Industry Classification
Computer Hardware
and Related Software
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iMac
MacBooks
Mac Pro Desktops
iPad
Mac Displays
Time Capsule
Xserve/ Mac Pro Servers
Mac Mini Server
Mac OS X
Final Cut Studio
Logic Studio
iLife
Aperture
iWorks
Apple Remote Desktop
Media and
Communication
Devices
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iPhone
iPod
Apple TV
iOS Operating System
Digital Media Content
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Music
Movies
E-books
App Store
Computer Hardware Industry
Overview
A highly competitive industry
A mature industry
Market is characterized by frequent product introductions
A few well-established companies, such as:
HP (Global leader with 17.4% market share)
Dell
79.2 % of
Acer
US Market
Apple (Seventh in global market share (4.3%)
Share
Toshiba
Lenovo
Three main operating systems for personal computers:
Microsoft Windows(used in 85-90% of PCs worldwide)
Mac OS X
Different flavors of Linux
Intel Corp.’s processors are used in approximately 80%of PCs
Porter Five Force Analysis of Computer Hardware
Industry in Relation to Apple
Threat of
Buyers:
Low
Threat of
New
Entrants:
Low
Threat of
Suppliers:
Moderate
Level of
Threat in the
Industry:
Moderate to
High
Threat of
Substitutes:
Moderate
Threat of
Rivalry:
High
Threat of New Entrants
Threat of Substitute
 Economies of Scale
 Product Differentiation
 Cost Advantages Independent of Scale
 Proprietary Technology
 Know How
 Favorable Access to Raw
Material
 Learning-Curve Cost Advantages
 Customer-Switching costs
 Access to distribution
 Smartphones are the biggest substitutes
for personal computers
 More than 10 billion units being used
world wide
 New smartphone functionalities are on
the rise
 iPad is likely to bridge the gap between
PC’s and Smartphones
Threat of Rivalry
 Intense price competition
 Personal Computer industry is dominated by
Windows, Apple is a minor player
 Continuous Product Introductions that
primarily focus on product feature
enhancements than product innovations
 Successful launch of iPad has established
Apple as the market leader in the tablet
market; competitive pricing of iPad has also
allowed Apple to compete with low-end
laptop or netbook market of the competitors
Threat of Suppliers

Intel is the sole supplier of
Microprocessors for Apple’s desktops or
laptops
 Apple uses a multitude of custom
components that can be usually sourced
from one supplier only
 Sole-sourced third-party vendors in
China perform final assembly of
substantially all of the Company’s Mac
products
 No risk of forward integration from the
suppliers
Threat of Buyers
 A large number of individual buyers who
are fragmented
 Corporate buyers have some power to
negotiate better pricing
 Apple also sells its products through
whole sellers and resellers at low profit
margins; may have incentive to sell
competitor’s products
 Buyers including major resellers and
whole resellers are unlikely to engage in
backward integration as they may not
have resources and capabilities to do so.
Opportunities for Apple in
Computer Hardware Industry
Computer Hardware is a Mature Industry and profitability of a
firm in a mature industry is usually affected by the intense
competition. However, Apple can continue to gradually increase
its market share in this mature industry by:
 Engaging in product feature enhancements
 Capitalizing on its excellent service and support
 Improving the processes to reduce the costs
 Capitalizing on the “Halo Effect” associated with Apple
products
Mobile and Communication
Device Industry Overview

A relatively new and emerging market; more than 10 billion units being used world wide

22% of consumers already have a smartphone, with this percentage rising to 31% amongst 24-35 year
olds

Smartphone sales increased in 2010 by 72.1 percent from the prior year, whereas sales for all mobile
phones only increased by 31.8 percent.

A highly concentrated market with a few major players

A highly competitive industry characterized by
 Competitive pricing for end-users
 Intense competition for market share
 Frequent product introductions and innovations to maintain competitive advantage over the rivals

High Customer-Switching Costs

Product differentiation on the basis of product features, linkage with other firms(Wireless Carriers),
consumer marketing, and product reputation.
Porter Five Force Analysis of Mobile and Communication
Device Industry in Relation to Apple
Threat of
Buyers:
Low
Threat of
New
Entrants:
Low
Threat of
Suppliers:
Moderate
Level of
Threat in the
Industry:
Moderate
Threat of
Substitutes:
Moderate
Threat of
Rivalry:
High
Threat of New Entrants
Threat of Substitute
 Apple has significant cost advantages over
the potential entrants because of:
 Economies of Scale
 Learning Curve Cost Advantages
 Favorable access to raw materials
 Difficult for new entrants to match the
Product Differentiation in terms of product
features, linkage with other firms, and most
importantly the “Halo Effect”
 Proprietary Technology and Know How
 High Customer-Switching costs
Threat of Rivalry
 Personal Computers, Tablets, Game
Consoles, Portable gaming systems(PSP,
Nintendo DS etc.), and CD Players
 Although smartphone functionalities are on
the rise but can not match processing power
and functionalities of PCs
 Cheaper and easier access to third party
digital contents is complimentary to the
Smartphone market.
 All the substitutes except portable gaming
systems and Tablets do not provide mobile
or portable user experience
 There are relatively large number of competing firms
such as Apple, HTC, Nokia, RIM Samsung, Motorola
 Intense competition between major players
 Android phones constitute 33% and iPhone constitute
16% of Global Smartphones market share
 iPhone is the first choice for majority of consumers
when able to switch from other devices
 Customers are able to choose from a variety of
devices
 Frequent product launches and rapid technological
advances by rivals to maintain or gain competitive
advantage
 Prices for subsidized phones are very competitive
Threat of Suppliers

Apple uses a multitude of custom
components that can be usually sourced
from limited suppliers only; thus, some
suppliers may have incentive to leverage
this specialized capability to raise the prices
on these vital resources
 Sole-sourced third-party vendors in China
perform final assembly of iPhones and iPods
 No risk of forward integration from the
suppliers as they may not have access to all
the expertise and proprietary technologies to
develop a competing product
Threat of Buyers
 A large number of individual buyers who
are fragmented
 Buyers including major resellers and
whole resellers are unlikely to engage in
backward integration as they may not
have resources and capabilities to do so.
 Products are differentiated, which makes
it difficult for customers to switch to other
devices
Digital Media Content Industry
Overview

Digital Media content industry includes downloadable music, streaming or downloadable movies,
applications for mobile computing devices such as smart phones and tablets, and E-Books

An emerging and highly competitive industry; major players are Apple, Amazon, Netflix and Google

Most of the contents are developed by third parties

Most of the contents are platform specific e.g. Apps are designed to run exclusively on either iOS or
Android OS

Apple is the market leader for Apps and Music; 10 billion apps downloaded by the end of 10 quarters
since its launch

Apple started the digital music revolution with the launch of iTunes and iPod.

Amazon is the market leader for E-books

Netflix is the market leader for streaming videos through its monthly subscription program; Amazon is
widely expected to leverage its financial muscle and cloud computing capabilities in improving its
offerings for streaming videos
Porter Five Force Analysis of Digital Media Content
Industry in Relation to Apple
Threat of
Buyers:
Low
Threat of
New
Entrants:
Low
Threat of
Suppliers:
Moderate
Level of
Threat in the
Industry:
Moderate
Threat of
Substitutes:
Moderate
Threat of
Rivalry:
High
Threat of New Entrants
 Apple has significant cost advantages over the
potential entrants because it can use its market power
to negotiate lower cost for third-party contents
 Apple’s significant market share of mobile and
communication devices makes it difficult for
customers to switch to a platform developed by new
entrants
 Proprietary Technology such as iTunes that provides
an easy user interface; iTunes-device relationship is a
formidable barriers to overcome by any new entrant
 It is unlawful for customers to access the copyrighted
digital content through unauthorized means such as
torrents , these governmental regulations not only
protects the content providers but also favor
incumbents in this industry.
Threat of Suppliers




Developers of Applications are fragmented,
thus does not have market power to win
favorable terms from Apple
Providers of E-books, Music and Movies
are not fragmented; thus have the ability to
reduce economic profits of Apple
Content providers have the option to switch
or provides the same contents to the
competitors unless prevented by exclusivity
clause.
Big content providers such as record
companies, movie studios or TV networks
may start the distribution of the content
directly
Threat of Substitute
 Books, DVD’s, Video Games on Game
consoles and portable gaming Systems,
Cinemas, and any outdoor activities are
suitable substitutes for digital media
contents
 Although popularity of digital media
content is gaining ground but the
abovementioned substitutes are still
Threat of Rivalry
viable and popular options for majority of
 Although, There are a few major players in this
population
industry, but competition is intense between the major
competitors
 Prices are competitive for most of the digital media
content
 Competitors are continuously engaged in gaining
First- movers advantage by launching new services
or offerings. Amazon recently launched “Cloud Music
Player” to allow Android users to access their music
from anywhere.
 Apple’s position as a market leader for App market is
likely to be challenged by Amazon and Google in the
coming years Amazon has recently launched
“AppStore” to market apps for Android phones.
 A few people , although unlawful, do access
copyrighted digital media content through
unauthorized channels
Threat of Buyers
 A large number of individual buyers who
are fragmented
 High switching costs for customers.
 Products are undifferentiated, especially
in the case of non-exclusive digital
content
Opportunities for Apple in Mobile and
Communication Device/ Digital Media Content
Industries
Both these industries are relatively new and emerging
industries; thus, provide Apple with a multitude of
opportunities towards superior economic performance.
Apple can continue to be a dominant player in these
industries by:
 Implementing technological leadership strategy--making investments in developing or acquiring
patented technologies
 Investing in strategically valuable assets
 Creating customer-switching costs