ENGR 193 A/293 A: INDUSTRY ANALYSIS IN THE TELECOM/IT SPACE

1. ENGR 193 A/293 A: INDUSTRY ANALYSIS IN THE TELECOM/IT SPACE Week 5: October 26, 2010 Pick up Bluetooth packet

2. Tonight’s Schedule • Any issues to discuss? • How are teams doing? • Thoughts on speaker last week • Other questions/issues • Basic information on Bluetooth • SWOT application: LG • Apple, Inc. 2008 case discussion • Begin metrics and financial ratios discussion • Team projects – check in

3. SWOT Analysis Strengths: capabilities that enable your company to perform well (how can they be leveraged) (Internal) Weaknesses: characteristics that prohibit your company from performing well (that need to be addressed) (Internal) Opportunities: trends, forces, events and ideas that could be important in the future of your company (External) Threats: possible events/forces outside of the company’s control that the company needs to plan for (External) Source for section: Harvard Business School Press, excerpted from Strategy: Create and Implement the Best Strategy for Your Business, 2005, Harvard Business School Publishing Corporation

4. SWOT Analysis

5. Customers Pricing constraints Competitors Distribution issues Technology Economic Factors Regulation Lifestyle trends Suppliers Potential partners External Analysis • External factors: looking outside the company for threats and opportunities

6. Lifestyle Trends • Larger lifestyle trends impact our lives today and in the future • Many sources of information • Yankelovich Monitor: Since 1971, longest-running, most in-depth study of consumer value and lifestyle trends, featuring an annual study of several thousand adult consumers (ages 16+) • Teenage Research Unlimited (TRU Study): Since 1983, 1,600-plus teens (12-19) and 1,600 twenty-somethings (21-29), nationally representative of the U.S. population in terms of age, gender, ethnicity, region

7. Customers: Questions to Explore • Who are they/customer profile: segmentation • How are customers targeted by company? • Current usage of company’s product or service • Satisfaction with company’s product or service • Price sensitivity • Customer loyalty • Market share

8. Segmentation • Segment by: • Demographics: • Age • Gender • Income • Race • Geography • Behavior: • Usage of product or service • Psychographics: based on personality, values, attitudes, interests, or lifestyles Need to understand the impact of each segment on company profitability

9. Price Sensitivity • Price elasticity of demand • Impact of price changes on customer demands • Percentage increase in price/Percentage decrease in quantity = Price elasticity of demand • The higher the ratio, the more sensitive customers are to price changes • Impact of price elasticity on customer behavior

10. Competition • Define the competitive arena specifically • Define the competitors • Assess the attractiveness of the competitive arena • Use Porter’s Five Forces Model

11. Technology and Regulation • Emerging technology • View as a threat and an opportunity • Impacts business processes, not just businesses • Regulatory issues • View as a threat and an opportunity • Examples: safety, PUC, free trade, etc.

12. Other External Factors • Larger Economic Issues • How will our current economic outlook impact business in the next 3 – 5 years? • Distribution • Partners • Suppliers

13. Internal Factors • Internal factors: looking inside the company for strengths and weaknesses • Current performance • Cost structure • Brand power • Product portfolio • R&D pipeline • Technical mastery • Employee skills • Company culture

14. Financial Performance • Key financial information needed: • Cash flow trends: cash received or expended over a period of time • Access to outside capital: if cash flow is not sufficient • Return on invested capital: how well a company generates cash flow relative to the capital it has invested in its business: (net operating profit – taxes)/total capital • Return on assets: how profitable a company’s assets are in generating revenue: net income/total assets • Segment, unit and company profitability trends

15. Branding • What is the awareness of the brand? • What is the attitude toward the brand – among customer and non-customers? • How important is the brand in the success of the product or service?

16. Core Competency • Core competency: a company’s expertise or skills in key areas that directly produce superior performance • Superior performance must also be highly valued by customers, and • Hard to copy • Durable • Appropriate • Sustainable (substitutes) • Superior to the competition

17. Assessment of Culture • What is the culture of the company? • How does management affect that culture – both positively and negatively? • Is the culture of the company consistent with its product and service offerings? • Does the culture of the company assist or inhibit the company’s success? • Does the company have the right employees in place?

18. SWOT Analysis: LG Electronics Mobilecomm We’ll apply SWOT analysis to LG Electronics Mobilecomm – traditional wireless phones and smartphones External: threats and opportunities Internal: strengths and weaknesses

19. Lifestyle Trends: T&O • Technical competence – O • Hands free – O • Phone durability/robustness (Casio) – T • Move toward personal computing integration – T • Demand for touch screens (only 2 smartphones) - T

20. Customers: T&O • Very strong cust sat – traditional phones – O • Minimal smartphone presence – T • As customer grows in sophistication, where do they go? – T • Desire to serve more corporate customers – O

21. Suppliers: T&O • Carriers • Can the carrier include additional service “add –ons” or sell a premium service plan – T • A solid phone to sell to a basic needs customer – O • Drives sales with lower cost phone - O • Hardware/parts of phone • Well-established use of components – O

22. Competition: T&O • Smartphone • Existing expertise allows easier entry into this market - O • Top competitors already in the marketplace (Nokia, Apple) – T • Traditional phones • Competition continues to get stronger – T • Huge advertising by competitors - T

23. Technology and Regulation: T&O

24. Other External Factors: T&O • Larger Economic Issues: • Distribution • How will they sell their smartphones – retail like Apple? • Partners • Suppliers

25. Financial Performance: S&W • Lower margins as phone prices lower - W

26. Branding: S&W • Perceived as more entry-level/simple (grandparents) – S, W • Strong international presence – good platform for introducing newer phones – S • Strong cust. sat perception with traditional phones - S

27. Core Competency: S&W • Good quality, low cost device

28. Demographics/Segmentation: S&W

29. Assessment of Culture: S&W • Hierarchical? • Tech savvy • Trying to change their culture • Longer work week

30. Threats and Opportunities • Threats:

31. Threats & Opportunities • Opportunities:

32. Strengths & Weaknesses • Weaknesses:

33. Strengths & Weaknesses • Strengths:

34. SWOT Analysis – LG Electronics Mobilecomm

35. SWOT Conclusions - LG

36. Recommendations to LG • Increase R&D on smartphones • Focus on core competencies – can you bring more smartphone capabilities to a traditional phone? Is there a mid-level phone? • Position as the entry level smartphone provider • Strengthen relationship with other carriers beyond Verizon • Work toward more innovative culture • Stop thinking about traditional wireless phones – all customers are becoming more sophisticated

37. “Apple Inc., 2008” Case Prompt • Be prepared to discuss the following: • Analyze the structure of the PC industry in the past and today • What were and are Apple’s major competitive advantages in the computer business? • Do the current PC industry dynamics help or hurt Apple today? Why do you say that? • Use Porter Five Forces analysis and/or SWOT analysis to demonstrate your point. Please prepare to discuss for next week’s class

38. Apple’s Ups and Downs • Business Week, early 1996: “The Fall of an American Icon” • Business Week, 2000: Steve Jobs named as one of the top 25 executives of the year • iPhone named 2007 “device of the year” by Time Magazine • Results 3Q10: 10.4% market share of U.S. computer market (PC shipments, not including iPad) Source for this section: Apple Inc., 2008 Teaching Note, Yoffie, Slind, HBS 5-708-493

39. Apple’s Competitive Advantages in the Computer Business • Then: • Visionary – power of personal computer – household use • Strong in education market (ease of use in education) • Growing future customers via education market focus • Design – and gui

40. Apple’s Competitive Advantages in the Computer Business • Now: • Integrates with multiple devices, plug and play • Proprietary operating system: • Security • Harder to develop s/w

41. Structure of the PC Industry: Business/Corporate Customers

42. Why Did the Buyers Change So Dramatically? • What were the key industry drivers of change? • Mobility, duration • Multiple devices • User knowledge/sophistication

43. Rivalry in the PC Industry • How strong is the rivalry? What are the key drivers of that rivalry? • Incredibly strong • Brand loyalty • Obsolete • Easy entry – to build • Hard to compete/win

44. Barriers to Entry • Are the barriers to entry high or low?

45. Substitutes • Are there many substitutes?

46. Suppliers • Different types of suppliers: Who has the power?

47. Conclusions About PC Industry Today • Conclusions

48. Apple’s Position Today in PC Industry • Do the current PC industry dynamics help or hurt Apple today? • What is the future of Apple’s PC business? • Luxury product • Strong brand

49. Presentation Details PowerPoint Format 15 – 20 minutes Approximately 15 slides Oral presentation, and hand in your slides Panel will provide comments and feedback

50. What to Include in Your Report: For Your Industry Clearly define your industry/segment. Provide a detailed description Porter 5 Forces analysis of the industry/segment Discussion of technical standards: Is there a current standard? How is this likely to evolve? Highlight what you think are the key issues/challenges for the industry/segment Top competitors Key ratios, financials in this industry/segment (and why you think these are relevant). If possible, by competitor Market share information, if available Any other relevant information