Case Analysis: Apple Inc., 2012
IBM introduced the personal computer into the mainstream in the 1980’s, after Apple pioneered the first usable “personal ” computing devices. By the early 1990’s, lower price and expanding capabilities drove the growth of “Wintel” (the windows OS combined with an Intel processor). The revenue growth continued through the early 2000’s then lowed over the next decades. The personal computer (PC) industry is in high dynamics, with new products emerging and old technology being abandoned quickly. With the requirement of cost cutting and the development of emerging market, contract manufacturing in Taiwan and China became popular. The dynamics are mainly driven by cost components cutting, software and hardware updates, product designing and consumers’ needs. The five forces (see Exhibit 1) that have shaped the industry include threat of new entrants, threat of substitutes products, bargain power of suppliers, bargain power of consumers, and competitor rivalry within an industry. NEW ENTRANTS:
One of the main barriers to entry is the scale economy. The industry requires PC companies to invest extremely large capitals in all aspects to gain the scale economies, including tech economy, managerial economy, financial economy, marketing economy and R&D economy. PC industry also involves lots of patents and rights, protecting innovations and setting up another barrier to entry for the new entrants. Technologies as well as innovation are advancing every year even every month, making the competition in PC industry fiercer. The top five PC vendors control large shares of the global personal computer market. It is really difficult for new competitors to enter the market. On the other hand, price-sensitive consumers show low customer loyalty, usually have low brand identification and are willing to switch their PC to anther brand or product with limited costs. For example, consumers loved the mini notebooks just because of the low average price. It is also easy for the new entrants to gain the access to distribution channels. Meanwhile, under the fierce competition in the PC industry, the industry profitability shrunk with the average selling prices, which declined by a compound annual rate of 8-10% per year from the early 1990s through 2005. By 2011, the average PC manufacturers’ net profit margin, excluding apple, was 5%. High barriers to entry and unattractive industry profitability result in the weak threat of new entrants. SUBSTITUTES:
The threat of substitutes is increasing with the introductions of new smartphones and handheld devices. Consumer electronics products, ranging from cell phones to TV set-top boxes to game consoles, are the main substitutes for personal computers. For example, smartphones increasingly functioned as handheld computers, allowing users to do emails, visit websites, and manage their online lives. Also the introduction of tablet computers, such as iPad in 2010, has a huge impact on the PC industry. IPad is popular mainly due to extended functionality realized by different types of apps, initiating a new revolution among tablets. More details can be referred to Exhibit 2. SUPPLIERS:
Suppliers to the PC industry fell into two categories: those that made products with many sources, and those that made products that had just a few sources. In the first category, the products include memory chips, disk drives, and keyboards. The suppliers of products in the first category has limited bargain power because the degree of difference of inputs is low and the supplier switching cost is low, resulting in highly competitive prices. In the second category, the products are microprocessors and operating systems, mainly supplied by Intel and Microsoft (the “Wintel”). Although competition for CPU emerges in the 1990s, Intel remained the market leader with leading-edge technology, manufacturing scales, and a powerful brand. With a lower power, lower performance and lower price, the...
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