Computer Manufacturing
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Industry Overview
The US computer manufacturing industry includes about 1,200 companies with combined annual revenue of about $75 billion. Major companies include Dell, Hewlett-Packard, and IBM. The industry is highly concentrated: the top 50 companies generate about 90 percent of revenue.
Globally, computer manufacturing generates about $300 billion in annual revenue, according to Computer Industry Almanac. Manufacturing is concentrated in the Asia/Pacific region, home to industry leaders such as Toshiba Corporation (Japan) and Hon Hai Precision Industry (Taiwan).
Competitive Landscape
Demand is tied to consumer and business income. The profitability of individual computer companies depends on purchasing and production efficiencies, and on technological expertise. Large companies have economies of scale in purchasing and production. Small companies can compete successfully by specializing in certain products or by developing superior technology. The industry is capital-intensive: annual revenue per employee is about $460,000.
US imports of computer equipment amount to nearly $100 billion, more than half from China. Exports are about $45 billion, with more than a third going collectively to Mexico and Canada.
Products, Operations & Technology
Major products include PCs, printers, monitors, mainframes, servers, and disk drives. Personal computers account for about 40 percent of industry revenue; mainframes and servers, 13 percent; and storage devices, about 10 percent.
The manufacturing process for PCs consists of integrating circuit boards, disk drives, and input/output devices into a final product. Companies typically assemble PCs from components bought from other manufacturers. Key components like "motherboards" are specially made for a particular product, while disk drives and other components may be off-the-shelf parts. Despite automation gains, some assembly work is still labor-intensive. Manufacturers of specialized devices like printers, monitors, and disk drives may also buy some components from outside vendors. The manufacture of some products requires highly sophisticated machinery.
Although components and other materials can usually be bought from a variety of vendors, some components are available from just a few suppliers. For example, Intel is the major supplier of processor chips for PCs. Many components are bought from foreign vendors and many US manufacturers have foreign manufacturing operations, mainly in Asia.
Computer manufacturers rely heavily on technology to produce better products and lower costs. R&D spending at large manufacturers is generally about 5 percent of product revenue, and can be higher for smaller companies or low for pure assemblers, like Dell. Patent licensing is common and patent disputes are frequent. Technological advances can rapidly make products obsolete. The life cycle for a product is often less than 18 months, which is based on a common industry concept called Moore’s Law, which states the capacity of a computer chip must double every two years to keep up with evolving technology. Moore's Law has held true for several decades.
