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Apple Computer Corporate and Business Strategy
has also shown competencies in building brand reputation and generating buzz for its products. Their marketing campaigns have been successful and remain a value added activity. Financially, the company remains liquid with substantial cash reserves and is not highly leveraged in debt. (See Exhibit 10)
Opportunities exist for Apple to emerge as a leader in providing a complete system that seamlessly integrates peripherals as these complements become more prevalent and adopted. By horizontally integrating, Apple can maintain stringent conformity standards and ensure all its peripheral offerings are compatible with its PC offering. Please see Exhibit 5 for a more a complete SWOT analysis.
Competitive Environment Analysis
Product Life Cycle
Domestically, the PC market seems to be in its maturity stage characterized by a slowdown in sales growth as a result of mass acceptance. (See Exhibit 6) Following its worst year ever in 2001, unit growth is expected to exceed revenue growth, indicative of falling prices and profit erosion, both characteristics of a mature market. The industry consists of well entrenched competitors whose basic drive is to gain or maintain market share.
A commonly used statistic to measure market structure is the Herfindahl index. The Herfindahl index equals the sum of the squared market shares of all the firms in the market. If perfect or monopolistic competition exists, then index should be below .2. Anything above .2 reflects either an oligopoly any anything above .6 usually points to a monopoly. The Herfindahl index for the PC industry in 2001 is ..05 or 5%. The top 9 market share leaders dominate 60% of the world wide industry. (See Exhibit 7) Firms with a market share of .01 or lower are too small to significantly affect the final calculation.
Porter Five Forces Analysis
Unfortunately, the PC industry is presently experiencing a contraction period after achieving impressive expansion during the last two decades. Demand has been stagnating with a 5% drop in sales for 2001. Accordingly, each individual firm has been experiencing larger than average excess capacity. These two factors have elicited intensified competition among current incumbents.
Factors such as the ability for consumers to switch from one competitor to the other with relative ease, the absence of any cooperative pricing, and the ability of incumbents to adjust prices quickly all attribute to intense internal rivalry within this industry. And as a result, these factors have exerted a downward pressure on prices. In fact, prices are expected decline by 6% going forward to 2005. This is consistent with the internal rival theory, where increases in rivalry will result in further price competition and erosion. Aside from Apple, there is little differentiation among sellers and cost differences among sellers are relatively low. (See Exhibit 8)
Threat of entry into this industry is relatively low for this industry. With an industry consisting of over 100 incumbents ranging from powerful [next page]