Category Attractiveness

The next big event in the history of laptops came in the summer of 1995, after which Microsoft and Intel became the standard for the software (Windows) and hardware (Intel processors), used in laptops. Over the past fifteen years, the increasing price-performance ratio, consumer preferences for mobility as well as increased hardware life has resulted in higher growth of laptops than desktops since 2004. Data monitor forecasts that the global PC industry is projected to grow at a compounded annual growth rate (CAGR) of 5. % in market value during 2010-2012, with laptop segment being the major contributor to its growth.

This growth rate has declined from the 7. 6% CAGR for 2003-2007, in part due to the slowing Indian economy. In addition to the economy, the laptop segment is expected to face increased competition from both new devices and technologies. Smart phones (I Phone, Blackberry, Samsung) and Mobile Internet Devices are starting to compete with laptops due to features such as gaming, internet access and enterprise applications.

Changes in demand and new technologies will continue to alter the outlook for the laptop industry in the coming years. New demand for low cost ultraportable laptops – called notebooks –has created new competitors like Sony,Dell,HP etc as well as forced companies to change their business models to succeed. The focus of this analysis is therefore on the macro- and micro- factors affecting the Indian laptop PC manufacturers which include.

There are six major market factors that impact market attractiveness. These are enumerated as follows-: * Category Size: A Laptop which is, a small personal computer designed for mobile use, is getting very popular these days. Originally, it was designed to entrap a small niche market for specialized field applications such as the military and education. But today, the slim, secure, stylish and savvy laptops have ruled out desktops from office and home work space because of improved style, functionality and space taken.

More so, the laptop developers are offering  consumers with  ultra-sleek, ultra-mobile and ultra-portable machines at genuine prices so that nobody can neglect this tiny machine from being attracted and computer makers are gearing up for that future. According to a recent market report, the total laptop market size in India is currently estimated at 1. 5 million units and is thereby considered to be a large market segment having a high market potential and being an attractive and lucrative market for the PC manufacturers. * Category Growth:

A Laptop is nothing but a consumer electronic good. The overall Consumer Electronics Industry will grow at an estimated 5. 9 percent in India this year, two points higher than previously projected in January. “The CE industry is offering what consumers want during these uncertain economic times: innovation and value,” said Consumer Electronic Association President and CEO Gary Shapiro. “Consumers’ desire for connected devices is pushing projected revenues higher than originally anticipated, but the long-term health of our industry relies on a strong and growing Indian economy. Laptop sales continue to increase as consumers demand mobility in computing solutions.

Led by the introduction of ultra books, overall laptop sales to dealers are expected to reach $14. 9 billion, with 21. 3 million laptops shipping to dealers. * Stage In Product Lifecycle : Rapid technological changes are a key factor in determining the shape and length of a life cycle for many consumer goods. No sooner have the early adopters encouraged the rest of us to buy a gadget or service, and a technological improvement seem to make our purchase seem very, well, “yesterday”.

It looks at a range of technologies which it suggests are poised to be overtaken by technological changes, which means because of the technological revolution and varieties of products entering the electronic goods market which are more convenient than laptops, laptops might soon go into a decline stage. * Sales Cyclicity: Many categories experience a substantial inter year variation in demand. High capital intensive business gets affected through peaks and valleys of sales as there is a change in the gross domestic product of the economy.

Similarly the sales of laptops, which are consumer electronic does not get affected by the change in the GDP or climatic conditions. Basically laptops being an electronic good, the sales would be affected based on the varieties entering in the same segment and the demand for the same. * Seasonality: Intra year cycles in sales based on seasons is not viewed positively. Taking into consideration the Indian scenario it comprises of buying electronic items on the auspicious occasion of Diwali and laptops pose to be an ideal gift for near and dear ones, thereby increasing the sales and revenue generated from it during these festive occasions.

Also colleges in India commence their academic sessions between the months of May and June encouraging students to invest in laptops which would provide them with the ease of storing their study material which in turn leads to a fluctuation in demand of laptops. * Profits: Profits vary across products or brands in a category. The difference lies in profitability because of various underlying factors. It can also be different based on the factors of production, cost attached to the same and also working capital invested.

The profitability attached specifically to laptops produce relatively steady if not high due the high research and development costs involved which form a part of the operating expenses. Products chronically low in profitability are less attractive than those that offers higher returns. Although the aggregate factors just described are important indicators of the attractiveness of a product category, they do not provide information about underlying structural factors affecting the category. A classic developed by Porter (1980) considers five factors in assessing the structure of Industries.

These are explained as follows: Porter’s Five Forces Analysis * Competitive Rivalry from within the Industry: As a matured industry, the laptop industry is seeing a price downtrend in the long term, indicating aggressive pricing will bring more consolidation in the industry to reduce development costs. Due to standardization among Windows PCs, switching costs are low and therefore competition is driven by pricing instead of product differentiation. Apple, on the other hand, competes on product differentiation by promoting premium products rather than low prices. Bargaining Power of Suppliers.

The suppliers for all competitors are quite limited in terms of bargaining power due to increased commoditization of hardware components. Intel and AMD, the two major microprocessor suppliers, compete for increased market share. However, their power is limited due to their need for product promotion among consumers. For hardware such as hard drives (Samsung, Western Digital, Seagate, etc. ) or motherboards (Intel, MSI etc. ) there is very limited bargaining power due to their lack of branding on the finished product.

Most manufacturers use different suppliers for the same component, by sourcing their requirements from whoever is cheaper at that time. Thus, if the prices are not competitive, the suppliers risk losing out to their rivals. On the software side, Microsoft dominates with its Windows line of Operating Systems (OS) and therefore exerts considerable power over PC manufacturers. * Bargaining Power of Customers: Customers have large bargaining power over manufacturers, since a major part of the total PC sales is made up of large volume buying from businesses.

In addition, consumers also have bargaining power in terms of dictating demand and buying preferences. Consumer preference for mobility and wireless connectivity at low cost resulted in the growth of the laptop market compared to desktops. In addition, continued demand for cheaper costs lead to aggressive pricing as well as the creation of new categories such as notebooks. The power of customers is reflected in the change in buying behavior. In addition, customers’ buying behavior in developing markets influenced Dell’s decision to sell through retail stores as well. * Threat of New Entrants:

Due to aggressive pricing and reducing profit margins, there is a high barrier to entry for new companies. Since large companies are able to invest more in R&D and more easily hire top management talent, there is greater possibility for more innovation in the products. This further increases the barrier to entry for smaller companies. However, ASUSTek’s introduction of  Notebooks in late 2007 are an example of identifying consumer demand that was not recognized by any of the top industry players and becoming a new competitor. Consequently, ASUSTek had a growth rate of 103% in 2008 since it was the only notebook producer at that time.

Threat of Substitutes: The laptop industry faces a significant threat from new trends such as cloud computing, which potentially will reduce the need for high computing power in portable laptops. Moreover, advances in computing power and as well as communication technologies (3G, WiMax, etc. ) have enabled devices such as smart phones (I Phone, Blackberry, etc. ) to compete with laptops by providing similar capabilities. For instance, I Phone apps reduce the need for laptops by providing similar functionality.