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Industry Analysis: Apple Computers

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Industry Anбlisis: Apple Computer


Analyzing the computer industry from 1995 to 2005 seemed to be like analyzing a game of chest between the major competitors. The development is noticeable and the shaping of different corporate strategies could be sensed easily thanks to the different approaches toward the movement of the industry that the companies had; some of them shaped it, some followed it and some helped it grow. In order for us to analyze the computer industry during the up said time period, we will consider porter's five forces analysis, though static, it helps improve one's understanding of the setting and the conditions of such. Porte's five forces constituted the analysis of the new entrants to the industry as the barriers that can occur and the rivalry that represents it, the supplier's and buyer's power and the threats from substitute products. With this in mind, in order to determine if the industry is attractive or not we need to understand the pulling of these forces and therefore the profit potential of such industry. Since we are mainly concerned with Apple computers, we will alternate also with the position of the company and its defense against these forces giving a setting for recognizing the company's corporate strategy.

By 1995 the computer industry was a relatively new industry with a history of around 20 years only, a considerable time for a technology based industry, but still not a mature industry. On the other hand, by 2002 the industry was all ready a "$220 billion global industry" showing how "from its earliest days in the mid 1970's, the industry had experienced explosive growth" and presenting the industry as a very attractive industry with capability of even more growth. Even with this growing strength, there was a great presence of economies of scale, if a new company were to enter this industry it would have to face the cost disadvantage of not coming in with a large scale, since competing against IBM and Microsoft, and even Apple in a large scale would be suicide. Following, the industry was characterized also for been very capital intensive, for developing new products and new technologies required and investment on R&D of around $500 to $700 million, representing in Apple's case some what of a 4% to 6% of revenue investment fluctuating through out the years. On the other hand, by 2005 this capital intensive industry changed as manufacturers and more competitors a raised, IBM lower it's R&D investments to around 1% to 2% of revenue and other competitors dedicated to assembling and manufacturing computers like Compaq, Dell and HP had no investment in R&D but, in contrast with Apple, were highly dependent on Intel Microprocessors and Microsoft operating systems.

Like such, we can characterize the industry's rivals into two categories: Producers and Developers and Manufacturers. Developers wise, the computer industry by 1995 was dominated by two key players; IBM and Microsoft, even though Apple had introduced the first friendly to use PC Computer, it had very little market share by 1995 and IBM and Microsoft dominated the industry, "with 2001 sales of $86 billion, IBM was the largest computer company in the world" but had failed to maintain the owner ship of the PC platform allowing for Microsoft and Intel to gain control. As far as manufacturers only, the most representative companies, "accounting for 40% of PC shipments in 2001" , were Compaq, Dell and HP (Hewlett-Packard). Dell developed a very competitive internet based direct-sales structure which aloud for mass customization and low inventory costs, Compaq managed to maintain very low and competitive prices for its desktop computers through its build-to-order model and Hewlett-Packard revenue from computer sales constituted only a 20% of the entire firm's revenue, but its printers and electronic instruments for PCs constituted a 43%. As so, the competitions is high and intensive, but given the current conditions as of 2005, there may be space for new comers for the industry growth helps for it and product differences or new management models can provide good incentives.

Supplier's power, on the other hand, may be more of a barrier, for as Yoffie and Wang state: "microprocessors were the hardware brains of a PC", there for having a sole producer evidently create a great supplier power. Even thought through out the 1995 to 2005 time period there were more producers of this piece, Intel remained the market leader and Apple had a hard time competing but was not highly dependent on Intel microprocessors given that apple produced its computers from scratch. As far as the second most important piece of the computer, the operating system, Microsoft dominated the market especially after during 1995 to 2005 after the release of Windows 95 and its following versions. Ones again, Apple did not have a high dependency of Windows processing system, but had a hard time competing with it. Considering, supplier's power for manufacturers and most companies, except for Apple, is extremely.

As far as buyer's power, the PC buyers are segmented by Yoffie and Wang into four categories: 1) business, 2) Government, 3) Education and 4) Home. The business buyers represented around 60% of the PC industry, even so, we may not consider the business buyer as a very powerful one since (comparing to other consumers) it is the least cost sensitive, this not saying that the business buyer is not concern with price, but it is more concern with a combination of service an price and not just price. Apple's business buyer were not the most representative, but had a small share, still, government and education did represent the most buyers of Mac computers. Government and education represented around 8% of the PC market, but Apple's presence in this segment was powerful. Finally, home buyers were the most price-sensitive, they represented 32% of the industry and were mainly targeted by IBM and other manufacturers even though Apple had always intended to have more share in this market but still has not had a representative one. Apple's main issue is targeting and concentrating on its core buyers, but essentially, buyer's power is relatively low for this industry.

To rap up into our five forces, we have to consider now the substitute products to the PC or alternative technologies. According to Yoffie and Wang, "a number of analysts believed that PCs had reached the end of the line" , some substitutes considered were the network computer, hand held PDAs, smart phones, TV set-top boxes and video game boxes, still, only the network computer could represent a threat, but still this



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