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Computer industry report Computer industry report Document Transcript

  • The Computer IndustryComputing is not about computers any more. It is about living. - Nicholas Negroponte Historical development, importance and growth of the industry under considerationThe birth of the computer1642: The first adding machine, a precursor of the digital computer was devised in 1642 by theBlaise Pascal1670s: Gottfried Wilhelm improved on this machine by devising one that could also multiplyinstead of just adding and subtracting1801: Joseph-Marie invented the Jacquard weaving loom which is controlled by punch cards. Inthe operation of Jacquard’s loom, holes are strategically punched in cards and the cards aresequenced to indicate a particular weaving design1821: The British mathematician and inventor Charles Babbage (the pioneer of digital computer) worked out the principles of the modern digital computer. The Analytical Engine was designedto handle complicated mathematical problems.1843: Lady Ada Augusta Lovelace suggested that cards could be prepared that would instructBabbage’s analytical engine to repeat certain operations. Because of her suggestion, somepeople call Lady Lovelace the first programmer.1880s: The American statistician Herman Hollerith conceived the idea of using perforated cardsfor processing data. Employing a system that passed punched cards over electrical contacts, hewas able to compile statistical information for the 1890 U.S. census. He applied the Jacquardloom concept to computing1940: Dr.John V. Atanasoff, a professor at Iowa State University, developed the first electronicdigital computer. He called his invention the Atanasoff-Berry Computer or ABC. This is one ofthe most significant events in history1964: A large-scale fully operational electronic computer called the ENIAC (ElectronicNumerical Integrator and Computer) was born. The ENIAC was a major breakthrough incomputer technology. It could do 5000 additions per minute and 500 multiplications per minute.It weighed 30 tons and occupied 1500 square feet of floor spaceCategorisationBroadly, computers are categorised as analog, digital and hybrid computers. Based on size,speed, processing capabilities and price computers have been categorised as:microcomputers(PC), minicomputers, mainframe computers and supercomputers. Theperformance growth rates for supercomputers, minicomputers and mainframes have been just
  • under 20% per year, while about 35% for microcomputers. Performance growth of PC has beenthe fastest, partly because these machines take the most direct advantage of improvements inIC technology.Technology and TrendsGenerations of computers have been made possible by the following technologies:1950-1959: Vacuum tubes which led to electronic computers1960-1968: Transistors which led to cheaper computers1969-1977: Integrated which led to minicomputer1978-1999: LSI and VLSI which led to personal computers and workstations1999 onwards: Parallel processing which led to multiprocessorsThe IC permitted the miniaturisation of computer-memory circuits and the microprocessorreduced the size of a computer’s CPU to the size of a single silicon chip.Trends of a PC are greatly influenced by the technology trends of both hardware and software.Both trends determined its performance and capability. Transistor count on a chip increases by about 25% every year, doubling in 3 years. Device speed increases nearly as fast Density increases by just 60% every year, quadrupling in 3 years. Cycle time has improved very slowly, decreasing by about 1/3rd in 10 years Density increases by about 25% every year, doubling in 3 years. Access time has improved by 1/3rd in10 years Performance over the years
  • PC sales by regionThe rise of the computer in India1956: Bought its first computer called HEC-2M for a sum of Rs. 10 Lacs. It was 10 ft in length, 7ft in breadth and 6 ft in height1962: Produced next generation of computers, including Indias first indigenous computer, theTIFRAC or Tata Institute of Fundamental Research1970: Under the Homi Bhabha Committee, the Department of Electronics (DOE) was formedunder the Prime Minister1978: The “Mini computer policy” opened up computer manufacturing to private sector. Thenational informatics centre (NIC) was set up in 1977 which played a major role in the laterdecades to become “decisive support system for the government” (both the central and stategovernments)1986: Project IMPRESS (computerization of Railways ticketing) started in 1986 as a pilot projectin Secunderabad ushered in the first application targeted at “aam admi” (common man)1988: The formation of NASSCOM which sprang into action from 1990 gave a boost to thenascent software industry.The nineties also saw a direct “push” from the government through number of policy measures.Some of them include-IT Task force led by prime Minister in 1999, IT Ministry at the centre, ITfairs (like IT.com and now IT .in), IT parks, launch of public internet access through VSNL inAugust 15, 1995, launch of mobile telephony on august 23, 1995.Many software companies took birth in 80s like-Infosys, Patni, Satyam, Softek, Tata info techand Wipro. Another interesting trend was the setting up of offshore development centres (ODC)by multi-national corporations, starting with Texas instruments in 1986. $35 bn $50 bn $8.4 bn (2010) $1 bn (2006) (2000) $200 mn (1995) (1990) The growth of Indian Software Industry
  • Total PC (desktops and notebooks) sales (2004-10) in India Sales of other peripheralsImportance and application of computers in the contemporary world • Computer systems has increasingly cut down the paperwork that is involved in millions of industries around the world • Products from meats to magazines are packed with zebra-striped bar codes that can be read by computer scanners at supermarkets. It also helps to manage inventory • Energy companies use computers to locate oil, coal, natural gas and uranium. These companies can figure out the site of a natural resource, its concentration and other related figures • Computers are used in cars to monitor fluid levels, temperatures and electrical systems. Computers are also used to help run rapid transit systems, load containerships and track railroads cars across the country • Computers speed up record keeping and allow banks to offer same-day services. Computers have helped fuel the cashless economy, enabling the widespread use of credit cards, debit cards and instantaneous credit checks by banks and retailers. • Computers are helping immensely to monitor those extremely ill in the intensive care unit and provide cross-sectional views of the body
  • • Computers are used to control the production of resources precisely. All robots and machinery are controlled by computers, making the production process faster and cheaper • The computers are most popular for their uses to connect with others on the World Wide WebType of market structure of the computer industryWe believe after our research that the computer industry falls into the Oligopoly market. Thereare few dominant firms such as Apple, Dell along with many small ones such as Intex etc. Theproducts manufactured by these biggies are either similar or differentiated. Also, the biggerplayers have power on pricing but always have to live with the fear of retaliation fromcompetitors. The entry barriers for this industry are high. There needs to be regulartechnological advances and hence R&D costs are high. Also, the extensive use of non-pricecompetition because of the fear of price should be taken into account which considerably shootsup the barriers. Few areas of non-price competition include patent wars and advertisements.This is also a market with large economies of scale and a market which eliminates weakcompetitors in its business cycles. There are also benefits that companies gain out of mergersand acquisitions in this segment. There is also the possibility of behind the scenes cartels thatcould be formed to take undue advantage of the demand.There are two unique aspects of oligopoly competition- Mutual Interdependence- Repeated InteractionWhenever the actions of a firm have a major impact on the other firm, there exists mutualinterdependence. If dell reduces its price to sell more of its product, HP will notice that its saleshave fallen and kick in counter measures. The oligopoly firm will affect the sales of other firmsby changing its sales, prices, marketing strategies etc.And it so happens that very often, oligopolists in an industry would have been competing withone another for a long time running into years. Dell and HP have competed within the samemarket for years together now. This lays the ground for repeated interaction as either companyremembers what happened in the past when the strategies were changed. Repeated interactiondoesn’t mean that the strategy of the rival is known with certainty.A firm in an oligopoly market faces a very complex market environment. The extent of salesdepends on the price set by the other oligopolists in the industry. Consider a situation whereDell is currently selling laptops worth $1000 numbering 10,000 units. Dell decreases the priceby $100, which most likely increases sales. But this factor of increase depends on thecompetitor’s new pricing. Dell would sell 14,000 units, but if say HP also decreases its price forthis product, then Dell’s sales would just be around 11,000 units. The rise in demand for Delldepends on both the price cut and the competitor’s price. The oligopoly dual demand curveshown below pertains to the example discussed. It shows the Dell demand curve for bothfactors.
  • Dell and HP have had repeated interaction over the years from which they would have notedpatterns regarding the strategies. Dell might not know with certainty what HP will do if Dellraises prices , but Dell does know that 80% of the time HP did not raise its prices in response.Dell also knows that 85% of the time HP matched a price reduction. Dell can now set theirprices with reasonable assumptions. This means that Dell can make a good guess about thedemand curve on which they will move along if at all they change their price. A double linemarks this demand curve (kinked demand curve) which is bent at the initial price and no. ofunits offered by Dell.A way to avoid this nasty competition and even to increase profits often exists for firms in anoligopoly are by explicit/overt/tacit collusions which are considered illegal in most of themarkets. That is, if both firms move up the solid demand curve in the above diagram, both firmswill be better off. The problem is however that both firms fear that if they raise prices unilaterally,the other firm will stab it in the back by keeping its price low.Major Players and their Shares in the Market • Over the past half century, along with the rapid and uncontrolled growth of computers from being a bulky tool for calculating to being an integral part of our life permeating everything task that we do, it has also given rise to a business which generates money
  • like no other giving rise to some of the richest men in the world. Ever since the inception of the idea that the computer could also become a tool to make business faster and smarter and also make easy the life of the common man, from being a scientific and military tool, entrepreneurs and business houses who could envision this future and invested in it have become some of the most recognizable names in the world. Microsoft, Dell, Sony, IBM were some of those who rode on this revolution to become leaders in their business areas.• More than1 billion personal computers have been sold from the mid 70s upto this point. 75 percent were professional or work related, while the rest were sold for personal or home use. About 81.5 percent of personal computers shipped had been desktop computers, 16.4 percent laptops and 2.1 percent servers. The United States had received 38.8 percent (394 million) of the computers shipped, Europe 25 percent and 11.7 percent had gone to the Asia-Pacific region, the fastest-growing market as of 2002. The second billion was expected to be sold by 2008. Almost half of all the households in Western Europe had a personal computer and a computer could be found in 40 percent of homes in United Kingdom, compared with only 13 percent in 1985.• In 2001, 125 million personal computers were shipped in comparison to 48 thousand in 1977. More than 500 million personal computers were in use in 2002.• The major players in this business are Dell, HP, Apple, Acer, Sony, Lenovo, Panasonic, Samsung, Toshiba and others. There is intense competition among these companies and the rising and falling market share among them indicates the same.•• The computer manufacturers market can also be divided along the lines of Stationary or Desktop Computers or Mobile computers (Laptops) which are further sub divided into subgroups like Business use, personal use etc.• The Operation Systems Market• The operation system or OS market is largely ruled by Microsoft’s hugely successful Windows which has a no. of versions of which the latest is Windows 7. Microsoft’s policies of making it’s softwares exclusive to its OS and patenting discourage the use of other OSs, thus trying to carve a monopoly for itself . Still a number of other OS such as iOS and Mac OS X, Linux are being used to a smaller extent among people.
  • • Servers • In the servers market, microsoft based Servers have a share of 36.1% and other players including Linux, BSD, Solaris have a share of 63.9%. • Mainframes • In the mainframes market, IBM System Z has a market share of 90-95% thus making it the largest player by a distance in this segment.Global activities in the computer industryAs the computer industry grows, develops and matures, the global personal computer(PC)installations keep rising and are poised to touch the 1.7 billion mark by the end of 2012. Canalyshas estimate that the industry has grown at approximately 19.2% in 2010 over 2009 withLenovo and Apple being the major gainers in market share. Apple registered a staggering 241%growth in the same period as above.This major shift in Apples market share has been primarily due to the introduction of the iPadand its unprecedented sales which has fuelled its rise to the third(3rd) position in the worldrankings as a hardware manufacturer and is expected to rise to 2nd only behind HP by the endof the year. The global computer scenario at present is, thus, characterised by rising volumesand falling market for most major players.The fastest growing computer economies are the countries from the Asia-pacific, central andeastern Europe, Latin America and the Middle east. The spurt in growth of the computerindustry is because of the expansion in the definition of the Computer as a product. Laptops,Tablets, Mini-notes and Notebook PCs are the different products in which the computer isperceived by the consumers today and these are products that are powering the strong growthof the industry.Shifting focus from the growth of the industry to that of the firms across the globe we see that ofthe top 100 hardware companies in the world 40 are still based out of United States ofAmerica(USA). But looking carefully shows that the developing and developed Asian economiestogether are home to over 50 of the top 100 hardware companies in the world with Japan(21)and Taiwan(18) and this means that the growing markets are and will play a very important rolein the years to come in the progress of these companies and the industry at large.
  • According to Gartner, even though mature and developed markets still contribute more than halfof the global computers industry but this percentage is coming down and fast and currentlystands around 58%. The developing markets especially India and China are now majortechnological development as well as manufacturing hubs and are predicted to be the futureleaders in the industry.The impact of global changes in the industry can be seen in the Indian economy as well. AnIntel study says that in India: Smaller cities contribute heavily to the PC market growth Computers are a Youth driven category Buyers seek value and dont buy cheap Notebooks and other new computer items have become desirable and bring new users into the fold
  • The development and exponential rise in the sales of smart and intelligent phones is a majorcause of concern for the computers industry. The mobile industry is empowered by portability,rural penetration and ease of usage. Handset makers like LG, HTC, Motorola, Nokia, Samsung,Apple, etc. are the major players in this industry and these are giving strong competition attimes to their own computer products as well as their competitor’s products. Mobile penetrationhas surged due to availability and interactive user interfaces. All this may pose even moreserious competition to the computer industry in the future.Mergers and Acquisitions in the Computer IndustryA firm seeking to capitalize on the sales growth benefit it derives from increasing its relativesize or the profitability benefit it gains from introducing new products may find a merger oracquisition to be the optimal means of achieving its ends. Although organic growth mayalso serve as a means of attaining these benefits, and may be especially attractive to boththose firms which have reservations about their capacity to effectively integr ate newbusinesses within their existing management structures and to those that are generallysceptical of structuring an M&A transaction, it typically has features which some firms mayfind unattractive. In particular, a given firm may find the time requ ired to organically growprohibitive and/or simply lack the expertise needed to organically grow .Lenovo and IBMGlobal perspective:With IBM taking an 18.9% stake in Lenovo, it has become its second largest shareholder. Thedeal is likely to quadruple Lenovos personal computing business. And it will be a partnership –meaning that IBM will be the preferred services and customer financing provider to Lenovo,while the Chinesecompany will be the preferred supplier of PCs to IBM.With IBMs global presence, Lenovo Group has already moved its PC business worldwideheadquarters to New York and has added some 10,000 IBM employees-about 40 per cent ofwhom are already in China.Manufacturing of IBM-branded desktop and laptop products will continue. However, over thenext five years, the brands on those products will be phased out in an orderly fashion.With help of this multi-billion dollar deal – the erstwhile Chinese company has alreadycatapulted itself into a cut-throat competitive world with Dell Inc. and Hewlett-Packard as rivals.More importantly, Lenovo must face off against a host of established Japanese names andTaiwanese rivals that are beginning to get dangerously global and expanding into NorthAmerican, European and other markets.Lenovo has opted for an expansion strategy, in which it is, in principle, partnering with IBM tomove overseas. This Sino-American approach differs from the approaches taken by othercompanies, especially in regions like Taiwan.However, on the branded side, it has not tasted global success so far. With IBMs global namebeing tagged with Lenovo, Chinas branded product story may change on the global front.
  • LENOVO 2010-11 Q1 Product Performance• Idea pads– Shipments up 74% YTY; Sales up 74% Year To Year (YTY)– Launched first 3D multi-media notebook Y560d and Idea Centre A700 AIO• ThinkPads– Shipments up 29% YTY; Sales up 32% YTY– Launched L series and Think Center M90z AIO• Notebook– Shipments up 58% YTY; Sales up 50% YTY– Notebook market share gained 2.0 points to become the fourth Largest notebook PCcompany• Desktop– Shipments up 36% YTY; Sales up 35% YTY– Maintained solid performance through AIO and SMB targeted desktops• Mobiles– Shipments up 82% YTY; Sales up 89% YTY– Rapid and widespread customer acceptance and encouraging initial salesDifferent Notebooks and other Product Notebooks (as a whole) and other products
  • HP – COMPAQ (A Failed Merger)HP bought Compaq for US$ 24 billion in stock. This was the largest ever deal in the history ofthe computer industry. The deal meant combined operations in more than 160 countries andmore than 145,000 employees. HP-Compaq would offer the most complete set of products andservices in the computer industry.The motivation behind a HP-Compaq merger (whether it made economic sense) and theproblems encountered in merging operations is an interesting discussion as the stock prices ofboth HP and Compaq fell within two days of the merger announcement. An estimated 13 billiondollars was lost (in terms of market capitalization) in this time frame.Industry analysts failed to understand the benefits HP would derive by acquiring Compaq. HPwas a market leader in the high margin printer’s business and Compaq, a low-margin personalcomputer (PC) manufacturer. Moreover, established players like direct marketer, Dell andleading IT service consulting company like IBM would give fierce competition even if economiesof scale were to be achieved.Source: http://www.casestudyinc.com/hp-and-compaq-mergerPROBLEMS FACED BY THE COMPUTER INDUSTRY:- • Software Update and need for innovation-> With the competition in the field of technology and latest versions of software, the challenge of having the upgraded software at all times, becomes a task of utmost importance. • Patent Wars-> Apple and Samsung fighting over smart phone patents. • Increasing costs due to expensive labor, land and expenditure on technology-> our research suggests that the costs have increased manifolds, due to the increase in the prices of land, labor and technology. • Need for skilled manpower-> IT industry across the world is in a shortage of skilled IT graduates. • Increase in competition and narrow profit margins-> The competition has brought down the prices of computers, software and cutting wave technology. • Infringement of Intellectual property rights. • Increase in the bargaining power of buyers and suppliers. • Handling the e-waste-> There is a large amount of e-waste generated in the form of outdated computers and wires etc.
  • • Software piracy-> Pirated version of all the latest software is easily available online and elsewhere. • Labor issues in the supply chain, due to different geographic locations with different cultural backgrounds-> With rapid globalization, the need to bridge the cultural gap is really important, as the various companies work in different countries and have to get the work done. • Rising Attrition rate in IT industry-> The skilled manpower leaves the company after 2-3 years due to various reasons and the industry bears the loss of employing a new resource and training it again.Problem 1. Foot-in-the-door SoftwareThe recipe for creating foot-in-the-door software is really quite simple: 1. Design a software that can do anything with “a little customization”. 2. Make it hard to customize. Make every protocol and specification proprietary and hard to understand. 3. Don’t go anywhere near any standards. 4. Provide a horde of overpriced consultants to fix all of the above problems, and have them apply the “Ninja Technique (Problem 3)” so that they can stay on-site indefinitely.Voilá! Now just wait for money to pour in from miserable customers.Solution: Empower your customers through creating standards compliant API’s andplugin environments with open and commonly used technologies for which problemsolvers can be found everywhere and anywhere. Even better, stop creatingproblems for your customers in the first place. Stop sticking your foot in the door,and focus on creating something that makes your customers the stronger one. Theywill rely on you all the more for it — and it will be a relationship based on trust, notdesperation or despair.Problem 2. The Ninja Distraction Technique (using Tech Jargon)
  • The software industry has spent years (or maybe decades)educating their customers in tech jargon. It’s all a part of the ninja technique ofdistraction. It is. Really. The theory goes: Keep throwing words such as “Java,JBoss, Caching layers, Multi Tier Software Development Housing Fascilities Campus”at the customers, and you will not only sound very professional, but what’s evenbetter, the customers will soon forget what they really were asking you for, sothere’s less of a chance chance you have to deliver.Imagine being the customer in this scenario: Here you were looking for a a) safecar with b) comfy seats, c) low fuel consumption, d) good stereo sound and a e)large trunk for all your groceries, and suddenly you had a car salesman giving youa primer in everything ranging from the new four layer varnish coating technologyto the latest in air-pressured suspension theory and revolutions within the field offuel injection and what not. You don’t want to hear about that, you want to know ifit will hold your coffee cup steady while playing your Mozart in a perfect pitch.Well, the industry seems to have distracted you from all that.Solution: It’s about time the industry starts talking about the metrics that thecustomers can relate to and understand. And more notably, the ones that theyneed. Let’s talk about ease of use. Let’s talk about performance (can you handle100 users registrations a second?). Let’s talk about modifiability (can you deliver amedium sized product feature change in 1 week, or less?). Let’s talkabout reliability. Is your up-time average more than 99,97%? Will your softwareautomatically restore upon any hardware problems? Can you upgrade our softwarefrequently without involving our tech-department? What is your fix time for bugs?