Macroenvironmental Analysis of Computer Industry

The national/international economy

Opportunities

*upswing of national economy

* The Tax Relief Reconciliation Act of 2001 has begun a decline in the taxes on American households, and will continue to do so until they reach the final goal of a total of 3% drop in 2006. In addition, the Working Families Tax Relief Act of 2004, which is a supplement to the 2001 act, has increased the dollar amount for child tax credit. Therefore, American households now, more than ever, have large amounts of disposable income.

* Recent legislation has reduced the amount of taxes for which small businesses are responsible. As a result of this recent legislation, there are three major areas of opportunity for small business owners to experience tax relief: (1) individual income tax returns, (2) growth incentives for small businesses, and (3) a reduction of taxes on dividends and capital gains. Therefore, this allows for more capital expenditures for small businesses.

*mergers with overseas companies

Threats

*international economy in recession

*Earlier this year, the World Trade Organization ruled the U.S export-tax provision, which was intended to boost U.S. exports, illegal. After the ruling, the EU imposed punitive tariffs, now at 12% and rising 1% each month, on about 1,600 U.S. exports. If these high tariffs are left in place it will hurt the U.S by reducing export opportunities. In addition, many of our trading partners tax income earned within their borders only, while we tax the income of U.S. taxpayers regardless of where it is earned, therefore U.S. companies doing business overseas are often subject to a double tax on foreign earnings.

* In the recently released World Economic Outlook for 2004, the International Monetary Fund has projected inflation in 2004 to be higher than that witnessed in the previous few years. For instance, inflation in the US is likely to touch a level of 2.1 per cent, larger than 1.6 per cent of 2003 and the past 3-year average of 1.7 per cent. This is seen as a threat because inflation has the ability to impact price levels in the country, which could potentially slowdown economic growth.

* Despite the massive growth of the third quarter of last year, capacity utilization in the U.S. barely nudged up, from 72.4 percent to 72.6 percent. Capitalists therefore have little reason to build new factories and expand the system for years, keeping job growth substandard for a long time. Throughout this cycle, there will be the continuing shift of high-wage jobs in manufacturing to China and in services to India and elsewhere. High unemployment and pressure on wages may characterize this entire business cycle, and therefore lead to even more outsourcing.

Technology

Opportunities

*In 1968, Gordon Moore created a theory, which came to be known as Moore’s Law, that stated the capacity of technology would double every 18 months, and the cost would be cut in half every three years. This is shown to be true through the amount of time it took to achieve penetration rates of 25% in U.S. homes on various products; it took 35 years for the telephone, 26 years for television, 16 years for personal computers, and seven years for the internet. However, at a conference in 2002, Bill Gates stated that we can now expect the capacity of technology to double every nine months instead of 18. This just goes to show that the technology has been changing at a phenomenal rate and will become even faster in the years to come.

*The