Throughout 2005, the computer hardware sector lagged behind the market, with growth rates only one-third of other sectors. This is in stark contrast to the trend observed at the end of the previous year when investors were particularly optimistic about PC consumption demand.
Fighting for Market Share
According to Megan Graham-Hackett, an analyst specializing in PC stocks, growth will gradually decline from 15% this year to just 9% in 2006. This decline has several causes, primarily due to stagnant demand for new PCs. Today’s consumers are more interested in high-tech gadgets, laptops, and mobile phones, while their budgets are limited.
The shrinking input will force computer manufacturers to come up with new strategies. In addition to expanding into new markets and increasing product competitiveness, they will also need to engage in aggressive price wars to capture market share. Ironically, as prices drop too low, a company’s market share increases, but so does the risk of losses.
Searching for Remedies
Fully aware that this pressure is unavoidable—if not increasingly intense—hardware companies are tirelessly searching for alternative revenue channels to compensate. Where are they looking? The focus remains on services, servers, and storage devices.
More specifically, hardware companies are delving into features such as automation and computer “self-diagnosis and self-repair,” as well as functions that can be executed with a single keystroke.
For major players like Sun, HP, and IBM, their primary production line in 2006 will be servers. The general trend is for companies to release smart servers capable of automatically detecting certain types of errors or common malfunctions, and even more advanced, able to autonomously resolve those issues.
This feature, whimsically named “Self-Healing,” has been a focus of development in the hardware industry for the past few years. Sun has introduced several models of “super servers” that incorporate self-healing capabilities, and HP and IBM are not far behind. In fact, all three giants are pursuing the same market.
Alongside the race in the high-end segment, the hardware industry continues to emphasize faster, cheaper, and more compact devices.
The importance of smaller size is critical for businesses when building data centers, especially when they have to rent office space at exorbitant prices. This is why there are high expectations for blade servers—ultra-thin servers—and in this area, IBM is the dominating name. The biggest challenge is to continually balance miniaturization with ever-increasing processing power while keeping heat output low. Solving this problem will remain a top priority for companies in 2006.
Kill or Isolate?
After completing the first step in their global expansion campaign by acquiring IBM’s PC division, Lenovo is striving to build a distinctive computer brand. This distinction, the company hopes, extends beyond just pricing.
It’s important to note that in a “mature” industry like computers, companies can primarily compete on price. However, Lenovo has found a rare loophole to exploit: they recently announced a line of computers capable of attacking viruses with just a keystroke.
Whether Lenovo’s computers can truly eliminate viruses is uncertain, but they may very well isolate stubborn viruses from other components within the machine. This means that when you are attacked by a virus, at the very least, your computer will not turn into a heap of junk or a zombie as it often does today. If Lenovo can successfully develop this feature, it would be a fascinating innovation.
“Simplicity is Gold”
At this point, it’s worth elaborating on the phrase “one keystroke.” You may wonder why companies emphasize this feature repeatedly. The answer is that it is a common strategy being pursued by Lenovo, Dell, HP, and all other PC manufacturers. Not only do novice computer users rely on shortcuts to access commonly used functions, but even regular users want to save time and effort.
A few years ago, some computer manufacturers integrated quick-access hotkeys for Internet browsing. What’s the underlying principle? They are trying to make computers more like TVs—just plug in, turn on, and that’s it. Why is TV so appealing and widespread? Because it is simple to use. Does this simplicity bore users? No, in fact, quite the opposite.
Once users have a positive impression of a product, they become more inclined to purchase or upgrade their equipment, which in turn increases business opportunities for companies. The mantra that all companies are whispering to each other right now is “Simplicity is Gold.”
Carving a Unique Path
One notable example here is Logitech. After a period of being synonymous with computer mice and keyboards, Logitech has actively expanded its product portfolio into home electronics. The company has launched mini speaker systems designed for iPods, universal remote controls for all household electronic devices, gaming mice, Internet cameras, and more—all targeting the goal of “home entertainment.”
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