Industry Analysis of the Computer

Industry Analysis of the Computer and Peripherals Manufacturing

Seen as the primary catalysts of technological change, the computer and peripherals manufacturing industry continues to go through a disruptive series of shifts that are together fundamentally redefining how these companies are managed to attain profitability. The intent of this analysis is to evaluate the general environment, how the industry will change in the coming three years, the task environment, and an industry analysis. One of the most pervasive trends is the continued adoption of product customization as a strategy on the part of computer and peripheral manufacturers to create new markets while reducing costs (Ervolina, Ettl, Lee, Peters, 2009). This has made the industry much more dependent on supply chains, which has led to more pressure on distribution channels to q quickly move inventory (Ervolina, Ettl, Lee, Peters, 2009). Managing supplier, distributors and manufacturing operations to a specific series of metrics, including the pervasive use of dashboards serves to reduce risk and ensure consistency of focus and strategy execution (Jones, George, 2007). The pervasive adoption of analytics throughout the computer and peripheral manufacturing industry is a case in point (Williams, 2004)

General Environment Analysis

Both the computer and peripheral manufacturing industries continue to face significant challenges from an economic and operational standpoint. The reduction in per capita disposal income of consumers, reliance in the past on price as the main source of competitive differentiation, and the willingness on the part of companies to continue using older equipment have combined to slow the growth of this industry. The computer peripherals manufacturing industry is today generates $18.2B in worldwide revenue, profits of $1.8B and has an export balance of $13.8B. The annual growth rate for the computer peripherals manufacturing industry is -7.6% with annual growth from 2011 to 2016 being projected to be only 1.8% (Thormahlen, 2011). The computer manufacturing industry itself is facing a comparable series of challenges, however it is significantly larger than the computer peripherals industry with global revenues of $46.3B and profits of $1.6B. Annual growth over the last recession continues to be nearly flat with a .1% growth in revenues and a projected -6.9% growth projected from 2011 -- 2016. Exports globally are expected to be $6.7B, with 61% from China alone (Thormahlen, 2011). Both industries are challenged by the slowing spending on capital equipment in businesses and the fluctuating levels of confidence that continue on global economies.

Industry, Market and Task Analysis

Both the computer and peripherals manufacturing industries are dominated by several large competitors who generate 62% of global sales on an annualized basis. Given the structure there is rapid innovation that tends to completely redefine one product generation to the next based on pure cost and technology advantages alone (Williams, 2004). The computer peripherals industry specifically is seeing rapid price erosion due to technological innovations that are re-ordering the most important components in production. These include organic light-emitting diode (OLED)

Screens that are making the traditional LED screens obsolete (Thormahlen, 2011). The reliance on solid state drives (SSD) and flash memory over traditional disk drives have completely re-ordered the product development and pricing models of computer peripherals, computers, servers and laptops (Jones, George, 2007). As the price composition of peripherals and computer systems continues to go through disruptive cycles of innovation, differentiation is sought more from speed of new product development and price than any other factors. This continues the cycle of relying on production efficiencies and build-to-order strategies as an attempt to break the cycle of disruptive innovations (Ervolina, Ettl, Lee, Peters, 2009).

All of these factors lead to a task-based analysis of the computer peripherals market that continue to illustrate how fragmented and highly cost-driven it has become. Figure 1 shows the market share of the computer peripherals industry from a product standpoint. Computer monitors and hard drives, comprise together 50% of the total computer peripheral market, are going through a series of disruptive innovations mentioned earlier in this analysis. The fact that these two categories generate a high percentage of total revenue in the computer peripherals industry illustrate how dependent channel partners, suppliers and channel partners on continued innovation to stay in business (Thormahlen, 2011). Figure 1, Distribution of Sales by Computer Peripheral Type, illustrates this point.

Figure 1: Distribution of Sales by Computer Peripheral Type

source: (Thormahlen, 2011)

Comparable competitive dynamics are at work in the computer manufacturing industry, with the innovations and pricing structures favoring SSD-based technologies and the use of advanced screen technologies are driving down the costs of portables and tablet PCs faster than any other segment (Thormahlen, 2011). Figure 2, Distribution of Sales by System Type. With 48% of a $46.3B market attributable to laptops and tablet PCs, the trend towards thinner, lighter, more fully defined tablets is now here. The growth of the Android operating system for tablets and mobile devices developed by Google is also acting as a massive price deflator in this market (Vickers, Frey, 2010). No longer will these hardware vendors need to pay loyalties to Microsoft, which had been known to boost the price of a system by $100 or more. All of these factors combined are completely re-ordering the structure of companies, their supply chains and values chains of entire industries.