Industry Classification

1. Industry Classification

2. Computer Hardware Industry Overview • A highly competitive industry • A mature industry • Market is characterized by frequent product introductions • A few well-established companies, such as: • HP (Global leader with 17.4% market share) • Dell • Acer • Apple (Seventh in global market share (4.3%) • Toshiba • Lenovo • Three main operating systems for personal computers: • Microsoft Windows(used in 85-90% of PCs worldwide) • Mac OS X • Different flavors of Linux • Intel Corp.’s processors are used in approximately 80%of PCs 79.2 % of US Market Share

3. Porter Five Force Analysis of Computer Hardware Industry in Relation to Apple

4. The Threat of Substitute • Moderate • Smartphones are the biggest substitutes • More than 10 billion units being used world wide • New smartphone functionalities are on the rise • The Threat of New Entrants • Low • Economies of Scale • Product Differentiation • Proprietary Technology • Know How • Favorable Access to Raw Material • Learning-Curve Cost Advantages • Customer-Switching costs • Access to distribution • The Threat of Rivalry • High • Intense price competition • Dominated by Windows, Apple is a minor player • Continuous Product Introductions focusing on product feature enhancements • Apple’s iPad competes with low-end PC market • The Threat of Suppliers • Moderate • Intel is the sole supplier of Microprocessors for Apple’s desktops or laptops • Use of multitude of custom components that can be usually sourced from one supplier only • No risk of forward integration from the suppliers • The Threat of Buyers • Low • A large number of individual buyers • Buyers unlikely to engage in backward integration.

5. Opportunities for Apple in Computer Hardware Industry Apple can continue to gradually increase its market share in this mature industry by: • Engaging in product feature enhancements • Capitalizing on its excellent service and support • Improving the processes to reduce the operating costs • Capitalizing on the “Halo Effect” associated with Apple products

6. Mobile and Communication Device Industry Overview • A relatively new and emerging market • Smartphone sales increased in 2010 by 72.1 percent from the prior year, whereas sales for all mobile phones only increased by 31.8 percent. • A moderately concentrated though competitive industry • Product differentiation on the basis of product features, linkage with other firms(Wireless Carriers), consumer marketing, and product reputation.

7. Porter Five Force Analysis of Mobile and Communication Device Industry in Relation to Apple

8. The Threat of Substitute • Moderate • Personal Computers, Tablets, Game Consoles, Portable gaming systems(PSP, Nintendo DS etc.), and CD Players • Unable to match processing power and functionalities of PCs • Third party digital contents are complimentary • All the substitutes do not provide mobile or portable user experience • The Threat of New Entrants • Low • Economies of Scale • Learning Curve Cost Advantages • Favorable access to raw materials • Difficult to match the Product Differentiation • Proprietary Technology and Know How • High Customer-Switching costs • The Threat of Rivalry • High • A few major players • Intense competition between major players • Android phones constitute 33% and iPhone constitute 16% of global market share for smartphones • Costumers have choices • Frequent product launches and rapid technological advances • Competitive pricing • The Threat of Suppliers • Moderate • Uses a variety of custom components that can be usually sourced from limited suppliers only • No risk of forward integration from the suppliers • The Threat of Buyers • Low • A large number of individual buyers who are fragmented • Buyers unlikely to engage in backward integration • Products are differentiated

9. Opportunities for Apple in Mobile and Communication Device Industry Apple can continue to be a dominant player in this emergingindustries by: • Implementing technological leadership • Investing in strategically valuable assets • Adopt business strategies which will create customer-switching costs

10. Digital Media Content Industry Overview • An emerging as well as network industry • A highly competitive industry; major players are Apple, Amazon, Netflix and Google • Most of the contents are developed by third parties • Most of the contents are platform specific • Apple is the market leader for Apps and Music • Apple started the digital music revolution with the launch of iTunes and iPod. • Amazon is the market leader for E-books • Netflix is the market leader for streaming videos

11. Porter Five Force Analysis of Digital Media Content Industry in Relation to Apple

12. The Threat of Substitute • Moderate • Books, DVD’s, Video Games on game consoles and portable gaming Systems, Cinemas, and any outdoor activities are suitable substitutes for digital media contents • Substitutes still popular with majority of population • The Threat of New Entrants • Low • Apple has market power • High Customer-switching costs • Proprietary Technology • Governmental Regulations • The Threat of Rivalry • High • Competition is intense between the major competitors • Competitive pricing • Competitors engaged in gaining First- movers advantage • Amazon challenging Apple in the Apps market • The Threat of Suppliers • Moderate • Application Developers are fragmented • E-books, Music and Movies developers are not fragmented • Content providers may have the option to switch. • Big content providers such as record companies, movie studios or TV networks may start the distribution of the content directly • The Threat of Buyers • Low • A large number of individual buyers who are fragmented • High switching costs for customers. • Products are undifferentiated, especially in the case of non-exclusive digital content