Apple Inc. Personal Computer Industry Analysis – Porters 5 Forces

Case Study #2 – Apple Inc.

Personal Computer industry analysis – Porters 5 forces

Threat of Substitutes

This is a very high threat from both laptops and tablets but it is hard to substitute the sum of what a computer does outside of laptops and tablets.  If you have a need only for a music player, iPods and portable music players are available.  If you need to create documents, typewriters still exist or if you need a number processer, calculators are still available.  Laptops and tablet markets have exploded in sales (Moscaritolo, 2012) leaving their PC counterparts behind.

Threat of New Entrants

This is a low threat as the market is already saturated with major players that have exclusive distribution channels at the big box stores and massive economies of scale to support the high capital requirements.  With profits being less than 2% of revenues for companies like Levono and Acer, the desire to enter the industry is very low unless there is a niche market that can be served like Apple has been able to find showing larger margins (Google Finance, 2013).

Rivalry among existing firms

This is a large threat as pricing and innovation are the keys to success in the PC market.  With so many major players, product differentiation is key to survival whether that being the smallest, lightest, biggest screen or lowest cost.  The costs range from under $500 to over $3000 depending on what you are looking for (IDG Consumer & SMB, 2013) which allows for niching but all the big companies have a wide range of products.  Any innovation is seen as a threat so the leaders all have to adopt all market-leading technologies which are very expensive leading to lower margins across the industry.  China is the exception where Lenovo’s profits have increased due to its dominant position there (Kan, 2013) and shows strong signs of being an area where the PC industry is still growing.

Bargaining power of suppliers

This is a very high threat as suppliers like Microsoft and Intel are very powerful and command large market shares in their respective industries.  In the PC market, we have attached the market shares of all operating systems owners on the pie chart to show the dominance of one supplier (Netapplications.com, 2013).  Intel has a similar dominant position leading them to have larger profits at the expense of the PC industry (McGrath, 2013).

[pic 1]

Bargaining power of buyers

With the North American and European markets being flooded with options for PCs, laptops, tablets and other devises, the bargaining power of buyers are very low.  The distribution networks of PCs do not allow for much negotiating or bulk buying discounts.  This allows the PC manufacturers and retailers to sell at their desired rates more than the consumer’s desired rates.

Analysis

In review of the PC industry through the competitive frame work supplied by Porter’s model, we can conclude that the PC industry is not attractive to new players unless they can find a new niche or innovation for customers like Apple has been able to do.  Traditional PC manufacturers like Dell, HP, Levono have seen the industry and profits decline with the cost of laptops and tablets becoming very affordable.  The forecast we can see is that price competition will continue to keep margins low and with strong bargaining power of suppliers like Microsoft and Intel, there are too many factors that make this industry unattractive for new entrants as well.