Team 2
Amy, Marlee, Jenn, Logan, Corbin, & Josh



Started in 1970’s with mainframes
In 1980 the first PC was introduced- Altair
8800
The Altair 8800 was based off of two key
concepts that are still the basis of PC’s today
◦ Chips
◦ Open-system Architecture

Open system design Included
◦ Microprocessor from Intel and Windows operating
system from Microsoft
◦ Graphical User interface

Graphical user interface
◦ Eliminated the commands required on the previous
operating system

Today the original Idea behind the PC has
partnered with other computing platforms
◦ Servers
◦ Workstations


Servers- customers could now request stored
information through a network
Workstations- incorporated advanced
graphics and capabilities to handle intensive
applications

The computer hardware industry is comprised
of many components
◦ PC’s
◦ Peripherals & Devices
◦ Storage



PC’s- Desktops & Laptops
Peripherals & Devices- PDA’s, calculators, GPS
navigation systems
Storage- memory sticks, removable hard
drives, external hard drives

In 2009 the market equaled $63.3 billion
◦ Represents a 6% compound annual growth rate
(CAGR) in the period 2005-2009


Expected to grow by 11.7% by 2013
The most profitable market is PC’s
◦ Total revenue= $27.4 billion which is 43.3 % of
total market value

The future CAGR in 2014 is 8.4% increasing
to $94.9 billion

In 2009 the computer hardware market
equaled $193 billion
◦ Equating a CAGR of 5.4% in the period 2005-2009

PC’s represent $104.9 billion total revenues
◦ = to 54.3% total market value

In 2014 the market forecasts a CAGR of 6.4%
with a total revenue of $263.8 billion
◦ European and Asian-Pacific markets= $71.4 billion




Prices of hardware have continued to drop since
the computing revolution
As vendors are dropping prices, they are
incorporating more added- value to consumers
“Upgrade Cycle”- Vendors introduce new versions
of products to incorporate new innovations
“Killer Applications”- to compensate for the
upgrade cycle, vendors are creating products
with more processing power, larger memory, and
other new features
◦ Examples) Microsoft Office products

Major mergers and acquistions between
companies
◦ Merger of HP & Compaq- 2002
◦ Merger of Acer & Gateway-2007
◦ Merger of IBM & PricewaterhouseCoopers-2002
 IBM made 12 acquisitions in 2007 and 17 more in 2010

Major companies moving to the services industry
◦ Adding post purchase value to consumers

Value innovation strategies
◦ Companies are adopting strategies to cut down costs
while adding more buyer value to products

Tablet market is significantly expanding
◦ Prominently moving into the corporate sector

PC’s market will remain the most profitable
◦ Because..
 The accessibility for typing, spreadsheets, and other
work related activities


Expansion of network computing
Growth of cloud computing

Slow period for international markets during
summer
◦ Business activity decreases in the summer,
therefore slowing sales

Fourth quarter sales expand
◦ Businesses usually close books in December and
manager seek to eliminate capital spending
◦ Industry sales goals end at year end
◦ Experience growth due to holidays

Sales growth during “back to school”
campaign



In the period 2002-2008 sales shipments
significantly decreased
In the period 2009 we have experienced a
slow increase in shipments and expect
significant growth by 2014
The earthquake in Japan during 2011 stalled
the supply chain


Through innovations in technology and
affordability for consumers, the PC market
has spread in to nearly every household as
well as businesses
The following charts describe the trend of
households who own and operate computers
from 1984 to 2009


The computer industry has made a significant
impact in the corporate sector
The following charts paint a picture for the
use of computers in the “corporate world,”
with each chart providing more in depth
detail
PC to Employee Ratio by Industry
Totals By Industry

Acer Inc.
◦ Hsichih Taipei, Taiwan

Dell Inc.
◦ Round Rock, Texas

Hewlett-Packard Company (HP)
◦ Palo Alto, California

One of the top upcoming companies in IT
hardware products.
Structured as a single business segment.

Hardware specialties

◦ Personal Computers (PC’s)
◦ Notebook PC’s
◦ Mobile Devices

Variety of brands under Acer Inc.
◦ Gateway
◦ PB brands
◦ eMachines

Projectors, LCD monitors, HDTV’s

Personal Computer Uses:
◦ Personal
◦ Business




2007 Revenue – $14.2 million
2008 Revenue – $16.5 million
2009 Revenue – $17.3 million
Based on Revenue, Acer Inc. has been steadily
growing its market share and has begun to
make a recognized name for itself in the
Hardware industy.



Founder was Michael Dell who founded the
company in his dorm room at University of
Texas.
Dell specializes in IT systems and how they
are comprised, sold, designed, manufactured,
and multiple different markets.
Strategy over years has been to reach out to
large corporations as well as smaller/medium
sized businesses.

Hardware products include:
◦
◦
◦
◦
◦
Desktop/mobile PC’s
Servers
Networking
Storage devices
Mobility products

Personalized Customer Hardware Products
◦ Dell XPS
 Graphics, Gaming
◦ Optiplex
 Large business
◦ Inspiron
 Personal Use with power
◦ Precision
 Mobile workstations
◦ Vosotro
 Small business
◦ Alienware
 Gaming notebook

Developed a tablet to compete against the
Apple iPad to try and gain a fair share of the
market.

Large Global leader and contributor of
technology products, solutions, services, and
software.
◦
◦
◦
◦
◦
◦
◦
United States
United Kingdom
Israel
Ireland
China
Japan
India

HP has a variety of multiple hardware
products:
◦
◦
◦
◦
◦
Servers
Storage
Notebooks
Desktops
Netbooks

Is a global leader in providing consumers
with personal computers all over the world.
◦ Leading in PC world:





Personal computers
Handheld computing devices
Calculators
Business workstations
Inkjet printers


HP produces under both names of HP as well
as Compaq.
HP also produces a tablet in order to compete
with the newly discovered tablet market and
the Apple iPad.

1955 Computer Usage Company
◦ First software company

Introduction of low price micro computer by
Digital Equipment Corporation
◦ Software was able to expand

1970s advent of Personnel Computer (PC)
◦ Computers in the hands of the office worker
◦ Created ever expanding applications
market…games, utilities…

Microsoft's DOS became industry leader
◦ Operating System

Great Recession of 2008-2009
◦ Global revenues and growth decreased

Complete turn around until late 2011
Software Industry Revenue
Software Industry
Compound Annual Growth
350
Rate
300
10.00%
9.00%
250
8.00%
200
2009 Revenue
Billions
Est. Revenue end
150
of 2014 Billions
100
7.00%
6.00%
5.00%
05-09 CAGR
4.00%
09-14 CAGR
3.00%
2.00%
50
1.00%
0
0.00%
Global
US
Europe
Asia
Global
US
Europe
Asia

Two Main Segments
◦ Systems Software
 Control, manage and monitor computer resources
 Found in Operating System
 Compilers and Interpreters
 Translates programs to commands
◦ Applications Software
 Wide variety of functions: word, graphic design,
financial application…
 Typically packaged and sold separate from hardware
 Companies have custom application software created
for company use

6 Main Product Segments
◦
◦
◦
◦
◦
◦
General Business Productivity
Network and Database Management
Cross Industry & Vertical Application
Operating Systems Software
Other Systems Software
Other Applications Software
Global Software Market
United States Software Market
Segmentation
Segmentation 2009
2009
Other
Other
General
Application
Other
Business
Software
System
Productivity
6%
Software
24%
9%
Other
Application
System
Software
Software
Operating
9%
System
Software
4%
Network and
Database
19%
MGT
25%
General
Network and
Business
Database
Productivity
Management
22%
22%
Operating
Systmes
Software
18%
CrossCross-
Industry &
Industry &
Vertical
Vertical
Application
Application
21%
21%
Rest of the World
Software Market Segmentation
5%
Asia-Pacifica
20%
United States
42%
Europe
33%

Mergers & Acquisitions (M&As)
◦ Extremely high purchase rate of technology
industry…specifically software
◦ Hardware Co. buy Software Co.
 Increase hardware functionability
◦ Software Co. buy Software Co.
 Expand technology reach through diversification

Why M&A?
◦ Cost efficiency
◦ Expand customer base

Software-as-a-Service (SaaS) Business Model
◦ Aka on demand software
◦ Success due to high internet use
◦ Benefits:
 Lower vendor cost
 Lower customer cost
 Increased customer satisfaction
SaaS VS Software Industry
350
SaaS VS Software Industry
30
300
25
250
20
200
SaaS
Saas
15
150
Software in
General
100
50
Software Industry
10
5
0
2009 Revenue
Est. 2014 Revenue
billion
billion
0
Est. CAGR 2014
Growth
15.00%
10.00%
% growth Rate
5.00%
0.00%
Growth
05=06
-5.00%
-10.00%
-15.00%
06=07
07=08
08=09

Very few if any government regulations
◦ Anti-Trust Lawsuits
 Microsoft

Anti-Piracy Laws
◦ Global Effort

Microsoft
◦ Redmond, Washington

Google
◦ Mountain View, California

Research in Motion
◦ Ontario, Canada


Founded in 1975 by Bill Gates and Paul Allen
Microsoft develops, manufactures, licenses,
and supports software products and services,
including operating systems, server
applications, information worker productivity
applications, business solutions applications,
computing applications, software
development tools, and video games.



Microsoft has established offices worldwide
and is currently operating in over one
hundred countries.
The company has research labs located in the
U.S., U.K., Egypt, India, Germany, and China.
Each lab focuses on separate areas of
software and specializes in its own
technology development

Microsoft divides its business into five
operating segments:
◦ Client- Microsoft Windows
◦ Server and tools- software server products
◦ Online services- online advertising,
communications, and information
◦ Microsoft business- Microsoft Office
◦ Entertainment and devices- Xbox, Zune, PC
software games, and mobile platforms
Products
 Windows
 Office
 Zune software
◦ Zune
◦ Windows phones

Windows mobile software
◦ Windows phones, Kin, HTC


Google search engine launched in 1998
Google maintains a large index of Web sites
and other online content, which it makes
freely available via the company’s search
engine. The company generates revenue
primarily by delivering relevant, cost-effective
online advertising


Google has established over seventy offices
worldwide and runs operations in over fifty
countries.
Google maintains its competitive market
position by continually developing new
services and technologies, while also
acquiring other small firms with great
potential.
◦ Subsidiaries include Youtube and Android

Google competes with Apple in the mobile
software market
◦ Android platform runs on smartphones, netbooks,
and tablets
◦ Android Marketplace


Research in Motion was founded in 1984
RIM is a telecommunication company that
designs and manufactures wireless hardware
and software and provides wireless services


Most of its offices are located in Canada but
the company also has offices in the U.S.,
Europe, Asia, and Africa.
Research in Motion receives the majority of
its sales revenue from its mobile devices, with
Apple being one of its top competitors
Products
 Blackberry software
◦ Blackberry phones
◦ Playbook tablet

Blackberry App World


Apple Inc. makes personal computers, mobile
phones, portable digital music and video
players and sells a whole portfolio of related
software, services, peripherals as well as
networking solutions
We will be breaking down its major product
lines such as iPod, Mac, iPhone, iPad and
other music-related products and software
(such as iTunes)

Apple’s cell-phones, iPhones and other related
items made up 39% of their total revenue for
2010
◦ Sold more than 47 million iPhones


iPhone’s growth rate is 89% for shipments,
fastest among any established brand
Apple one of the fastest growing businesses over
the past couple of years; even though we expect
Apple’s rate of growth to slow as the business
matures, still see numerous opportunities for this
aspect of their business to become an even
bigger proportion of total revenues

Macs made up approx. 24% of total revenues
in 2010
◦ Shipped over 14 million units of desktop and laptop
computers, with laptops selling about two times the
desktops that were sold

Macs grew around 28% on a per-unit
shipment basis
◦ Mac revenues advanced as more unit shipments
offset deteriorating average selling prices, a trend
we believe will continue over the next couple years

Released in April 2010, Apple’s iPad almost
instantaneously became the best selling tablet
computer
◦ Before iPad, unit sales for similar computing devices
were less than 200,000 units; there were over 14 million
iPads sold during 2010, during the first year of its
release

iPad accounted for 13% of total revenue, and
became third largest business for the company
◦ Tablet form will probably only become more popular,
and we see potential new entrants taking some of
Apple’s market share; despite this conclusion, we still
feel that Apple will dominate the mid-to upper range of
this market


Apple is one of the leading players in the
personal computer industry as well as the
consumer electronics market
It is a widely recognized brand and has a
strong financial position, helping them
enhance its competitive position in the
industry
◦ However, factors like competitive pressure and the
absence of multiple distribution networks for
applications of iPhone and iPod could potentially
limit the scope of Apple’s growth
STRENGTHS
• Strong liquidity position
• Expanding operating margin and
return on equity
• Strong revenue growth
• Well-diversified product mix
• Strong brand image
OPPORTUNITES
• Emerging markets providing
ladder for growth
• Scope in retail segment
• Innovative products and designs
WEAKNESSES
• Limited iPhone/Mobile phone
variants
• Unresolved legal proceedings
• Dependence on network providers
THREATS
• Theft of digital content
• Absence of multiple distribution
network
• Intense competition


Strong liquidity position: supports its expansion
and provides ample business stability to the
company
S&P 500’s ratio average is 1.46; Apple’s is 2.01
◦ A higher-than-average current ratio indicates that the
company is in a strong financial position and is more
capable of meeting its short-term obligations than other
companies in the S&P 500 index

No debt obligation found within the company
◦ Cash & cash equivalents, & short-term investments
increased to 25.62 billion in 2010; working capital
increased to 20.96 billion in 2010

Company’s operating margin was 28.19% for
2010; above the S&P’s average of 7.26%
◦ Indicates efficient cost management or a strong
pricing strategy by the company

Company reduced operating costs as a
percentage of revenue to 71.81% in 2010, &
administrative costs to 8.46%
◦ Subsequently, Apple’s ROE was 29.3% in 2010.
Above S&P’s average of 4.5% which indicates the
company is efficiently using the shareholder’s
money and is generating higher returns than other
S&P companies

Apple recorded 65.23 billion in net sales for
2010; an increase of 52.02% over their last year
◦ Company’s CAGR in revenue was 35.56% during 20062010; this was above the S&P companies average of
12.74%, which indicates the company gained market
share over the last four years and that Apple performed
above other S&P companies

Apple’s gross profit increased to 25.68% in 2010
◦ Growth achieved by better competitive positioning as
well as superior product offerings as compared to other
companies in the S&P 500

Company offers a wide range of technological
products that cater to many different people
◦ Apple currently the only maker of hardware using the
Mac OS
◦ Apple has sold over 150 million iPods so far
◦ Possesses largest library of content in the world for sale
to customers (available on iTunes)
◦ Offers desktops and laptops, and software products
such as Mac OS X, iWork, Safari, MobileMe and iLife

Apple can be considered an all-in-one company
because it designs, develops, as well as markets
its music players, iPods, iPads, and iPhones to
users

Company’s brand value increased to 83.2 billion
in 2010, a 31.8% increase over 2009
◦ Increase in brand value a direct result from the
widespread popularity of its many innovative products;
among the top 100 brands, Apple ranked 3rd, up from
6th in 2009

Company reported sales of 8.7 million iPhones in
the quarter
◦ Reported 100% year-on-year increase in 2009

Apple’s now-established brand has become
central to people’s lives
◦ This enabled the company to expand into a major
competitor in the computer industry



Limited iPhone/Mobile Phone Variants: company is
confined to iPhone and its two models, despite its
peers regularly launching new models into the
marketplace
iPhone 4 & 3GS are two of the few variants, and
iPhone 4 had problems with its antenna when it was
first released
With only a few mobile phone variants, limits Apple’s
presence to the high-end music phone sub-segment
◦ We would suggest Apple come out with some lower-priced
models that a wider sector of consumers can enjoy; this
should also give Apple significantly more market share in
this sector because it would be catering to a broader range
of consumers

Lawsuits filed by Mediostream, Inc. and
Mirror Worlds, LLC alleging patent
infringements by some of Apple’s products
◦ Jury found that for the Mirror Worlds case, Apple
had in fact infringed all three patents, and awarded
damages of 208 million/patent

Apple also currently on the defense in various
cases filed by Nokia Corp., Motorola Mobility,
Inc, Branning, and more
◦ These ongoing litigations could potentially interfere
with the positive brand image of Apple

Company depends on cellular network
providers for compatibility with its iPhones
◦ Relies on single network carriers in the US, UK,
Germany and France; AT&T in the US, O2 in the UK,
T-Mobile in Germany

Any network failures of any of its carriers
could adversely affect the sale of iPhones, as
well as any terminations of contracts
◦ We suggest that Apple make its phones available on
all network carriers or at least the most profitable
ones; that way, they won’t rule out any customers

Emerging markets providing ladder for growth:
Apple has the opportunity to expand its
operations in emerging markets and benefit form
the increasing disposable incomes of consumers
in these markets
◦ Growing wealth of consumers, increasing brandconsciousness and other factors in these emerging
markets make them attractive destinations for global
retailers

India, Russia, China, followed by the United Arab
Emirates are all attractive emerging markets
◦ Apple and China Unicom embarked on setting up over
1,000 points-of-sale across the country

Apple could explore the huge opportunity in the retail
segment
◦ At the end of 2010, Apple had 317 retail points, with 44
new retail stores added during 2010
◦ Apple’s stores are all mostly in high-traffic locations within
quality shopping malls and other urban shopping districts
◦ Average revenue/store totaled 34.1 million for 2009; stores
are set up to strategically and uniquely present the
company’s products


Net sales from retail outlets increased 47% in 2010
◦ This was mostly due to increased revenue from iPad, Mac
desktop and Mac portable systems
Company will continue to invest in new international
stores to continue exploiting the opportunities in the
retail segment, in addition to adding more thirdparty channels to reach even more customers

Company could benefit from strategically-timed
releases of its innovative products
◦ For example: the iPad release in April of 2010

iPad is a device used to browse the web, look at
photos, watch videos, read and send email, listen
to music, play games and read e-books, among
other features.
◦ More intuitive design, portability

iPhone 4 was released later in 2010
◦ Added to existing product line of iPhones
◦ Apple also has released numerous software programs,
improved products from existing product lines, and
other various consumer electronics

Theft of digital content: company exposed to
many risks associated with unauthorized
downloading of digital content
◦ Users with illegal access can easily copy the content and
make it available to other users on the internet for free
downloads
 Very difficult for companies to prevent this because it
happens so frequently and is so easy to do

We suggest Apple attempt to crack down on this
piracy and work with law enforcement to impose
harsher penalties and laws for illegal
downloading, or maybe even install more layers
of protection within iTunes to discourage hackers

Applications for iPhones, iPads and iPods are
distributed through the company-owned App
Store
◦ Company utilizes a limited distribution network as
compared to its competitors
 Many of Apple’s competitors have dedicated sales networks
and third party distribution networks compared to Apple’s
one App Store

This results in limited profitability from having
only one distribution channel for its application
platform for iPhone and iPod touch platforms vs.
its multi-channel distribution for Mac
applications

Technology industry is highly competitive and
intensely complex because of the nature of
the products
◦ Apple competes with big companies such as
Microsoft, IBM and Motorola

Apple is exposed to pricing pressures due to
the low-cost strategies of companies like Dell
◦ Going for price-cuts and have lowered their product
margins to gain market share

This could adversely affect the financial
results of Apple
Determine & Define the Industry
- Diverse Product Portfolio
- Not classified within a single industry
- As a result, we will analyze the five forces for
three major product sectors
- Personal Computer
- Digit Music Player
- Mobile Devices Products (Smart Phone, PC Tablet)
LOW

High product differentiation

Proprietary technology

Favorable access to Raw materials

High customer switching costs:
HIGH

Few highly competitive companies: Intense
price competition

Clear Market leader: HP

Apple is a minor player in the PC sector
MODERATE


Smartphones, Portable gaming systems,
Tablets, CD players
Unable to match the processing power and
functionality of PCs
MODERATE


Multitude of custom components that can be
outsourced from limited suppliers
Production of Mac is vertically integrated:
Apple controls all aspects of its hardware,
creates its own operating system that is
pre installed on Mac computers.
MODERATE

Large Number of individual, fragmented
buyers

Low switching costs

Unlikely to engage in backward integration
LOW
 Achieved economies of scale
 Favorable access to raw materials
 Cost advantage
 Proprietary technology
 High capital investment requirements
HIGH




Few major players: intense competition
Market Leader: Android
Customers have choices
Degree of differentiation:
◦ Apple is the huge universe of applications available in
the App Store that makes the iPad much more attractive
than other alternatives and is the biggest barriers to
entry to all other Apple’s competitors.
MODERATE
 PC, tablets, game consoles, portable gaming
systems, CD player, instant messaging, home
phone lines

Substitutes do not provide convenient
portable user experience
MODERATE



Low switching costs: Uses a variety of custom
components that can be outsourced from other
suppliers
No risk of forward integration of suppliers
Supplier product differentiation: standardized
products, not a commodity
MODERATE
 Large number of individual, fragmented buyers


Unlikely to engage in backward integration
Products are differentiated: product features,
linkage of other wireless carriers, product
reputation
LOW

Product differentiation

Proprietary technology

High switching costs

High capital investment requirements
Moderate
 Clear Market Leader

Product differentiation: vertical integration:
iPod system includes iTunes music store and
iTunes software
LOW


CD player, walkman, satellite radio, portable
radio
Do not integrate file sharing
LOW
 Multitude of custom components that can be
outsourced from limited suppliers


Large number of suppliers means low
switching costs
No risk of forward integration
LOW
 Large Number of individual, fragmented
buyers
 No significant cost to switch supplier:
product is standardized
 Brand Equity:
◦ Consumers are willing to pay a higher price for
Apple’s iPod because they believe it carriers higher
value.
LOW
 Achieved significant economies of scale: First
to market


Proprietary technology
Extensive and complex development stage
due to extensive testing
MODERATE
 PC, Netbook


Level of differentiation with substitutes: Don’t
reach mainstream communication and
entertainment in a portable device
Fair substitute: Smartphone
Moderate
 Several up and coming competitors: intense
competition
 Market leader in pc tablets: Apple
 Customers have fewer choice
 Fast growing industry: short product lifecycles
 Diversity of competitors: Apple is competing on
Apps; competitors are focusing on hardware
LOW
 Large number of individual fragmented
buyers
 Unlikely to engage in backward integration
 Product has differentiated advantage
 Significant buyer switching cost: products not
standardized making it hard to switch to new
product


Strong future for the hardware and software
sector
Discuss
◦ Sustains
◦ Improves
◦ Future

New Product Innovation
◦ Constant stream of revolutionary products in the
past decade

Diversified Product Mix
◦ iPod, iPhone, iPad, & PCs

Strong Brand Image and Customer Loyalty

Retail/Service Outlets
◦ Industry research suggest a shift towards better
post purchase services

Apple has solid foundation
o

Over 200 retail/service outlets nationwide
Apparent virus proof software
◦ Few if any reported viruses

Apple’s monogamous relationship between
their software and hardware
◦ Prevented software explosion
◦ Need to be in control
◦ Lack of 3rd party software on products
 iPhone apps

Recent years allowed dual OS within hardware
◦ Microsoft XP simultaneously with Apple OS


Sustain the path of the past decade
It could be argued that Apple does not follow
a blue ocean corporate strategy but there is
no doubt that Apple has created blue ocean
products.
iFlex…compact form
iFlex…Expanded Form