Competitive Forces Porter’s 5 Competitive Forces, founded by Michael Porter, explores the strengths of five competitive forces that determine profitability and competition in the long run. This model helps companies in the Computer Hardware industry to not only analyze competition and determine strategy, but also to determine whether or not it is beneficial for a certain company to enter the industry. Porter’s 5 Competitive Forces include rivalry among existing firms, bargaining power of suppliers, bargaining power of buyers, threat of substitute products and the threat of new entrants (Kirkwood).
These forces can be applied to the Computer Hardware industry in the following ways: • Rivalry among existing firms- There is a moderate level of rivalry among existing firms in the computer hardware industry. There are a large number of retailers that exist in this market which increases rivalry, and the low cost of switching for consumers also promotes rivalry between firms. Storage costs are high and retailers need to be quick with turnaround of products due to the constant changing and updating of technological products (“Computer hardware in the united states,” 2010).
• Bargaining power of suppliers- Supplier power in the computer hardware market is strong. The main suppliers are computer hardware manufacturers, which are often very large and operate in many international markets. This allows for the possibility of integration and acquisition, thus strengthening the supplier’s position. The suppliers are also few in number, which increases the bargaining power of suppliers significantly.
The fact that some computer hardware manufacturers rely on retailers to sell the products to consumers weakens the bargaining power of suppliers, however manufacturers can also sell their products to the consumer directly through opening their own retail stores or via the Internet, which results in lower fixed costs and increases supplier strength. Some of the retailers in this industry are specialized and rely heavily on selling computer hardware which also increases supplier power (“Computer hardware in the united states,” 2010). • Bargaining power of buyers- The buyer power in the computer hardware industry is generally low.
The buyers in this industry are the individual consumers. In this industry, buyers are generally sensitive to prices and interested in the quality and specifications of the products. Customer loyalty is low and brand awareness is directed more towards the manufacturers than it is the retailers, which somewhat increases buyer power because retailers are forced to stock brands of consumer preference. Personal computers are becoming more of a necessity than leisure equipment due to the increasing importance of online communication and the immense amount of information that is processed online on daily basis, in turn weakening buyer power.
Retailers have a wide range of consumers to whom they can sell their products which also diminishes the bargaining power of buyers (“Computer hardware in the united states,” 2010). • Threat of substitute products- The threat of substitute products within the computer hardware industry is weak. The functions and capabilities of modern personal computers are unavailable through alternative products. Mobile phones, palmtops and similar hand-held devices with email and Internet capabilities stand as a threat to PCs.
Gaming consoles are also a threat to PCs because the modern gaming consoles are attracting gamers away from PCs. However, the traditional PC still remains as the most versatile device and does not truly have a fully capable substitute (“Computer hardware in the united states,” 2010). • Threat of new entrants- There is a moderate threat of new entrants in this industry. It is easy to enter the computer hardware market due to the logistics of retail operations, and therefore there is a high threat of new entrants.
Low switching costs and low levels of market regulation attract new players. The market growth has been increasing in recent years and is projected to continue growing in the future. This is also attractive to new entrants because it offers a promise of market share or market revenues. On the contrary, the already established market players are in a strong position thus forcing new entrants to engage in costly advertising in order to compete successfully. New entrants also must consider that there will be high competition regarding price (“Computer hardware in the united states,” 2010).
In conclusion, the computer hardware industry is a good industry to enter from a company’s point of view. The bargaining power in this industry lies with the suppliers, which will be beneficial for companies operating in this industry. As suppliers, companies will be able to directly control price increases and product quality. Although there is intense competition between existing firms, there is a low threat of substitute products which will give companies in this market a competitive edge and allow them to maximize their profitability.
The computer hardware industry is projected to grow 8. 4% between 2009 and 2014. With high bargaining power of suppliers, a weak threat of substitute goods, easy entry and projected growth within the next four years, it would be an intelligent strategic move for a company to enter the computer hardware market. References Computer hardware industry. (2010). Retrieved from http://www. bitpipe. com Apple Inc. company profile. (May 21, 2010). Datamonitor. Retrieved from http://web. ebscohost. com. rlib. pace. edu/bsi/resultsadvanced?
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