Macroenvironmental Analysis of Computer Industry

The national/international economy

Opportunities

*upswing of national economy

* The Tax Relief Reconciliation Act of 2001 has begun a decline in the taxes on American households, and will continue to do so until they reach the final goal of a total of 3% drop in 2006. In addition, the Working Families Tax Relief Act of 2004, which is a supplement to the 2001 act, has increased the dollar amount for child tax credit. Therefore, American households now, more than ever, have large amounts of disposable income.

* Recent legislation has reduced the amount of taxes for which small businesses are responsible. As a result of this recent legislation, there are three major areas of opportunity for small business owners to experience tax relief: (1) individual income tax returns, (2) growth incentives for small businesses, and (3) a reduction of taxes on dividends and capital gains. Therefore, this allows for more capital expenditures for small businesses.

*mergers with overseas companies

Threats

*international economy in recession

*Earlier this year, the World Trade Organization ruled the U.S export-tax provision, which was intended to boost U.S. exports, illegal. After the ruling, the EU imposed punitive tariffs, now at 12% and rising 1% each month, on about 1,600 U.S. exports. If these high tariffs are left in place it will hurt the U.S by reducing export opportunities. In addition, many of our trading partners tax income earned within their borders only, while we tax the income of U.S. taxpayers regardless of where it is earned, therefore U.S. companies doing business overseas are often subject to a double tax on foreign earnings.

* In the recently released World Economic Outlook for 2004, the International Monetary Fund has projected inflation in 2004 to be higher than that witnessed in the previous few years. For instance, inflation in the US is likely to touch a level of 2.1 per cent, larger than 1.6 per cent of 2003 and the past 3-year average of 1.7 per cent. This is seen as a threat because inflation has the ability to impact price levels in the country, which could potentially slowdown economic growth.

* Despite the massive growth of the third quarter of last year, capacity utilization in the U.S. barely nudged up, from 72.4 percent to 72.6 percent. Capitalists therefore have little reason to build new factories and expand the system for years, keeping job growth substandard for a long time. Throughout this cycle, there will be the continuing shift of high-wage jobs in manufacturing to China and in services to India and elsewhere. High unemployment and pressure on wages may characterize this entire business cycle, and therefore lead to even more outsourcing.

Technology

Opportunities

*In 1968, Gordon Moore created a theory, which came to be known as Moore's Law, that stated the capacity of technology would double every 18 months, and the cost would be cut in half every three years. This is shown to be true through the amount of time it took to achieve penetration rates of 25% in U.S. homes on various products; it took 35 years for the telephone, 26 years for television, 16 years for personal computers, and seven years for the internet. However, at a conference in 2002, Bill Gates stated that we can now expect the capacity of technology to double every nine months instead of 18. This just goes to show that the technology has been changing at a phenomenal rate and will become even faster in the years to come.

*The educational potential of computer based technologies is wide-ranging. Introducing computer based systems not only to manage student interactions, but also to support differences in learning paths and styles, will allow more effective accommodation of a wider range of student experiences and preferences. Wide area networks and the Internet stimulate a sharing of materials and collaborative learning methods between students and teachers that can be interactive and build up a social awareness that can span cultural differences. In addition, utilizing 3D images and "virtuality" will enable students to explore and interact in ways which develop visualization and constructive modes of learning.

*differentiated products

*internet

Threats

*Technology is growing at a very steady rate, however, one must wonder how long an new technology will be actually be considered new before it is replaced by and even newer one. While companies do need to "keep up with the Jones's" it poses much threat of lost sales to introduce a new technology too soon. Doing so could result in the cannibalization of the pervious products, meaning the new product would cause a decreased demand for an existing product of the same nature.

* In the past ten years online auctions have opened up a whole new world of opportunities to the everyday consumer. Consumers now are able to buy new or slightly used computers for incredibly low prices at such sites as Ebay.com or Bidz.com. In addition to "full systems" consumers, online auctions have provided computer engineers everywhere with the resources to purchase the parts they need at low prices. In turn this could spur the growth of numerous smaller computer manufacturers.

*price sensitivity

Demographic

Opportunities

* Executives and managers are spending more time working away from the office. These executives are managing entire departments from home offices in a sign that telecommuting is going increasingly more mainstream. The number of employees who performed any kind of work from home grew from 41.3 million in 2003 to 44.4 million in 2004, according to a study by the International Telework Association & Council. And they say such work arrangements are taking off even more so now as new technology -- including high-speed Internet access, BlackBerrys for remote e-mail, wireless computers, instant messaging, handheld PDAs and other breakthroughs -- make it possible to lead from afar. Through this virtual technology, employees can view a desktop at the same time the executive does, despite the distance.

* Propelled by highly capable machines offering easy portability as well as the ability to access data remotely, the portable computer market is becoming the fastest growing segment of the industry. As these portable devices increase in popularity, there is