Computer Industry

Computer Industry Analysis

"Laptop prices hit new low"

Summary:

The article "Laptop prices hit new lows" by Gary McWilliams focuses on the computer industry, and how prices have evolved during past 5 years, specifically 2001-2005. The article reports that the prices of laptop computers have decrease substantially over the past 5 years.

The average price for a laptop hit a new low in 2005 of about $1000; a decrease of about $250 from last year, and more than $600 from year 2001. In the past the demand for laptop computers comprised only of businesspeople. Now, college students' demand represents a considerable percentage of the total demand for laptop computers. While in the past a laptop computer was considered a luxury, students having to pay a sizable premium over a desktop computer now prices can go as low as $650 for a laptop equipped with wireless technology. Nearly 75% of the college students who plan to buy a computer next year say they intend to buy a laptop; this compared with about 16% in 2001.

One reason for such a dramatic drop in price is that some of the same components used in laptops are used in other devices. Small disk are used in iPods, liquid crystal displays are now found in TV's, thus allowing laptop producers to slash their prices and component producers to achieve economies of scale. Another reason is that four years ago only 6.2% of the schools had wireless networks running, now more than 35% of the college classrooms' have access to wireless networks, thus in the end shifting the demand for laptop computers. Furthermore the new technological improvements in the chip development allows to higher speeds while conserving battery power can be considered when analyzing the change in price for this industry.

Some examples of cheap laptops are: Toshiba's Satellite M45-S265 at $1,150, Gateway's 6250GZ at about $950, and the cheapest laptop according to the article Dell's Inspiration at $558, just $130 more than a equally equipped desktop.

Source: McWilliams, Gary. Wall Street Journal - Eastern Edition; 8/31/2005, Vol. 246 Issue 43, pD1-D4, 2p, 1c, 3bw

Analysis:

Global sales in computer-related industries were about US$ 500 billion in the late 1990's (Standard & Poor). Three mature world markets - USA, Japan and Europe - accounted for the majority of global production and sales. The increase in the demand for computers and especially lap-top computes in our case allowed computer producers to achieve economies of scale, producing more units of output while decreasing the average costs.

As more and more component parts of computers are now used in other devices, producers are specializing in producing only certain components as opposed to in the past when those components where used only in computers. By specializing in the production of a certain component, producers can achieve economies of scale. We can conclude this just by analyzing the costs of inputs.

First of all, when a company buys inputs in bulk -- for example, special silicone for production of chips--it takes advantage of volume discounts; in turn the supplier can achieve economies of scale on its part by producing more, and thus reducing average costs. Some inputs, such as research and development, advertising, skilled labor, managerial expertises are very expensive, but because of the increased efficiency (by using such specialized inputs) the result is a lower production cost. Thus companies choose to invest more money in research so they can develop new and cheaper ways to produce a certain component knowing that the investment cost is going to be spread over a large number of units, resulting in a very small average cost.

As the scale of production of a company increases, the company can employ specialized workers or machinery, thus resulting in even greater efficiency. This is because workers would be better qualified for a specific task, and spend all their time producing rather than learning new task not within their specialization. Thus, the marginal value of labor would be considerably increased. Machinery for example would have a longer life as would not be improperly used over and over again, and the times used for tuning and retuning the machine would be used for production.

With a larger scale of production companies are applying better organizational skills to its resources, such as straightforward chain of command, and by this the range where the marginal product is positive would be greatly increased. Similar to improved organization and technique, the learning