The CTL EURO COLLEGE
Title: Research project on Apple Inc
Student name: Yogesh arande
Registration no! "#$#%"#
Course: &'A
Super(isor: Dr.Andreas Constantinou
)ate: August #%* #%"+
"
Table of Contents
Title Page
Introduction %,
-istor. Apple Inc: %/
0ision Statement o1 Apple: %/
E2planation o1 0ision Statement: %/
&ission Statement o1 Apple: %3
Re(ie4 o1 Literature %3
The 5C Industr. ""
The Online &usic Industr. "#
The 6uture o1 Apple "#
Strategic Alliances and Entertainment ",
E2ternal Aanal.sis "/
Industr. Anal.sis Using 5orter7s 6i(e 6orces &odel "8
9hich E2ternal Threats are &ost Signi1icant #+
Additional E2ternal Threats #,
0ertical Integration o1 Competitors #/
0alue Chain Anal.sis #3
S9OT Anal.sis o1 Apple Inc: #8
'CG &odel: +"
9hat is dri(ing &acintosh acceptance: ++
Remo(ing 'arriers 1or Users ++
Application 5re1erences +,
Apple pro1it ma;es huge rise due to i5od success +,
Apple 'eats Competitors at In(entor. Turn O(er +<
I5od: The &ar;eting o1 an Idea 5roject +8
6inancial Anal.sis ,"
-istorical 5er1ormance ,#
5ro1ita=ilit. &easures ,+
Li>uidit. and Le(erage &easures ,,
5roduct Unit Sales ,/
Operating Segments ,3
&ar;et 0alue Anal.sis ,3
Apple #%"# "? 1inancial anal.sis ,<
Share (alue /%
5ro$6orma Income Statement /<
5rojected 6ree Cash 6lo4 and E>uit. 0aluation /8
Strateg. /@
#
5roduct )i11erentiation /@
Strategic Alliances 3+
Recommendations 33
Conclusion 3<
+
Introduction
Apple Computer7s +%$.ear histor. is 1ull o1 highs and lo4s* 4hich is 4hat 4e
4ould e2pect in a highl. inno(ati(e compan.! The. e(ol(ed throughout the .ears
into an organiAation that is (er. much a representation o1 its leader* Ste(en Bo=s!
Apple made se(eral hugel. success1ul product introductions o(er the .ears! The.
ha(e also completel. 1allen on their 1ace on se(eral occasions! The. struggled
mightil. 4hile Bo=s 4as not a part o1 the organiAation! Apple reached a point
4here man. thought the. 4ould not sur(i(e! 9hen as;ed in late "@@< 4hat Bo=s
should do as head o1 Apple* )ell Inc!Cs D)ELLE then$CEO &ichael S! )ell said at
an in(estor con1erence: FICd shut it do4n and gi(e the mone. =ac; to the
shareholders!G D'urro4s* Gro(er* and GreenE!
9ell* times changed! Less than "% .ears later* 'usiness 9ee; ran;ed Apple as the
top per1ormer in its 2012 'usiness 9ee; /%! Apple attri=utes their recent success
to ro=ust sales o1 i5od music pla.ers D<@ million in #%""E! The. are optimistic
a=out the economies o1 scope 4ith media giants* such as )isne. and 5i2ar!
Apple rarel. introduces a ne4 t.pe o1 product! Thus* instead o1 =eing the pioneer*
the. are an e2pert Hsecond mo(erG =. re1ining e2isting products! 5orta=le music
pla.ers and note=oo; computers are e2amples!
Apple increases the appeal o1 these products =. ma;ing them st.lish and more
1unctional! The. no4 appear poised to ma;e signi1icant strides in the home
computer mar;et and to creating a total digital li1est.le 4here=. the home is a
multimedia hu=!
,
History of Apple Inc:
Apple Inc 1ormerl. ;no4n as Apple Computer Inc 4hich pro(ides corporate
Ser(er* &AC OS S.stems and Operating S.stem! Apples core product lines are
the i5hone* i5od and &acintosh S.stem! Ste(e Bo=s and Ste(e 9oAnia;* The
1ounder o1 Apple has created the Apple Computer on 1
st
April 1976 and integrated
in the compan. on
rd
!anuary 1977* in Cupertino Cali1ornia! It has dri(en the
Computer manu1acturing mar;et 1or more than t4o decades! &r! Ste(e Bo=s 4ho
4as e2pelled in "@8/ 4as return as CEO o1 the A55LE Inc in "@@3 4ith ne4 Ideas
and corporate philosoph.! 9ith introduction o1 success1ul I5od 5la.er in to #%%"
Apple has again pro(ed itsel1 as a &ar;et leader in consumer electronics! Latest
era o1 e2traordinar. success o1 the compan. is in iOS =ased Apple products li;e I
5hone* I5od slim* I 5ad and no4 I 5ad #! Io4 a da.7s Apple is a =iggest
technolog. corporation in the planet 4ith the pro1its o1 more than J3/ =illion! It
has a=out "9#"$$ emplo.s all o(er the 4orld! 6ortune &agaAine most Admired
compan. in United State in #%"# and in the 4orld in #%"#* #%%@ and #%%@!
Apple has o(er #,% Store all o(er the 4orld and the =i1urcation o1 these store in
di11erent countries are as =elo4!
%ision &tate'ent of Apple:
H&an is the creator o1 change in this 4orld! As such he should =e a=o(e s.stems
and structures* and not su=ordinate to them!G
()planation of %ision &tate'ent:
Apple li(es this (ision through the technologies it de(elops 1or consumers and
corporations! It stri(es to ma;e its customers masters o1 the products the. ha(e
=ought! Apple doesn7t simpl. ma;e a statement! It li(es it =. ensuring that its
emplo.ees understand the (ision and stri(e to reach it! It has put s.stems in place
to ena=le smooth customer interaction! It has put o=jecti(es in place to
continuousl. mo(e 1or4ardK implemented strategies to 1ul1il these o=jecti(esK and
ensured that the right mar;eting* 1inancial and operational structures are in place to
appl. the strategies!
/
*ission &tate'ent of Apple:
HApple ignited the personal computer re(olution in the "@<%s 4ith the Apple II and
rein(ented the personal computer in the "@8%s 4ith the &acintosh! Apple is
committed to =ringing the =est personal computing e2perience to students*
educators* creati(e pro1essionals and consumers around the 4orld through its
inno(ati(e hard4are* so1t4are and Internet o11erings!G
+e,ie- of .iterature
Ste(e Bo=s and Ste(e 9oAnia; 1ounded Apple on April "* "@<3! The t4o Ste(es*
Bo=s and 9oA Das he is commonl. re1erred to L see 4oA!orgE* ha(e personalities
that persist throughout Apple7s products! Bo=s 4as the consummate salesperson
and (isionar. 4hile 9oA 4as the in>uisiti(e technical genius! 9oA de(eloped his
o4n homemade computer and Bo=s sa4 its commercial potential! A1ter selling /%
Apple I computer ;its to 5aul Terrell7s '.te Shop in &ountain 0ie4* CA* Bo=s and
9oA sought 1inancing to sell their impro(ed (ersion* the Apple II!
The. 1ound their 1inancier in &i;e &ar;;ula* 4ho in turn hired &ichael Scott to
=e CEO! The compan. introduced the Apple II on April "<* "@<<* at the same time
Commodore released their 5ET computer! Once the Apple II came 4ith 0isicalc*
the progenitor o1 the modern spreadsheet program* sales increased dramaticall.! In
"@<@* Apple initiated three projects in order to sta. ahead o1 the competition: "E the
Apple III L their =usiness oriented machine* #E the Lisa L the planned successor to
the Apple III* and +E &acintosh!
In "@8%* the compan. released the Apple III to the pu=lic and 4as a commercial
1lop! It 4as too e2pensi(e and had se(eral design 1la4s that made 1or less$than$
stellar >ualit.! One design 1la4 4as a lac; o1 cooling 1ans* 4hich allo4ed chips to
o(erheat! In late "@8%* Apple 4ent pu=lic* ma;ing the t4o Ste(es and &ar;;ula
4ealth. L to the tune o1 nine 1igures! '. "@8"* the Apple III 4as not selling 4ell
3
and Scott in1amousl. 1ired ,% people on 6e= #/ DH'lac; 9ednesda.GE!
Scott7s
direct management st.le con1licted 4ith the culture Bo=s and &ar;;ula pre1erred*
and Scott resigned in Bul.! &ar;;ula stepped into his position as CEO! In August
"@8"* I'& released their 5C! Unimpressed and una1raid* Apple 4elcomed I'& to
the 5C mar;et 4ith a slightl. smug 1ull$page ad in the 9all Street Bournal! It 4ould
not =e long =e1ore I'&7s 5C dominated the mar;et!
The Mero2 Alto 4as the inspiration 1or Apple7s Lisa! Apple emplo.ees 4ere a=le
to e2amine the Alto in e2change 1or allo4ing Mero2 to in(est in Apple =e1ore
Apple7s initial pu=lic o11ering DI5OE! Apple released the Lisa in Banuar. "@8+ and
4as nota=le 1or =eing the 1irst computer sold to the pu=lic that utiliAed a Graphic
User Inter1ace DGUIE! Un1ortunatel.* the Lisa 4as not compati=le 4ith e2isting
computers* and there1ore came =undled H4ith e(er.thing and a list price to match!G
At J@*@@/ Do(er J#"*%%% in 2012 dollarsE* the Lisa missed its target mar;et =. a
4ide margin!
Apple introduced the &acintosh 4ith great 1an1are during the "@8, Super 'o4l!
The Or4ellian$themed commercial Ddirected =. Ridle. Scott* o1 NAlien7 1ameE
portra.ed I'& as 'ig 'rother and em=odied &acintosh and Apple as 1reedom$
see;ing indi(iduals =rea;ing a4a. 1rom this oppressi(e regime!The commercial
4as largel. success1ul and sales 1or the &ac started strong! -o4e(er* &ac sales
later 1aded! Bohn Sculle. le1t 5epsiCo to join Apple in April "@8+! -e 4as 1amous
1or engineering the H5epsi ChallengeG* in 4hich =linded testers tasted =oth Co;e
and 5epsi to un(eil the Ntruth7 o1 the taste o1 5epsi! In response to lagging &ac
sales* Sculle. contri(ed the NTest )ri(e a &acintosh7 campaign! In this promotion*
prospecti(e users could ta;e home a &acintosh 4ith onl. a re1unda=le deposit on
their credit card! 9hile lauded =. the pu=lic and the ad(ertising industr.* this
campaign 4as a =urden on dealers and signi1icantl. impeded the a(aila=ilit. o1
<
&acs to serious =u.ers! In "@8/* Apple tried to ha(e lightening stri;e t4ice 4ith
their NLemmings7 commercial during the Super 'o4l! In 4hat 4as =ecoming
Apple7s t.pical patroniAing 1ashion* this commercial insulted current 5C users =.
portra.ing them as 4itless lemmings* unthin;ingl. doing harm to themsel(es!
Although Bo=s attempted to o(erthro4 Sculle.* the =oard =ac;ed Sculle.! Bo=s le1t
Apple to 1orm IeMT computer! A1ter Bo=s le1t in "@8/* sales o1 the &ac He2ploded
4hen Apple7s Laser9riter met Aldus 5age&a;er!G Apple dominated the des;top
pu=lishing mar;et 1or .ears to come! Under Sculle.* Apple gre4 1rom J3%%
million in annual sales to J8 =illion in annual sales =. "@@+!
Apple introduced &ac
5orta=les in "@8@ and the 1irst 5o4er'oo;s in "@@"! '. "@@#* 5C competition ate
into Apple7s margins and earnings 4ere 1alling! Sculle. 4as under pressure to
ha(e Apple produce another =rea;out product! -e 1ocused his energ. on the
Ie4ton L Apple7s introduction o1 the 5ersonal )igital Assistant D5)AE! )espite
Sculle. generating su=stantial demand 1or Ie4ton* it did not li(e up to the h.pe
due to it =eing se(erel. underde(eloped! Sculle. resigned in "@@+ and &ichael
Spindler replaced him!
Spindler spent most o1 his time and energies on regaining pro1ita=ilit.* 4ith the end
goal o1 1inding a =u.er 1or Apple! O(er the ne2t se(eral .ears* Spindler shopped
Apple to Sun &icros.stems* Eastman oda;* ATOT* and I'&!
&ean4hile* Apple
4as una=le to meet the gro4ing demand 1or its products due to supplier pro=lems
and 1ault. demand predictions! To add insult to injur.* &icroso1t released
9indo4s @/ 4ith great 1an1are in "@@/! A1ter signi1icant >uarterl. losses in "@@3*
the =oard replaced Spindler 4ith )r! Gil Amelio* CEO o1 Iational Semiconductor!
)r! Amelio tried to =ring Apple =ac; to =asics* simpli1.ing the product lines and
restructuring the compan.! One o1 Apple7s most pressing issues at the time 4as
releasing their ne2t generation operating s.stem Dcode named HCoplandGE to
8
compete 4ith 9indo4s @/! Amelio and his technolog. o11icers 1ound that
Copland 4as so =ehind schedule that the. loo;ed outside the compan. to purchase
a ne4 OS! Ultimatel.* and some4hat ironicall.* the. decided to purchase IeMT
computer 1rom Bo=s! Iaturall.* Apple 4elcomed Bo=s =ac; into the 1old! The
=oard =ecame increasingl. impatient 4ith Amelio due to sales not re=ounding
>uic;l. enough! Apple =ought out Amelio7s contract a1ter just " P .ears on the
jo=! Bo=s e(entuall. claimed the CEO position! Then* he cleaned house =.
re(amping the =oard o1 directors and e(en replacing &i;e &ar;;ula!Bo=s
simultaneousl. put an end to the 1ledgling clone licensing agreements D4hich
created a 1e4 &ac clonesE and entered into cross$licensing agreements 4ith
&icroso1t! On &a. 3* "@@8* Apple introduced the ne4 i&ac* a product so secret
that most Apple emplo.ees had ne(er heard o1 it! The ne4 i&ac 4as a runa4a.
success 4ith its translucent case* all$in$one architecture* and ease o1 use! It
=rought Apple to a ne4 mar;et o1 users L those 4ho had ne(er o4ned a computer
=e1ore! Bo=s 1urther simpli1ied the product lines into 1our >uadrants along t4o
a2es: )es;top and 5orta=le on one* 5ro1essional and Consumer on the other!
Apple completed the matri2 4ith the introduction o1 the consumer$=ased i'oo; in
"@@@!
The .ear #%%" 4as an important .ear 1or consumers o1 Apple products! Apple
opened their 1irst #/ retail stores Dtotaling "3+ stores in , countries as o1 &a.
2001E! In Septem=er #%%"* Apple introduced the ne4 i&ac 1eaturing a screen on
a s4i(el!The ne4 i5ods Dporta=le music pla.ersE 4ere a tremendous success!
Apple sold so man. that Apple7s dependence on &ac sales 4as signi1icantl. less!
This 4as no small 1eat considering that the #%%" i&ac =ecame Apple7s =est$selling
product H=. a long shotG!
Apple o11ered iTunes Da 1ree applicationE to help their
consumers organiAe music on i5ods and &acs!
@
In #%%+* Apple e2panded iTunes =. "E opening the iTunes music store to allo4
&ac users to purchase music online and #E e2panding iTunes to 9indo4s users!
Sales o1 i5ods s;.roc;eted and currentl. pro(ide the =ul; o1 product sales to
Apple! In 2012* Apple announced that it 4ould start using Intel$=ased chips to run
&acintosh computers! In April 2005* Apple announced 'oot Camp* 4hich
allo4s users o1 Intel$=ased &acs to =oot either &ac or 9indo4s OS! This
1unctionalit. allo4s users 4ho ma. need =oth OSs to o4n just one machine to run
=oth* al=eit not simultaneousl.!
"%
T/e PC Industry
9e can glean Insight into the histor. and composition o1 the 5C Industr. 1rom its
epon.mous title! In the late "@<%s* as 9oAnia; and Bo=s 4ere starting Apple
computer* personal computers 4ere an emerging product! The 1ollo4ing chart
DReimerE gi(es an o(erall (ie4 o1 the major mar;et pla.ers since the mid$"@<%s!
'. "@8+* the mar;et share o1 the Apple II 1ell to 8Q 4hile the 5C had #3Q!
&ar;et share o1 &acintosh pea;ed at slightl. more than "%Q in the earl. "@@%s
and has since tapered to =et4een #$+Q! The I'& 5C and its clones =ecame the
standard due to the success o1 the open nature o1 the 5C! This allo4s product
de(elopers to o11er (astl. more products 1or the plat1orm!
Some argue that not licensing the &ac OS 4as a mista;e! 'ill Gates and &icroso1t
4ere encouraging Apple to license their OS in the earl. "@8%s* =ecause the. 4ere
de(eloping so1t4are 1or Apple and had much riding on the success o1 the compan.!
""
9hen Apple did not license* &icroso1t =egan de(eloping their operating s.stem*
9indo4s!
T/e 0nline *usic Industry
9hile Apple clearl. dominates the online music industr.* the =attle 1or domination
is not o(er! Although digital music sales are gro4ing rapidl.* the Recording
Industr. Association o1 America DRIAAE states that digital sales account 1or onl.
,Q o1 all music sales! D'orlandE Anal.sts at 6orrester D'artiromoE and Gartner
D'runoE (alidate this! Apple7s sales are =et4een 33Q and </Q o1 do4nloads and
8%Q o1 music pla.ers! D'runoE Apple is part to a suit alleging monopolistic
practices concerning their mar;et share dominance o1 pla.ers and do4nloads! The
other pla.ers in the do4nload mar;et are Dthe re(isedE Iapster* Yahoo &usic*
Rhapsod.* and illegitimate 1ile$sharing ser(ices! 5orta=le music pla.ers competing
4ith the i5od include those made =. Creati(e* Samsung* iRi(er* and Son.! A
major point o1 contention =et4een these ser(ices and pla.er manu1acturers is the
control o1 a (ariet. o1 incompati=le )igital Rights &anagement D)R&E schemes!
T/e 1uture of Apple
Personal Computers – A Shift in Strategy
Apple has historicall. ta;en a 1ar di11erent path than the traditional 9indo4s and
Intel com=ination! &icroso1t pro(ides the 9indo4s operating s.stem to separate
do4nstream hard4are producers such as )ell! Apple (erticall. integrated =oth the
operating s.stem so1t4are and hard4are completel. under Apple! A consumer
running &icroso1t 9indo4s can choose 1rom a m.riad o1 s.stems =ased on the
"#
Intel processor* 4hile a consumer running Apple7s OS M must purchase Apple
hard4are!
Apple is adjusting this strateg. =. migrating their microprocessors 1rom I'& and
&otorola 5o4er5C to Intel! Anal.sts =elie(e that the Intel$=ased &acintosh ma.
=e a=le to run &icroso1t 9indo4s applications =. the end o1 2009! D'urro4sE
In addition to s4itching processors* Apple positioned their computers as an
immediate option 1or the traditional &icroso1t 9indo4s user! 9ith Apple 'oot
Camp* users ma. no4 use &ac OS M or 9indo4s on an Apple computer!
DSutherlandE!'. allo4ing users to run 9indo4s on an Intel &ac* Apple reduced
the s4itching costs 1or traditional 5C users! Apple ma. steal a4a. customers that
are 4illing to pa. a premium 1or a s.stem that runs =oth 9indo4s and &ac OS M!
Apple continues to retain a strategic option to license its technolog. to clone
ma;ers such as )ell! 5ast attempts at licensing Apple technolog. Dto I'&*
Gate4a.* and othersE 1ailed on accord o1 Apple7s rigid demands! &an. technolog.
leaders Dsuch as a "@8/ letter =. 'ill Gates to Apple CEO Bohn Sculle.E criticiAed
Apple 1or ;eeping a closed architecture! Apple co1ounder Ste(e 9oAnia; criticiAes
this strateg.* H9e had the most =eauti1ul operating s.stem* =ut to get it .ou had to
=u. our hard4are at t4ice the price! That 4as a mista;e!G9hether Apple 4ould =e
4illing to pursue this re(ersal o1 (ertical integration is unclear! Although such a
mo(e 4ould canni=aliAe a portion o1 Apple7s o4n hard4are sales* it 4ould also
pro(ide ro.alt.$=ased re(enue that could approach J" =illion annuall.!
&trategic Alliances and (ntertain'ent
"+
Bo=s had the earl. strategic (ision to complement computing 4ith mo(ie
entertainment! A1ter 1ounding IeMT* he personall. ac>uired a majorit. interest in
the .oung mo(ie compan. 5i2ar in 6e=ruar. "@83! Bo=s 4ent on to in(est R o1 his
personal 4ealth into 5i2ar!
In "@@/* 5i2ar solidi1ied its position 4ithin animated mo(ies 4ith the de=ut o1 To.
Stor.! Grossing J+/8 million 4orld4ide* it =ecame the +
rd
$largest grossing
animated mo(ie in histor.! A1ter this success* Bo=s too; 5i2ar pu=lic and
negotiated 1ar =etter terms 4ith )isne.! Later successes included Toy Story 2*
&onsters Inc!* and 6inding Iemo. The alliance =et4een 5i2ar and )isne. has
tremendous potential 1or economies o1 scope! As CEO o1 Apple and )isne.7s
largest shareholder* Bo=s is the strategic lin; =et4een )isne.* Apple* and 5i2ar!
Opportunities include com=ining the animated mo(ie e2pertise o1 )isne. and
5i2ar* as 4ell as sharing the content o1 )isne.7s A'C or ES5I net4or;s o(er
Apple7s digital o11erings! D'urro4s* Gro(er* and GreenE
A current e2ample o1 the 1usion =et4een )isne.* Bo=s* Apple* and technolog. is
(ideo on the i5od! )isne.7s )esperate -ouse4i(es 4as one o1 the 1irst tele(ision
programs a(aila=le 1or purchase and do4nload to the ne4er (ideo$ena=led i5od!
There are concerns a=out 4hether these s.nergies 4ill come to 1ruition! There are
1ears that the personalit. and st.le o1 Bo=s ma. con1lict 4ith )isne.* and that
)isne. CEO Iger could =e HAmelioedG $$ dri(en out o1 o11ice =. Bo=s in a manner
similar to ho4 Bo=s dro(e Amelio out o1 the CEO post at Apple! D'urro4s* Gro(er*
and GreenE!
()ternal Aanalysis
",
Tec/nological (n,iron'ent
'rand A4areness L St.le at a 5remium
Apple7s products are trend. and st.lish! A1ter Bo=s returned in "@@<* Apple
retained designer Bonathan I(e to di11erentiate their computers 1rom the t.pical
=eige =o2! I(e7s design o1 the i&ac included clear color1ul cases that distinguished
Apple computers! Apple7s i5od D4ith the trademar; 4hite ear =uds and simple
trac; 4heelE commands a "/Q$#%Q premium o(er other &5+ pla.ers!
Apple and 5i2ar limit the num=er o1 computer products and mo(ies that the. sell!
5roduct di11erentiation 4ith 1ocused >ualit. and st.le also e2tend to the Bo=s 5i2ar
L H5i2arCs e2ecuti(es 1ocus on ma;ing sure there are no N' teams*7 that e(er.
mo(ie gets the =est e11orts o1 5i2arCs =rain. sta11 o1 animators* stor.tellers* and
technologists!G D'urro4s* Gro(er* and GreenE
Apple positions its &acintosh computers as higher >ualit. and higher price! -5*
)ell* and other 5C manu1acturers are pricing man. s.stems under the J"*%%%
threshold! HApple is struggling to meet demand 1or its ne4 &ac'oo; 5ro laptop
despite a J"*@%% price tag that is nearl. t4ice that o1 garden$(ariet. ri(als!G Apple
has onl. recentl. entered the lo4$end D=elo4 J/%%E consumer mar;et 4ith the &ac
&ini! Although the &ac &ini is a =ase model 4ith 1e4 1eatures* it comes encased
in a (er. small and distincti(e pac;age! Apple portra.s this computer as HSmall is
'eauti1ulG! DAppleE Li;e4ise* the i5od Shu11le 4as Apple7s 1irst entr. into the
lo4er$end DJ"%% rangeE o1 1lash$memor.$=ased porta=le music pla.ers!
Interoperability
"/
Although Apple competes directl. 4ith &icroso1t 1or operating s.stems* the
release o1 iTunes 1or 9indo4s in #%%# 4as a ;e. strategic mo(e! This decision
e2panded the potential customer =ase to nearl. all personal computer o4ners* e(en
though Apple onl. has #Q$+Q o1 all personal computer sales! Con(ersel.* Apple
depends on &icroso1t 1or a (ersion o1 &icroso1t O11ice! As the most 4idel. used
o11ice suite o1 applications* &acintosh users rel. on O11ice to correspond 4ith
companies that standardiAed on 9indo4s! This is 1rom a strategic alliance
=et4een Apple and &icroso1t a1ter Bo=s returned in "@@<! Apple7s iTunes
ser(ice has a technological hoo; Dasset speci1icit.E to Apple7s i5od! Although
(ersions o1 iTunes e2ist 1or =oth Apple and &icroso1t operating s.stems* the
iTune7s AAC 1ile 1ormat pre(ents other porta=le music pla.ers Dsuch as iRi(er or
SamsungE 1rom pla.ing purchased songs!
Tec/nology and t/e Digital .ifestyle
Apple not onl. dominates the music pla.er mar;et* its iLi1e suite pro(ides
consumers 4ith eas.$to$use so1t4are 1or music and (ideo composition! 9ith
HpodcastG a household 4ord* Apple7s Garage 'and application ma;es the recording
o1 podcasts and music (er. eas.!
+egulatory (n,iron'ent
"3
9hile introducing ne4 technologies* there is a persistent threat o1 legal action =.
competitors! 6or e2ample* Apple sued &icroso1t in "@88 Dsettled in "@@< 1or an
undisclosed amountE 1or percei(ed similarities =et4een &icroso1t 9indo4s and
&acintosh audio(isual 4or;s!&icroso1t has generall. =een the 1ocus 1or
go(ernment antitrust charges Dsuch as U!S! (! &icroso1tE DUS )OB* 2009E! 'oth
1ederal and state go(ernments assert that &icroso1t7s dominance =loc;ed 1air
competition 4ithin the so1t4are industr.! This is an ad(antage 1or Apple* =ecause
its operating s.stems are a (ia=le su=stitute 1or 9indo4s! 6urthermore*
&icroso1t7s continued support 1or O11ice 1or &acintosh reduces the percei(ed le(el
o1 mar;et monopol. and a=use! &anu1acturers 4ill continue to trespass on Apple7s
intellectual propert.! In #%%#* Apple too; legal action against te2@* 4ho then
altered the programme and renamed it sumi! Legal threats can sur1ace 1rom
some4hat unusual sources! Apple Corps Ltd! is the London$=ased compan. that
o4ns the rights to the music o1 the 'eatles! 5aul &cCartne. and Ringo Starr
recentl. sued Apple o(er the use o1 the Apple logo in iTunes* claiming that it
(iolated Apple7s agreement not to produce music under an apple$=ased logo!
Research and de(elopment is a ;e. component to Apple7s sustained competiti(e
ad(antage! Apple is currentl. ta;ing legal action against se(eral popular technical
4e= sites 1or releasing proprietar. product research! Sites such as
appleinsider!com ha(e allegedl. posted (er=atim content 1rom documents
protected =. emplo.ee non$disclosure agreements! D&cCullaghE Release o1
critical insider in1ormation could gi(e Apple7s competitors a jump in producing
ri(al products!
Industry Analysis 2sing Porter3s 1i,e 1orces *odel
"<
Apple operates in t4o primar. industries:
• Computing $ -ard4are and So1t4are
• )eli(er. o1 Entertainment and &edia
Apple has al4a.s =een under intense competition 4ithin the computer*
so1t4are* and entertainment industries! HLoo;ing to 2012!!!E(er. time that Apple
had jumped into the lead in a product categor. during the past t4o decades* it had
had di11icult. in sustaining its leadership position!G 9e use 5orter7s 6i(e 6orces
&odel to understand 4h. Apple7s industries are so competiti(e!
6igure: 5orter7s 6i(e 6orces &odel
6igure: Summar. o1 Industr. Threats DComputer E>uipment and Entertainment
)istri=utionE
Threat of
New
Entrants
Bargaini
ng
power of
Supplier
s
Threat of
Substitute
s
Bargaini
ng power
of
Buyers
Level of
Threat in
an
Industry
"8
Type and
&e,erity of
T/reat
0rgani4ation
(ntry 5
Hig/
T/reat
0eriAon Streaming audio and (ideo 4ith 0 CAST!
AmaAon On demand online ser(ices to purchase music
Dsimilar to iTunesE!
Google The. ma;e e(er.thing!
The HIe2t
GoogleG
Ie4 entrants 4ith disrupti(e technolog.!
+i,alry 5
Hig/
T/reat
&icroso1t 9indo4s Operating S.stem* 9indo4s &edia
5la.er 1or pla.ing music and (ideo!
Linu2 Competition to &ac OS M Operating S.stem!
Iapster*
Rhapsod.
Online music sources L alternati(es to iTunes
&usic Store!
)ell* -5*
Leno(o
Alternate sources 1or computer hard4are!
iRi(er*
Samsung*
Creati(e
Small* st.lish &5+ 5la.ers!
)ream9or;s Animated mo(ies!
YouTu=e!com Online (ideo!
&ubstitutes
5
*oderate
T/reat
M&* Sirius Satellite Radio 1or music!
"@
M'o2* 5S# Entertainment &edia* &edia and &usic!
0arious Internet Streaming Radio and 5odcasts!
&usic C)s*
)0)$Audio
and
SuperAudio
C)
Alternati(e means to ac>uire music!
'roadcast*
Ca=le*
Satellite*
Iet6li2* Ti0o*
Theatres
Alternati(e sources 1or (ideo!
&uppliers
5 Hig/
T/reat
&otorola*
I'&* Intel*
Samsung
Suppliers o1 5rocessors and computer memor.!
&icroso1t Strategic Alliance S Supplier o1 O11ice 1or &ac!
The 'ig 6i(e $
'&G* E&I*
Son.*
Uni(ersal* and
9arner
Sources o1 music! 9ill the. raise prices and =rea;
the dollar per song model: Some in the record
industr. resent Apple7s distri=ution model! HApple
reaps =illions 1rom selling its hit music pla.er* =ut
there are sparse pro1its 1rom the songs =eing sold
o(er the Iet!G D'urro4s* Gro(er* and GreenE
)isne.* A'C*
I'C* C'S*
6o2* 5i2ar*
Son.
Suppliers o1 Tele(ision and &o(ies! 9ill the. sign
e2clusi(e contracts 4ith other online ser(ices:
Iote that this threat is reduced 1or )isne. S 5i2ar!
6uyers 5
*oderate
T/reat
Consumers and
Illegal peer$to$
peer 1ile
Consumers share music using peer$to$peer
net4or;s 4ithout pa.ing 1or music!
#%
sharing
)istri=utors Apple retailers ma. pressure 1or lo4er prices or
=etter terms! 6or e2ample* the release o1 the Apple
Store in #%%" Hin1uriated longtime independent
Apple retailers that didn7t appreciate Cupertino
canni=aliAing their sales!G DLinAma.er* +%%E
Consumer
Attitudes and
'eha(iors
Consumers or =usinesses ma. reduce spending on
personal computers or non$essential Dpotentiall.
high elasticit. o1 demandE music pla.ers i1 the.
1ear economic do4nturns!
Consumer
Re1resh C.cles
Consumers and =usinesses ma. continue to use
pre(ious$model i5ods and &acs rather than
upgrade to current i5ods* i&acs* or OS
The total industr. threat 1or the industr. space that Apple occupies is a high threat
industr.!Apple must continue to pursue product di11erentiation Di!e! the st.le and
ease$o1$use o1 an i5odE and economies o1 scope Di!e! o11ering A'C tele(ision
sho4s on iTunesE to maintain their sustained competiti(e ad(antage in this
industr.!
7/ic/ ()ternal T/reats are *ost &ignificant
• Computer -ard4are and So1t4are: Open Source so1t4are such as the Linu2
Operating S.stem and Open O11ice applications threaten =oth Apple and
#"
&icroso1t! The lo4 Do1ten* 1reeE cost o1 the so1t4are ma. allo4 it to
o(erta;e Apple and &icroso1t* especiall. in de(eloping mar;ets such as
China!
• &usic 5roducts: &ajor online retailers such as AmaAon are considering
entr. into the online music mar;et! 9ith a 4ide internet presence and a
household name* AmaAon could present a 1ormida=le challenge to Apple! I1
the major record la=els DUni(ersal* Son. '&G* E&I* and 9arnerE negotiate
=etter terms 4ith ne4 competitors to iTunes* Apple ma. =e una=le to
pro(ide some o1 the music content that the. currentl. o11er! The major
music la=els disli;e Apple7s dollar per song pricing! The. 4ould pre1er to
earn higher pro1its 4ith H(aria=le pricingG!
• Suppliers: The recent shi1t to Intel processors could present a signi1icant
threat to Apple! 9ith onl. t4o companies DIntel and A&)E producing Intel$
compati=le processors* there is a strong potential 1or tacit collusion and
oligopol. po4er =et4een these suppliers! Apple purchasing must no4
directl. compete 4ith -5* Leno(o* and )ell! I1 shortages or e2clusi(e
agreements materialiAe* Apple could 1ace pro=lems 4ith o=taining ra4
materials! Apple should consider additional sources such as Ad(anced
&icro )e(ices DA&)E!
• 6igure: C5U &ar;et Share
##
Additional ()ternal T/reats
Securit.
Apple so1t4are* li;e all large so1t4are products* has securit. (ulnera=ilities that
hac;ers ma. e2ploit! A signi1icant e2ploitation in the 1uture could damage man.
=usinesses and households using Apple computers! This 4ould a11ect 1uture
customer purchasing decisions! Apple enjo.s a competiti(e ad(antage* =ecause
their OS M is mature and sta=le due to its =asis on 'S) Uni2! In 1act* Hcomputer
securit. 1ol;s =ac; at 6'I -? use &acs running OS MG! -o4e(er* the increased
use o1 Apple computers is prompting hac;ers to target the plat1orm! In 6e=ruar.
2009* there 4as documentation o1 the 1irst ;no4n Apple OS M 4orm! '. using
iChat instant messaging* it spreads to other users and deletes 1iles 1rom their &ac
computers! I1 &ac OS M =ecomes as 4ide o1 a target as 9indo4s* Apple7s
percei(ed di11erentiation as the more secure plat1orm ma. disappear!
#+
%ertical Integration of Co'petitors
Son. is an e2ample o1 a competitor 4ith a uni>ue position against Apple! Son.
&usic supplies Apple 4ith man. o1 the songs 1or iTunes! Son. also creates a
(ersion o1 the 9al;man porta=le music pla.er that is a direct competitor to the
i5od!
Son. is attempting to (erticall. integrate 1or4ard directl. to the music =u.er!
Son. integrated their music s.stem D&oraE into the Son. 9al;man! Son. is
e2clusi(el. distri=uting certain songs on &ora! D-allE &ora currentl. targets
Bapanese consumers! I1 Son. can gain additional momentum Dsuch as colla=orating
4ith other record la=elsE* their ser(ice could present a 1ormida=le challenge to
iTunes in additional mar;ets!
%alue C/ain Analysis
#,
To determine 4here Apple de(eloped distincti(e capa=ilities* 5orter7s generic
(alue chain model pro(ides a s.stematic 1rame4or; 1or identi1.ing Apple7s
utiliAation o1 resources! 5rimar. acti(ities 1or Apple include Technolog. and
5roduct )esign* 5roduction* Sales and &ar;eting* Customer Ser(ice* and Legal
Ser(ices!
Tec/nology and Product Design
This component represents the true core Dno pun intendedE o1 Apple7s capa=ilit.!
6rom =eing the 1irst plat1orm to run an electronic spreadsheet D0isiCalc on the
Apple II 5lusE to the 1irst to esta=lish a Hdigital li1est.leG hu= Dthe &acintosh
product linesE* Apple7s histor. is rich 4ith cutting$edge technolog. de(elopment!
Apple dri(es to =e the =est* no simpl. the 1irst! The Apple operating s.stem is
uni(ersall. regarded as more sta=le and relia=le than 9indo4s* 4hile the des;top
pu=lishing so1t4are =undles Di&o(ie* i5hoto* iTunes* etc!E are the most
comprehensi(e a(aila=le to end users! I(es =est summariAes the entrepreneurial
culture 4ithin Apple =. sa.ing that Hit7s (er. eas. to =e di11erent* =ut (er. di11icult
to =e =etter!G
Production
'ecause Apple had long re1used to license its operating s.stem to e2ternal entities*
the =undled pac;ages o1 Apple$de(eloped hard4are and so1t4are =ecame the
cornerstone o1 Apple7s production process! Apple achie(ed unparalleled
per1ormance (ia 3,$=it architecture* integrated distincti(e st.ling 4ith the multi$
colored translucent i&ac cases* and rede1ined intuiti(e operation 4ith the i5od!
9hile e(er. product introduction has not =een a success DLisa* Ie4ton* etc!E*
Apple treats component production as a natural e2tension o1 the design process!
&ales and *ar8eting
#/
9e could simpl. title this section HSte(e Bo=sG! Since his return as CEO in "@@<*
Bo=s personall. un(eils all ne4 product introductions* re(ie4s corresponding
mar;eting campaigns* and appro(es ne4 product de(elopment guidelines! In a
departure 1rom their tur=ulent histor.* Bo=s Hentered into patent cross$licensing and
technolog. agreements 4ith &icroso1t!G DLinAma.er 5g! no! #@%E A1ter .ears o1
unimpressi(e mar;et share gro4th and canni=aliAation o1 a lo.al consumer =ase*
the door to the e2pansi(e 5C mar;et 4as no4 more accessi=le to Apple than e(er
=e1ore! Apple continued to command a mar;et premium 1or producing a H=etter
mousetrapG throughout its histor.!
Custo'er &er,ice
-o4 has Apple retained su=stantial cash reser(es during the e2plosi(e gro4th and
dominance o1 5Cs 4orld4ide: Apple created a (irtual lo(e a11air 4ith their
customer =ase =. deli(ering technicall. superior products Di5ods (s! other &5+
pla.ers* &acs (s! 5Cs* etc!E* and aggressi(el. pursuing hard4are and so1t4are
updates! Apple integrated their primar. acti(ities so 4ell that it is transparent to
the consumer 4here one acti(it. =egins and the other ends! A per1ect e2ample o1
this is Apple7s 4illingness to de(elop so1t4are to run 9indo4s M5 on its ne4
Intel$=ased i&ac and then post it online 1ree to i&ac users! D9ing1ieldE In such an
en(ironment* customer ser(ice merel. =ecomes the realiAation o1 recei(ing a little
more than e2pected! Although Apple emplo.s man. resources and capa=ilities to
support their primar. acti(ities Dhuman resources* suppl. procurement* etc!E* the
most strategicall. rele(ant 4ould =e Legal Ser(ices!
.egal &er,ices
#3
In a mar;et climate o1 constant change and inno(ation* it is ine(ita=le that the dri(e
to e2pand product and ser(ice o11erings 4ill su=ject Apple to patent and cop.right
in1ringement claims! The dispute o(er the Apple logo on its iTunes &usic Store*
1or e2ample* continues despite a pre(iousl. reached settlement 4ith 'eatles7 Apple
Corps Ltd! in "@@"! D)o4 Bones Ie4s4iresE 9hile such litigation as &icroso1t7s
9indo4s in1ringement on &ac OS patents has =een highl. pu=liciAed* use o1 legal
guidance to dri(e ac>uisition (ersus internal de(elopment strategies 1or such
products as Garage'and and i&usic ha(e pro(en highl. (alua=le!
&70T Analysis of Apple Inc:
Although participation in such acti(ities ma. add (alue* the. ma. not =e a source
o1 competiti(e ad(antage! Ultimatel.* the (alue* rarit.* inimita=ilit.* andSor
organiAation D0RIOE o1 an acti(it. or resource determine its sustaina=ilit. as a
source o1 competiti(e ad(antage! 9ithin this conte2t* 4e can identi1. a 1irm7s
strengths* 4ea;nesses* opportunities* and threats DS9OTE!
In S9OT anal.sis Strength and 9ea;nesses are depends on Internal 1actors and
Opportunities and Threats )epends on E2ternal 6actors o1 and OrganiAation!
S9OT anal.sis is use1ul in decision ma;ing a=out the organiAation going 1or an.
ne4 or e2isting project!
Apple &70T Analysis
&trengt/:
#<
• iTunes &usic Store is a e2cellent source o1 re(enue* especiall. 4ith the i5od
and the accessi=ilit. on 9indo4s plat1orm!
• Apple Computer are e2pert in )e(eloping o4n so1t4are and hard4are!
• Apple7s niche audience pro(ides the compan. 4ith some lagging 1rom the
direct price competition!
• Gi(ing a 1ace$li1t to des;top and note=oo; lines!
• technolog. can =e used to impro(e product a4areness and sales!
• Lo4 de=tTmore maneu(era=le!
• Apple Computers ha(e good =rand lo.alt.!
• Strong Research O )e(elopment )epartment!
7ea8nesses:
• 9ea; relationship 4ith Intel and &icroso1t!
• 9ea; presence in =usiness arena!
• The product li1e c.cle o1 Apple products are (er. small 1or that reasons
re(enues are more depend on launch o1 ne4 products and ser(ices!
• 9ea; presence in mar;ets other than education and pu=lishing!
• Slo4 turn around on high demand products!
• Apples mar;et share is 1ar =ehind 1rom major competitor &icroso1t!
• In past the relationship =et4een Ste(e jo=s and emplo.ee 4ere not good
4hich result in reputation loss!
0pportunities:
#8
• Increase in 4orms and (iruses on 5Cs so the anti(irus solution can =e
de(eloped =. Apple
• Large population DGen MOYE 4hich are e2tremel. indi(idualistic and name
=rand conscious!
• The ties o1 apple other companies are 4ea;* Apple can de(elop good
relationship 1or joint (entures
• )o4nloada=le music and &5+ pla.ers are highl. mar;eta=le!
• The online sales o1 computer are increasing 4ith rapid speed!
• The laptop mar;et gro4th is highK Apple Computers should 1ocus to de(elop
ne4 models to cater the need o1 customers!
T/reats:
• Companies not seeing Apple as compati=le 4ith their so1t4are!
• Apple 1acing strong competition 1rom )ell* -5* Son. and Toshi=a in laptop
segment!
• )o4nloading 1ree music 1rom other online source 4ithout pa.ing cost is
common it ma. impact the iTunes sales!
• Apple so1t4are* Cell phone and hard4are are e2pensi(e as compared to
other competitors such as )ell!
• The long lasting recession ma. impact the sales o1 the compan. due to
higher prices o1 the products and ser(ices
• &icroso1t launched &icroso1t 0ista* 9indo4s < 4hich is gaining mar;et
share!
• The s4itching in technolog. is (er. 1ast
#@
6C9 *odel of Apple Inc.
+%
'oston Consulting Group D'CGE model is a techni>ue de(eloped =. 'RUCE
-EI)ERSOI o1 the 'oston Consulting Group in earl. "@<%7s! According to this
techni>ue =usinesses or products are classi1ied as lo4 or high per1ormers
depending upon their mar;et gro4th rate and relati(e mar;et share! It is (er.
use1ul tool to identi1. the product line o1 an organiAation!
6C9 'odel classified in four 'ain categories are
1.: &tar ;.: Cas/ Co- .: <uestion *ar8 ".: Dog
+"
7/at is dri,ing *acintos/ acceptance=
Supporters agree that it is the productCs eas. to use graphic inter1ace! FOnce a user
sits do4n and 4or;s 4ith a &acintosh* the. ne(er go =ac; to an I'& 5ersonal
Computer*F proclaimed 5rice Collins* a programming manager at General Electric
Co! in 'ridgeport* Conn!The ease o1 use 1eatures translate into su=stantial sa(ings
1or man. corporations! F9e spend much less time training &acintosh users than
4e do training I'& microcomputer users*F noted 5earson at the Ie4 Yor; )ail.
Ie4s!
Studies comparing &acintosh and I'& microcomputer training costs 1ound that it
ta;es t4ice as long 1or an I'& user to learn ho4 to operate his machine and three
times longer 1or the user to understand ho4 to opeate a second application! A
sur(e. commissioned =. Apple 1ound the a(erage cost o1 training an I'& user 4as
J<3/ compared to J#@, 1or a &acintosh user!The &acintoshCs graphics capa=ilities
also o11er man. middle managers their o4n strategic 4eapons in the =attle 1or
upper managementCs attention!
FAn emplo.ee 4ill use a &acintosh to generate slides and charts 1or an important
presentation*F GECs Collins e2plained! FThe output is 1ar superior to an.thing
generated on an I'& microcomputer* so other managers immediatel. 4ant to
produce the same >ualit. output! ?uic;l.* use o1 &acintoshes spreads through the
compan.!F
+#
+e'o,ing 6arriers for 2sers
Anal.sts reported that another reason 1or acceptance 4as aggressi(e Apple actions!
FApple remo(ed =arriers that corporations erected to ;eep &acintoshes out o1
usersC hands*F said Richard ollme.er* the director o1 mar;eting and technical
ser(ices at The Support Group Inc!* a 9ellesle.* &ass!* microcomputer reseller!
FOne o1 the initial concerns 4as the ina=ilit. to run &S$)OS so1t4are on a
&acintosh! ?uic;l.* Apple deli(ered hard4are so users could run those
applications!F
To date* &acintoshes ha(e =een relegated to personal producti(it. tools in most
companies! F&ost users purchase a &acintosh to more e11icientl. do their o4n
4or;*F noted &ichael &asterson* a microcomputer s.stems specialist at Arthur
Young O Co! in San Bose* Cali1!
Users are primaril. 4or;ing 4ith traditional microcomputer applications* such as
spreadsheet and 4ord processing! -o4e(er* there are nuances in the t.pes o1
applications emplo.ed =. I'& 5C and &acintosh users!
Application Preferences
In a sur(e. o1 "*#"3 large companies Deach ha(ing more than /%% emplo.eesE*
)ata>uest Corp!* a mar;et research 1irm in San Bose* Cali1!* reported that 4ord
processing 4as the &acintoshCs most 4idel. used application$$named =. /,Q o1
respondents! Graphics applications 1ollo4ed 4ith ,3Q* and spreadsheets placed
third 4ith +8Q!On the I'& 5ersonal Computer* the response 4as as 1ollo4s: 3/Q
used spreadsheetsK /<Q* 4ord processingK and +/Q* data=ase management
s.stems! 6e4 o1 the companies that dominate the I'& microcomputer so1t4are
++
mar;et ha(e had much success pl.ing &acintosh 4ares! 6or e2ample* Lotus
)e(elopment Corp! o1 Cam=ridge* &ass!* and Ashton$Tate o1 Torrance* CAli1!*
ha(e had little success in the mar;et! The most nota=le e2ception* &icroso1t Corp!*
Redmond* 9ash!* o11ers the three =estselling applications: E2cel* a spreadsheetK
9ord* a 4ord processing pac;ageK and 9or;s* an integrated spreadsheet* 4ord
processing and data=ase application!
+,
AppleInsider reports on a research note 1rom '&O anal.st eith 'achman that
could ha(e =een 4ritten 1or CraA. Apple RumorsTi1 the. hadnCt gone ghost$site
on us! It turns out the success o1 the &ac in recent .ears isnCt =ecause o1 &ac OS
M* or Intel C5Us* or the i5od -alo E11ectK rather* itCs =ecause &icroso1t suc;s!
FThus 1ar* user satis1action ratings 1or 0ista ha(e =een 4ea;* and startup times 1or
0ista ha(e =een ;no4n to =e much slo4er than the &ac OS M*F 'achman sa.s!
FThus* more than /%Q o1 recent customers =u.ing &acs in Apple retail stores are
1irst$time =u.ers!F
9hile itCs great that the si2$1igure anal.st projects #!, to #!/ million &acs sold 1or
the >uarter just ended* his rationale is* 4ell* craA.! Setting aside the image o1 some
grandma dropping J#*3%% 1or a &ac'oo; Air 4ith SS)* thereCs nothing FrecentF
a=out hal1 o1 &ac =u.ers in Apple Stores =eing ne4 to the plat1orm! ItCs =een that
4a. since =e1ore 0ista 4as released!
6urther* as the chart =. the 1our$1igure anal.st clearl. sho4s* the surge in &ac
sales started around the time Apple transitioned to Intel C5Us! Ironicall.* one
could argue that &ac sales are rising =ecause o1 0ista* =ut not in the 4a. 'achman
suggests! 5rior to the release o1 Leopard and the discontinuation o1 'oot Camp as a
separate product* Apple reported huge do4nloads o1 the program that let &ac users
launch 9indo4s 0ista (er.* (er. slo4l.!
+/
Apple 6eats Co'petitors at In,entory Turn 0,er
)espite a 4ea;ening econom. and a need to meet customer demand* Apple has
=een a=le to maintain a 1ast in(entor. turno(er rate! The &ac and i5hone ma;er is
sitting at 1i(e da.s 4orth o1 in(entor. on an. gi(en da.* =eating )ellCs se(en da.s
4orth o1 in(entor.* according to data 1rom U'S!
Other 5C ma;ers are ha(ing e(en more trou=le matching AppleCs in(entor.
e11icienc.! Leno(o* 1or e2ample* is a(eraging "/ da.s o1 in(entor.* and -5 is
sitting at +# da.s! Intel* ho4e(er* is sho4ing a much slo4er in(entor. turno(er rate
at 8@ da.s* and )$Lin; is sitting on a staggering "+" da.s 4orth o1 in(entor.!
AppleCs >uic; turno(er rate ma. ha(e =een due in part to preparing 1or its just
announced i&ac* &ac mini and &ac 5ro updates! The compan. released ne4
des;top computer models on &arch +* and ;eeping in(entor. lo4 helped assure
that there 4ould =e 1e4er o1 the pre(ious model machines sitting on store shel(es!
9hile maintaining a higher in(entor. le(el can help a compan. cope 4ith sudden
increases in demand* it can also sho4 a compan.Cs ina=ilit. to ade>uatel. gauge
mar;et interest in their products! 6or no4* it loo;s li;e Apple is managing
in(entor. =etter than its competition!
IPod: T/e *ar8eting of an Idea Pro>ect
Apple7s i5od has ta;en the 4orld =. storm! Iearl. u=i>uitous* it has changed not
onl. the 4a. people listen to music* =ut it has trans1ormed its parent compan.
Apple into an entertainment giant! In order to understand ho4 this change came
a=out* 4e7ll ta;e a loo; at Apple7s ongoing e11orts to ma;e i5od s.non.mous 4ith
hip! 9e7ll also discuss e2actl. 4hat customers are =u.ing 4hen the. =u. an i5od*
and 4e 4ill ta;e a deep loo; at se(eral aspects o1 Apple7s mar;eting o1 this
+3
e2citing ne4 product* 1rom the i5od itsel1* Apple7s strategic planning* possi=le
research 1indings that supported their approach* segmentation strategies that ma.
ha(e =een emplo.ed and 4h.* as 4ell as pricing strateg. across these segments!
Li;e &agritte7s surrealist painting o1 a pipe 4ith the caption Ceci n7est pas une
pipe DThis is not a pipeE* the i5od is not merel. an &5+ pla.er! It is a s.m=ol
4hich encompasses man. grand ideasK ideas that in(ol(e 4orld change* and ho4
cool 4e all can =e i1 4e are part o1 that change! Apple7s care1ul and deli=erate
e2ploitation o1 this concept* comprising an entire mar;eting ecos.stem 4hich
nurtures that idea 4ill =e the su=ject o1 this paper! On Banuar. @th* 2010* Ste(e
Bo=s* reno4ned CEO o1 Apple* announced that the compan. 4hich he 1ounded
4ould no longer =e ;no4n as Apple Computer* Inc! Its ne4 name 4ould just =e
Apple* Inc!" This seemingl. tri(ial change represents a 1undamental shi1t 4ith
deep implications that 4ere the result o1 man. changes Apple had engineered o(er
the past si2 or se(en .earsK transitioning itsel1 1rom a computer compan. slugging
it out 1or a meager share o1 an increasingl. competiti(e hard4are and so1t4are
mar;et* to a =usiness that promoted an entirel. ne4 concept: the digital li1est.le!
'e1ore 4e dig do4n into 4hat this radical shi1t entailed* =oth 1or the compan. and
the 4orld* a compan. alread. 1irml. rooted in se(eral notions that allo4ed this
transition to ma;e sense! Apple made a name 1or itsel1 =. =eing instrumental in
ushering in the home 5C re(olution! 6or millions* Apple 4as single$handedl.
responsi=le 1or this re(olution =. (irtue o1 the 1act that it created radical ne4
1eatures such as 4indo4s$t.pe graphical user inter1aces* pull$do4n menus and
simpli1ied computer control (ia the mouse! The histor. o1 the 5C re(olution is a
histor. o1 4ar =et4een Apple* a num=er o1 losers that no one remem=ers an. more*
and archri(al &icroso1t 4ith its du=ious counterclaims o1 ha(ing pioneered the
concept o1 9indo4s! 6rustrating to an.one 4ho o4ned a &ac =ac; in the "@8%7s is
the ;no4ledge that Apple did indeed pioneer the 4indo4s metaphor as a distinct
+<
1eature o1 its operating s.stem! This 4as at a time 4hen &icroso1t users 4ere still
struggling 4ith te2t$=ased )OS commands* and .et the commercial success o1
&icroso1t has ser(ed to re4rite histor. to some degree! 'attles ensued o(er the
.ears* =ut no matter 4hose side .ou 4ere on* =. the late @%7s it 4as clear that
Apple 4as not gaining an. ground 4hatsoe(er as a computer and so1t4are
manu1acturer! In 1act due to man. e2ternal e(ents* Apple7s position 4as in clear
threat!
The leading de(ice at the time 4as Sonic=lue Rio0olt &5+ C) 5la.er* 4hich
retailed 1or less than J"%%! Creati(eCs Iomad Bu;e=o2 4as selling its recentl.
introduced 3G' hard dri(e 1or a=out J#/%* and e!)igital Corp! 4as touting its
4alloping "%G' palm$siAe Treo "% 1or J #,@ Treo! Against these contenders*
i5od7s J+@@ price tag 1or a mere / G' o1 storage doesn7t seem to ma;e sense"3!
Also* at this time* i5od 4as onl. compati=le 4ith &acs* 4hich amused 'ill Gates*
and continued to do so e(en as late as 2012 4hen USA toda. >uoted him as
sa.ing: I thin; .ou can dra4 parallels here 4ith the computer T here* too* Apple
4as once e2tremel. strong 4ith its &acintosh and graphic user inter1ace* li;e 4ith
the i5od toda.* and then lost its position!"< It is our contention that the initial
release o1 iTunes "!%* 4hich as noted 4as practicall. laughed at* 4as a Trojan
-orse that deli(ered >uite a =it o1 =usiness intelligence to Apple!
+8
Historical Perfor'ance
Although sales remained stagnant during "@@8$#%%#* sales more than
dou=led since Dsee graph =elo4E! This dramatic shi1t in per1ormance is primaril.
due to the increase in sales 1rom the i5od product line!
&toc8 Price Perfor'ance
+@
Another interesting 4a. to consider the 1inancial per1ormance is to e(aluate ho4
Apple7s stoc; price per1ormed against the mar;et and against its main competitors!
Apple7s per1ormance has =een inconsistent o(er the last #% .ears compared to the
SO5 /%%! It also has not per1ormed at the same le(el as its main competitors* )ell
and &icroso1t! -o4e(er* per1ormance impro(ed since then!
Profitability *easures
Apple su=stantiall. impro(ed in its ;e. measures o1 pro1ita=ilit. in the last 1e4
1iscal .ears! In terms o1 return on assets* return on e>uit. and pro1it margin* Apple
strengthened 1inanciall. and no4 has similar ratios to that o1 its competitors and
the o(erall computer hard4are industr. !
20
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PC( +atio ++!8@ ##!3+ "8!/" #3!+# ##!%@
In re(ie4ing Apple7s "
st
and #
nd
>uarter 2012 earnings releases* gross margins
dropped slightl.!Apple attri=utes this decline primaril. to price pressures*
especiall. in the i5od product line! D"
st
?uarter "%?E This 4ill continue to a11ect
per1ormance o(er time! -o4e(er* Apple7s a=ilit. to maintain the momentum it
=uilt in the mar;etplace 4ill control the speed 4ith 4hich erosion 4ill occur!
,%
.iBuidity and .e,erage *easures
Apple historicall. held (er. little long$term de=t! The ta=le =elo4 compares
Apple7s li>uidit. measures to their competitors* their industr.* and the general
mar;et! )uring the period o1 strong 1inancial per1ormance* Apple accumulated
cash! This strengthens Apple7s position should the. choose to access the capital
mar;ets!
20
09
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12
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#!/ #!3 + #!88 "!"" "!8" "!8#
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,"
Product 2nit &ales
In the last se(eral .ears* there ha(e =een dramatic changes to Apple7s product sales
=. categor.! Apple =rea;s its unit sales into 1our primar. categories: des;tops*
note=oo;s* i5ods* and peripherals! The graph =elo4 sho4s the product mi2 1or
Apple in #%%#! Iote the domination =. des;tops and note=oo;s and the small
contri=ution =. i5ods!
Comparing the same graph* .ou see dramatic di11erences in the product mi2 1or
Apple! The i5od sales no4 account 1or +#!/Q compared to #!/Q 1or #%%#! The
com=ined sales o1 computers Ddes;topSnote=oo;E lost share* dropping 1rom <@Q to
,/Q o1 sales! This drop merel. represents a shi1t in Apple7s product mi2* not their
glo=al computer mar;et share D4hich remains sta=le in the #$+Q rangeE!
&ean4hile* sales o1 peripherals Dincluding 4ireless connecti(it. and net4or;ing
solutionsE* remained sta=le! D-oo(er7sE
,#
0perating &eg'ents
Apple =rea;s its sales into 1i(e Hoperating segmentsG! The chart =elo4 sho4s the
sales =. segment 1or each .ear #%%#$2012! On a percentage =asis* onl. the retail
segment appears to =e outper1orming the others!
Iet sales in the retail segment gre4 to J"/!+/ =illion in 2009! In the "
st
>uarter
2009* sales gro4th continued in the retail segment to J"!" =illion Da @"Q increase
o(er the same period last .earE! This increase 4as due to gro4th in the num=er o1
stores D1rom "%" to "+/E and to a ,"Q same$store sales gro4th! D"
st
?uarter "%?E
Although the retail segment 4as the onl. segment to realiAe gro4th as a percentage
o1 total sales* all o1 the segments had solid gro4th! In the Americas* sales
increased 3/Q and continued to represent appro2imatel. ,<Q o1 total 4orld4ide
sales! Sales in Bapan and Europe gre4 =. @#Q and ,<Q* respecti(el.! D"
st
?uarter
"%?E
,+
*ar8et %alue Analysis
9e used )iscounted Cash 6lo4 D)C6E anal.sis to assess the appropriate e>uit.
(alue o1 Apple! To complete this anal.sis* 4e de(eloped a pro$1orma income
statement and e2tracted 1ree cash 1lo4! 9e then discounted these cash 1lo4s using
a calculated 9eighted A(erage Cost o1 Capital D9ACCE! Apple7s 9ACC e>ualed
their cost o1 e>uit. since the. carr. no long$term de=t! 9e used the Capital Asset
5ricing &odel DCA5&E to calculate the cost o1 e>uit.!
CA5& consists o1 a ris;$1ree rate* a mar;et ris; premium* and a compan. 'eta!
The .ield on the "%$.ear Treasur. is the standard 1or a ris;$1ree rate! To determine
the mar;et ris; premium* 4e used the a(erage return that an in(estor 4ould re>uire
1or an in(estment 4ith a(erage ris;! 9e used data a(aila=le online to determine
Apple7s 'eta* projected to =e "!,3! The =elo4 chart summariAes Apple7s cost o1
e>uit.!
Cost of (BuityC7ACC Dote %alue
+is8 1ree +ate "% Yr Treasur. /!"#
*ar8et +is8 Pre'iu' DAnal.sisE ,
6eta 6rom Google "!,3
Ad>usted Apple +is8
Pre'iu'
/!8,
Cost of (BuityC7ACC "%!@3
,,
1inancial Analysis
Apple7s 1inancial per1ormance continued to strengthen o(er the last se(eral
>uarters! In the most recent earnings announcement* Apple reported signi1icant
gro4th in net re(enues dri(en =. the strong per1ormance o1 its i5od product line!
Iet sales 1or the #
nd
>uarter gre4 to J,!+3 =illion* 4hich is a +,Q increase o(er #
nd
quarter 2012 results! Iet income increased =. ,"Q to J,"% million!
The i5od product line continues to dri(e the 1inancial per1ormance o1 the compan.!
In the #
nd
>uarter alone* Apple sold 8!/ million i5ods* representing a 3"Q increase
o(er the /!+ million units sold in the #
nd
>uarter o1 the prior .ear! &ac sales
sho4ed slight gro4th o1 onl. ,Q!
Apple7s .ear$to$date re(enues total just o(er J"% =illion and earnings total just
under J" =illion! 6or the +
rd
>uarter* C6O 5eter Oppenheimer stated* HU4e e2pect
re(enue o1 a=out J,!# to J,!, =illionG 4hich 4ill push total sales a=o(e last term7s
annual num=ers!
,/
Apple ;$1; 1< financial analysis
#%"# April #/ 5osted =. admin under #%"# "? * Apple * Technolog. * USA
Apple #%"# "? results continues to impress! Re(enue has jumped 1rom #,*< =n!J
to +@*# =n!J or =. /@Q compared to #%"" ?"! -igh re(enue increase lead to e(en
more rapid Iet Income =e1ore depreciation increase! 9hich has risen 1rom 3*, =n!
J to "#*, =n!J or almost du==ed! This 4as lead =. slo4er re(enue cost DV,+QE and
operating cost increase DV+3QE then re(enue!
Companies sales =. geograph. is good! "S+ o1 sales are 1rom US and "S+ is 1rom
Asia 4hich are the regions 4ith highest estimated gro4th! Europe ta;es ##Q o1
sales! Asia sales has du==ed compared to last .ear so this mar;et has gro4n the
most! &ost o1 companies re(enue is generated =. i5hone /8Q 4hich sales has
increased =. V8/Q! &ost rise 4as in i5ad 4here re(enue has increased =. V"+#Q
and no4 contains "<Q o1 companies income* this is a de1iantl. income gro4th
segment 4hile &ac and special . i5od D$#/QE are the products o1 the past!
,3
According to http:SS444!netmar;etshare!com Apple share in mo=ile and ta=led
mar;ed has increased 1rom ,8Q to 3%Q and is =etter than its main competitors
Google Android* 4hich share has increased 1rom "/Q to "@Q! 'ut ne(er the less
=ig =attle is projected in the 1uture at this mar;ed =et4een Google and Apple
In general co'panies results are positi,e.
'alance sheet continue to =e (er. strong! E>uit. le(el has increased to 38Q! That
did not e11ect high return on E>uit. le(el 4hich is ,/Q at ?"! Since
compan. announced di(idend pa.ments and share repurchases companies E>uit.
should not increase in the 1uture! Li>uidit. ratio is "*3 4hich is good! Compan. has
cash surplus o1 ""% =n!J 4hich has increased 1rom @< =n!J 1rom ?,! Companies
in(entor. and Account recei(a=les are minimal so as lia=ilities!
,<
Io other major changes at the =alance sheet! In general co'panies balance
structure is strong.
&/are ,alue:
Co''on &toc8s ",*@ =n!J %*@+/ =n! "/*@ J
V Retained earnings 8<*" =n!JV @+*# J 1$9#1 E
V " .ear Iet income =e1ore )epreciation
,"*" =n!J
D/# =n!JE
V ,,*% J
DV//*3 JE
1A#1 E
Companies share =asic (alue is F1$9E (?+13,5%/!" #ompare$ %ith
&'() Current mar;et price is W61$E (?+1*,1%/5''"() 4hich sho4s that mar;et
is pa.ing W/%%J more or ""*, .ears o1 Iet income =e1ore )epreciation earnings*
4hich sho4s that companies shares are a =it o(er e(aluated! I1 calculating Iet
income =e1ore )epreciation according to last >uarter .earl. earnings should =e
around /# =n!JS.ear D"+ =n!S>uarterE or //*3JSshare 4hich ma;es it F9 year* ne(er
the less indicator is >uit high! Share pro1ita=ilit. DShare mar;et priceSIet income
=e1ore )epreciationE i1 calculating projected income D/# =n!JS.earE is 9#1G 4hich
is a =it o(er a(erage!
,8
Annual Inco'e state'entH,alue in $$$3s: 9et <uarterly Data
Period (nding: Trend 9C;9C;$1; 9C;"C;$11 9C;AC2009 9C;6C;$$9
Total Re(enue J"/3*/%8*%%% J"%8*#,@*%%% J3/*##/*%%% J,#*@%/*%%%
Cost o1 Re(enue J8<*8,3*%%% J3,*,+"*%%% J+@*/,"*%%% J#/*38+*%%%
Gross 5ro1it J38*33#*%%% J,+*8"8*%%% J#/*38,*%%% J"<*###*%%%
0perating ()penses
Research and
)e(elopment
J+*+8"*%%% J#*,#@*%%% J"*<8#*%%% J"*+++*%%%
Sales* General and
Admin!
J"%*%,%*%%% J<*/@@*%%% J/*/"<*%%% J,*",@*%%%
Ion$Recurring Items J% J% J% J%
Other Operating
Items
J% J% J% J%
,@
0perating Inco'e J//*#,"*%%% J++*<@%*%%% J"8*+8/*%%% J""*<,%*%%%
AddCl
incomeSe2pense
items
J/##*%%% J,"/*%%% J"//*%%% J+#3*%%%
Earnings 'e1ore
Interest and Ta2
J//*<3+*%%% J+,*#%/*%%% J"8*/,%*%%% J"#*%33*%%%
Interest E2pense J% J% J% J%
Earnings 'e1ore Ta2 J//*<3+*%%% J+,*#%/*%%% J"8*/,%*%%% J"#*%33*%%%
Income Ta2 J",*%+%*%%% J8*#8+*%%% J,*/#<*%%% J+*8+"*%%%
&inorit. Interest J% J% J% J%
E>uit. EarningsSLoss
Unconsolidated
Su=sidiar.
J% J% J% J%
Iet Income$Cont!
Operations
J,"*<++*%%% J#/*@##*%%% J",*%"+*%%% J8*#+/*%%%
/%
Iet Income J,"*<++*%%% J#/*@##*%%% J",*%"+*%%% J8*#+/*%%%
Iet Income
Applica=le to
Common
Shareholders
J,"*<++*%%% J#/*@##*%%% J",*%"+*%%% J8*#+/*%%%
&tate'ent
6t H,alues in $$
Period (nding: Trend 9C;9C;$1; 9C;"C;$11 9C;AC2009 9C;6C;$$9
Current Assets
Cash and Cash
E>ui(alents
J"%*<,3*%%% J@*8"/*%%% J""*#3"*%%% J/*#3+*%%%
Short$Term
In(estments
J"8*+8+*%%% J"3*"+<*%%% J",*+/@*%%% J"8*#%"*%%%
Iet Recei(a=les J#"*#</*%%% J"+*<+"*%%% J""*/3%*%%% J3*"@#*%%%
/"
In(entor. J<@"*%%% J<<3*%%% J"*%/"*%%% J,//*%%%
Other Current Assets J3*,/8*%%% J,*/#@*%%% J+*,,<*%%% J"*,,,*%%%
Total Current Assets J/<*3/+*%%% J,,*@88*%%% J,"*3<8*%%% J+"*///*%%%
.ongITer' Assets
Long$Term
In(estments
J@#*"##*%%% J//*3"8*%%% J#/*+@"*%%% J"%*/#8*%%%
6i2ed Assets J"/*,/#*%%% J<*<<<*%%% J,*<38*%%% J#*@/,*%%%
Good4ill J"*"+/*%%% J8@3*%%% J<,"*%%% J#%3*%%%
Intangi=le Assets J,*##,*%%% J+*/+3*%%% J+,#*%%% J#,<*%%%
Other Assets J/*,<8*%%% J+*//3*%%% J#*#3+*%%% J#*%""*%%%
/#
)e1erred Asset
Charges
J% J% J% J"*<#<*%%%
Total Assets J"<3*%3,*%%% J""3*+<"*%%% J</*"8+*%%% J,<*/%"*%%%
Current .iabilities
Accounts 5a.a=le J+#*/8@*%%% J#+*8<@*%%% J"<*<+8*%%% J@*,/+*%%%
Short$Term )e=t S
Current 5ortion o1
Long$Term )e=t
J% J% J% J%
Other Current
Lia=ilities
J/*@/+*%%% J,*%@"*%%% J#*@8,*%%% J#*%/+*%%%
Total Current
Lia=ilities
J+8*/,#*%%% J#<*@<%*%%% J#%*<##*%%% J""*/%3*%%%
Long$Term )e=t J% J% J% J%
/+
Other Lia=ilities J"3*33,*%%% J"%*"%%*%%% J/*/+"*%%% J+*/%#*%%%
)e1erred Lia=ilit.
Charges
J#*3,8*%%% J"*383*%%% J"*"+@*%%% J8/+*%%%
&isc! Stoc;s J% J% J% J%
&inorit. Interest J% J% J% J%
Total Lia=ilities J/<*8/,*%%% J+@*</3*%%% J#<*+@#*%%% J"/*83"*%%%
&toc8 Holders
(Buity
Common Stoc;s J"3*,##*%%% J"+*++"*%%% J"%*338*%%% J8*#"%*%%%
Capital Surplus J% J% J% J%
Retained Earnings J"%"*#8@*%%% J3#*8,"*%%% J+<*"3@*%%% J#+*+/+*%%%
/,
Treasur. Stoc; J% J% J% J%
Other E>uit. J,@@*%%% J,,+*%%% DJ,3*%%%E J<<*%%%
Total E>uit. J""8*#"%*%%% J<3*3"/*%%% J,<*<@"*%%% J+"*3,%*%%%
Total Lia=ilities O
E>uit.
J"<3*%3,*%%% J""3*+<"*%%% J</*"8+*%%% J,<*/%"*%%%
http:SS444!nasda>!comSs.m=olSaaplS1inancials:>uer.XratiosYi2AA#0(#;j
Period (nding: Trend 9C;9C;$1; 9C;"C;$11 9C;AC2009 9C;6C;$$9
//
Iet Income J,"*<++*%%% J#/*@##*%%% J",*%"+*%%% J8*#+/*%%%
Cas/ 1lo-sI
0perating
Acti,ities
)epreciation J+*#<<*%%% J"*8",*%%% J"*%#<*%%% J<+,*%%%
Iet Income
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J3*",/*%%% J,*%+3*%%% J#*+"@*%%% J"*</%*%%%
C/anges in
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Acti,ities
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DJ3*@3/*%%%E DJ"*<@"*%%%E DJ,*83%*%%%E DJ+/+*%%%E
Changes in
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DJ"/*%%%E J#</*%%% DJ/@3*%%%E J/,*%%%
Other Operating
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DJ+*"3#*%%%E DJ"*+@"*%%%E DJ"*3"%*%%%E DJ<"+*%%%E
Lia=ilities J@*8,+*%%% J8*33,*%%% J8*+%#*%%% J,/#*%%%
/3
Iet Cash 6lo4$
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J/%*8/3*%%% J+<*/#@*%%% J"8*/@/*%%% J"%*"/@*%%%
Cas/ 1lo-sI
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Acti,ities
Capital
E2penditures
DJ8*#@/*%%%E DJ,*#3%*%%%E DJ#*%%/*%%%E DJ"*",,*%%%E
In(estments DJ+8*,#<*%%%E DJ+#*,3,*%%%E DJ""*%</*%%%E DJ"3*%,3*%%%E
Other In(esting
Acti(ities
DJ"*/%/*%%%E DJ+*3@/*%%%E DJ<<,*%%%E DJ#,,*%%%E
Iet Cash 6lo4s$
In(esting
DJ,8*##<*%%%E DJ,%*,"@*%%%E DJ"+*8/,*%%%E DJ"<*,+,*%%%E
Cas/ 1lo-sI
1inancing
Acti,ities
Sale and
5urchase o1
J33/*%%% J8+"*%%% J@"#*%%% J,</*%%%
/<
Stoc;
Iet 'orro4ings J% J% J% J%
Other 6inancing
Acti(ities
DJ"*##3*%%%E DJ/#%*%%%E DJ,%3*%%%E DJ8#*%%%E
Iet Cash 6lo4s$
6inancing
DJ"*3@8*%%%E J"*,,,*%%% J"*#/<*%%% J33+*%%%
E11ect o1
E2change Rate
J% J% J% J%
Iet Cash 6lo4 J@+"*%%% DJ"*,,3*%%%E J/*@@8*%%% DJ3*3"#*%%%E
An
Period (nding: Trend 9C;9C;$1; 9C;"C;$11
9C;AC200
9
9C;6C;$$9
.iBuidity +atios
Current Ratio "/%Q "3"Q #%"Q #<,Q
?uic; Ratio ",8Q "/8Q "@3Q #<%Q
Cash Ratio <3Q @+Q "#,Q #%,Q
Profitability +atios
Gross &argin ,,Q ,%Q +@Q ,%Q
Operating &argin +/Q +"Q #8Q #<Q
5re$Ta2 &argin +3Q +#Q #8Q #8Q
5ro1it &argin #<Q #,Q #"Q "@Q
5re$Ta2 ROE ,<Q ,/Q +@Q +8Q
A1ter Ta2 ROE
+/Q
+,Q #@Q #3Q
/8
Income Statement D(alues i %%%Cshttp:SS444!nasda>!comSs.m=olSaaplS1inancials:
>uer.Xincome$statementYi2AA#0("&Z.Y,
ProI1or'a Inco'e &tate'ent
6irm made se(eral ;e. assumptions in compiling a pro$1orma income statement!
6irst* to complete the estimate 1or the 2009 data*Compan. merel. annualiAed the
earnings 1or the 1irst t4o >uarters! The. then projected a declining rate o1 gro4th
in sales 1or the ne2t 1our 1iscal terms o1 +%Q* #%Q* "/Q* and "%Q* respecti(el.!
9e do not =elie(e that the gro4th in i5ods is sustaina=le 1or the long$term! The.
also used the percent$o1$sales method to calculate cost o1 goods sold* research O
de(elopment* SGOA* and interest!As applied the 2012 ta2 rate 1or all 1uture
periods! As the ta=le =elo4 sho4s* the mid$term earnings gro4th is positi(e!
Pro>ected 1ree Cas/ 1lo- and (Buity %aluation
Apple 4ill continue 4ithout long$term de=t! There 4ill =e no signi1icant changes
in capital e2penditures and net 4or;ing capital! Thus* 1ree cash 1lo4 4ill e>ual net
income plus depreciation! Gi(en 9ACC* 4e are a=le to discount cash 1lo4s =ac;
/@
using hal1$.ear 50 1actors D4e are through the 1irst hal1 o1 #%%@E!Calculated
terminal (alue using a perpetual annual gro4th rate o1 <Q* 4hich is slightl. a=o(e
the industr. gro4th rate o1 /!3Q!
Gi(en intrinsic e>uit. (alue* 4e estimate the per share stoc; price! Gi(en their
particular mar;et condition* Apple appears under(alued!
(Buity %alue
Total &/ares H$$$?s: 8,83"#
%alue H$$$?s: <"3#@%%%
%alueC&/are J8,
Current Price J<"!8@
&trategy
6irm can descri=e Apple7s strateg. in terms o1 product di11erentiation and strategic
alliances! In each o1 these strategies* 4e e2amine 4hat Apple did historicall. and
then discuss alternati(es 1or Apple7s 1uture!
Product Differentiation
Apple prides itsel1 on its inno(ation! 9hen re(ie4ing the histor. o1 Apple* it is
e(ident that this attitude permeated the compan. during its pea;s o1 success! 6or
instance* Apple pioneered the 5)A mar;et =. introducing the Ie4ton in "@@+!
3%
Later* Apple introduced the eas.$to$use i&ac in "@@8* and updates 1ollo4ing "@@8!
It released a highl. sta=le operating s.stem in "@@@* and updates 1ollo4ing "@@@!
Apple had one o1 its critical points in histor. in "@@@ 4hen it introduced the i'oo;!
This completed their Hproduct matri2G* a simpli1ied product mi2 strateg.
1ormulated =. Bo=s! This mo(e allo4ed Apple to ha(e a des;top and a porta=le
computer in =oth the pro1essional and the consumer segments! The matri2 is as
1ollo4s:
In #%%"* Apple hit another important historical point =. launching iTunes! This
mar;ed the =eginning o1 Apple7s ne4 strateg. o1 ma;ing the &ac the hu= 1or the
Hdigital li1est.leG! Apple then opened its o4n stores* in spite o1 protests =.
independent Apple retailers (oicing canni=aliAation concerns! Then Apple
introduced the i5od* central to the Hdigital li1est.leG strateg.! 5hilip 9! Schiller*
05 o1 9orld4ide 5roduct &ar;eting 1or Apple* stated* Hi5od is going to change
the 4a. people listen to music!G -e 4as right!
Apple continued their inno(ati(e strea; 4ith ad(ancements in 1lat$panel LC)s 1or
des;tops in #%%# and impro(ed note=oo;s in #%%+! In #%%+* Apple released the
iLi1e pac;age* containing impro(ed (ersions o1 i)0)* i&o(ie* i5hoto* and iTunes!
In re1erence to Apple7s recent ad(ancements* Bo=s said* H9e are going to do 1or
digital creation 4hat &icroso1t did 1or the o11ice suite producti(it.!G That is indeed
a =old statement! Time 4ill tell 4hether that happens!
Apple continued its digital li1est.le strateg. =. launching iTunes &usic Store
online in #%%+* o=taining cooperation 1rom HThe 'ig /G &usic companiesT'&G*
E&I* Son. Entertainment* Uni(ersal* 9arner! This allo4ed iTunes &usic Store
online to o11er o(er #%%*%%% songs at introduction! In #%%+* Apple released the
4orld7s 1astest 5C D&ac G/E* 4hich had dual #!%G-A 5o4er5C G/ processors!
3"
5roduct di11erentiation is a (ia=le strateg.* especiall. i1 the compan. e2ploits the
conceptual distinctions 1or product di11erentiation! Those that are rele(ant to Apple
are product 1eatures* product mi2* lin;s 4ith other 1irms* and reputation! Apple
esta=lished a reputation as an inno(ator =. o11ering an arra. o1 eas.$to$use
products that co(er a =road range o1 segments! -o4e(er* its lin;s 4ith other 1irms
ha(e =een limited* as 4e 4ill discuss in the ne2t section on strategic alliances!
There is economic (alue in product di11erentiation* especiall. in the case o1
monopolistic competition! The primar. economic (alue o1 product di11erentiation
comes 1rom reducing en(ironmental threats! The cost o1 product di11erentiation
acts as a =arrier to entr.* thus reducing the threat o1 ne4 entrants! Iot onl. does a
compan. ha(e to =ear the cost o1 standard =usiness* it also must =ear the costs
associated 4ith o(ercoming the di11erentiation inherent in the incum=ent! Since
companies pursue niche mar;ets* there is a reduced threat o1 ri(alr. among
industr. competitors!
A compan.7s di11erentiated product 4ill appear more attracti(e relati(e to
su=stitutes* thus reducing the threat o1 su=stitutes! I1 suppliers increase their
prices* a compan. 4ith a di11erentiated product can pass that cost to its customers*
thus reducing the threat o1 suppliers! Since a compan. 4ith a di11erentiated
product competes as a >uasi$monopol. in its mar;et segment* there is a reduced
threat o1 =u.ers! 9ith all o1 5orter7s 6i(e 6orces lo4er* a compan. ma. see
economic (alue 1rom a product di11erentiation strateg.!
A compan. attempts to ma;e its strateg. a sustained competiti(e ad(antage! 6or
this to occur* a product di11erentiation strateg. that is economicall. (alua=le must
also =e rare* di11icult to imitate* and the compan. must ha(e the organiAation to
e2ploit this! I1 there are 1e4er 1irms di11erentiating than the num=er re>uired 1or
3#
per1ect competition d.namics* the strateg. is rare! I1 there is no direct* eas.
duplication and there are no eas. su=stitutes* the strateg. is di11icult to imitate!
There are 1our primar. organiAing dilemmas 4hen considering product
di11erentiation as a strateg.!
To resol(e these dilemmas* there must =e an appropriate organiAation structure! A
U$6orm organiAation resol(es the inter$1unctional colla=oration dilemma i1 there
are product de(elopment and product management teams! Com=ining the old 4ith
the ne4 resol(es the connection to the past dilemma! -a(ing a polic. o1
e2perimentation and a tolerance 1or 1ailure resol(es the commitment to mar;et
(ision dilemma! &anagerial 1reedom 4ithin =road decision$ma;ing guidelines
4ill resol(e the institutional control dilemma!
6i(e leadership roles 4ill 1acilitate the inno(ation process: Institutional Leader*
Critic* Entrepreneur* Sponsor* and &entor! The institutional leader creates the
organiAational in1rastructure necessar. 1or inno(ation! This role also resol(es
disputes* particularl. among the other leaders! The critic challenges in(estments*
goals* and progress! The entrepreneur manages the inno(ati(e unitDsE! The
sponsor procures* ad(ocates* and champions! The mentor coaches* counsels* and
ad(ises!
Apple had issues 4ithin its organiAation! In "@@<* 4hen Apple 4as see;ing a CEO
accepta=le to Bo=s* Bean$Louis Gass[e Dthen$CEO o1 'e* e2$5roducts 5resident at
AppleE commented* HRight no4 the jo= is so di11icult* it 4ould re>uire a =ise2ual*
=lond Bapanese 4ho is #/ .ears old and has "/ .ears7 e2perience\G Charles
-aggert.* then$CEO o1 9estern )igital* said* HApple is a compan. that still has
opportunit. 4ritten all o(er it! 'ut .ou7d need to recruit God to get it done!G
&ichael &urph.* then$editor o1 Cali1ornia Technolog. Stoc; Letter* stated* HApple
3+
desperatel. needs a great da.$to$da. manager* (isionar.* leader and politician! The
onl. person 4ho7s >uali1ied to run this compan. 4as cruci1ied #*%%% .ears ago!GTo
continue a product di11erentiation strateg.* Apple must continue its appropriate
management o1 inno(ation dilemmas and maintain the 1i(e leadership roles that
1acilitate the inno(ation process!
&trategic Alliances
Apple has a histor. o1 shunning strategic alliances! On Bune #/* "@8/* 'ill Gates
sent a memo to Bohn Sculle. Dthen$CEO o1 AppleE and Bean$Louis Gass[e Dthen$
5roducts 5residentE! Gates recommended that Apple license &acintosh technolog.
to +$/ signi1icant manu1acturers* listing companies and contacts such as ATOT*
)EC* Te2as Instruments* -e4lett$5ac;ard* Mero2* and &otorola! DLinAma.er* #,/$
8E A1ter not recei(ing a response* Gates 4rote another memo on Bul. #@* naming
three other companies and stating* HI 4ant to help in an. 4a. I can 4ith the
licensing! 5lease gi(e me a call!G In "@8<* Sculle. re1used to sign licensing
contracts 4ith Apollo Computer! -e 1elt that up$and$coming ri(al Sun
&icros.stems 4ould o(erta;e Apollo Computer* 4hich did happen!
Then* Sculle. and &ichael Spindler DCOOE partnered Apple 4ith I'& and
&otorola on the 5o4er5C chip! Sculle. and Spindler 4ere hoping I'& 4ould =u.
Apple and put them in charge o1 the 5C =usiness! That ne(er came to 1ruition*
=ecause Apple D4ith Spindler as the CEOE seemed contradictor. and 4as
e2traordinaril. di11icult in =usiness dealings! Apple turned the corner in "@@+!
Spindler =egrudgingl. licensed the &ac to 5o4er Computing in "@@+ and to
Radius D4ho made &ac monitorsE in "@@/! -o4e(er* Spindler ni2ed Gate4a. in
"@@/ due to canni=aliAation 1ears! Gil Amelio* an a(id supporter o1 licensing* too;
3,
o(er as CEO in "@@3! Under Amelio* Apple licensed to &otorola and I'&! In
"@@3* Apple announced the J,#< million purchase o1 IeMT So1t4are* mar;ing the
return o1 Ste(e Bo=s! Amelio suddenl. resigned in "@@<* and the stage 4as set 1or
Bo=s to resume po4er!
Bo=s despised licensing* calling cloners HleechesG! -e pulled the plug* essentiall.
;illing its largest licensee D5o4er ComputingE! Apple su=se>uentl. ac>uired
5o4er Computing7s customer data=ase* &ac OS license* and ;e. emplo.ees 1or
J"%% million o1 Apple stoc; and J"% million to co(er de=t and closing costs! The
=usiness 4as 4orth J,%% million!
There is economic (alue in strategic alliances! In the case o1 Apple* there 4as the
opportunit. to manage ris; and share costs 1acilitate tacit collusion * and manage
uncertaint.! It 4ould ha(e =een applica=le to the industries in 4hich Apple
operated! Tacit collusion is a (alid source o1 economic (alue in net4or; industries*
4hich the computer industr. is! &anaging uncertaint.* managing ris;* and sharing
costs are sources o1 economic (alue in an. industr.! Although Apple e(entuall.
realiAed the economic (alue o1 strategic alliances* it should ha(e occurred earlier!
The 1ollo4ing are some comments a=out Apple7s no$licensing polic.!
HI1 Apple had licensed the &ac OS 4hen it 1irst came out* 9indo4 4ouldn7t e2ist
toda.!GTBon (an 'ron;horst* HThe computer 4as ne(er the pro=lem! The
compan.7s strateg. 4as! Apple sa4 itsel1 as a hard4are compan.K in order to
protect our hard4are pro1its* 4e didn7t license our operating s.stem! 9e had the
most =eauti1ul operating s.stem* =ut to get it .ou had to =u. our hard4are at t4ice
the price! That 4as a mista;e! 9hat 4e should ha(e done 4as calculate an
appropriate price to license the operating s.stem! 9e 4ere also na](e to thin; that
3/
the =est technolog. 4ould pre(ail! It o1ten doesn7t!GTSte(e 9oAnia;* Apple
co1ounder
HI1 4e had licensed earlier* 4e 4ould =e the &icroso1t o1 toda.!GTIan 9! )ier.*
Apple E2ecuti(e 05* I am a4are that I am ;no4n as the Great Satan on licensingU
I 4as ne(er 1or or against licensing! I just did not see ho4 it 4ould ma;e sense!
'ut m. approach 4as stupid! 9e 4ere just 1at cats li(ing o11 a =usiness that had
no competition!GTBean$Louis Gass[e* 'e CEO and e2$CEO o1 Apple* admitting
he made a strategic mista;e
A strategic alliance can =e a sustained competiti(e ad(antage i1 it is rare* di11icult
to imitate* and the compan. has an organiAation to e2ploit it! I1 the num=er o1
competing 1irms implementing a similar strategic alliance is relati(el. 1e4* the
strateg. is rare! I1 there are sociall. comple2 relations among partners and there is
no direct duplication* the strateg. is di11icult to imitate! 9hen organiAing 1or
strategic alliances* a 1irm must consider 4hether the alliance is non$e>uit. or
e>uit.! A non$e>uit. alliance should ha(e e2plicit contracts and legal sanctions!
An e>uit. alliance should ha(e contracts descri=ing the e>uit. in(estment! There
are some su=stitutes 1or an e>uit. alliance* such as internal de(elopment and
ac>uisitions! -o4e(er* the di11iculties 4ith these dri(e the 1ormation o1 strategic
alliances! It is (ital to remem=er* HCommitment* coordination* and trust are all
important determinants o1 alliance success!G
Apple a,oids co'petition
I1 .ou loo; at the histor. o1 Apple* .ouCll see that instead o1 rising to competition*
the. o1ten ignore it* or tr. to use legal means* or =undling clout* to erase it!
33
9hen challenged =. a larger mar;et 1orce* as 4ith the I'& 5C and its clones in
the earl. 8%s* and 4ith 9indo4s +!%* @/ and then IT ,!% in the @%s* the. miss
o=(ious mar;eting opportunities* 4a.s to ma;e their products stronger =.
participating in mar;ets that others de(elop! This is an art that &icroso1t has
mastered* thereCs no reason Apple couldnCt ha(e learned the same lessons* =ut the.
didnCt!
And 4hen dealing 4ith smaller competitors* Apple routinel. and o1ten
unconsciousl. 1orced them out o1 =usiness =. =undling* or declaring that the. 4ill
=undle a competiti(e o11ering!
9hen the Internet happened* Apple struggled against it instead o1 em=racing it*
pre1erring to in(est in technologies that e(entuall. ended up on the scrap heap! A
4asted lead in content de(elopment* de(elopers going to 9indo4s* a poor Ba(a
implementation on the &ac!
The =ottom line* the strateg. o1 a(oiding competition has =een disastrous 1or
Apple! 'ut the. 4ant to do it again!
+he same ol$ strategy
The cloners* &otorola* 5o4er Computing* U&AM* I'& and others* are poised to
ship products that 4ould ta;e Apple out o1 the hard4are =usiness* =ecause the.Cre
cheaper* 1aster* =igger* more po4er1ul machines than AppleCs ne4 products! These
are the computers that &ac users 4ant and are* in m. opinion* entitled to!
E(en though 4e ha(enCt seen the license agreements 4ith the cloners* it appears
that Apple has the contractual right to 1or=id them to ship the computers* 1or an.
3<
reason at all! Apple 4ants to ;eep their hard4are =usiness* so the. e2ercise that
right!
I despise companies that use hard=all tactics to put their competitors out o1
=usiness! I admire companies that rise to competition! I happil. =u. ne4 products
4hen I ha(e a choice! I donCt li;e to =u. products that ICm 1orced to =u.!
,s it a ni#e -usiness.
I1 .ou donCt ha(e an.one to compare 4ith* i1 .ou arenCt su=ject to customer choice*
.our product loses direction* .ou 1ocus in4ard* and e(entuall. Das no4 1or
AppleE .our interests =ecome out o1 s.nch 4ith the interests o1 .our
customers!
6ocus on that 1or a moment! A compan. 4hose interests are against their
customers! Is that a nice =usiness: )oes it ha(e much o1 a 1uture:
,s it legal.
The customerCs interest here is clearl. ser(ed =. competition! The usual =ene1its
appl. $$ lo4er prices* more realistic con1igurations* more di(ersit.!
AppleCs complaint that the cloners 4erenCt gro4ing the mar;et can =e e2plained =.
AppleCs licensing polic. that ;ept them 1rom ma;ing 1undamentall. di11erent
products than Apple! 9hereCs the cheap su=$note=oo; &ac: 9hereCs the handheld
&ac: The &ac =uilt into the dash=oard o1 m. car: Apple 4ouldnCt let the cloners
ma;e these products! Apple is an economic disaster area! The. 4ant &ac users to
put all their eggs in AppleCs crum=ling =as;et!
38
+(C0**(DDATI0D&:
1or Co'pany
• Lo4ering the cost o1 products and maintaining the same >ualit. standards!
• Can 1orm joint L (entures!
• no4ledge &anagement!
• &ore num=er o1 retail stores 1or eas. access!
• Continuous inno(ation to e2pand!
1or 0t/ers
• )o not compromise on price 1or >ualit.!
• Choose the products =ased on indi(idual needs!
• 'e uni>ue and di11erent!
3@
Conclusion
I 1eel that Apple must 1ocus on se(eral ;e. aspects to continue to gro4 and
succeed! The. must continue a sta=le commitment to licensing* push 1or economies
o1 scope =et4een media and computers* and =ecome a learning organiAation!
Although it should continue* Apple ma. 4ant to consider other 1orms o1 strategic
alliances! An e>uit. strategic alliance ma. o11er Apple the opportunit. to o=tain
additional competencies! An e11ecti(e 4a. 1or a compan. li;e Apple to accomplish
this 4ould =e in the 1orm o1 a joint (enture!
Apple should continue pushing the ne4 line o1 media$centric products! &ean4hile*
Apple should not lose 1ocus on its computers! &acintosh computers 4ere /@Q o1
Apple7s sales in #%"#! D'urro4sEThis (er. inno(ati(e compan. e2ploits its second$
mo(er position! In the 1uture* the. 4ill need to continue inno(ating to e2pand the
=oundaries o1 =oth media and computers!
Apple apparentl. made a commitment to licensing! Although it should continue*
Apple ma. 4ant to consider other 1orms o1 strategic alliances! An e>uit. strategic
alliance ma. o11er Apple the opportunit. to o=tain additional competencies! An
e11ecti(e 4a. 1or a compan. li;e Apple to accomplish this 4ould =e in the 1orm o1
a joint (enture!Apple should continue push 1or economies o1 scope =et4een media
and computers* and =ecome a learning organiAation* pushing the ne4 line o1
<%
media$centric products! This (er. inno(ati(e compan. e2ploits its second$mo(er
position! In the 1uture* the. 4ill need to continue inno(ating to e2pand the
=oundaries o1 =oth media and computers!This 4ill allo4 the compan. to 4ithstand
a departure =. Bo=s! 'ased on the actions o1 the organiAation* 4e 1eel that the mid$
term per1ormance o1 Apple 4ill =e strong! This period allo4s Apple time to
o(ercome their challenges i1 the. mo(e s4i1tl.! 6or this reason* 4e 1eel that the.
4ill continue to succeed and 4ill continue to outper1orm their peers!
Pro>ect +eferences and +eading:
• http:SS444!nasda>!comSs.m=olSaaplS1inancials:>uer.XratiosYi2AA#0(#;j
• http:SS444!nasda>!comSs.m=olSaaplS1inancials:>uer.Xincome$
statementYi2AA#0("&Z.Y,
• 5aul un;el* Apple)esign: The 9or; o1 the Apple Industrial )esign Group
IS'I @<8$"$888%%"$#/$@
• Ste(en Le(. D"@@,E* Insanel. Great: The Li1e and Times o1 &acintosh* the
Computer That Changed E(er.thing IS'I @<8$%$",$%#@"<<$+
• O4en LinAma.er D#%"%E* Apple Con1idential #!%* Io Starch 5ress IS'I
@<8$"$/@+#<$%"%$%
• &ichael S! &alone D"@@@E* In1inite Loop IS'I @<8$%$+8/$,838,$#
• 6ran; Rose D"@@%E* 9est o1 Eden: The End o1 Innocence at Apple Computer*
5enguin 'oo;s IS'I @<8$%$",$%%@+<#$8
• Bohn Sculle.* Bohn A! '.rne D"@8<E Od.sse.: 5epsi to Apple* -arperCollins*
IS'I @<8$%$%3$%"/<8%$<
• Apple Inc! SEC 1ilings at SEC)ata=ase!com
• Apple Inc! SEC 1ilings at the Securities and E2change Commission
<"
• Bim Carlton* Apple: The Inside Stor. o1 Intrigue* Egomania and 'usiness
'lunders IS'I @<8$%$88<+%$@3/$3
• Alan )eutschman D#%%%E* The Second Coming o1 Ste(e Bo=s* 'road4a.*
IS'I @<8$%$<3<@$%,+#$#
• And. -ertA1eld D#%%,E* Re(olution in the 0alle.* OCReill. 'oo;s IS'I @<8$
%$/@3$%%<"@$/
o FApple L En(ironment L En(ironmental 5rogressF! Archi(ed 1rom the
original on Io(em=er ##* #%"%! Retrie(ed Io(em=er ##* #%"%!
o FApple T &ac T Green Iote=oo;sF! Apple Inc! #%%8! Archi(ed
1rom the original on )ecem=er ##* #%%8! Retrie(ed )ecem=er #,*
#%%8!
o FApple: &ac'oo; 5ro GraphicsF! Archi(ed 1rom the original on Bune
#* #%%<! Retrie(ed Bune 8* #%%<!
o FApple L En(ironment L ReportsF! Apple Inc!
o Fi&ac and the En(ironmentF! Apple Inc! Archi(ed 1rom the original
on Io(em=er #@* #%"%! Retrie(ed Io(em=er #@* #%"%!
o FClimate Counts scorecardF! Climatecounts!org! Retrie(ed Octo=er <*
#%""!
o FChina orders Apple supplier plant closure o(er en(ironmental
concerns$ The In>uirer mo=ileF! &!thein>uirer!net! Retrie(ed
)ecem=er #,* #%""!
o FGuide to Greener ElectronicsF! Greenpeace International! Retrie(ed
Io(em=er ",* #%""!
o Anderson* Ash! FApple 5o4er Ca=les to 'ecome E(en &ore
En(ironmentall. 6riendl.F! e.Ioodle! Retrie(ed Banuar. ",* #%"#!
• FAppleCs #%"# Annual Report: &ore Emplo.ees* &ore O11ice Space* &ore
SalesF!
• Apple Inc! at -oo(erCs
<#
• http:SS444!nasda>!comSs.m=olSaaplS1inancials:>uer.Xcash$
1lo4Yi2AA#0(#cutjL
• http:SS444!nasda>!comSs.m=olSaaplS1inancials:>uer.X=alance$
sheetYi2AA#0(#63><2
<+
doc_779483233.doc
Title: Research project on Apple Inc
Student name: Yogesh arande
Registration no! "#$#%"#
Course: &'A
Super(isor: Dr.Andreas Constantinou
)ate: August #%* #%"+
"
Table of Contents
Title Page
Introduction %,
-istor. Apple Inc: %/
0ision Statement o1 Apple: %/
E2planation o1 0ision Statement: %/
&ission Statement o1 Apple: %3
Re(ie4 o1 Literature %3
The 5C Industr. ""
The Online &usic Industr. "#
The 6uture o1 Apple "#
Strategic Alliances and Entertainment ",
E2ternal Aanal.sis "/
Industr. Anal.sis Using 5orter7s 6i(e 6orces &odel "8
9hich E2ternal Threats are &ost Signi1icant #+
Additional E2ternal Threats #,
0ertical Integration o1 Competitors #/
0alue Chain Anal.sis #3
S9OT Anal.sis o1 Apple Inc: #8
'CG &odel: +"
9hat is dri(ing &acintosh acceptance: ++
Remo(ing 'arriers 1or Users ++
Application 5re1erences +,
Apple pro1it ma;es huge rise due to i5od success +,
Apple 'eats Competitors at In(entor. Turn O(er +<
I5od: The &ar;eting o1 an Idea 5roject +8
6inancial Anal.sis ,"
-istorical 5er1ormance ,#
5ro1ita=ilit. &easures ,+
Li>uidit. and Le(erage &easures ,,
5roduct Unit Sales ,/
Operating Segments ,3
&ar;et 0alue Anal.sis ,3
Apple #%"# "? 1inancial anal.sis ,<
Share (alue /%
5ro$6orma Income Statement /<
5rojected 6ree Cash 6lo4 and E>uit. 0aluation /8
Strateg. /@
#
5roduct )i11erentiation /@
Strategic Alliances 3+
Recommendations 33
Conclusion 3<
+
Introduction
Apple Computer7s +%$.ear histor. is 1ull o1 highs and lo4s* 4hich is 4hat 4e
4ould e2pect in a highl. inno(ati(e compan.! The. e(ol(ed throughout the .ears
into an organiAation that is (er. much a representation o1 its leader* Ste(en Bo=s!
Apple made se(eral hugel. success1ul product introductions o(er the .ears! The.
ha(e also completel. 1allen on their 1ace on se(eral occasions! The. struggled
mightil. 4hile Bo=s 4as not a part o1 the organiAation! Apple reached a point
4here man. thought the. 4ould not sur(i(e! 9hen as;ed in late "@@< 4hat Bo=s
should do as head o1 Apple* )ell Inc!Cs D)ELLE then$CEO &ichael S! )ell said at
an in(estor con1erence: FICd shut it do4n and gi(e the mone. =ac; to the
shareholders!G D'urro4s* Gro(er* and GreenE!
9ell* times changed! Less than "% .ears later* 'usiness 9ee; ran;ed Apple as the
top per1ormer in its 2012 'usiness 9ee; /%! Apple attri=utes their recent success
to ro=ust sales o1 i5od music pla.ers D<@ million in #%""E! The. are optimistic
a=out the economies o1 scope 4ith media giants* such as )isne. and 5i2ar!
Apple rarel. introduces a ne4 t.pe o1 product! Thus* instead o1 =eing the pioneer*
the. are an e2pert Hsecond mo(erG =. re1ining e2isting products! 5orta=le music
pla.ers and note=oo; computers are e2amples!
Apple increases the appeal o1 these products =. ma;ing them st.lish and more
1unctional! The. no4 appear poised to ma;e signi1icant strides in the home
computer mar;et and to creating a total digital li1est.le 4here=. the home is a
multimedia hu=!
,
History of Apple Inc:
Apple Inc 1ormerl. ;no4n as Apple Computer Inc 4hich pro(ides corporate
Ser(er* &AC OS S.stems and Operating S.stem! Apples core product lines are
the i5hone* i5od and &acintosh S.stem! Ste(e Bo=s and Ste(e 9oAnia;* The
1ounder o1 Apple has created the Apple Computer on 1
st
April 1976 and integrated
in the compan. on
rd
!anuary 1977* in Cupertino Cali1ornia! It has dri(en the
Computer manu1acturing mar;et 1or more than t4o decades! &r! Ste(e Bo=s 4ho
4as e2pelled in "@8/ 4as return as CEO o1 the A55LE Inc in "@@3 4ith ne4 Ideas
and corporate philosoph.! 9ith introduction o1 success1ul I5od 5la.er in to #%%"
Apple has again pro(ed itsel1 as a &ar;et leader in consumer electronics! Latest
era o1 e2traordinar. success o1 the compan. is in iOS =ased Apple products li;e I
5hone* I5od slim* I 5ad and no4 I 5ad #! Io4 a da.7s Apple is a =iggest
technolog. corporation in the planet 4ith the pro1its o1 more than J3/ =illion! It
has a=out "9#"$$ emplo.s all o(er the 4orld! 6ortune &agaAine most Admired
compan. in United State in #%"# and in the 4orld in #%"#* #%%@ and #%%@!
Apple has o(er #,% Store all o(er the 4orld and the =i1urcation o1 these store in
di11erent countries are as =elo4!
%ision &tate'ent of Apple:
H&an is the creator o1 change in this 4orld! As such he should =e a=o(e s.stems
and structures* and not su=ordinate to them!G
()planation of %ision &tate'ent:
Apple li(es this (ision through the technologies it de(elops 1or consumers and
corporations! It stri(es to ma;e its customers masters o1 the products the. ha(e
=ought! Apple doesn7t simpl. ma;e a statement! It li(es it =. ensuring that its
emplo.ees understand the (ision and stri(e to reach it! It has put s.stems in place
to ena=le smooth customer interaction! It has put o=jecti(es in place to
continuousl. mo(e 1or4ardK implemented strategies to 1ul1il these o=jecti(esK and
ensured that the right mar;eting* 1inancial and operational structures are in place to
appl. the strategies!
/
*ission &tate'ent of Apple:
HApple ignited the personal computer re(olution in the "@<%s 4ith the Apple II and
rein(ented the personal computer in the "@8%s 4ith the &acintosh! Apple is
committed to =ringing the =est personal computing e2perience to students*
educators* creati(e pro1essionals and consumers around the 4orld through its
inno(ati(e hard4are* so1t4are and Internet o11erings!G
+e,ie- of .iterature
Ste(e Bo=s and Ste(e 9oAnia; 1ounded Apple on April "* "@<3! The t4o Ste(es*
Bo=s and 9oA Das he is commonl. re1erred to L see 4oA!orgE* ha(e personalities
that persist throughout Apple7s products! Bo=s 4as the consummate salesperson
and (isionar. 4hile 9oA 4as the in>uisiti(e technical genius! 9oA de(eloped his
o4n homemade computer and Bo=s sa4 its commercial potential! A1ter selling /%
Apple I computer ;its to 5aul Terrell7s '.te Shop in &ountain 0ie4* CA* Bo=s and
9oA sought 1inancing to sell their impro(ed (ersion* the Apple II!
The. 1ound their 1inancier in &i;e &ar;;ula* 4ho in turn hired &ichael Scott to
=e CEO! The compan. introduced the Apple II on April "<* "@<<* at the same time
Commodore released their 5ET computer! Once the Apple II came 4ith 0isicalc*
the progenitor o1 the modern spreadsheet program* sales increased dramaticall.! In
"@<@* Apple initiated three projects in order to sta. ahead o1 the competition: "E the
Apple III L their =usiness oriented machine* #E the Lisa L the planned successor to
the Apple III* and +E &acintosh!
In "@8%* the compan. released the Apple III to the pu=lic and 4as a commercial
1lop! It 4as too e2pensi(e and had se(eral design 1la4s that made 1or less$than$
stellar >ualit.! One design 1la4 4as a lac; o1 cooling 1ans* 4hich allo4ed chips to
o(erheat! In late "@8%* Apple 4ent pu=lic* ma;ing the t4o Ste(es and &ar;;ula
4ealth. L to the tune o1 nine 1igures! '. "@8"* the Apple III 4as not selling 4ell
3
and Scott in1amousl. 1ired ,% people on 6e= #/ DH'lac; 9ednesda.GE!
Scott7s
direct management st.le con1licted 4ith the culture Bo=s and &ar;;ula pre1erred*
and Scott resigned in Bul.! &ar;;ula stepped into his position as CEO! In August
"@8"* I'& released their 5C! Unimpressed and una1raid* Apple 4elcomed I'& to
the 5C mar;et 4ith a slightl. smug 1ull$page ad in the 9all Street Bournal! It 4ould
not =e long =e1ore I'&7s 5C dominated the mar;et!
The Mero2 Alto 4as the inspiration 1or Apple7s Lisa! Apple emplo.ees 4ere a=le
to e2amine the Alto in e2change 1or allo4ing Mero2 to in(est in Apple =e1ore
Apple7s initial pu=lic o11ering DI5OE! Apple released the Lisa in Banuar. "@8+ and
4as nota=le 1or =eing the 1irst computer sold to the pu=lic that utiliAed a Graphic
User Inter1ace DGUIE! Un1ortunatel.* the Lisa 4as not compati=le 4ith e2isting
computers* and there1ore came =undled H4ith e(er.thing and a list price to match!G
At J@*@@/ Do(er J#"*%%% in 2012 dollarsE* the Lisa missed its target mar;et =. a
4ide margin!
Apple introduced the &acintosh 4ith great 1an1are during the "@8, Super 'o4l!
The Or4ellian$themed commercial Ddirected =. Ridle. Scott* o1 NAlien7 1ameE
portra.ed I'& as 'ig 'rother and em=odied &acintosh and Apple as 1reedom$
see;ing indi(iduals =rea;ing a4a. 1rom this oppressi(e regime!The commercial
4as largel. success1ul and sales 1or the &ac started strong! -o4e(er* &ac sales
later 1aded! Bohn Sculle. le1t 5epsiCo to join Apple in April "@8+! -e 4as 1amous
1or engineering the H5epsi ChallengeG* in 4hich =linded testers tasted =oth Co;e
and 5epsi to un(eil the Ntruth7 o1 the taste o1 5epsi! In response to lagging &ac
sales* Sculle. contri(ed the NTest )ri(e a &acintosh7 campaign! In this promotion*
prospecti(e users could ta;e home a &acintosh 4ith onl. a re1unda=le deposit on
their credit card! 9hile lauded =. the pu=lic and the ad(ertising industr.* this
campaign 4as a =urden on dealers and signi1icantl. impeded the a(aila=ilit. o1
<
&acs to serious =u.ers! In "@8/* Apple tried to ha(e lightening stri;e t4ice 4ith
their NLemmings7 commercial during the Super 'o4l! In 4hat 4as =ecoming
Apple7s t.pical patroniAing 1ashion* this commercial insulted current 5C users =.
portra.ing them as 4itless lemmings* unthin;ingl. doing harm to themsel(es!
Although Bo=s attempted to o(erthro4 Sculle.* the =oard =ac;ed Sculle.! Bo=s le1t
Apple to 1orm IeMT computer! A1ter Bo=s le1t in "@8/* sales o1 the &ac He2ploded
4hen Apple7s Laser9riter met Aldus 5age&a;er!G Apple dominated the des;top
pu=lishing mar;et 1or .ears to come! Under Sculle.* Apple gre4 1rom J3%%
million in annual sales to J8 =illion in annual sales =. "@@+!
Apple introduced &ac
5orta=les in "@8@ and the 1irst 5o4er'oo;s in "@@"! '. "@@#* 5C competition ate
into Apple7s margins and earnings 4ere 1alling! Sculle. 4as under pressure to
ha(e Apple produce another =rea;out product! -e 1ocused his energ. on the
Ie4ton L Apple7s introduction o1 the 5ersonal )igital Assistant D5)AE! )espite
Sculle. generating su=stantial demand 1or Ie4ton* it did not li(e up to the h.pe
due to it =eing se(erel. underde(eloped! Sculle. resigned in "@@+ and &ichael
Spindler replaced him!
Spindler spent most o1 his time and energies on regaining pro1ita=ilit.* 4ith the end
goal o1 1inding a =u.er 1or Apple! O(er the ne2t se(eral .ears* Spindler shopped
Apple to Sun &icros.stems* Eastman oda;* ATOT* and I'&!
&ean4hile* Apple
4as una=le to meet the gro4ing demand 1or its products due to supplier pro=lems
and 1ault. demand predictions! To add insult to injur.* &icroso1t released
9indo4s @/ 4ith great 1an1are in "@@/! A1ter signi1icant >uarterl. losses in "@@3*
the =oard replaced Spindler 4ith )r! Gil Amelio* CEO o1 Iational Semiconductor!
)r! Amelio tried to =ring Apple =ac; to =asics* simpli1.ing the product lines and
restructuring the compan.! One o1 Apple7s most pressing issues at the time 4as
releasing their ne2t generation operating s.stem Dcode named HCoplandGE to
8
compete 4ith 9indo4s @/! Amelio and his technolog. o11icers 1ound that
Copland 4as so =ehind schedule that the. loo;ed outside the compan. to purchase
a ne4 OS! Ultimatel.* and some4hat ironicall.* the. decided to purchase IeMT
computer 1rom Bo=s! Iaturall.* Apple 4elcomed Bo=s =ac; into the 1old! The
=oard =ecame increasingl. impatient 4ith Amelio due to sales not re=ounding
>uic;l. enough! Apple =ought out Amelio7s contract a1ter just " P .ears on the
jo=! Bo=s e(entuall. claimed the CEO position! Then* he cleaned house =.
re(amping the =oard o1 directors and e(en replacing &i;e &ar;;ula!Bo=s
simultaneousl. put an end to the 1ledgling clone licensing agreements D4hich
created a 1e4 &ac clonesE and entered into cross$licensing agreements 4ith
&icroso1t! On &a. 3* "@@8* Apple introduced the ne4 i&ac* a product so secret
that most Apple emplo.ees had ne(er heard o1 it! The ne4 i&ac 4as a runa4a.
success 4ith its translucent case* all$in$one architecture* and ease o1 use! It
=rought Apple to a ne4 mar;et o1 users L those 4ho had ne(er o4ned a computer
=e1ore! Bo=s 1urther simpli1ied the product lines into 1our >uadrants along t4o
a2es: )es;top and 5orta=le on one* 5ro1essional and Consumer on the other!
Apple completed the matri2 4ith the introduction o1 the consumer$=ased i'oo; in
"@@@!
The .ear #%%" 4as an important .ear 1or consumers o1 Apple products! Apple
opened their 1irst #/ retail stores Dtotaling "3+ stores in , countries as o1 &a.
2001E! In Septem=er #%%"* Apple introduced the ne4 i&ac 1eaturing a screen on
a s4i(el!The ne4 i5ods Dporta=le music pla.ersE 4ere a tremendous success!
Apple sold so man. that Apple7s dependence on &ac sales 4as signi1icantl. less!
This 4as no small 1eat considering that the #%%" i&ac =ecame Apple7s =est$selling
product H=. a long shotG!
Apple o11ered iTunes Da 1ree applicationE to help their
consumers organiAe music on i5ods and &acs!
@
In #%%+* Apple e2panded iTunes =. "E opening the iTunes music store to allo4
&ac users to purchase music online and #E e2panding iTunes to 9indo4s users!
Sales o1 i5ods s;.roc;eted and currentl. pro(ide the =ul; o1 product sales to
Apple! In 2012* Apple announced that it 4ould start using Intel$=ased chips to run
&acintosh computers! In April 2005* Apple announced 'oot Camp* 4hich
allo4s users o1 Intel$=ased &acs to =oot either &ac or 9indo4s OS! This
1unctionalit. allo4s users 4ho ma. need =oth OSs to o4n just one machine to run
=oth* al=eit not simultaneousl.!
"%
T/e PC Industry
9e can glean Insight into the histor. and composition o1 the 5C Industr. 1rom its
epon.mous title! In the late "@<%s* as 9oAnia; and Bo=s 4ere starting Apple
computer* personal computers 4ere an emerging product! The 1ollo4ing chart
DReimerE gi(es an o(erall (ie4 o1 the major mar;et pla.ers since the mid$"@<%s!
'. "@8+* the mar;et share o1 the Apple II 1ell to 8Q 4hile the 5C had #3Q!
&ar;et share o1 &acintosh pea;ed at slightl. more than "%Q in the earl. "@@%s
and has since tapered to =et4een #$+Q! The I'& 5C and its clones =ecame the
standard due to the success o1 the open nature o1 the 5C! This allo4s product
de(elopers to o11er (astl. more products 1or the plat1orm!
Some argue that not licensing the &ac OS 4as a mista;e! 'ill Gates and &icroso1t
4ere encouraging Apple to license their OS in the earl. "@8%s* =ecause the. 4ere
de(eloping so1t4are 1or Apple and had much riding on the success o1 the compan.!
""
9hen Apple did not license* &icroso1t =egan de(eloping their operating s.stem*
9indo4s!
T/e 0nline *usic Industry
9hile Apple clearl. dominates the online music industr.* the =attle 1or domination
is not o(er! Although digital music sales are gro4ing rapidl.* the Recording
Industr. Association o1 America DRIAAE states that digital sales account 1or onl.
,Q o1 all music sales! D'orlandE Anal.sts at 6orrester D'artiromoE and Gartner
D'runoE (alidate this! Apple7s sales are =et4een 33Q and </Q o1 do4nloads and
8%Q o1 music pla.ers! D'runoE Apple is part to a suit alleging monopolistic
practices concerning their mar;et share dominance o1 pla.ers and do4nloads! The
other pla.ers in the do4nload mar;et are Dthe re(isedE Iapster* Yahoo &usic*
Rhapsod.* and illegitimate 1ile$sharing ser(ices! 5orta=le music pla.ers competing
4ith the i5od include those made =. Creati(e* Samsung* iRi(er* and Son.! A
major point o1 contention =et4een these ser(ices and pla.er manu1acturers is the
control o1 a (ariet. o1 incompati=le )igital Rights &anagement D)R&E schemes!
T/e 1uture of Apple
Personal Computers – A Shift in Strategy
Apple has historicall. ta;en a 1ar di11erent path than the traditional 9indo4s and
Intel com=ination! &icroso1t pro(ides the 9indo4s operating s.stem to separate
do4nstream hard4are producers such as )ell! Apple (erticall. integrated =oth the
operating s.stem so1t4are and hard4are completel. under Apple! A consumer
running &icroso1t 9indo4s can choose 1rom a m.riad o1 s.stems =ased on the
"#
Intel processor* 4hile a consumer running Apple7s OS M must purchase Apple
hard4are!
Apple is adjusting this strateg. =. migrating their microprocessors 1rom I'& and
&otorola 5o4er5C to Intel! Anal.sts =elie(e that the Intel$=ased &acintosh ma.
=e a=le to run &icroso1t 9indo4s applications =. the end o1 2009! D'urro4sE
In addition to s4itching processors* Apple positioned their computers as an
immediate option 1or the traditional &icroso1t 9indo4s user! 9ith Apple 'oot
Camp* users ma. no4 use &ac OS M or 9indo4s on an Apple computer!
DSutherlandE!'. allo4ing users to run 9indo4s on an Intel &ac* Apple reduced
the s4itching costs 1or traditional 5C users! Apple ma. steal a4a. customers that
are 4illing to pa. a premium 1or a s.stem that runs =oth 9indo4s and &ac OS M!
Apple continues to retain a strategic option to license its technolog. to clone
ma;ers such as )ell! 5ast attempts at licensing Apple technolog. Dto I'&*
Gate4a.* and othersE 1ailed on accord o1 Apple7s rigid demands! &an. technolog.
leaders Dsuch as a "@8/ letter =. 'ill Gates to Apple CEO Bohn Sculle.E criticiAed
Apple 1or ;eeping a closed architecture! Apple co1ounder Ste(e 9oAnia; criticiAes
this strateg.* H9e had the most =eauti1ul operating s.stem* =ut to get it .ou had to
=u. our hard4are at t4ice the price! That 4as a mista;e!G9hether Apple 4ould =e
4illing to pursue this re(ersal o1 (ertical integration is unclear! Although such a
mo(e 4ould canni=aliAe a portion o1 Apple7s o4n hard4are sales* it 4ould also
pro(ide ro.alt.$=ased re(enue that could approach J" =illion annuall.!
&trategic Alliances and (ntertain'ent
"+
Bo=s had the earl. strategic (ision to complement computing 4ith mo(ie
entertainment! A1ter 1ounding IeMT* he personall. ac>uired a majorit. interest in
the .oung mo(ie compan. 5i2ar in 6e=ruar. "@83! Bo=s 4ent on to in(est R o1 his
personal 4ealth into 5i2ar!
In "@@/* 5i2ar solidi1ied its position 4ithin animated mo(ies 4ith the de=ut o1 To.
Stor.! Grossing J+/8 million 4orld4ide* it =ecame the +
rd
$largest grossing
animated mo(ie in histor.! A1ter this success* Bo=s too; 5i2ar pu=lic and
negotiated 1ar =etter terms 4ith )isne.! Later successes included Toy Story 2*
&onsters Inc!* and 6inding Iemo. The alliance =et4een 5i2ar and )isne. has
tremendous potential 1or economies o1 scope! As CEO o1 Apple and )isne.7s
largest shareholder* Bo=s is the strategic lin; =et4een )isne.* Apple* and 5i2ar!
Opportunities include com=ining the animated mo(ie e2pertise o1 )isne. and
5i2ar* as 4ell as sharing the content o1 )isne.7s A'C or ES5I net4or;s o(er
Apple7s digital o11erings! D'urro4s* Gro(er* and GreenE
A current e2ample o1 the 1usion =et4een )isne.* Bo=s* Apple* and technolog. is
(ideo on the i5od! )isne.7s )esperate -ouse4i(es 4as one o1 the 1irst tele(ision
programs a(aila=le 1or purchase and do4nload to the ne4er (ideo$ena=led i5od!
There are concerns a=out 4hether these s.nergies 4ill come to 1ruition! There are
1ears that the personalit. and st.le o1 Bo=s ma. con1lict 4ith )isne.* and that
)isne. CEO Iger could =e HAmelioedG $$ dri(en out o1 o11ice =. Bo=s in a manner
similar to ho4 Bo=s dro(e Amelio out o1 the CEO post at Apple! D'urro4s* Gro(er*
and GreenE!
()ternal Aanalysis
",
Tec/nological (n,iron'ent
'rand A4areness L St.le at a 5remium
Apple7s products are trend. and st.lish! A1ter Bo=s returned in "@@<* Apple
retained designer Bonathan I(e to di11erentiate their computers 1rom the t.pical
=eige =o2! I(e7s design o1 the i&ac included clear color1ul cases that distinguished
Apple computers! Apple7s i5od D4ith the trademar; 4hite ear =uds and simple
trac; 4heelE commands a "/Q$#%Q premium o(er other &5+ pla.ers!
Apple and 5i2ar limit the num=er o1 computer products and mo(ies that the. sell!
5roduct di11erentiation 4ith 1ocused >ualit. and st.le also e2tend to the Bo=s 5i2ar
L H5i2arCs e2ecuti(es 1ocus on ma;ing sure there are no N' teams*7 that e(er.
mo(ie gets the =est e11orts o1 5i2arCs =rain. sta11 o1 animators* stor.tellers* and
technologists!G D'urro4s* Gro(er* and GreenE
Apple positions its &acintosh computers as higher >ualit. and higher price! -5*
)ell* and other 5C manu1acturers are pricing man. s.stems under the J"*%%%
threshold! HApple is struggling to meet demand 1or its ne4 &ac'oo; 5ro laptop
despite a J"*@%% price tag that is nearl. t4ice that o1 garden$(ariet. ri(als!G Apple
has onl. recentl. entered the lo4$end D=elo4 J/%%E consumer mar;et 4ith the &ac
&ini! Although the &ac &ini is a =ase model 4ith 1e4 1eatures* it comes encased
in a (er. small and distincti(e pac;age! Apple portra.s this computer as HSmall is
'eauti1ulG! DAppleE Li;e4ise* the i5od Shu11le 4as Apple7s 1irst entr. into the
lo4er$end DJ"%% rangeE o1 1lash$memor.$=ased porta=le music pla.ers!
Interoperability
"/
Although Apple competes directl. 4ith &icroso1t 1or operating s.stems* the
release o1 iTunes 1or 9indo4s in #%%# 4as a ;e. strategic mo(e! This decision
e2panded the potential customer =ase to nearl. all personal computer o4ners* e(en
though Apple onl. has #Q$+Q o1 all personal computer sales! Con(ersel.* Apple
depends on &icroso1t 1or a (ersion o1 &icroso1t O11ice! As the most 4idel. used
o11ice suite o1 applications* &acintosh users rel. on O11ice to correspond 4ith
companies that standardiAed on 9indo4s! This is 1rom a strategic alliance
=et4een Apple and &icroso1t a1ter Bo=s returned in "@@<! Apple7s iTunes
ser(ice has a technological hoo; Dasset speci1icit.E to Apple7s i5od! Although
(ersions o1 iTunes e2ist 1or =oth Apple and &icroso1t operating s.stems* the
iTune7s AAC 1ile 1ormat pre(ents other porta=le music pla.ers Dsuch as iRi(er or
SamsungE 1rom pla.ing purchased songs!
Tec/nology and t/e Digital .ifestyle
Apple not onl. dominates the music pla.er mar;et* its iLi1e suite pro(ides
consumers 4ith eas.$to$use so1t4are 1or music and (ideo composition! 9ith
HpodcastG a household 4ord* Apple7s Garage 'and application ma;es the recording
o1 podcasts and music (er. eas.!
+egulatory (n,iron'ent
"3
9hile introducing ne4 technologies* there is a persistent threat o1 legal action =.
competitors! 6or e2ample* Apple sued &icroso1t in "@88 Dsettled in "@@< 1or an
undisclosed amountE 1or percei(ed similarities =et4een &icroso1t 9indo4s and
&acintosh audio(isual 4or;s!&icroso1t has generall. =een the 1ocus 1or
go(ernment antitrust charges Dsuch as U!S! (! &icroso1tE DUS )OB* 2009E! 'oth
1ederal and state go(ernments assert that &icroso1t7s dominance =loc;ed 1air
competition 4ithin the so1t4are industr.! This is an ad(antage 1or Apple* =ecause
its operating s.stems are a (ia=le su=stitute 1or 9indo4s! 6urthermore*
&icroso1t7s continued support 1or O11ice 1or &acintosh reduces the percei(ed le(el
o1 mar;et monopol. and a=use! &anu1acturers 4ill continue to trespass on Apple7s
intellectual propert.! In #%%#* Apple too; legal action against te2@* 4ho then
altered the programme and renamed it sumi! Legal threats can sur1ace 1rom
some4hat unusual sources! Apple Corps Ltd! is the London$=ased compan. that
o4ns the rights to the music o1 the 'eatles! 5aul &cCartne. and Ringo Starr
recentl. sued Apple o(er the use o1 the Apple logo in iTunes* claiming that it
(iolated Apple7s agreement not to produce music under an apple$=ased logo!
Research and de(elopment is a ;e. component to Apple7s sustained competiti(e
ad(antage! Apple is currentl. ta;ing legal action against se(eral popular technical
4e= sites 1or releasing proprietar. product research! Sites such as
appleinsider!com ha(e allegedl. posted (er=atim content 1rom documents
protected =. emplo.ee non$disclosure agreements! D&cCullaghE Release o1
critical insider in1ormation could gi(e Apple7s competitors a jump in producing
ri(al products!
Industry Analysis 2sing Porter3s 1i,e 1orces *odel
"<
Apple operates in t4o primar. industries:
• Computing $ -ard4are and So1t4are
• )eli(er. o1 Entertainment and &edia
Apple has al4a.s =een under intense competition 4ithin the computer*
so1t4are* and entertainment industries! HLoo;ing to 2012!!!E(er. time that Apple
had jumped into the lead in a product categor. during the past t4o decades* it had
had di11icult. in sustaining its leadership position!G 9e use 5orter7s 6i(e 6orces
&odel to understand 4h. Apple7s industries are so competiti(e!
6igure: 5orter7s 6i(e 6orces &odel
6igure: Summar. o1 Industr. Threats DComputer E>uipment and Entertainment
)istri=utionE
Threat of
New
Entrants
Bargaini
ng
power of
Supplier
s
Threat of
Substitute
s
Bargaini
ng power
of
Buyers
Level of
Threat in
an
Industry
"8
Type and
&e,erity of
T/reat
0rgani4ation
(ntry 5
Hig/
T/reat
0eriAon Streaming audio and (ideo 4ith 0 CAST!
AmaAon On demand online ser(ices to purchase music
Dsimilar to iTunesE!
Google The. ma;e e(er.thing!
The HIe2t
GoogleG
Ie4 entrants 4ith disrupti(e technolog.!
+i,alry 5
Hig/
T/reat
&icroso1t 9indo4s Operating S.stem* 9indo4s &edia
5la.er 1or pla.ing music and (ideo!
Linu2 Competition to &ac OS M Operating S.stem!
Iapster*
Rhapsod.
Online music sources L alternati(es to iTunes
&usic Store!
)ell* -5*
Leno(o
Alternate sources 1or computer hard4are!
iRi(er*
Samsung*
Creati(e
Small* st.lish &5+ 5la.ers!
)ream9or;s Animated mo(ies!
YouTu=e!com Online (ideo!
&ubstitutes
5
*oderate
T/reat
M&* Sirius Satellite Radio 1or music!
"@
M'o2* 5S# Entertainment &edia* &edia and &usic!
0arious Internet Streaming Radio and 5odcasts!
&usic C)s*
)0)$Audio
and
SuperAudio
C)
Alternati(e means to ac>uire music!
'roadcast*
Ca=le*
Satellite*
Iet6li2* Ti0o*
Theatres
Alternati(e sources 1or (ideo!
&uppliers
5 Hig/
T/reat
&otorola*
I'&* Intel*
Samsung
Suppliers o1 5rocessors and computer memor.!
&icroso1t Strategic Alliance S Supplier o1 O11ice 1or &ac!
The 'ig 6i(e $
'&G* E&I*
Son.*
Uni(ersal* and
9arner
Sources o1 music! 9ill the. raise prices and =rea;
the dollar per song model: Some in the record
industr. resent Apple7s distri=ution model! HApple
reaps =illions 1rom selling its hit music pla.er* =ut
there are sparse pro1its 1rom the songs =eing sold
o(er the Iet!G D'urro4s* Gro(er* and GreenE
)isne.* A'C*
I'C* C'S*
6o2* 5i2ar*
Son.
Suppliers o1 Tele(ision and &o(ies! 9ill the. sign
e2clusi(e contracts 4ith other online ser(ices:
Iote that this threat is reduced 1or )isne. S 5i2ar!
6uyers 5
*oderate
T/reat
Consumers and
Illegal peer$to$
peer 1ile
Consumers share music using peer$to$peer
net4or;s 4ithout pa.ing 1or music!
#%
sharing
)istri=utors Apple retailers ma. pressure 1or lo4er prices or
=etter terms! 6or e2ample* the release o1 the Apple
Store in #%%" Hin1uriated longtime independent
Apple retailers that didn7t appreciate Cupertino
canni=aliAing their sales!G DLinAma.er* +%%E
Consumer
Attitudes and
'eha(iors
Consumers or =usinesses ma. reduce spending on
personal computers or non$essential Dpotentiall.
high elasticit. o1 demandE music pla.ers i1 the.
1ear economic do4nturns!
Consumer
Re1resh C.cles
Consumers and =usinesses ma. continue to use
pre(ious$model i5ods and &acs rather than
upgrade to current i5ods* i&acs* or OS
The total industr. threat 1or the industr. space that Apple occupies is a high threat
industr.!Apple must continue to pursue product di11erentiation Di!e! the st.le and
ease$o1$use o1 an i5odE and economies o1 scope Di!e! o11ering A'C tele(ision
sho4s on iTunesE to maintain their sustained competiti(e ad(antage in this
industr.!
7/ic/ ()ternal T/reats are *ost &ignificant
• Computer -ard4are and So1t4are: Open Source so1t4are such as the Linu2
Operating S.stem and Open O11ice applications threaten =oth Apple and
#"
&icroso1t! The lo4 Do1ten* 1reeE cost o1 the so1t4are ma. allo4 it to
o(erta;e Apple and &icroso1t* especiall. in de(eloping mar;ets such as
China!
• &usic 5roducts: &ajor online retailers such as AmaAon are considering
entr. into the online music mar;et! 9ith a 4ide internet presence and a
household name* AmaAon could present a 1ormida=le challenge to Apple! I1
the major record la=els DUni(ersal* Son. '&G* E&I* and 9arnerE negotiate
=etter terms 4ith ne4 competitors to iTunes* Apple ma. =e una=le to
pro(ide some o1 the music content that the. currentl. o11er! The major
music la=els disli;e Apple7s dollar per song pricing! The. 4ould pre1er to
earn higher pro1its 4ith H(aria=le pricingG!
• Suppliers: The recent shi1t to Intel processors could present a signi1icant
threat to Apple! 9ith onl. t4o companies DIntel and A&)E producing Intel$
compati=le processors* there is a strong potential 1or tacit collusion and
oligopol. po4er =et4een these suppliers! Apple purchasing must no4
directl. compete 4ith -5* Leno(o* and )ell! I1 shortages or e2clusi(e
agreements materialiAe* Apple could 1ace pro=lems 4ith o=taining ra4
materials! Apple should consider additional sources such as Ad(anced
&icro )e(ices DA&)E!
• 6igure: C5U &ar;et Share
##
Additional ()ternal T/reats
Securit.
Apple so1t4are* li;e all large so1t4are products* has securit. (ulnera=ilities that
hac;ers ma. e2ploit! A signi1icant e2ploitation in the 1uture could damage man.
=usinesses and households using Apple computers! This 4ould a11ect 1uture
customer purchasing decisions! Apple enjo.s a competiti(e ad(antage* =ecause
their OS M is mature and sta=le due to its =asis on 'S) Uni2! In 1act* Hcomputer
securit. 1ol;s =ac; at 6'I -? use &acs running OS MG! -o4e(er* the increased
use o1 Apple computers is prompting hac;ers to target the plat1orm! In 6e=ruar.
2009* there 4as documentation o1 the 1irst ;no4n Apple OS M 4orm! '. using
iChat instant messaging* it spreads to other users and deletes 1iles 1rom their &ac
computers! I1 &ac OS M =ecomes as 4ide o1 a target as 9indo4s* Apple7s
percei(ed di11erentiation as the more secure plat1orm ma. disappear!
#+
%ertical Integration of Co'petitors
Son. is an e2ample o1 a competitor 4ith a uni>ue position against Apple! Son.
&usic supplies Apple 4ith man. o1 the songs 1or iTunes! Son. also creates a
(ersion o1 the 9al;man porta=le music pla.er that is a direct competitor to the
i5od!
Son. is attempting to (erticall. integrate 1or4ard directl. to the music =u.er!
Son. integrated their music s.stem D&oraE into the Son. 9al;man! Son. is
e2clusi(el. distri=uting certain songs on &ora! D-allE &ora currentl. targets
Bapanese consumers! I1 Son. can gain additional momentum Dsuch as colla=orating
4ith other record la=elsE* their ser(ice could present a 1ormida=le challenge to
iTunes in additional mar;ets!
%alue C/ain Analysis
#,
To determine 4here Apple de(eloped distincti(e capa=ilities* 5orter7s generic
(alue chain model pro(ides a s.stematic 1rame4or; 1or identi1.ing Apple7s
utiliAation o1 resources! 5rimar. acti(ities 1or Apple include Technolog. and
5roduct )esign* 5roduction* Sales and &ar;eting* Customer Ser(ice* and Legal
Ser(ices!
Tec/nology and Product Design
This component represents the true core Dno pun intendedE o1 Apple7s capa=ilit.!
6rom =eing the 1irst plat1orm to run an electronic spreadsheet D0isiCalc on the
Apple II 5lusE to the 1irst to esta=lish a Hdigital li1est.leG hu= Dthe &acintosh
product linesE* Apple7s histor. is rich 4ith cutting$edge technolog. de(elopment!
Apple dri(es to =e the =est* no simpl. the 1irst! The Apple operating s.stem is
uni(ersall. regarded as more sta=le and relia=le than 9indo4s* 4hile the des;top
pu=lishing so1t4are =undles Di&o(ie* i5hoto* iTunes* etc!E are the most
comprehensi(e a(aila=le to end users! I(es =est summariAes the entrepreneurial
culture 4ithin Apple =. sa.ing that Hit7s (er. eas. to =e di11erent* =ut (er. di11icult
to =e =etter!G
Production
'ecause Apple had long re1used to license its operating s.stem to e2ternal entities*
the =undled pac;ages o1 Apple$de(eloped hard4are and so1t4are =ecame the
cornerstone o1 Apple7s production process! Apple achie(ed unparalleled
per1ormance (ia 3,$=it architecture* integrated distincti(e st.ling 4ith the multi$
colored translucent i&ac cases* and rede1ined intuiti(e operation 4ith the i5od!
9hile e(er. product introduction has not =een a success DLisa* Ie4ton* etc!E*
Apple treats component production as a natural e2tension o1 the design process!
&ales and *ar8eting
#/
9e could simpl. title this section HSte(e Bo=sG! Since his return as CEO in "@@<*
Bo=s personall. un(eils all ne4 product introductions* re(ie4s corresponding
mar;eting campaigns* and appro(es ne4 product de(elopment guidelines! In a
departure 1rom their tur=ulent histor.* Bo=s Hentered into patent cross$licensing and
technolog. agreements 4ith &icroso1t!G DLinAma.er 5g! no! #@%E A1ter .ears o1
unimpressi(e mar;et share gro4th and canni=aliAation o1 a lo.al consumer =ase*
the door to the e2pansi(e 5C mar;et 4as no4 more accessi=le to Apple than e(er
=e1ore! Apple continued to command a mar;et premium 1or producing a H=etter
mousetrapG throughout its histor.!
Custo'er &er,ice
-o4 has Apple retained su=stantial cash reser(es during the e2plosi(e gro4th and
dominance o1 5Cs 4orld4ide: Apple created a (irtual lo(e a11air 4ith their
customer =ase =. deli(ering technicall. superior products Di5ods (s! other &5+
pla.ers* &acs (s! 5Cs* etc!E* and aggressi(el. pursuing hard4are and so1t4are
updates! Apple integrated their primar. acti(ities so 4ell that it is transparent to
the consumer 4here one acti(it. =egins and the other ends! A per1ect e2ample o1
this is Apple7s 4illingness to de(elop so1t4are to run 9indo4s M5 on its ne4
Intel$=ased i&ac and then post it online 1ree to i&ac users! D9ing1ieldE In such an
en(ironment* customer ser(ice merel. =ecomes the realiAation o1 recei(ing a little
more than e2pected! Although Apple emplo.s man. resources and capa=ilities to
support their primar. acti(ities Dhuman resources* suppl. procurement* etc!E* the
most strategicall. rele(ant 4ould =e Legal Ser(ices!
.egal &er,ices
#3
In a mar;et climate o1 constant change and inno(ation* it is ine(ita=le that the dri(e
to e2pand product and ser(ice o11erings 4ill su=ject Apple to patent and cop.right
in1ringement claims! The dispute o(er the Apple logo on its iTunes &usic Store*
1or e2ample* continues despite a pre(iousl. reached settlement 4ith 'eatles7 Apple
Corps Ltd! in "@@"! D)o4 Bones Ie4s4iresE 9hile such litigation as &icroso1t7s
9indo4s in1ringement on &ac OS patents has =een highl. pu=liciAed* use o1 legal
guidance to dri(e ac>uisition (ersus internal de(elopment strategies 1or such
products as Garage'and and i&usic ha(e pro(en highl. (alua=le!
&70T Analysis of Apple Inc:
Although participation in such acti(ities ma. add (alue* the. ma. not =e a source
o1 competiti(e ad(antage! Ultimatel.* the (alue* rarit.* inimita=ilit.* andSor
organiAation D0RIOE o1 an acti(it. or resource determine its sustaina=ilit. as a
source o1 competiti(e ad(antage! 9ithin this conte2t* 4e can identi1. a 1irm7s
strengths* 4ea;nesses* opportunities* and threats DS9OTE!
In S9OT anal.sis Strength and 9ea;nesses are depends on Internal 1actors and
Opportunities and Threats )epends on E2ternal 6actors o1 and OrganiAation!
S9OT anal.sis is use1ul in decision ma;ing a=out the organiAation going 1or an.
ne4 or e2isting project!
Apple &70T Analysis
&trengt/:
#<
• iTunes &usic Store is a e2cellent source o1 re(enue* especiall. 4ith the i5od
and the accessi=ilit. on 9indo4s plat1orm!
• Apple Computer are e2pert in )e(eloping o4n so1t4are and hard4are!
• Apple7s niche audience pro(ides the compan. 4ith some lagging 1rom the
direct price competition!
• Gi(ing a 1ace$li1t to des;top and note=oo; lines!
• technolog. can =e used to impro(e product a4areness and sales!
• Lo4 de=tTmore maneu(era=le!
• Apple Computers ha(e good =rand lo.alt.!
• Strong Research O )e(elopment )epartment!
7ea8nesses:
• 9ea; relationship 4ith Intel and &icroso1t!
• 9ea; presence in =usiness arena!
• The product li1e c.cle o1 Apple products are (er. small 1or that reasons
re(enues are more depend on launch o1 ne4 products and ser(ices!
• 9ea; presence in mar;ets other than education and pu=lishing!
• Slo4 turn around on high demand products!
• Apples mar;et share is 1ar =ehind 1rom major competitor &icroso1t!
• In past the relationship =et4een Ste(e jo=s and emplo.ee 4ere not good
4hich result in reputation loss!
0pportunities:
#8
• Increase in 4orms and (iruses on 5Cs so the anti(irus solution can =e
de(eloped =. Apple
• Large population DGen MOYE 4hich are e2tremel. indi(idualistic and name
=rand conscious!
• The ties o1 apple other companies are 4ea;* Apple can de(elop good
relationship 1or joint (entures
• )o4nloada=le music and &5+ pla.ers are highl. mar;eta=le!
• The online sales o1 computer are increasing 4ith rapid speed!
• The laptop mar;et gro4th is highK Apple Computers should 1ocus to de(elop
ne4 models to cater the need o1 customers!
T/reats:
• Companies not seeing Apple as compati=le 4ith their so1t4are!
• Apple 1acing strong competition 1rom )ell* -5* Son. and Toshi=a in laptop
segment!
• )o4nloading 1ree music 1rom other online source 4ithout pa.ing cost is
common it ma. impact the iTunes sales!
• Apple so1t4are* Cell phone and hard4are are e2pensi(e as compared to
other competitors such as )ell!
• The long lasting recession ma. impact the sales o1 the compan. due to
higher prices o1 the products and ser(ices
• &icroso1t launched &icroso1t 0ista* 9indo4s < 4hich is gaining mar;et
share!
• The s4itching in technolog. is (er. 1ast
#@
6C9 *odel of Apple Inc.
+%
'oston Consulting Group D'CGE model is a techni>ue de(eloped =. 'RUCE
-EI)ERSOI o1 the 'oston Consulting Group in earl. "@<%7s! According to this
techni>ue =usinesses or products are classi1ied as lo4 or high per1ormers
depending upon their mar;et gro4th rate and relati(e mar;et share! It is (er.
use1ul tool to identi1. the product line o1 an organiAation!
6C9 'odel classified in four 'ain categories are
1.: &tar ;.: Cas/ Co- .: <uestion *ar8 ".: Dog
+"
7/at is dri,ing *acintos/ acceptance=
Supporters agree that it is the productCs eas. to use graphic inter1ace! FOnce a user
sits do4n and 4or;s 4ith a &acintosh* the. ne(er go =ac; to an I'& 5ersonal
Computer*F proclaimed 5rice Collins* a programming manager at General Electric
Co! in 'ridgeport* Conn!The ease o1 use 1eatures translate into su=stantial sa(ings
1or man. corporations! F9e spend much less time training &acintosh users than
4e do training I'& microcomputer users*F noted 5earson at the Ie4 Yor; )ail.
Ie4s!
Studies comparing &acintosh and I'& microcomputer training costs 1ound that it
ta;es t4ice as long 1or an I'& user to learn ho4 to operate his machine and three
times longer 1or the user to understand ho4 to opeate a second application! A
sur(e. commissioned =. Apple 1ound the a(erage cost o1 training an I'& user 4as
J<3/ compared to J#@, 1or a &acintosh user!The &acintoshCs graphics capa=ilities
also o11er man. middle managers their o4n strategic 4eapons in the =attle 1or
upper managementCs attention!
FAn emplo.ee 4ill use a &acintosh to generate slides and charts 1or an important
presentation*F GECs Collins e2plained! FThe output is 1ar superior to an.thing
generated on an I'& microcomputer* so other managers immediatel. 4ant to
produce the same >ualit. output! ?uic;l.* use o1 &acintoshes spreads through the
compan.!F
+#
+e'o,ing 6arriers for 2sers
Anal.sts reported that another reason 1or acceptance 4as aggressi(e Apple actions!
FApple remo(ed =arriers that corporations erected to ;eep &acintoshes out o1
usersC hands*F said Richard ollme.er* the director o1 mar;eting and technical
ser(ices at The Support Group Inc!* a 9ellesle.* &ass!* microcomputer reseller!
FOne o1 the initial concerns 4as the ina=ilit. to run &S$)OS so1t4are on a
&acintosh! ?uic;l.* Apple deli(ered hard4are so users could run those
applications!F
To date* &acintoshes ha(e =een relegated to personal producti(it. tools in most
companies! F&ost users purchase a &acintosh to more e11icientl. do their o4n
4or;*F noted &ichael &asterson* a microcomputer s.stems specialist at Arthur
Young O Co! in San Bose* Cali1!
Users are primaril. 4or;ing 4ith traditional microcomputer applications* such as
spreadsheet and 4ord processing! -o4e(er* there are nuances in the t.pes o1
applications emplo.ed =. I'& 5C and &acintosh users!
Application Preferences
In a sur(e. o1 "*#"3 large companies Deach ha(ing more than /%% emplo.eesE*
)ata>uest Corp!* a mar;et research 1irm in San Bose* Cali1!* reported that 4ord
processing 4as the &acintoshCs most 4idel. used application$$named =. /,Q o1
respondents! Graphics applications 1ollo4ed 4ith ,3Q* and spreadsheets placed
third 4ith +8Q!On the I'& 5ersonal Computer* the response 4as as 1ollo4s: 3/Q
used spreadsheetsK /<Q* 4ord processingK and +/Q* data=ase management
s.stems! 6e4 o1 the companies that dominate the I'& microcomputer so1t4are
++
mar;et ha(e had much success pl.ing &acintosh 4ares! 6or e2ample* Lotus
)e(elopment Corp! o1 Cam=ridge* &ass!* and Ashton$Tate o1 Torrance* CAli1!*
ha(e had little success in the mar;et! The most nota=le e2ception* &icroso1t Corp!*
Redmond* 9ash!* o11ers the three =estselling applications: E2cel* a spreadsheetK
9ord* a 4ord processing pac;ageK and 9or;s* an integrated spreadsheet* 4ord
processing and data=ase application!
+,
AppleInsider reports on a research note 1rom '&O anal.st eith 'achman that
could ha(e =een 4ritten 1or CraA. Apple RumorsTi1 the. hadnCt gone ghost$site
on us! It turns out the success o1 the &ac in recent .ears isnCt =ecause o1 &ac OS
M* or Intel C5Us* or the i5od -alo E11ectK rather* itCs =ecause &icroso1t suc;s!
FThus 1ar* user satis1action ratings 1or 0ista ha(e =een 4ea;* and startup times 1or
0ista ha(e =een ;no4n to =e much slo4er than the &ac OS M*F 'achman sa.s!
FThus* more than /%Q o1 recent customers =u.ing &acs in Apple retail stores are
1irst$time =u.ers!F
9hile itCs great that the si2$1igure anal.st projects #!, to #!/ million &acs sold 1or
the >uarter just ended* his rationale is* 4ell* craA.! Setting aside the image o1 some
grandma dropping J#*3%% 1or a &ac'oo; Air 4ith SS)* thereCs nothing FrecentF
a=out hal1 o1 &ac =u.ers in Apple Stores =eing ne4 to the plat1orm! ItCs =een that
4a. since =e1ore 0ista 4as released!
6urther* as the chart =. the 1our$1igure anal.st clearl. sho4s* the surge in &ac
sales started around the time Apple transitioned to Intel C5Us! Ironicall.* one
could argue that &ac sales are rising =ecause o1 0ista* =ut not in the 4a. 'achman
suggests! 5rior to the release o1 Leopard and the discontinuation o1 'oot Camp as a
separate product* Apple reported huge do4nloads o1 the program that let &ac users
launch 9indo4s 0ista (er.* (er. slo4l.!
+/
Apple 6eats Co'petitors at In,entory Turn 0,er
)espite a 4ea;ening econom. and a need to meet customer demand* Apple has
=een a=le to maintain a 1ast in(entor. turno(er rate! The &ac and i5hone ma;er is
sitting at 1i(e da.s 4orth o1 in(entor. on an. gi(en da.* =eating )ellCs se(en da.s
4orth o1 in(entor.* according to data 1rom U'S!
Other 5C ma;ers are ha(ing e(en more trou=le matching AppleCs in(entor.
e11icienc.! Leno(o* 1or e2ample* is a(eraging "/ da.s o1 in(entor.* and -5 is
sitting at +# da.s! Intel* ho4e(er* is sho4ing a much slo4er in(entor. turno(er rate
at 8@ da.s* and )$Lin; is sitting on a staggering "+" da.s 4orth o1 in(entor.!
AppleCs >uic; turno(er rate ma. ha(e =een due in part to preparing 1or its just
announced i&ac* &ac mini and &ac 5ro updates! The compan. released ne4
des;top computer models on &arch +* and ;eeping in(entor. lo4 helped assure
that there 4ould =e 1e4er o1 the pre(ious model machines sitting on store shel(es!
9hile maintaining a higher in(entor. le(el can help a compan. cope 4ith sudden
increases in demand* it can also sho4 a compan.Cs ina=ilit. to ade>uatel. gauge
mar;et interest in their products! 6or no4* it loo;s li;e Apple is managing
in(entor. =etter than its competition!
IPod: T/e *ar8eting of an Idea Pro>ect
Apple7s i5od has ta;en the 4orld =. storm! Iearl. u=i>uitous* it has changed not
onl. the 4a. people listen to music* =ut it has trans1ormed its parent compan.
Apple into an entertainment giant! In order to understand ho4 this change came
a=out* 4e7ll ta;e a loo; at Apple7s ongoing e11orts to ma;e i5od s.non.mous 4ith
hip! 9e7ll also discuss e2actl. 4hat customers are =u.ing 4hen the. =u. an i5od*
and 4e 4ill ta;e a deep loo; at se(eral aspects o1 Apple7s mar;eting o1 this
+3
e2citing ne4 product* 1rom the i5od itsel1* Apple7s strategic planning* possi=le
research 1indings that supported their approach* segmentation strategies that ma.
ha(e =een emplo.ed and 4h.* as 4ell as pricing strateg. across these segments!
Li;e &agritte7s surrealist painting o1 a pipe 4ith the caption Ceci n7est pas une
pipe DThis is not a pipeE* the i5od is not merel. an &5+ pla.er! It is a s.m=ol
4hich encompasses man. grand ideasK ideas that in(ol(e 4orld change* and ho4
cool 4e all can =e i1 4e are part o1 that change! Apple7s care1ul and deli=erate
e2ploitation o1 this concept* comprising an entire mar;eting ecos.stem 4hich
nurtures that idea 4ill =e the su=ject o1 this paper! On Banuar. @th* 2010* Ste(e
Bo=s* reno4ned CEO o1 Apple* announced that the compan. 4hich he 1ounded
4ould no longer =e ;no4n as Apple Computer* Inc! Its ne4 name 4ould just =e
Apple* Inc!" This seemingl. tri(ial change represents a 1undamental shi1t 4ith
deep implications that 4ere the result o1 man. changes Apple had engineered o(er
the past si2 or se(en .earsK transitioning itsel1 1rom a computer compan. slugging
it out 1or a meager share o1 an increasingl. competiti(e hard4are and so1t4are
mar;et* to a =usiness that promoted an entirel. ne4 concept: the digital li1est.le!
'e1ore 4e dig do4n into 4hat this radical shi1t entailed* =oth 1or the compan. and
the 4orld* a compan. alread. 1irml. rooted in se(eral notions that allo4ed this
transition to ma;e sense! Apple made a name 1or itsel1 =. =eing instrumental in
ushering in the home 5C re(olution! 6or millions* Apple 4as single$handedl.
responsi=le 1or this re(olution =. (irtue o1 the 1act that it created radical ne4
1eatures such as 4indo4s$t.pe graphical user inter1aces* pull$do4n menus and
simpli1ied computer control (ia the mouse! The histor. o1 the 5C re(olution is a
histor. o1 4ar =et4een Apple* a num=er o1 losers that no one remem=ers an. more*
and archri(al &icroso1t 4ith its du=ious counterclaims o1 ha(ing pioneered the
concept o1 9indo4s! 6rustrating to an.one 4ho o4ned a &ac =ac; in the "@8%7s is
the ;no4ledge that Apple did indeed pioneer the 4indo4s metaphor as a distinct
+<
1eature o1 its operating s.stem! This 4as at a time 4hen &icroso1t users 4ere still
struggling 4ith te2t$=ased )OS commands* and .et the commercial success o1
&icroso1t has ser(ed to re4rite histor. to some degree! 'attles ensued o(er the
.ears* =ut no matter 4hose side .ou 4ere on* =. the late @%7s it 4as clear that
Apple 4as not gaining an. ground 4hatsoe(er as a computer and so1t4are
manu1acturer! In 1act due to man. e2ternal e(ents* Apple7s position 4as in clear
threat!
The leading de(ice at the time 4as Sonic=lue Rio0olt &5+ C) 5la.er* 4hich
retailed 1or less than J"%%! Creati(eCs Iomad Bu;e=o2 4as selling its recentl.
introduced 3G' hard dri(e 1or a=out J#/%* and e!)igital Corp! 4as touting its
4alloping "%G' palm$siAe Treo "% 1or J #,@ Treo! Against these contenders*
i5od7s J+@@ price tag 1or a mere / G' o1 storage doesn7t seem to ma;e sense"3!
Also* at this time* i5od 4as onl. compati=le 4ith &acs* 4hich amused 'ill Gates*
and continued to do so e(en as late as 2012 4hen USA toda. >uoted him as
sa.ing: I thin; .ou can dra4 parallels here 4ith the computer T here* too* Apple
4as once e2tremel. strong 4ith its &acintosh and graphic user inter1ace* li;e 4ith
the i5od toda.* and then lost its position!"< It is our contention that the initial
release o1 iTunes "!%* 4hich as noted 4as practicall. laughed at* 4as a Trojan
-orse that deli(ered >uite a =it o1 =usiness intelligence to Apple!
+8
Historical Perfor'ance
Although sales remained stagnant during "@@8$#%%#* sales more than
dou=led since Dsee graph =elo4E! This dramatic shi1t in per1ormance is primaril.
due to the increase in sales 1rom the i5od product line!
&toc8 Price Perfor'ance
+@
Another interesting 4a. to consider the 1inancial per1ormance is to e(aluate ho4
Apple7s stoc; price per1ormed against the mar;et and against its main competitors!
Apple7s per1ormance has =een inconsistent o(er the last #% .ears compared to the
SO5 /%%! It also has not per1ormed at the same le(el as its main competitors* )ell
and &icroso1t! -o4e(er* per1ormance impro(ed since then!
Profitability *easures
Apple su=stantiall. impro(ed in its ;e. measures o1 pro1ita=ilit. in the last 1e4
1iscal .ears! In terms o1 return on assets* return on e>uit. and pro1it margin* Apple
strengthened 1inanciall. and no4 has similar ratios to that o1 its competitors and
the o(erall computer hard4are industr. !
20
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(Buity
"!3+
Q
/!,,
Q
"<!88
Q
#8!/3Q 3<!+"
Q
+3!3"Q "@!3"Q
Profit
*argin
"!""
Q
+!++
Q
@!/8
Q
+"!/<Q 3!+@
Q
3!+3Q "+!</Q
PC( +atio ++!8@ ##!3+ "8!/" #3!+# ##!%@
In re(ie4ing Apple7s "
st
and #
nd
>uarter 2012 earnings releases* gross margins
dropped slightl.!Apple attri=utes this decline primaril. to price pressures*
especiall. in the i5od product line! D"
st
?uarter "%?E This 4ill continue to a11ect
per1ormance o(er time! -o4e(er* Apple7s a=ilit. to maintain the momentum it
=uilt in the mar;etplace 4ill control the speed 4ith 4hich erosion 4ill occur!
,%
.iBuidity and .e,erage *easures
Apple historicall. held (er. little long$term de=t! The ta=le =elo4 compares
Apple7s li>uidit. measures to their competitors* their industr.* and the general
mar;et! )uring the period o1 strong 1inancial per1ormance* Apple accumulated
cash! This strengthens Apple7s position should the. choose to access the capital
mar;ets!
20
09
20
10
20
12
*icrosoft
?1$
Dell
?1$
Industry
?1$
&@P
A$$
Current
+atio
#!/ #!3 + #!88 "!"" "!8" "!8#
<uic8
+atio
#!,< #!/@ #!@ #!8/ "!%8 "!,/ "!+"
,"
Product 2nit &ales
In the last se(eral .ears* there ha(e =een dramatic changes to Apple7s product sales
=. categor.! Apple =rea;s its unit sales into 1our primar. categories: des;tops*
note=oo;s* i5ods* and peripherals! The graph =elo4 sho4s the product mi2 1or
Apple in #%%#! Iote the domination =. des;tops and note=oo;s and the small
contri=ution =. i5ods!
Comparing the same graph* .ou see dramatic di11erences in the product mi2 1or
Apple! The i5od sales no4 account 1or +#!/Q compared to #!/Q 1or #%%#! The
com=ined sales o1 computers Ddes;topSnote=oo;E lost share* dropping 1rom <@Q to
,/Q o1 sales! This drop merel. represents a shi1t in Apple7s product mi2* not their
glo=al computer mar;et share D4hich remains sta=le in the #$+Q rangeE!
&ean4hile* sales o1 peripherals Dincluding 4ireless connecti(it. and net4or;ing
solutionsE* remained sta=le! D-oo(er7sE
,#
0perating &eg'ents
Apple =rea;s its sales into 1i(e Hoperating segmentsG! The chart =elo4 sho4s the
sales =. segment 1or each .ear #%%#$2012! On a percentage =asis* onl. the retail
segment appears to =e outper1orming the others!
Iet sales in the retail segment gre4 to J"/!+/ =illion in 2009! In the "
st
>uarter
2009* sales gro4th continued in the retail segment to J"!" =illion Da @"Q increase
o(er the same period last .earE! This increase 4as due to gro4th in the num=er o1
stores D1rom "%" to "+/E and to a ,"Q same$store sales gro4th! D"
st
?uarter "%?E
Although the retail segment 4as the onl. segment to realiAe gro4th as a percentage
o1 total sales* all o1 the segments had solid gro4th! In the Americas* sales
increased 3/Q and continued to represent appro2imatel. ,<Q o1 total 4orld4ide
sales! Sales in Bapan and Europe gre4 =. @#Q and ,<Q* respecti(el.! D"
st
?uarter
"%?E
,+
*ar8et %alue Analysis
9e used )iscounted Cash 6lo4 D)C6E anal.sis to assess the appropriate e>uit.
(alue o1 Apple! To complete this anal.sis* 4e de(eloped a pro$1orma income
statement and e2tracted 1ree cash 1lo4! 9e then discounted these cash 1lo4s using
a calculated 9eighted A(erage Cost o1 Capital D9ACCE! Apple7s 9ACC e>ualed
their cost o1 e>uit. since the. carr. no long$term de=t! 9e used the Capital Asset
5ricing &odel DCA5&E to calculate the cost o1 e>uit.!
CA5& consists o1 a ris;$1ree rate* a mar;et ris; premium* and a compan. 'eta!
The .ield on the "%$.ear Treasur. is the standard 1or a ris;$1ree rate! To determine
the mar;et ris; premium* 4e used the a(erage return that an in(estor 4ould re>uire
1or an in(estment 4ith a(erage ris;! 9e used data a(aila=le online to determine
Apple7s 'eta* projected to =e "!,3! The =elo4 chart summariAes Apple7s cost o1
e>uit.!
Cost of (BuityC7ACC Dote %alue
+is8 1ree +ate "% Yr Treasur. /!"#
*ar8et +is8 Pre'iu' DAnal.sisE ,
6eta 6rom Google "!,3
Ad>usted Apple +is8
Pre'iu'
/!8,
Cost of (BuityC7ACC "%!@3
,,
1inancial Analysis
Apple7s 1inancial per1ormance continued to strengthen o(er the last se(eral
>uarters! In the most recent earnings announcement* Apple reported signi1icant
gro4th in net re(enues dri(en =. the strong per1ormance o1 its i5od product line!
Iet sales 1or the #
nd
>uarter gre4 to J,!+3 =illion* 4hich is a +,Q increase o(er #
nd
quarter 2012 results! Iet income increased =. ,"Q to J,"% million!
The i5od product line continues to dri(e the 1inancial per1ormance o1 the compan.!
In the #
nd
>uarter alone* Apple sold 8!/ million i5ods* representing a 3"Q increase
o(er the /!+ million units sold in the #
nd
>uarter o1 the prior .ear! &ac sales
sho4ed slight gro4th o1 onl. ,Q!
Apple7s .ear$to$date re(enues total just o(er J"% =illion and earnings total just
under J" =illion! 6or the +
rd
>uarter* C6O 5eter Oppenheimer stated* HU4e e2pect
re(enue o1 a=out J,!# to J,!, =illionG 4hich 4ill push total sales a=o(e last term7s
annual num=ers!
,/
Apple ;$1; 1< financial analysis
#%"# April #/ 5osted =. admin under #%"# "? * Apple * Technolog. * USA
Apple #%"# "? results continues to impress! Re(enue has jumped 1rom #,*< =n!J
to +@*# =n!J or =. /@Q compared to #%"" ?"! -igh re(enue increase lead to e(en
more rapid Iet Income =e1ore depreciation increase! 9hich has risen 1rom 3*, =n!
J to "#*, =n!J or almost du==ed! This 4as lead =. slo4er re(enue cost DV,+QE and
operating cost increase DV+3QE then re(enue!
Companies sales =. geograph. is good! "S+ o1 sales are 1rom US and "S+ is 1rom
Asia 4hich are the regions 4ith highest estimated gro4th! Europe ta;es ##Q o1
sales! Asia sales has du==ed compared to last .ear so this mar;et has gro4n the
most! &ost o1 companies re(enue is generated =. i5hone /8Q 4hich sales has
increased =. V8/Q! &ost rise 4as in i5ad 4here re(enue has increased =. V"+#Q
and no4 contains "<Q o1 companies income* this is a de1iantl. income gro4th
segment 4hile &ac and special . i5od D$#/QE are the products o1 the past!
,3
According to http:SS444!netmar;etshare!com Apple share in mo=ile and ta=led
mar;ed has increased 1rom ,8Q to 3%Q and is =etter than its main competitors
Google Android* 4hich share has increased 1rom "/Q to "@Q! 'ut ne(er the less
=ig =attle is projected in the 1uture at this mar;ed =et4een Google and Apple
In general co'panies results are positi,e.
'alance sheet continue to =e (er. strong! E>uit. le(el has increased to 38Q! That
did not e11ect high return on E>uit. le(el 4hich is ,/Q at ?"! Since
compan. announced di(idend pa.ments and share repurchases companies E>uit.
should not increase in the 1uture! Li>uidit. ratio is "*3 4hich is good! Compan. has
cash surplus o1 ""% =n!J 4hich has increased 1rom @< =n!J 1rom ?,! Companies
in(entor. and Account recei(a=les are minimal so as lia=ilities!
,<
Io other major changes at the =alance sheet! In general co'panies balance
structure is strong.
&/are ,alue:
Co''on &toc8s ",*@ =n!J %*@+/ =n! "/*@ J
V Retained earnings 8<*" =n!JV @+*# J 1$9#1 E
V " .ear Iet income =e1ore )epreciation
,"*" =n!J
D/# =n!JE
V ,,*% J
DV//*3 JE
1A#1 E
Companies share =asic (alue is F1$9E (?+13,5%/!" #ompare$ %ith
&'() Current mar;et price is W61$E (?+1*,1%/5''"() 4hich sho4s that mar;et
is pa.ing W/%%J more or ""*, .ears o1 Iet income =e1ore )epreciation earnings*
4hich sho4s that companies shares are a =it o(er e(aluated! I1 calculating Iet
income =e1ore )epreciation according to last >uarter .earl. earnings should =e
around /# =n!JS.ear D"+ =n!S>uarterE or //*3JSshare 4hich ma;es it F9 year* ne(er
the less indicator is >uit high! Share pro1ita=ilit. DShare mar;et priceSIet income
=e1ore )epreciationE i1 calculating projected income D/# =n!JS.earE is 9#1G 4hich
is a =it o(er a(erage!
,8
Annual Inco'e state'entH,alue in $$$3s: 9et <uarterly Data
Period (nding: Trend 9C;9C;$1; 9C;"C;$11 9C;AC2009 9C;6C;$$9
Total Re(enue J"/3*/%8*%%% J"%8*#,@*%%% J3/*##/*%%% J,#*@%/*%%%
Cost o1 Re(enue J8<*8,3*%%% J3,*,+"*%%% J+@*/,"*%%% J#/*38+*%%%
Gross 5ro1it J38*33#*%%% J,+*8"8*%%% J#/*38,*%%% J"<*###*%%%
0perating ()penses
Research and
)e(elopment
J+*+8"*%%% J#*,#@*%%% J"*<8#*%%% J"*+++*%%%
Sales* General and
Admin!
J"%*%,%*%%% J<*/@@*%%% J/*/"<*%%% J,*",@*%%%
Ion$Recurring Items J% J% J% J%
Other Operating
Items
J% J% J% J%
,@
0perating Inco'e J//*#,"*%%% J++*<@%*%%% J"8*+8/*%%% J""*<,%*%%%
AddCl
incomeSe2pense
items
J/##*%%% J,"/*%%% J"//*%%% J+#3*%%%
Earnings 'e1ore
Interest and Ta2
J//*<3+*%%% J+,*#%/*%%% J"8*/,%*%%% J"#*%33*%%%
Interest E2pense J% J% J% J%
Earnings 'e1ore Ta2 J//*<3+*%%% J+,*#%/*%%% J"8*/,%*%%% J"#*%33*%%%
Income Ta2 J",*%+%*%%% J8*#8+*%%% J,*/#<*%%% J+*8+"*%%%
&inorit. Interest J% J% J% J%
E>uit. EarningsSLoss
Unconsolidated
Su=sidiar.
J% J% J% J%
Iet Income$Cont!
Operations
J,"*<++*%%% J#/*@##*%%% J",*%"+*%%% J8*#+/*%%%
/%
Iet Income J,"*<++*%%% J#/*@##*%%% J",*%"+*%%% J8*#+/*%%%
Iet Income
Applica=le to
Common
Shareholders
J,"*<++*%%% J#/*@##*%%% J",*%"+*%%% J8*#+/*%%%
&tate'ent
6t H,alues in $$
Period (nding: Trend 9C;9C;$1; 9C;"C;$11 9C;AC2009 9C;6C;$$9
Current Assets
Cash and Cash
E>ui(alents
J"%*<,3*%%% J@*8"/*%%% J""*#3"*%%% J/*#3+*%%%
Short$Term
In(estments
J"8*+8+*%%% J"3*"+<*%%% J",*+/@*%%% J"8*#%"*%%%
Iet Recei(a=les J#"*#</*%%% J"+*<+"*%%% J""*/3%*%%% J3*"@#*%%%
/"
In(entor. J<@"*%%% J<<3*%%% J"*%/"*%%% J,//*%%%
Other Current Assets J3*,/8*%%% J,*/#@*%%% J+*,,<*%%% J"*,,,*%%%
Total Current Assets J/<*3/+*%%% J,,*@88*%%% J,"*3<8*%%% J+"*///*%%%
.ongITer' Assets
Long$Term
In(estments
J@#*"##*%%% J//*3"8*%%% J#/*+@"*%%% J"%*/#8*%%%
6i2ed Assets J"/*,/#*%%% J<*<<<*%%% J,*<38*%%% J#*@/,*%%%
Good4ill J"*"+/*%%% J8@3*%%% J<,"*%%% J#%3*%%%
Intangi=le Assets J,*##,*%%% J+*/+3*%%% J+,#*%%% J#,<*%%%
Other Assets J/*,<8*%%% J+*//3*%%% J#*#3+*%%% J#*%""*%%%
/#
)e1erred Asset
Charges
J% J% J% J"*<#<*%%%
Total Assets J"<3*%3,*%%% J""3*+<"*%%% J</*"8+*%%% J,<*/%"*%%%
Current .iabilities
Accounts 5a.a=le J+#*/8@*%%% J#+*8<@*%%% J"<*<+8*%%% J@*,/+*%%%
Short$Term )e=t S
Current 5ortion o1
Long$Term )e=t
J% J% J% J%
Other Current
Lia=ilities
J/*@/+*%%% J,*%@"*%%% J#*@8,*%%% J#*%/+*%%%
Total Current
Lia=ilities
J+8*/,#*%%% J#<*@<%*%%% J#%*<##*%%% J""*/%3*%%%
Long$Term )e=t J% J% J% J%
/+
Other Lia=ilities J"3*33,*%%% J"%*"%%*%%% J/*/+"*%%% J+*/%#*%%%
)e1erred Lia=ilit.
Charges
J#*3,8*%%% J"*383*%%% J"*"+@*%%% J8/+*%%%
&isc! Stoc;s J% J% J% J%
&inorit. Interest J% J% J% J%
Total Lia=ilities J/<*8/,*%%% J+@*</3*%%% J#<*+@#*%%% J"/*83"*%%%
&toc8 Holders
(Buity
Common Stoc;s J"3*,##*%%% J"+*++"*%%% J"%*338*%%% J8*#"%*%%%
Capital Surplus J% J% J% J%
Retained Earnings J"%"*#8@*%%% J3#*8,"*%%% J+<*"3@*%%% J#+*+/+*%%%
/,
Treasur. Stoc; J% J% J% J%
Other E>uit. J,@@*%%% J,,+*%%% DJ,3*%%%E J<<*%%%
Total E>uit. J""8*#"%*%%% J<3*3"/*%%% J,<*<@"*%%% J+"*3,%*%%%
Total Lia=ilities O
E>uit.
J"<3*%3,*%%% J""3*+<"*%%% J</*"8+*%%% J,<*/%"*%%%
http:SS444!nasda>!comSs.m=olSaaplS1inancials:>uer.XratiosYi2AA#0(#;j
Period (nding: Trend 9C;9C;$1; 9C;"C;$11 9C;AC2009 9C;6C;$$9
//
Iet Income J,"*<++*%%% J#/*@##*%%% J",*%"+*%%% J8*#+/*%%%
Cas/ 1lo-sI
0perating
Acti,ities
)epreciation J+*#<<*%%% J"*8",*%%% J"*%#<*%%% J<+,*%%%
Iet Income
Adjustments
J3*",/*%%% J,*%+3*%%% J#*+"@*%%% J"*</%*%%%
C/anges in
0perating
Acti,ities
Accounts
Recei(a=le
DJ3*@3/*%%%E DJ"*<@"*%%%E DJ,*83%*%%%E DJ+/+*%%%E
Changes in
In(entories
DJ"/*%%%E J#</*%%% DJ/@3*%%%E J/,*%%%
Other Operating
Acti(ities
DJ+*"3#*%%%E DJ"*+@"*%%%E DJ"*3"%*%%%E DJ<"+*%%%E
Lia=ilities J@*8,+*%%% J8*33,*%%% J8*+%#*%%% J,/#*%%%
/3
Iet Cash 6lo4$
Operating
J/%*8/3*%%% J+<*/#@*%%% J"8*/@/*%%% J"%*"/@*%%%
Cas/ 1lo-sI
In,esting
Acti,ities
Capital
E2penditures
DJ8*#@/*%%%E DJ,*#3%*%%%E DJ#*%%/*%%%E DJ"*",,*%%%E
In(estments DJ+8*,#<*%%%E DJ+#*,3,*%%%E DJ""*%</*%%%E DJ"3*%,3*%%%E
Other In(esting
Acti(ities
DJ"*/%/*%%%E DJ+*3@/*%%%E DJ<<,*%%%E DJ#,,*%%%E
Iet Cash 6lo4s$
In(esting
DJ,8*##<*%%%E DJ,%*,"@*%%%E DJ"+*8/,*%%%E DJ"<*,+,*%%%E
Cas/ 1lo-sI
1inancing
Acti,ities
Sale and
5urchase o1
J33/*%%% J8+"*%%% J@"#*%%% J,</*%%%
/<
Stoc;
Iet 'orro4ings J% J% J% J%
Other 6inancing
Acti(ities
DJ"*##3*%%%E DJ/#%*%%%E DJ,%3*%%%E DJ8#*%%%E
Iet Cash 6lo4s$
6inancing
DJ"*3@8*%%%E J"*,,,*%%% J"*#/<*%%% J33+*%%%
E11ect o1
E2change Rate
J% J% J% J%
Iet Cash 6lo4 J@+"*%%% DJ"*,,3*%%%E J/*@@8*%%% DJ3*3"#*%%%E
An
Period (nding: Trend 9C;9C;$1; 9C;"C;$11
9C;AC200
9
9C;6C;$$9
.iBuidity +atios
Current Ratio "/%Q "3"Q #%"Q #<,Q
?uic; Ratio ",8Q "/8Q "@3Q #<%Q
Cash Ratio <3Q @+Q "#,Q #%,Q
Profitability +atios
Gross &argin ,,Q ,%Q +@Q ,%Q
Operating &argin +/Q +"Q #8Q #<Q
5re$Ta2 &argin +3Q +#Q #8Q #8Q
5ro1it &argin #<Q #,Q #"Q "@Q
5re$Ta2 ROE ,<Q ,/Q +@Q +8Q
A1ter Ta2 ROE
+/Q
+,Q #@Q #3Q
/8
Income Statement D(alues i %%%Cshttp:SS444!nasda>!comSs.m=olSaaplS1inancials:
>uer.Xincome$statementYi2AA#0("&Z.Y,
ProI1or'a Inco'e &tate'ent
6irm made se(eral ;e. assumptions in compiling a pro$1orma income statement!
6irst* to complete the estimate 1or the 2009 data*Compan. merel. annualiAed the
earnings 1or the 1irst t4o >uarters! The. then projected a declining rate o1 gro4th
in sales 1or the ne2t 1our 1iscal terms o1 +%Q* #%Q* "/Q* and "%Q* respecti(el.!
9e do not =elie(e that the gro4th in i5ods is sustaina=le 1or the long$term! The.
also used the percent$o1$sales method to calculate cost o1 goods sold* research O
de(elopment* SGOA* and interest!As applied the 2012 ta2 rate 1or all 1uture
periods! As the ta=le =elo4 sho4s* the mid$term earnings gro4th is positi(e!
Pro>ected 1ree Cas/ 1lo- and (Buity %aluation
Apple 4ill continue 4ithout long$term de=t! There 4ill =e no signi1icant changes
in capital e2penditures and net 4or;ing capital! Thus* 1ree cash 1lo4 4ill e>ual net
income plus depreciation! Gi(en 9ACC* 4e are a=le to discount cash 1lo4s =ac;
/@
using hal1$.ear 50 1actors D4e are through the 1irst hal1 o1 #%%@E!Calculated
terminal (alue using a perpetual annual gro4th rate o1 <Q* 4hich is slightl. a=o(e
the industr. gro4th rate o1 /!3Q!
Gi(en intrinsic e>uit. (alue* 4e estimate the per share stoc; price! Gi(en their
particular mar;et condition* Apple appears under(alued!
(Buity %alue
Total &/ares H$$$?s: 8,83"#
%alue H$$$?s: <"3#@%%%
%alueC&/are J8,
Current Price J<"!8@
&trategy
6irm can descri=e Apple7s strateg. in terms o1 product di11erentiation and strategic
alliances! In each o1 these strategies* 4e e2amine 4hat Apple did historicall. and
then discuss alternati(es 1or Apple7s 1uture!
Product Differentiation
Apple prides itsel1 on its inno(ation! 9hen re(ie4ing the histor. o1 Apple* it is
e(ident that this attitude permeated the compan. during its pea;s o1 success! 6or
instance* Apple pioneered the 5)A mar;et =. introducing the Ie4ton in "@@+!
3%
Later* Apple introduced the eas.$to$use i&ac in "@@8* and updates 1ollo4ing "@@8!
It released a highl. sta=le operating s.stem in "@@@* and updates 1ollo4ing "@@@!
Apple had one o1 its critical points in histor. in "@@@ 4hen it introduced the i'oo;!
This completed their Hproduct matri2G* a simpli1ied product mi2 strateg.
1ormulated =. Bo=s! This mo(e allo4ed Apple to ha(e a des;top and a porta=le
computer in =oth the pro1essional and the consumer segments! The matri2 is as
1ollo4s:
In #%%"* Apple hit another important historical point =. launching iTunes! This
mar;ed the =eginning o1 Apple7s ne4 strateg. o1 ma;ing the &ac the hu= 1or the
Hdigital li1est.leG! Apple then opened its o4n stores* in spite o1 protests =.
independent Apple retailers (oicing canni=aliAation concerns! Then Apple
introduced the i5od* central to the Hdigital li1est.leG strateg.! 5hilip 9! Schiller*
05 o1 9orld4ide 5roduct &ar;eting 1or Apple* stated* Hi5od is going to change
the 4a. people listen to music!G -e 4as right!
Apple continued their inno(ati(e strea; 4ith ad(ancements in 1lat$panel LC)s 1or
des;tops in #%%# and impro(ed note=oo;s in #%%+! In #%%+* Apple released the
iLi1e pac;age* containing impro(ed (ersions o1 i)0)* i&o(ie* i5hoto* and iTunes!
In re1erence to Apple7s recent ad(ancements* Bo=s said* H9e are going to do 1or
digital creation 4hat &icroso1t did 1or the o11ice suite producti(it.!G That is indeed
a =old statement! Time 4ill tell 4hether that happens!
Apple continued its digital li1est.le strateg. =. launching iTunes &usic Store
online in #%%+* o=taining cooperation 1rom HThe 'ig /G &usic companiesT'&G*
E&I* Son. Entertainment* Uni(ersal* 9arner! This allo4ed iTunes &usic Store
online to o11er o(er #%%*%%% songs at introduction! In #%%+* Apple released the
4orld7s 1astest 5C D&ac G/E* 4hich had dual #!%G-A 5o4er5C G/ processors!
3"
5roduct di11erentiation is a (ia=le strateg.* especiall. i1 the compan. e2ploits the
conceptual distinctions 1or product di11erentiation! Those that are rele(ant to Apple
are product 1eatures* product mi2* lin;s 4ith other 1irms* and reputation! Apple
esta=lished a reputation as an inno(ator =. o11ering an arra. o1 eas.$to$use
products that co(er a =road range o1 segments! -o4e(er* its lin;s 4ith other 1irms
ha(e =een limited* as 4e 4ill discuss in the ne2t section on strategic alliances!
There is economic (alue in product di11erentiation* especiall. in the case o1
monopolistic competition! The primar. economic (alue o1 product di11erentiation
comes 1rom reducing en(ironmental threats! The cost o1 product di11erentiation
acts as a =arrier to entr.* thus reducing the threat o1 ne4 entrants! Iot onl. does a
compan. ha(e to =ear the cost o1 standard =usiness* it also must =ear the costs
associated 4ith o(ercoming the di11erentiation inherent in the incum=ent! Since
companies pursue niche mar;ets* there is a reduced threat o1 ri(alr. among
industr. competitors!
A compan.7s di11erentiated product 4ill appear more attracti(e relati(e to
su=stitutes* thus reducing the threat o1 su=stitutes! I1 suppliers increase their
prices* a compan. 4ith a di11erentiated product can pass that cost to its customers*
thus reducing the threat o1 suppliers! Since a compan. 4ith a di11erentiated
product competes as a >uasi$monopol. in its mar;et segment* there is a reduced
threat o1 =u.ers! 9ith all o1 5orter7s 6i(e 6orces lo4er* a compan. ma. see
economic (alue 1rom a product di11erentiation strateg.!
A compan. attempts to ma;e its strateg. a sustained competiti(e ad(antage! 6or
this to occur* a product di11erentiation strateg. that is economicall. (alua=le must
also =e rare* di11icult to imitate* and the compan. must ha(e the organiAation to
e2ploit this! I1 there are 1e4er 1irms di11erentiating than the num=er re>uired 1or
3#
per1ect competition d.namics* the strateg. is rare! I1 there is no direct* eas.
duplication and there are no eas. su=stitutes* the strateg. is di11icult to imitate!
There are 1our primar. organiAing dilemmas 4hen considering product
di11erentiation as a strateg.!
To resol(e these dilemmas* there must =e an appropriate organiAation structure! A
U$6orm organiAation resol(es the inter$1unctional colla=oration dilemma i1 there
are product de(elopment and product management teams! Com=ining the old 4ith
the ne4 resol(es the connection to the past dilemma! -a(ing a polic. o1
e2perimentation and a tolerance 1or 1ailure resol(es the commitment to mar;et
(ision dilemma! &anagerial 1reedom 4ithin =road decision$ma;ing guidelines
4ill resol(e the institutional control dilemma!
6i(e leadership roles 4ill 1acilitate the inno(ation process: Institutional Leader*
Critic* Entrepreneur* Sponsor* and &entor! The institutional leader creates the
organiAational in1rastructure necessar. 1or inno(ation! This role also resol(es
disputes* particularl. among the other leaders! The critic challenges in(estments*
goals* and progress! The entrepreneur manages the inno(ati(e unitDsE! The
sponsor procures* ad(ocates* and champions! The mentor coaches* counsels* and
ad(ises!
Apple had issues 4ithin its organiAation! In "@@<* 4hen Apple 4as see;ing a CEO
accepta=le to Bo=s* Bean$Louis Gass[e Dthen$CEO o1 'e* e2$5roducts 5resident at
AppleE commented* HRight no4 the jo= is so di11icult* it 4ould re>uire a =ise2ual*
=lond Bapanese 4ho is #/ .ears old and has "/ .ears7 e2perience\G Charles
-aggert.* then$CEO o1 9estern )igital* said* HApple is a compan. that still has
opportunit. 4ritten all o(er it! 'ut .ou7d need to recruit God to get it done!G
&ichael &urph.* then$editor o1 Cali1ornia Technolog. Stoc; Letter* stated* HApple
3+
desperatel. needs a great da.$to$da. manager* (isionar.* leader and politician! The
onl. person 4ho7s >uali1ied to run this compan. 4as cruci1ied #*%%% .ears ago!GTo
continue a product di11erentiation strateg.* Apple must continue its appropriate
management o1 inno(ation dilemmas and maintain the 1i(e leadership roles that
1acilitate the inno(ation process!
&trategic Alliances
Apple has a histor. o1 shunning strategic alliances! On Bune #/* "@8/* 'ill Gates
sent a memo to Bohn Sculle. Dthen$CEO o1 AppleE and Bean$Louis Gass[e Dthen$
5roducts 5residentE! Gates recommended that Apple license &acintosh technolog.
to +$/ signi1icant manu1acturers* listing companies and contacts such as ATOT*
)EC* Te2as Instruments* -e4lett$5ac;ard* Mero2* and &otorola! DLinAma.er* #,/$
8E A1ter not recei(ing a response* Gates 4rote another memo on Bul. #@* naming
three other companies and stating* HI 4ant to help in an. 4a. I can 4ith the
licensing! 5lease gi(e me a call!G In "@8<* Sculle. re1used to sign licensing
contracts 4ith Apollo Computer! -e 1elt that up$and$coming ri(al Sun
&icros.stems 4ould o(erta;e Apollo Computer* 4hich did happen!
Then* Sculle. and &ichael Spindler DCOOE partnered Apple 4ith I'& and
&otorola on the 5o4er5C chip! Sculle. and Spindler 4ere hoping I'& 4ould =u.
Apple and put them in charge o1 the 5C =usiness! That ne(er came to 1ruition*
=ecause Apple D4ith Spindler as the CEOE seemed contradictor. and 4as
e2traordinaril. di11icult in =usiness dealings! Apple turned the corner in "@@+!
Spindler =egrudgingl. licensed the &ac to 5o4er Computing in "@@+ and to
Radius D4ho made &ac monitorsE in "@@/! -o4e(er* Spindler ni2ed Gate4a. in
"@@/ due to canni=aliAation 1ears! Gil Amelio* an a(id supporter o1 licensing* too;
3,
o(er as CEO in "@@3! Under Amelio* Apple licensed to &otorola and I'&! In
"@@3* Apple announced the J,#< million purchase o1 IeMT So1t4are* mar;ing the
return o1 Ste(e Bo=s! Amelio suddenl. resigned in "@@<* and the stage 4as set 1or
Bo=s to resume po4er!
Bo=s despised licensing* calling cloners HleechesG! -e pulled the plug* essentiall.
;illing its largest licensee D5o4er ComputingE! Apple su=se>uentl. ac>uired
5o4er Computing7s customer data=ase* &ac OS license* and ;e. emplo.ees 1or
J"%% million o1 Apple stoc; and J"% million to co(er de=t and closing costs! The
=usiness 4as 4orth J,%% million!
There is economic (alue in strategic alliances! In the case o1 Apple* there 4as the
opportunit. to manage ris; and share costs 1acilitate tacit collusion * and manage
uncertaint.! It 4ould ha(e =een applica=le to the industries in 4hich Apple
operated! Tacit collusion is a (alid source o1 economic (alue in net4or; industries*
4hich the computer industr. is! &anaging uncertaint.* managing ris;* and sharing
costs are sources o1 economic (alue in an. industr.! Although Apple e(entuall.
realiAed the economic (alue o1 strategic alliances* it should ha(e occurred earlier!
The 1ollo4ing are some comments a=out Apple7s no$licensing polic.!
HI1 Apple had licensed the &ac OS 4hen it 1irst came out* 9indo4 4ouldn7t e2ist
toda.!GTBon (an 'ron;horst* HThe computer 4as ne(er the pro=lem! The
compan.7s strateg. 4as! Apple sa4 itsel1 as a hard4are compan.K in order to
protect our hard4are pro1its* 4e didn7t license our operating s.stem! 9e had the
most =eauti1ul operating s.stem* =ut to get it .ou had to =u. our hard4are at t4ice
the price! That 4as a mista;e! 9hat 4e should ha(e done 4as calculate an
appropriate price to license the operating s.stem! 9e 4ere also na](e to thin; that
3/
the =est technolog. 4ould pre(ail! It o1ten doesn7t!GTSte(e 9oAnia;* Apple
co1ounder
HI1 4e had licensed earlier* 4e 4ould =e the &icroso1t o1 toda.!GTIan 9! )ier.*
Apple E2ecuti(e 05* I am a4are that I am ;no4n as the Great Satan on licensingU
I 4as ne(er 1or or against licensing! I just did not see ho4 it 4ould ma;e sense!
'ut m. approach 4as stupid! 9e 4ere just 1at cats li(ing o11 a =usiness that had
no competition!GTBean$Louis Gass[e* 'e CEO and e2$CEO o1 Apple* admitting
he made a strategic mista;e
A strategic alliance can =e a sustained competiti(e ad(antage i1 it is rare* di11icult
to imitate* and the compan. has an organiAation to e2ploit it! I1 the num=er o1
competing 1irms implementing a similar strategic alliance is relati(el. 1e4* the
strateg. is rare! I1 there are sociall. comple2 relations among partners and there is
no direct duplication* the strateg. is di11icult to imitate! 9hen organiAing 1or
strategic alliances* a 1irm must consider 4hether the alliance is non$e>uit. or
e>uit.! A non$e>uit. alliance should ha(e e2plicit contracts and legal sanctions!
An e>uit. alliance should ha(e contracts descri=ing the e>uit. in(estment! There
are some su=stitutes 1or an e>uit. alliance* such as internal de(elopment and
ac>uisitions! -o4e(er* the di11iculties 4ith these dri(e the 1ormation o1 strategic
alliances! It is (ital to remem=er* HCommitment* coordination* and trust are all
important determinants o1 alliance success!G
Apple a,oids co'petition
I1 .ou loo; at the histor. o1 Apple* .ouCll see that instead o1 rising to competition*
the. o1ten ignore it* or tr. to use legal means* or =undling clout* to erase it!
33
9hen challenged =. a larger mar;et 1orce* as 4ith the I'& 5C and its clones in
the earl. 8%s* and 4ith 9indo4s +!%* @/ and then IT ,!% in the @%s* the. miss
o=(ious mar;eting opportunities* 4a.s to ma;e their products stronger =.
participating in mar;ets that others de(elop! This is an art that &icroso1t has
mastered* thereCs no reason Apple couldnCt ha(e learned the same lessons* =ut the.
didnCt!
And 4hen dealing 4ith smaller competitors* Apple routinel. and o1ten
unconsciousl. 1orced them out o1 =usiness =. =undling* or declaring that the. 4ill
=undle a competiti(e o11ering!
9hen the Internet happened* Apple struggled against it instead o1 em=racing it*
pre1erring to in(est in technologies that e(entuall. ended up on the scrap heap! A
4asted lead in content de(elopment* de(elopers going to 9indo4s* a poor Ba(a
implementation on the &ac!
The =ottom line* the strateg. o1 a(oiding competition has =een disastrous 1or
Apple! 'ut the. 4ant to do it again!
+he same ol$ strategy
The cloners* &otorola* 5o4er Computing* U&AM* I'& and others* are poised to
ship products that 4ould ta;e Apple out o1 the hard4are =usiness* =ecause the.Cre
cheaper* 1aster* =igger* more po4er1ul machines than AppleCs ne4 products! These
are the computers that &ac users 4ant and are* in m. opinion* entitled to!
E(en though 4e ha(enCt seen the license agreements 4ith the cloners* it appears
that Apple has the contractual right to 1or=id them to ship the computers* 1or an.
3<
reason at all! Apple 4ants to ;eep their hard4are =usiness* so the. e2ercise that
right!
I despise companies that use hard=all tactics to put their competitors out o1
=usiness! I admire companies that rise to competition! I happil. =u. ne4 products
4hen I ha(e a choice! I donCt li;e to =u. products that ICm 1orced to =u.!
,s it a ni#e -usiness.
I1 .ou donCt ha(e an.one to compare 4ith* i1 .ou arenCt su=ject to customer choice*
.our product loses direction* .ou 1ocus in4ard* and e(entuall. Das no4 1or
AppleE .our interests =ecome out o1 s.nch 4ith the interests o1 .our
customers!
6ocus on that 1or a moment! A compan. 4hose interests are against their
customers! Is that a nice =usiness: )oes it ha(e much o1 a 1uture:
,s it legal.
The customerCs interest here is clearl. ser(ed =. competition! The usual =ene1its
appl. $$ lo4er prices* more realistic con1igurations* more di(ersit.!
AppleCs complaint that the cloners 4erenCt gro4ing the mar;et can =e e2plained =.
AppleCs licensing polic. that ;ept them 1rom ma;ing 1undamentall. di11erent
products than Apple! 9hereCs the cheap su=$note=oo; &ac: 9hereCs the handheld
&ac: The &ac =uilt into the dash=oard o1 m. car: Apple 4ouldnCt let the cloners
ma;e these products! Apple is an economic disaster area! The. 4ant &ac users to
put all their eggs in AppleCs crum=ling =as;et!
38
+(C0**(DDATI0D&:
1or Co'pany
• Lo4ering the cost o1 products and maintaining the same >ualit. standards!
• Can 1orm joint L (entures!
• no4ledge &anagement!
• &ore num=er o1 retail stores 1or eas. access!
• Continuous inno(ation to e2pand!
1or 0t/ers
• )o not compromise on price 1or >ualit.!
• Choose the products =ased on indi(idual needs!
• 'e uni>ue and di11erent!
3@
Conclusion
I 1eel that Apple must 1ocus on se(eral ;e. aspects to continue to gro4 and
succeed! The. must continue a sta=le commitment to licensing* push 1or economies
o1 scope =et4een media and computers* and =ecome a learning organiAation!
Although it should continue* Apple ma. 4ant to consider other 1orms o1 strategic
alliances! An e>uit. strategic alliance ma. o11er Apple the opportunit. to o=tain
additional competencies! An e11ecti(e 4a. 1or a compan. li;e Apple to accomplish
this 4ould =e in the 1orm o1 a joint (enture!
Apple should continue pushing the ne4 line o1 media$centric products! &ean4hile*
Apple should not lose 1ocus on its computers! &acintosh computers 4ere /@Q o1
Apple7s sales in #%"#! D'urro4sEThis (er. inno(ati(e compan. e2ploits its second$
mo(er position! In the 1uture* the. 4ill need to continue inno(ating to e2pand the
=oundaries o1 =oth media and computers!
Apple apparentl. made a commitment to licensing! Although it should continue*
Apple ma. 4ant to consider other 1orms o1 strategic alliances! An e>uit. strategic
alliance ma. o11er Apple the opportunit. to o=tain additional competencies! An
e11ecti(e 4a. 1or a compan. li;e Apple to accomplish this 4ould =e in the 1orm o1
a joint (enture!Apple should continue push 1or economies o1 scope =et4een media
and computers* and =ecome a learning organiAation* pushing the ne4 line o1
<%
media$centric products! This (er. inno(ati(e compan. e2ploits its second$mo(er
position! In the 1uture* the. 4ill need to continue inno(ating to e2pand the
=oundaries o1 =oth media and computers!This 4ill allo4 the compan. to 4ithstand
a departure =. Bo=s! 'ased on the actions o1 the organiAation* 4e 1eel that the mid$
term per1ormance o1 Apple 4ill =e strong! This period allo4s Apple time to
o(ercome their challenges i1 the. mo(e s4i1tl.! 6or this reason* 4e 1eel that the.
4ill continue to succeed and 4ill continue to outper1orm their peers!
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<"
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on Io(em=er #@* #%"%! Retrie(ed Io(em=er #@* #%"%!
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1lo4Yi2AA#0(#cutjL
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sheetYi2AA#0(#63><2
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doc_779483233.doc