To : Professor Gary Coombs Professor Jamie Lambert Professor Wayne Huang

1. To: Professor Gary Coombs  Professor Jamie Lambert  Professor Wayne Huang  Professor Scott Wright From: Team # Student A Student B Student C Student D Student E Date: February 4, 2012 Subject: Analysis of Computer Periphery Industry and Participating Companies As requested by the Partners of Cluster Inc., our team performed an analysis of the computer periphery industry and examined the companies of Dell, Hewlett Packard, Logitech, Seagate and Western Digital. We analyzed how the specific companies are currently positioned, and made a decision as to who was best and worst positioned for the future. In order to answer this question, we needed to address information about the current state as well as the future of the periphery industry. Through this analysis, we were able to identify key contributing factors to success as well as key contributing factors to weakness within the industry. The report will show how Western Digital is best and Dell worst placed to succeed within the periphery industry. The key trends identified for the peripheral industry were: -Overall falling prices because of increasing technological evolution -Rapid development of technology -Globalization and introduction to new markets Provided within the report are appendices, including individual strengths and weaknessesof the companies, as well as opportunities and threats from the external environment. Also detailed in the appendices is information about the computer peripheral industry. These appendices help to support our independent analysis of each company and how those companies are set to handle changing industry environments.   Our team would like to thank Mr. Chad Boeninger who was immensely helpful in the background research portion of this report. We would be pleased to discuss our report and recommendations with you upon request. Feel free to call Student B at XXX-XXX-XXXX or email her at XXXXXXXX@ohio.edu. She is available any time weekdays from noon to 4pm. We would like to thank you for your cooperation and for your confidence in us to prepare this industry and company analysis.

2. BOOT UP YOUR HARD DRIVES A Computer Peripheral Industry Competitive Analysis Prepared for: Professor Gary Coombs Professor Jamie Lambert Professor Wayne Huang Professor Scott Wright Prepared by: Team # Student A Student B Student C Student D Student E February 4, 2012

3. The purpose of this report is to examine five companies, Hewlett-Packard (HPQ), Seagate Technology (STX), Logitech (LOGI), Western Digital Corp. (WDC), and Dell Inc. (DELL), in the computer peripheral industry to establish which holds the most favorable position and which is subordinate. Western Digital has proved to be the leading company, while Dell proved to be the worst positioned. Within the industry, printers hold 31% market share, hard disk drives hold 25%, and monitors hold 23%. Competition, automation, and product improvements have increased unit sales by 27.2%, but revenue has declined by 6.1%. HPQ, Seagate, Dell, Western Digital, and Logitech hold 32.4%, 14%, 11.3%, 8.8% and 2.5% of the market share, respectively. Industry Trends The industry trends that have made the most impact on peripherals are falling prices, technological developments, and globalization. The combination of strong competition, automated production, and strong buying power has lead to a low cost product, which in turn has lead to declining revenues for peripheral companies. The emergence of the tablet PC, online printing services, and flash storage has resulted in a decline for the demand of computer peripherals. Exports represented 75.9% of revenues because of globalization. However, because the peripheral manufacturing industry is very sensitive to global economies, globalization has resulted in a downward pressure on industry margins. Keys to Success In order to overcome falling prices, technological developments, and globalization in the peripheral industry, companies in this market need to increase their profit margin, have a good relationship with their contracted buyers, and capitalize on emerging markets. Companies can increase their margin through differentiation and offering innovative products through research and development. It is vital to have a very positive relationship with customers because it provides companies with advantages that allow them to sell products at a higher price and profit margin. Having a good connection with original equipment manufacturers and retailers allows firms to increase sales and endorse their brand by selling their products side-by-side. In order to globalize, companies in the peripheral industry need to invest in emerging markets that have minimal downward pressure on margins. This will allow for them to rise above their competition. Best Position Through our research, we determined Western Digital to be in the best position for the future. WDC tackles the three keys to success as they are focusing to increase margin, further contracts with buyers, and capitalize on emerging markets. These keys to success are thoroughly described through the strategy diamond. The diamond is broken down into five categories which include arenas, staging, differentiation, vehicles, and economic logic. Within these categories it is easy to see that WDC is overcoming the disaster in Thailand, capitalizing on the increased need for storage, placing increased emphasis on emerging markets with the acquisition of Hitachi Global Storage Technology, and innovative products that produce high profit margins. Worst Position Dell is able to provide its customers with efficient, affordable, and integrated solutions that put them in a reasonably favorable position as a whole. However, its competitive advantage is slowly fading away in the peripheral industry due to the lack of loyalty of their customers with the recent expansion of retailers. Dell is also fading out of the peripheral industry because it sees the decreasing demand that has been a trend for the past couple of years. The company overall is slowly trying to eliminate low margin peripherals which resulted in a $3 billion loss last year. Due to the lack of interest in peripherals, Dell is in the worst position for success within the peripheral industry. Conclusion When looking at the peripheral industry overall, it is clear that the demand for peripherals is declining. However, this can lead to newand innovative waysfor companies to potentially increase product development and expand upon current markets. After examining the keys to success that are needed to expand and flourish in this industry, Western Digital came out on top as it continues to expand in the emerging markets as well as taking advantage of the computer storage section of the peripheral industry. EXECUTIVE SUMMARY EXECUTIVE SUMMARY

4. TABLE OF CONTENTS

5. TABLE OF CONTENTS

6. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion The objective of this report is to examine five companies within the computer peripheral manufacturing industry in the U.S. and to determine which company holds the most promising position and which company’s standing is inferior. By analyzing the industry trends of declining peripheral prices, technological transformations, and globalization, conclusions were drawn about the magnitude of the trends’ effects on the individual participating firms. Presented with the companies Hewlett-Packard (HPQ), Seagate Technology (STX), Dell Inc.(DELL), Western Digital (WDC), and Logitech (LOGI), extensive research and intuitive reasoning confirm Western Digital to be the lead player in the industry and verify Dell as the worst positioned firm in the industry [See Appendix A,B,& C for HPQ, Seagate, and Logitech SWOT Analysis]. Western Digital’s higher-margin product offering of hard disk drives (HDDs), along with its position to expand into emerging markets, provide it with a distinct competency and competitive advantage. Dell, on the other hand, is pruning its product line of low-margin peripherals, thus decreasing its market share considerably. PROJECT PROPOSAL 6

7. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion The computer monitor and peripheral manufacturing industry is predominantly comprised of five products: printers, monitors, hard disk drives, webcams/accessories, and input devices (keyboards/mice). Printers control 31% of the industry, closely followed by hard disk drives with 25% market share, and monitors with 23%. Webcams/accessories and input devices linger behind with 13% and 8% of sales, respectively (Freedonia, 2011) (Euromonitor, 2011). Strong price competition, automated manufacturing processes, and persistent product improvements allow consumers to purchase computer peripherals with exclusive capabilities at low costs. While this trend has increased growth in unit sales by 27.2 % since 2006, in terms of revenue, growth has historically declined. (Euromonitor, 2011). The industry has a historical average annual revenue decline of 6.1% due to a lagging macroeconomic conditions (Ibisworld & Bueno, 2011) (Freedonia, 2011). In 2010, however, a slight economic upturn resulted in an improved annual growth rate of 2% (Euromonitor, 2011). The estimated revenue is $18.2 billion, while the profit is valued at $1.8 billion (Ibisworld & Bueno, 2011). INDUSTRY SNAPSHOT Key players in the industry include the five propositioned companies. Their market shares within the industry are as follows: Hewlett-Packard (32.4%), Seagate (14%), Dell (11.3%), Western Digital (8.8%), and Logitech (3.5%). Collectively, the specified companies offer all major computer peripherals. Nevertheless, firms in the industry typically choose to focus on and specialize in a particular segment of peripherals (Ibisworld & Bueno, 2011). 7

8. IndustryTrends HEWLETT-PACKARD Hewlett Packard leads the peripheral market through its imaging and printing product group. It sells a multitude of consumer and commercial printers and printing supplies. These include both inkjet and laser printers. It sells its products through both direct and channel distribution. Channel partners include retailers, resellers, and distributors, as well as e-commerce (Hewlett Packard, 2011). HPQ has a market capitalization of 55.8 billion dollars and annual revenues near 128 billion dollars. Peripherals accounted for 20% of HPQ's revenue in 2011 (Standard and Poor's, 2012) [See Appendix D for full company analysis]. • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion SEAGATE TECHNOLOGY Seagate Technology is a manufacturer of hard disk drives and consistently one of the largest and most competitive firms in the space. Seagate’s products are marketed and sold for use in desktop and notebook computers, consumer electronic devices, and enterprise data storage systems. Seagate has a market capitalization of 11.82 billion dollars and annual revenues equal to about 11 billion dollars, as well. Seagate typically uses acquisitions to increase revenues and bolster cash flows. It recently acquired the hard drive business of Samsung Electronics (Standard and Poor's, 2012) [See Appendix E for full company analysis]. LOGITECH Logitech is an innovative company that specializes in peripherals for PCs. Logitech attracts customers from a wide spectrum, as it sells to individual consumers as well as large corporations. The company is able to reach its consumers through e-commerce and retail stores across the world (Morgan Stanly, 2011). LOGI has a market capitalization of 1.4 billion dollars with annual revenues around 2.4 billion dollars (Standard and Poor's, 2012) [See Appendix F for full company analysis]. COMPANY PROFILES COMPANY PROFILES WESTERN DIGITAL CORPORATION Western Digital offers a variety of hard-drives, solid-state drives, and drives that use “GreenPower Technology.” It sells to original equipment manufacturers (OEMs), distributors, and retailers. Buyers are also composed of computer superstores, online retailers, warehouse clubs, and other retailers. Western Digital has a market capitalization of 8.1 billion dollars with annual revenues around 10 billion dollars. It is currently pursuing an acquisition with Hitachi GST (Standard and Poor's, 2012). DELL INC. Dell Inc. produces the largest range of products out of all the firms within the industry. It offers Dell-branded printers and monitors, as well as a multitude of competitively priced third-party peripheral products such as printers, hard disk drives (HDDs), accessories, mice, and keyboards. Dell’s customer base is broad, encompassing consumers, as well as businesses. They sell directly through e-commerce and indirectly through manufacturer and retailer contract agreements (Dell, 2011). Dell has a market capitalization of 30 billion dollars and annual revenues equal to 60 billion dollars. Peripherals and storage comprise approximately 17% of Dell’s revenue (Standard and Poor's, 2012). 8

9. Industry Trends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion It is vital to analyze the industry in which a firm operates in order to identify any opportunities and threats in the environment [See Appendix G for full PEST analysis]. Within the computer peripheral industry, there are three trends that will play a role in determining the positioning of companies within the industry. These trends include: falling prices, technological developments, and globalization. Analyzing the impact of these trends on the five largest firms in the industry aids in weeding out the mediocre companies, exposing the weakest, and ultimately bringing the strongest into the spotlight. Investment Recommendation Keys to Success Industry Trends OVERVIEW After noting industry movements, this report will summarize the necessary actions a company must take to achieve success within the computer peripheral industry. These keys to success include: increasing margins, advancing recurring revenue streams through buyer contracts, and capitalizing on emerging market growth. Based on these keys to success, Western Digital clearly has established itself as the best player in the industry, and is therefore recommended as the best investment. 9

10. Industry Trends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion Key issue: The industry is observing computer peripheral prices falling at a rate of 5.6%, in part because of Moore’s law (Datamonitor, 2011). Index of Prices of PCs and Peripherals (Silicon, 2011) COMPETITIVE FACTORS Another noteworthy factor that drives the low sales price is the high bargaining power of buyers [See Appendix H for Porter’s Five Forces]. Buyer power reflects the control consumers have to be selective and drive pricing decisions. The extensive control of buyers spurs competition, driving down prices and allowing consumers to be more selective. This primarily results from the large number of peripheral firms. There are a large number of companies selling products to consumers who typically value quality and specific criteria over a particular brand name (Freedonia, 2011). High competition makes continual investments in research and development essential in order to establish differentiating product attributes to appeal not only to buyers, but also to potential contracting computer manufacturers. To combat this price decline, the industry has consolidated by firms pursing acquisitions to weaken buyer power, decrease industry competition, and ultimately increase revenue (Euromonitor, 2011). FALLING PRICES AUTOMATED PRODUCTION The high bargaining power of buyers is not the sole factor effecting sales price. Efficiencies in automated production have also led to lower prices for consumers, and as a result of this price decline, there has been a fall in profits. Not only does this upset firms’ revenues, but this could eventually lead to less available funds being available to invest in research and development, impacting the entire value chain (IbisWorld & Bueno, 2011). IMPLICATIONS These factors have decreased monitors sales 23.5% since 2006 partially due to a 30% decrease in sales price. Of that 30%, 10.7% of the decrease occurred in 2010. Printers have also experienced a sizeable decrease in sales price. Although the higher-margin web-connected printer has helped keep average printer prices steady, there is still a downward price trend within the industry (16% since 2006). As a result of decreased prices and margins, an increase in sales does not necessarily suggest an increase in profits. • Declining Revenue 10

11. Industry Trends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion OVERVIEW The development and rapid implementation of new technology offers potential opportunities as well as threats for the industry. As trends change in relation to this circulation of innovative technology, the demand for peripheral products experiences frequent adjustments. As new product substitutes are introduced that can meet or exceed the needs of the consumer, existing product demand may fall, and some technologies may become obsolete. On the other hand, these new products or services are often expensive, and the high switching costs decrease threats [See Appendix H for Porter’s Five Forces]. Also, in some cases these new developments serve as complements to current product offerings. At any rate, firms need to be aware of the presence of potential replacement products, especially in the midst of this rapidly changing industry. The primary advances that currently have a direct impact on the industry products are the change in personal computer usage and demand, introduction of the tablet PC, emergence of online printing services, and growing interest in flash storage. Each of these emerging trends and products will impact the industry, as well as the industry firms in unique ways. U.S. Patent Applications 1980-2010 TECHNOLOGICAL DEVELOPMENTS (United States Patent and Trademark Office, 2011) The increasing technological developments of the industry are brought to light when considering the upward trend of patent applications granted. 11

12. Industry Trends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion FALLING DEMAND FOR PERSONAL COMPUTERS In the past decade, personal computer sales have experienced stimulated growth. Falling prices, along with features improvements and innovations, increased demand. Typically, consumers replace their PCs every three to five years, and with the falling prices, this also increased PC sales and PC ownership almost 5.2% (IbisWorld & Bueno, 2011). The computer peripheral industry fared well under this sales surge, as peripherals are often purchased alongside PCs (Mintel, 2011). However, since 2008, PC usage has declined 20% and weakened consumer demand for PCs has inhibited additional sales growth. Low prices are no longer attracting buyers, who have turned their attention to tablets and other electronics (Gartner, 2011). Desktop sales experienced the largest decline (7%), while laptop sales actually increased by 5%. Similar to laptop sales, all-in-one computer unit sales are also increasing annually (1.2%). This product integrates the computer system unit and the monitor into one item. However, as tablets increase in popularity they are expected to cannibalize 33% of PC sales of all models this year (Morton Stanley, 2011). The projected outlook for PC sales displays a downward trend (Gartner, 2011). The repercussion of this potential decline in sales is not promising for the computer peripheral industry. In particular, a decrease in PC usage, specifically desktops, will decrease demand for monitors, mice, and keyboards. The increase in all-in-one computer systems also contributes to the expected demand decline of 8% for monitors (Euromonitor, 2011). TECHNOLOGICAL DEVELOPMENTS 2010-2013 PC Sales -6% Annual Growth Rate (Morgan Stanley, 2011). (Gartner, 2011) 12

13. Industry Trends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion TABLET PC Tablet computing portrays the recent progression of computing from a graphical, keyboard, and mouse interface to a touchscreen interface. The extreme portability and network capabilities, along with the vast amount of applications and specifically designed content, increase the tablet’s functionality well beyond traditional PCs. Therefore, tablet popularity is expected to increase faster than any other mobile device in history (Morgan Stanley, 2011). In 2011, tablet sales reached 35 million worldwide, more than doubling the 16 million sold last year (Mintel, 2011). This increase in sales has considerable implications for the computer peripheral industry. Tablet PC Sales • Hard Disk Drives. Tablets, by themselves, do not seem to be substantially disruptive to the hard-disk drive and storage device market. The market could possibly see a demand decrease, but tablet sales are not a major threat (Morgan Stanley, 2011). • Keyboards/Mice. Tablet sales limit the need for keyboards because of the touchscreen capabilities (Mintel, 2011). However, keyboard and mice sales are not expected to be largely impacted. Any decrease in traditional manual input device sales will likely be balanced out by tablet keyboard and mice sales (Morgan Stanley, 2011). • Printers. Tablet adoption will potentially trigger a trend of reduced printing demand. The combination of the tablet’s portability, large screen size, and high resolution will lead to a reduction of personal, business and commercial printing (books, magazines, newspapers, etc.). When business workers were asked about how the development of the tablet will affect office printing activity, 90% of participants stated that they would print less. Thus, it is projected that tablet emergence will cause a decrease in printers sales of 2% to 5% in the coming year (Morgan Stanley, 2011). Conversely, wireless printing capabilities directly from the hand-held device may help balance this declining demand (Euromonitor,2011). TECHNOLOGICAL DEVELOPMENTS How would owning a tablet PC affect your printing habits at the office? “I would print…” (Morgan Stanley, 2011) 13

14. Industry Trends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion ONLINE PRINTING SERVICES. Internet services that allow consumers to upload photos and order prints in the mail at a low cost reduce the need for home printers. These companies allow consumers to upload photos and order prints in the mail at a low cost. By offering multiple services that cannot be performed by a home printer, this new technology development reduces the demand for this computer peripheral. To combat this declining demand, select printing companies are creating their own online printing services. Also, top printer manufacturers are launching web-connected printers that connect directly with any internet-based photo websites in hopes that consumers will convert from ordering prints to printing at home. This particular trend has potential to increase printer volume sales by 6% (Mintel, 2011). STORAGE DEVELOPMENT The demand for storage space has been on the rise as a result of consumers utilizing more digital services and ever-expanding enterprise system data. Buyers are looking for products that utilize miniaturization, which allows small devices to hold large amounts of memory (Plunkett Research, Ltd., 2011). One key trend in the computer peripheral industry is the growing popularity of flash memory. Flash memory is a certain type of electronically erasable, programmable memory. It is a read-only computer memory chip that retains stored information even when a power source is absent. It is most frequently used in portable electronics that require only moderate amounts of memory (Kayne, 2001). One particularly important development in storage techniques is the emergence of solid state devices (SSD). This product contains no moving mechanical parts, uses less power, and is smaller and more durable than traditional hard disk drives. The cost of SSDs has been decreasing over time, and their holding capacities has been steadily increasing. However, despite the benefits, SSDs are still extremely costly and have significantly slower transfer speeds. Hard drives are still the dominant storage device, although SSDs may pose a threat in the future as improvements are made (Wikinvest, 2012).Cloud computing, which also utilizes flash memory also has negative implications for peripherals in this industry, namely hard drives. Users no longer need ample space for data since they can utilize browsers to store and retrieve information through virtualization (Mintel, 2011). TECHNOLOGICAL DEVELOPEMENTS 14

15. Industry Trends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion The U.S. economy is experiencing a profound transformation in terms of globalization. Globalization refers to the increasing interdependence of countries as a result of increasing integration of the global marketplace. International trade and cross-border investments are the focal points of this assimilation. In particular, China and India are becoming more stable on a global level and are expanding their presence in international trade (Brainard, 2009). This is promising for the peripheral industry because exports represented 75.9% of revenue in 2011 (Freedonia, 2011). Computer Peripheral Industry Exports = 75.9% of earnings GLOBALIZATION Also, the computer peripheral manufacturing industry, as a whole, is very exposed to turbulence in the global economy and is particularly exposed to supply chain disruptions, such as the recent Thai floods [For more information on Thai Flood see Appendix I]. This is due to the fact that input materials come from a wide range of locations and sales of products occur in a wide range of markets (Freedonia, 2011). Any disruption in the supply chains could significantly affect a firm’s ability to match production requirements. Consequently, globalization within the industry has contributed to downward pressure on industry margins. More vulnerable to supply chain disruptions 15

16. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion After investigating the direction of the industry as a whole, this report will identify the ways in which firms can thrive in the midst of the opposition. There are three imperative keys to achievement that will provide firms with higher profits, competitive advantages., and ultimately a better position within the industry. These success factors will serve as metrics to evaluate the competing firms in the industry. By properly defining the necessary qualities of successful firms, it will be easier to highlight the advantages of the industry leader, Western Digital. Investment Recommendation Keys to Success OVERVIEW Industry Trends 16

17. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion Based on the current movements affecting the industry, there are a few qualities a firm must strive for in order to be prosperous. HIGH MARGIN PRODUCTS Possibly the most important of these characteristics is the firm’s ability to increase its profit margin. Low-margin products sell for a price close to the price it costs a company to produce the product. In order to attain a profit on low-margin items, businesses need to sell large volumes of products and keep prices competitive. In this industry, with already falling prices, companies operating at low margins will struggle to cover costs. A high-margin business model is preferred because it does not fully depend on large sales volumes to make a profit. Furthermore, this model allows for more funds to be invested into marketing strategies as well as research and development (Bass, 2012). A large determinant of product margin is the nature of the product itself. Thus, to be successful in the computer peripheral industry, it is essential for the firm to focus on products that naturally sell at a higher prices (Felice and Tatelman 2012). There are also ways firms can attempt to increase their margin, the most obvious way being through differentiation. By distinguishing its product through research and development and by offering the most innovative product, a firm can gain a competitive advantage. Other ways to achieve differentiation involve customer interaction. Not only are user-friendly products expected to outsell complex products, but also the way firms communicate with customers is crucial. A positive customer-image can also provide firms with significant advantages (IbisWorld & Bueno, 2011). This will allow them to sell their product at a higher price and increase its profit margin. SUCCESS INDICATORS 17

18. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion BUYER CONTRACTS Another key indicator of success is a firm’s involvement with contracted buyers. First of all, it is very beneficial for firms to contract with original equipment manufacturers (OEMs) because OEMs often use peripheral items in their production processes (Barclays Capital, 2012). Also, having a connection with computer manufacturers allows firms to sell their products alongside the products of established companies, helping to increase sales and promote the brand name. Additionally, having contracts with computer retailers has a similar effect. Product distribution will likely surge under retail contracts. However, there is a risk. In comparison to direct selling, retailing widens communication gaps between firms and their customers. Relying too much on retail sales can inhibit the firm’s ability to receive and react to customer feedback (Dell Inc., 2011). A successful firm must seek the proper balance of direct and retail sales. EMERGING MARKETS In order to take advantage of the trends in globalization, peripheral companies will need to increase their investment and presence in emerging markets. The companies that will be most successful in the industry will have sought out the markets around the globe will have minimal downward pressure on margins. By building relationships with these foreign companies, peripheral businesses can rise above their competitors(Flexera Software, 2011). Decrease retail sale risk SUCCESS INDICATORS Increase recurring revenues 18

19. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion Taking into account opportunities and threats provided by the current industry trends, as well as the keys to being a successful peripheral firm, an investment recommendation is obvious. Western Digital is clearly the industry lead and is well positioned for future growth and supremacy. The following section will emphasize Western Digital’s control over the industry, reveal its competitive advantages, and mention its plans for future success [See Appendix J for WDC SWOT Analysis]. Investment Recommendation Keys to Success Industry Trends OVERVIEW 19

20. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion As previously stated, when considering all the industry success indicators, it is evident that Western Digital will continue to hold a superior position over all the firms within the industry. It will continue to successfully attain cost efficiencies as well as multiple competitive advantages, allowingittorise to the top. In order to properly confirm Western Digital’s dominance, the following section will utilize the strategy diamond to measure WDC’s corporate strategy coverage. The diamond consists of five sections: arenas, vehicles, differentiators, staging, and economic logic (Carpenter, Bauer & Erdogan, 2009).  Arenas Where is WDC active? STRATEGY DIAMOND OVERVIEW Economic Logic How will WDC achieve growth? What are WDC’s next moves? Vehicles Staging Differentiators How will returns be obtained? How is WDC unique and set for success? 20

21. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion The subject of arenas deals with the locations in which the firm will be active. This includes the product categories, channels, markets, and geographic areas (Carpenter et al., 2009). PRODUCT CATEGORIES Western Digital offers a variety of hard-drives and solid-state drives. Hard-drives consist of 3.5 inch and 2.5 inch forms. They can hold from 80 gigabytes to 3 terabytes and have speeds of up to 10,000 RPMs. Solid-state drives include both 2.5-inch and compact flash forms. They can store information from 1 gigabyte to 256 gigabytes. WDC also offers hard drives that use their WDC GreenPower Technology that utilize significantly less power than the other two drives. Arenas CHANNELS AND MARKETS WDC sells their drives to a variety of original equipment manufacturers (OEMs), distributors and retailers including computer superstores, online retailers, warehouse clubs, among others. They have numerous contracts with OEMs who have been extremely reliable customers (Coyne, 2012). Sales to OEMs accounted for nearly 50% of revenues in FY 2011 (Standard and Poor's, 2012). Dell is one company in particular that boosts Western Digital’s revenue. In 2009, Dell accounted for 10% of WDC’s revenue, which is a significant amount, however not so large that it would be a disastrous effect should WDC lose sales to Dell. By establishing this relationship with Dell, WDC can reach a larger customer base. Also, because Dell does not partake in hard drive production, they have large reliance on WDC’s products (Dell Inc., 2012). This significantly increases Western Digital’s power as a supplier. ARENAS 21

22. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion Arenas GEOGRAPHIC AREAS WDC has sales offices located in the Americas, Asia Pacific, Europe and the Middle East. Sales to foreign subsidiaries of the U.S. comprised 83% of WDC’s revenue in 2011, revealing how Western Digital is taking advantage of globalization. Western Digital will additionally benefit from growth in emerging market economies in the coming years. In fact, by 2016 exports are expected to account for 79.4% of revenues. WDC is well positioned to generate revenues on changing industry currents because of its operations in Asia.  Asian markets are becoming more balanced and switching from a predominantly externally driven economy, dependent on core economies to fuel manufacturing, to a more internally driven economy. Real gross domestic product (GDP) is posed to grow through the emerging middle class and increasing domestic investments in infrastructure. Increases in GDP are expected through 2016 and pose a potential avenue of profits for Western Digital, in particular.  As economies of ASEAN (Association of Southeast Asian Nations) experience increases in wealth, and the accompanying areas of spending and quality of life, these economies will demand more sophisticated technologies and accompanying data storage sources. (Southeastern Asia: growth, 2011) The further consolidation and increasing economies of scale within the storage disk sector of the computer periphery industry will channel ASEAN economies to look to Western Digital to meet their increasing technological and storage demands. ARENAS 2010 2011 22

23. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion Vehicles describes the means by which a company will penetrate the market. It answers questions about how they will pursue growth in the industry (Carpenter et al., 2009).   ACQUISITION WITH HITACHI GLOBAL STORAGE TECHNOLOGIES Western Digital is currently undergoing a process to acquire Hitachi Global Storage Technologies (HGST). This acquisition is on a timeline to be fully completed by March of this year. Western Digital is trying to expand its markets in order to establish a higher market share over its competitors. HGST, located in the Asian markets, specializes in hard drives and other storage devices similar to Western Digital. This will allow the company to increase its economies of scale as they will be able to develop innovative products in a smooth and increasing rate. WDC is hoping that this acquisition will open a gateway of opportunity that will lead this company to the future. Their goal, with the acquiring of HGST, is to merge into new storage markets and into developing economic markets. By gaining this edge over its competitors will allow it to fully utilize its resources and take advantage of the growing storage industry market. Vehicles This acquisition with HGST is a large growth driver for the future of Western Digital. Historically, WDC has kept a low amount of debt on their books. However, with this pending acquisition, WDC will take on 3 billion dollars in debt in this 4.3 billion dollar transaction, including a 2.5 billion dollar term loan and a 500 million dollar revolving credit facility. Doing so will allow WDC to increase revenue streams, through a more diverse customer mix, a larger global footprint and a wider range of products. This, in turn, will bolster Western Digital’s return on equity numbers, which typically are not the best in the industry, and add to earnings per share (EPS) accretion. The acquisition of this Hitachi Global Storage Technologies may come with some risks that may have an impact on the company. These risks include government approvals, termination fees, transaction cost, and the overall finance and implementation process to acquire HGST [See Appendix K for additional risk factors]. However, the CEO is confident that this process will go smoothly and meet its deadline by March (Coyne, 2012). Market Cap: $ 4.3 Billion VEHICLES Amounts in USD millions *Issuance amount taken from stock price 2/2/2012 23

24. IndustryTrends • Introduction • Keys to Success • BestPositioned • Worst Positioned • Conclusion Vehicles Over One Million Hard Drives VEHICLES ACTEBIS DISTRIBUTION Also contributing to growth, in May of 2011, Western Digital was able to achieve an astonishing distribution of over one million external hard drives to European customers with the aid of Actebis. To put this into perspective, this is equivalent to an increase of 50% of unit sales for Actebis. Actebis is a large wholesale distributor in Germany, and this joint venture established one of the leading European expansions for Western Digital products. WDC presented their award of “Strongest Year-to-Year Growth Award” to Actebis for their increasing advancements as a distributor. This award will help keep a positive attitude between the two companies as they will be able to successfully pair up for future distributions. Distributing partners like these will have a huge impact on Western Digital as they are trying to join new markets. The potential acquisition of HGST combined with current distributing partners is a formula for future success for WDC (Western Digital Corp., 2011). 24

25. IndustryTrends • Introduction • Keys to Success • BestPositioned • Worst Positioned • Conclusion Differentiators are the qualities that are unique to the firm in ways that provide it with a competitive advantage in its current and future arenas. (Carpenter et al., 2009).   Differentiators IMAGE Western Digital is a pioneer in the hard drive industry and is known for its cost effective storage solutions and exceptional customer service (Western Digital Corp., 2011). By focusing primarily on HDDs production, WDC has the ability to specialize and fine tune its product. Also, customer reviews and satisfaction rates have been positive from multiple review sites including Newegg, Tiger, Direct, BestBuy and Amazon.com. The products used in digital desktop computers’ internal hard drives, supplied from WDC, received majority of reviews being 4 out of 5 stars, a satisfaction rating of nearly 93%. The other participating sites either matched or exceeded satisfaction ratings of Newegg, surpassing the 71% average ratings of direct competitor, Seagate Technology. The similarity across the board of extraordinary customer services reviews for WDC’s products helps to affirm one of the inimitable aspects of the company, superior value and customer intimacy (Smith, 2011). DIFFERENTIATORS 25

26. IndustryTrends • Introduction • Keys to Success • BestPositioned • Worst Positioned • Conclusion VERTICAL INTEGRATION WDC has been working to establish more ownership in the different stages of the manufacturing process to catch up with the competition. Although Seagate Technology was previously more vertically integrated, WDC has met and will likely exceed the attempts of its competitors (Coyne, 2012). With recent acquisitions of a read/write head company in 2003 and a disk manufacturing company (Komag) in 2007, Western Digital has experienced larger resource access leading to lower production costs, adoptions of more patented technology, and ultimately higher margins. With the acquisition with HGST in the works, WDC’s vertical integration gives it a competitive advantage (Mellor, 2007). Differentiators More Access to Patented Technology More Resources Higher Margins Lower Production Costs DIFFERENTIATORS CAPITALIZATION OF DATA CREATION The data storage industry is a byproduct of the technological revolution and increasing access to online information, social media, and transferring digital content, such as music and videos, to databases. The increasing amount of information being stored in both client and cloud severs will increase demand for storage products. The significant increase in data creation is made evident when considering the increasing maximum capacity for hard drives. This high use of digital content has forced HDD producers to increase capacity to meet consumer demands. This increase in data storage allows WDC to rise to the top of the periphery market by ensuring a high demand for its product (Western Digital Corp., 2012). Change in Maximum Capacity for Hard Drives 2010 2000 (Kerekes, 2011) 3TB = 4,830 CDs 180GB = 283 CDs 26

27. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion Staging Staging signals the sequence, as well as the speed, of strategic moves. This valuable step of strategizing will help Western Digital add vision and dynamic to its strategy (Carpenter et al., 2009). Two main areas where WDC has implemented timely plans are in relation to the Thailand flood and the increasing interest in standard state drive storage (SSDs). THAILAND FLOOD The flooding in Thailand, which took place in the end of October of 2011, has placed a massive constraint on Western Digital, which relies heavily on its production facilities in Thailand. This serious setback in production capacity of the first quarter of 2012 will make it so the company, and the industry as a whole, will fail to satisfy the increasing hard drive demand. However, Western Digital is pursuing plans to overcome this obstacle. In a conference call for the first quarter of 2012, John Coyne (CEO of Western Digital) expressed that he felt the company would experience the impact of the major flooding throughout 2012, but was optimistic that the company would be operating at pre-flood levels around September of 2012. He is confident that Western Digital can withstand these recent challenges and remain the preferred solution for storage devices. One main difference in WDC’s post-flood strategy is to create a more robust and geographically dispersed supply chain. There are plans to expand more production facilities, especially to Malaysia. This will help “mitigate risk” of future supply chain disruptions (Coyne, 2012). STAGING Western Digital should be operating at pre-flood levels by September of this year. This demonstrates WDC’s ability to appropriately manage challenging situations. This strategic superiority positions the company at the top of the industry. 27

28. IndustryTrends • Introduction • Keys to Success • BestPositioned • Worst Positioned • Conclusion Staging STANDARD STATE DEVICE STORAGE The other strategy on which Western Digital focuses on pacing refers to its anticipated participation in SSD production. Western Digital has pursued SSD production within the client environment, but is not convinced of the product’s value proposition. WDC is not threatened by the growing usage of SSDs. According to company CEO Coyne, “The economics do not work. The cost of the storage/performance is too high” (Coyne, 2012). STAGING HDD = $75 SSD = $115 (Crothers, 2011) Storage Device Pricing Another product to consider is the hybrid hard drive, which combines the rotating elements of a hard drive with flash memory technology. Competitor Seagate Technology currently holds the market for hybrid drives, but Western Digital is strategically planning its entrance. Western Digital is anticipating an increase in operating systems’ abilities to utilize flash memory, and is waiting to enter the market until it is more prevalent and lucrative. It is likely that WDC will release a hybrid product within the year. By waiting until the demand for the hybrid device is higher to release the new line, Western Digital can penetrate the market when product interest is at its peak (Beeler, 2011). 28

29. IndustryTrends • Introduction • Keys to Success • BestPositioned • Worst Positioned • Conclusion Economic Logic Economic logic answers the question of how the firm will make a revenue. It reveals how profits will be produced above the firm’s cost of capital (Carpenter et al., 2009). PRICE AND MARGIN HDDs are a high margin productin comparison to other peripherals, meaning WDC can naturally sell these products at a much higher price. This provides WDC with competitive advantage over companies who sell, mice, for example. It is important to note that Western Digital does not market its product on the basis of cost strategy, but it focuses on providing its customers with quality and low maintenance products. For each unit sold, WDC makes more revenue than its competitors, eliminating pressure to sell in large volumes (Western Digital Corp., 2011). This will drop its break-even value, and make profit easier to obtain. Also by providing a high margin product, WDC will have more money to reinvest in research and development, allowing the company to further differentiate its products, presumably resulting in a higher revenue (Coyne, 2012). This advantage is further demonstrated by analyzing WDC’s financial ratios.Western Digital leads the investigated companies in both operational (8.04) and net profit margins (7.04) (Thompson Reuters Knowledge, 2012) ECONOMIC LOGIC WDC Geographic Revenue Trend (Western Digital Corp., 2011) 29

30. IndustryTrends • Introduction • Keys to Success • BestPositioned • Worst Positioned • Conclusion FINANCIAL STATEMENTS Economic Logic ECONOMIC LOGIC 30

31. IndustryTrends • Introduction • Keys to Success • BestPositioned • Worst Positioned • Conclusion FINANCIAL STATEMENTS Economic Logic ECONOMIC LOGIC Financial Statements Analyzed Western Digital has made significant progress financially over the past three years and is posed to continue this trend into the future. Not only has the company seen revenue accretion, but it has been able to do so while simultaneously increasing margins. Western Digital has a very low leverage, which highlights positively that management is able to strengthen the company financially by increasing assets and cash, but not taking on significant amounts of debt. 31

32. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion Economic Logic Financial Comparisons Analyzed Although Western Digital has the second lowest market capitalization in the industry it is clearly the industry leader in terms of the ratios compared in this analysis. Ratios highlighted in green represent metrics where WDC is the industry leader or second only to the industry leader. The high margin HDD drives allow WDC to have industry leading operating and net profit margins. Its highly successful customer relations allow the company to have industry leading inventory turnover and accounts receivable turnover rates. These factors permit the company to have a minimal amount of debt and consequently a high return on assets (ROA). All of these factors have contributed to the fact that WDC has a tremendously high revenue growth and EPS growth compared to its peers in a 5-year historic average analysis [See Appendix L for definitions of financial ratios]. ECONOMIC LOGIC 32

33. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion Economic Logic FOUR YEAR STOCK CHART ECOMONIC LOGIC (Yahoo Finance, 2012) Stock Chart Analysis Western Digital, with a beta value of 1.34, should be expected to move up and down to a higher degree when compared to the Standard and Poor's 500 [See Appendix G for beta explanation]. WDC has largely outperformed the Standard and Poor's 500 and its competitor Dell throughout the period when stock price is rebased. WDC had an especially good year of outperformance from 2Q2009 to 2Q2010. However, the price of WDC fell sharply during the recession, as well as during the summer volatility of 2011. Currently, the price of WDC is inline with the Standard and Poor's 500 and Dell. 33

34. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion When analyzing the company of Dell as a whole, its position is reasonably favorable. Dell competes based on its ability to provide its customers with efficient, affordable, and integrated solutions. Dell has recently strengthened its relationships with contract manufacturers and manufacturing outsourcers to reach its objectives of producing cost efficiencies, delivering products faster, and improving customer service. Historically they have focused on direct selling in order to aid margin growth, streamline production, and best understand customer’s needs. Dell also has an optimized supply chain and a stable existence in the global market (Felice & Tatelman, 2012). However, Dell’s recent expansion, in terms of retailers (nearly 56,000 worldwide) and international operations, negatively impacts customer intimacy (Dell Inc., 2011). Thus, the competitive advantage formerly held by the firm is progressively fading away. Additional threats that contribute to Dell’s weak standing in the peripheral industry arise from industry trends decreasing demand for Dell’s peripheral offering [See Appendix M for DELL SWOT Analysis]. DELL INC. Decreasing Industry Demand for Peripherals Mice Keyboard Monitor Printers 34

35. IndustryTrends • Introduction • Keys to Success • Best Positioned • WorstPositioned • Conclusion The primary reason Dell is inferior to other companies within the peripheral industry is its corporate strategy to combat falling peripheral prices. While Dell is following industry trends of trying to increase product margin, instead of differentiating and improving upon its current peripheral product line, it is choosing to prune its peripheral offering. According to Steve Felice, president of customer and business divisions of Dell, 2012 will be a year for “winding down” low-margin peripheral items. These include mice, keyboards, printers, and monitors. DELL INC. Thus far, Dell has experienced a $3 billion loss as a result of cutting these products, however with the remaining $57 billion dollars it plans on focusing on high-margin storage and telecommunication devices (Felice & Tatelman, 2012) [See Appendix N for DELL financials]. It will be nearly impossible for Dell to compete in the peripheral industry with a concentration on storage units because of the strength of the competition, namely Western Digital. Additionally, Dell is not currently involved in hard drive production, but sells those of third party retailers, including Western Digital (Dell Inc., 2012). It is impossible for a firm to be positioned well within an industry if it is making efforts to decrease its involvement. Thus, Dell’s corporate strategy significantly decreases its presence in the peripheral industry, essentially eliminating it as a competitor. “We still think there is more pruning that we're finishing, which is getting rid of things that don't necessarily add healthy profitable growth [computer peripherals].” - Steve Felice, 2012 35

36. IndustryTrends • Introduction • Keys to Success • Best Positioned • Worst Positioned • Conclusion After researching the computer peripheral industry and examining Hewlett-Packard, Seagate Technology, Logitech, Western Digital Corporation, and Dell, Inc., we were able to identify threats and key ways to succeed within this industry. As historical trends prove, the peripheral industry is at a steady decline regardless of its recent increase in sales over the past two years. With this in mind, Dell, Inc. is slowing moving out of this industry as it does not see a large enough profit margin with these products. However, Western Digital has been able to tackle and illustrate ways to overcome the economic challenges that arise within the peripheral industry, including its enhanced interests in emerging markets. WDC focuses its peripherals in the storage sector of this industry because it sees the positive trend and need for increasing storage in the near future as computer technology is advancing. Therefore, Western Digital is in the best position for success, leaving Dell, Inc. in the worst position within the computer peripheral industry [See Appendix O for research limitations]. CONCLUSION RECOMMENDATION 36

37. A S.W.O.T. analysis is performed in order to highlight the potential of a firm within an industry. Strengths and weaknesses indicate company specific factors, while opportunities and threats divulge industry effects upon the firm. Hewlett Packard Strengths Weaknesses • Wide variety of printing products and strong research and development (Hewlett Packard Company, 2011) • Successful business model (Woodhull, 2011) • Large geographic presence increases diversity and growth opportunity (IbisWorld & Bueno, 2011) • Holds the largest market share of the peripheral industry with 32.4% (GlobalData, 2011) • Obtained 11 acquisitions in 2011, strengthening HPQ’ s share and market segments (Standard & Poor’s, 2011) • Declining liquidity: Long-term debt has increased from 2009, and current ratio, short-term investments, overall cash ratio, and working capital have all decreased since 2009 (GlobalData, 2011) • Lawsuits negatively affect the image of the company (GlobalData, 2011) • Limited peripherals lessens HPQ’s chances to sustain market share (Hewlett Packard Company, 2011) APPENDIX A: HPQ SWOT ANALYSIS Opportunities Threats • Decrease in PC usage lessens the need for printers and other peripherals (Morgan Stanley, 2011) • Tablet PC emergence decreases demand printers (Mintel, 2011) • Businesses going “paperless” and “going green” lessens the need for printing • products (Callow, 2009) (Bailey, 2010) • Online printing services decrease home printer use (Mintel, 2011) • Price of printer is declining which could decrease revenues (Euromonitor, 2011) • Rapid technological improvements create high competition (GlobalData, 2012) • Expanding market to incorporate wireless printers connected directly to internet (good for internet printing service, SnapFish.com) (Mintel, 2011) • Increased use of home computers because of job searches and home office increases due to the recession (Mintel, 2011) • All-in-one printer increases product margin (Hewlett Packard Company, 2011) • Globalization opens possible foreign markets (IbisWorld & Bueno, 2011) Explanation of mediocre standing: HPQ holds the largest market share in the computer peripheral industry with 32.4% through its Imaging and Printing Group. However, while HPQ is a very strong company, recent trends such as “going green” decreases the need in total printing, creating the potential for HPQ to lose market share. Even though HPQ has been adapting to the growing wireless trend, online printing services have lessened the need for household printing. Also, historical finances have shown a decline in profit, and 2012 will be spent rebuilding the balance sheet. 37

38. Seagate Strengths Weaknesses • Merger with Samsung to enter SSD market, potentially increasing production capacity by 33% - increase EPS • Pursues a vertically integrated manufacturing strategy for hard drives, allowing for patented technology and lower production costs • Contracts with OEMs • New product line increasing breadth of portfolio • Merger with Samsung resulting in decreasing margins • Select component suppliers are closed down globally (Seagate Technology) (Standard and Poor's 2012) (Seagate Technology) (Standard and Poor's 2012) APPENDIX B: STX SWOT ANALYSIS Threats Opportunities • Globalization opens possible foreign markets (IbisWorld & Bueno, 2011) • Digital service usage increasing, revealing demand for HDDs (Plunkett Research Ltd, 2011) • HDDs are a high-margin product, easier to make profit (Standard and Poor’s, 2012) • Selling price of hard disk drives rose 22% in the fourth quarter of 2011 (Standard and Poor’s, 2012) • Expansion into new storage markets – SSDs in particular (Standard and Poor's, 2012) • Decrease in PC usage lessens need for HDDs (Morgan Stanley, 2011) • Tablet PC sales increase decreases need for HDDs because of flash memory usage (Mintel, 2011) • Overall increase of flash memory use (specifically SSDs and cloud storage) could potentially decrease the demand for HDDs (Morgan Stanley, 2011) • Global supply chain disruptions in Thailand decreased HDD production - medium-high supplier power (Coyne, 2012) Explanation of mediocre standing:While Seagate Technology is an overall strong company and holds a solid position within the data storage marketplace, there are areas of concern: its recent acquisition of Samsung’s storage unit, which is less profitable than expected, the untimely release of its SSD and hybrid storage technology, and its overall weaker financials during the past 3 years. The company also fails in comparison to Western Digital’s customer service departments. 38

39. Logitech Strengths Weaknesses • Able to satisfy all the levels of electronic devises • Increasing research and development for the tablet market • Expanding into other markets with the acquisition of LifeSize for the video communication market • Creates a innovative working culture • Has a well design and efficient supply chain. • (Logitech, 2012) • Cost structure; their prices are high compared to its competitors • Limited to peripherals • Poor investments with the design of the Revue for Google tv • (Logitech, 2012) APPENDIX C: LOGI SWOT ANALYSIS Threats Opportunities • Tablet PC emergence opens new market opportunity for tablet mice and keyboards, which are higher margin products (Morgan Stanley, 2011). • Increasing competition has led to increased mergers/acquisitions (Datamonitor, 2011) • Manual input device shipments grew 4.3 % per year from 2005 to $235 million in 2010 (Freedonia, 2011). • Globalization opens possible foreign markets (IbisWorld& Bueno, 2011) • Decrease in PC usage lessens need for traditional mice and keyboards (Morgan Stanley, 2011) • Tablet PC emergence decreases demand for traditional input devices (Mintel, 2011) • Declining sales price makes profit difficult to achieve – need to increase sales substantially (Euromonitor, 2011) Explanation of mediocre standing: Logitech has limited profitability potentials within the industry. Demand for traditional input devices is steadily declining as PC usage decreases and tablet sales skyrocket. However, this does open an opportunity for Logitech to focus on tablet mice and keyboard development. While this provides the firm with a growth potential, eventually Logitech will experience diminishing returns to technological investments for their input devices. 39

40. BUSINESS MODEL Hewlett Packard was founded by Dave Packard and Bill Hewlett in Palo Alto, California in 1939. They began the company as a small electronics-manufacturing firm. It went public in November of 1957. In the beginning, only general electronic products were sold. The first electronic device that the company manufactured was the audio oscillator. In the late 1950s, HPQ started to mass produce their products and services. They expanded their products to multiple types of computers, printers, servers, storage products, services, and more. The company then started to make computing servers in the 1970s. The firm’s headquarters is still in Palo Alto but now has many locations all over the world (Oono, 2011). HPQ has a very specific type of style in mind in which the company envision themselves to be. They strive to be a leader in the technological marketplace by offering innovative products and services. They have a strong commitment to employees by rewarding them based on performance and a work environment that holds true to HPQ's values based on passion for customers, respect for others, achievement, contribution, results, speed, innovation and integrity. They want to develop leaders at all levels to achieve results and reflect their values as well as accomplish social responsibility by being an asset to every place they do business (Hewlett Packard Company, 2011). In summary, they strive to fulfill “the HPQ way”. According to Bill Hewlett, the HPQ way is “a core ideology…which includes a deep respect for the individual, a dedication to affordable quality and reliability, a commitment to community responsibility, and a view that the company exists to make technical contributions for the advancement and welfare of humanity. (“Answers: Reference Answers,” 2011). The company now offers a very wide selection of IT products and services. They are grouped into Personal Systems Group (PSG), Services, Imaging and Printing Group (IPG), Enterprise Servers, Storage and Networking (ESSN), HPQ Software, and HPQ Financial Services (HPFS) (Hewlett Packard Company, 2011). However, when it comes to computer peripherals, HPQ works through its imaging and printing product base. They are the number one leader of printing products in the world. 20% of its revenue came from the printing and imaging group in the 2011 fiscal year, making it the most sold peripheral group (Ibis World & Bueno, 2012). In their Imaging and Printing Group, consumer and commercial printers, printing supplies, and media and scanning devices are sold. The two types of printers sold are inkjet and laser printers, which cover a substantial number of models (Hewlett Packard Company, 2011). HPQ's consumer and commercial all-in-one printers make printing, scanning, copying, etc. more efficient because all functions are available in one space. This also increases their product margin because they can sell it at a higher price than its cost (Euromonitor, 2011). The model that has had the most success for HPQ, when marketing and selling their printers, is the razor-and-razorblade model. They sell their printing products at a relatively low cost, and charge a high price for ink refills with a margin over 50%. They sell their consumer printers at a loss and commercial printers at a small profit (Woodhull, 2011). ADMINISTRATIVE ANALYSIS In total, HPQ has approximately 349,600 employees, and that number has an annual growth of 7.7% (“Answers: Reference Answers,” 2011). HPQ believes that they must attract, retain, train, motivate, develop, and transition employees by providing a competitive compensation package. The compensation is both cash and share-based. HPQ has a strong focus on employee ‘s morals and motivations. When this is disrupted, they implement restructuring programs (Hewlett Packard Company, 2011). HPQ is ran by highly qualified individuals such as Margaret C. Whitman which is the President, Chief Executive Officer, and Director of Hewlett Packard (OneSource Information Systems, Inc., 2012). Ravi Aggarwal is the President of the Imaging and Printing Group. Vyomesh I. Joshi is the Executive Vice President of the Imaging and Printing Group (Reuters Research, Inc., 2012). Gail Galuppo is the Senior VP of Imaging and Printing (infoUSA, 2012). APPENDIX D: HPQ COMPANY ANALYSIS 40

41. HPQ printing and imaging products are sold through a wide variety of vendors. Products are sold by both direct and channel distribution, and vary by region. Channel partners include retailers that sell through brick-and-mortar and Internet stores, resellers that sell HPQ products/services with their own value-added products, distributors that supply to smaller resellers, independent distributors that sell HPQ products in unreachable regions, original equipment manufacturers that use HPQ products with their own hardware or software, independent software vendors that provide customers with specialized software products, etc. (Hewlett Packard Company, 2011). MARKETING ANALYSIS HPQ peripheral products are sold at a considerable number of retail stores such as Best Buy, Walmart, Circuit City, and many others. This includes internet stores that sell directly through HPQ or indirectly through retailer’s websites. This is not normally marketed because HPQ products are sold in very widely known locations. In order to differentiate their products, HPQ uses patents in many of their products. They own 36,000 patents and intellectual property, which include patents on their ink cartridges and hardware devices. Because of severe price competition and because of the deep breadth and depth of their product selection, the quality of their products is what is most focused on and what is most portrayed in their marketing. While many HPQ peripheral prices are not advertised, they must be adjusted to stay competitive (Hewlett Packard Company, 2011). Their strategy has been to sell printing hardware at a relatively low cost and charge a relatively high cost on their ink cartridges with a margin of 50% (Woodhull, 2011). This strategy has proved very successful thus far. HPQ uses many sales promotions and advertising to endorse their products. These include annual back-to-school sales, where their goal is to become a one-stop shop for students technological needs (Emeka, 2011). They send coupons and sales offers to registered HPQ users via email and postage mail. They also have an extensive amount of commercials on television for almost all of their breakthrough innovations. HPQ offers customer service through Internet chat, phone service, and email (“Marketing teacher,” 2011). While 70% of HPQ users are satisfied with their products, 16% of people rated HPQ's service as either bad or terrible (“HPQ: Best &,” 2011). Within the Imaging and Printing Group, HPQ's competition includes Canon U.S.A., Inc., Lexmark International, Inc., Xerox Corporation, Seiko Epson Corporation, Samsung Electronics Co., Ltd., and Brother Industries, Ltd. (Hewlett Packard Company, 2011). Because HPQ gets most of its imaging and printing revenue from ink sales, a few retailers have started to fill HPQ compatible cartridges with their own private-label ink. These retailers include office supply stores such as Staples and Office Depot, as well as independent ink supply stores. However, HPQ has put patents on their cartridges in response to this (Woodhull, 2011). While HPQ might have very large corporations as their competition, they still have the greatest market share within the overall peripheral industry with 32.4%. Although HPQ has a large market share in the peripheral industry, the only peripheral they sell is printing products. While HPQ might be accommodating to the increasing paperless trend, people are still trying to print less, and this could lessen their ability to sustain their current market share (Bailey, 2011). This means that its customer base for printing products is the largest and also that it is known for its imaging and printing offers (GlobalData, 2011). HPQ products are sold in more than 170 countries, which increases both diversity and growth opportunity within the company (IBISWorld, 2012). HPQ also competes with other firms on the bases of original equipment manufacturers (OEM) that design, manufacture, and market products under their brand names (Hewlett Packard Company, 2011). APPENDIX D: HPQ COMPANY ANALYSIS 41

42. COMPANY DEVELOPMENT In 2000, HPQ acquired Compaq for $25 billion, which gave them a better market position against other large companies including IBM. It has been the biggest acquisition in the company’s history so far (GlobalData, 2011). HPQ significantly increased their service capabilities with the acquisition of Electronic Data Systems in August of 2008. In 2010, HPQ acquired a total of 11 firms including 3Com Corp. ($2.7 billion), Palm Inc. ($1.2 billion; allowed HPQ to start using webOS for tablets), 3PAR ($2.35 billion), Arcsight ($1.7 billion), Autonomy Corporation PLC in the U.K. ($10 billion), and six others. (Standard & Poor’s, 2011). HPQ uses many outsourced manufacturers around the world which reduce cost and time and to improve flexibility. Third-party OEMs make products that are sometimes purchased by HPQ and resold with the HPQ logo. They use a building-products-to-order structure to make manufacturing and logistics more efficient. They also use a configure-products-to-order to meet the specific needs of customers (Hewlett Packard Company, 2011). Research and development is the biggest contributor to HPQ's goal to make innovative products. Along with the use of HPQ labs, large investments are put into R&D. $3.3 billion was spent in 2011 on research and development (Hewlett Packard Company, 2011), $3.0 billion in 2010, and $2.8 billion in 2009. This is making a major impact on the company in the sense that HPQ is strengthening its market position as well as penetrating other market segments, making the company grow substantially (GlobalData, 2011). Digital content is growing 10-fold every year, and the number of printable documents is increasing three times every year. The usage of smart phones and tablets has substantially increased. It is projected that by 2013, 85% of people using mobile devices will want to print from them (Pereira, 2012). This has lead to many new technologies that cater to the latest consumer trends of “going green” to reduce paper and also the rise in the use of mobile devices. In regards to peripherals, they released their latest e-print service in 2010, which allows users to print photos and documents from any location from any web-connected mobile device, such as their SnapFish.com service (Whitman, 2011). Because they have adapted to the wireless and mobile trend, they have the chance to keep their market share. After acquiring Palm, Inc., HPQ started to use their webOS system to operate their new Slate Tablet PC. However, the webOS system proved to be inefficient and sales were very low, so the tablet was discontinued (Reuters Research, Inc.). In 2011, HPQ released webOS 3.0 for their tablet. These tablets should also be able to allow wireless printing (GlobalData, 2011). This should increase the aesthetics and the usability of the tablet. Also, because of the recession, people have been using home offices for job searching. Starting home businesses and working from home has also increased. This gives HPQ a chance to develop products and services that cater to that trend (Mintel, 2011). In 2006, the U.S. Securities and Exchange Commission conducted an investigation into HPQ's disclosure of information to the public. Similarly and more recently, the company is under investigation for insider trading for leaking private information to the media, which made a few of its board members resign from the company. Because of these lawsuits, HPQ was forced to sign a treaty with the California Attorney General for solving civil claims because of the investigations. In March 2010, the company re-filed their lawsuit against those selling their patented cartridges. All of these legal implications negatively effect the reputation of HPQ (GlobalData, 2011). APPENDIX D: HPQ COMPANY ANALYSIS 42

43. APPENDIX D: HPQ COMPANY ANALYSIS 43

44. APPENDIX D: HPQ COMPANY ANALYSIS 44

45. BUSINESS MODEL Seagate is the leading manufacturer of hard drives and storage devices in terms of revenue among competitors. The company was established in 1979 and headquartered in Dublin, Ireland. They have been a major player in the storage industry since their inception, most notably the HDD industry, and was named Forbes 2006 company of the year. STX focuses on high performance, relatively low cost and high storage capabilities (Standard and Poor’s 2012). Recently the company has stepped up its efforts in the emerging SSD marketplace starting with its first SSD developed in 2009 and is anticipating that natural progression of technology will force the SSD marketplace to have large market share within the storage industry. The company feels this way because of its potential avenues into small, hand held electronic devices (Seagate.com). In a highly concentrated and further consolidating industry, Seagate is highly vertically integrated and uses this to achieve overall effective cost cutting measures and capitalize on economies of scale. Seagate has a well-established, vertically integrated supply chain operation in which they have a high amount of control of the resources that go into creating their storage products. This vertical integration model gives them an advantage within the hard drive manufacturing process, but this advantage is not sustainable because of increasing consolidation within the technology, and more specifically the storage unit industry. A vertically integrated model works to capitalize on economies of scale, so it incurs added risk in times of low demand because of the increased overhead that comes with owning different stages of the production model. Seagate has worked to acquire companies recently, such as Samsung, and previously in 2007 with EVault, as well as 2006 with Maxtor Corporation. This further emphasizes the consolidation within the storage environment and the inability to attain sustainable competitive advantages among leading competitor Western Digital. Seagate was one of the few technology companies to be able to continue production in Thailand during the recent flooding and has allowed them to gain premium pricing profits during the time when demand by the industry far outweighs the available supply because competitors such as Western Digital had to holt operations as flooding ran rampant through the area (Seagate Technology, 2011). ADMINISTRATIVE ANALYSIS The company is led by executive officers, Stephen J. Luczo who acts as Chairman, President and Chief Executive Officer, Patrick J. O’Malley, Executive Vice President and Chief Financial Officer and Robert W. Whitmore Executive Vice President and Chief Technology Officer. Whitmore is in charge of the emerging SSD product innovations strategy and development which is a major trend in the companies production. Additional executive officers, William Mosley, Operations, Albert A Pimentel, Chief Sales and Marketing Officer, Kurt Richarz, Sales, Kenneth Massaroni, General Counsel and Chief Administration Officer, and David Morton Jr, Finance, Treasure and Principal Accounting Officer. This group of executives directs Seagate on its business strategies and works to ensure long-term stockholder wealth within the company objectives (Seagate Technology, 2011). Below the executive level are the 52,700 employees in which Seagate employs on full-time, part-time and temporary positions. Of those employees, 45,500 work in positions outside of the U.S. in Asian based operations. The executives at Seagate believe their employees are an important part of their operations and continued growth. This group of executives believes that the natural evolution of the storage industry will move toward solid state drives, and the company team has worked to position itself as a leader in the solid state drive industry. The ability to attract qualified individuals will in part determine the company’s future prosperity (Seagate Technology, 2011). MARKETING ANALYSIS Seagate is a major seller in the computer storage markets and, as mentioned previously, is the largest in the industry in terms of revenue. The company works to sell their products through channels of original computer manufacturers, which made up 69% of 2011 sales, distributors 22%, and retail 9% respectively. The company relies on sales in three main geographic areas including Asia, North America and Europe, and split revenues among those regions 51%, 29% and 21% respectively(Standard and Poor's, 2012) . APPENDIX E: STX COMPANY ANALYSIS 45

46. APPENDIX E: STX COMPANY ANALYSIS 46

47. APPENDIX E: STX COMPANY ANALYSIS 47

48. BUSINESS MODEL Logitech focuses on innovation and quality that is concentrated on personal peripherals to help people enjoy a better experience with the digital world. When established in 1981, LOGI’s main focus was computer mice. At the time, this product established a more interactive way to use a computer. To this day they have been the world leader in mice and have innovated various ways to match the evolving needs of PC and laptops. Currently, Logitech is expanding its expertise in product design beyond the mouse by creating a broad portfolio on a variety of peripherals with the intentions of bringing consumers ever closer to a PC. The company has been established in almost every country worldwide with special importance on products for PC navigation, gaming, Internet communications, digital music, and home entertainment control. In order for Logitech to achieve its newly innovative products, is has established a culture that focuses on pride. It understands incentive for a consumer to buy or not buy their product. This makes it clear that its company’s logo is, in most cases, the deciding factor for consumers. In order for Logitech to keep this image of importance, is places its work in show cases all around the office with pride. To create this innovative process, Logitech allows for its employees to present an idea or design that can potentially be taken into consideration in a final product. It also performs one-on-one interviews with potential target markets. By establishing a point of view from a direct source, it is able to see what will work or not work in the real world. In some cases, this has sparked new ideas that helped the product in the market. Logitech is currently focusing its investments in R&D to continue to innovate. Logitech has spent $135.8 million on research and development in FY2010 which is an increase over the past three years (Logitech, 2010). Its goal is to differentiate Logitech in order for it to earn a higher average selling price to increase its gross margin. Logitech is also focusing on creating a managing and complete supply chain to create a closer relationship between its retailers and consumers. This is being done through a series of in-house and outsourced manufacturing, for Logitech has a high volume manufacturing plant in Suchou, China. Logitech creates a broad range of peripherals including interface devices and software. These products include Internet video cameras, mice, trackballs and keyboards, PC audio and telephony products, and interactive gaming controllers. Logitech creates all these aspects for Apple and Android tablets as well as phones, computers, gaming devices and iPods including web cams and home entertainment. A list of individual products is comprised of mice, keyboards, speakers, Wi-Fi entertainment, stands, touch pads, trackballs, presenters, lap desk cooling pads, webcams, microphones, gaming controllers, Revue, security cameras, as well as many more. This company sells and distributes its products through a series of channels, including distributors, OEMs, and regional and national retails, as well as online retailers. Logitech supports these channels through third party distribution centers located in Europe, North America, and Asia Pacific. These centers perform final configuration of products and product localization with local language manuals, packaging, software CDs and power plugs. In addition, Logitech’s distribution mix includes e-commerce in the U.S. as well as e-commerce capabilities in several European countries. ADMINISTRATIVE ANALYSIS Logitech has recently named Guerrino De Luca the new active CEO due to the resignation of their past CEO. He was the Chairman of the Board since January,2008. He gained the active president and chief executive officer role in July 2011. He is responsible for the continued growth as a world leader in products that connect people with computer and digital products. Guerrino De Luca was the CEO in the early 1998. During his time as CEO, 1998 to 2008, the company had nine consecutive years of record sales and profits they grew from $400 million to $2.1 billion and its operating income grew form $16 million to more than $230 million. De Luca has an impressive resume as he served as executive vice president of worldwide marketing for Apple Computer, Inc. He was the president of Claris Corporation, personal computing software vendor, after having served in various marketing positions with Apple in APPENDIX F: LOGI COMPANY ANALYSIS 48

49. the United States and Europe. He started his career at Olivetti in Ivrea, Italy. Guerrino De Luca gained his bachelor degree in electronic engineering from the University of Rome, Italy. (Logitech, 2010). MARKETING ANALYSIS Logitech’s target market is expanding from personal computer interface and video game experience to home entertainment. It is trying to tackle the peripheral industry on all levels. The push into this direction provides additional attention and opportunities for the company because it sees the potential losses in the computer peripheral industry. The competition for the peripheral industry is aggressive as this industry is showing signs of fluctuation and a push into products that have a higher demand such as hardware or storage devices. Logitech is constantly competing with prices from its competitors because they have products that touch on all counts of the peripheral industry. Its main competitors include Microsoft Corporation, Hewlett-Packard, Universal Electronics, and Polycom, Inc (Logitech , 2010). Logitech sees the trend of increasing tablets and understand the importance of that market. It has developed an R&D program that enables it to penetrate that particular niche market. As a result, this will increase its sales. Logitech has created incentive programs that include consumer rebates as well as distribution and retail customer’s rebates. It enters into various contractual customer incentive programs with its distributors for this helps increase the brands reputations and incentives to purchase its products. COMPANY DEVELOPMENT As of December 11, 2009, Logitech acquired LifeSize Communications Inc. This acquisition cost Logitech $383 million in cash but is believed that they are boosting Logitech’s potential in-home and office video conferencing markets. It expects rapid growth in this segment as LifeSize had revenues near $80 million in 2009 (Standard & Poor’s, 2012). The combination of these companies creates a potential advantage over its competitors by expanding into different markets and increasing their economy of scale for they meet with Logitech’s video conferencing segment. APPENDIX F: LOGI COMPANY ANALYSIS 49

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