Apple Inc., 2008 Case Solution

1. Analyze the structure of the PC industry. Are the dynamics in this industry favorable or problematic for Apple?

The analysis of the structure of the industry can be done through a five forces model discussing the power that each player in the industry has.

• Suppliers: the suppliers have low power. Their bargaining power is low because the emphasis of the PC developers is on the quality of the components. This quality achievement also means competition among the suppliers to utilize the best technology to develop the best quality supplies. Also, the declining prices of the supplies mean that they are left with a lower budget to innovate with better supplies.

• Buyers: buyer power is high because of the price of Apple products. The buyers tend to delay the replacement of old systems because of the high price paid for Apple computers. They also might opt for lower-cost products

• New Entrants Threat: the new entrants’ threat is low because of several brands operating in the market making it challenging for newer companies to develop their brand image as strong as the ones already present in the market. 

• Substitutes Threat: the other PCs offered by other competitors can be regarded as substitutes since the price of the Apple products is high

• Industry Rivalry: combined sales for Lenovo, HP, Apple, and Dell was 5% in the year. However, the PC revenues declined by 18% showing that the competition in the industry is fierce. The main requirement to survive in the industry is to lower costs.

These dynamics mean that the costs for the products are very important for the buyers. Apple, however, tends to maintain the uniqueness of its products. Apple right now only has a 2.6% share in the global PC industry. Its operating system is also unique which creates a problem for the buyers. Apple needs to develop a strong basis of differentiation so that the pressures of cost reduction do not drive the brand down.

2. Given that Apple has always had superior products, why has the company had so much difficulty in the PC industry over time?

This question requires an overtime analysis of the PC industry using the five forces model. The five forces model will be useful in analyzing all components of the industry.

• Suppliers: Intel has 80% of the microprocessor market share. The microprocessors are available in the market at competitive prices because of the competitiveness of the industry. Secondly, the operating systems suppliers do not have any relevance to the Apple business because Apple manufactures its own operating systems. This shows that the suppliers were not a part of the problem of declining sales that Apple faced.

• Buyers: Initially, the buyers were not informed about the functionality of the products that made them an easy target. However, the dynamics have been changed because the information is now widely available on the internet. The customers can learn about the product features and can compare prices and choose from a variety of product offerings.

• The threat of New Entrants: The threat of new entrants has decreased over time because of the brands in the market that have been developed over time. This has also presented an opportunity for companies to reduce their prices over time because of large-scale operations and economies of scale. The high price-competitive industry makes it difficult for new companies to enter the market and offer such low prices from its initiation.

• Substitutes: the substitutes for old processors are new computers. The substitutes are also lower-priced PCs. This would mean that the performance level has increased, and the prices have reduced. Smartphones and PDAs can also be viewed as substitute products.