APPLE CASE

APPLE CASE STUDY
STRATEGIC MANAGEMENT

GENERAL INFORMATION
• Apple Inc., is a multinational consumer electronics and computer software corporation.
• Headquartered in California.
• Formerly known as Apple Computer Inc.
• Fortune magazine named Apple the most admired company in the
United States in 2008 and 2009.

APPLE STRATEGY
• The transformations that occurred during the years from inception to present day have included many strategic management variations that drove the equipment and software changes. • Wozniak and Jobs initial strategy was to create a small desktop user-friendly computer for the computer enthusiasts.
• Strategy shifted to manufacturing of the Apple II for the consumer industry. As sales increased, management continued to alter its strategy in order to capture as much market share as possible. • John Scully
• Gil Amelio
• Jobs
• At the present

A computer for every man, woman, and child on the planet.

MISSION
“Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings.”

FIVE FORCES

BARGAINING POWER OF SUPPLIERS
• Plenty of suppliers
• Low supplier power position since computer companies can easily switch • High competition between suppliers •
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SUBSTITUDE PRODUCTS
Many substitutes in the market Competitors work to convince they product superiority
Product differentiation
(operating system)
Justification for the price increase RIVALRY
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Big competitors
Next generation products
Apple’s prices and learning curve involved. Offerings weakly differentiated. No loyal brand.
Low switching costs.

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THREAT OF NEW ENTRANTS
Extremely high start-up costs
Existing companies high branding awareness Probability of success is low
Offerings weakly differentiated. No brand loyalty.
Difficulties of building distributors network BARGAINING POWER OF BUYERS
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Variety of computer companies from which to choose Switching costs are low
Operating systems differentiation • Product differentiation
• Brand name and image
• Manufacturing both hardware and software
• Diversified Markets

• Apple’s different operating system
• Apple’s pursuit of music industry
• Microsoft upgrade costs versus benefit •
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Economic and Political uncertainty
War, terrorism and public health issues
R&D costs higher than competitors
Administrative costs are higher than competitors. • Component order placement places company at risk
• Apple relies on third parties

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Very competitive industry
Competitor’s copying programs
Microsoft dominance
Software piracy
Governmental regulatory increases
Global competition increases
Aggressive pricing practices

EXTERNAL ANALYSIS
• General environment analysis
– The electronic computer industry has been struggling since early
2000
when the economy weakened. The US Census Bureau reported a decrease in computer shipments from 1999 $64.7 billion to 62.9 billion in
2000
and continued downward to $49.3 billion in 2001. Unit shipments also declined from 27.2 million (2000) to 22.7 million in
2001.
– Rising unemployment and anticipated war with Iraq assisted in reducing the number of computer purchases. The terrorist attack on the
Pentagon
and the Twin Towers in New York City also added to the decrease. Much equipment was available at reduced costs due to the bankruptcy of many Internet companies in the early
2000s

DEMOGRAPHIC SEGMENT
– Increases in population combined with the advances in technology will continue to drive increased sales in future computer markets ECONOMIC SEGMENT
• Computer requirements are increasing across the globe
• Exports felled from $9.6 billion in 2000 to $8.8 billion in 2001 with Canada being the largest regional market for US computer sales (23% of U.S. exports). Asia and Europe accounted for two-thirds of the total exports. Imports of computers dropped from
$13.6 billion in 2000 to $12.2 billion, a 15 percent drop.
Most of the imports are from
Asian sources with Latin
America and Europe serving as secondary sources.

POLITICAL/LEGAL SEGMENT
– Apple faces political/legal segment issues both domestically and abroad. Domestically the Federal and State government continues to tighten up on the environmental issues that constrain manufacturing and disposal of the units.
Environmental concerns are issues that directly affect each computer manufacturer – Apple has willfully promoted the buyback and proper disposal of computer parts in effort to promote product stewardship

SOCIO-CULTURAL SEGMENT
– Cultures are restrictive and the restrictions have effects on company profitability – Adapting to the differences in culture is not very easy and some manufacturers are trying to build value into their company name. This is being done in hopes that branding will eventually equate with honesty, integrity, quality, and good service so that storefronts will not be as necessary as they are presenting.
– Apple computer began opening storefronts in the United States in effort to compete against the PC based companies. Their thought is that by having it available for the customers some will eventually make the switch away from the PC-based systems. • The largest socio-cultural hurdle for companies such as Apple is the lower educational standards of many countries. While many are making great progress, they are limited in number. Those that are progressing can take advantage of the outsourcing that is being done by American companies. TECHNOLOGICAL SEGMENT (ELECTRONIC
COMPUTER INDUSTRY, 2004)
– The governmental has always favored the computer industry's research and development and it has shown favor by the amount of funding that is made available. This trend has held true since the Cold War. It was just recently that any significant cutbacks occurred and the industry has been unable to make up the difference. Most computer companies began to cut back the amounts of R&D funding in the early to mid-1990s and also began to focus on the short term. Product life cycles have been shortened and the computer has become an everyday commodity

COMPETITORS: STRONGEST - WEAKEST
• The focus on the strongest competitor extends beyond Microsoft .
• Microsoft's control of the PC market speaks for itself so they can easily been seen as the strongest competitor.
• Another side of competition is the music side that Apple is presently doing well in. Samsung and Napster 2.0 teamed up to release a new service/hardware combination that is intended to compete directly with iTunes Music Store and iPod

• Apple's strategy had not gone unnoticed. Its rivalry had created an air of 'bad blood' between itself and digital rival Real Networks.
• Real Networks had adopted the tactics and ethics of a hacker to break into the iPod.
• The move had prompted Apple to consider restricting iPod software updates so that Real's Harmony technology would no longer be supported.

Apples personal media player industry

IPODS
• The iPod shuffle is a basic flash-based
4gigabyte player with no screen.
• The iPod nano has a memory of either 8 or 16 gigabyte. It allows users to listen to music and view photos.

• The IPod classic has up to 160 Gigabyte memory and it can hold up to 40 000 songs.
And 6 hours of play on a single charge.
• The iPod touch is a multimedia flash memory player controlled through an innovative touch screen interface. This player has built-in WiFi which allows internet connection. This was the best selling media player in 2010.

Apples competitors in the media industry
• Electronic reviewers agreed that Microsoft's Zune,
Archos’s vision models, Sony’s X series media players compared favorably to the IPod touch.
• The competitors of IPod shuffle and IPod nano in 2010 where Mp3 music players like SanDisk, creative and
Iriver.
• Despite these reviews Apple had a 73% market share in the media player industry in 2010 and its key rivals did not manage to achieve market share of more than
5% in the media industry in 2010.

ITUNES
• iTunes is a media player, media library, online radio broadcaster, and mobile device management application developed by Apple
Inc. It is used to play, download, and organize digital audio and video on personal computers running the OS X and Microsoft Windows operating systems. The iTunes Store is also available on the iPod Touch, iPhone, iPad and
Apple Watch.

ITUNES U
• On May 30, 2007, Apple announced the launch of "iTunes
U" via its digital content store, iTunes, which delivers university lectures through a format called iTunes U.
• The manages, distributes, and controls access to educational audio and video content for students in a college or university.
• With iTunes U, educators, lecturers, and professors are able to produce audio and visual media technology through podcast, which can be accessed through the iTunes store by students or anyone wishing to listen to a lecture via the internet • Itunes U is proof of Apples fullfillment of their mission which aims at bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings.” Iphone Timeline
•

Iphone in pictures
Iphone 4
Iphone 6

Iphone 6 plus

iphone

Iphone 5

• Apple posted a staggering profit of $18bn for the first quarter of 2015, after sales of the iPhone 6 and iPhone 6 Plus drove revenues to
$74.6bn for the period.
• Total iPhone sales reached 74.46 million during the period, a 46 percent increase on the same quarter last year and up 90 percent on Q4 2014.

• Apple has certainly performed well in the
2014 fiscal year and most of its revenues have been pulled up by the release of the Iphone 6 and Iphone 6 plus and it is still a favorite for most people both young and old.

FINANCIAL ANALYSIS

Valuation history of AAPl compared to S&P
500
50
45
40
35
30
AAPL
S&P 500

25
20
15
10
5
0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Revenue changes of Apple inc from 20052014
Revenue USD mil
200000
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Revenue USD mil

Return on assets
• Return on Assets (ROA) shows the rate of return
(after tax) being earned on all of the firm's assets regardless of financing structure (debt vs. equity). It is a measure of how efficiently the company is using all stakeholders' assets to earn returns.
• Because ROA can differ significantly across firms,
ROA is often used to compare a company over time or against companies that have similar financing structures. Return on Assets comparison with one of
Apples biggest competitors, values in %
30
25
20
AAPL
Microso
ft

15
10
5
0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

• Shares of Apple Inc tumbled nearly 4 percent with analysts citing factors such as increasing competition in the tablet market. The stock was one of the biggest percentage losers on the S&P 500, dropping 5.2 percent to $545.56 at one point as more than 17 million shares changed hands, putting it on track to surpass the company's average daily volume over 50 days of 21 million shares.
• Analysts gave different reasons for the decline. Some cited a research report saying the company will lose share in the tablet computer space.
• Others cited reports of higher margin requirements at clearing firms, and several investors said uncertain tax rates on capital gains in 2013 prompted selling.

Personal computer Operating system market share market share

7%

2%
Windows
Mac
Linux
91%

Mobile/ Tablet operating system market share Sales
Android
IOS
Java ME
Symbian
Windows phone
Blackberry
Kindle
Samsung
Bada
Windows mobile
LG

Apple sales forecasts
• Research firm Macquarie Capital initiated coverage of
AAPL stock found that Apple's iTunes, software and services business should generate about $30 billion on a gross revenue basis, which would be more than 83 percent of S&P 500 companies. “source, http://appleinsider.com/articles/14/03/24/itunes-and-appsales-projected-to-grow-to-20-of-apple-profit-by-2020”
• That is almost equivalent to its iPad business and is more than Facebook, Twitter, Yahoo, LinkedIn and Netflix's combined revenue (on consensus 2014 forecasts,"

• The research group believes earnings before interest and taxes through iTunes, software and services will account for 21.8 percent of the company's profits this year. Growing to
30.6 percent by fiscal 2017, and accounting for
36.4 percent of Apple's profits by fiscal 2020.

Forecast on the personal computer MAC
• According to estimates, Apple's Mac segment revenue will exceed $53.4 billion by 2020. “source, http://seekingalpha.com/article/2641455-apples-mac-revenue-will-outpace-competitors-by-a-healthymargin” • Apple's Fiscal Year 2014, the Mac segment contributed $24 billion to annual revenue. This figure will double by 2020, which will be driven by PC market share gains and organic growth for PC devices in general.

Thank You