The PC industry started being a high profitable industry, but at a certain point it started to have a very low average profitability due to the fact that mostly all the Items become a commodity. For example, Intel was selling chips to all the companies. The only way the companies were able to differentiate from each other was trough price. This originates a fierce price war which lowered extremely the prices. I will use Porter's 5 Forces to analyze the PC industry to and see how forces of competition influence the profitability of the market players (exhibit 1).
The threat of entry (medium)
* Capital cost of manufacturing facility is extremely low
* The prices of components used to make PCs typically declined 25-30% per year. In 1998 prices declined even faster, almost at a rate 1% per week.
* Microsoft (windows) & Intel made Wintel standards which limited the opportunity to differentiate products
* The financial crisis in Asia (where many components makers were located), increased competition faced by Intel, and gluts in the markets for several components all contributed to the faster decline in prices.
* Low cost entrants (white box Pcs which did not used advertisement to end users)
* Economies of scale e.g. the benefits associated with bulk purchasing.
* The high or low cost of entry e.g. how much will it cost for the latest technology?
* Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up?
* Absolute cost advantage is very difficult to maintain because more inputs are offered at fixed prices. The cost of the whole system can be hardly influenced by the manufacturer of PCs.
The power of buyers (big)
* This is high where there a few, large players in a market