You are on page 1of 49

IBISWorld Industry Report

02 September 2010

Global Computer Hardware Manufacturing: C2523-GL

DISCLAIMER This product has been supplied by IBISWorld Inc. ('IBISWorld') solely for use by its authorized licenses strictly in accordance with their license agreements with IBISWorld. IBISWorld makes no representation to any person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Inc. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication - in papers, reports, or opinions prepared for any other person - it is agreed that it will be sourced to: IBISWorld Inc.

Contents

Industry Definition................................................................................................................................................. 3
ACTIVITIES (PRODUCTS AND SERVICES) ......................................................................................................................................3 SIMILAR INDUSTRIES ........................................................................................................................................................................3 DEMAND & SUPPLY INDUSTRIES ....................................................................................................................................................3 CONSTANT PRICES ...........................................................................................................................................................................4 CURRENT PRICES .............................................................................................................................................................................4 REAL GROWTH...................................................................................................................................................................................5 RATIO TABLE......................................................................................................................................................................................5 GRAPHS ..............................................................................................................................................................................................5

Key Statistics........................................................................................................................................................ 4

Segmentation ....................................................................................................................................................... 7
PRODUCTS AND SERVICE SEGMENTATION ..................................................................................................................................7 MAJOR MARKET SEGMENTS............................................................................................................................................................8 INDUSTRY CONCENTRATION...........................................................................................................................................................9 GEOGRAPHIC SPREAD ...................................................................................................................................................................10

Market Characteristics........................................................................................................................................ 11

MARKET SIZE ...................................................................................................................................................................................11 LINKAGES .........................................................................................................................................................................................11 DEMAND DETERMINANTS ..............................................................................................................................................................12 DOMESTIC AND INTERNATIONAL MARKETS................................................................................................................................13 BASIS OF COMPETITION.................................................................................................................................................................14 LIFE CYCLE.......................................................................................................................................................................................15 BARRIERS TO ENTRY......................................................................................................................................................................16 TAXATION .........................................................................................................................................................................................16 INDUSTRY ASSISTANCE .................................................................................................................................................................16 REGULATION AND DEREGULATION..............................................................................................................................................17 COST STRUCTURE ..........................................................................................................................................................................17 CAPITAL AND LABOR INTENSITY...................................................................................................................................................19 TECHNOLOGY AND SYSTEMS .......................................................................................................................................................20 INDUSTRY VOLATILITY....................................................................................................................................................................21 GLOBALIZATION...............................................................................................................................................................................21 KEY SENSITIVITIES..........................................................................................................................................................................22 KEY SUCCESS FACTORS................................................................................................................................................................22 MAJOR PLAYERS .............................................................................................................................................................................24 PLAYER PERFORMANCE ................................................................................................................................................................24 OTHER PLAYERS .............................................................................................................................................................................31 CURRENT PERFORMANCE.............................................................................................................................................................40 HISTORICAL PERFORMANCE.........................................................................................................................................................42

Industry Conditions............................................................................................................................................. 16

Key Factors ........................................................................................................................................................ 22

Key Competitors................................................................................................................................................. 24

Industry Performance ......................................................................................................................................... 40 Outlook ............................................................................................................................................................... 46

INDUSTRY DEFINITION Global Computer Hardware Manufacturing

02 September 2010

Industry Definition
Global Computer Hardware Manufacturing industry participants engage in: a) manufacturing and assembling electronic computers; b) manufacturing computer storage devices that allow the storage and retrieval of data from a phase change, magnetic, optical, or magnetic/optical media; c) manufacturing computer terminals, which are input/output devices that connect with a central computer; d) manufacturing computer peripheral equipment (except storage devices and computer terminals).

ACTIVITIES (PRODUCTS AND SERVICES)


The primary activities of this industry are: Computer peripheral equipment Computer storage devices Computer terminals Computers The major products and services in this industry are: Electronic computer manufacturing Other computer peripheral manufacturing Computer storage device manufacturing Computer terminal manufacturing

SIMILAR INDUSTRIES
Industry: C2524-GL - Global Semiconductor and Electronic Components Manufacturing Description: This industry manufactures and supplies components for computers

DEMAND & SUPPLY INDUSTRIES


C1951-GL - Global Plastic Product Manufacturing C2524-GL - Global Semiconductor and Electronic Components Manufacturing F4311-GL - Global Wholesale Trade F4511-GL - Global Department Stores and General Merchandise Stores

Copyright 2011, IBISWorld Inc.

KEY STATISTICS Global Computer Hardware Manufacturing

02 September 2010

Key Statistics
CONSTANT PRICES
2006 Industry Revenue Industry Gross Product Number of Establishments Number of Enterprises Employment Exports Imports Total Wages Total Assets Domestic Demand World PC Shipments *489,700.9 *105,799.0 *22,637 *21,505 *2,908,206 N/A N/A *36,070.2 N/A NC *230.0 2007 *536,147.1 *109,387.4 *25,044 *23,792 *3,114,686 N/A N/A *39,628.7 N/A NC *258.0 2008 *531,008.6 *104,237.2 *25,528 *24,252 *3,037,178 N/A N/A *39,067.5 N/A NC *286.0 2009 *489,148.4 *95,108.6 *24,412 *23,192 *2,800,278 N/A N/A *35,795.7 N/A NC *294.0 2010 *491,936.6 $Mill *96,897.2 $Mill *24,060 Units *22,857 Units *2,770,990 Units N/A $Mill N/A $Mill *33,644.2 $Mill N/A $Mill NC $Mill *320.0 Million

CURRENT PRICES
2006 Industry Revenue Industry Gross Product Number of Establishments Number of Enterprises Employment Exports Imports Total Wages Total Assets Domestic Demand World PC Shipments *451,432.1 *97,531.1 *22,637 *21,505 *2,908,206 N/A N/A *33,251.4 N/A NC *230.0 2007 *508,402.6 *103,726.8 *25,044 *23,792 *3,114,686 N/A N/A *37,578.0 N/A NC *258.0 2008 *514,286.7 *100,954.7 *25,528 *24,252 *3,037,178 N/A N/A *37,837.2 N/A NC *286.0 2009 *480,499.6 *93,426.9 *24,412 *23,192 *2,800,278 N/A N/A *35,162.8 N/A NC *294.0 2010 *491,936.6 $Mill *96,897.2 $Mill *24,060 Units *22,857 Units *2,770,990 Units N/A $Mill N/A $Mill *33,644.2 $Mill N/A $Mill NC $Mill *320.0 Million

Copyright 2011, IBISWorld Inc.

KEY STATISTICS Global Computer Hardware Manufacturing

02 September 2010

REAL GROWTH
2006 Industry Revenue Industry Gross Product Number of Establishments Number of Enterprises Employment Exports Imports Total Wages Total Assets Domestic Demand *6.9 *5.6 *6.5 *6.5 *9.3 N/A N/A *2.7 N/A NC 2007 *9.5 *3.4 *10.6 *10.6 *7.1 N/A N/A *9.9 N/A NC 2008 *-1.0 *-4.7 *1.9 *1.9 *-2.5 N/A N/A *-1.4 N/A NC 2009 *-7.9 *-8.8 *-4.4 *-4.4 *-7.8 N/A N/A *-8.4 N/A NC 2010 *0.6 % *1.9 % *-1.4 % *-1.4 % *-1.0 % N/A % N/A % *-6.0 % N/A % NC %

RATIO TABLE
2006 Imports share of domestic demand Exports Share of Revenue Average Revenue per Employee Wages and Salaries Share of Revenue N/A N/A *0.17 *7.37 2007 N/A N/A *0.17 *7.39 2008 N/A N/A *0.17 *7.36 2009 N/A N/A *0.17 *7.32 2010 N/A % N/A % *0.18 $Mill *6.84 %

GRAPHS
Revenue Revenue Growth Rate

Copyright 2011, IBISWorld Inc.

KEY STATISTICS Global Computer Hardware Manufacturing

02 September 2010

Employment

Note: Unless specified, an asterisk (*) associated with a number in a table indicates an IBISWorld estimate and references to dollars are to US dollars.

Copyright 2011, IBISWorld Inc.

SEGMENTATION Global Computer Hardware Manufacturing

02 September 2010

Segmentation
PRODUCTS AND SERVICE SEGMENTATION

Product/Services Computer storage device manufacturing Computer terminal manufacturing Electronic computer manufacturing Other computer peripheral manufacturing

Share 10.0% 10.0% 60.0% 20.0%

Firms having as their major activity the manufacture of electronic computers are expected to account for 60% of Global Computer Manufacturing industry revenue in 2010. Electronic Computers Manufacturing comprise the following: singleuser computers, including PCs, workstations and portable computers; host computers and multi-user computers, including mainframes, super computers, medium systems and servers; and other computers, including special use computers. Growth in the value of sales of PCs and servers in the five years through 2010 will offset slow or negative growth in the value of sales of workstations and mainframe computers. Worldwide unit PC shipments will grow at an average annualized rate of 9.0% in the five years through 2010. Key growth drivers in the worldwide PC market will be the notebook PC, small- and medium-sized business, consumers, and emerging markets. Growth in unit sales of notebooks and netbooks will be particularly strong in the five years to 2010 (and will act to slow growth in desktop shipments) due to the demand for portability, low prices for netbooks, and a fall in unit prices for notebooks. Firms having as their major activity the manufacture of computer storage devices are expected to account for 10% of the value of industry shipments in 2010. Growth in information across communications networks will promote sales of storage equipment. Firms having as their major activity the manufacture of computer terminals are expected to account for 10% of the value of industry shipments in 2010. Growth in PC shipments, along with the availability of larger screens, will promote sales of computer terminals. Firms having as their major activity the manufacture of other computer peripherals are expected to account for 20% of industry revenue in 2010. The major products include printers, optical scanning devices, other input/output devices and parts and sub-assemblies for computer peripherals. Growth in PC shipments will promote sales of computer peripherals. Some computer hardware manufacturers (usually "brand-owners") also provide a broad range of services, including support services, professional services (e.g., IT consulting, systems integration and system/network management) and software.

Copyright 2011, IBISWorld Inc.

SEGMENTATION Global Computer Hardware Manufacturing

02 September 2010

MAJOR MARKET SEGMENTS

Market Segment Direct sales Wholesalers Retailers

Share 40.0% 40.0% 20.0%

The market segmentation statistics are presented on the basis of distribution arrangements for the final sale of computer equipment to end-users. However, the major markets for a computer hardware manufacturer depend on the business model of the manufacturer. Contract manufacturers tend to sell their products to "brand-owners", which, in turn, tend to sell their products to wholesalers, retailers, and end-users (direct sales). Many "brand-owners" have their own production capacity and also outsource varying proportions of their production requirements to contract manufacturers. Some "brandowners" have very little, if any, of their own production capacity and outsource all of their production requirements. Contract manufacturers are estimated to account for one-third of total industry revenue. End-user markets for computers and computer peripherals include households, business and government. The business market could be segmented by business size and by industry (refer to Table below for a breakdown in the United States). The government market can be segmented by function (e.g. defense) and by level of government (e.g. local/state). Brand-owners usually have account teams selling directly to large businesses and government. Some manufacturers have diversified vertically and sell direct to households and small- to medium-sized businesses (i.e. by-passing wholesalers and retailers). In household and small business markets, some manufacturers have established mail order, telephone and internet sales operations; and in some cases retail outlets. Even when manufacturers rely on wholesalers and retailers to sell in end-consumer markets, they should still understand trends in these markets. Accordingly, manufacturers will also seek to segment end-consumer markets including households and small business. The following Table represents a breakdown by the Census Bureau of expenditures on computer and peripheral equipment by industry sector. IBISWorld believes that the manufacturing sector has reduced its share of total industry expenditures on computer and peripheral equipment, due to manufacturing representing a declining share of the U.S. economy. Internet search engines are a significant source of demand for computer equipment. It was estimated that Google had 450,000 servers across the world; while Microsoft had 200,000 servers with an expectation that server number would increase to 800,000 servers by 2011 (The New York Times, June 2006).

Copyright 2011, IBISWorld Inc.

SEGMENTATION Global Computer Hardware Manufacturing

02 September 2010

INDUSTRY CONCENTRATION
Industry concentration is low The top 4 industry players are expected to account for about 17.6% of industry revenue in 2010. Industry concentration in this manufacturing industry has increased due in part to an increase in the incidence of outsourcing of production by brand-owners to electronics manufacturing services (EMS) companies, while there has also been consolidation in the EMS industry. Concentration among computer hardware brand-owners, or vendors, has also increased. However, concentration within some major segments is relatively high. The top 4 personal computer vendors in the June quarter of 2010 (HP, Acer, Dell and Lenovo) accounted for about 52.8% of worldwide PC shipments during this period (83 million units in the quarter - Gartner), up from about 45.0% in 2006. Market shares vary by region. Many PC brand-owners in this industry (including Dell, HP and Acer) have outsourced at least some of their manufacturing to contract manufacturers, a strategy that acts to reduce their share of the Global Computer Hardware Manufacturing industry. The top 4 server system vendors accounted for 82.9% of global shipments in the June quarter of 2010. the major vendors of server systems, based on worldwide server factory revenue in the first quarter of 2010 were as follows: HP with a 32.5% market share, IBM with 27.5%, Dell with 16.3%, Sun with 6.6% and Fujitsu with 6.5% (source: IDC). However, market shares can vary by region - for example NEC has about one-quarter of Japan's server market on a unit basis (commanding top share). The top 4 vendors of disc storage systems accounted for 66.7% of global shipments in the first quarter of 2010. The major players, based on worldwide factory revenue in the first quarter of 2010, were as follows: HP with a 19.8% market share, IBM with 19.3%, EMC with 17.2%, Dell with 10.4% and NetApp with 6.0% (source: IDC). According to Western Digital, the number of hard drive vendors fell from 15 in 2000 to 8 in 2004 (with the four largest players accounting for 84% of the market). Seagate Technology states that the disc drive industry has undergone significant consolidation due to the requirement to continually innovate and improve manufacturing capacity. Major players include independent manufactures, such as Seagate, Maxtor and Western Digital, and captive manufacturers, such as Fujitsu, Hitachi Global Storage Technologies, Samsung and Toshiba. On May 19, 2006, Seagate acquired Maxtor Corporation for approximately $1.9 billion. The acquisition was expected to produce scale economies in R&D, product and supply costs and was expected to drive innovation and maximize operational efficiencies. The laser printer market is dominated by Hewlett-Packard (with 50% of the worldwide laser printer market), Xerox, Lexmark International and Brother. The inkjet printer market is dominated by Hewlett-Packard, Epson and Canon, which together account for about 75% of the worldwide market.

Copyright 2011, IBISWorld Inc.

SEGMENTATION Global Computer Hardware Manufacturing

02 September 2010

GEOGRAPHIC SPREAD
Year: 2010 Revenue by Region
Region North Asia Europe North America South East Asia South America India & Central Asia Africa & Middle East Oceania Percentage 56.4 11.9 11.9 9.2 5.7 4.2 0.6 0.1

The location of industry activity is impacted by the following factors: the cost of production; proximity to complimentary industries (e.g., semiconductor and electronics manufacturing); and historical factors (such as where major players have established their head office, and links with countries that are major sources of demand). Advanced countries, which account for the majority of global demand for computer hardware, are increasingly relying on imports to meet local demand for computer hardware. While major computer hardware "brand-owners" tend to be headquartered in advanced countries, many of these companies have established manufacturing capacity in low-cost countries and/or have outsourced production to companies located in low-cost countries. This means that intra-firm trade represents a significant proportion of advanced countries' imports of computer hardware. China, which has been the major beneficiary of the transfer of production activity from the advanced world (including from Taiwan) will account for an estimated 41.7% of Global Computer Manufacturing revenue in 2010, compared with 33.5% in 2004 and 6.2% in 2000. Developing countries, such as China, Malaysia, Thailand and Mexico, have relatively large computer manufacturing industries, in large part due to those countries having low manufacturing costs, close access to complimentary industries (i.e., component manufacturers) and, to a lesser extent, growing local demand for computer hardware.

Copyright 2011, IBISWorld Inc.

10

MARKET CHARACTERISTICS Global Computer Hardware Manufacturing

02 September 2010

Market Characteristics
MARKET SIZE
The demand for computers and computer peripherals has grown rapidly due in large part to the following: the explosion in digital information and content; the growing need for technology that enables people to create, store, share and print that content; and the rapidly growing demand for information technology in emerging markets of the world. The Global Computer Hardware Manufacturing industry is expected to generate revenue of $491.9 billion and employ almost 2.8 million people in 2010. Personal computer sales represent a major driver of this industry. Worldwide unit PC shipments are expected to grow at an average annualized rate of 9.0% in the five years through 2010, which will also promote growth in sales of PC peripherals (such as printers, monitors and disk drives). Growth in information across communications networks will promote sales of servers and storage equipment. Revenue of the Computer Hardware Manufacturing industry (expressed in US dollars) is expected to grow at an average annualized real rate of 1.4% in the five years through 2010 (despite an 7.9% real contraction in revenue in the 2009 year). Unit sales will grow at a rapid rate, although this will be partially offset by a decline in average unit selling prices for comparable equipment over the same period (lower unit selling prices will be a factor driving unit sales). There will continue to be a transfer of industry activity from advanced countries to emerging countries. The industry is forecast to grow in the five years through 2015, at a real average rate of 6.2% annually. Industry activity will be promoted by a recovery in the world economy, growth in digital information and content, and by rapidly growing demand for information technology in emerging markets of the world.

LINKAGES
Demand Linkages F4311-GL - Global Wholesale Trade Manufacturers of computer equipment can supply distributors. F4511-GL - Global Department Stores and General Merchandise Stores Manufacturers of computer equipment can supply retailers directly. Supply Linkages C1951-GL - Global Plastic Product Manufacturing Supplier of enclosures. C2524-GL - Global Semiconductor and Electronic Components Manufacturing Supplier of electronic components.

Copyright 2011, IBISWorld Inc.

11

MARKET CHARACTERISTICS Global Computer Hardware Manufacturing

02 September 2010

DEMAND DETERMINANTS
A major factor driving demand for computer hardware is declining unit selling prices. Other factors impacting demand include the following: the level of economic activity; product advancements and enhancements; new applications; and the rate at which existing hardware is replaced (which is influenced by the preceding demand drivers). The level of economic activity influences consumption and investment spending on computer hardware. Growing household incomes can influence the level of consumer spending on industry products, and raise computer penetration rates. The introduction of computers with faster processing speeds, greater memory and smaller components influences replacement (i.e. upgrades) and new demand. The demand for notebook systems has been promoted by improvements in performance and prices, along with changes in preferences among consumers as mobility increases and wireless adoption continues to advance (albeit sales of notebooks have been at the expense of desktop systems). The development of, and growth in, software applications, local area networks, public networks (e.g. broadband) and services on the internet have boosted demand for personal computers and peripheral equipment. The growth in the internet has generated huge amounts of media-rich information, which has driven demand for storage and printing products. Media-rich content includes high definition video, digital photos, movies and music. Replacement demand can change over time. For example, Western Digital Corporation stated in its 2003 annual report that it believed that the cycle time in which existing PC owners replaced their PCs had lengthened from two to three years to approximately three to five years. This may have been due to a number of factors including improvements in products quality, an increase in the capacity of computer equipment, more scrutiny on technology budgets, and slower release of new applications. Products not classified to this industry can incorporate functions that provide computing applications (e.g. mobile phones and digital TVs), and therefore can potentially adversely or positively affect demand for some industry products. In addition, the network computer and on-demand computing, which utilize central servers (to provide functionality), could affect demand for computers with on board processing and storage capacity.

Copyright 2011, IBISWorld Inc.

12

MARKET CHARACTERISTICS Global Computer Hardware Manufacturing

02 September 2010

DOMESTIC AND INTERNATIONAL MARKETS


Domestic and International Markets Trade Trade in this industry is high The trade trend is increasing Domestic and International Markets Analysis International trade in computer hardware has grown rapidly. Trade flows of computer equipment are increasingly occurring from regions where labor costs are low (such as Asia, Latin America and Eastern Europe) to regions where labor costs are high. Some Asian countries that have historical connections to western countries (such as those connections held by Taiwan, Malaysia and Singapore) are significant exporters of computers and computer peripherals to the west (and most of the production in these countries is exported). Trade flows between countries have been promoted by the move of production capacity from countries having high manufacturing costs to countries having low manufacturing costs. Some computer hardware brand-owners that are located in advanced (high-cost) countries have shifted their own production capacity to low-cost countries and/or have outsourced production to other (contract) manufacturers in low-cost countries. This trend among brand-owners means that a significant proportion of trade flows is represented by intra-firm trade. The transfer of production capacity from advanced countries has resulted in significant trade imbalances between countries. For example, in the United States imports of computers and computer peripheral equipment account for over 80% of domestic demand for this type of equipment. In the United Kingdom, the value of imports of computers and other information processing equipment exceeds the value domestic demand for this equipment (due to re-exports). World Trade Organization data indicates that world exports of electronic data processing (EDP) and office equipment (which likely includes some products not classified to this industry) amounted to US$540.5 billion in 2007, up from $371.9 billion in 2000, representing average annualized nominal growth of 5.5% over this 7-year period. IBISWorld believes that the value of world exports of EDP and office equipment is inflated by the inclusion of re-exports (i.e., exports of imported goods); and re-exports are more likely to be significant in relatively advanced jurisdictions (such as the transshipment centers of Hong Kong, Singapore and the Netherlands). The major nations exporting EDP and office equipment included the following: China (accounting for exports of $165.9 billion in 2007, compared with $18.6 billion in 2000); the United States ($46.2 million); Hong Kong ($34.7 billion, including re-exports of $34.3 billion); the European Union (with exports outside the EU of $37.5 billion); Singapore ($32.3 billion, including re-exports of $12.3 billion); Malaysia ($27.1 billion); Japan ($23.8 billion) and Thailand ($16.6 billion). IBISWorld believes that China's share of world exports grew in 2008 and will continue to grow in 2009. IBISWorld assumes that the value of imports of EDP and office equipment equals the value of exports of such equipment. World Trade Organization data indicates that the nations accounting for the largest shares of electronic data processing and office equipment imports in 2007 were the following: the United States ($110.6 billion); the European Union (imports from outside the EU were $99.2 billion); China ($45.5 billion); and Japan ($23.6 billion). Acer Inc, a Taiwan-based PC vendor, believes that due to the small size of local markets, Asian companies need to expand business outside their home countries and "hence they are more adept and sensitive to changes in foreign markets and cultures".

Copyright 2011, IBISWorld Inc.

13

MARKET CHARACTERISTICS Global Computer Hardware Manufacturing

02 September 2010

BASIS OF COMPETITION
Industry competition is high Industry competition is steady The bases of competition in this industry include the following: price; the scale of operations; the ability to offer quality products at the cutting edge of technology; distribution capabilities; and brand names. There is fierce price competition in this industry and this has generally resulted in downward pressure on unit selling prices and gross margins. Open PC systems (refer below) have contributed to price being the major competitive factor. A low cost structure can assist players to compete on price. Some major industry segments (e.g., PCs) have relatively low profit-to-sales margins, and growth in market share can assist in efforts to reduce unit costs (such as by reducing the impact of fixed costs and by defraying R&D over a larger revenue base). Lenovo stated in 2008 that "increasing scale compared to competitors is vital to generating more efficiency and managing profitability". Product life cycles tend to be very short in this industry. To remain competitive, industry players often need to develop new products and periodically enhance existing products. The process of developing new high-technology products is usually inherently complex and uncertain. It requires, among other things: a culture of, and focus on, innovation; an accurate anticipation of customers' changing needs; and an accurate anticipation of emerging technological trends. High levels of product quality, performance and reliability can help drive demand, allow for higher selling prices and reduce costly product returns. However, there is often a short window before competitors catch up. High levels of service and support can also help promote sales. In the PC segment, brand-owners target various markets (e.g., household/business) and develop varying sales distribution strategies. Some utilize dealers/resellers, while others sell direct to the end-consumer. Direct sales, which can be achieved through telephone and internet sales, reduce selling costs and part of this lower cost can be passed to the consumer. Brand names and/or a good reputation, which can promote sales, are primarily built up through advertising and marketing, and historical and anticipated performance in the areas of product quality, performance and reliability, service and support, innovation, and distribution capability. Product bundling can also promote sales. For example, PC suppliers are bundling other products (including services) and providing financing packages to reduce up-front costs to consumers in order to drive demand for their product(s). Bundling also provides a package that can be more attractive to some customers. "Open systems" tend to foster competition. The "open system" philosophy espoused by most of the general computer industry has played a part in enlarging the market for third-party vendors. Under this philosophy, manufacturers adhere to industry design standards, enabling users to "mix and match" hardware and software products from a variety of vendors so that a system can be configured for the user's application in the most economical manner with reduced concern for compatibility and support. This industry faces external competition from other industries that produce products with computing functionality (such as digital TVs and mobile phones).
Copyright 2011, IBISWorld Inc.

14

MARKET CHARACTERISTICS Global Computer Hardware Manufacturing

02 September 2010

LIFE CYCLE
Life Cycle Stage This industry is in the growth stage of its life cycle Life Cycle Reasons New products are regularly brought to the market Technological change is rapid in this industry There has been fast growth in demand for computer equipment Life Cycle Analysis The Global Computer Hardware Manufacturing industry is considered to be in a growth phase. Industry value added is forecast to increase at an average annualized rate of 5.3% in the five years through 2015, while the global economy (GDP) will grow at an average annualized real rate of 3.8%. This means that the industry will account for an increasing share of the global economy. Sales volumes are growing at a rapid pace, due largely to the release of new products and declines in unit selling prices. The rapid introduction of new products is due in part to the release of new and improved components and technical innovation by computer manufacturers (helped by relatively high spending on R&D in the electronic component and computer industries) and a rapid rate of change in information and communications sectors. Customer acceptance of new products is strong, promoting growth in household and business demand.

Copyright 2011, IBISWorld Inc.

15

INDUSTRY CONDITIONS Global Computer Hardware Manufacturing

02 September 2010

Industry Conditions
BARRIERS TO ENTRY
Barriers to entry in this industry are high These barriers are steady This industry is believed to have high barriers to entry. Incumbents may have built sizable operations. Economies of scale can provide firms with negotiating power in purchasing raw materials, and efficiency benefits in R&D, product development, manufacturing, marketing and distribution. Brand-owners and, to a lesser extent, original design manufacturers (ODMs), can spend significant amounts on R&D to provide competitive advantages (and, potentially, barriers to competitors). These companies may have also gained market knowledge, and representation and access to offshore and local markets. Brand names and reputations are not built overnight. Increasingly, purchasers of computer equipment are focusing on purchasing from well known, reputed and financially strong companies. Skilled employees can be in short supply, and new players may find it difficult to recruit staff.

TAXATION
Income tax provisions vary by country and often include accelerated equipment depreciation write-offs and research and development tax credits. Some countries, like Malaysia, offer a wide range of incentives to encourage investment in manufacturing activities. Incentives can include income tax "holidays", investment tax allowances, building allowances and tariff-related incentives.

INDUSTRY ASSISTANCE
The level of Industry Assistance is medium The trend of Industry Assistance is increasing

There are no specific tariffs for this industry While varying by country, import tariffs for computer hardware products tend to be low. However, it was reported in July 2007 that the Chairman of Dell had stated that India was "losing investments due to its tariff structure". In many countries, governments promote local computer hardware manufacturers through direct and indirect support such as favored treatment in government procurement and access to technologies developed in state R&D institutions. Some countries, like Malaysia, offer a wide range of incentives to encourage foreign investment in manufacturing activities. Incentives can include income tax "holidays", investment tax allowances, building allowances and tariff-related

Copyright 2011, IBISWorld Inc.

16

INDUSTRY CONDITIONS Global Computer Hardware Manufacturing

02 September 2010

incentives. The Brazilian Government created the Manaus Free Trade Zone in 1988; and this Zone provides tax exemptions for imported products used in for processing, re-export or transshipment. Assistance to supplier industries, which produce components and parts for computer hardware, will usually benefit the Computer Hardware Manufacturing industry.

REGULATION AND DEREGULATION


The level of Regulation is light The trend of Regulation is steady This industry tends not to be highly regulated. Manufacturers and suppliers in the industry can be subject to regulation by various governmental agencies. Regulations impacting this industry tend to focus on the following areas: intellectual property rights (e.g., patent laws); product safety; consumer protection; and waste and the environment. In many countries, consumer product safety laws can allow government agencies to promulgate standards, ban certain consumer goods, and issue product recalls. Hazardous waste regulations and laws are in place in most countries. The European Commission's Waste Electrical and Electronic Equipment (WEEE) Directive aims to minimize the impact of electrical and electronic goods on the environment, by increasing the re-use and recycling and reducing the amount of WEEE going to landfill. It seeks to achieve this by making producers responsible for financing the collection, treatment and recovery of waste electrical equipment, and by obliging distributors to allow customers to return their waste equipment free of charge. Individual EC member countries have passed laws implementing the WEEE Directive. The European Commission's Restriction of Hazardous Substances (RoHS) is a directive that went into effect in July 2006. This directive restricts the use of six hazardous materials, such as lead and mercury, etc in the manufacture of various types of electronics and electronics equipment. Many companies obtain certification by the International Standards Organization to the requirements of ISO 9001: 2000. This includes the design, manufacture and service of computer products.

COST STRUCTURE
Year: 2010

Copyright 2011, IBISWorld Inc.

17

INDUSTRY CONDITIONS Global Computer Hardware Manufacturing

02 September 2010

Item Purchases Wages Depreciation Other Profit

Cost % 84.3%* 6.8%* 1.0%* 4.9%* 3.0%*

Profitability Profit margins in this industry are slim due to very competitive market conditions, which are seeing an erosion in average unit profit. Profit margins tend to be higher for brand-owners (which manufacture in-house and/or outsource production), relative to contract manufacturers. Companies that sell directly to end-users also tend to report higher margins, relatively to companies selling through wholesale and retail distribution channels. Acer Inc, which is ranked number three PC supplier worldwide and outsource production, reported a gross profit and a net profit in the year ended December 31, 2009 that represented 10.2% and 2.0%, respectively, of the company's net sales in the same fiscal year. Dell Inc, which is number two supplier of personal computer systems worldwide and has its own production capacity, reported a gross profit and a net profit in the year ended January 30, 2010 that represented 17.5% and 2.7%, respectively, of the company's net sales in the same fiscal year (Dell has a direct sales business model, which promotes margins). Inventec Corporation, a Taiwan-headquartered contract manufacturer of PCs (mainly for Toshiba and Hewlett Packard), reported a gross profit and a net profit in the year ended December 31, 2009 that represented just 3.5% and 1.2%, respectively, of the company's net operating revenue in the same year. Cost of materials The major expense is cost of material inputs, which is expected to represent over 84% of industry revenue in 2010. As a percentage of revenue, the cost of materials tends to be higher for contract manufacturers (relative to brand-owners' manufacturing operations) due in part to contract manufacturers receiving relatively lower unit selling prices (compared with brand-owners, which add more value to the product). Lenovo, a PC manufacturers and brand owner, reported costs of inventory in the year ended March 31, 2010 that represented 85.0% of sales revenue in the same period. Wistron Corporation, an ODM and service company, incurred costs of revenue before associated personnel expenses and depreciation & amortization, which represented 92.9% of net revenue in 2009. Manufacturers with larger scale are more likely to be in a better position to negotiate with suppliers on price, and may also be in a better position to reduce unit transport costs. Computer hardware manufacturers utilize a wide variety of semiconductors, electromechanical components and assemblies, and raw materials such as plastic resins and sheet metal. There have been significant declines in the price of electronic components, although the resulting lower costs have tended to be passed on by computer hardware manufacturers in the form of lower prices to customers.

Copyright 2011, IBISWorld Inc.

18

INDUSTRY CONDITIONS Global Computer Hardware Manufacturing

02 September 2010

Labor costs Labor costs are expected to represent about 6.8% of industry revenue in 2010. Labor costs represent a lower percentage of revenue for contract manufacturers (relative to brand-owners) and for manufacturers in low wage-cost countries (relative to manufacturers in advanced countries). In the United States, total employee compensation represented 11.0% of the value of shipments in 2008, compared with 12.5% in 1997 (based on Census Bureau data). As a percentage of revenue, labor costs were lower in the electronic computer manufacturing segment, relative to the computer storage and other computer peripheral equipment segments. A significant proportion of activity in the US electronic computer manufacturing segment is limited to assembly operations, where material costs are relatively high, the level of value added and profit margins are relatively low, and where there is heavy use of low skilled workers. Lenovo, a PC manufacturer and brand owner based in China, reported employee benefits in fiscal 2010 that represented 7.1% of sales revenue in the same period. As a percentage of revenue, the labor costs tend to be lower for contract manufacturers (compared to brand-owners' manufacturing operations) due in part to a relatively small number of employees in sales & R&D and to relatively low average selling prices. Also, contract manufacturers are more likely to locate their production facilities in low-wage cost countries. Inventec Corporation, which manufactures products for Hewlett Packard and Toshiba in China, reported personnel costs in 2009 that represented only 1.1% of net operating revenue in 2009. Labor costs will fall as a percentage of revenue between 2005 and 2010 due to the following: simplification of computer architectures; standardization of components; improved supply chain management; the introduction of automation; and the transfer of production capacity from high-wage countries to low-wage countries. The reduction in time to assemble a computer will make labor more productive. Other costs and cost issues Capital costs are low in this industry, and depreciation expense is estimated to represent about 1% of revenue. Lenovo Group Limited, a manufacturer of branded computers, reported spending on purchases of property, plant and equipment in fiscal 2010 representing only 0.2% of the company's revenue in the same fiscal year. Inventec Corporation, a contract manufacturer, reported spending on purchases of property and equipment in fiscal 2009 representing only 0.5% of the company's revenue in the same fiscal year. Industry segments with higher profit margins tend to spend more on research and development.

CAPITAL AND LABOR INTENSITY


The level of Capital Intensity is medium

Labor costs are low in this industry But there is also a low level of capital costs Component manufacturers/suppliers are a major source technology

Copyright 2011, IBISWorld Inc.

19

INDUSTRY CONDITIONS Global Computer Hardware Manufacturing

02 September 2010

The ratio of labor costs to capital expenditure in this industry is estimated to be 6.8:1 in 2010, which suggests a medium level of capital intensity. This means that the average firm in this industry requires approximately $6.80 worth of labor for every $1.00 of capital (defined as depreciation). If non-labor-related research and development expenditures were added to capital costs, capital intensity would rise moderately. Both labor costs and capital expenditures are low in this industry. Factors driving down labor costs include: the simplification of computer architectures; the standardization of components; and the transfer of production to jurisdictions offering low labor costs. Companies in this industry assemble computers from components that are usually supplied by other companies. Capital expenditures are relatively higher in the component manufacturing industries, such as in semiconductor manufacturing, where technological inputs and value added is relatively high. Among brand-owners and, to a lesser extent, original design manufacturers, there can be a relatively high level of investment in research and development (which is labor intensive).

TECHNOLOGY AND SYSTEMS


The level of Technology Change is high This is an industry that is subject to considerable technological change, largely brought about by advances in microchip and electronic device technologies. Much of the innovation in computer hardware products is derived from suppliers (such as Intel), with computer manufacturers tending to focus on "systems innovation". R&D is conducted to protect existing customer and product bases and to generate growth opportunities. Brand-owners and, to a lesser extent, original design manufacturers (ODMs), spend more on R&D compared with contract manufacturers without design capabilities. Brand-owners tend to focus on design (concept and product planning), product management and marketing, while ODMs focus on engineering (i.e., product development and production engineering) and manufacturing. Engineering tends to follow production, so that, for example, China has moved from being a production location to being, increasingly, a production and engineering location. Manufacturers are seeking to either reduce the price or add value to computers through a number of ideas or innovations. These include the concept of network computers which rely on external servers to provide computing power and software. Computer hardware and software, telecommunications equipment and consumer electronics manufacturing companies are also developing computers which can provide more functionality within the one system (e.g., digital TV, DVD, music systems, internet, games console, etc). In the storage area, research is being conducted into improving performance, security, capacity, availability, and data protection guarantees. Work is being done to allow data to be migrated to wherever it is needed to meet the customer's access requirements. HP believes that businesses will in the future no longer purchase storage boxes, but will instead purchase access to a storage utility. New products and concepts include blade computers (which are miniaturized computers that can act as modules allowing capacity to be added efficiently in terms of space and cost), grid computing (where software allows users to tap into computing power across a large network), throughput computing (where computer chips allow many tasks to be undertaken efficiently at the one time on the one server) and flexible computers (where a computer chip allows servers to reconfigure circuitry of servers to do many tasks well).

Copyright 2011, IBISWorld Inc.

20

INDUSTRY CONDITIONS Global Computer Hardware Manufacturing

02 September 2010

The blade server market has moved away from early adopters toward mainstream (Business Week magazine June 23, 2003). IDC stated in 2005 that the blade server market had "finally begun to evolve into the early stages of mass market adoption". This industry is a major patent holder (in 2008, IBM was awarded more patents in the United States than any other company).

INDUSTRY VOLATILITY
Industry revenue volatility is medium This Global Computer Hardware Manufacturing industry will exhibit a medium level of revenue volatility over the five years through 2010. Volatility is softened by the diversified nature of the industry - with the industry offering a large range of products to customers who range from individuals to businesses and governments located all over the world. New computer technologies and changes in consumer preferences (such as the shift from desktop to notebook computers) can drive demand (usually upward), while unit selling prices are usually very volatile (usually downwards). Technological change (such as increasing storage capacity per square inch) and/ or the development of oversupply of computer products can cause a rapid decline in selling prices (but this normally drives demand volumes upward). Demand is affected by economic conditions (which impacts spending on information technology). In a weak economy, growth in consumer spending tends to decline and growth in retail demand for personal computers and related devices tends to decrease, as does growth in enterprise demand for computer systems and storage subsystems.

GLOBALIZATION
The level of Globalization is high The trend of Globalization is increasing This industry has a high level of globalization. This is evidenced by the high level of international trade in computer hardware. Secondly, the rate of globalization is evidenced by the fact that most of the major computer hardware brand-owners have significant overseas-based operations (including overseas-based manufacturing operations). For example, HewlettPackard Company's non-US revenue accounted for 63.9% of HP's consolidated revenue in fiscal 2009. Dell is the largest non-domestic computer provider in China, the number three computer provider overall in Japan and is number one provider of desktops and notebooks in France. Acer Inc, a Taiwan-based company, generates over 60% of its revenue in North America and Europe. In early 2005, China's Lenovo Group acquired the IBM personal computer business. Lenovo has based its worldwide PC headquarters in the United States even though over 70% of the company's sales are to customers outside the Americas. Further, some of the largest contract manufacturers of computer hardware have production facilities that are located outside the country of their head offices, while many brand-owners outsource at least part of the manufacturing of their products to firms in countries with low manufacturing costs (e.g., Asia and Mexico).

Copyright 2011, IBISWorld Inc.

21

KEY FACTORS Global Computer Hardware Manufacturing

02 September 2010

Key Factors
KEY SENSITIVITIES
The key sensitivities affecting the performance of the Global Computer Hardware Manufacturing industry include: Growth (GDP) & Inflation - World GDP The level of economic activity and capital investment expenditure influences demand for computer hardware. Pervasive Technology - Internet Connections The development of, and growth in, Internet connections and services on the Internet have boosted demand for PCs and peripheral equipment. The growth in the Internet has generated huge amounts of information, which has driven demand for storage and printing products. Wealth Distribution Less-developed countries have a relatively low penetration of computer products. Economic growth and rising incomes in these countries can generate very strong growth in sales of computer hardware in these countries. World Prices - Manufactures A decline in the price of computer components and parts reduces the cost of computer hardware. Lower product costs are usually passed on to customers in the form of lower prices, which can drive up sales volumes.

KEY SUCCESS FACTORS


The key success factors in the Global Computer Hardware Manufacturing industry are: Establishment of brand names Brand names and reputation are important in this industry. Economies of scale Economies of scale can represent a major factor in competitiveness by reducing component and other costs. Market research and understanding Focused research and development activities, to develop products that provide marketing advantages and bolster profit margins. Ensuring pricing policy is appropriate Product pricing is important. Some manufacturers/ assemblers have keenly sought market share at the expense of lower profit margins. This has, on occasions, caused company failures. Effective cost controls Profit margins are tight in some product segments, requiring effective cost controls.

Copyright 2011, IBISWorld Inc.

22

KEY FACTORS Global Computer Hardware Manufacturing

02 September 2010

Having links with suppliers Components and parts represent a major cost, and hence the ability to negotiate favorable terms with good and reliable suppliers is important. Having an extensive distribution/collection network For brand-name manufacturers, strong and efficient sales distribution channels are important. Development of new products The fast rate of obsolescence requires skills to develop and release new products meeting market needs. Access to niche markets This can be important for small businesses that do not have access to a well known brand name and do not have large marketing budgets. This industry includes large players who compete for market share at the expense of shortterm profitability. Undertaking technical research and development This can be important in a rapidly changing industry.

Copyright 2011, IBISWorld Inc.

23

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

Key Competitors
MAJOR PLAYERS
Market Share
Major Player Dell Inc. Quanta Computer Inc Canon Inc International Business Machines Corporation Wistron Corporation Other Market Share Range 6.5% (2010) 5.3% (2010) 2.7% (2010) 2.7% (2010) 2.7% (2010) 80.1% (2010)

PLAYER PERFORMANCE
Dell Inc. Market Share: 6.5% Dell is a US-based company involved in the design, development and manufacturing of computer systems for consumers and enterprise IT systems. Dell also provides IT consulting services, a business which grew significantly in 2009 with Dell's acquisition of Perot Systems Corporation. Earlier in the decade, Dell made a name for itself through its innovations in supply chain management and e-commerce, propelling the company to become the largest manufacturer of computers and peripherals. In the fiscal year ending January 31, 2010, Dell's total revenue fell 13.4% to $52.9 billion; net income fell 42.2% to $1.43 billion, a 2.7% profit margin, representing Dell's worst performance over the last five years. Dell is expected to improve revenue and net income 20.0% and 45.0%, respectively, during the fiscal year ending January 31, 2011. The key tenets of Dell's business strategy have been: a direct relationship with customers; build to order; low-cost leadership; single point of accountability for customers; and non-proprietary technologies. The company also sells through third-party solution providers, system integrators, and third-party resellers. During the second half of fiscal 2008, Dell sought to expand its customer base by beginning to sell computers, printers, ink and toner through retail channels in the Americas and certain overseas regions. In the first quarter of 2010, Dell reorganized from geographic commercial segments to global business units (large enterprise, public, small and medium business, and consumer) reflecting the impact of globalization on its customer base. Dell believes that its direct business model gives it several distinct competitive advantages, including eliminating the need to support an extensive network of wholesale and retail dealers, thereby avoiding dealer markups; avoiding the higher inventory costs associated with the wholesale/retail channel and the competition for retail shelf space; and reducing the high risk of obsolescence associated with products in a rapidly changing technological market. In addition, the direct model allows the company to maintain, monitor and update a customer database that can be used to shape future product offerings and post-sale service and support programs. This direct approach, combined with the company's

Copyright 2011, IBISWorld Inc.

24

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

efficient procurement, manufacturing and distribution processes, allows the company to rapidly deliver relevant technology to its customers. Dell has formed marketing programs for business with large companies and government in specific industry sectors, and maintains account teams and field sales forces for these customers. Dell also markets its products and services to smaller customers by advertising on the internet and television, in trade and general business publications and by mailing a broad range of direct marketing publications, such as promotional pieces, catalogs and customer newsletters. Dell operates manufacturing and distribution facilities in Florida, North Carolina, Tennessee, Texas, Brazil, Ireland, Poland, Malaysia, China and India. The company's manufacturing process consists of assembly, functional testing and quality control of the company's computer systems. The company's build-to-order manufacturing process is designed to allow the company to quickly produce customized computer systems and to achieve rapid inventory turnover and reduced inventory levels, which lessens the company's exposure to the risk of declining inventory values. This flexible manufacturing process also allows the company to incorporate new technologies or components into its product offerings quickly. Dell provides a basic limited warranty, including parts and labor, for all computer systems for a period ranging from one to three years. The company offers additional warranties based upon the particular product offered and customer needs. The company also provides free, telephone-based 24-hour technical support, as well as online technical support. Dell Financial Services LP (DFS), a joint venture between the company and The CIT Group, offers leasing and other financial services to the company's customers. Through Dell Technology Consulting, the company offers professional consulting services to help customers select and implement server and storage solutions. Dell has an active venture capital program, through which the company makes strategic equity investments primarily in privately held technology companies. In May 2006, Dell acquired Alienware Corporation, a manufacturer of high-performance computer desktop and mobile systems and professional systems. In May 2006, Dell announced that it would use Advanced Micro Device's Opteron chip in multiprocessor computer servers, ending a long-standing policy of using Intel processors. In March 2007, Dell stated that it was globalizing its service organization, operations and global consumer business (including product design and development). In November 2009, Dell acquired Perot Systems Corporation, a worldwide provider of information technology and business solutions, for $3.9 billion in cash. This acquisition is expected to provide Dell's customers with a broader range of IT services and solutions and better position Dell for growth and efficiency. Financial performance During the five years to January 2011 (fiscal 2011), Dell is expected to achieve annual revenue growth of just 2.6%. In fiscal 2010, Dell faced a 13.4% and 42.2% decline in revenue and net income respectively. Dell has seen its profit margins fall from 6.1% in fiscal 2005 to 2.7% in fiscal 2010, driven principally by increased competition and lower retail computer prices. Dell's moves into IT services are intended to arrest this decline and diversify Dell's product offering, a strategy very similar to that pursued by IBM since 2005. For the year ended January 30, 2009 (fiscal 2009), Dell reported decreases in the following: consolidated net revenue (down 0.1%), despite an increase in global shipments (up 7.0%), due partially to a shift in product mix; US net revenue (down 3.4%); consolidated gross margin (down 7.8%): consolidated operating income (down 7.3%); and consolidated net income (down 15.9%). Gross margins and operating income were impacted by the shift in product mix (resulting from growth in the consumer business, which has lower average selling prices compared with the company's commercial

Copyright 2011, IBISWorld Inc.

25

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

business) and a higher cost of sales; and net income was also impacted by lower investment and other income. The company stated that it gained market share in computer systems - both in the US and worldwide. For fiscal 2008, Dell reported increases in: consolidated net revenue (up 6.5%), with net revenue in the Americas up 3.0% and net revenue in the US ($32.7 billion) up 1.0%; consolidated unit shipments (up 5.0%); consolidated operating income (up 12.1%); and a consolidated net income (up 14.1%). The company's gross margin percentage increased to 19.1% in fiscal 2008, from 16.6% in fiscal 2007, due to price increases, favorable product mix and a favorable component-cost environment. Within the previous Americas segment, Americas Business revenue and unit sales each grew by 6.0% primarily due to increased sales of mobility products; and US Consumer revenue and unit sales declined by 12% and 20%, respectively, primarily due to lower sales of desktops. Dell reported a marked slowdown in revenue growth in fiscal 2007 due to a contraction in desktop PC revenue (down 2%) and slower growth in revenue from other product categories. The slowdown in revenue in fiscal 2007 was particularly felt in the US Consumer business, which reported net revenue in fiscal 2007 that was 11.2% lower compared with US Consumer net revenue in fiscal 2006. For fiscal 2007, Dell reported declines in each of gross margin, operating income and net income. The company's gross margin percentage fell to 16.6% in fiscal 2007, from 17.7% in fiscal 2006, and was adversely affected by, among other things, a transition by the company from one supplier of chip sets to two suppliers of chip sets. During fiscal 2007, Dell priced aggressively in a slow market and the company spent more on customer service and support. During the year, the company extended its retail strategy by offering computers in retail stores in the Americas and announced partnerships with retailers in the UK, Japan and China. Revenue growth in fiscal 2006 slowed due mainly to lower growth in desktop PC revenue. Dell reported a gross margin that as a percentage of net revenue fiscal 2006 was 17.7%compared with 18.4% in fiscal 2005, with the decrease due to a product charge for estimated warranty costs and additional charges for product rationalizations and workforce realignment. Dell reported a 19.4% increase in net income in fiscal 2006, however this increase was principally due to a fall in the tax provision (down 27.4%). Dell - financial performance
Year* 2004-05** 2005-06** 2006-07 2007-08 2008-09 2009-10 2010-11*** Million Dollars Revenue 49121 55788 57420 61133 61101 52902 63482 % change Growth 18.9 13.6 2.9 6.5 -0.1 -13.4 20 Million Dollars NPAT 3018 3602 2583 2947 2478 1433 2078 % change Growth 15.0 19.4 -28.3 14.1 -15.9 -42.2 45

Source: Annual Report Note: a) Year-end is around January 31. b) "**" denotes restated. c) "***" denotes estimate

Quanta Computer Inc Market Share: 5.3% Quanta Computer, a Taiwan-headquartered company established in 1988, is the world's largest manufacturer of notebook PCs. The company, which is an original design manufacturing supplier, has expanded its business into enterprise network systems, home entertainment, mobile communications, automotive electronics and digital home markets. Quanta has over 30,000 employees worldwide, of which more than 3,500 people work in R&D and engineering development.

Copyright 2011, IBISWorld Inc.

26

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

Quanta Computer Inc's customers include Hewlett-Packard, Dell, Apple, Acer and Sony. Quanta plans to increase notebook PC shipments to 50 million units in 2010 (up from 32 million units in 2007). The company has stated that, in its position as the world's largest manufacturer of notebook PCs, it is not only determined to "solidify its leading position in the notebook PC industry with superior R&D and economies of scale, but also grow with the development of new digital products and technologies". In March 2008, Quanta announced that it would team up with Germany's Kontron AG to manufacture industrial computers. Quanta has established operation centers across Asia, America and Europe to manufacture, configure and services products as well as provide logistics support. During 2004, Quanta moved its main production center from Taiwan to China. Quanta's strategy is not to pursue brand development (in order to minimize conflicts with customers), and to integrate multiple products using various technologies and to offer these solutions to customers, along with logistics, configure-toorder and fulfillment services. Quanta's R&D expenses represented 1.0% of sales revenue in fiscal 2009 (up from 0.7% in 2007). Financial performance Quanta's net sales in 2009 (expressed in US dollars) were down 2.1% compared with net sales in 2008 (expressed in US dollars). Sales were impacted by the global economic downturn and downward pressure on average unit selling prices. Profit margins increased due mainly to cost controls. The company is seeking to leverage scale to weather price erosion. Quanta's net sales in 2008 (expressed in Taiwan currency) were up 5.3% compared with sales in fiscal 2007, despite large decreases in sales in each of August through December (with monthly sales down between 18.5% and 26% yearon-year). Profit margins increased during the year. Quanta posted rapid growth in net sales in the five years through 2007. However, the company's gross margin percentage declined in each of these five years (and gross margins fell from 10.1% of net sales in 2002 to 5.2% in 2007), reflecting downward competitive pressure on selling prices, and this also put downward pressure on profit. Quanta Computer Inc - financial performance
Year 2002 2003 2004 2005 2006 2007 2008 2009 Million Dollars Sales 4132 8645 9876 14916 16526 23653 25987 25429 % change Growth N/C 109.2 14.2 51.0 10.8 43.1 9.9 -2.1 Million Dollars Net Income 314 384 358 159 283 597 642 676 % change Growth N/C 22.3 -6.8 -55.6 78.0 111.0 7.5 5.3

Source: Annual Report Note: a) Estimates based on values expressed in New Taiwan Dollars and converted by IBISWorld to US dollars at average annual exchange rates

Canon Inc Market Share: 2.7%


Copyright 2011, IBISWorld Inc.

27

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

Canon Inc, based in Japan, is a manufacturer of computer peripherals (laser beam printers, inkjet printers and scanners), office imaging products, cameras and steppers. Most of Canon's laser beam printer sales are on an OEM basis (principally sold to Hewlett Packard). In the United States, Canon sells its products through Canon USA Inc. The majority of Canon's manufacturing is conducted in Japan. Canon has 25 plants in Japan and 18 in other countries. Canon reported that, in 2009, the company generated consolidated net sales of US $34.9 billion (down approximately 22.5% compared with net sales expressed in US dollars in 2008) and produced consolidated net income of $1.4 billion (down approximately 58%). As of percentage of consolidated net sales, "office" product sales accounted for 51.3% (comprising copiers 18.5%, other printing devices 29.2% and other office products 3.6%); and "consumer" product sales accounted for 40.5% (comprising camera sales 21.6%, inkjet printers 10.6%, and "other" 2.4%). The balance of consolidated sales is represented by sales of semiconductor production equipment and other products, as well as eliminations. Canon stated that demand for laser and inkjet printers was weak in fiscal 2009. Approximately 78.1% of Canon's consolidated net sales in fiscal 2009 were generated from sales to customers outside Japan; with approximately 31.0% and 27.9% of total net sales generated in Europe and the Americas, respectively. Canon's Computer Peripheral net sales, expressed in US dollars, grew at an average annualized rate of 1.2% in the 4 years through fiscal 2009. There was an increase in sales of laser beam, color and all-in-one printers in 2006 and 2007; however, unit growth of both monochrome and color laser printers and copiers was negative in fiscal 2008 and 2009 due to the economic downturn in Japan and abroad. Segment net sales expressed in US dollars in fiscal years 2008 and 2009 were inflated by an appreciation of the Yen against the US dollar, and sales in Yen terms and sales volumes were adversely impacted in fiscal years 2008 and 2009 by the strong Yen and a weak global economy. Canon (computer peripheral segment) - financial performance
Year 2004 2005 2006 2007 2008 2009 Million Dollars Sales 10637 11329 12056 13069 14097 11869 % change Growth 13.0 6.5 6.4 8.4 7.9 -15.8

Source: Annual Report Note: Financial data was reported in Yen and converted by IBISWorld to US dollars at average annual exchange rates

International Business Machines Corporation Market Share: 2.7% International Business Machines Corporation (IBM), established in 1911, is a diversified U.S.-based global information technology company, supplying systems, products, services, software and financing. IBM offers its products through its global sales and distribution organizations. In addition to its own sales and distribution networks, IBM also offers its products and services through a variety of third-party business partners, including distributors and resellers, as well as through its on-line channels. IBM and the company's wholly owned subsidiaries have nearly 400,000 employees, with about 30% of employees located in the United States. IBM's System and Technology Group provides clients with business solutions requiring advanced computer power and storage capabilities. The Group's product ranges include: mainframe computers; point-of-sale systems; servers; storage;
Copyright 2011, IBISWorld Inc.

28

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

printing systems; and microelectronics (which provides the technology engine for all three gaming platforms). The Group is continuing to focus its investments on differentiating technologies with leadership and high-growth potential including high-performance computing, virtualization, nanotechnology and energy efficiency. IBM's mainframe products account for about 5.0% of consolidated revenue. However, all mainframe-related hardware, software and services account for a about quarter of IBM's revenue and about half of IBM's total operating profit (New York Times, May 2006; in turn quoting A.M. Sacconaghi, an analyst at Sanford C. Bernstein & Company). In fiscal 2008, approximately 55% of System's & Technology's server and storage sales transactions were through IBM's business partners; and approximately 45% were direct to end-user clients. IBM has a world leading market share in disk storage systems and servers. According to IDC, IBM accounted for a 35.6% share of worldwide server systems market in the fourth quarter of 2009, as revenue declined 6.5% year over year. IBM annually spends $5-$6 billion on R&D, including capitalized software costs. Among other areas of R&D expenditure, the company is investing large sums in R&D to produce on-demand computing for corporate customers as a service. Recent developments In January 2007, IBM announced an agreement with Ricoh Company Ltd to form a joint venture company based on the IBM Printing Systems Division (assets and liabilities of the division were contributed into InfoPrint Solutions Company LLC). IBM sold 51% of InfoPrint to Ricoh on June 1, 2007, with IBM to sell its remaining shareholding in InfoPrint to Ricoh over the ensuing three years. The IBM Printing Systems Division generated revenue of $1 billion in 2006. On April 30, 2005, the IBM group sold its personal computer business for $1.75 billion to China's Lenovo Group, which resulted in 10,000 IBM employees (40% of whom were located in China already) transferring over to the Lenovo Group. Lenovo has based its worldwide PC head quarters in New York. It was believed that IBM will continue to provide sales, service and finance support for several years (The Wall Street Journal, December 12, 2004). Financial performance In 2009, IBM's consolidated revenue fell 7.6% to $95.8 billion, primarily due to weak demand from businesses that cut back on IT investments during the recession. IBM's Systems and Technology segment Group suffered a 16.1% revenue decline and an 8.5% decline in pre-tax profit. The performance was substantially driven by a 43.0% decline in sales of low-end server systems, with medium and high-range systems sales falling much more modestly. Furthermore, sales of IBM's point-of-sale computer systems dropped 25.6% in 2009 due to the recession's effect on retail businesses and their customers. In fiscal 2008, IBM generated total revenue of $103.6 billion (up 4.9% on fiscal 2007) and produced net income of $12.3 billion (up 18.4%). Systems & Technology Group's revenue of $19,287 million in fiscal 2008 was down 9.5% compared with fiscal 2007 (with fourth quarter revenue down 20.2%). Server revenues were impacted by a slowdown in the x86 market and a move of clients toward virtualization and consolidating workloads onto more efficient platforms such as POWER and mainframe. In fiscal 2007, IBM reported total revenue of $98.8 billion (up 8.1% on fiscal 2006) and produced net income of $10.4 billion (up 9.8%). Systems & Technology Group external revenue of $21,317 million decreased by $653 million, or 3.0%, due primarily to the sale of the printing business to Ricoh (excluding the printing business, segment revenue was flat). System z revenue was down 11.2% due to the imminent end of the technology cycle (a next generation model was due in

Copyright 2011, IBISWorld Inc.

29

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

February 2008), System i server revenue was down 10.6%, while System p and System x revenue was up 8.8% and 7.0%, respectively. System Storage revenue increased by 7.0% and Retail Store Solutions revenue was up 14.5%. Systems & Technology Group revenue in fiscal 2006 increased by 4.7% compared with revenue in fiscal 2005 with growth primarily driven by an increase in revenue from System z (up 7.8%), System Storage (up 6.4%), Microelectronics (up 21.9%), System x (up 3.7%), Retail Store Solutions (up 21.4%), partially offset by declines in System i servers (down 15%), System p servers (down 1.1%) and Printing Systems (down 7.6%) and Engineering & Technology Services (down 16.2%). On a consolidated basis, Hardware revenue of $22.5 billion in 2006 was down 7.6% on 2005. Excluding the Personal Computing business (which was sold in April 2005), Hardware revenue in 2006 was 4.8% higher than pro forma hardware revenue in 2005. The Hardware gross margin percentage improved to 37.7% in fiscal 2006 from 36.5% in fiscal 2005 due to the divestiture of the lower margin PC business, partially offset by lower margins on low and mid-range servers due to competitive pressure on prices. IBM (hardware segment) - financial performance
Year 2004 2005 2006 2007 2008 2009 Million Dollars Revenue 31193 24343 22499 22315 20084 18300 % change Growth 10.5 -22.0 -7.6 -0.8 -10.0 -8.9

Source: Annual Report Note: Estimates are IBISWorld's

Wistron Corporation Market Share: 2.7% Wistron Corporation, a publicly listed Taiwanese company, is an ODM and service company with products that include notebook PCs, mobile communication products, server and storage systems, desktop PCs, LCD TV, game consoles and other consumer electronic devices. Wistron began business in 2002 when Acer Computers Inc transferred its design, manufacturing and after-sales service operation to Wistron. Wistron, which employs over 40,000 people, has manufacturing plants in China, Taiwan, the Philippines, Mexico and the Czech Republic. The company has 30 logistics hubs close to the facilities of customers in the US, Europe and Asia. Wistron's exports accounted for about 99% of total sales in fiscal 2009. Principal export markets were Europe (accounting for about 52% of total exports sales in 2009), the Americas (30%) and Asia and others (18%). Wistron is one of the world's largest manufacturers of notebook PCs in terms of shipment volumes, and is a leading manufacturer of server and storage systems and game consoles. In fiscal 2009, the company sold almost 26 million notebook PCs (with a sales value of about US$15.5 billion), about 6.5 million desktop PCs (with a sales value of $1.5 billion), and about 12.5 million "other" products (with a sales value of $4.6 billion). For the 2010 year, the company expects to sell 31 million notebook PCs, 9.7 million desktop PCs, and 15.6 million display products. Wistron acquired the monitor business of Lite-On Technology in 2008 (and started LCD monitor operations in September 2008) to enhance economies of scale and competitiveness in panel-display product lines. The monitor business represented less than 6% of total revenue in fiscal 2009.
Copyright 2011, IBISWorld Inc.

30

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

Wistron Corporation's operating revenue grew from about U.S. $3.5 billion in fiscal 2004 to about $16.6 billion in fiscal 2009, representing average annualized growth of 36.5%. The company's gross and net profit margins lifted between fiscal 2004 and fiscal 2007, before falling in fiscal 2008 (gross margins fell from 6.4% in fiscal 2007 to 5.6% in 2008) and fiscal 2009 (to 5.5%). The fall in margins in fiscal years 2008 and 2009 occurred despite improvements in operational efficiency and reflects competitive pressures on selling prices. While net revenue in Taiwan dollars increased by about 60% in fiscal 2008 and by 23% in fiscal 2009, sales volumes increased by 80% and 25% respectively. Wistron - financial performance
Year 2004 2005 2006 2007 2008 2009 Million Dollars Sales 3489 4823 6711 8423 14128 16553 % change Growth N/C 38.2 39.1 25.5 67.7 17.2 Million Dollars Net Income -25 99 164 201 219 278 % change Growth N/C N/C 65.7 22.6 9 26.9

Source: Annual Report Note: Amounts reported in Taiwan dollars have been converted by IBISWorld to US dollars at average exchange rates

OTHER PLAYERS
Inventec Corporation Estimated market share: 2.0% Inventec Corporation, a Taiwanese company, designs and manufactures high-tech products such as notebook PCs, enterprise servers, storage products, wireless communications, network applications, consumer mobile devices, consumer electronic devices, and wireless solutions. The annual production rate of notebooks exceeds 30 million units, while for servers it is over 3 million units, and for "smartphones" it is 5 million units. The company states that it is the largest server ODM in the world, and one of the top four notebook makers worldwide. Inventec Corporation has factories in China, configure-to-order (CTO) facilities for servers the US and Mexico, customer service operations in North and South America, and CTO factories and service operations in the United Kingdom and Czech Republic. Inventec's principal markets are America (accounting for about 45% of net sales in fiscal 2009, compared with 42% in 2006) and Europe (36%) and Asia (15%). In fiscal 2009, the company's largest customers were Hewlett Packard (accounting for 43% of sales) and Toshiba (39% of sales). Inventec Corporation's revenue grew from about U.S. $3,931 million in 2005 to about $12,055 million in 2009, representing average annualized growth of 25.1%. The company's profit margins have come under pressure, with gross margins down from 5.4% in 2004 to 3.5% in 2009. Controlled growth in operating expenses (which fell a share of revenue), higher non-operating income, and lower taxes have helped keep up net profit margins. Western Digital Corporation Estimated market share: 1.5%
Copyright 2011, IBISWorld Inc.

31

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

Western Digital Corporation (WDC), a US publicly traded company founded in 1970, manufactures and markets hard disk drives. Products are used in desktop PCs (accounting for 36% of revenue) and notebook PCs, data storage subsystems and consumer electronics devices. Customers comprise manufacturers (which accounted for 51% of WDC's revenue in fiscal 2010), distributors (31%) and retailers (18% and up from 7% in fiscal 2006). WDC had 62,500 employees as of July 2, 2010 (the majority of employees are employed at manufacturing facilities located in Malaysia and Thailand). WDC produces hard disk drives at plants in Thailand and one in Malaysia. Research and development expenses represented 6.2% of net revenue in fiscal 2010. WDC has been able to leap to next generation PC disk technology and has used similar technology to create new products for video-game consoles and enterprise storage. WDC's net revenue increased from $4.3 billion in fiscal 2006 to $9.9 billion in fiscal 2010, representing average annualized growth of about 23% over the 4 year period (revenue grew by a significant 48% in fiscal 2008 and fell by 7.7% in fiscal 2009). There was strong growth in unit shipments over this 4-year period, partially offset by a decrease in average selling prices. In fiscal 2010, WDC reported net income of $1,382 million (up from $470 million in fiscal 2009 due mainly to increases in shipments (up 32.8%) and revenue (up 30.4%) and gross margins and low growth in operating expenses. The company's profitability has been promoted by manufacturing efficiencies and an improved product mix. Hon Hai Precision Industry Co Ltd Estimated market share: 1.0% Hon Hai Precision Industry Co Ltd, operating under the trade name Foxconn Electronics Inc, is one of the world's largest contract electronics manufacturers. The Taiwan-headquartered company provides joint-design, joint-development, manufacturing, assembly and after-sales services to global computer, communication, consumer electronics and electronic component companies. The group's customers include Hewlett Packard, Apple (iPods and desktop PCs), Dell, Cisco, Nokia and Sony. Hon Hai Precision Industry Co Ltd's revenue grew from US$7.1 billion in 2002 to $40.5 billion in 2006 and net income grew from $0.5 billion in 2002 to $1.8 billion in 2006. Revenue grew to $61.8 billion in 2008. The rapid expansion in the company's revenue came through organic growth and through acquisitions. Through its listed subsidiary, Foxconn International Holdings Ltd, the group is the largest mobile telephone handset manufacturer in the world (with annual revenue of US$9.3 billion in 2008). The group is also a leading global manufacturer of connectors, cable assemblies and enclosures for PCs and PC servers. Hon Hai Precision Industry Co Ltd employs over 200,000 people worldwide, with about 100,000 employed in China alone. The company states that it is the largest exporter in Greater China and the second largest exporter in Czech Republic. In 2007, the company announced plans to invest $5 billion in production facilities in Vietnam over a five year period. It appears Hon Hai Precision Industry Co Ltd has a greater involvement in manufacturing components and parts, rather than computer and peripheral assembly. Oracle Corporation Estimated market share: 1.5%

Copyright 2011, IBISWorld Inc.

32

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

In January 2010, Oracle acquired Sun Microsystems Inc ("Sun"), Sun, based in California, is a leading worldwide provider of products, services and support solutions for building and maintaining network computing environments. Sun sells scalable computer and storage systems, high-speed microprocessors, and a comprehensive line of high-performance software for operating network computing equipment. Sun has manufacturing capacity in California, Oregon and in Scotland. Sun's core brands include the open and multi-platform Solaris Operating Environment, Java Platform software and program offerings, Sun's SPARC (Scalable Processor Architecture) microprocessor architecture and AMD Opteron based lines of Sun Fire servers, the StorageTek line of storage systems and the SunSpectrum service offerings. Sun encouraged the use of SPARC technology as a standard in the computer marketplace by licensing much of the technology and promoting open interfaces to the Solaris Operating Environment, as well as by offering microprocessors and enabling technologies to third party customers. As a result, several licensees also offer products based on the Solaris Operating Environment and the SPARC architecture that compete directly with Sun's products, primarily in the desktop markets. Sun has also worked to make its Java programming language a standard for complex networks. Sun competes with major computer and storage manufacturers, as well as with systems manufacturers and resellers of systems, based on microprocessors from Intel Corporation (Intel) and the Windows family of operating systems software from Microsoft. Sun made some major acquisitions, including in the software space. On February 28, 2008, Sun acquired MySQL, a Sweden-based provider of open source and proprietary database technology and software and services, for approximately $904 million. In the six months ended December 31, 2005, Sun acquired three companies: Tarantella (software), SeeBeyond (software) and StorageTek (storage infrastructure solutions), acquired for $4.1 billion. Sun announced a restructuring initiative in November 2008 that was expected to reduce total costs by $700-800 million annually - and most of this benefit was expected to be realized in fiscal 2010. Sun's net revenue grew at an average annualized rate of 0.5% in the five years through fiscal 2009 (when total net revenue amounted to $11.4 billion), due to strong in fiscal years 2006 and 2007 (promoted by the inclusion of revenue of StorageTek, which was acquired in late 2005), partially offset by a 17.5% decrease in net revenue in fiscal 2009, and flat net revenue in fiscal years 2008 and 2005. Sun lost market share in worldwide server systems factory revenue between calendar years 2006 and 2008 (down from about 13.0% to about 9.0%). Sun reported a loss of $2.2 billion in fiscal 2009 mainly as a result of a decrease in revenue and gross margins, and an impairment of goodwill and intangible assets (amounting to $1.5 billion). The company's profitability improved in fiscal 2008 and 2007 (relative to fiscal years 2003 to 2005) as a result of earlier restructuring activities and lower raw material costs. Net losses recorded in fiscal 2003 through fiscal 2005 arose as a result of falling revenue, along with restructuring and impairment charges. On a consolidated basis, Sun's Server products revenue of $4,819 million on fiscal 2009 decreased by 23.1% compared with fiscal 2008, while Storage products revenue of $1,885 million decreased by 19.9%, and Services revenue of $4,745 million decreased by 9.8%. Toshiba Corporation Estimated market share: 1.0% Toshiba Corporation, a Japanese company, manufactures personal and professional computers (notebook PCs, servers), telecommunications and medical equipment (mobile phones, X-ray machines), industrial machinery (power plant reactors,
Copyright 2011, IBISWorld Inc.

33

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

elevators), consumer appliances (DVD players and recorders, LCD TVs), electronic components (electron tubes, batteries), and semiconductors. Toshiba Corporation reported consolidated sales of U.S. $67.9 billion, including sales of the company's personal computer business of approximately $9.2 billion (representing 13.5% of consolidated sales), and a net loss of $2.6 billion for the year ended March 31 2009. In fiscal 2009, Toshiba's personal computer business reported that growth in units sales of notebook PCs slowed significantly in the recession-hit second-half. The notebook PC business saw sales and profits slide on price erosion and a weaker Euro. Toshiba held 11.1% of the global PC market in the March quarter of 2008 (IDC). In fiscal 2008, Toshiba's personal computer business increased profitability, due to an increase in revenue and the impact of operational improvements. In fiscal 2004, Toshiba's PC arm reported a loss of Yen 47.4 billion due to tumbling product prices and rising material prices. The business responded by cost cutting, increasing overseas production, and ODM manufacturing of commodity products (to over 50% by March 2005). The PC business was impacted by the global recession in fiscal 2009. IBISWorld estimates that 45% of the revenue of Personal Computer & Network Company is attributable to products manufactured at Toshiba plants. BenQ Group Estimated market share: Less than 1.0% BenQ Group, spun off from Acer Inc in 1984, is headquartered in Taiwan and consists of a number of affiliated companies. The group focuses on: mobile communications products; digital media products; and computing products (including laptop PCs, LCD monitors, optical storage products, human interface devices and other peripherals). According to BenQ Group's website (October 28, 2009), the group had over 90,000 employees and generated consolidated revenue of over U.S. $22 billion in 2007. Group companies relevant to this industry include BenQ Corporation (2007 revenue: $1.8 billion) and Qisda Corporation (2007 revenue: $4 billion). Flextronics International Ltd Estimated market share: Less than 1.0% Flextronics, headquartered in Singapore, is a provider of design and electronic manufacturing services to Original Equipment Manufacturers (OEMs). Flextronics offers a broad range of services to OEMs including: printed circuit board and flexible circuit fabrication, with service capabilities in North America, South America, Europe and Asia; systems assembly and manufacturing, including printed circuit board assembly and assembly of systems and subsystems that incorporate printed circuit boards and complex electromechanical components; logistics; after sales service; and design and engineering services. A presentation by Flextronics provided estimates of the percentage of revenue contributed by product/service for the fiscal 2011 year, as follows: Computing 15%; Infrastructure 26% (which includes servers and storage); Consumer Digital 10%; Mobile 14%; Industrial, Auto, Medical & Other 17%; Components & Mechanicals 13%; and Service 5%. Computing ODM customers include HP, Lenovo, Dell and Acer.

Copyright 2011, IBISWorld Inc.

34

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

The acquisition of Solectron in October 2007 is the major factor in Flextronics increasing net sales by an estimated 88% between fiscal 2007 and fiscal 2009, from U.S. $19.9 billion in fiscal 2007 to $30.9 billion in fiscal 2009. Following the acquisition of Solectron, Flextronics began to restructure and rationalize the company's global manufacturing locations and head-count. For the year ended March 31, 2010, Flextronics reported net sales of U.S. $24,110.7 million (down 22% on net sales in fiscal 2009) and net income of $18.6 million (compared with a net loss of $6,135.5 million in fiscal 2009). Gross margins improved in fiscal 2010. The net result in fiscal 2009 was impacted by a fall in operating margins, restructuring charges and a goodwill impairment ($5,950 million) due to weak economic conditions. EMC Corporation Estimated market share: Less than 1.0% EMC, based in Massachusetts, U.S.A., designs, manufactures, markets and supports a wide range of hardware and software products and provide services for the storage, management, protection and sharing of electronic information. EMC is the largest provider of data storage systems in the world; its major competitors in this niche include IBM, NetApp, Hewlett-Packard and Hitachi. EMC's flagship product, Symmetrix, is an enterprise-level data storage platform at the foundation of many data center's storage systems. Symmetrix and similar systems pioneered many of the technologies and techniques driving trends toward remote computing (cloud computing), software-as-a-service (SaaS) and virtualization. Since 2003, EMC has made a number of strategic investments and acquisitions aimed at the growing cloud computing and virtualization market niches. EMC is expected to increase revenue 18.0% in 2010 to $16.55 billion; and during the five years to 2010, EMC's revenue will have grown at an 11.3% annual rate. EMC's storage products are tested and assembled primarily at EMC's facilities in Massachusetts, North Carolina and Ireland. EMC is an integrated company combining business-oriented software and services with system manufacturing and design. At the high-end, EMC's Symmetrix data storage system can support up to 2,400 distinct hard drives in an array, capable of meeting the storage and redundancy needs of any business. EMC markets a small-business oriented data storage system, CLARiiON, through Dell. EMC has been on an extended acquisition spree during the last five years, acquiring companies with novel technologies and assets. The largest acquisitions included the following: Data Domain Inc, a provider of storage solutions (acquired for $2 billion); RSA Security Inc in 2006 (acquired for around $2 billion); VMware Inc in 2004; LEGATO Systems Inc in 2003 (acquired for $1.4 billion); and Data General Corporation in 1999. During 2008 and 2007, EMC made 12 and 14 acquisitions, respectively, with an all up cost of $759.6 million and $696.6 million, respectively. EMC markets its products through multiple distribution channels. It has a direct sales presence throughout North America, Latin America, Europe, the Middle East, South Africa and the Asia Pacific region. EMC also has agreements in place with many distributors, systems integrators, resellers and OEMs in certain areas of the world. In October 2001, EMC entered into an agreement with Dell Computer Corporation pursuant to which Dell markets and resells EMC's CLARiiON family of enterprise storage systems worldwide. In 2006, EMC and Dell extended the arrangement through 2011. In 2007, VMWare completed an IPO involving 13% of its common stock, though EMC maintains a controlling stake. VMWare's virtualization software solutions allow businesses to "rent" storage and computing power, allowing for increased computing flexibility without major capital investment. In 2008, EMC bought Iomega, a consumer-oriented data storage company with products commonly used alongside EMC's Retrospect backup software. Apple Computer Inc

Copyright 2011, IBISWorld Inc.

35

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

Estimated market share: Less than 1.0% Apple Computer Inc, headquartered in California, U.S.A., designs, manufactures and markets personal computers and related personal computing and communication solutions (including operating systems and application software) for sale primarily to education, creative, consumer, and business customers; and digital music players. Digital music players, other music related products and services and mobile phones have become an increasing focus for Apple and accounted for 51.7% of consolidated net sales in fiscal 2009 compared with 19.1% in fiscal 2004. Apple's Macintosh products have utilized PowerPC RISC-based microprocessors (although there are plans to use Intel processors). IBM and Motorola have been the sole suppliers of the PowerPC RISC-based microprocessor for the company's Macintosh computers. There were instances in recent years where the inability of Apple's suppliers to provide advanced G4 and G3 microprocessors with higher clock speeds in sufficient quantity had significant adverse effects on the company's results of operations. Final assembly of products sold by Apple is conducted in the company's manufacturing facility in Cork, Ireland, and by external vendors in California and Texas in the U.S.A., South Korea, China, and the Czech Republic. Final assembly of portable products is performed by third-party vendors in China. Many of the components are manufactured by third-party manufacturers in Asia. In addition, Apple has outsourced much of its transportation and logistics management. Decisions to purchase Apple's personal computers, as opposed to Windows-based systems, are often based on the availability of third-party software for particular applications. Software developers could question Apple's prospects in the personal computer market, and could be less inclined to develop new application software or upgrade existing software for the Apple's products and more inclined to devote their resources to developing and upgrading software for the larger Windows market. Apple's research and development expenditures totaled $1,333 million in fiscal 2009 (up 20.2% on fiscal 2008), representing 3.6% of net sales in fiscal 2009. Apple generated consolidated revenue of $36.5 billion and produced net income of $5.7 million in fiscal 2009. Macintosh net sales rose from $4,923 million in fiscal 2004 to $13,780 million in fiscal 2009 (albeit with a 3% decrease in the fiscal 2009 year), representing average annualized growth of 22.9% with the increase being primarily the result of an increase in sales volumes (with growth in portables being particularly strong). Peripheral and other hardware net sales increased from $951 million in fiscal 2004 to $1,470 million in fiscal 2009 (albeit with an 11% decrease in the fiscal 2009 year), representing average annualized growth of 9.1%. Hitachi Ltd Estimated market share: less than 1.0% Hitachi Ltd, based in Japan, is one of the world's largest manufacturers of electronic products. The Hitachi group sells mainframe computers, servers and storage devices among other things. The Hitachi Group generated consolidated net sales of approximately US$97.0 billion and produced a net loss of approximately $1.2 billion for the year to March 31, 2010. Hitachi has recently entered into alliances with IBM (servers) and Microsoft (system solutions).

Copyright 2011, IBISWorld Inc.

36

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

Effective on December 31, 2002, IBM sold its hard drive business to Hitachi, Ltd for $2 billion (excluding purchase price adjustments). The IBM hard drive business had revenue in 2002 of approximately $1.9 billion. IBM entered into a five year supply agreement with Hitachi designed to provide IBM with a majority of its ongoing internal disk drive requirements for IBM's server, storage and personal systems products. Hitachi Group's Information and Telecommunication (I&T) segment generated revenue of approximately US$18.3 billion and produced an operating profit of approximately $1.0 billion in fiscal 2010. The segment includes software and services (67% of segment revenue in fiscal 2010); and hardware (33%). Major vendors The following companies are major vendors of computers and computer peripherals and have outsourced a substantial percentage, or all, of their manufacturing activities. Hewlett-Packard Company Estimated market share: less than 1.0% Hewlett-Packard Company (HP), headquartered in California, USA, had approximately 304,000 employees worldwide as at October 31, 2009, and a business presence and services capability in more than 160 countries. The company believes that its scale and reach provide it with "sustainable competitive advantages". HP began outsourcing PC manufacturing in 1993. The company outsources in order to focus on strategic core competencies, including supply chain, design, new product development, supplier management and customer relationship management. HP expanded its services offerings when, in August 2008, it acquired Electronic Data Systems Corporation (a technology services company) for approximately $13.9 billion. During fiscal 2009, HP acquired Lefthand Networks, Inc, a leading provider of storage virtualization and solutions, which has been integrated into HP's Enterprise Storage and Servers segment, for a total purchase price of $347 million. HP is also diversifying. In November 2009, HP entered into a definitive agreement to acquire 3Com Corporation, a global enterprise provider of networking switching, routing and security solutions, in a cash or an enterprise value of approximately $2.7 billion. During fiscal 2009, HP was organized into seven business groups. Personal Systems Group (PSG) provides personal computing solutions and devices for home and business use, including desktop and notebook PCs, workstations, thin clients, smart handhelds and personal devices. PSG accounted for 30.8% of HP's revenue from all segments in fiscal 2009. Imaging and Printing Group (IPG) provides printing and imaging solutions for both business and consumers. IPG includes printer hardware, all-in-ones, digital imaging devices such as cameras and scanners, and associated supplies and accessories. HP is also expanding into the commercial printing market. IPG accounted for 21.0% of HP's revenue from all segments in fiscal 2009. Enterprise Storage and Servers Group (ESS) accounted for 13.4% of HP's net revenue from all segments in fiscal 2009. HP Software accounted for 3.1% of HP's revenue from all segments in fiscal 2009. HP Services accounted for 30.3% of HP's revenue from all segments in fiscal 2009 (up from 17.7% in fiscal 2008). The two companies' combined services businesses had annual revenue in 2007 of $38 billion. HP Financial Services accounted for 2.3% of HP's revenue from all segments in fiscal 2009. Corporate Investments accounted for 0.7% of HP's revenue from all segments in fiscal 2009. For the year ended October 31, 2009, HP reported: consolidated net revenue of $114.6 billion (down 3.2% on net revenue in fiscal 2008), including US net revenue of $41.3 billion (up 11.9%); consolidated earnings from operations of $10.1
Copyright 2011, IBISWorld Inc.

37

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

billion (down 3.2%); and a consolidated net earnings of $7.7 billion (down 8.0%). Personal Systems Group (PSG) net revenue decreased by 16.5% due mainly to the slowdown in the global economy, while PSG operating earnings decreased by 30.1%. The imaging and printing group reported net revenue was down 18.9% and operating earnings that were down 5.5%. The enterprise storage and server segment recorded a 20.8% decrease in net revenue, and a 41.1% decrease in operating earnings. These decreases were partially offset by strong growth in HP Services net revenue (up 65.4%) and operating earnings (up 100.3%). Acer Inc Estimated market share: Less than 1.0% Acer Inc, headquartered in Taiwan, has become the world's No. 2 branded PC vendor. Since spinning off its manufacturing operations, Acer has focused on globally marketing its brand-name products: mobile and desktop PCs, servers and storage, LCD monitors and high-definition TVs, projectors, and handheld/navigational devices. Established in 1976, Acer Inc employs more than 6,000 people supporting dealers and distributors in more than 100 countries. In 2001, Acer Inc decided to separate the ODM business from the Acer-brand business. The new ODM company, Wistron (a Taiwan-based company), focuses on OEM and related electronic product manufacturing business, completely detached from Acer Inc's Acer-brand business. Acer acquired Gateway Inc in October 2007 (in August 2007, Gateway had acquired control of Packard Bell, a personal computer company in Europe). The acquisition of Gateway by Acer made Acer the third-largest PC vendor in the world. In mid-2008, Acer completed the acquisition of 100% ownership of Packard Bell at a total purchase price of Euro 66 million. In September 2008, Acer completed acquisition of 100% ownership of E-Ten Information Systems Co Ltd, a handheld device company in Taiwan. Acer expects double-digit shipment growth in 2010 and is aiming to be the world's number one branded PC vendor.

Copyright 2011, IBISWorld Inc.

38

KEY COMPETITORS Global Computer Hardware Manufacturing

02 September 2010

Acer Inc - financial performance


Year 2004 2005 2006 2007 2008 2009 Million Dollars Revenue 7050 9688 11323 14070 16646 17920 % change Growth 51.9 37.4 16.9 24.3 18.3 7.7 Million Dollars Net Income 220 258 317 396 358 354 % change Growth 2.3 17.3 22.9 24.9 -9.6 -1.1

Source: Annual Report Note: Amounts reported in Taiwan dollars hace been converted by IBISWorld to US dollars at average exchange rates

Toshiba (PC segment) - financial performance


Year* 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Million Dollars Sales 6167 7081 7546 8309 9135 9183 % change Growth N/C 14.8 6.6 10.1 9.9 0.5 Million Dollars Operating Profit -420 75 30 59 362 153 % change Growth N/C N/C -60.0 96.7 513.6 -57.7

Source: Annual Report Note: a) Year-end is around March 31. b) Amounts reported in Yen have been converted by IBISWorld to US dollars at average exchange rates

Hewlett-Packard - financial performance


Year* 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Source: Annual Report Note: Fiscal year end is October 31

Million Dollars Revenue 73061 79905 86696 91658 104286 118364 114552

% change Growth 29.1 9.4 8.5 5.7 13.8 13.5 -3.2

Million Dollars Net Income 2539 3497 2398 6198 7264 8329 7660

% change Growth N/C 37.7 -31.4 158.5 17.2 14.7 -8

Sun Microsystems Inc - financial performance


Year* 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Source: Annual Report Note: Fiscal year end is June 30

Million Dollars Revenue 7793 7355 7126 8371 8771 8618 6704

% change Growth N/C -5.6 -3.1 17.5 4.8 -1.7 -22.2

Copyright 2011, IBISWorld Inc.

39

INDUSTRY PERFORMANCE Global Computer Hardware Manufacturing

02 September 2010

Industry Performance
CURRENT PERFORMANCE
Computers enable workers and households to be more productive and to do things they previously could not do. While computers are becoming more powerful, they are also getting smaller and more accessible. The prices for computers and related equipment are falling, which is another factor that is driving unit sales of this type of equipment. Revenue of the Global Computer Hardware Manufacturing industry is expected to grow at an average annualized real rate of 1.4% in the five years through 2010. There will be pressure on the industry's profit margins, and this will promote a transfer of production capacity toward lower-cost jurisdictions. Personal computer sales represent a major driver of this industry. Worldwide unit PC shipments grew rapidly in 2005 through 2008, with growth subsiding in 2009 (due to recessed global economic conditions), before growth picks up in 2010. Even with very slow growth in the 2009 year, worldwide unit PC shipments are forecast to increase at an average annualized rate of 9.0% in the five years through 2010; and growth in PC shipments will also promote unit sales of PC peripherals (such as printers, monitors and disk drives). Key growth drivers in the worldwide PC market will be notebooks and netbooks, small- and medium-sized business, consumer and emerging markets. Rapid growth in unit sales of notebooks will act to slow growth in desktop shipments, resulting from increasing demands for portability and from a fall in unit prices for notebooks. Growth in information across communications networks will promote sales of servers and storage equipment. In addition, a move away from direct-attached storage and toward simpler, more efficient networked storage infrastructures, will promote growth in demand for storage capacity. However, rapid growth in storage capacity will be offset in a significant way by falling unit prices. Regional growth There will be a shift of production capacity in this industry to China and some other emerging countries, which will be promoted by modest technological requirements involved in production, and a move of production capacity from countries with high manufacturing costs (such as the United States, countries in Western Europe, Japan and Taiwan) to countries where manufacturing costs are low (such as in China, Latin America and some countries in Eastern Europe). While American technology and marketing have driven the global computer industry, American companies have worked backwards in the supply chain to obtain low-cost components and finished products. That has been a major contributing factor toward the shift of computer manufacturing activity toward regions where manufacturing costs are relatively low. Computer hardware manufacturing activity in Asia and, to a much lesser extent, in South America will grow rapidly in the five years through 2010. China has well and truly taken over the mantle as the largest manufacturer of computer hardware products in the world; and by 2010 China will account for over one-third of world trade in computer hardware. According to the National Bureau of Statistics of China, there were 120.7 million microcomputers produced in China in 2007 (up 29.3% on 2006) and 136.7 million microcomputers were produced in 2008 (up 13.3% on 2007 and up 34-fold compared with microcomputer unit production volumes in 1999 when 4 million microcomputers were produced in China). In addition, there were 86.7 million notebooks were produced in China in 2007 (up 38.8% on 2006) and there were 108.6 million notebooks were produced in China in 2008 (up 25.3% on 2007). There will be relatively strong economic growth in emerging countries, which will promote demand for computer hardware in these countries. Increasing wealth will make electronic goods, like computers and associated peripherals, more
Copyright 2011, IBISWorld Inc.

40

INDUSTRY PERFORMANCE Global Computer Hardware Manufacturing

02 September 2010

affordable to a larger section of the population; and manufacturers will respond by offering cheaper products (further boosting demand). Increasing wealth, combined with low PC penetration rates will mean that PC sales will surge in many emerging countries. China became the second largest market for PCs in 2003 (after the United States), even though the country's PC penetration rate was still less than 5.0% at the time (India's and Indonesia's PC penetration rates were about 1.0% at the time). Some emerging countries (China in particular) will post rapid growth in computer hardware exports; and a significant proportion of exports from these countries will be destined for advanced countries. According to the World Trade Organization's publication "International Trade Statistics 2008", China exported electronic data processing and office equipment worth US $165.9 billion in 2007, compared with $100.7 billion in 2005 and $18.6 billion in 2000. Some computer hardware brand-owners and contract manufacturers will establish production capacity in, or shift capacity to, countries offering lower costs. Even within Asia, some production capacity will shift to jurisdictions within the region offering even lower costs. Taiwanese company plants in mainland China account for a significant proportion of mainland China's computer hardware exports (although some Taiwan companies are now looking to diversify away from China). The Korea Information Society Development Institute projected that the value of PC production in South Korea would decline by 26% in 2006 and by a further 10% in 2007, due in large part to a continuing relocation of production plants from South Korea to other countries. Flextronics, a Singapore-headquartered contract manufacturer, is growing its Malaysian footprint in order to reduce its dependence on China (were costs are rising in some areas, such as around Shanghai). Some brand-owners will outsource production to contract manufacturers located in countries where manufacturing costs are low. Larger contract manufacturers will add more value, such as by designing products supplied to brand-owners (rebadged by brand-owners) and by providing distribution and servicing of products supplied to brand-owners. In advanced countries, Computer Hardware Manufacturing activity will be increasingly impacted by the following constraints: high cost structures (resulting in the transfer of production capacity to low-cost countries, which is also resulting in a gradual loss of scale economies in advanced countries); a decline in unit selling prices for industry products; low and declining profit margins; and relatively high penetration rates for many computer products in developed countries (compared with penetration rates in developing countries). Hardware manufacturing in advanced countries will tend to focus on automated or low-skilled assembly of components (most of which will be made in Asia) or low-volume, highmargin specialized products. Many of the world's major computer hardware brand-owners, including IBM and Hewlett Packard, will focus more of their hardware efforts on R&D, sales and marketing. These same companies will also focus more on software and services (relative to hardware), which can offer higher profit margins compared with hardware margins. Industry employment, costs and profitability The number of employees in this industry is expected to grow on average by 0.8% annually in the five years through 2010. Employment growth is expected to be below real growth in revenue over this period (resulting in a real increase in revenue per employee), due to the simplification of computer architectures, and the standardization of components (factors dampening growth in demand for labor). Most products in this industry are becoming commoditized, and price is becoming a more important competitive factor. Computer hardware manufacturing activity will tend to shift to countries offering low manufacturing costs, a strong electronics industry sector, low regulation and low taxes. Within Asia, manufacturing activity will also shift, such as from Japan, Taiwan and South Korea to China and South East Asia.

Copyright 2011, IBISWorld Inc.

41

INDUSTRY PERFORMANCE Global Computer Hardware Manufacturing

02 September 2010

Average unit selling prices and profit margins will decline, with industry players relying on sales growth (and market share) to help generate acceptable profit. Competitive conditions will cause computer hardware manufacturers to pass on lower prices for components and parts. Price competition will also see computer manufacturers reducing their costs by improving efficiencies in an attempt to maintain (or reduce the decline in) profit margins. Computer hardware producer price indices
Year 2000 2005 2006 2007 2008 2009 Units Electronic Computer Mfg 201.5 92.4 82.8 71.4 60.6 54.3 % change Growth N/C N/C -10.4 -13.8 -15.1 -10.4 Units Computer Storage Device Mfg 183.5 98.6 91.1 87.9 86.0 76.9 % change Growth N/C N/C -7.6 -3.5 -2.2 -10.6

Source: US Bureau of Labor Statistics

Worldwide PC shipments
Year 2005 2006 2007 2008 2009 2010
Source: IBISWorld Estimates

Million Shipments 208 230 258 286 294 320

% change Growth 16.2 10.6 12.2 10.9 2.8 8.8

HISTORICAL PERFORMANCE
During the 1980s, the market for computer equipment burgeoned in advanced countries with the growth in business and household demand for personal computers. Large corporations and governments had previously concentrated their computer resources in the form of mainframe computers. In the 1980s, corporations and governments increased their reliance on smaller multi-user systems (such as PCs and minicomputers). The Global Computer Hardware Manufacturing industry's revenue (expressed in U.S. dollars) contracted at an average annualized real rate of 0.5% in the five years through 2005, while global GDP grew at an average annualized real rate of 3.6%. There was a significant real contraction in industry revenue in 2001 (down 13.3%) and 2002 (down 11.0%) before a partial recovery in 2003 (up 11.2%), 2004 (up 7.4%) and 2005 (up 8.9%). Worldwide unit PC shipments are estimated to have grown at an average annualized rate of 10% in the five years through 2005. Strong growth in PC unit shipments occurred as a result of the following: falling prices; rapidly growing processing power and memory capacity; the availability of new applications software; the development of graphical user interfaces; and the development of computer network software. PCs allowed firms and governments to distribute computer resources throughout their organizations, producing productivity savings in many clerical and manufacturing applications. New manufacturers or assemblers could easily enter the market, due to the availability of crucial parts (e.g., CPUs) which are produced by specialized manufacturers (e.g., Intel).

Copyright 2011, IBISWorld Inc.

42

INDUSTRY PERFORMANCE Global Computer Hardware Manufacturing

02 September 2010

The fall in computer prices was promoted by: a rise in economies of scale and productivity improvements in input industries (e.g., semi-conductors) and computer hardware manufacturers; and a shift in production to low-cost countries. Prior to 2000, domestic demand for industry products was bolstered by strong economic conditions; strong levels of business investment; pre-Y2K investment; the dot.com phenomenon; growing PC penetration into household markets; and by strong demand from the telecommunications and finance sectors. In 2001 and 2002, the global economy weakened and there was a significant downturn in the dot.com, telecommunications and finance sectors. Business spending prior to year 2000 on Y2K meant that expenditure on computers was brought forward into prior periods (i.e. leaving a void in subsequent years). Many households had bought PCs prior to the downturn. Computer hardware sales in 2001 and 2002 were also impacted by a lack of new technologies. In 2001 and 2002, excess production capacity caused a significant decrease in unit selling prices, which combined with the slowdown in demand to cause a significant fall in revenue and profitability in those years. The global economy strengthened in 2003 and 2005 resulting in an increase in spending on IT equipment. Revenue (constant prices)
Revenue $ Million 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 452,731.2 469,742.5 407,111.7 362,337.0 402,827.5 432,718.7 458,051.8 489,700.9 536,147.1 531,008.6 489,148.4 491,936.6 Growth % N/A 3.8 -13.3 -11.0 11.2 7.4 5.9 6.9 9.5 -1.0 -7.9 0.6

Copyright 2011, IBISWorld Inc.

43

INDUSTRY PERFORMANCE Global Computer Hardware Manufacturing

02 September 2010

Revenue

Revenue Growth Rate

Gross Product (constant prices)


Gross Product $ Million 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 109,970.9 108,312.3 86,044.9 83,727.4 86,279.4 93,064.9 100,168.3 105,799.0 109,387.4 104,237.2 95,108.6 96,897.2 Growth % N/A -1.5 -20.6 -2.7 3.0 7.9 7.6 5.6 3.4 -4.7 -8.8 1.9

Copyright 2011, IBISWorld Inc.

44

INDUSTRY PERFORMANCE Global Computer Hardware Manufacturing

02 September 2010

Gross Product

Gross Product Growth Rate

Copyright 2011, IBISWorld Inc.

45

OUTLOOK Global Computer Hardware Manufacturing

02 September 2010

Outlook
Revenue (constant prices)
Revenue $ Million 2011 2012 2013 2014 2015 2016 517,820.0 549,593.3 584,442.7 622,686.7 664,734.2 710,989.1 Growth % 5.3 6.1 6.3 6.5 6.8 7.0

Revenue

Revenue Growth Rate

Gross Product (constant prices)


Gross Product $ Million 2011 2012 2013 2014 2015 2016 101,235.3 106,576.8 112,387.7 118,724.9 125,685.9 133,341.5 Growth % 4.5 5.3 5.5 5.6 5.9 6.1

Copyright 2011, IBISWorld Inc.

46

OUTLOOK Global Computer Hardware Manufacturing

02 September 2010

Gross Product

Gross Product Growth Rate

Revenue of the Global Computer Hardware Manufacturing industry is forecast to grow at an average annualized real rate of 6.2% in the five years through 2015. Prospects for the Global Computer Hardware Manufacturing industry are influenced by, among other things: the level of global economic activity and IT investment; technological factors affecting the demand for computing products, as well as costs of the computer manufacturing industry; and competitive factors affecting unit selling prices and margins. The outlook for demand The global economy is expected to pick up in 2011 through 2015. The global economy is forecast to grow in real terms by 3.8% annually (on average) in the five years through 2015, compared with an average rate of growth of 3.0% in the five years through 2010. There is expected to be strong growth in global investment and part of this increased investment spending will flow into purchases of computer hardware. Growth in household incomes in emerging countries will promote increases in penetration rates of computers in households in those countries. The explosion in digital information and content, along with falling prices for broadband access and software, will encourage spending on computers and peripherals. In many emerging countries, this will be accompanied by strong economic growth and existing low PC penetration rates, which will combine to promote sales of computers and computer peripherals in these countries. The impact on revenue of growing sales volumes will be partially offset by real price reductions (although the rate of decline in average unit selling prices for comparable products could slow over the outlook period, compared with the rate of decline in prices that occurred in the previous five years). Prices will fall due to the following factors: innovations in microchip technology and manufacturing processes; rising production volumes; commoditization of products; changes in distribution arrangements (e.g., internet sales); and productivity gains from process enhancements and industry rationalization. While lower unit selling prices will bolster volume demand, lower sales prices could also have a dampening effect on the rate of growth in the total value of industry revenue.

Copyright 2011, IBISWorld Inc.

47

OUTLOOK Global Computer Hardware Manufacturing

02 September 2010

Over the outlook period, demand for computer hardware will be promoted by the replacement of old hardware with new equipment that is more efficient and enables the use of new technologies and software. The availability of relatively cheap software (such as the Linux operating system) and cut down versions of software (such as in netbooks) will enable the total cost of PC ownership to be reduced. Nevertheless, increases in the capacity and quality of computer equipment, along with the increasing scalability of equipment, may cause a slowdown of replacement demand in the longer term. Innovations in networking and storage capabilities may have a similar effect. Growth in information across communications public and private networks will continue to promote sales of servers and storage equipment. In addition, a move away from direct-attached storage and toward simpler, more efficient networked storage infrastructures, will promote growth in demand for storage capacity. However, rapid growth in storage capacity will be offset in large part by falling unit prices. Growth in internet usage (including via broadband) and growth in the digital camera market will promote growth in printer sales. The continuing miniaturization of computers and the resulting increase in portability, along with the availability of new and improved mobile communications networks, will be factors driving growth in demand for portable computers. These computers are becoming more powerful, reliable and secure; and prices of portable computer prices are moving closer to desktop prices. Communications, consumer electronics and office products are increasingly incorporating computer or computer peripheral functionality (e.g. cell phones, set-top boxes, digital music players and multi functional printers). This trend will likely adversely affect demand for some computer hardware products. Cheaper "stripped" down computers are being released and will promote overall industry unit sales. Netbook sales, for example, are growing at a rapid rate. Improved electronic readers are being released, and applications and content for these products are increasing rapidly. Apple released its iPad tablet computer in January 2010. There have been efforts to introduce cheap network computers that can utilize remote servers offering computing power and application software. It appears that the network computer has not been successful to date, due to different operating standards, however, this is expected to change. A number of companies are investing large sums in R&D to produce products and services that support "cloud computing" - internet-based computing, whereby shared resources, software and information are provided to computers and other devices on-demand, like electricity. Other forecast trends Local assembly of PCs has in the past been promoted by open systems and the availability of a large number of PC components - hence enabling a range of end-product configurations that are attractive to customers. Local assembly can also improve delivery times. However, portable PCs tend to be standardized products; and growth in the portable PC sales, partly at the expense of the desktop sales, will reduce the need for local assembly (Asian contract manufacturers are major players in the manufacture of portable computers and Dell assembles most of its notebook PCs in Malaysia). Furthermore, IBISWorld believes that major industry players in this industry will seek to standardize more end-products. Much of the innovation in computing comes from component suppliers (such as semiconductors and software). Nevertheless, computer brand-owners face a risk of a competitor introducing ground-breaking technology; and this will continue to motivate R&D by brand-owners and, to a lesser extent, by original design manufacturers. Large brand-owners in this industry tend to spend relatively large sums on R&D; and this may produce innovations that could break up a lowprice commodity market. The historical trend of computer hardware brand-owners outsourcing manufacturing is not expected to be reversed. Large contract manufacturers are able to efficiently manage production and supply chain processes, and can accrue economies
Copyright 2011, IBISWorld Inc.

48

OUTLOOK Global Computer Hardware Manufacturing

02 September 2010

of scale in production and component acquisition. Through the use of contract manufacturers, brand-owners can focus more on R&D, sales and marketing, and can often reduce time to market. However, the trend toward outsourcing and toward locating production capacity in low-cost countries will not be universal. Some suppliers in some product markets will seek to offer faster and more flexible service for customers, which may result in manufacturing capacity being located, in some situations, close to the customer. To boost profit margins, manufacturers will seek to do the following: build volumes (driving economies of scale); eke out productivity and purchasing gains in production processes and supply chains; and sometimes move production to lowercost locations. It has been reported that some Taiwan-based manufacturers are looking to diversify production away from China (with some capacity potentially being established in India and South East Asia). Brand-owners with their own production capabilities will continue to look for ways to add value to their product offerings. For some, this will be achieved by generating service-based income (such as through networking and system integration consulting), by diversifying into software production, or through vertical integration (such as direct marketing or retailing outlets). For smaller brand-owners, an inability to compete on the basis of brand names (with the likes of Dell, Acer, Lenovo, Hewlett Packard, EMC, IBM and Toshiba etc) may require new branding ideas (such as using retailer's brand names) or developing strategic alliances. Growth in direct sales, such as through e-commerce and telephone sales, will benefit some brand-owners by raising profit margins and by allowing for a reduction in inventory levels. Larger companies will be in a better position to promote their own products (e.g., through strong brand names, advertising and through investment in web-sites).

Copyright 2011, IBISWorld Inc.

49

You might also like