Computer Industry Analysis Training

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This presentation is developed by a leading consulting firm on the computer industry dynamics. The data in the document is a bit outdated but the document provides an excellent example of what the key elements of an industry analysis are and how some key framework and concepts are applied in such an analysis. Many slides in the presentation are re-useable in other consulting projects.

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Computer Industry Analysis Training

  1. 1. Computer Industry Dynamics HIGH TECH CORE GROUP TRAINING PROGRAM
  2. 2. 3 BUT AVERAGE SELLING PRICES ARE FALLING PCs Dollars -6.2%Average price decline Servers* $ Thousands -3.6% Mainframe servers $ Millions -4.4% 1,000 1,200 1,400 1,600 1,800 2,000 1999 2003 10 12 14 16 18 20 1999 2003 1.0 1.2 1.4 1.6 1.8 2.0 1999 2003 * Entry and midrange Source: IDC Key factors causing ASP decline • Increased price decline due to commoditization • Industry shift towards more cost-effective direct distribution models • Industry shift towards more efficient manufacturing, e.g., one-touch process This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  3. 3. 6 * Sun, Compaq, Siemens, and NEC each have about 4% Source: Dataquest Percent WHITE BOXES PERSIST IN THE PC LANDSCAPE AS COMMODITIZATION OCCURS Market segmentation and vendor share based on 1998 data Revenue, $ Billions Commercial Consumer Entry-level servers Midrange servers Mainframes 110 38 22 15 8 • PC segment is fragmented and white- boxes hold a significant market share • Server and mainframe markets are dominated by large manufacturers PCs 47 7 6 6 34 IBM HP Unisys Fujitsu Other* 26 20 15 14 25 IBM HP Sun Compaq Other 13 10 9 7 6 6 4 3 Compaq Packard Bell Gateway IBM Apple HP Acer Dell Other / White Box 14 13 10 6 5 4 3 2 43 Compaq Dell IBM HP Toshi- ba Acer Apple Gateway 30 13 12 12 5 5 23Compaq Dell HP IBM Sun NEC Other 42 Other / White Box This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  4. 4. 9 GATEWAY “BEYOND THE BOX” PC alone * Hardware, software, internet access, and other on-line expenses Source: Cnet News.com Revenue PC plus 5-year revenues stream* Profit Customer acquisition cost Revenue Profit Customer acquisition cost $1,845 $133 $115 $6,000 $1,200 $250 Includes: • Internet access • Software • E-commerce transactions By year end, Gateway expects to generate 40% its profits from services This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  5. 5. 12 20-25% 13-17 2 0 6-10 Gross margin SG&A Development costs Channel costs Pretax profit for vendor/OEM INDIRECT VS. DIRECT CHANNEL ECONOMICS 1998 Percentage of average sales price for commercial PC products Source: Industry literature; Team analysis Indirect channel Direct/BTO channel (-6)-+4 1 6-10 20-25% 8-18 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  6. 6. 15 DELL HAS ADDRESSED 3 KEY VALUE-CHAIN ELEMENTS TO BUILD A SUCCESSFUL DIRECT CHANNEL • Increase inventory turns • Fast turnaround time • Reduce stockouts • Product testing • Link with supplier • Service and support • Order tracking • Order fulfillment validity Assembly and configuration Order fulfillment and product distribution Up-front order management • Customer relationship management • Instant communication to supply chain Key success factors • Colocation with component suppliers and logistics partners • Creation of supplier hubs • Drop ship components directly to assembler • ERP system for order checking and validity • Pull vs. push (channel model) • Quick turnaround on service request • Assign managers for each account • Technical support for configuration help • Knowledgeable staff-/ user-friendly interface for order taking Trends This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  7. 7. 18 MAJOR DISRUPTIVE CHANGES ARE ENABLING THE RAPID GROWTH OF A INFORMATION APPLIANCES AND SERVICE MARKET Changing behavior Consumers increasingly embrace a “Web” lifestyle at work and at home; “Smart” appliances and personalized services become important New technologies Disruptive technologies (e.g.,Web-centric computing, broadband, low cost storage and electronics) enable new value propositions New business models “New breed” competitors’ business models (based on customer ownership and recurring revenue streams) are emerging as early winners Changing business landscape Major cross-industry moves across multiple value chains to deliver integrated experience to many users This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  8. 8. 21 INFORMATION APPLIANCES Source: IDC 1999 2004 Net TV Gaming Devices Email Web terminal 23,190 51,559 12.1% 8.9 43.9 34.5 60.3 36.3 1.1% 2.3 7,364 22.4% 5.5 31.7 40.5 55.8 38.6 2.4 3.2% Units Thousands Revenue $ MillionsGAGR 2000-2004 22% 124% 71% 28% 6% GAGR 2000-2004 30% 111% 60% 23% 20% 1999 2004 (Excluding handhelds) This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  9. 9. 24 MAKING INDIRECT CHANNEL EFFICIENT WILL REQUIRE MODIFICATIONS IN EVERY STEP OF VALUE CHAIN Example Vendor Solectron Ingram Micro, Inc. Assembly and configuration Order fulfillment and product distribution Up-front order management CDW • Manufacturing focus; very efficient • Manages entire product cycle – Design – System integration – Testing • Colocation arrangements with distributor (JV with Ingram) • Customers include IBM, HP, Sun • Using web applications to do channel assembly • Moving from “push” to “pull” to reduce inventory • Web-integrated value chain enables order tracking and configuration • Assigns account manager/relationship for each customer • Backs direct sales with configuration and technical support – Not just an order-taking website • Very high customer retention rate Best practice This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  10. 10. 27 Historical situation • Recently acquired Digital and Tandem • Indirect model focus • Strong, across-the-board presence in all regions • Mastered the direct model in U.S. • Replicating direct model in other markets – launching high-end servers and workstations • Fast becoming a marketing portal • Primarily a U.S.-based consumer PC company • Following Dell’s example in leveraging Internet • Aggressive move to internet access devices • PC business is a loss leader • Primarily indirect (with the same issues as Compaq) • Advantageous Merced relationship with Intel • Strong solutions focus • Primarily an indirect player Key issues • Unclear strategy • No progress towards a direct model • Uncompetitive cost structure • Relatively weak in EMEA • Lacks a services partnership (though IBM could provide this) • Lack of presence in Enterprise (is current position tenable in long term?) • Need to expand geographic footprint • AOL relationship • Success of internet access device as “razor” for services • Need to decide whether to continue in PC hardware market or focus on services and components • No direct model • Need to leverage the Internet DOMINANT OEM PLAYERS FACE A DIVERSE SET OF CHALLENGES OEM Compaq Dell Gateway IBM HP This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  11. 11. 30 * Merged computer systems businesses in 4Q 1999 Source: IDC; team analysis WORLDWIDE SERVER REVENUE BY VENDOR 25.6 26.1 24.6 7.5 11.1 15.2 11.5 13.0 13.0 7.8 10.0 12.7 22.1% 4.7 1.6 2.9 4.2 3.9 5.1 3.4 4.1 3.3 29.1% 37.6% IBM 1997 100% = 67,792 Compaq HP Sun Dell Fujitsu* Siemens* Other -2 43 6 28 72 -9 2 -23% $ Millions, percent 65,023 68,014 CAGR 1998-99 1998 1999 Compaq SUN Dell This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  12. 12. 33 1,206 291 232 183 1,537%Dell* SERVER COMPANY RETURNS Percent * Source: Compustat Sun IBM* HP* Compaq 3-year TRT 1997-99 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  13. 13. 36 STORAGE MARKET IS DIVIDED * Calculated based on 3-year revenue-weighted average of representative companies Source: Yahoo! Finance; team analysis Average net margin 1996-99* Hardware systems Software Hard disk drives (HDD) Other mechanisms • Enterprise systems storage market is currently much more attractive than mechanisms • Mechanisms market has been commoditized and subject to strong PC pricing pressure Systems Mechanisms 14 1 -1 23 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  14. 14. 39 Current architecture 1999 2000 2001 2002 2003 32,265 WORLDWIDE STORAGE SYSTEMS REVENUE $ Millions Source: IDC SAN NAS 38,259 45,808 54,291 63,861 CAGR 1999-2003 19% 66% 66% 11% Server market expected to reach $79 93% 4% 90% 9% 84% 13% 9% 78% 17% 10% 73% 4% 3% 6% 7% This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  15. 15. 42 SYSTEM STORAGE INDUSTRY OVERVIEW • Assist clients with the design, integration, operations, and maintenance of their storage system • Includes HDD-based storage devices (e.g., RAID boxes, non-redundant drives) as well as tape drives and CD- ROMs • Manage online storage to ensure data integrity and availability – Includes file systems, volume management, and replication tools • Tools that manage properties of physical and logical storage resources – Includes media health, availability, and utilization • Manage off-line storage and retrieval, including backup, restorations, archiving, and hierarchical storage management (HSM) • Includes switches, hubs, and cables associated with storage area networks Description • Metropolitan data farms that allow companies to outsource their storage needs Enterprise storage Services Software Hardware Life cycle Mainframe Mainframe Hosting Distributed Distributed Back-up/ HSM Storage devices On-line Resource management Other hardware This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  16. 16. 45 INVASION OF CAPTIVE MARKETS MOVING FROM HIGH- END DOWN WORLDWIDE RAID SALES 1998 Source: Dataquest; McKinsey analysis Captive 37 2 19 2 2 8 3 2 EMC Amdahl EMC Compaq IBM Other EMC Compaq Share of total high-end Share of total midrange Share of total entry-level 100% = Captive markets breaking Captive markets intact • Mainframe • Unix • AS/400 • Open VMS • Windows NT • Net Ware 57 48 5243 1995 1998 $4.5 billion $3.0 billion Noncaptive Captive 100% = 74 66 3426 1995 1998 $10.0 billion $10.1 billion Noncaptive Captive 100% = $1.9 billion $7.2 billion Noncaptive 90 91 910 1995 1998 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  17. 17. 48 COMPARISON OF STORAGE ALTERNATIVE ATTRIBUTES Traditional approach (server-attached storage) Weakness Strength SAN NAS Total cost of ownership Scalability Open architecture Reliability/backup Ease of implementation Performance Ease of management • SAN is ideal for mission- critical data storage, but it is not yet mature • NAS is a good solution for smaller companies that require scalability and compatibility at low costs • Server-attached storage no longer addresses all enterprise storage needs This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  18. 18. 51 POTENTIAL SAN SCENARIOS Future SAN Open (storage products from multiple vendors can be used in 1 SAN) Vendor-led Server company (e.g., Compaq) Services Closed (only 1 vendor's storage product can be used in a SAN) Industry (e.g., SNIA- led) standard Large players offer independent solutions (e.g., EMC) solution incompatible with IBM storage devices Connectivity company (e.g., Cisco) Software company (e.g., BMC) This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  19. 19. 54 The computer industry is continuing to grow robustly. The growth is being accelerated by new segments which are changing the overall landscape and competitive dynamics. Increasingly many players are looking to other elements in the value chain to gain profits and new standards battles are emerging • PC players have experienced fundamental change as direct players gained ground. Furthermore direct players are leading the charge to capture profits “beyond the box and to exploit non-Wintel information appliances.” Indirect players will continue to have a difficult game of catch-up • Server growth has been driven by the internet. The emergence of “application servers” may be the trigger for a long rumored growth of Linux • Storage systems have emerged as a sizable and highly profitable segment, and are not simply peripherals to servers. The emergence of new storage architectures, particularly storage area networks (SAN), create a discontinuity that will likely impact storage and related computer segments from servers to software. • Smart handhelds are emerging as the next growth engine. A diverse set of devices are emerging that could fundamentally threaten the Wintel monopoly. But new OS standards owners are not likely to capture Microsoft like profits as a significant share of the value is expected to migrate from hardware to services – Changing technologies, behavior, business models and business landscape are likely to spur the deployment of information appliances – The fast developing wireless infrastructure facilitates smart handhelds with smart phones having the highest potential –Commoditization will limit the hardware and OS upside. Digital content and services will likely capture most of the value COMPUTER INDUSTRY DYNAMICS This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  20. 20. 57 Net TV Microwave Phone Home security systems Washing machine Home server iPAD Cable station Time Warner RI Broadband cable PC Connected devices will ensure synchronized, updated data on demand (e.g., news) Internet phone/PDA Home appliances controlled seamlessly Access to information everywhere and all the time Some of the functionality currently utilized on PCs (e.g., browsing for fun) will migrate to other non-PC devices Content • Email • Video, VOD • News • Browsing • Telephony • EPG Services Personalized web browsing • Small browser learns user preferences and enhances browsing experience Web-based browsing and email on wireless phone; context- sensitive switch to PCS when away from home Real-time monitoring of home; home asset management; remote web access to manage assets …WHEN COUPLED WITH EMERGING COMPLEMENTARY SERVICES THAT ENABLE A “DIGITAL LIFESTYLE” This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  21. 21. 60 Companion 1999 2003 8,262 WITHIN HANDELDS, SMART PHONES HAVE GREATER GROWTH POTENTIAL Smart handhelds forecast – worldwide Source: IDC Vertical appliance Smart phone 35,546 CAGR 1999-2003 44% 17% 102% 36%67% 53% 11% 24% 9% 36% Units (000) Revenues $ Millions CAGR 1999-2003 28% 12% 85% 30%54% 6% 55% 42% 26% 32% 16,882 1999 2003 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  22. 22. 63 Description Example players End-user services • Services accessed by PDA devices offered by Internet Service Providers to consumers • Revenue are monthly access fees and advertisement • AOL, MSN Mobile, Palm.Net Back-end services • Hosting of corporate applications (e.g., web-based SFA, ERP, and E-mail) and content/web sites to be accessed by PDA devices • Revenue from monthly service/license fees • WirelessKnowledge, Oracle Business OnLine Professional services • SI services such as consulting, project management and custom software development services • Revenue from monthly service fees • EDS, Andersen Consulting Applications • Provider of packaged applications for both consumer (e.g., Pocket Quicken) and professionals • Revenue from sale of applications • Cutting Edge Software, Landware, Little Wing O/S • Provider of PDA operating system and core PDA applications (e.g., PIM, PocketWord) • Revenue from sale of O/S to OEMs • 3COM, MS CE Devices • Manufacturer of PDA devices • Revenue from sales of PDAs • 3COM, Casio, Compaq, Philips THE PDA MARKET IS COMPRISED OF SIX DISTINCT PRODUCT CATEGORIES This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  23. 23. 66 FALLING BARRIERS TO MOBILE DATA SERVICES ENABLE A LARGE AND RAPIDLY GROWING MARKET • 375M+ digital handsets and 10-15M PDAs by 2002 • Moore’s law driving improvements in size and performance • Adoption of open, Internet-based standards, e.g., WAP/WML • Enterprise applications increasingly web-enabled • Networks are becoming packet-data capable and gaining higher bandwidths (IS95B, GPRS, etc.) • Overall mobile usage is exploding due to declining costs …enabling the market to grow rapidly Estimated end-user services revenue $ Billions 1999 00 01 02 2003 $1.4-1.7 $1.9-2.7 $3.1-4.8 $4.2-6.9 $5.6-10.0 Note: Includes 2-way paging Source: Strategis, IDC, Yankee Group, McKinsey analysis Barriers to mobile data services are falling... Device Appli- cations Network This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  24. 24. 69 UNUSED This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  25. 25. 72 ADOPTION AMONG USERS Source: Dataquest; EMC TV households PCs Mobile phone subscribers 0 200 400 600 800 1000 1200 1997 1998 1999 2000 2001 2002 2003 2004 2005 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  26. 26. 75 Series Series 1998 Label 2 Label 3 Label 4 Label 5 100% = 000 000 000 000 000 COLUMN STACKED 100% Unit of measure Annotation * Footnote Source: Sources This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  27. 27. 78 WHILE INDUSTRY APPLICATION MARKET IS FRAGMENTED, PDA OPPORTUNITIES EXIST Note: These categories are mutually exclusive (e.g., a vertical insurance application seat is completely different from a sales force automation seat) 1 Consists of license and maintenance revenue 2 Seat shipments calculated by taking total license revenue (80% of total software revenue) and dividing by a license price of $3,250/seat for ERP and $2,000/seat for functional/vertical software 3 Installed base calculated by adding shipped seats to total maintenance revenue (20% of total software revenue) divided by a maintenance fee of $570/seat for ERP and $350/seat for functional/vertical software (app. 18% of license revenue price) 4 Estimated 20% CAGR based on past CAGR and category trends Source: IDC, team analysis Most attractive categories based on volume of seats shipped and installed Category Installed base (thousands of seats) 3 20031998 Shipments (thousands of seats) 2 1998 2003 ERP Functional • Materials management • Project management • Maintenance management • Sales automation • Customer support/field service Verticals • Banking/finance • Insurance • Healthcare • AEC/professional services • Manufacturing • Retail/wholesale • Other Total 4,300 1,300 400 300 400 300 1,100 500 1,300 1,000 2,200 500 3,100 16,600 10,700 4,700 700 900 1,900 1,600 1,600 800 2,500 1,800 4,200 500 4,400 36,400 20 30 13 27 40 41 8 8 15 12 14 2 7 17 CAGR (%) 10,500 3,000 1,000 700 900 700 2,800 1,300 3,100 2,500 5,400 1,200 7,500 40,350 26,000 11,300 1,800 2,100 4,700 3,800 4,000 1,900 6,100 4,400 10,200 1,300 10,800 88,400 Software revenue ($ millions) 1 1998 2003 17,535 3,100 1,000 700 900 700 2,800 1,300 3,100 2,600 5,500 1,200 7,800 48,300 43,6004 11,700 1,800 2,200 4,800 3,900 4,100 1,900 6,300 4,500 10,500 1,400 11,100 107,800 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  28. 28. 81 THE LEADING REGIONS HAVE ALL DIFFERENT STRENGTHS Europe Japan USA Enabling technologies • Wireless equipment • Wireless equipment Scope and quality of service • Advanced local/regional internet sites • Leading international internet sites Adoption among users • Internet • Mobile • Technology • Mobile • Technology • Internet • Advanced local/regional internet sites • Datacom equipment This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  29. 29. 84 PLAYERS AT EACH SEGMENT OF THE VALUE CHAIN ARE GRAPPLING WITH NEW ISSUES • Suppliers –OEMs focused on supply chain integration –Higher-level outsourcing demanded by OEMs, i.e., systems instead of components –Increased consolidation in Non-value add products, e.g., PCBs –Pricing / Grey Market issues • OEMs –Indirect vs. direct model –Maximizing customer value necessary as value-add of traditional activities shrinks –Increasing product proliferation –Emergence of the segment of one, i.e., mass-customization becomes necessary • Channel (VARs and distributors) –Falling hardware margins –Economies of scale force industry consolidation –Emergence of the Internet as an effective direct sales channel –Emergence of co-location and “one-touch” processes This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  30. 30. 87 15-19 13-16 10-14 8-12 4 3 2 1 THE NEED FOR COST EFFICIENCY IS RESULTING IN DISTRIBUTOR RATIONALIZATION MOVES Percent reduction in inventory Source: Team analysis Distributor rationalization from >30 to Distributor consolidation programs • Apple from 5 to 2 • Compaq from 39 to 4 • Seagate from 29 to 2 • Unisys from 9 to 3 • IBM in progress Significant cost savings in • Price protection • Transaction costs • LogisticsThis document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
  31. 31. 90 EMC, THE LEADER IN HIGH-END SYSTEMS, HAS DEMONSTRATED STELLAR PERFORMANCE Source: Compustat Indexed total returns to shareholders (December 1988 = 1.0) 0 50 100 150 200 250 300 350 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95 12/96 12/97 Intel Microsoft EMC Dell Tech 500 S&P 500 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/computer-industry-analysis-training-690
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