Computer Manufacture
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Industry Overview
The US computer manufacturing industry includes about 1,500 companies with combined annual revenue of $70 billion. Major companies include Dell, Hewlett-Packard, IBM, and Sun Microsystems. The industry is highly concentrated: the top 50 companies generate about 90 percent of revenue.
Competitive Landscape
Demand is tied to consumer and business income. The profitability of individual computer companies depends on purchasing and production efficiencies, and on technological expertise. Large companies have economies of scale in purchasing and production. Small companies can compete successfully by specializing in certain products or by developing superior technology. The industry is capital-intensive: annual revenue per employee is about $400,000.
Products, Operations & Technology
Major products include PCs, printers, monitors, mainframes, servers, and disk drives. PCs, including desktop, laptops, and workstations, account for 40 percent of industry revenue. Input/output devices such as printers, monitors, keyboards, and mice account for 25 percent of revenue; mainframes and servers for 20 percent; and disk drives for 15 percent.
The manufacturing process for PCs consists of integrating circuit boards, disk drives, and input/output devices into a final product. Companies typically assemble PCs from components bought from other manufacturers. Key components like "motherboards" are specially made for a particular product, while disk drives and other components may be off-the-shelf parts. Despite automation gains, some assembly work is still labor-intensive. Manufacturers of specialized devices like printers, monitors, and disk drives may also buy some components from outside vendors. The manufacture of some products requires highly sophisticated machinery.
Although components and other materials can usually be bought from a variety of vendors, some components are available from just a few suppliers. For example, Intel is the major supplier of processor chips for PCs. Many components are bought from foreign vendors and many US manufacturers have foreign manufacturing operations, mainly in Asia.
Computer manufacturers rely heavily on technology to produce better products and lower costs. R&D spending at large manufacturers generally varies between 5 and 15 percent of product revenue, and can be higher for smaller companies or low for pure assemblers, like Dell. Patent licensing is common and patent disputes are frequent. Technological advances can rapidly make products obsolete. The life cycle for a product is often less than 18 months, which is based on a common industry concept called Moore’s Law, which states the capacity of a computer chip must double every two years to keep up with evolving technology. Moore's Law has held true for several decades.
