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Value Chain Assignment . 2008 MBA/ENG 290G International Competition in Technology. Team 1. Team 1: Cloud 1 Project: Software cloud Franck Formis - franck_formis[at]mba.berkeley.edu Vincent Wai-Shan Ng - vincentng[at]berkeley.edu Jameson Slattery - jameson_slattery[at]mba.berkeley.edu

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value chain assignment

Value Chain Assignment

2008 MBA/ENG 290G

International Competition in Technology

team 1
Team 1
  • Team 1: Cloud 1Project: Software cloud
  • Franck Formis - franck_formis[at]mba.berkeley.edu
  • Vincent Wai-Shan Ng - vincentng[at]berkeley.edu
  • Jameson Slattery - jameson_slattery[at]mba.berkeley.edu
  • Robert Ka Chun Kong - rkong[at]berkeley.edu
  • Chuohao Yeo - zuohao[at]eecs.berkeley.edu
pc value chain analysis

PC Value Chain Analysis

MBA 290G.1

9/24/2008

Team 1:

Franck Formis, Robert Kong, Vincent Ng, Jameson Slattery & ChuohaoYeo

acer value chain and its dependencies
Acer value chain and its dependencies
  • Apacer
  • AQR
  • Kingdom Corp.
  • Animeta System
  • Toshiba
  • Fujitsu
  • Sony
  • Hitachi
  • Mitsubishi
  • Lite-On
  • IBM
  • Ambit
  • Sumida
  • Sanyo
  • Wistron
  • BenQ
  • AMBIT
  • ALi
  • Aegis
  • Semiconductor
  • Yam Digital Tech.
  • Legend Tech.
  • RDC Semiconductor
  • Feiya Tech.
  • Channel Business Model – indirect
    • Resellers partnership
    • Global distributor
  • Acer Computer
  • Logistron Service
  • Broadwalk Capital

Red – heavy presence by Acer

Blue – no or light presence by Acer

example
Example

Source: http://somo.nl/html/paginas/pdf/Acer_Incorporated_Company_Prof_2005_EN.pdf

asus value chain and its dependencies
Asus value chain and its dependencies
  • R&D center
  • Core technology center
  • Chips
  • Logic IC
  • PCB
  • Connectors
  • DRAM
  • Intel, nVIDIA etc
  • Procurement and material management center
  • Motherboard
  • LED display
  • Sound blaster
  • Eee PC
  • Eee PC
  • Ultra Mobile PC
  • phone
  • Sales, marketing and PM groups
  • Sales, marketing and PM groups

Red – heavy presence by Asus

Blue – no or light presence by Asus

dell value chain
Dell Value Chain

Red – heavy presence by Dell

Blue – limited presence by Dell

hp value chain and its dependencies
HP value chain and its dependencies
  • PSG
  • HP Labs
  • ODMs
  • PSG
  • ODMs
  • ODMs
  • CMs
  • Third-party vendors
  • PSG
  • CMs
  • OEMs
  • ODMs
  • Direct
  • Retailers
  • Resellers
  • Distribution partners
  • Independent distributors
  • OEMs
  • Independent software vendors
  • Systems integrators
  • PSG
  • TSG

PSG – Personal systems group

TSG – Technology solutions group

Red – heavy presence by HP

Blue – no or light presence by HP

lenovo pc value chain
Lenovo PC Value Chain

Red – heavy presence by Lenovo

Blue – limited presence by Lenovo

comparison of pc value chains
Comparison of PC Value Chains
  • Same core set of component and software suppliers across all PC vendors
    • Minimal feature differentiation across vendors
  • R&D still seen by most as a way to differentiate their products
    • Still little differentiation
    • Minimal R&D investments compared to other high-tech industries
  • Dell’s use of the direct sales model minimizes its reliance on distributors, retailers and other channel partners
  • HP and Lenovo are attempting to differentiate through software
    • HP “skunkworks” team working on an alternative to Windows
    • Lenovo could follow HTC’s strategy in mobile – develop a custom UI on top of Window
  • Oustourced vs. in-house manufacturing
    • Acer, Dell and HP outsource to EMS partners
    • Asus and Lenovo maintain manufacturing facilities while attempting to move up the value stream
  • Lenovo and HP are heavily reliant on “solution selling” – distributors, VARs and integration partners delivering PCs as a component of an overall service package
    • Lenovo is particularly reliant on IBM Global Services
    • HP Personal Systems Group relies on Technology Solutions Group and EDS
  • Consumer PC players rely on retailers – Best Buy, Circuit City, other category killers
dell box net
Dell & Box.net
  • A partnership to offer online storage services for Dell’s Inspiron Mini 9 (subnotebook)
  • Dell’sbet on online computingrevolution (Data Center)
  • Potentially a similar spin-in strategythan Cisco ‘s (e.g. Andiamo, Nuova)
  • Link alliance throughpartnership to limitrisk (limitedfunding) instead of JV or M&A
  • Harness R&D efforts and impact on capital markets
direction of pc industry
Direction of PC industry
  • Vertical dis-integration
    • Most components are commoditized and outsourced
  • Focus on marketing, branding and distribution
    • Move from products to services (not only support)
  • PC value chain gets subsumed
    • Other parts play larger roles, needs for Corporate Governance
key linkages in value chain
Key linkages in value chain
  • Companies provide support to their customers, or the next partner in the value chain
    • For example, if Dell sells through BestBuy, then BestBuy can provide support to the end user. If Dell sells the PC to end user directly, they have to provide customer support.
  • Customer feedback or the last part of the value chain provide linkage and guidance to every other partner in the value chain
    • End user preference directs R&D directions, component choices, and marketing strategies
team 2
Team 2
  • Team 2: Cloud 2Project: Software cloud
  • David Exposito Cossio - david_exposito[at]mba.berkeley.edu
  • Rachel Vera Simon - rachel[at]ieor.berkeley.edu
  • Jon Wiesner - jon_wiesner[at]mba.berkeley.edu
  • Emrehan Kirimli- emrehan[at]berkeley.edu
dell hp acer asus and lenovo

Team 2:

Jon Wiesner, Rachel Simon, David Exposito Cossio, Yanpei Chen, Emrehan Kirimli

Comparing PC Value Chains

Dell, HP, Acer, Asus, and Lenovo

slide16
Dell

Firm Infrastructure

Visionary founder. Worldwide operations. Currently cutting operating expenses: downsizing employees and facilities. Hedging activities protected from impact of weakening dollar.

Human resource

~90,500 (majority abroad); activities associated with recruiting, development, and compensation of employees.

Inbound Logistics

Marketing & Sales

Service

Technological Development

increased 22% this year to $610 million. Focus on shortening development cycle & tailoring regional solutions for international growth. Strengthening IT & sever offerings.

Relationships over integration. Quality components. Flexible purchasing to adjust for cost, needs, quality, availability.

Procurement

  • Just in time warehousing, minimal inventory; made-to-order for demand and no old technology

Customized assembly of systems for user specs

  • Direct sales model – insight into customer needs
  • Online ordering

Outbound Logistics

  • #1 in personal PC systems in U.S., and #2 worldwide
  • Adding new channels
  • Adjusting to new markets: payment upon delivery
  • High quality support, customer access to help info

Operations

hewlett packard
Hewlett Packard

Firm Infrastructure

6 business units. Highly decentralized. Presence globally. In the process of reducing the number of facilities to reduce costs.

Human resource

172000 employees. Extensive training for sales force.

Inbound Logistics

Outbound Logistics

Marketing & Sales

Operations

Service

Technological Development

Strong R&D culture.$3.6B invested in 2007 (3,4% of net revenues). They capitalize with patents and licensing technology.

Huge negotiating power. Always use secondary sources of supply. High volume to reduce costs.

Procurement

One of the biggest in High Tech industry

Manufacture high volume of basic product configuration to maximize efficiencies

  • Extremely complex to reach huge number of customers

Consumer and commercial customers. Currently reinvesting in increasing sales force

HP offers consulting service and customer support. Very important for HP strategy

slide18
Acer

Firm Infrastructure

Spun off manufacturing operations in 2000. Low capital costs business model.

Human resource

Outside of administrative and management functions, all employees fulfill sales, marketing, customer service or R&D roles.

Inbound Logistics

Outbound Logistics

Marketing & Sales

Operations

Service

Technological Development

Incorporates advanced feature sets in high end brands. Focused on worldwide growth in notebooks and ultra-mobile devices.

Seeking scale and efficiencies through acquisitions in major markets

Procurement

  • Outsources manufacturing
  • Spun off manufacturing operations in 2000
  • Lean operating model
  • Minimize capital and operating expenditures
  • Channel Business Model
  • Purchased brand names in major markets (e.g., Gateway)
  • Brand positioning
  • Small investments in service offerings
slide19
Asus

Firm Infrastructure

Based in Taipei. Facilities in Taiwan, China, Mexico and Czech Republic. Presence globally.

Human resource

8885 employees. A world class R&D design team.

Inbound Logistics

Outbound Logistics

Marketing & Sales

Operations

Service

Technological Development

Emphasis on R&D, design. Simple, innovative products. Selected as 9th most growing tech company by Business Week.

Big negotiating power. High volume to reduce costs.

Procurement

Production capacity: two million motherboards and 150,000 notebooks per month

In the process of restructuring into three distinct operational units

Great emphasis on Total Quality Management and fast delivery

A significant amount of money for marketing, advertise on green products

Emphasis on customer service. Trying to overcome the bad reputation in some countries

lenovo
Lenovo

Firm Infrastructure

Four geographic segments, two major product groups. Presence globally. “Worldsourcing,” but mostly manufacture in China.

Human resource

23000+ employees, ~17000 in China, ~2000 in U.S.

Strong commitment to talent management.

Inbound Logistics

Outbound Logistics

Marketing & Sales

Operations

Service

Technological Development

Emphasis on innovation – 17% annual R&D spending increase. Gains in market share driven by new products.

Huge negotiating power in China. Committed to use diverse suppliers. Emphasis on trust, reciprocity, integrity etc.

Procurement

Trying to manufacture closer to key customer base.

Major push to streamline supply chain and decrease end-to-end cost.

Retail store network essential, especially in China

Sponsoring Olympics etc. Vigorously trying to build the Lenovo brand.

Emphasis on “customer intimacy” and support for SMB. Simplified product lines.

value chain dependencies
Value Chain Dependencies

Dell:

  • suppliers as it adopts a just-in-time manufacturing approach
  • customers as Dell uses a direct sales model

HP:

  • suppliers as it uses many different parts to produce very different models
  • service as HP also delivers solutions with its big consulting division.

Acer:

  • suppliers as it outsources manufacturing

Asus:

  • consumers as Asus designs very innovative products according to the needs
  • product design team and green products

Lenovo:

  • Chinese consumers and suppliers
dell box net partnership
Dell & Box.net Partnership

Why Partner?

  • Allows Dell to continue to focus on product innovation and faster development cycles
  • Low barriers to entry ($200K) and insignificant revenue source (Dell would rather sell them servers)
  • Fragmented competitors with better brand recognition in space (e.g., Google, Yahoo, Microsoft, Mozy, etc.)
  • Doesn’t leverage Dell’s competitive advantage in manufacturing processes
  • Allows Dell to focus service offerings on higher value enterprise customers
  • Brand dilution
future projections
Future Projections
  • Possible directions of the industry:
    • Scenario 1: China completely overtakes U.S. as the largest computer market – Lenovo has advantage.
    • Scenario 2: U.S. remains the largest market – Dell has advantage.
    • Scenario 3: Server/datacenter segment completely overtakes consumer segment in terms of volume – quickest innovator has advantage.
    • Scenario 4: PC/cellular convergence, ultra-mobile PCs and ultra-capable cell phones – strong partnerships and large customer base has advantage.
  • Possible changes in the value chain:
    • Logistics know-how gradually spreads – even out the playing field there.
    • Ever higher quality products reduce the need for extensive/expensive service.
    • Commoditization of products means less brand differentiation.
    • Efficient operations & manufacturing vital to establish cost/value differentiation.
    • Marketing also vital – turning the PC into a fashion product like cell phones.
team 3
Team 3
  • Team 3: Japan 1Project: New Product for Japanese Company
  • Gonzalo Antonio Baez Mendoza - gonzalobaez[at]berkeley.edu *
  • Ryan Stanley - ryan_stanley[at]mba.berkeley.edu *
  • Yanpei Chen - ychen[at]berkeley.edu *
  • Brian Gawalt – gawalt[at]eecs.berkeley.edu
  • Silvio Junqueira Filho - silvio_junqueira[at]mba.berkeley.edu *
pc value chains
PC VALUE CHAINS

Gonzalo Baez

Yan-Pei Chen

Silvio Filho

Brian Gawalt

Ryan Stanley

MBA290G, Sep 24, 2008

acer value chain
Acer Value Chain

% of employees

4%

28%

56%

R&D

Design + Manufact.

Marketing & Sales

Distrib.

Customer service + Sales support

End customer

In-house / Make

Outsourced / Buy

  • Multi-product and services + multi-brand strategy
  • Time-to-market, scale and focus on customer needs as KSFs
  • Supply chain management business model
hp value chain
HP Value Chain

R&D

Services and assembly

Markt. & Sales

Direct distrib.

Customer service + Sales support

End customer

R&D

Manufacturing & assembly

Indirect distrib.

In-house / Make

Outsourced / Buy

  • Shifting towards higher margin businesses adding software and services to portfolio
  • Reducing real estate and other unprofitable capital employed
  • Very dependent on key suppliers, such as Intel and Microsoft
asus value chain
Asus Value Chain

R&D

Their future:

phones

Design + Manufact.

Low margin

products outsourced

Marketing & Sales

Europe est’d.

Working on

Russia, China

Distrib.

Many products

still OEM;

joint distro nets for others

Support

Exclusive

centers in India

End customer

  • Recently spun off it’s 4C OEM businesses into two corporations, Pegatron (computer components) and Unihan (everything else)
  • ASUS brand heavily vested in EeePC product line
  • Ultimate strategy: compete on price thanks to new Intel direction
  • 80% of sales to top 3 customers (Apple)
lenovo30
Lenovo

R&D

Com-

mitted

to talent

Dev.

Design + Manufact.

Moving

closer to key cust. base

Marketing & Sales

Sponsorships (Olympics, etc)

to build brand

Distrib.

Building retail store network

Support

Simpler product

lines, SMB support, & “customer intimacy”

  • Procurement: Chinese roots grant large advantages in negotiations
  • Personnel: 75% Chinese, 9% US
  • Tech. Dev.: Most market share gains driven by new products

End customer

dell value chain31
Dell Value Chain

R&D

Build-to-order

MFG

Direct Sales

Few

Retailers

Customer service

End customer

In-house

Outsourced

  • Mass customization and online ordering of products
  • Direct sales approach as a totally customer-driven system
  • Customer service through outsourced call centers and repair agents
dell box net partnership32
Dell & Box.net Partnership
  • Dell Inspiron users get 2 GB of storage absolutely free by signing up for a Box.net account through a direct link on their new notebook.
  • Box is offering affordable plans for users that need as much as 25 GB of online storage.

Box.net

R&D

Build-to-order

MFG

Direct Sales

Few

Retailers

Customer service

End customer

In-house

Outsourced

  • Box.net: Online storage feature added to Dell Inspiron by end user
  • Dell and Box.net have very different core products so they
  • partner to complement an overall competitive product
  • Inspiron + Box.net = NETBOOK
contrast
Contrast

Compare

  • Lenovo and Asus are both one-time OEM providers to giants trying to move ahead with their own branding
  • Not a great business for Ph.D.s!
  • Established Brands vs. Emerging Brands grown from one-time OEM
where next
Where next?
  • Supply chain + logistics management become critical
  • Value-additive services as a differentiating factor
  • Commoditization of hardware manufacturing/assembly
  • Branding/marketing strategy become more important in differentiating products
team 4
Team 4
  • Team 4: SAAS 1Project: SAAS applications
  • Lakshmi Jagannathan - ljaganna[at]eecs.berkeley.edu
  • Christopher Quek - chris_quek[at]mba.berkeley.edu *
  • John Michael Wyrwas - jwyrwas[at]berkeley.edu *
  • Christian Huth - huth[at]berkeley.edu *
  • Daisuke Tanaka – daisuke_tanaka[at]mba.berkeley.edu *
value chain analysis personal computers

Value Chain Analysis: Personal Computers

Christian Huth

Lakshmi Jagannathan Christopher Quek

Daisuke Tanaka

John Michael Wyrwas

hp value chain37
HP Value Chain
  • HP depends heavily on its partners – however HP is able to leverage its size to create favorable terms and prices
  • Like other competitors, they are heavily dependent on Microsoft and Intel
hp divisions
HP Divisions
  • Technology Solutions Group (TSG) (36% of revenue)
    • Includes: Enterprise Storage & Servers (ESS), HP Services (HPS), HP Software
    • Manages direct sales for volume and value products
    • Manages enterprise and public sector customer relationships
    • Drives HP’s vertical sales & marketing approach in communications, media and entertainment, financial services, manufacturing, and public sector
  • Personal Systems Group (PSG) (35%)
    • Manages SMB relationships and commercial reseller channels
  • Imaging & Printing Group (IPG) (27%)
    • Manages HP’s overall consumer related sales & marketing activities
    • Manages consumer channel relationships w/3rd party retail locations
    • Manages direct consumer sales online
  • HP Financial Services and Corporate Investments(2%)
dell value chain and supplier relationships
Dell Value Chain and Supplier Relationships
  • Suppliers:
    • Dell’s horizontal integration makes the company dependant on its suppliers to provide high quality/low cost computer parts in a “just-in-time” delivery cycle. Any disruptions in component availability has serious implications for Dell’s profitability.
    • Dell attempts to mitigate the power of suppliers by using multiple suppliers for the same components. This also reduces the risk that the company will experience a shortage of components.
    • In the case of a single supplier (Intel) Dell usually negotiates long-tern deals to reduce the variation in its cost structure.
  • Customers:
    • Dell’s customers include governments, large corporations, and individual consumers.
    • Dell generates significant revenue from government accounts. Maintaining these contracts is a crucial element to protect Dell’s profitability.
    • Dell tries to reduce customer power by diversifying its sales across different customer segments and geographies. No single customer accounts for more than 10% of Dell’s net revenue.
acer value chain and supplier relationships
Acer Value Chain and Supplier Relationships
  • Suppliers:
    • In 2000, Acer divested its majority ownership stake of Winston, its major supplier to focus on marketing and branding. Acer’s “New Channel” model focuses on a “Multiple-Suppliers, Multiple-Products, Multiple-Channels” strategy.
  • Customers:
    • Acer’s corporate strategy is to not compete with its channel partners, but rather create a win-win collaboration.
acer example supply chain
Acer Example Supply Chain

Centre for Research on Multinational Corporations (SOMO), 2005

asus value chain45
Asus Value Chain
  • Asus’s value chain is focused on manufacturing
asus value chain dependencies
Asus Value Chain Dependencies
  • Suppliers:
    • Supplier of raw materials (chips, DRAM, PCB etc.) like Intel, AMD, nVidia and Qimonda
    • Close relationship for product development necessary e.g. need to develop specific motherboard for each new chip
  • Customers:
    • Before foundation of separate holdings in 2008 conflict of interest
    • As a contract manufacturer also own brand – competing for same end consumer with manufacturing customers
  • Internal:
    • Contract manufacturing business is competing for volume from branded-business therefore effective processes are ensured
lenovo value chain
Lenovo Value Chain
  • Inbound Logistics
    • Lenovo outsources components that go into its final products to companies such as Intel and some other companies in China
    • Lenovo, like Dell, relies on speedy and just in time delivery of components and parts, keeping in mind low inventory costs, and customer’s satisfaction in terms of timely delivery of quality products
    • Transportation of these components and parts from outsourced companies is done by designated and committed transportation agencies that specialize and service just in this area; Lenovo micromanages these activities to a certain extent to make sure of its on timely delivery
    • Some of its assets come from the acquisition from IBM (for ex: ThinkPad series)
  • Operations
    • Lenovo’s processes, including production and other operation processes are conducted in company-owned global ‘hubs’ of excellence around the world
    • Main manufacturing (of IT and hardware) hub, and property holding and management occurs in the Chinese Mainland
    • Procurement Agency, group treasury, supply chain management, and other managerial processes occur mainly in Singapore (Lenovo’s base)
    • Most of its other operations are distributed around the world, in Netherlands, Sweden, and HongKong, just to name a few
    • Communication and collaboration amongst the different hubs is driven and managed by Lenovo’s strong management team
lenovo value chain48
Lenovo Value Chain
  • Outbound Logistics
    • Lenovo uses external partners such as UPS and Fedex to get its product to its customers
    • Lenovo and the external partners work together very closely in each step of the distribution process, thereby providing the customers with the best service and satisfaction
    • All shipping and distribution questions are addressed directly by Lenovo
    • Customer Lenovo UPS/Fedex/External Partners
  • Marketing and Sales
    • Promotion and Sales is done through a network of channel partners, retail stores, Teleweb, and Lenovo authorized dealers across the globe
    • Lenovo also promotes environmental friendly ‘green’ products- ThinkPad X300 series is the first notebook to earn ‘greenguard’ certification
    • Acquiring a reliable/well-known company such as IBM has helped boost its products, especially ThinkPad and IdeaPad
    • Targets home users, small businesses, and large corporations, essentially covering the whole spectrum
  • Service
    • Best-in-Class Service within company- 24/7 Technical/Sales Support centers across the globe
    • Provides various channels for service around the world- Lenovo authorized service providers, partners, dealers, ‘SmartCentres’, and other repair/service locations
lenovo dependencies in the value chain
Lenovo Dependencies in the Value Chain
  • Suppliers:
    • Since Lenovo is horizontally integrated, it depends on the outsourced companies for in time delivery of quality products; like many companies, keeping the customer always in mind, time and quality becomes very important for Lenovo. Therefore, it is very dependent on the timely delivery from the companies in this horizontally integrated system
    • Manufacturing of most of its IT products is done in Chinese Mainland; therefore, relationship with China is critical
  • Customers:
    • Lenovo’s customers include home users, small businesses, and large corporations
    • Lenovo’s main customer is in China, bring in a total revenue of about 37%; Since China is a major supplier and customer, Lenovo is dependent on China in both areas and directs a lot of its marketing and sales towards the Chinese market
  • Operations and Marketing
    • Since Lenovo operates through different ‘hubs (countries) of excellence’ throughout the world to deliver its final products, it’s very much dependent on these hubs for excellent communication, collaboration and delivery of quality products
    • Any disruption/disagreement in this system is likely to cause big problems
    • Similarly, marketing is done across the globe; Lenovo’s management of retailers and other service entities around the world in order to assure best quality and service for its customers becomes critical
comparison of the value chains
Comparison of the Value Chains

Inhouse Manufacturing Outsourced Manufacturing

Customization as Added Value Less customization

Wide Spectrum of Products Fewer Products

Focus on Product Development Commoditization

Many Distribution Channels Fewer Channels

Customer Service as Added Value Fewer Services

dell and box net
Dell and Box.net
  • Background:
    • Box.net is a company that provides online storage and file sharing solutions.
    • Dell partnered with Box.net to provide expanded storage for Dell’s new “Netbook” class of portable computers.
    • This partnership may be a test for a larger collaboration that involves all of Dell’s product lines.
  • Value Chain:
    • Box.net belongs in the Operations section of Dell’s value chain because it is a value added feature/service that Dell adds to the sum of the components that it assembles.
dell and box net52
Dell and Box.net
  • Partnership vs. Build It Internally:
    • Much Lower Cost:
      • $200,000 to build a similar site does not capture all of the costs associated with providing this type of service. The data center infrastructure required to provide this service would represent huge capital investment for Dell.
      • Even if Dell outsourced the data center requirements to a third-party, the company would have to bear the costs of support and site maintenance.
    • Not a core competency for Dell:
      • Dell has no experience providing data storage for end users and limited experience with software development.
      • Software and Online services are not a key component of Dell’s low cost strategy so developing these products internally does not make sense.
    • Partnerships are part of Dell’s Strategy:
      • Dell is a horizontally integrated company that uses partnerships to keep costs low. Forming a partnership to control internal costs and overhead is in line with Dell’s overall strategy.
industry future direction
Industry Future Direction
  • Personal computer companies are looking for differentiation in a commodity marketplace.
  • Contract manufacturing
    • There will be a continuation of the current trend of separation between the brands (marketing, sales, and support) and the manufacturing of personal computers and consumer electronics.
  • Customization
    • Companies like Dell will have a renewed interested in providing custom products.
  • Spectrum of products
    • Computers with new styles and designs will continue to differeniate commodity hardware, which will provide a benefit to companies with creative design teams.
  • Convergence/ mobile applications
    • There will be a grayer line between laptops and cells phones. Laptop companies will partner with mobile companies, opening up a new sales channel and new economies of scale.
  • Software, open source
    • There will be a move away from the standard Windows box to unique, application specific interfaces, making software development an important part of the value chain. This move is driven by open source operating systems and development tools.
  • Increased service
    • Some companies will see an opportunity in providing value added support and service to their hardware offerings. The customer relationship will continue past the point-of-sale.
team 5
Team 5
  • Team 5: CVCProject: Corporate Venture Capital
  • Varun Suryakumar Boriah - varunboriah[at]berkeley.edu *
  • Joseph Dilip Antony - dilip[at]berkeley.edu *
  • Brendan Quinn - brendan_quinn[at]mba.berkeley.edu *
  • Sonia Fereres-Rapoport - sfereres[at]berkeley.edu *
  • Ada Zheng - ada_zheng[at]mba.berkeley.edu *
pc value chain acer asus dell hp lenovo

PC Value Chain:Acer, Asus, Dell, HP, Lenovo

Group 5:

VarunBoriah

Sonia Fereres

Dilip Joseph

Brendan Quinn

AdaZheng

slide59

Basically no core R&D ability.

Fully rely on Intel, AMD, Nvidia etc.

Outsourced to Taiwan manufactures or hardware companies

Recently developed several types of products based on its own R&D

Previously manufactured by Taiwan OEMs and shipped to Shanghai to assemble; now the OEM assemble the final product and ship to the consumer directly

No world HQ. put in place a distributed management structure that places operational hubs around the world.

Separate channels for Personal and Commercial users;

Self-owned distribution network built of Retailer, wholesaler, contractors, agent and specialty stores as well as online channel

Microsoft

Linux

Anti-virus software

Powerword

Think series: online direct sales+store sales+wholesaler

Lenovo series: own distribution channel

Tie 1 area: supported by Lenovo own team;

Other areas: contract service agents

slide60

CM & ODM: manufacturing of printed circuit board assemblies (PCBAs by SCI and Solectron),

subassemblies (box builds - like Hon Hai)

some final products (mainly notebook PCs- Quanta and Arima)

hard drives (Seagate, Quantum, Maxtor and IBM),

DRAM (Samsung, Toshiba, Micron), CD-ROM drives, semiconductors, add-on cards,

monitors (Sony, Phillips, Nokia, Samsung)

“Mass customization” concept

Intends to outsource most manufacturing to OEMs, especially in Asian area

IT Services: outside partners for system integration, installation, on-site repairs and consulting. Partners include Wang, Unisys, IBM and BancTec.

Financial Services:

Dell Financial Services (JV with CIT group)

Direct sales strategy:

Dell handles distribution and sales via dell.com

(Although moving into traditional distribution via stores)

Mass-customization: strong link with Assembly

slide62

Differences:

Design/Manufacture

  • Design/Component Supplies
    • All outsource component suppliers
    • Lenovo, HP, Dell, Acer all use both type of microprocessors, Asus only Intel
    • Acer has a ODM of its own (majority-owner in Wistron) which supplies to Acer and others. Rest of companies outsource
    • Lenovo started to do all themselves (get rid of ODMs) and only use CMs
    • Nobody develops application software, all outsource
    • Operating Systems: Asus sells EEE PC with linux by default, can buy windows for extra. The rest can supply both, but vast majority of client base is Windows
  • Assembly
    • Dell’s “Mass Customization” or build-to-order supply chain
slide63

Differences:

Distribution/Sales

  • Dell sells primarily through dell.com
  • Dell, HP, Lenovo offer complete solutions for corporate business: from purchase, logistics, management, maintenance, support …as part of their core services.
  • Last year HP, Lenovo and Dell supplied 87% of commercial enterprise computer market. (Source: Forrester Enterprise Hardware Survey Q3 2007)
slide64

Differences:Services

  • Dell, HP, Lenovo offer complete solutions for corporate business: from purchase, logistics, management, maintenance, support …as part of their core services.
  • HP doing slightly worse but generally similar quality
cloud computing so what is it anyway

Distribution

&

Sales

App

Software

Assembly

Cloud Computing: So what is it anyway?

Hardware as a Service avoids the need for enterprises and SMBs to buy servers and storage devices

Eg: Amazon EC2

Software as a Service avoids the need for enterprises, SMBs and consumers to buy software and associated hardware infrastructure

Eg: salesforce.com

HaaS

SaaS

Comp-

onents

OS

Support

&

Integration

PaaS

  • Internet is the primary medium for sales, distribution and support.
  • Support focuses on customer relationships and training, and not on managing hardware or software.
  • Integration of PaaS and SaaS with each other and legacy apps.

Platform as a Service enables custom application development without own OS, database, middleware, or hardware

Eg: Google APIs

  • HaaS : provides small chunks of storage to individuals, SMBs and enterprises. However, NOT a typical HaaS virtual storage provider
  • SaaS : Edit and share documents online
  • PaaS : APIs to mashup with other apps
  • Buys servers, storage devices, network equipment, software, service from traditional vendors
  • Leases data center space. Buys power and bandwidth

Source: Future View: The New Tech Ecosystems Of Cloud, Cloud Services, And Cloud Computing, August 2008, Forrester Research

slide66
&
  • Dell Inspiron Mini is promoted as a ultra-lightweight Internet access device. It has only 8GB storage as SSD is currently very expensive.
  • Enhancing the Mini’s storage with Dell’s own online storage service takes time & money. Dell may lose time to market advantages.
  • box.net is available right now. It works and is popular (1.6m users, 1m files a day). Dell does not have to worry about creating and testing a robust storage service.
  • Cloud services is very nascent and hot area, in which Dell is currently behind. box.net provides an easy opportunity for Dell to experiment and join the cloud ‘crowd’.
  • Dell does not have the full product portfolio or expertise to run a data center (as much as HP or IBM). Partnership with box.net buys time to develop its new Data Center services business.
  • Once SSD prices fall further, the Insipiron Mini can simply use more SSDs and cloud storage becomes even less critical.

http://www.box.net

http://en.wikipedia.org/wiki/Box.net

slide67
&
  • box.net is a cloud storage provider
    • Leases space from Data Center/Colocation operator
      • Rackspace, Power, Cooling, Bandwidth
    • Buys big storage appliances and servers from NetApp, HP, Dell, etc.
    • Sells small chunks of storage to individual users and businesses through a web interface
  • Main product features
    • 1 GB free, 5GB @ 7.95/month
    • Data is stored in cloud and hence accessible from anywhere
    • Files can be edited online and shared with others
  • Why did Dell partner with box.net?
    • Dell Inspiron Mini is promoted as a ultra-lightweight Internet access device. It has only 8GB storage as SSD is currently very expensive.
    • Enhancing the Mini’s storage with Dell’s own online storage service takes time & money. Dell may lose time to market advantages.
    • box.net is available right now. It works and is popular (1.6m users, 1m files a day). Dell does not have to worry about creating and testing a robust storage service.
    • Cloud services is very nascent and hot area. box.net provides an easy opportunity for Dell to experiment . Dell is behind.
    • Dell does not have the full product portfolio or expertise to run a data center (like an HP or IBM).
    • Once SSD prices fall further, the Insipiron Mini can simply use more SSDs and cloud storage becomes even less critical.

http://www.box.net

http://en.wikipedia.org/wiki/Box.net

slide68

The Future

  • Future Markets:
    • Going mobile – WiMAX, 3G, GPRS
      • Revenue share with carriers: iPhone as an example
    • “Netbook” as a 3rd market, in addition to desktops & laptops
      • Netbooks are currently given away for free with Vodafone 3G contract
    • Meeting the requirements of developing markets
      • Growing markets, new needs
      • Apply those new technologies to advanced markets
      • eg OLPC (one laptop per child) leading to power consumption advances
    • “Digital living room”
      • PC as consumer entertainment device – Media Center
      • Intel Viiv, Microsoft Media Centre, integration with TVs and set-top boxes, etc
    • More informed customers
slide69

The Future

  • Changes to the value chain
    • Hardware is commoditized; constant innovation
    • Companies will move up value chain towards services
      • Offline services gain traction
      • E.g. IBM exited PC business
    • Shift toward cloud computing and data centers
    • Software as a service (SaaS)
      • Should this be achieved through partnering or be developed in-house?
    • Increase in ODMs versus CM and self-assembly units
      • ODMs and OEMs will start retailing and branding themselves
    • Internet based distribution gains more traction
      • Global Direct Distribution (GDD): products shipped from ODM to customer
    • Integration of various service applications
      • E.g. box.net integrated with other cloud computing services to meet market needs
    • New business models based on revenue sharing
      • The hardware is given away for free
team 6
Team 6
  • Team 6: SAAS 2Project: SAAS applications
  • Wan-Lin Tseng - wendy_tseng[at]mba.berkeley.edu *
  • Toru Yamagishi - toru_yamagishi[at]mba.berkeley.edu *
  • Nuttapong Chentanez – nchentan[at]cs.berkeley.edu *
  • Jim Miller – jdmiller[at]ischool.berkeley.edu *
  • Ankit Gupta - ankitgupta[at]berkeley.edu
dell hp acer asus and lenovo value chains

Dell, HP, Acer, Asus, and Lenovo Value Chains

Team 6

Wan-Lin Tseng

Toru Yamagishi

Nuttapong Chentanez

Jim Miller

Ankit Gupta

acer s value chain
Inbound logistics

Channel Business Model: cooperation with suppliers and channel partners in supply-chain management

Manufacturing

Completely outsourcing the manufacturing sector to multiple vendors and suppliers

Outbound logistics

Efficient inventory control: Products are shipped from ODM suppliers to distribution channels or customers directly

Marketing and sales

Focuses on sales and marketing by outsourcing manufacturing

Leading position in Europe, Middle East and Africa

Aggressive M&As (Gateway and Packerd bell)

Services (maintenance)

Strict quality management and fulfillment of customer demands

Early warning program to check the status of products at all times

Acer’s Value Chain
dependency of acer s value chain
Outsourcing of manufacturing supports efficient inventory management, direct shipment from ODM manufacturers

Expansion of business by M&As allows Acer to utilize scale economy for price negotiation with suppliers

Dependency of Acer’s Value chain
asus value chain74
From OEM/ODM to brand name business

Asus used to be the leading OEM/ODM manufacturer; not long ago, the company started to build its own brand name

On July 2nd, 2007 Asus has its OEM/ODM and brand name business separated

Inbound logistics-OEM/ODM

Being the middleman of its OEM/ODM clients and the suppliers, Asus gets components needed from suppliers directly

Manufacturing-OEM/ODM

Manufacturing for its OEM/ODM clients, i.e. Dell

Outbound logistics-OEM/ODM

Shipping products directly to distribution channels or customers of OEM/ODM clients

Marketing and Sales

Providing not only manufacturing skills but first class design of products

Asus’ Value Chain
dell s value chain
Inbound logistics

Obtain components from external supplier at low cost, no inventory, and pay late

Manufacturing

Outsource most manufacturing except the final configuration

Outbound logistics

Made to customer order and ship directly

Receive payment from customer instantly

Marketing and sales

Large chunk of revenue comes from business in US (51.1%)

Focus on direct-sellling model

Services (maintenance)

Infrastructure consulting, deployment, asset recovery & recycling, training, enterprise support, client support, managed lifecycle

Dell’s Value Chain
hp s value chain
Inbound logistics

Number of contract manufacturers (‘‘CMs’’) and original design manufacturers (‘‘ODMs’’) around the world to manufacture HP-designed products.

Manufacturing

Plants spread throughout the world; Try to be as JIT as possible.

Outbound logistics

Besides traditional channel, individual distributors (in untapped markets), OEMs & independent software vendors (ISVs).

Marketing and Sales

Manufacturing divisions of enterprise/ public sector, commercial and consumer markets, responsible for marketing as well.

Services (maintenance)

HP Services provides multi-vendor IT services, and collaborates internally with other divisions.

HP’s Value Chain
lenovo s value chain
Inbound logistics

Channel business model: Integration with former IBM supply chain partners in China

Manufacturing

Partial ownership of ODM manufacturing in China

Substantial ownership of worldwide fulfillment centers

Outbound logistics

Mixed channel structure: Products are shipped from ODM suppliers to fulfillment centers for final configuration

Then to Lenovo/IBM distribution system or directly to customers

Marketing and Sales

Acquired IBM marque, sales and marketing operation

Consumer, business, and government sales in China

Inherited IBM’s corporate sales base in US and elsewhere

R&D

China, Japan, and US: cutting-edge, high-end products

Lenovo’s Value Chain
how the value chains differ
Acer:

Outsources all manufacturing

Global direct distribution

Asus:

Brands own OEM. Doesn't outsource that much.

Distribution through channels or direct to customers

Dell:

Outsources most assembly except final configuration

Direct distribution to customers

HP :

Most of the manufacturing in it’s own global locations

Traditional channel, individual distributors .

Lenovo:

Owns piece of ODM. Doesn’t outsource that much.

Distributes through owned global fulfillment centers

How the Value Chains Differ
dependency of acer s value chain79
Outsourcing of manufacturing support, efficient inventory management, direct shipment from ODM manufacturers

Expansion of business by M&As allows Acer to utilize scale economy for price negotiation with suppliers

Dependency of Acer’s Value Chain
dependency of asus value chain
Emphasizing itself more as an ODM manufacturer than as an OEM manufacturer, Asus depends heavily on its R&D group for new design or ideas

Being aware of the stiff competition in the ODM/OEM industry from Chinese manufacturers, Asus decided to reposition itself in the value chain as a brand name manufacturer

Asus’ dependency of suppliers and clients grows a lot due to the repositioning

Dependency of Asus’ Value Chain
dependency of dell s value chain
Dell has large bargaining power over its suppliers

No inventory, parts shipped from suppliers when needed

Pay supplier about a month after parts shipped

Perform final assembly internally for control

Most steps, however are out-sourced.

Dependency of Dell’s Value Chain
dependency of hp s value chain
OEMs distributors, and may also act as competitors.

Standardization of parts, so single item may be used in multiple operating divisions.

Dependency of HP’s Value Chain
dependency of lenovo s value chain
Based in China, near ODM manufacturers, which enhances control and saves on shipping.

Owns a large share of its manufacturing supply chain, including a major ODM.

Ships basic computers to manufacturing and fulfillment centers in China, Mexico, India, and Poland--near markets

Dependency of Lenovo’s Value chain
dell box net84
Dell & Box.net

Box.net offers online file storage and file sharing service

Dell ships its Inspiron mini with free Box.net account in an attempt to enter “netbook” market.

Box.net add values at the end of value chain

There is a huge advantage to be the first movers in this market

Asus already has similar product for its Eee customers

Dell would need to take time to develop a similar product itself

why would dell create a partnership vs do it themselves
Why Would Dell Create a Partnership vs. Do It Themselves?

There is a huge advantage to be the first mover in this market

Dell would need to take time to develop a similar product themselves

where do you think the industry is going
PC is becoming a commodity

There is no outstanding difference among PCs (except Mac)

Cost advantage is critical in competition

Direct sales model is widely accepted

Dell established direct sales model utilizing online distributions

Other PC makers have introduced direct model besides their traditional distribution channels

Where do you think the industry is going?

What are the key linkages in the value chain?

  • Efficient supply chain management is critical
    • For cost advantages, inbound logistics, operation and outbound logistics are linked closely
    • Outsourcing is a key connection in the value chain
how the value chain changing over the next 5 years
Cost advantage will be more important

PC is a commodity

Direct sales model will become more popular

As the online sales channel become popular, inbound logistics and operation will change to support the sales model

More detailed customer services would be needed

Expansion of business scale

To take advantage of scale economy, more M&As will be conducted

By expansion of scale, PC companies’ negotiating power against suppliers will be strengthened

How the value chain "changing" over the next 5 years?
team 7
Team 7
  • Team 7: Japan 2Project: New Product for Japanese Company
  • Anthony Goodrow - goodrow[at]berkeley.edu *
  • Li-Chuan Liao - andrew_liao[at]mba.berkeley.edu *
  • Sha Tao-shatao[at]berkeley.edu *
  • Piyapat Tantiwong – piyapat[at]berkeley.edu*
  • KC Chen - kc_chen[at]mba.berkeley.edu*
value chain dell hp acer asus and lenovo

Value Chain Dell, HP, Acer, Asus and Lenovo

By Group 7:

Andrew Liao, Anthony Goodrow, KC Chen, Piyapat Tantiwong, Sha Tao

q2 outsoucing strategy
Q2: Outsoucing strategy
  • HP
    • Outsourced nearly all of its manufacturing to Electronic Manufacturing Service (EMS) providers, like Foxconn.
    • Focused on the R&D, marketing and services.
    • This strategy saves HP factory overheads and labor issues.
  • Dell
    • assembled (low value added) PC by itself & hence dragged down the margin.
  • Acer
    • Outsourced.
    • Low margin since it has just acquired E-machines and Packardbell and was looking to have global integration.
  • Asus
    • in-group outsourcing.
    • strong R&D enables the company to do new product innovation.
  • Lenovo
    • Saves the labor cost.
    • But increases the factory related expenses, leaving margin at 1.1%.
q2 con t the us market
Q2 (Con’t): The US market
  • These five companies principally have the similar operation and products.
  • Top players in the industry and maintain a strong supply chain.
  • Different margins regardless of operations strategy.
    • Outsourcing strategy: HP and Acer
    • In-house manufacturing: Dell, Asus and Lenovo
  • We can conclude that HP and Dell control US market, the largest and most profitable market.
  • However, Acer is stronger than HP in the EMEA, but still generates lower margin as a whole.
slide94

Q3: Summary of the customer/supplier relationships in the value chain.

OEM

Semiconductor

(Intel, AMD)

Motherboard

(Asus)

Dell

HP

Acer

Lenovo

Retailers

End-User

q4 dell vs box net
Q4:Dell vs. Box.net
  • Box.net fits the technology development of Dell’s value chain
q4 con t dell vs box net
Q4 (Con’t): Dell vs. Box.net
  • Online file storage and sharing service Box.net is helping to put the “cloud” in Dell’s Inspiron Mini users.
    • With only 4GB of built-in hard drive space in Inspiron Mini 9, Dell needed some way to boost capacity. So it placed a default Box icon on the desktop that leads to 2GB of free internet storage (twice the normal 1GB that Box provides for free) and expandable to 25GB.
    • Individuals can safely and securely upload files of any type to their Box, including photos, videos, music, documents and presentations, and then access those files from almost anywhere on any device. 
  • Partnership strategy
    • Dell could efficiently leverage its resources and capital as well as focus more on their core technology
    • Box.net has mature technology in cloud computing which could save Dell’s time developing the similar one.
    • Dell offer direct access to their data through OpenBox platform that provide users the easy way to add incremental storage and access to Box.net suite of sharing and collaboration tools.
q5 future of pc industry
Q5: Future of PC industry
  • More segmented, i.e. desktop, laptop, portable PC, low-priced PC for personal/home users and corporate PC and super servers (cloud computing) for business users. This trend is driven by:
    • Technology improvement
    • PC makers’ pursuit of differentiation in the front-end (marketing/service) of value chain since cost-down effect in back-end segments such as operation has been maximized.
q5 con t future of pc industry value chain
Q5 (Con’t): Future of PC industry & value chain
  • Currently, the key linkage is between procurement and the segment from inbound logistics, operation to outbound operation.
    • Cost advantage in operation by standardizing product.
    • Differentiation through marketing and branding is not easy.
    • Only Dell had differentiated itself using direct sell model.
  • In the future, the key linkage would switching to marketing, R&D and operation.
    • More segments mean more customized demands.
    • Outsource operations.
    • Focus on marketing and R&D function.
    • Operating/logistics costs would not be the only concern.
    • For example, as power and cooling costs outpace labor costs for producing and locating cloud-computing servers, countries with related and supporting industries such as PC cooling technology is preferred for outsourcing to countries with only low labor costs.
team 8
Team 8
  • Team 8: Clean TechProject: Clean Tech
  • Fuat Emin Celik - fuatecelik[at]berkeley.edu *
  • Ignacio Contreras Delpiano - ignacio_contreras[at]mba.berkeley.edu *
  • Camilo Mendez - camilo_mendez[at]mba.berkeley.edu *
  • Francois Gallet - francois.gallet[at]berkeley.edu *
  • Gopal Chaudhoory – gopalkc[at]berkeley.edu *
pc value chain mba 290g prof charles wu

PC Value ChainMBA 290GProf. Charles Wu

Fuat E. Celik

Ignacio Contreras

Francois Gallet

Camilo Mendez

Gopal Chaudhoory

the pc value chain

Semiconductors

Hardware Components

The PC Value Chain

Sub-Assembly

Intel, AMD, VIA, Samsung, Cypress

Design

Western Digital, Toshiba, Creative Labs

Assembly

ASUS, Intel (motherboards), Mitac, FIC

Software - OS

Sony, HP, Dell, Apple, Lenovo

Software - Applications

HP, Dell, MPC

Branding and Marketing

Microsoft

Distribution

Microsoft, CA, Oracle, Symantec

Retail / Reselling

Sony, HP, Dell, Apple, Lenovo

Support & Services

Ingram Micro, Tech Data, Dell (direct)

Customer

Walmart, Amazon, Best Buy, Circuit City

IBM, HP, Accenture, Infosys

Govs, Corps, SMBs, Consumers

the pc value chain104

Semiconductors

Hardware Components

The PC Value Chain

Sub-Assembly

Design

Assembly

Software - OS

Software - Applications

Branding and Marketing

Distribution

Retail / Reselling

Support & Services

Customer

the pc value chain105

Semiconductors

Hardware Components

The PC Value Chain

Sub-Assembly

Design

Assembly

Software - OS

Software - Applications

Upstream strategy: Low cost

Branding and Marketing

Differentiation: Brand + Design

Differentiation: Brand + Design

Value chain dominance strategy

Distribution

Retail / Reselling

Downstream strategy: Services

Support & Services

Customer

comparing the value chains focusing on design and marketing
Comparing the value chains: Focusing on design and Marketing
  • Lenovo – Stressing on design and Performance
    • Focuses on design and assembly (outsources the manufacturing)
    • Differentiates on design, performance and durability
  • Acer – Leveraging its channels
    • Develops and manages its channels to bring cost-effective products to market.
    • Focuses on design, sales and marketing (outsources the manufacturing)
    • Differentiation by brand and technology (multi-brand strategy)
comparing the value chains upstream vs downstream
Comparing the value chains:Upstream vs Downstream
  • Asus – Upstream Strategy
    • Produces low-cost computers via an upstream integration of the value chain
    • Sells to large retailers or directly to large organizations
  • HP – Downstream Strategy
    • Outsources the manufacturing
    • Differentiates on software and services
    • Sells mainly to retailers and resellers
comparing the value chains integration of the value chain
Comparing the value chains: Integration of the value chain
  • Dell – Direct Customer Model
    • Global integration of the value chain
    • Highly customizable products
    • Sells directly to the customer
dependencies in value chain
Dependencies in value chain:
  • Dell
    • Customers
      • Large Business Customers.
    • Strategy
      • Build to order. (Direct sales value chain)
    • Cost
      • Low cost Leader
  • HP
    • Product
      • Innovative and different products.
    • Customers
      • Largest seller of personal Computers.
dependencies in value chain110
Dependencies in value chain:
  • Acer
    • Suppliers
      • Outside suppliers.
    • Distributors
      • Dealers and Retailers.
    • Customer base
      • Large customer base in Developing countries.
  • Asus
    • Product
      • Leader in Desktop PCs worldwide (Risk)
  • Lenovo
    • Desktops
      • Strategy towards targeting remaining desktop customers.
box net in dell s pc value chain
Box.net in Dell’s PC Value Chain
  • Value Chain Position
    • Box.net is a storage service that is complementing part of a hardware function (storing)
    • Box.net would be positioned in the Services part of the Chain Value
  • Partnership Value for Dell
    • Not part of the Core business: Online storage is not part of the busines for Dell – An important part of the strategy is deciding what not to do
    • Cost: Dell probably did not pay much to Box.net per computer sold – if they paid anything at all – so the price paid could be much less than the cost of developing the website, the servers and its maintenance
    • Reduce liability: If the service does have problems and don’t work as expected at the end it is a third party the one that didn’t deliver so Dell won’t hurt its brand
    • Timing: Dell arrived late to the Netbook game, so it had to act quickly. Developing the site plus explaining what it is and how it works could take valuable time
    • Expertise: Box.net already has the expertise of doing this business and will be able to deliver with less problems than a new venture would have
    • Installed Base: box.net already has 2 million clients and this business works with scale – it will take sometime before Dell reaches 2 million clients for its Mini computer
    • Outsourcing Philosphy: It is within Dell’s guts to outsource whatever is not part of their core business
the pc value chain112
The PC Value Chain

Where are we headed?

  • The Internet is the new Computing Platform
    • The Internet is quickly replacing both traditional hardware and software as more and more applications and capabilities are shifted from end-user machines to the web
    • Cloud computing and decentralization allows better services to be offered at lower cost and more reliably
  • Wi-Fi is the new RAM
    • Accessing the internet quickly and efficiently is now more important than traditional hardware such as hard disk space and RAM
    • Netbooks allow ultra low cost entry into personal computing with the express purpose of web-surfing and accessing web-based applications
  • PCs as a Commodity?
    • As the price of PCs fall with netbooks and their capabilities are shifted to the net, differentiation will lose to price competition
the pc value chain113
The PC Value Chain

If PCs are losing, who is winning?

  • Servers, routers and switches
    • Delivering web content to users is becoming the new competitive market
    • The quality of the software or service still depends on the machine it runs on, only the location of that machine has changed
    • Companies will see growth in both the hardware and the software that manages and delivers the content of the internet to end users

The most successful companies will be those that can transition their business to the production of IT equipment and software while maintaining a strong effort in low-cost PC manufacture. These are already their fastest growing sectors. Those that cling to high-end computing and branding will likely lose out.

team 9
Team 9
  • Team 9: Cloud 3Project: Cloud Computing
  • James Su - james_su[at]berkeley.edu *
  • James An - jyan[at]berkeley.edu
  • Boaz Ur - boaz_ur[at]mba.berkeley.edu *
  • Zishan Khan - zishan_khan[at]mba.berkeley.edu *
slide115

PC Value Chain 2008

Group 9

James An

Zishan Khan

James Su

Boaz Ur

slide116

PC Value Chain

Suppliers Assemblers Channels

Components

Intel/AMD

Microsoft

Seagate

Dell

Gateway

Lenovo

HP

Acer

Asus

Direct

Customer

Dell

Lenovo

Retailers

Comp USA

Circuit City

Costco

Online (Amazon, Buy.com)

Local Stores / Small Resellers

Sub-Assembly

Flextronics

Solectron

IntelAcer

Asus

Sub- Assembly

Acer

MitacFIC

Asus

White box makers

slide117

Differences in PC Value Chains

Suppliers Assemblers Channels

Customer

Dell

Asus

Acer

Lenovo

HP

Apple

slide118

Financials of different PC Manufacturers

  • You don’t have to build value at the component level to be profitable
  • These financials reflect the total business for the compared companies and not only the PC business.
slide119

Dependencies in the Value Chain

Suppliers Assemblers Channels

Components

Intel/AMD

Microsoft

Seagate

Dell

Gateway

Lenovo

HP

Acer

Asus

Direct

Customer

Dell

Lenovo

Retailers

Comp USA

Circuit City

Costco

Online (Amazon, Buy.com)

Local Stores / Small Resellers

Sub-Assembly

Flextronics

Solectron

IntelAcer

Asus

Sub- Assembly

Acer

MitacFIC

Asus

slide120

Dell Forms a Partnership with Box.net

“Box is the most secure, easy-to-use way to share and manage files online.” –from Box.net’s Overview

What the Partnership means

With the purchase of a new Dell Inspiron Mini 9 Notebook, customers receive…

  • 2 GB of free online storage on Box.net
  • Discounts on plans of up to 25 GB on Box.net

In the PC Value Chain

Box.net is a supplier. It provides a service which comes with the Dell laptop.

slide121

Dell Forms a Partnership with Box.net – Cont’

Advantages to Partnership

  • Dell saves costs in development of a website that offers the service.
  • Box.net is widely-used with a customer base of 2 million and also has award-winning service. Offering their service may help with advertising efforts. It may also attract Box.net customers to buy Dell labtops.
  • Partnership can be dissolved if it does not help Dell.

Disadvantages

  • If the service does not increase sales, Dell could potentially be making less on this labtop by working with Box.net.
  • If it is successfully, Dell has limited control over how Box.net will develop and grow.
slide122

Where is the industry going? (A Porter’s analysis) and how will the value chain "changing" over the next 5 years?

Bargaining power of suppliers – Depends on supplier

  • Some suppliers have strong bargaining power that will probably maintain. Intel is one of these. Intel is still in the position to extract profits from the industry.
  • Windows is gradually losing market share but in a slow pace.
  • Other inputs are commodities. The only manufacturers that will be able to extract some premium prices are the ones who differentiate and build their own brands. Like WD.

Bargaining power of retailers – Mostly low

  • Resellers and retailers don’t own the customer. Since a PC is a mature product, many customers make decision and buy direct from manufacturers. Dell, Apple are in a position to continue their direct relationship.
  • Retailers have some leverage in physical point of sale or in access to millions of customers. Costco for example can still bargain good deals with manufacturers because they have access to large and otherwise not accessible segments of the population.
  • Smaller retailers have very low bargaining power so can’t extract much from the value chain.
slide123

Where is the industry going? (A Porter’s analysis) and how will the value chain "changing" over the next 5 years? – Cont’

Intensity of rivalry – Very High

  • For the PC wintel industry because it is standardized there is little difference between the machines except price.
  • Apple differentiates itself completely and has growing market share.
  • Apple also inspires the competition to go for more “designed” computers. The rivalry with Lenovo and Dell is intensifying as Apple’s market share grows.

Threat of new entry - Depends

  • The threat of a new large manufacturer entering the market is pretty low.
  • The threat of white labels entering / branded white labels is high and happens all the time, because they have very low costs and low barriers to entry.

Threat of substitutes - Growing

  • Smart phones (such as the iphone) are becoming computing platforms and can threat PCs.
slide124

Where is the industry going?

  • Cloud computing and Saas may enable network computers. These machines – Netbooks - will mainly have a browser and communication. All the rest will be done on the web. They will require less local computing power, almost no local software and no OS (windows) and can be much cheaper.
  • Google (chrome) and other rivals will attempt to enable this technology. Thus capturing more from the value chain.
  • New business models might emerge in this model. Pay per use / Free (as based) / etc instead of the shrink-wrap software model used today.
  • Even with existing computing technologies, Saas will play a growing role for the consumer.
  • Open source software will continue to grow as an alternative for Microsoft office.
  • Physical Design and performance will be key in high-end computers especially as Apple gets more market share.
  • In terms of manufacturing, Dell and other will continue to grow their outsourcing in order to cut costs and because professionalism is growing.
team 10
Team 10
  • Team 10: GhanaProject: Ghana
  • Anirban Sen - asen[at]ischool.berkeley.edu
  • Elihu Luna - elihu_luna[at]mba.berkeley.edu
  • Raluca Scarlat - raluca.scarlat[at]gmail.com *
team 10126

Team 10

Anirban Sen

Elihu Luna-Thomas

Raluca Scarlat

Yilun Hu

VALUE CHAIN IN TECH

value chain hp
Value Chain: HP

HP direct sales

Contract Manufacturers

Retailers

Primary Distribution

HP Labs

Original Design Manufacturers

Resellers

Original Equipment Manufacturers

Distribution Partners

Palo Alto, Beijing, Bangalore, Haifa, Tokyo, Bristol

67% U.S.

Independent Distributors

Original Equipment Manufacturers

solutions based value chain hp
Solutions Based Value Chain: HP

HP Services (Consulting and Outsourcing)

Enterprise Storage and Servers

HP Financial Services

HP Software

  • Commercial Clients
  • Personal Systems Group
  • Imaging and Printing Group

EDS

Corporate Investments

R&D

value chain lenovo
Value Chain: Lenovo

Invest

Capture Demand

Solution & Delivery

Support

Global Suppliers

Tech Support

Great China, Asia, US, Europe

Individual, Business, Government

Expansion

Global Assembly

Service

Global Logistics

R&D

Strategy

Sales & Marketing

Distribution

value chain acer
Value Chain: Acer

Invest

Capture Demand

Solution & Delivery

Support

Global Suppliers

Tech Support

Great China, Asia, US, Europe

Individual, Business, Government

Expansion

Global Assembly

Service

Global Logistics

R&D

Strategy

Sales & Marketing

Both these two Asian PC makers are expanding to the U.S. market by acquiring U.S. companies. Lenovo bought IBM’s PC business. Acer bought Gateway. They are both more on the assembly side and not much on the service/consulting side.

Distribution

value chain dell
Value Chain: Dell

Services and Support

  • Infrastructure consulting
  • Deployment
  • Asset recovery and recycling
  • Training
  • Support
  • Managed Services
  • Dell Financial Services

Software and Peripherals

Custom orders received and customer input.

Sales and Marketing

value chain asus

Customer

Value Chain: Asus

Software:

3D AutoCAD, Ultra Mobile PC

dell box net partnership133
Dell: Box.net partnership

Dell may have decided not to pursue a web services strategy because it is not their core competency and they do not have the infrastructure to provide web services.

evolution of the value chain
Evolution of the Value Chain
  • Just-in-time manufacturing and delivery of custom orders.
  • Computers will not come pre-loaded with software that the customer will not use. Instead the applications will be delivered through the web only when needed by the customer.
  • Companies will develop the key linkages between customer feedback and order completion, sales and marketing, and support. The post-purchase service and support linkage will grow as the hardware gets cheaper. Eventually, companies may monetize only the services portion and provide the actual computer for free!