High Sales with Low Margins: Notebook PC Makers' New Success Formula?



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Code :BSM0027

Year :
2005

Industry : Engineering, Electrical and Electronics

Region : Global

Teaching Note:Not Available

Structured Assignment :Not Available

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Introduction:The PC industry mainly constitutes desktop PCs and notebook PCs. The first notebook PC was introduced in 1981 by Radio Shack, a US-based company. In 1987, portable PCs (includes notebooks, Personal Digital Assistants and Pen computers) sales were estimated to be 7% of the global PC market. However, growth rate of notebook industry was high; in 1989 a growth rate of 38% was observed in the world wide sales of the portable computers compared to 1988. By 1990 there were about 100 models of notebook PCs available in the US market. Improvements in technology such as introduction of PC cards, advanced liquid crystal displays, increased storage capacity and reduction in the weight of notebooks were considered asmajor reasons for such growth. Cost of producing notebooks declined due to decrease in the cost of components. To capture the growing market, supported by reduced costs, notebook manufacturers world wide started reducing the prices of their notebook computer models from the early 1990s. In 1998, price reductions in the notebook industry ranged from 20-32%. In 2005, it was observed that prices of notebooks have declined by 17% globally. This continuous reduction in the prices, led to increase in the sale of notebooks. In May 2005, notebooks were found to have accounted for 53.3% of the total US PC retail sales. Notebooks accounted for 30% of the PCs sold worldwide in second quarter of 2005. However, profit margins of notebook makers reduced globally, from 14 to 20% in 19998 to 9% in 2005. Analysts were apprehensive about the ability of the companies to sustain the pressure of decliningmargins.

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