Apple Computer Inc. is an American multinational corporation focused on designing and manufacturing personal computers, closely related software products, and other consumer electronic products such as MP3 players. Since its foundation in 1976, Apple has been a pioneer in innovation with multiple ups and downs. In 1976, Apple introduced what was to become the first highly successful mass-produced personal computer. Traditionally, Apple has done extremely well at being the first company to introduce a new product or concept but has struggled to maintain its market share in that product line. Recently, Apple has undergone a transformation from an innovative computer manufacturer to a state of-the-art consumer electronics company. In 2005, the company had $13.93 billion in sales. For the same year, they only controlled 4.2 percent of the U.S. market share in the PC industry. However, Apple’s iPod models accounted for well over 70 percent of the hard-drive MP3 player market and more than 40 percent of the flash based player market. The purpose of this paper is to evaluate Apple’s performance to determine their outlook for success by ensuring their capabilities to match the industry’s conditions and develop competencies that can be converted into a competitive advantage. This report will strive to solve questions such as: whether Apple has enough of a lead to maintain its status as the market leader in the MP3 player industry and if they are able to translate their leadership into the PC industry?
Personal Computer Industry
In the third quarter of 2005, the worldwide PC market experienced its 10th consecutive quarter of double digit growth and reported revenues of $260 billion for the entire year. However, experts have predicted that the worldwide PC market, except for Asia, would slow down to 8 percent unit sales growth from 2006 to 2009, with flat revenue growth. Due to these flat margins, it is predicted that marginal players are likely to be forced out of the market. The PC industry has reached the maturity stage in the product life cycle and the amount of companies participating in the market has made it difficult for those in the industry to retain attractive profit margins. Logically, PC firms have diversified their product lines into other consumer electronic products.
The PC industry is a consolidated and highly concentrated market. Five major competitors control around 64.2 percent of the U.S. market. In the past few years, high competition has been driving down prices. Most personal computers are assembled from standardized components and there are few barriers to enter the market. As a result, there are many companies producing PCs that perform similar functions. All main competitors offer high and low-priced desktops and notebooks in their product lines which makes differentiation very challenging. This causes the market to be extremely price competitive. Businesses are very likely to have a strong bargaining power as they constantly buy large quantities of computers at a time. Changes in product technology constitute a possible threat to the PC industry. Since technology changes so rapidly, there is always the threat that substitute products may evolve in the future. Additionally, it is very costly for a PC manufacturer to switch operating systems. Hence, Microsoft has a tremendous power in the industry since most PCs operate on the Windows format. Intel, also has significant control over PC manufacturers since they control about 85% of the microprocessor market.
Innovation is vital to be successful in the PC market. Introducing new features and capabilities enhances the company’s image and reputation which is highly needed in such a saturated market. Since more PC firms are expanding their product lines into the consumer electronic products, synchronization between the PCs and other products introduced is extremely important. Customization has also become...