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IT Market Sector Analysis Project: Assignment 2 - Final Report

Group 5
Jeremy Gonzalo, Min Kyo Joung, Tom Raybould, Ujala Patel.

Executive Summary: summary of findings in the market sector and company analysis are
presented.
(intro paragraph)

Key Findings
The tablet market has a decline in sales but is projected to have a raise in sales by
2.9% annually by 2019. (Ujala Patel)
The major competitors in the tablet market are Apple Inc.s iPad and Microsoft
Inc.s Surface Pro. (Ujala Patel)

Introduction & Discussion of the IT Market Sector:


The market sector group 5 focused on is the tablet market. According to the article United
States - Tablet Sales 2015, from the MarketLine database a tablet market consists of total
revenue earned by the sales of tablets. A few tablets in the market currently include Apples iPad,
Samsungs Galaxy Tab, Amazons Fire HD, and the Microsofts Surface Pro. As of 2014, the
United States tablet market has continued to grow in sales even though there has been a decline
in both value and volume of the product sold (Marketline, United States - Tablet Sales, 2015).
The key issue for the decline in the tablet market is the lack of innovation on tablets as Phablets
and PC are becoming more popular in the distant future (Marketline, United States - Tablet Sales,
2015). Phablets are smartphones with the size or feature of a tablet. The market for smartphones
is the biggest threat for the tablet market because of a smartphones innovation ability
(Marketline, United States - Tablet Sales, 2015). However even with the decline, the Windowsbased tablets seem to be a light for the future, since it is predicted that value and volume will
increase. Currently the US tablet sales ...had total revenues of $18.4bn in 2014, representing a
compound annual growth rate (CAGR) of 27.7% between 2010 and 2014 (Marketline United

States - Tablet Sales 2015). The demand for tablet users will always be either consistent or
growing because of current users and the application of tablets in daily life. (Ujala Patel)
Companies that are major players in the tablet market sector currently are Amazon.com,
Inc., Apple Inc., ASUSTek Computer Inc., Samsung Electronics Co., Ltd., and Microsoft Inc.
The report will focus on Apple Inc. and Microsoft Inc., since both companies are currently
leading in sales and preference by users. Apples iPads are the most common brand of tablets
according to Mintel reports, nearly half of all tablet owners (46%) have an iPad, per EMS data
(Hulkower, 2014). Apples sales of iPads are recorded globally, in 2014 Apple was reported to
have sold 12.5 million iPads, which is a decline from 2013, when Apple sold iPads worth 41.9
million. Apple is a mainstream player in the tablet market, but its main competition is from
Android tablets and Microsoft tablets according to Billy Hulkower (2014) in the Mintel Report
on US tablets. Apple iPads also are currently dominated by higher income users because of price
differences. The Microsofts Surface Pro entered the sector late, so it does not have a strong
foothold within the market yet, but it is slowly rising (Hulkower, 2014). The Surface Pro will
slowly lead in sales because it has added functions and usability operations; for example it has
the components of a laptop which include a stand and a keyboard for users and mobility like
other tablets so become a more convenient product for users. The Surface Pro will be key since
Mintel report, Tablets - US- November 2014, explains how the Surface Pro can become a
leading competitor for laptops and tablets in the future. Currently Microsofts biggest competitor
in the tablet market is Apple, in order for Microsoft to do better in sales it must beat Apples user
favoritism (Hulkower, 2014). (Ujala Patel)
Major market trends for the tablets IT sector include gifts, age, usability, durability, the
web, and newer technology updates (Hulkower, 2014). Gifts and age are similar because tablets

target younger individuals since more than 52% of teens own tablets (Hulkower, 2014). It is an
easier market to generate sales from because education is becoming digitalized as the usage of
tablets increase. Tablet producers are trying to create an easier product in comparison to
computers and smartphones, which has a higher durability, web access and application ability
(Hulkower, 2014). Due to the increase of web applications, tablets are to play a major role in the
future because users find tablets to be convenient and easier. (Ujala Patel)
The tablet market is to slowly progress towards a more demanding market, as Mintel
Reports suggests the rise in prices by 2019 to be $29.2 billion (Hulkower, 2014). The market is
forecasted to have an annual growth rate of 2.9% by 2019 (Marketline United States - Tablet
Sales 2015). The future for tablets based on market trends and companies leads to the conclusion
of future innovations that will help improve this market. Since the market is to have a 2.9%
growth rate annually and prices to rise to $29.2 billion by 2019, proves that the tablet market
despite its low rates currently will grow in the future. Along with this, it can also be drawn from
the information about the companies, that tablet producers are constantly trying to create newer
software and hardware implementations to help user accessibility and increase consumers for the
product. (Ujala Patel)
Opportunities for the market include greater reliability such as being used in digital
operations, medical equipment, home appliances, hardware and more, since if consumers
become reliable on tablets they market is tended to increase with usage and reliability
(Marketline United States - Tablet Sales 2015). Threats to the tablet market are substitutions of
the product. Increased innovation of smartphones, PC computers, PC laptops, or PC notebooks,
as they all have the same functions as a tablet and may create a downturn in the market for
tablets (Marketline United States - Tablet Sales 2015). Another threat to the market is the

product's long term durability, it is good that the product lasts for a while, but this means there
will be longer replacement cycles. Even though the tablets market is to grow in the future, it
becomes harder because users are less likely to constantly buy a new tablet unless there is
substantial damage to the current one (Marketline United States - Tablet Sales 2015). (Ujala
Patel)
Recent events that might affect the market sector would be the market decline of the
sector currently (Marketline United States - Tablet Sales 2015). A market decline means that
consumers are less likely to purchase a product, as the demand has decreased. Also, another
factor that may affect the market are the competitors. There are many different tablet products in
the market currently as listed earlier, this implies that because of high competition, the demand
currently would not be shifting since there are many available options available (Marketline
United States - Tablet Sales 2015). For example, if Apples iPad is cheaper than Microsoft's
Surface Pro, this means that consumers are more likely to purchase the iPad; but if the iPad price
is higher than what the consumer is willing and able to pay this means that the consumer will not
purchase the product, therefore a decline in demand. (Ujala Patel).

Discussion with Analysis of the Two Companies:


Apple, Inc. - Apple iPad
Apple is a technology company that was co-founded by Steven Wozniak and Steven Jobs in 1976
and has been a publicly traded company since 1980 (Marketline, 2015). Apple is now known for
the personal devices they offer including the: Ipad, Imac, and the Ipod. Apple distributes these
products world-wide through its own retail stores; And through its website, their products are
also sold in third-party cellular companies and other retailers of electronics (MartketLine, 2015).

Apple is actually one of the main sellers and distributors of its own products unlike Microsoft
which is primarily sold through other retailer. In fact, when it comes to the sales of PCs, Apple
controls about 13.8% of the market in a report done by IBIS world in 2015 (IBISWorld, 2015).
(put students full name)
Apple is also heavily invested in software and apps for its devices in order to make its
products more user friendly, and to create apps people want to buy and use. The App Store
and iTunes store are extremely important to Apples business model because they use the
device the customer purchased as a gateway, for the customer to buy more content from them in
the future. Both of these stores, setup by Apple, are easily accessed from Apples Ipad tablet
device.
(Tom Raybould)
Microsoft, Inc. and Microsofts Surface
Microsoft was co-founded in 1975, by Bill Gates and Paul Allen when they developed an
interpreter for Basic programming language, and it became publicly trade in 1986 (MarketLine,
2015). Microsoft is a company that now offers a variety of products and services including:
computing devices, servers, phones, and other intelligent devices; server applications for
distributed computing environments; productivity applications; business solution applications;
desktop and server management tools; software development tools; video games; and online
advertising (MarketLine, 2015, pg4). Because Microsoft offers so many different types of
products and services, the company is actually divided into two different segments: Device and
Consumer (D&C) and Commercial (MarketLine, 2015). (Tom Raybould)
While Microsoft still has to strive to make itself more competitive in the tablet world, it
seems Apple only has to fight to stay on top. In an article written in 2014 called Apple,

Amazon Lead Slowing US Tablet Market it states that Apple, Amazon and Samsung are the
top three brands for tablets in the US today (Eddy, 2014). It also says that, of these three, Apple
controls 43% of the market, proving that it has been dominating this market sector (Eddy, 2014).
It seems that Apple has had no real problem handing its competition in this market sector since
the release of its Ipad tablet device. Beside the fact that Apple is leading the market, Microsoft
also has to compete with Amazon and Samsung which control 24% and 11%, of the online
market respectively, leaving Microsoft and other smaller companies only a portion of that 22%
of the market that is left (IBISWorld, 2015). (put students full name)
Apple and Microsoft are the two most valuable brands according to Forbes in
2015(Badenhausen, 2015). For Apple, brand awareness is one of the major keys to their success,
especially with their line of I products. For example in our current society the Ipod has
almost replaced the term mp3 player. This strong branding is what helped apple with the
launch of their Ipad Tablet device, and for some the term Ipad is synonymous with the term
tablet. According to Forbes, Apples brand is worth $145.3 billion and is up 17% over 2014,
this is twice as much as any other brand on the planet (Badenhausen, 2015). In fact because the
company is so well known for its products, it can actually spend less on advertising and still beat
out its competition: The company relies on its avid fan base more than Madison avenue to
promote it products (Badenhausen, 2015, p5). In finances the Apple reports over 230 billion in
revenue this year, which is posted on the Mergent Onlines review of the company (Mergent
Online, 2015). (put students full name)
Microsoft comes in at number two for the most valuable brand according to Forbes, who
values the brand at $69.3 billion (Badenhausen, 2015). This was apparently After years of the
getting beaten up in the press and by users, the $94-billion-in sales company is suddenly cool

again under CEO Satya Nadella (Badenhausen, 2015,p5). While this brand might not be as
strong as Apples Ipod, the companys software Windows is definitely a term which must people
relate to PCs that are non-mac, and this Windows brand has helped the company to launch
other products under this brand, which use the windows based operating system like the
Microsoft surface pro. In finance the company reports over 90 billion in revenue which is posted
the Mergent Onlines review of the company (Mergent Online, 2015). (Tom Raybould)
Microsoft, being one of the top IT firms in the world has clear and definite strengths and
weaknesses. Due to their success, Microsofts strengths are fairly transparent and easy to see.
One of the strengths include strong R&D capabilities. Their focus on research and development
overpasses compared to other IT firms. The company commits significant resources in
developing technologies, tools, and platforms spanning communication and collaboration,
information access and organization, entertainment, business and e-commerce, advertising, and
devices (Marketline, 2015). On the other hand, being such a huge company, Microsoft has
difficulty managing lawsuits and litigations, which is one of their weaknesses. For example,
Microsoft failed to give at least 15 million consumers a choice of web browser, which was a
violation of a voluntary antitrust pact due to which the fine was imposed (Marketline, 2015).
Besides the strengths and weaknesses of the company, the opportunities and the threats are
similarly visible to consumers eyes also. One of the opportunities Microsoft is looking to take
advantage of is increasing it adaptation to cloud computing services. The company offers these
cloud services through Microsoft's Windows and Windows Phone operating systems, thus adding
SaaS component to its PaaS and IaaS services (Marketline, 2015). Besides its opportunities,
consumers need to take a close look at one of their threats also. One of them is known to be the
declining in the PC market. According to industry estimates, the global PC shipments volume is

expected to decline from 295.9 million in 2014 to 291.7 million in 2018 at a compound annual
rate of change (CARC) of 1% during 2014-18 (Marketline, 2015). With all these strengths,
weaknesses, opportunities and threats, Microsoft is at a good balance to be in the position as the
leading IT firm in the world. (Min Kyo Joung)
Similar to Microsoft, because Apple is such an exposed company, anyone can clearly see
their strengths, weaknesses, opportunities and threats. One of their strengths includes their
noticeable growth rates and cash flows. For instance, Apple's revenues grew at a compounded
annual growth rate (CAGR) of 29.4% during FY2010-14. The company's net income grew by
29.6% annually over the same period. Moreover, despite the company's growth approaching
maturity, Apple registered a 7% growth in revenues on year-over-year basis in FY2014
(Marketline, 2015). Different to their financial strength, they seem to have a weakness with their
product lines. One of their weaknesses is known to be its high dependency on iPhone and iPad
product lines. The iPhone and iPad product lines together accounted for 72.4% of the total
revenues in FY2014 (Marketline, 2015). This could be very risky for Apple. Besides their
strengths and weaknesses, their opportunities and threats can be easily analyzed also. For
example, one of the opportunities is involving the growth of Apple Pay. According to industry
estimates, the global mobile payment transaction value reached approximately $235 billion in
2013 with approximately 245 million mobile payment users. The global mobile transaction
volume is expected to grow at a CAGR of 32.3% during 2013-17 to reach a value of $721 billion
in 2017 (Marketline, 2015). However, on the other side, one of their threats is that their
expensive pricing can eventually lead to a limit in its growth in the emerging market. Apple has
not been able to effectively gain market share in emerging markets where historically, lower
priced phones are popular (Marketline, 2015). Apple, just like Microsoft seems to be at a balance

between its strengths, weaknesses, opportunities and threats, which proves why it is a strong
competitor to Microsoft. (Min Kyo Joung)
Microsoft recently announced that have have partnered up with Hewlett Packard
Enterprise. However, in 2013, there were many signs that proved the two companies were in
conflict as they were outright competitors. According to Rich McCormick in his article
describes that Microsoft has made a number of recent decisions contrary to HP's own interests,
including bailing out competitor Dell in an attempt to push Windows 8 to the business sector.
Also central to her reclassification is Microsoft's commitment to Surface, despite previous claims
from HP that Surface wasn't a threat to its own Windows 8 tablet. This echoes earlier complaints
from other OEM partners such as Acer, whose CEO warned Microsoft to "think twice" before
releasing the Surface tablet (McCormick, 2013). Despite having these conflicts and viewing
each other as their own competitors in 2013, they have decided partner up and lead the IT sector
with their brand names in 2015. (Min Kyo Joung)
Microsofts financial review of the fourth quarter of 2015 does not seem to be a positive
for the company. According to Chris Suh., the revenues for the quarter ended June 30, 2015
were $22.2 billion. Gross margin, operating loss, and loss per share for the quarter were $14.7
billion, $(2.1) billion, and $(0.40) per share, respectively (Suh, 2015). (Min Kyo Joung)
Apple has completed and reported the records on its fourth quarter results. According to
Joan Hoover, Apple today announced financial results for its fiscal 2015 fourth quarter ended
September 26, 2015. The Company posted quarterly revenue of $51.5 billion and quarterly net
profit of $11.1 billion, or $1.96 per diluted share. These results compare to revenue of $42.1
billion and net profit of $8.5 billion, or $1.42 per diluted share, in the year-ago quarter. Gross
margin was 39.9 percent compared to 38 percent in the year-ago quarter. International sales

accounted for 62 percent of the quarters revenue (Hoover, 2015). They say that such growth in
sales was mainly due to the availability of Apple Watch, and Mac sales. (Min Kyo Joung)
Company-wise, the biggest things that would affect Microsoft and Apple would be
releases of new products. Both Microsoft and Apple are the two biggest competitors in the Tablet
industry, with each companys main tablets being the Surface and the iPad, respectively. New
releases generally pull more consumers or have the opportunity to lose current customers
depending on how successful the release is or not (Jeremy Gonzalo).
First off, this summer saw the release of Windows 10, the newest of the operating
systems to come from Microsoft. Included are a new Web browser called Microsoft Edge, a
mode for touch devices, and face recognition (Hachman 14). While these are big selling points
for a consumer to purchase Windows 10, the big point is that Microsoft is actually offering a free
upgrade to Windows 10 if a consumer has an existing Windows 7 or 8 license, which is good
since it gives a customer an incentive to stay with the company without being left behind in the
dust when a new operating system is introduced. Along with Windows 10 was the announcement
by Microsoft of their most recent iteration of their Tablet PC, the Microsoft Surface Pro 4, and
the release of this device could very well skew consumers to choose this over other competing
tablets. An article written for PC Magazine boasts upgrades to the display of the Surface,
stronger battery life, and improved peripherals (including the Surface Pen and Type Cover)
(Buzzi 2). Knowing this could have someone want to upgrade any sort of system that theyd
have to the new Surface Pro. (Jeremy Gonzalo)
On the Apple side of things, the two most impactful reveals in recent memory are the
reveals of the iPad Pro and Apple Music. First, the iPad Pro is a step in the Tablet PC direction
that was about five years in the making for Apple. While still running on the IOS 9 operating

system as opposed to the OS X system that Apples Mac computers all run, the significantly
bigger-than-normal iPad Pro is comparable to the Surface, even with a keyboard called the
Smart Keyboard which is similar to the Touch Covers made by Microsoft for the Surface
(Ochs 95). As with the Surface Pro, the constant upgrading of previous iterations of a specific
device can get consumers to continue to invest in the products so they are at least up to date with
the gadgets they own. Outside of the main tablet for Apple, Inc., we also have the most recent
release of the music streaming service called Apple Music. Lead mobile analyst Sascha Segan of
PC Magazine notes that although Apple Music is not exactly the most innovative thing out there
at the moment, it replaces the default music player in the dock of permanent apps on the worlds
most popular smartphone (Segan 1). It may not matter that Apple Music as a streaming platform
is not as sophisticated as Pandora or Spotify, but it matters that its defaulted on the iPhone and
the iPad, and more attention towards Apple Music via the two of the most lucrative devices could
really make the difference for raking in any sort of revenue for Apple from something outside of
their mobile/portable devices. (Jeremy Gonzalo)
As for important issues that may affect each companys well being, there has been, in
recent news, a lawsuit that hit Microsoft. This lawsuit in particular alleges that Microsoft would
discriminate against female works in a technical position (Guynn, 2015). Microsoft being under
this sort of fire in a society where there is a massive movement for gender equality could tarnish
the reputation of the technology giant. Apple on the other hand, have not been on any recent fire
due to any sort of legal issues or management problems like with Microsoft. However, both
Apple and Microsoft could have their stocks affected because of the recent terrorist attacks in
Paris. Any sort of civil unrest could cause investors to trade less, and it could be possible that
military equipment and weapons manufacturers to have a rise in value stock-wise, but could also

negatively impact the stocks of companies like Microsoft and Apple assuming that neither of
them are involved in the creation of military equipment or weapons manufacturing. (Jeremy
Gonzalo)
The best news for Apple and Microsoft is that the tablet industry is a growing one, and
the opportunities for growth are immense in each of the markets available to them. As per each
companys SWOT analysis, Microsoft can see a strong growth in the tablet market and Apple
boasts a positive outlook in the tablet market (Marketline, 2015).

Conclusion:that integrates the previous sections and provides some comment on the future
prospects for the sector as a whole and the companies within it.

Reference List
Badenhausen, K. (2015). Apple and Microsoft head the world's most valuable brands
2015. Forbes, P5-5. Retrieved from Business Source Premier database.
Eddy, N. (2014). Apple, Amazon lead slowing U.S. tablet market. EWeek, 1-1. Retrieved
from Business Source Premier database.

Guynn, J. (2015, September 16). Microsoft sued for gender discrimination. Retrieved
from http://www.usatoday.com/story/tech/2015/09/16/microsoft-lawsuit-genderdiscrimination/32505143/
Hachman, M (2015). Microsoft announces Windows 10 versions for consumer and
business. PC World, P12-15. Retrieved from Business Source Premier Database.
Huguet, K. (2015). Apple reports record fourth quarter results. Apple Press Info.
Retrieved from http://www.apple.com/pr/library/2015/10/27Apple-Reports-RecordFourth-Quarter- Results.html
Hulkower, B. (2014, November). Tablets- US- November 2014. Retrieved from Mintel
Reports database.
IBIS World. (2015). Specialized industry reports, online computer & tablet sales.
Retrieved from IBISWorld database.
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MarketLine. (2015, September). Microsoft Corp. Retrieved from MarketLine database.
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database.
McCormick, R. (2013). HP and Microsoft in open conflicts as they become outright
competitors. The Verge. Retrieved from

http://www.theverge.com/2013/10/10/4823088 /hp-attack-microsoft-in-public-asoutright-competitors
Mergent Online. (2015). Apple Inc.: company financials . Retrieved from Mergent Online
database.
Mergent Online. (2015). Microsoft Corp.: Company financials. Retrieved from Mergent
Online database.
Ochs, S. (2015). Hands-on with iPad pro and Apple pencil, built for getting stuff done.
PC World. Retrieved from Business Source Premier database.
Segan, S. (2015). Apple music can win without being great. PC Magazine. Retrieved
from Business Source Premier database.
Suh, C. (2015). Microsoft Cloud and hardware results drives fourth quarter performance.
Earnings Release FY15 Q4. Retrieved from https://www.microsoft.com/investor/Earning
sAndFinancials/Earnings/PressReleaseAnd Webcast/FY15/Q4/default.aspx

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