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Analysis of Intel’s Economic Data and Business Data
Omitted
ECO561
Omitted
Omitted
Analysis of Intel’s Economic Data and Business Data
1.) Intel is the American global technology company that has the most dominant and pervasive technology. It is the largest producer of semiconductor chips and has invented a series of microprocessors. Intel primarily operates in a monopoly as it has various competitive advantages that are hard to replicate by most companies around the world. Intel has a market share of about 93% (Rexaline, 2019). It operates in a monopoly with a competitive fringe. (Bolded Section above is what the instructors feedback pertained to)
2.) One of its biggest competitors is Microsoft and Advanced Micro Devices (AMD). Barriers to entry are patents obtained by companies to prevent other companies from replicating their technology. Vertical integration is another barrier that is a strategy employed by companies whereby they control their highly specialized supply chain. Contract with PC manufacturers can also be a hindrance to entering the microprocessor market. Intel leveraged on a 10-period unprecedented growth and became a primary supplier of the microprocessor to the PC industry, deriving enormous revenues to expand.
3.) The U.S. economy is in the expansion phase since 2009. As of January 2019, under the current administration, the economy is growing healthy from 2% to 3%. Expansion reached its peak as there are no significant changes in inflation. The real gross domestic product (GDP) has an average growth rate of 2.3%. The Trump Tax Act, which reduced the corporate tax rates, increased investment. The real GDP of the United States in 2019 amounted to $19,073 trillion. (Refer to Graph 1 in the Appendix)
The annual inflation rate for the U.S. is 1.5% for the year ended March 2020 as compared to 2.3% in the preceding year. Annual rates of inflation were calculated using 12-month selections of the Consumer Price Index, which is published monthly by the Labor Department's Bureau of Labor Statistics (BLS) (Macro trends, 2020). (Refer to Graph B)
The rate of unemployment in the United States for 2020, pre-COVID-19, was 4.4% which is the same as it was in 2017. It has a reasonably flat curve, which means there is no significant change in the rate of unemployment in the past three years. (Amaded, 2020). The federal fund rate of the United States is 0.05%, which is relatively low as compared to 2.43% in the preceding year. (Refer to Graph C)
Keeping the federal fund rate low is an expansion strategy in order to strengthen the economy as savings are passed on to consumers in the form of low-priced loans. (Refer to Graph D)
The rate for borrowing funds, also known as the prime rate, of The United States, is 3.25% compared with 5.5% in the preceding year. It is the underlying index for lines of credit and vari ...
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The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
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2. PROBLEM
STATEMENT
2008 – After the
global financial
crisis, Lenovo
recovered
relatively well
than the other
players
2011- Launches
Mobile Internet
Digital Home
(MIDH) division,
Lenovo heralded
the start of the
PC+ era
Protect and Attack
Strategy
2013 – Achieves global
leadership in the PC
market, but
domination in other
smart connected
devices still remains a
challenge
Marketing and
Branding Strategies
• Fortify its existing dominance
in the enterprise segment
while trying to gain higher
market
share
in
the
consumer and SMB segments
• Helped
transform
the
company’s brand from a
Chinese local player into a
serious global competitor
Will the same factors help Lenovo sustain its current position
while reaching out for its more ambitious goal of transforming
into a PC+ innovation leader ?
What external strategies are need to be put in place to replicate
its success in the highly competitive smart connected devices
space ?
Is higher focus required on a few key factors, or a balance
needed across different areas ?
“Balancing growth and profitability across our entire PC business is our focus going
forward,” - Yang Yuanqing, Chairman Lenovo Group
3. MARKET ANALYSIS – GLOBAL PERSPECTIVE
Growth Rate 2012-2013 (in %)
– Globally
others
-0.6
[VALUE]
-3.9
-10.5
-20.5
-35.3
Source: Gartner Report, ID - 2544115
Worldwide PC shipments dropped to 76 million units in the 2nd quarter of
2013, a 10.9 % decrease from same period last year
Marks 5th consecutive quarter of declining shipments, which is the longest
duration of decline in the PC market’s history
Lenovo showed mixed regional results, as it experienced strong growth in the
Americas and EMEA, while showing a major decline in Asia/Pacific
Weakness in China was most likely the contributor of Lenovo’s shipment decline
in the region as the majority of Lenovo’s volume came from China.
“
We are seeing the PC market reduction directly tied to
shrinking installed base of PCs, as inexpensive tablets
displace the low-end machines used primarily for
consumption in mature and developed markets. In
emerging markets, inexpensive tablets have become
the first computing device for many people, who at
best are deferring the purchase of a PC. This is also
accounting for the collapse of the mini notebook
market.
”
Mikako Kitagawa, principal analyst at Gartner
4. MARKET ANALYSIS – US MARKET
Growth Rate 2012-2013 (in %) –
US Region
19.7
6.4
[VALUE]
others
-4.3
-15.7
-11.7
Money
Source: Gartner Report, ID - 2544115
In the U.S. market, PC shipments totalled 15 million units in the second quarter of 2013, a 1.4
percent decline from the second quarter of 2012
Money – Rising unemployment and burning currencies results in lesser incentive to buy a PC
Technology – Improvements to PC performance have been a slow crawl with mere 10% CPU
PC+
gains y-o-y
Boredom – Mass production of commodity computer with little hardware innovation specially
at the affordable end of spectrum where vast majority of sales occur
PC+ - Mass migration to longer PC replacement cycles in the PC+ era means fewer people
buying PC on a yearly basis
$420 – Average selling price for a non touch windows 8 laptop which is
not enticing for a customer when his/her current PC is working well
Declining
Sales
Techno
logy
Boredom
5.
MARKET ANALYSIS – EMEA MARKET & ASIA
PACIFIC
PC shipments in Europe, Middle East and Africa (EMEA)
were weakened in the 2nd quarter of 2013
There was a 16.8 % decline over the same period last
year, marking the 5th consecutive quarter of decreasing
shipments
Lenovo was the only top five vendor to exhibit shipment
growth, recording a fourth consecutive quarter of growth
It took second place in the EMEA PC vendor rankings in
the second quarter of 2013
Growth Rate 2012-2013
(in %) – EMEA Region
21.2
others
-8.9
-19.3
-38.5
Source: Gartner Report, ID - 2544115
-12.1
-34.7
In Asia/Pacific, PC shipments
surpassed 26.8 million units in
the 2nd quarter of 2013, an
11.5% decline from the 1st
quarter of 2012
All country markets across region
showed weakness, but India
performed slightly better due to
a state PC tender fulfilment.
China’s PC shipment remained
weak as consumer market was
hampered with lack of new
demand generation
programs, such as subsidized PC
program in rural cities
Growth Rate 2012-2013
(in %) – Asia Pacific Region
-2
-6
-4
-15
-35
Source: IDC, April 2013
-14
others
6. TARGET MARKET ANALYSIS
Users in emerged markets shifting
towards MIDH because it is trendy
and portable
High Penetration in these markets
(~80%) whereas in Emerging Markets
it is much lower(~30%)
Total PC shipments in these markets
decreased by 9%, whereas the
growth in the emerging markets is
about 26%
Moreover the middle class in the
emerging economies will spur the PC
growth because of the drastic
reduction in the “weeks of average
income required to buy an averagepriced notebook PC”
Expected CAGR of worldwide PC
shipments (2011-16) is 8% but in
mature markets it is only 5% whereas
in emerging markets, it is 24%
440.5
276.3
174.7
126.2
125.9
111.8
59.5
29
47.7
41.1
1995
78.9
56
16.8 30.6
16.1
2000
Eastern Europe
China
2005
India
30.8
Latin America
7.1
16.6
5
6.5
2010
Ermerging APAC
2014
10.3
2.6
8.8
2.2
3.4
Source: WOI to buy NB PC – Intel & Population by GEO – Economist Intelligence Unit (EIU)
PC Penetration (in % of households penetrated)
82.2
Hence Lenovo should focus
on tapping these emerging
markets
Weeks of average income to buy an average priced
consumer Notebook PC
74.5
98.4
81.9
74.7
90.3
83.8
74.9
48.2
36.5
51.2
37.3
11.6
2011
90.1
92.5
84.5
74.6
61.3
12.1
12.5
12.9
13.4
2012
India
54.4
38.2
91.4
82.9
74.8
57.9
39
2013
2014
2015
Brazil
China
US
UK
39.8
Germany
Source:
Marketline
PC
penetration
report
7. TARGET MARKET STRATEGY
As there is income inequality in these countries, providing PCs in a very wide range
depending on the configuration will definitely increase the customer base
Price
Variety
Co-Branding with computer training institutes like NIIT, Aptech, etc. in India to
increase the usage of PCs. This would help in this economic slowdown when people
prefer to enrol in vocational courses to gain knowledge and increase their
employability.
Distribution model must encompass all possible touch points and there must be
complete integration in the distribution.
Improved
Service
Forming partnerships with contract manufacturers would increase the
manufacturing facilities in the emerging markets.
Increase in
Market
Penetration
These markets have comparatively younger population who are going crazy behind
innovation and so trendy and smart-looking products would be highly acceptable.
Providing products with the configuration required by the customers and then
providing improved service would not only increase penetration but also wipe-out
competition from “system integrators”.
“
Emerging markets such as Turkey & Indonesia were up
70%, India was up 17%, Russia was up 15%, China was
up 14% and Latin America as a whole was up 12%.
Growth in Brazil would make it the world’s thirdlargest PC market next year, after the U.S. and China.
Paul Otellini, Intel President & CEO
”
“
CoBranding
Product
Innovation
Approximately two out of every
three PCs sold will be in
emerging markets by 2014, and
that nearly two out of every
three PCs will be sold into the
consumer segment.
Stacy Smith, CFO, Intel
Enhanced
Distribution
Contract
Manufactur
ers
”
8. ENHANCED DISTRIBUTION MODEL
Due to global economic slowdown Lenovo
cannot afford low ROI in the emerging markets
A strategic alliance or a JV would assist Lenovo
to better understand the local market, run
production facilities establish a marketing and
distribution presence and in some cases get
around country trade barriers
Computer training institutes will act as demand
aggregators in the rural areas which will send
their demand to the national distributors. This
demand will be catered by the exclusive stores
on a fast-track basis such that the customer is
not lost
Regional distributors should be able to cater to
the needs of SMEs, consumer electronic
stores, super markets, departmental stores etc.
Nearest
Manufacturing Site
National
Suppliers(JVs)
Co-Branding with
computer
training institutes
Regional Suppliers
Exclusive Franchise
Stores + Service
Centres
Consumer Electronics
Super
Markets, Department
Stores, etc.
Immediate provision of services to corporates
by setting up dedicated technical support and
setting up service centers at exclusive
showrooms
SMEs
Large corporates for
relationship building
9. IMPLEMENTATION STRATEGY
Should have clear entry and
exit strategy
Fostering demand in emerging markets
Incentivise retailers to sell PCs on interest
free/low interest EMIs
Customize PCs to support regional languages
such that there is technological inclusion
Upgrade technology on a regular basis in
laptops and desktops at concessional
charges
Leverage the brand equity of IBM and build
brand Lenovo for the “pull factor”
Focus on innovation through “FOR THOSE
WHO DO STRATEGY” and tap the affluent
customers and push the sales of ultra-books
to stop people from migrating to tablets
I
D
E
A
P
R
O
D
U
C
T
G
R
O
U
P
THINK PRODUCT GROUP
Can’t afford lower return on
investment in new markets
due to global economic
slowdown
Should enter through a JV in
markets where economy is in
recovery phase
After adequate penetration and
gaining a foothold in market
withdraw operation control from
these markets and focus on
financial controls
Cut down cost and increase efficiency by
optimal utilization of all resources
Providing service “at the go”
Setting up call centre and service
centre in exclusive showrooms and
corporates. Hence, reducing downtime
Providing a “one-stop-shop”
End to end solutions to all
technological requirements of
corporates, either on its own or
through tie-ups
Lenovo must tap recession proof industries like
healthcare, education, FMCG and provide
personalised cloud technologies
Foster support from lobbying organisation to
bag major contracts by competing on price
Lenovo has very
high cash to total
assets ratio of
26.2%
Deploy excessive
cash by setting up
own manufacturing
facilities wherever
feasible
Setup an extensive
distribution
channel to provide
maximum
penetration
10. THREAT OF SUBSTITUTES
THREAT
IMPACT OF THREAT
LOW COST
PRODUCERS
Obtain key components from numerous upstream suppliers
at reduced rates
Provided components are used to assemble the PC based on
configuration the customer wants
Thus the customer gets customised products at
substantially low cost compared to branded PC vendors
Distributors are mostly decentralised and local
Do not form a major chunk of the selling
Customer needs to be tech savvy to have a demanded
configuration
Thus the impact of threat is NOT VERY HIGH
TABLETS &
SMART
PHONES
Handheld devices primarily for content consumption
offering multiple features
Tablet and smartphones purchase has risen tremendously of
late
The surge is almost equal to the purchase decrease in
computers
Most purchases come from the younger consumers (18-34
years age group) and demographic profile of the emerging
nations suggests a very young population and an ever
increasing middle class with a higher propensity to buy
Governments widely supporting the 3G technology to bridge
the gap between emerging and developing nations. The
coming years are expected to see strong growth in
subscriber numbers
Increasing purchase of tablets and smartphones with
decrease in PC purchase is the real threat to all PC vendors
Ever increasing middle class whose spending on consumer
electronics in emerging nations has been on the rise in last
12 months indicates propensity to use tablets/smartphones
for both personal and professional reasons
Increasing government involvement in emerging nations will
see strong development in the 3G penetration as well as
mobile and tablet availability
Increasing availability of low cost tablets and smartphones
with entry of number of new players poses a REAL THREAT
to the PC industry in the mid to long term
Threat from US based vendors like HP & Dell and Taiwanese OEMs like ASUS & Acer is not a significant one because
Lenovo has been consistently outperforming them in terms of y-o-y growth
11. QUEST FOR GLOBAL SUCCESS IN THE PC+ ERA
In countries with low PC penetration like India, market development strategy is followed by increasing brand
penetration
It requires creating new users by offering new products and attributes
Addressing latent needs that are not yet satisfied by existing market players
Products should not be provided at rock bottom prices but at prices that market can bear and product can sell
Gaining margins at low price and low volumes by bringing in operational expertise such as cluster/cellular
manufacturing
For segments like ThinkPad consumers
and geographies where Lenovo is a
market leader, competition is irrelevant
Exploit the existing processes and
evolve current customers
Continuous product
innovation, superior performance and
service to maintain existing loyal set of
customers
This is actually the Cash Cow segment of
Lenovo
New Market Segment
Strategy
“Competitive
Scenario”
Sustenance Strategy
T
Global
e
Success in
x
PC+t Era
“Stage of
business
maturity”
“Level of
customers
needs”
For growing but mature markets like
Brazil and Mexico where there is surge
in competition and consumer needs, a
disruption strategy should be employed
Lenovo should play on low prices to
grab market share
Focus on low end customers
After acquiring required market
share, slowly increase the profit margin
By upgrading the existing
customers and disrupting the
earlier market
Move on to serve more profitable
segments
Low End Disruption Strategy
12. OUR RECOMMENDATIONS TO LENOVO
Target Market
Strategy
With the middle class in the emerging economies showing more propensity to purchase electronic
equipment's and PC penetration being comparatively lower, Lenovo to focus more on tapping these emerging
markets namely
Branding &
Strategic Alliance
Improved and enhanced distribution model encompassing all touch points and having complete end-toend integration.
Strategic alliance with local partners to establish strong presence in the emerging economies.
Services delivery to large corporates through dedicated channels to build stronger relationships
Supply Chain
Strategy
Automate procurement processes as well as engage in supplier development strategy to streamline the
supply chain and setup systems to measure and monitor fulfilment rates
Carefully manage outsourcing relationships to ensure high levels of service quality
Start utilising data across the end-to-end supply chain where Lenovo is connected to its partners - help
execution in the supply chain and help people make corrective actions
Implement new direct ship enablement program that allows it to integrate new partners quickly to meet
new demand
Branding &
Strategic
Alliance
Clear entry and exit strategy
Providing services “at the go” and “one stop shop”
Customised PC to support regional languages and leverage on the brand equity of IBM
Focus on innovation through “FOR THOSE WHO DO STRATEGY” and tap the affluent customers and push
the sales of ultra-books to stop people from migrating to tablets