Project 4 Sem 3 Danda Yoga Krishna

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SEMESTER III

Project IV Report

On

STRATEGIC & MARKETING AUDIT OFAPPLE INC.

Danda Yoa Kr!"#na

PRN$ %%'

UNDER T(E GUIDANCE OF

Dr) *)R) +ond#e


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EXECUTIVE SUMMARY

This report is a marketing audit on Apple Inc. Apple Inc., is a major

manufacturer of personal computers and other digital devices,

including the popular digital music player, the iPod, and the online

music service known as the iTunes Music Store. ith head!uarters in"upertino, "alifornia, Apple designs, produces, and sells personal

computer systems for use in #usiness, education, government, and the

home. It also creates its own operating system software, server

software, and orld ide e# #rowser. In addition to these products,

Apple also makes printers, monitors, scanners, a cell phone, a digital

video system, e# services, and networking products. Apple also

operates a chain of retail outlets. The "ompany$s customers are

primarily in the consumer, SM%, education, enterprise, government

and creative markets. Apple has no set geographic target area inparticular. %y leveraging the e&pansive reach of the internet and

multiple distri#ution channels, Apple serves #oth domestic and

international markets. The market demographics served #y Apple are'

(. Middle)*pper income people who can and are willing to pay a #it

more for a #etter user e&perience+ . Individuals in a profession that

re!uire high-powered computing performance and e&pansion

capa#ilities, networking functionality, and seamless integration with

complementary products, such as professionals in media and design+

. Music enthusiasts and fans especially #etween the ages (-/+ 0.

People who like to have fun with technology.

Swot Analysis'

Strengths'(. Strong %rand 1!uity. Successful #usiness model. *ni!ue 2etailing Strategy0. The Apple 3alo 14ect/. 1&pansive opportunities due tonew focus.

eakness'(. *ncertain health of Steve 5o#s.. eak #rand in emerging markets.. 6ulnera#le to ac!uisition.0. 2umours of faulty products./. Apple T6 less promising

7pportunities'(. Strategic relation with 8ike.. 9ess e&pensive new productlines.. Multiple streams of revenue.

Threats'(. 3igh level of competition.. Su#stitution e4ect.. 6ulnera#le to leaks and law suits.0. "anni#ali:ation of IPod #y IPhone.

Major "ompetitors'


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Against the Mac' 3P, ;ell

Against the IPod' "reative$s


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features like user interface andinternet connectivity.- Strong #rand image and packagingthat has won various designdistinction awards

Ipod Shu@e-(%' A1; (BB+ %'A1; BBIpod 8ano-C' A1; D0B+ (D%' A1;C0BIpod "lassic-(E%' A1; (,EBB

Ipod Touch-C%' A1; BBB+ (D%'A1;(BB+ %' A1;(0BBPromotions'Apple through A%M, theirindependent marketing companyhas used many promotionalstrategies successfully such asadvertisements in usual media likemaga:ines and newspapers, in-store advertising, sponsorships, tie-in-promotions, premiums, cross

promotions and retailer contests.

Placement'Apple Ipod uses indirect distri#utionin the *. A. 1, through A%M. A%Mprovides functions such as'Fragmenting #ulk supplies ofinventory, iving =nancial servicesto retailers and Increasing ease ofcustomer purchase. They have aretailer network that aligns with

their #rand image.

As most people agree, Apple is a company leading the herd into new

realms, discovering new technologies and new civili:ations, #oldly

going where no company has gone #efore. *nfortunately, it seems not

even Apple could escape recession completely, since their cool down

has started already, despite the e&cellent results shown #y some of the

latest sales reports. %ut the fact is phones and computers have

#ecome increasingly essential to society and consumers will still #uythem if the recession turns into a depression and there are a couple of

suggestions that can #e made to capitalise on these consumer needs.

*nder the present situation when consumers would hesitate to shell

out premium prices, it would #e a most appropriate time for Apple to

make their pricing more Ge&i#le. %y marketing their products under

various promotional schemes that o4er discounts as fre!uently as

possi#le Apple could capture that segment of the target market that

have always #een aspiring to own the #rand and its products #ut have

never #een a#le to a4ord to do so. Apple is also notoriously famous for

its cult marketing. It is suggested that Apple could focus more on cult

marketing their products to the youth market through strategies like

sponsoring events for youth like rock concerts and sports competitions.

etting them hooked on to the #rand and making them Apple fanatics

would go a long way in enhancing Apple$s market leadership in the

future. In terms of product attri#utes, Apple is reputed for its

innovation and technological and aesthetic superiority. For ensuring the


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success of Apple, this is the way it has to remain. 3owever Apple could

channel this innovation in colla#orating with other successful #rands

like auto manufacturers through various strategies like co-#randing for

#ringing them closer to and sustaining market leadership.

TABLE OF CONTENTS

A. STRATEGIC ANALYSIS

B. BEST OF APPLE MARKETINGSTRATEGIES

C. APPLE MARKETING AUDIT (PRODUCT

IBANGLE)


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I Introdut!on to t"# Or$%n!&%t!onThe story of Apple, Inc. #egins April (, (BHD, when Steve 5o#s,

Stephen osniak, and 2onald ayne founded it. A mutual friend =rstintroduced 5o#s and osniak in (BH(. The relationship grew closer asthey #oth #ecame mem#ers of the 3ome#rew "omputer "lu#. As aninterest, osniak manufactured microcomputers that were lesse&pensive than other e&isting microcomputers. Steve 5o#s recogni:edosniak$s a#ilities, and 5o#s was a#le to convince osniak that as ateam, they could manufacture personal computers for sale. osniakwas the #rains with his designs and natural a#ility while 5o#s had thea#ility to strategically push the computers to marketJ Kadchick, E(,p. ((L. In 5anuary (BHH, 5o#s, osniak, and Mike Markula incorporatedthe company as Apple "omputers Inc. Mr. Markula funded

appro&imately /E,EEE for growth. ayne sold his ownership stake#ack to osniak and 5o#s for appro&imately CEE dollars.

The company =rst created the Apple I computer in 5o#s$ garage.The Apple I di4ered from other computers at the time #y utili:ing aM7Stek D/E processor in lieu of the industry standard Intel CECEprocessor. osniak was a#le to utili:e the M7Stek processor and createthe computer with fewer parts than industry norm, yielding a price thatwas less than competition. The original market demographic for theApple I was to individuals who were interested in computers andelectronics. In (BHH, the company grossed appro&imately HH0,EEE in

sales for the Apple I.

In late (BHH, 5o#s and osniak introduced the Apple II at theest "oast "omputer Fair in San Francisco, "A. The Apple II wasdeveloped as a general-purpose computer. The specs for the Apple IImaintained the same M7Stek D/E processor and also included colorgraphics as well as an audiocassette drive with storage capacity of 0k#of 2ead Access Memory K2AML. The =rst three years of the launch of


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the Apple II yielded sales of appro&imately *S(B million deeming thecomputer a success.

The company introduced its third computer in (BCE as the AppleIII. The computer ran eight applications, #ut the continuous technical

pro#lems caused the removal of the Apple III from the market. TheApple III re-launched in (BC( with (Ck# 2AM, updated softwaresystem, and a lower price of ,0B/ *S;, #ut it did not yield asuccessful campaign.

Apple acknowledged that major issues with the =rst threecomputer models were each operated under di4erent operatingsystems, limiting market share. 5o#s recogni:ed the issue andimmediately revamped the concept #y creating a new computer andnew operating system through the utili:ation of the talents of hardwareand software designers. This led to the development of the Macintosh

KMacL personal computer. The Mac was released in (BC0, along with itsoperating system, Mac 7S, which was a#le to run on all Applecomputers. The (BC0 Mac had (Ck# of memory and a -#itmicroprocessor. The original Mac was smaller, less costly, moreaccessi#le, easygoing, and Ge&i#le. The computer was a#le to #eutili:ed for graphics, not just for calculations as most computersperformed at the time. ;espite its advantages, the Mac su4ered fromseveral pro#lems, in particular, its lack of compati#ility with I%Mpersonal computers, making it di>cult to sell Mac computers to largecorporations that were already using I%Ms,J KMurray, oode, N ;iMuro,EEB, p. CL.

In (BC0, the company e&perienced less than stellar performancefrom the sales of the Mac. The sales projections for (BC0 were movingCE,EEE units while only appro&imately E,EEE were sold. In (BC/, Macsales averaged ,/EE units per month. The Apple #oard was notpleased with sales, and Steve 5o#s left Apple in (BC/. 5o#s left Appleand decided to start his own venture he called 8eOT, a companydedicated to the creation of personal computers for students. 8eOTe&perienced eight unsuccessful years until =nally reali:ing growth in(BB. ;uring this time period, Apple was e&periencing a decline ascompetition increased, lack of innovative products, and hardware and

software pricing decreases,J KMurray et al., EEB, p. (C-(BL.In (BBD, the e&isting "17 il Amelio hired Steve 5o#s as an

informal advisor to Apple "omputers with no contractual commitment.;uring this same period, Apple also purchased 8eOT from 5o#s for theamount of 0EE million *S;. Starting from the last !uarter of (BBH,Apple "omputers posted pro=ts in three consecutive !uarters andnamed Steve 5o#s as the interim "17 in (BBC. 5o#s launched the iMac


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in (BBC. The iMac was marketed directly towards =rst time computer#uyers and individuals shifting to Macs from other computer platforms.Steve 5o#s was o>cially named "17 of Apple "omputers, Inc. in EEE.3e remained focused on the iMac computers and gained market share#y releasing new models of the Macs.

In EE(, Apple "omputers, Inc. introduced the =rst version ofiTunes. iTunes, at the time, was e!uivalent to Microsoft$s Media Playerthat had the a#ility to #urn ";$s for play#ack. A few years later, Applelaunched the iTunes Music Store which allowed customers to purchasemusic and would later modify its capa#ilities to allow indows usersaccess.

Fast forward to EEH, the company removed "omputers$ fromthe name to #ecome Apple Inc. The change of name was to recogni:etheir strategic focus was no longer on personal computers. Apple

focuses on multiple facilities of electronic media+ iPhone, iPad, iPod,iTunes, iMacs, Mac Mini$s, Apple T6, and all platforms revolving aroundthe i7S operating systems.

In 5anuary E((, Steve 5o#s announced that he was taking aninde=nite leave of a#sence due to health issues. Tim "ook, the "hief7perating 7>cer at the time, took over as interim "17. After a long#out with pancreatic cancer, Steve 5o#s passed away in 7cto#er E((.Tim "ook was named as the full time "17. *nder Tim "ook, thecompany has released i"loud, a software platform that allows mediasharing #etween multiple devices, i%ooks, iPhone /, and the recently

released iPad mini. Apple has remained a pu#licly traded company withmost investment houses classifying the company at 0 out of / starsand a strong #uy.

II Id#nt!'%t!on o t"# Indutr* %nd t"#Co+,#t!tor

In order to properly identify what industries Apple #elongs and who itscompetitors are, we have to look at the main products o4ered #y thecompany. There are si& main products'

( M%Q which is a line of personal computers KP"sL designed,developed, and marketed #y Apple Inc.

!P"on#Q line of smartphones designed and marketed #y AppleInc.

!P%dQ line of ta#let computers designed and marketed #y AppleInc.

0 !PodQ line of porta#le media players designed and marketed #yApple Inc.


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/ A,,-# TVQ digital media receiver developed and sold #y AppleInc.

D Sot%r#Q di4erent software developed for all of Apple Inc.$sproducts.

Analy:ing this range of products we can identify that Apple mainly#elongs to four industries' computer hardware, computer software,digital distri#ution, and consumer electronics.

"ompanies who engage in assem#ling and manufacturingcomputers, computer hardware, and computer peripherals composethe computer hardware industry. From the perspective of computerhardware industry, the following competitors can #e identi=ed' ;ellInc., 3ewlett-Packard "ompany, 2esearch In Motion 9imited, Samsung1lectronics, etc.

The computer software industry can #e descri#ed as thedesigning and developing of computer programs and related data thatprovide the instructions for telling computers what to do and how to doit. This industry is considered to #e one of the most innovative andfastest growing sectors of the glo#al economy. The main competitors ofApple in this industry are Microsoft "orp. and oogle Inc.

The digital distri#ution industry implies the delivery of mediacontent such as audio, video, software, etc. using online deliverymediums, such as the Internet. The main competitors in this area areoogle Inc. with RouTu#e, indows "orp. with its indows A:ure

content delivery service, 8etFli&, Ama:on with Ama:on "loudFront, etc.

The consumer electronics industry involves the manufacture,distri#ution, and sale of communications and entertainment devicessuch as cell phones, digital and video cameras, MP players, 6"2s,;6;s, televisions, etc. From the viewpoint of this industry, the maincompetitors are Samsung 1lectronics, oogle Inc. with its Motoroladevices, Ama:on with its indle ta#lets, ;ell Inc., 3ewlett-Packard"ompany.

III An%-*! o t"# Indutr*

Str%t#$! Grou, %nd Co+,#t!tor

hen we look at Apple$s #usiness operations, we reali:e thatthere are many strategic groups in which it has a stake in. The mosto#vious is the Personal "omputer KP"L industry where it =rst opened its


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doors for #usiness. Its competitors come from many groups)su#groupsin this highly competitive industry.

The =rst group involves home)#usiness computers which includes3ewlett Packard, ;ell, ateway, Alien-are, Acer, 9enovo, etc. The

ne&t group includes software design. "ompetitors in this group includeMicrosoft KindowsL, 9inu& K7pen SourceL, oogle KAndroidL, and 2IMK%lack#erryL. There are several software su#groups that include music,video, security, e-#ooks, etc. A few well-known competitors are 8apsterKmusicL, Ama:on Kvideo, music, and e-#ooksL, Microsoft KInternet1&plorerL, and oogle KmapsL.

The ne&t su#group involves server markets and competitors of

this su#group include 3P, Sun, SI, and I%M that provide highperformance computing, we#-serving centrali:ed storage, etc. Apple$sMac products hold less than / of the total *.S. P" market and less

than of the international market. This includes note#ooks)net#ooksas well. 7ne could also view networking as part of this group.8etworking competitors include "isco, 8et-gear, etc. Much of Appleideologies can #e attri#uted to Steve 5o#s whose computer ideasmorphed across various industries KPui-ing Tam, EE(L.

The ne&t industry that needs to #e mentioned involves the music

player arena. Apple transformed this industry overnight with theiPod)iPod-Touch. Few competitors have come close to stealing marketshare from Apple. The few who have tried include Microsoft K


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;igital$s K; Media PlayerL respectively. Apple T6 has #een re=nedseveral times and has given Apple another revenue source KMcMahon,E(L. These represent Apple$s main strategic groups and competitorsthat it is competing with for market share.

Int#n!t* o R!/%-r* A+on$ E0!t!n$ Co+,#t!tor

The P" industry is highly competitive and consolidated due tothe aggressive pricing policies, after sale services, holistic support,online direct selling, intensive marketing, innovative am#itions, andprofound product design ideologies. As a result, Apple has sunk a lot ofits cash Gow reserves into 2N; in order to justify higher pro=t marginsfrom within the industry. 7ne could point out that since the market isdominated #y a small num#er of large companies, an oligopoly marketstructure comparison is not unrealistic. "ompanies have #ecomeinterdependent on one another as many hardware components are

intertwined causing sales, market share gains, and 27I margins to putcompanies in competitive spirals. Therefore, rivalry intensities are atall-time highs #ecause P"s have #ecome perisha#le products that#ecome outdated within a few years. As a result, new e!uipment isnecessary to keep up with industry standards concerning performance.Perisha#le products create a temptation for management to slash P"prices and sell them while they still hold some value #efore ultimately#ecoming outdated. For consumers, switching costs are low #ecausehardware components are standardi:ed, making innovative designrealities much harder to use as a competitive advantage. 7neadvantage that Apple has used to di4erentiate itself from its direct

competitors involves product integration. This involves linking the iPod,iPhone, iPad, and Apple T6 with iTunes #y using it as a loading-stationfor its various media product o4erings. Most of Apple$s directcompetitors have #een una#le to duplicate this competitive advantagesince Apple has spent a lot of its cash Gows on 2N;. Taking this a stepfurther, Apple has also opened its own retail store locations thatspeci=cally service its products to improve its technical support andproduct services overall. Another uni!ue strategy that Apple hasdeveloped involves one of its closest competitors Sony. Apple haspartnered with Sony to make certain iPod mechanical components.This displays a win-win outcome concerning this competitive rivalry.

Apple has consistently met its large customer #ase e&pectations ofdeveloping innovative products holding Apple$s pro=ts high and lossesat a minimum KApples Mac, 7ct E(L. Some nota#le competitiverivalry realities include 3P who outsourced most of its production toAsia to lower costs, ;ell, who won signi=cant market share with itsdirect selling and #uild-to-order strategies, 9enovo, who has focused its#read and #utter strategies in "hina, and Acer, who secured its spot in1urope #y ac!uiring Packard %ell. That #eing said, Apple has developed


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a cult following amongst its users and sales have increased as a resultof its pop-culture di4erentiation advertising schematics, such as, whiteear #uds for IJ-products. Surprisingly, Apple has #een a#le to #uyfrom and sue its direct competitors at the same time KSamsung "oo,7ct E((L.

T"r#%t o N# Co+,#t!tor Ent#r!n$ t"# Indutr*

hen you think a#out the threat of new entrants into the P"industry, you would think entry would #e easier considering thenum#er of competitors is small, #ut this is far from reality. There isseveral entry #arriers that e&ist that make it di>cult for smaller P"companies to make a successful impact in comparison to largercompanies. The most o#vious cost involves the elevated direct cost ofmanufacturing. Most companies in the P" industry produce their ownparts in some capacity, for e&ample, ;ell, 3P, Apple, etc., and high

factory =&ed costs to esta#lish)maintain said factories are capital-intensive. This reality allows esta#lished companies to take advantageof economies of scale. Smaller =rms that are willing to compete willhave higher average costs that make it harder to achieve highermargins)lower costs in order to survive and compete successfully. TheP" market also lacks high levels of #rand loyalty. Implying that certainitems lack a level of preferred preference #y customers as a result oflower product !uality, low patent protection, diminishing #randadvertising e4orts and high product standardi:ation realities. 3owever,Apple is the e&ception to the rule since the company has relied heavilyon #rand loyalty and word of mouth marketing. Another entry #arrier

involves input costs from parts not produced #y a hardware =rm."ompanies like Microsoft and Intel who produce input technology havesigni=cant supplier power #ecause they produce standard industrialproducts. ith monopolistic inGuences, these companies can drive upcosts and smaller companies with decreased #uying power will have atougher time negotiating lower prices. 9arger P" =rms also have thelu&ury of spreading overhead costs, marketing)advertising e&penses,and =&ed costs over large volume orders. This is advantageous#ecause it gives larger =rms more Ge&i#ility to make #alance sheetadjustments that smaller =rms will not have the lu&ury to e&ploit.Product)service support and maintenance costs are other #arriers that

can create pro=t #urdens for smaller companies. It is fair to say thatmost #usinesses and individuals lack the necessary know-how to repaircomputer hardware and software unless they are the parentmanufacturing company. Therefore, smaller computer companies musthave the necessary technical information, sta>ng, and know-how tocorrect any end user pro#lems that its customers e&perience+otherwise, they will #ecome irritated and less likely to #uy its productsor services in the future. This is where a larger company like Apple has


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an advantage. It has already e&perienced certain industrial growingpains. In the past, all Street has underestimated Apple$s growthpotential on multiple occasions KPeers, 5uly E((L. Another large entry#arrier involves a heavy investment into 2N;. 2N; investmentsre!uire a lot of reserve cash Gows in order to stay ahead of the

technology curve and remain relevant. It is harder for start-up =rms todevelop their own parts #ecause they lack the necessary resourcesthat larger =rms are a4orded #ecause of esta#lished #rand awarenessrealities. Apple is working on a new multimedia messaging serviceknown as MMS that will transform the way people te&t message KAppleInc., Sept E(L.

T"r#%t o Su1t!tut# Produt or S#r/!#

Su#stitute and compliment products are a major threat for the P"industry for companies similar to ;ell, ateway, I%M, 3P, etc., #ut this

is not a pro#lem for Apple in general. A lot of consumers know thatthese companies all use similar software o4erings, Microsoft indows,indicating that Apple$s largest competitors manufacture products thatare close su#stitutesJ for one another. Apple has the a#ility to gainand maintain a =rm grasp on speci=c demand markets. Apple hasdeveloped its own operating system which has allowed the company todi4erentiate itself and charge higher prices for its o4eringsrespectively. Apple is not a su#stitute for Microsoft indow loyalistsand vice versa with Apple loyalists. 3istorically, Apple and Microsofthave put safeguards to eliminate cross compati#ilities with theirproducts which have hurt the P" industry overall #y limiting #oth

companies to ac!uire new potential customers on #oth sides. That isnot saying that Apple is not addressing these concerns with Apple %oot"amp. Apple %oot "amp allows Apple computers to interface withMicrosoft computers, #ut I would argue that certain Microsoft userswould #e wary to replace their P" with a Mac due to consumer highdemand inelasticity. As a result, Apple has stuck with developing itsown software. Apple and Microsoft have a love-hate relationship thatgoes #ack as far the HE$s and CE$s K6ascellaro, 5an E(L. Applereali:es that competing with other companies can #e tough so it hasaddressed this concern #y developing products like the iPod, iPhone,and iPad etc. that are direct complements with its Mac computers. It all

has to do with cross selling to your esta#lished consumer following#ase to open up new untapped cash Gow opportunities for Apple toe&ploit. This strategy has allowed Apple to attract Microsoft loyalists #yselling popular products like the iPod, iPhone, and iPad to consumerspackaged with its Mac computers that are compati#le with one anotherand create a competitive advantage that Microsoft has #een una#le tomatch. hen we e&amine each product individually, the iPod does nothave many close su#stitutes, the iPhone does have close su#stitutes


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and the iPad is seeing close su#stitutes as the ta#let P" marketcontinues to e&pand. The iPhone can #e replaced with #asic phones orany 6oIP service K6onageL and the iPad can #e replaced with e-readersor other smart phones depending on user preferences. I would also liketo mention two more forces in Porters amended model that inGuences

P" compliments. The =rst one involves complementors as value addinginstitutions involving speci=c products. This can #e seen with thirdparty software sold with computer #undles. In other words, a P" or Macis more valua#le if it comes with added software to enhance its uses.The second force involves the relative power of special interest groups,unions, and governments who can e&ert their own agendas on =rmslike Apple that can inGuence how complimentary products aremarketed and sold. In other words, if Apple develops a lastingmonopolistic power over its o4erings that lock out e&isting competitorslike Microsoft did, then the iPod, iPhone, and iPad could lose markete&clusivity as an industrial leader. Thus, Apple has made its products

compati#le with indows to avoid Microsoft$s past mistakes with itsproduct o4erings. The users of the iPod, iPhone, and iPad tend to #eeducated users who do not want their iJ-products associated withnegative outside forces like unfair la#or practices that 8ike had in theBE$s KAnonymous, March E(L.

B%r$%!n!n$ Po#r o Bu*#r

hen we discuss the #argaining power of #uyers in the P"industry, we see the competitive #uying position of consumers is highoverall. This is mainly due to the low switching costs associated with

#uying P"s respectively. The P" industry is very competitive when welook at the various options and features availa#le and generallyspeaking, computers perform the same functions #ut with hardwaredi4erentiators. Technology changes every three to =ve years in the P"industry. This represents the main price di4erentiator among mosthome P"s, laptops, net#ooks etc. P"$s are #uilt with several categoriesin mind that includes' high end gamers, casual users, #usiness users,media users etc. As a result, each P" that is #uilt contains di4erenthardware speci=cations to meet each user$s individual needs. 3igh endgamers want more 2AM for faster real time gaming, casual users want#asic hardware to surf the internet)check e-mail, and #usiness userswant a #alanced machine so multitasking can #e completed e>cientlyand in a timely manner. Anyone of these user categories couldcustomi:e a P" according to speci=c hardware user preferences givingend users the power to ultimately control architectural designs. As aresult, customers can #e the engineers of their P"s which make it moredi>cult for P" =rms to gain signi=cant market share since there aremany options availa#le to choose from. That #eing said, the opposite is


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true for Apple. Apple has manufactured many of its component parts inhouse including its own hardware and software. Apple$s Mac is set wella#ove P" industry default pricing models #ecause Apple$s #rand isuni!ue and one of a kind. Some would say that this is a pro#lem forApple since most indows #ased P"s are much cheaper than Mac

#ased alternatives. 3owever, Apple reali:es this, #ut it is going after aspeci=c target market that wants an alternative to indow userinterfaces. Apple continues to develop all of its technological upgradesin house making it harder for #uyers to dictate price and policy thathas a huge impact on Apple$s core #usiness strategy. Apple$s corefollowers see the Mac as a lu&urious product like a Mercedes, %M,etc. are viewed in the auto industry. If the stock market indicates thetrue value of a company then Apple is worth a lot right now Kessler,E(L. If we look at other items that Apple sells in iTunes like videosand music, then consumer #uying power remains low as well."onsumers cannot dictate media prices #ecause the parent company

ultimately determines their prices and only uses Apple as a sellingmedium for their o4erings. The #ottom line indicates that Apple limitsa lot of #uyer power #ecause it manufactures a lot of its own parts inhouse which gives it more control. Another too Apple has added to itsarsenal is the new iPhone mapping software KSherr and 1frati, E(L.

B%r$%!n!n$ Po#r o Su,,-!#r

hen we look at supplier power in the P" industry, we see that itis a force to #e reckoned with. Some might say that this does not a4ectApple #ecause it produces its own operating system, Mac software,

etc., #ut it is important to remem#er that most of its Mac computersare powered #y internal chips made #y Intel, AM;, I%M etc. So whydoes this phenomenon occur within the P" industryU The answer issimple. These =rms sell products without any real su#stitutes. Theypossess a diversi=ed operations portfolio that empowers their #usinesstransactions to #e non-reliant on one speci=c sector or sectors, andthey e&ercise dominating #usiness strategies in the P" industry overall.Intel seems to have the largest supplier power advantage #ecause ofits long term contract with ;ell and a new alliance with Apple who hadpreviously used I%M chips. Although, one could point out that I%M hasmade up for this shortfall #y supplying its chips to Microsoft$s O-%o&. So

how much power does a company like Intel really possessU Mostindustrial analysts would conclude that its power level includesmonopolistic !ualities which allow Intel to raise its prices on hardwarecompanies. As a result, companies like Apple would follow #y raisingtheir prices accordingly and pass the added e&pense on to thecustomer. Although, Apple may not #e directly a4ected #y priceGuctuations that is passes on, it will #e indirectly a4ected #y itse&isting customer reactionary mannerisms that persuade them to


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switch to rival P" computers that use indows and are much cheaperwhen price comparisons are made. To make up for this industrialine!uity, larger companies like Apple can #uy in #ulk allowing for lowerunit prices while smaller lesser known companies who cannot #uy in#ulk will #e charged a premium. 9arger P" companies have also

formed alliances with Intel and AM; concerning 2N; that create costsynergies that ultimately leads to lower negotiated individual unitprices. 7verall, Apple is vertically integrated and possesses certaincompetitive advantages when discussing supplier power. hen Appledeveloped the iPod, iPhone, and iPad, it integrated all three withiTunes. The company is a#le control its own supplier power #y notoutsourcing its media delivery software to an outside =rm. In the last -/ years Apple has taken a strategic strategy risk #y opting for Intelchips which allows its Mac to #ranch out and e&pand its own marketshare. This reality might increase Intel$s power over Apple #ut Applecould make up for it with increased sales to indow loyalists that could

o4set or produce additional pro=ts over the incurred risk of increasingchip costs to Apple respectively. In recent years Apple has decided towork with competitors and suppliers in order to reduce operatinge&penses and increase 27I margins K"arani, Sept E(L. "ritics havesaid that Apple needs to avoid large cross compati#ility ideologiesotherwise user preferences for Mac competitors will change. Apple hasto keep a #alance #etween e&panding its market share and keeping itsindustrial identity K6ascellaro, 5uly E(L.

Pot#nt!%- Pro't%1!-!t* o t"# Indutr*

Since Apple operates within many #usiness industries, it is hardto focus on one alone so I will mention several companies from severaldi4erent industries. I will classify each company into the followingcategories in relation to Apples inGuence over them which aredestroyed, damaged, challenged, and #ene=tted. 9et us #egin with thecompanies that have #een destroyed #y Apple in some capacity.3ewlett Packard does a lot of #usiness #y selling printers #ecause theiPad has taken a considera#le share of its P" market share. In E((,the company almost decided to sell its 0E #illion revenue P" divisionand leave the industry altogether. 3P$s entry ta#let the Touchpad also#om#ed in every aspect of its product life cycle in E(( and %est %uywas stuck with over EE,EEE unsold units to pawn o4 on any personwho would #uy it for CE o4 its retail price at BB.EE. ;ell is the ne&tcompany that has #een hurt very #adly #y Apple. Apples marketcapital surpassed ;ells in EED and Steve jo#s wrote an e-mail to


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Apple shareholders that stated Apple$s pro=ts of B #illion are actuallylarger than ;ells entire market place. The third company is 2IMMK%lack#erryL who has dominated the mo#ile phone industry with its%lack#erry devices #ecause of e-mail, te&t messaging, etc., #ut theiPhone came in and toppled its dominance as the industry leader for

smartphones. In EEC, 2IMM$s stock was trading at (00.EE per share,and #y the end of E((, it was trading for E.EE a share. To add insultto injury, when 2IMM #rought out its %lack#erry %old BBEE critics saidit was too little too late.J The =nal company that was devastated #yApple is 8okia. 8okia once claimed more than /E of total marketshare in the mo#ile phone industry. Today, 8okia holds a#out (/ ofthe market and a#andoned its own mo#ile phone software in favor ofMicrosoft$s indows C 7S with the 9umina.

8e&t, we will look at some companies that have #een damaged#y Apple. It is not irresponsi#le to say that Apples triple threat KiPod,

iPhone, and iPadL has made Microsoft more vulnera#le over the lastdecade. *nder Stevel %almer$s command, Microsoft has failed tocompete with Apple$s triple threat product com#ination. It has failed toproduce a single product to take away signi=cant market share fromApple. %almer famously said that he would never let his kids use aniPod or oogle signifying Microsoft missed an entire #usinesscomputing operational shift. In E(E, %almer displayed his that has#linded his leadership visions while running Microsoft #y suggestingthat 9inu& was a larger competitor for Microsoft than Apple. The ne&tcompany is Sony whose alkman was replaced #y the iPod when it hitthe market with a #ang. Their 6aio laptops are #eing slowly replaced #y

iPads as well. That #eing said, their chipsets are powering Macs, #uttheir P" #usiness has dropped o4.

The ne&t category involves challenging #y Apple. The maincompany that starts o4 this category is oogle. oogle #ought Androidand made it a legitimate iPhone competitor #y recruiting a major smartphone competitors$. oogle has #attled Apple$s many patents ande&panded their patent portfolio #y ac!uiring Motorola for (./ #illion.The =nal company in this category is ATNT who was so eager to covetthe iPhone that it let Apple dictate its own terms. ATNT$s actions mayhave changed the mo#ile industry overnight.

The =nal sections cover companies that have #ene=tted fromApple. A2M 3oldings which designs the processor cores for the iPadand iPhone have pro=ted from Apple 27I margins. Apple has invested a#illion dollars in Sharp who makes Apple laptops and 9";s. This hassince produced ample returns for Sharp. "orning 9 makes theorilla glass for the iPod Touch, iPhone, and iPad respectively. This hashelped increase its #ottom line. Sprint is another company that has


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#ene=tted #ecause it got the iPhone in E(( when Apple was looseningthe reins on their iPhone distri#ution plans. Sprint shareholderse&perienced a #oost for dividends paid from the agreement. Fo&conn isanother relevant company #ecause it manufactures many Appleproducts, and STMicroelectronics follows close #ehind #ecause it

produces the Accelerometer yroscope for new generation iPads.Finally, Vualcomm makes the wireless #ase#and chips for the iPhone 0and /. Apple$s 2N; e4orts to help improve the iPhone have helped itgenerate more than 0E #illion in pro=ts in E( K%adenhausen, 7ctE(L. Apple has redesigned its core products and is looking for newvenues to #ranch out into. It is only a matter of time #efore Applestarts #uying companies like Twitter in order to dominate social medialike it has the electronic industry KIngram, E(L.

2"%t %r# t"# Cr!t!%- Su# F%tor or t"#Indutr*3

In all of the industries that Apple has operated within, it seems to

have a good grasp concerning its product o4ering #asket within eachindustry that it operates and contri#utes to its successes each year.The =rst critical success factor that Apple has adopted includesadvertising and di4erentiation. Apple has #een a major player when itcomes to advertising its #rand to the masses. In (BC0, Apple launchedthe Super %owl commercial initiating the think di4erent campaignJ inthe BE$s and it did the iPod peopleJ campaign in the EEE$srespectively. Apple even got an artist to do a special painting of its iPodthat is now hanging in 8ew Rork$s Museum of Modern Art. Apple also

developed its trademark white ear #uds to di4erentiate iJ-productowners from non-iJ product owners.

The second factor that Apple has mastered involves a well-

recogni:ed and cherished #rand name. In E((, Apple was named themost recogni:a#le #rand name in the *.S. and every - #usiness!uarters Steve 5o#s or an Apple spokesman would hold a pop-cultureunveiling event to showcase its new innovative product o4ering. Somepeople also said Steve 5o#s was cra:y to =re Sears as Apples mainproduct distri#utor and open Apple retail shops. 3owever, this movehas paid o4 #ig for Apple as a result. 3e also e&panded Apples

distri#ution network through iTunes. iTunes has #ecome Apple$ssignature online marketplace for Apple related products Ke-#ooks,videos, music, T6 shows etc.L

A third factor includes #reath of product lines since Apples triple

threat has inGuenced many di4erent industries ranging from the musicindustry to the mo#ile phone industry. In addition, Apple started theta#let P" #usiness overnight. Apple$s impact on the stock market is


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also relevant #ecause it increased the 1PS of the SNP /EE #y in thefourth !uarter in E(( K2ay, April E(L. 7ther smaller factors include'a solid strategic plan, large cash reserves on its #alance sheet,e&cellent supply chain management, relevant information systems,and e&cellent retail locations)operations. Apple is looking to add 67IP

capa#ilities on the iPhone D, and it must continue to use itscompetitive advantages to stay ahead of its competitors KFitchard,April E(L.

IV An%-*! o t"# M%ro4En/!ron+#nt Po-!t!%-%nd L#$%- or# A5#t!n$ t"# Indutr*

Since the iPhone hit the scene /-D years ago, one of the mainpolitical road#locks for the iPhone has #een so called grey marketsJ.This occurs when store owners import products from a foreign countryat a discounted price and resell them in their own store fronts at a

lower price compared to authori:ed retailers. rey markets e&ist incountries where a product like the iPhone is not currently or readilyavaila#le for purchase. rey markets =ll this void. The iPhone is readilyavaila#le in most western countries #ut not in countries like %ra:il,India etc. where grey markets are perfectly legal. Thus, the iPhonemarket in these countries is opened up prematurely without Apple$sconsent. Apple will lose potential new sales #efore it can enter theuntapped market places. As a result, #ootleggers will get a head starton !uestiona#le iPhone distri#ution #usiness dealings that would #eillegal in the *.S. Another political force involves "hina joining theorld Trade 7rgani:ation. "hina$s joining means lowerinvestment)market #arriers for Apple to e&ploit lower la#or costs andgaining new iPhone market share from new cash Gow sources. A legalissue facing Apple continues to #e ;igital 2ights Management K;2MLprotections);2M hacking concerns. This #attle involves copyrightinfringement #arriers that Apple must carefully a#ide #y. Apple hasavoided potential lawsuits #y striking deals with Media company ownerlicensing and royalty distri#ution agreements that have kept Apple onthe right side of the law. Apple wants to avoid fates similar to thosesu4ered #y 8apster and other companies that have employees illegallydownloading =les. Apple has accomplished this #y integrating iTunesinto its strategic strategy. Another political #arrier for the =rm has #eenpressure from 1* companies for the iPod)iTunes com#o to #ecompati#le with rival music products. This is the same fate Microsoftsu4ered with indows source code #ecause rival software)third partysoftware was not compati#le either in many cases. Microsoft wasforced to open up its source code to the industry. Apple was one of the=rst companies to introduce its own format for music sold throughiTunes in their own AA" music format. Apple tried to protect its market


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share #y making it harder for its songs sold through iTunes to #eincompati#le with other mp players in the #eginning. Since then,Apple has rela&ed some of these #arriers #y accepting the mp formaton its iPod #ut continues to use iTunes as its main product loadingdefault hu# for the iPod. Another legal issue hit Apple in EED when the

S1" investigated the =rm$s issuance of stock options to its topmanagers #ecause of fears of insider trading and #ack door deals.Another legal factor that presented itself involved the theft of itsiPhone 0 prototype that mysteriously disappeared. This criminal actproves how valua#le Apple$s 2N; e4orts were and how greatly the =rminGuenced the mo#ile phone industry. Finally, Apples legal #attle with8okia and 3T" over patent infringements has also #een a pro#lem forApple over iPhone imitation technologies that can help rival =rms stealmarket share away from Apple.

Eono+! For# T"%t A5#t t"# Indutr*

The most o#vious economic force impacting Apples producto4erings revolves around #randing its product lines as premiumproducts which makes them much more e&pensive than othercompetitors rival o4erings. ;uring the current recession consumerspending power will decrease due to premium products #eing viewedas lu&urious items. A lot of consumers will choose cheaper alternatives.Thus, pricing #ecomes a major o#stacle for poorer customers. Apple isspeci=cally targeting countries that have strong middle and upperclasses that most developed countries possess like the *.S., 1urope,Australia, etc. ;eveloped countries are also e&cluded #ecause they are

much poorer and have limited infrastructures that cannot support theiPhone$s vast capa#ilities. iPhone sales could #e hindered glo#ally.1conomic inGation has #een an economic opportunity for Apple#ecause it has purchased foreign currency to o4set the dollar$s declinein value and the =rms international revenues have increased as aresult. Apple is very e>cient when it comes to managing its #alancesheet and this has actually led to the capital it has invested in itsoperation to turn negative. A negative turn means Apple gets paidfaster for its products than it can make them Kinkler, 5uly E(L. The=rm has learned a lot from its past economic struggles in the late BE$sand early EE$s when it ultimately launched the iPod. The launchincreased Apple$s sales and volume orders to levels never e&perienced#y the company. Apple has also #ecome the second largest dividendpayer #ehind ATNT at (E.0#illion yearly according inde& analysts KShirley, E(L. Apples ownsales reputation has #een a #urden #ecause everyone e&pects everynew Apple product to #ecome a cash cow. This stigma #ack=red onApple in May E( when Apple was sued over Siri commercials. As a


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result, Apple decided to give refunds to disappointed iPhone 0S ownersover these T6 commercials that certain users thought were misleadingK"line, May E(L. 2ecently, a large economic force hit Apple whenScott Forestall, head of Apple$s new map App, was forced out when herefused to sign an apology letter over the negative pu#licity associated

with the new mapping software he designed for the iPhone /. 5ohn%ronett, Apples head of retail operations, was also let go #ecause hehad discontent with Apple store employees over low pay. %oth were atodds with other Apple e&ecutives over the =rm$s long term goals and#oth left on less-than friendly terms. Apples entry into the smallerta#let market was only a matter of time even though certain Applee&ecutives resisted the iPad mini$s development K9essin, 7ct E(L.;emand for Apple products worldwide appear to #e healthy, and therehas not #een a serious contender that has #een a#le to take signi=cantmarket share from Apples line of products overall.

So!%- Iu# A5#t!n$ t"# Indutr*

7ne of the main strengths that Apple has always strived forinvolves its a#ility to make products with trendy and sleek designs.Most of its products o4erings are white in order to make it easy forpeople to recogni:e them. For iJ-product owners, the only appropriatetime to upgrade their gadgets is when a newer version of an Appleproduct comes out. Any other option would #e socially unaccepta#le.Apple was also one of the =rst companies to advertise the ( and (Hinch laptops. It did so #y including Rao Ming and 6erlle Troyeradvertising the ( inch Power%ook for Rao and the (H inch Power%ook

for 6erlle to signify that Apple$s laptops could #e used #y anyone nomatter what their social status or height measurements were. Socialdemand trends are also changing with declining P" sales andincreasing ta#let P" sales. Porta#ility attitude shifts from #ulky tomo#ile. Apple has also created social consumer e&pectationsconcerning iJ-product compati#ility standards. In other words,consumer products need to #e compati#le with Apple products andhave docking stations in order for consumers to use them witheveryday products that include stereos, digital picture frames, carradios, etc. Apple has done a great jo# #y making other =rms adapttheir product lines to Apples designs #ecause it involves product

designs that people can use in everyday social settings. Apple has alsomade smaller versions and more color options availa#le for its otherproducts like the iPod 8ano, iPod Shu@e, and the most recent iPad Miniin order to attract new market customers who want Apple productsavaila#le in more si:es and colors that =t their lifestyle preferences.The =rm has also developed Apps for its Apple store to complementeducational realities that include digital learning opportunities throughits iPad. This includes endeavors like e-#ooks, watching video teaching


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lessons, and audio#ooks for enhanced learning capa#ilities foreveryday students. Apple has also created pu#lic social launch partiesthat have turned into media events for its new product launches. In thepast, it was all a#out what Steve 5o#s was going to unveil that wouldchange our lives over the ne&t few years for the #etter. 2ecently, Apple

has developed new services like i"loud, a service that allows users tostore their media products online and allows people to access itthrough wireless devices. i"loud can improve lifestyle convenience forApple customers. In 8ov. E(, the =rm was awarded a patent forarti=cially turning e-#ook pages on its iPod. The patent may seemweird, #ut Apple wants people to think of Gipping e-#ook pages as aninnovation that is only uni!ue to Apple 2N; product e4orts. This is justanother e&ample of Apple social ingenuity.

T#"no-o$!%- For# A5#t!n$ t"# Indutr*

The foremost technological issue concerning Apple deals withtechnology itself #ecause technology gets outdated every -/ years.As a result, new product innovations outpace e&pired outdatedtechnology. Apple needs to continue to invest in 2N; in order tomaintain its competitive advantage in the market place. Apple hasdone a great jo# with products like the iPod that is categori:ed as aproduct with more su#tle types of changes as Porter put it. In otherwords, these types of products are known as sustaining innovations.

They are updated technologically speaking with game changingtechnological advances that no rival =rm has #een a#le to match.Apple has done this #y taking advantage of technological relationshipswith third party companies who o4er uni!ue innovative capa#ilities.Apple relies on Sony for its #atteries, olfsons for the codec ;A",Toshi#a for its disk drives, etc. allowing Apple to maintain its corestrategic strategies within the market places it operates within. Appleis also a =rm that e&ploits new innovative technological advances#efore its competitors do. It was the =rst company to take advantageof touch screen technology #y incorporating it in the =rst iPhone,making a i-Fi ena#led internet mo#ile phone, etc. The =rm made iteasy to use for the masses and made it harder to copy for Apple$sdirect competitors. It also opened up the iPhone for third party apps tooperate on to make it more appealing to non-Apple enthusiasts.Another technological pro#lem for Apple has #een its own protectivenature for its own core product o4erings. Apple has tried to protect itsproducts from contamination with safeguards such as codec limiting=le format types like the AA" format for its musical downloads, M76


23/70

video =le format for its video downloads, making the iTunes softwarefor loading its media products e&clusively, making softwarecompati#ility #arriers for its Macintosh computers, etc., and hascreated headaches for new and e&isting Apple)P" users alike. Anotherpro#lem for the =rm is that it sometimes tries to #e too innovative with

its products. A recent e&ample involved the =rm making atechnological change to the iPhone / aka mapping software and the#acklash it received from its core fan #ase users. Another e&ampleoccurred in 8ov. E( when it a#andoned its message #eta for its 7S O9ion software. Apple reali:es that the #est way to remain ahead of itscompetitors is to hire the #est and #rightest talent pool and create apopular company to work for. Apple is currently trying to design set top#o&es like its Apple T6 for enhanced internet T6 viewing e&periences.This is one area that Apple has not #een a#le to dominate and it istrying learn from product market failures in order to design a new settop #o& with features that consumers e&pect. Apple$s new iPad Mini is

e&pected to rival Ama:on indle Fire which is a whole new nichemarket where Apple is trying to con!ueror signi=cant market sharecompara#le to how the original iPod did a few years earlier.

T"r#%t %nd O,,ortun!t!# o Or$%n!&%t!on

hen we look at the potential opportunities for Apple, wirelessconnectivity, and networking products represent massive new growthopportunities that Apple can e&pand into. Apple has started theprocess #y developing Airport, a wireless networking technology thatallows users to create a computer network and connect to the internet

without networking hardware, ca#les, or additional phone lines. Thistechnology also allows Apple users to e&pand any i-Fi networksrange, print wirelessly, play music wirelessly on speakers etc. Anotheropportunity for Apple to consider is the Super i-Fi technology that isthe ne&t #ig thing to hit the computer industry. It is now #eing used ona limited #asis through carrier networks leaving customers at themercy of a carrier$s mo#ile service. Traditional i-Fi networks run o4microwave signals, #ut Super i-Fi networks run o4 old T6 fre!uenciesthat can go for miles and miles while penetrating through walls. Superi-Fi security systems can also protect entire corporate)collegecampuses, track household pets, help medical patients withemergency situations, etc. Apple needs to get into the #idding fortower rights and property assurances in order to #uild a speci=c Superi-Fi network that Apple users can access thus creating new 27Istreams for the =rm in the future. Another opportunity for Appleincludes developing Apple components that are more e>cient andenvironmentally friendly. This can range from #atteries that last longerto Apple recycling programs for safe disposal to alliances with reen


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companies for more e>cient parts. Another opportunity for the =rminvolves the development of new supply chains in developing countrieswhere untapped market potential can #ring a#out new realities forimproved strategic direction. Apple should develop relationships withmiddlemen in order to #etter understand foreign markets and use this

knowledge com#ined with its current market e&periences to gra# newcustomers and #uild #rand loyalty. This is true for the "hinese marketplace where natural resources are used for Apple products and positiveorgani:ational alliances)commitments will ensure the rapid growth ofApples three main products KiPod, iPhone and iPadL. %y doing this,Apple can use its trend setting strategy to achieve a cult followinginternationally to e&pand its end user #ase in developing countries.Apple$s stock is e&pected to increase e&ponentially if and when ite&pands into third world markets that have yet to #e developed andtransformed for developed technologies K9essin, 7ct E(L. 7ne of themost o#vious threats to Apple has #een created as a result of its own

successes in the market place that can #e referred to as cockycomforta#leness. %asically it means that Apple gets too con=dent #ythinking its products will remain industry leaders without innovativestrategic planning. Such an attitude will allow a competitor to developa product under the radar and steal signi=cant market share fromApple$s #ig three iJ-products. In other words, Apple should not lettheir foot o4 the gas when it comes to strategic innovation. Anotherthreat has to do with the ta#let P" industry that Apple de=ned early onwith the introduction of the iPad. It includes an increase in marketcompetitors that can develop into direct competitors if Apple does notcontinue its innovative strategy. Ama:on is a great e&ample #ecause it

is a company that no one thought would revolutioni:e the ta#let P"market further with its development of the H inch indle Fire. Applemissed this potential market completely and Ama:on #ecame a directcompetitor that Apple had to respond to with the iPad Mini creation.Another potential threat has to do with the ongoing recession thatcould impact Apples pricing models for all of its products. 3iddeninGation can appear out of know where and can force companies likeApple to raise the prices of their products. The increased cost is passedonto consumers, or could force the =rm to discontinue products withlimited 27I future potential. Apple has to watch products that havedominated the market place a long time and are in the latter stages of

the product life cycle. 7ne such product involves the iPod #ecausethere have #een many di4erent versions. Its earning ceiling hasdropped over the years #ecause of the vast array of mp and videoplayers in the market today. Music playing features are #eingincorporated into other everyday products like cell phones and havereduced the need for iPods even further. The iPod is integrated into theiPhone)iPad respectively. Apple has to reali:e that some of its newerproducts could #e indirect competition for its older products as


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technology improves within various industries K%adenhausen, 7ctE(L. Microsoft indows C is also a new threat to Apple #ecause ofthe innovative idea to incorporate ta#let software functions intodesktop operating system software. If indows C takes o4 and#ecomes the new norm, Apple will have to incorporate some of its iPad

technologies into its Macintosh #rand which could include apps, touchscreen monitors etc. Another threat includes 6*;*, 8etGi&, Ama:on,and other companies that stream live video, movies, T6 shows etc. toT6$s for entertainment revenue. %eing good at everything is a largethreat #ecause #eing the #est re!uires product upgrades andmaintenance that can #e hard even for a company like Apple to sustainand maintain.

V 2"%t ! t"# or$%n!&%t!on6 +#%ur#+#nt %ndontro- *t#+3

Apple has maintained =nancial strength through the tur#ulencesof the market over the last few years. Apple$s strategy is #ased on adi4erentiation strategy. They rely on innovative and uni!ue productsand services to gain a competitive advantage while competitorsappear to #e competing mainly with a low-cost strategy KApple, Inc.,E(L. Apple$s di4erentiation focus can #e seen in their research anddevelopment e&penses. From E(E to E(, research and developmente&penses have almost dou#led along with their current lia#ilities.3owever, their operating income has tripled from E(E to E(. Inaddition, Apple$s =nancial reports indicate that they do not have anycurrent long-term or long-term de#t KE( RahooW,Apple Inc. (AAPL)L.

Apple e&perienced an increase in sales in all of its products andservices during E(( and E( e&cept for the iPod and ;esktopproduct categories. These products have seen a decrease in salessince E(E KApple, Inc., E(L.

Pro't%1!-!t* %nd P#ror+%n#Along with sales of products and services, Apple$s =nancial

statements are growing as well. 8et income margin has increased fromE(E to E( #y D to H. Apple has also e&perienced an increase ingross pro=t margin, return on assets, return on e!uity, and return onsales. All of these measurements indicate that Apple is increasing theirpro=ta#ility. Apple suggests that their success in this area is due totheir constant focus on innovation and di4erentiation KApple, Inc.,E(L.

;espite Apple$s increased pro=ta#ility and positive performance,competitors have not e&perienced the same increases. oogle and3ewlett-Packard "ompany have managed to maintain their pro=ta#ilitymargins over the past three year. 2esearch in Motion 9imited and


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Microsoft have not #een as lucky. They have e&perienced a decrease.1ven though Apple has e&perienced an increase and its

competitors have not, Apple$s net income margin is still less than thatof oogle and Microsoft. Apple$s gross pro=t margin is 00 comparedto oogle$s D/ and Microsoft$s HD KE( RahooW,Apple Inc. (AAPL);

E( RahooW,Google Inc. (GOOG); E( RahooW,Hewlett-PackardCompany (HPQ);E( RahooW,Mcro!o"t Corporaton (M#$%); E(RahooW,&e!earc' In Moton Lmted (&IMML.

L#/#r%$#9everage is another =eld of measurement that Apple$s =nancial

reports indicate they are performing well. 9everage indicates how acompany is using #orrowed funds in its operations. 2atios such asde#t-to-asset, de#t-to-e!uity, and long-term de#t-to-e!uity can #eused to measure leverage. The higher these ratios are for a company,the higher the risk involved with the investment can #e for investors.

7ver the past three years, Apple has managed to slightly decrease itsde#t-to-asset and de#t-to-e!uity. 9ong-term de#t-to-e!uity has heldconstant at :ero due to Apple$s :ero #alance in long-term de#t duringE(E, E((, and E(. 7ne approach Apple can use to improve theirde#t-to-asset and de#t-to-e!uity is #y lowering the accounts paya#le#alance.

2esearch in Motion 9imited and Microsoft managed to decreasetheir de#t-to-asset, de#t-to-e!uity, and long-term de#t-to-e!uity intheir latest reported =scal years, oogle held these three =eldsrelatively constant, and 3ewlett-Packard "o. increased all threemeasures.

An important leverage measurement tool for current or potentialshareholders is de#t-to-e!uity as it indicates the level of funds #eingused from creditors associated to that of shareholders. "ompared tocompetitors, Apple ranks in the middle. Apple has lowered this rate,#ut they are still higher than 2esearch in Motion 9imited and oogle.As aforementioned, one method Apple can use to lower this rate is tolower the accounts paya#le #alance.

L!7u!d!t*9i!uidity measures a company$s a#ility to cover its short-term

de#ts. The most common measures include, the current ratio, !uick

ratio, and working capital. Apple has e&perienced a decrease in thecurrent and !uick ratio. This indicates that Apple has decreased itsa#ility to pay short-term de#t o#ligations. Apple$s current assets andcurrent lia#ilities have #oth increased from E(E to E(+ however, thecurrent lia#ilities have increase at a greater rate. It appears theaccounts paya#le are the main factor for the increased currentlia#ilities. Apple$s current and !uick ratio has dropped fromappro&imately .E to (./ over the three-year period. orking capital at


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Apple dropped from in E(( from E(E$s reported ( #illion #utpicked #ack up in E( to (B #illion KE( RahooW,Apple Inc. (AAPL)L.

Apple$s competitors e&cept for 3ewlett-Packard "o. enjoy acurrent ratio greater than .E. Microsoft and oogle have !uick ratiosof, respectively, ./H and /.B. oogle$s high !uick ratio is due to their

reporting of :ero inventories. orking capital of Apple$s competitorsranges from /HB million to / #illion.Apple$s current ratio and !uick ratio performance is only #etter

than 3ewlett-Packard "o. who has not had the greatest success storyduring recent years. Apple$s =gures are not alarming+ nonetheless, it issomething that should not #e overlooked. Their working capital rangedin the middle of its immediate competition. Apple could lower currentlia#ilities or increase current assets at a greater rate than currentlia#ilities to com#at the recent decrease of the current and !uick ratiosKE( RahooW,Apple Inc. (AAPL);E( RahooW,Google Inc. (GOOG);E( RahooW,Hewlett-Packard Company (HPQ);E( RahooW,Mcro!o"t

Corporaton (M#$%); E( RahooW,&e!earc' In Moton Lmted (&IMM)L.

F!n%n!%- An%-*! M#%ur#+#nt

APPLE8 INC.

B-Sep-( 0-Sep-((/-Sep-(E

Stock Price DD0.EH 0EE.H0 CB.H/

"urrent 2atio (./E (.D( .E(

Vuick 2atio (.0C (./C (.BD

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ross Pro=t Margin E.00 E.0E E.B

2eturn on Assets E. E.B E./

2eturn on 1!uity E./ E.0 E.B

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KE( RahooW,Apple Inc. (AAPL)L

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Stock Price D0/.BE /BC.CD D.H

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y E.E/ E.EE E.EE

ross Pro=t Margin E.D/ E.D0 E.D

2eturn on Assets E.(H E.(B E.(

2eturn on 1!uity E.(H E.(C E.(C

2eturn on Sales E. E.H E./


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KE( RahooW,Google Inc. (GOOG)L

9#-#tt4P%:%rd Co+,%n*

E-7ct-(( E-7ct-(E E-7ct-EB

Stock Price H.( 0E./C 0/./E

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KE( RahooW,Hewlett-Packard Company

(HPQ)L

M!root

B-5un-( B-5un-(( B-5un-(E

Stock Price E.(0 0./H (.C


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"urrent 2atio .DE .DE .(

Vuick 2atio ./H ./D .(E

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1!

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ross Pro=t Margin E.HD E.HC E.CE

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RESEARC9 IN MOTIONN LIMITED

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Sales to orking

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KE( RahooW,&e!earc' In Moton Lmted

(&IMM)L

K#* P#ror+%n# Ind!%tor

There are many items that Apple uses to measure their successin the industry. The competition of the industry pushes Apple to focuson constantly providing consumers with new and innovative productsthroughout the year. The demand for Apple to consistently deliver newand innovative products on a regular #asis has a great inGuence onManagement$s review of the company. Inventory, research anddevelopment, patents, intellectual rights, timely delivery of products,and retaining key personnel are all part of Management$smeasurement. Management considers revenue recognition, marketa#lesecurities, inventory control, warranty costs, income ta&es, and legalmatters to #e top indicators of their =nancial performance.

As it is for most companies, successfully recogni:ing revenuevalues is a focus of Apple$s management team. The goal is torecogni:e revenue values when they are certain they revenues will #ee&perienced. Management must account for potential incentivere#ates and other partial revenue recognition measures in hopes toavoid recogni:ing revenue that is in fact not revenue. Apple$s goal is tonot over account for revenue due to the adverse impact the revenue


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reductions will have on reporting and ill-advised managerial decisions.Successfully recogni:ing gains and losses of marketa#le securities isalso a goal of Apple$s management team. 5ust as for revenue,Management does not want to over report values of marketa#lesecurities. Success for revenue recognition and reporting marketa#le

securities is measured #y Apple$s a#ility to not report over estimationsKApple, Inc., E(L.

Apple sets inventory re!uirements #ased on demand forecasts,industry and product trends, and product life cycles. Apple$s intent is tonot #e caught with large amounts of inventory on hand in the event ofa sudden decline in demand. A sudden decline in demand could #e dueto technological advancements, competitor announcements, and)orother changing market conditions. Apple attempts to keep inventorycommitments in periods of up to (/E days, depending on the productand)or demand. A low inventory level at the end of the estimated

period indicates that Apple was successful KApple, Inc., E(L.

arranty costs are di>cult to prepare for. Apple estimateswarranty costs on a !uarterly #asis. Their goal is to stay #elow the!uarterly estimate. In the event that warranty costs are higher thanthe estimate, operations could #e negatively impacted. This is anindicator of product and Management$s performance during themeasured periods KApple, Inc., E(L.

9egal and other contingencies are important indicators of Apple$sperformance. As seen in many recent court #attles, the technology-

#ased industry has many risks associated with rights andinfringements. Apple reali:es the possi#ility of losses #eing incurreddue to legal proceedings and claims. These amounts are alsoestimated for reporting periods. Staying #elow the estimated value is asuccess for Apple. 7ne or more legal proceedings and)or claims #eingsettled against Apple in e&cess of the estimated value for the reportingperiod can have negative impacts KApple, Inc., E(L.

Apple uses historical estimates as a strategy to measure theperformance of the previously stated areas. The goal is to stay withinthe estimate to avoid adverse impacts on their reporting periods. Apple

considers it a success when actuals are #elow the estimated values foreach of the performance indicators.

VI An%-*! o t"# Or$%n!&%t!on

Apple is a prestigious company who has #een around for overthirty years, and in those years, they have #ecome in terms of earning,one of the top if not the top company in the world. Their foundation


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#egins the overall mission or the statement they live #y and that iswhere apple is uni!ue. 3owever, their o>cial mission statement is,Apple de!gn! Mac! t'e *e!t per!onal comp+ter! n t'e world alongwt' O# , L"e ork and pro"e!!onal !o"tware Apple lead! t'e dgtalm+!c reol+ton wt' t! Pod! and %+ne! onlne !tore. Apple 'a!

renented t'e mo*le p'one wt' t! reol+tonary P'one and App#tore and 'a! recently ntrod+ced Pad w'c' ! de/nng t'e "+t+re o"mo*le meda and comp+tng dece!.0 This does not sound much likea mission statement more of a list of accomplishments. Although thereis a statement used often that sound much more like a missionstatement is,Apple ! commtted to *rngng t'e *e!t per!onalcomp+tng to !t+dent! ed+cator! create pro"e!!onal! andcon!+mer! aro+nd t'e world t'o+g' t! nnoate 'ardware !o"twareand nternet o1erng!.0 This statement is all a#out inspiration andsetting goals to stand out in the world #y creating products that aresuperior to the competition. In their statement, safety is also a concern

as well, #ut it is also e&pressed how apple is always looking towardsthe future. A successful company is always looking towards the futureand getting ahead of the curve such as Apple, whose fourth !uarterearnings were almost two #illion dollars which comforta#ly puts themin the top =ve of fortune /EE companies.

Throughout the years, Apple has had a vision in terms of sellingtheir product and reaching their !uota of customer satisfaction. Forthem, they do not want to #e limited to one group of individuals+ theirvision consists of making computers and electronic products foreveryone including professors, corporate America, and students. Their

diversity does not end with computers, their iPods, iPads, and otheraccessories have shown how this company has increased theirpopularity over the years with the pu#lic. Starting from the creation,apple has always maintained their vision of diversity and consists ofmaking products and advancing those products to #etter adapt toother companies and the growing trend of new products.

The foundation of this company lies within their core values andhow they #elieve #usiness should #e ran. 7n manuelcorpas.com,apple$s guidelines are displayed and it is written as a promise. Fore&ample, a few of their promises are e *elee t'at we2re on t'e

"ace o" t'e 3art' to make great prod+ct! e *elee n t'e !mple nott'e comple4 e *elee t'at we need to own and control t'e prmarytec'nologe! *e'nd t'e prod+ct! we make0. For Apple, it is all a#outgaining a personal relationship with the consumers and to show themthat =rst and foremost, their main goal is to make sure their productare the #est. 7verseeing the day to day operations and the overallcompany can #e a di>cult jo# to say the least. From their we#siteapple.com, %'e goernance !tr+ct+re o" t'e Corporaton ! de!gned


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to *e a workng !tr+ct+re "or prncpled acton! e1ecte dec!on-makng and approprate montorng o" *ot' complance andper"ormance0. To Apple, the structure itself is #ased on having thecompany run smoothly and e4ectively and to make sure no positionhas too much power #ecause with a company of this si:e, a system of

checks and #alances is a necessity. Further e&amination of thedocument shows that each position of major power has #een displayedand a description of what they do on a day to day #asis is shown.

To Apple, their core competency consists of two things'innovative design and technology and this goes directly with theirThink ;i4erentJ campaign. Apple wants to wowJ their consumersand provide a product that will ama:e and satisfy the world. They alsowant to #uy di4erent #ecause they want to set the standard andprovide a di4erent e&perience involving such amenities as workshopsand rewarding their customers for loyalty. Another part of their core

that is not talked a#out is how they focus on lower-priced products.Fool.com talks a#out apple and their ideologies' %'e real nnoaton o"Apple5! *+!ne!! model e4po!ed t!el" w'en t'e company "oc+!ed t!core competence! on lower-prced prod+ct!. Introd+ctory Appleprod+ct! lke t'e Pod !ere! 'ae 'ad great ma!!-market appealw'c' drectly addre!!ed t'e percepton t'at Apple only catered to'g'-end market!. In!tead o" cann*al6ng t! 'g'-end prod+ct! wt'lower-co!t prod+ct o1erng! Apple ! captal6ng on an ner!e e1ect0.This is another part of Apple$s diversity, that they recogni:e that theycannot always go after high end markets #ecause that is not alwaysthe #est situation and a lot of times smaller markets are what make a

company strong. The uni!ueness with this plan is that Apple seems to#e a company that adapts on the Gy and understands what needs to#e done in order to ade!uately #e prepared for the future and in somecases, set the trend.

In order for Apple to maintain their success and continue todominate the market, they must have goals for their short and longterm future. For Apple, they want to continue to improve their productevery year and keep consumers coming #ack for more. This is part ofthe reason why they annually make iPhones and other products, thisseems to #e a statement that we are here to make you happy and to

keep you e&cited for the future. This also includes making all productscompati#le with each other, with today$s society it is all a#outsimplicity, presentation, and features. A couple of their short termgoals include'Apple Inc. plan! to keep creatng and relea!ngcomp+ter! and con!+mer electronc! t'at are more +!er-"rendly.#econdly Apple Inc. wll "oc+! more openng more !tore! een onnternatonal locaton! to 'elp ncrea!e !ale!.


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VII An%-*! o t"# Or$%n!&%t!on

Apple follows a vast di4erentiation strategy+ they di4erentiatemaking and providing high-!uality, e&clusively designed andpersonali:ed products and services. *sing this strategy they target

wide range of customers, from ordinary #eginner users to specialsneeds power-users.

May #e there is nothing more proud for Apple than their

innovations. It is o#vious from Apple history that innovations took thecompany where they stand today. For e&ample, Apple was one of the=rst, who developed P;A market, when in (BB they introduced their8ewton. In (BBC, they introduced easy-to-use iMac, and have updatedit since after. In (BBB, they developed and presented highly sta#leoperating system, and continuously update it. In EE(, made a #ig stepin digital lifestyle, when launched their iTunes and later on introduced

the iPod. In EE, Apple released the world$s fastest P" KMac /L, withdual .E3: PowerP" / processors. In 5une EEH, anotherrevolutionary product was released and upturned the whole industry,the iPhone. Steve 5o#s descri#ed it as a revolutionary mo#ile phoneand a #reakthrough Internet communications device. The iPhone wasalso the =rst Apple-#randed consumer device to run on 7S O. 7ne ofthe latest innovative products is iPad, unveiled in E(E. Applepositioned the iPad as the =rst device in an entirely new marketsegment, making the claim that it would #e #etter at many tasks thaneither smartphones or traditional laptops.

Although Apple deals in a wide range of products, the companytreats every product line in a uni!ue way. 1ach product of Apple istreated as a standalone #usiness unit. Thus, =ve main #usiness unitsshould #e distinguished' Mac #usiness unit, iPod #usiness unit, iPhone#usiness unit, iPad #usiness unit, and iTunes #usiness unit.

1ven though Apple treats each product as a separate #usinessunit, all the #usiness units follow corporate strategy adjusted to itsindustry. The fact of Apple updating its entire product at least once ayear proves their emphasis on di4erentiation. Apple$s activities ondeveloping new products and regular upgrades for e&isting ones let

them to comply with its goals and mission. Apple has the followingmission statement, Apple designs Macs, the #est personal computersin the world, along with 7S O, i9ife, iork and professional software.Apple leads the digital music revolution with its iPods and iTunes onlinestore. Apple has reinvented the mo#ile phone with its revolutionaryiPhone and App Store, and is de=ning the future of mo#ile media andcomputing devices with iPad. And following goal' Apple Inc. iscommitted to #ringing the #est personal computing, mo#ile


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communication and porta#le digital music and video e&perience toconsumers, students, educators, #usinesses, and government agenciesthrough its innovative hardware, software, peripherals, services, andInternet o4erings.J

"omparing Apple$s strategy with its competitors, it should #enoted that Samsung 1lectronics, in the =rst place, pursuing the costleadership strategy, meaning it increases pro=ts #y reducing costs,while charging industry average prices. "ontrary to Porter, who statedthat two strategies should not #e implemented in same time, Samsung1lectronics successfully com#ines cost leadership with di4erentiationstrategy, where they use their innovations wisely.

Talking a#out 3ewlett-Packard Inc. we should note that theycurrently implement a turnaround strategy, which means the strategydedicated to corporate renewal. Thus, 3P$s president and chief

e&ecutive o>cer Meg hitman outlined progress made over the pastyear to sta#ili:e the #usiness and lay the foundation for a multiyearturnaround. She noted that operating and organi:ational models have#een integrated, centrali:ed and streamlined, and a talented e&ecutiveteam is in place to e&ecute the strategy. It is o#vious that this strategyis implemented in order to #e a#le to achieve their o#jectives, whichare following'

To achieve su>cient pro=t to =nance our company growth, create

value for our shareholders and provide the resources we need toachieve our other corporate o#jectives+

To grow #y continually providing useful and signi=cant products,services and solutions to markets we already serve-and toe&pand into new areas that #uild on our technologies,competencies and customer interests+

To provide products, services and solutions of the highest !ualityand deliver more value to our customers that earns their respectand loyalty+

To help 3P employees share in the companyXs success that they

make possi#le.

Taking Microsoft "orp. we should note that they implementdi4erentiation strategy aimed on accessi#ility. They take a strategicapproach to accessi#ility #y'

"ontinuing our longstanding commitment and leadership indeveloping innovative accessi#ility solutions+

Making the computer easier to see, hear, and use #y #uilding

accessi#ility into Microsoft products and services+


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Promoting innovation of accessi#ility in the developmentcommunity and working with industry organi:ations to encourageinnovation+

%uilding strong colla#orative relationships with a wide range of

technology organi:ations to raise awareness of the importance of

accessi#ility in meeting the technology needs of people withdisa#ilities.

9et$s identify Apple$s strengths, weaknesses, opportunities and threats#y completing S7T analysis'

Str#n$t" 2#%:n##

1sta#lished #rand name

"ustomers loyalty

"ultural, fashion identity Proprietary technology

Strong research and

development capa#ilities

Strong international presence,

Apple operates in ((0 countries

;iversi=ed company, not

dependent on only one industry

Strong =nancial position

Strong product lines in Mac,

iPod, iPhone, iPad

;ependence on third party

provider

Apple$s market share is far

#ehind from major competitor

Microsoft

"ompany$s products are

e&pensive compared to

competitors$

3igher research and

development costs

3igher channel costs compared

to major competitors like ;ell eak presence in corporate

segment

Apple$s technological products

have short lifecycles

O,,ortun!t!# T"r#%t

Apple can develop good

relationship other companies

for joint ventures

;iversi=cation into related and

unrelated #usiness 1&pand hori:ons of operations

with new countries and

industries

Production of computer anti-

viruses, which are increasing

on P"$s

Powerful competitor oogle

with their Android 7S

Many similar su#stitute

products

"ompetitive products aremostly indows-#ase which

has a larger customer #ase

Media piracy' iPod users

illegally downloading music for

free instead #uying at iTunes

6ery high speed of technology


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Increasing online shopping

"orporate segment

development

Apple products are more

e&pensive than those of

competitors, thus Apple misses

a signi=cant share of market

;espite the success of Apple$s strategy, after S7T analysisseveral strategies still could #e suggested. 7ne of the strategies is aninternal growth strategy, which could #e pursued #y opening newstores in e&isting locations, starting operations in new countries,providing more of direct contact with #uyers and to #ring Applee&perience to larger amount of customers, increase online services andsales, etc. Internal growth strategy is good in following ways, it doesnot disrupt organi:ational goals, it will not #ring crushes in corporateculture, and it is relatively cheaper comparing to e&ternal growthstrategies, especially ac!uisition. The most signi=cant disadvantagesof this strategy are' it is a !uiet time consuming and in some way risky,for e&ample if start operations in new countries.

Second, strategy is a vertical #ackward integration, in this case,Apple will #e less dependent on suppliers, and will allow them tomanufacture more and #etter products, ease up control of allmanufacturing processes, and thus improve !uality. 6ertical integrationhas following advantages' improve supply chain coordination, reducetransportation cost, gain access to downstream distri#ution channels,give more opportunities to di4erentiate #y means of increased control

over inputs, increase entry #arriers to potential competitors, e&pandcore competencies, etc. It also has signi=cant disadvantages' lockcompany deeper into same industry, may re!uire drastically di4erentcapa#ilities, poses pro#lems of #alancing capacity at each stage ofvalue chain, etc.

Third, strategy is strategic alliance, which will help Apple toincrease its market share and #ecome more competitive, especiallywith Microsoft. And of course continue with their di4erentiationstrategy and #eing highly innovative. Among the advantages ofstrategic alliances are following' gaining capa#ilities, eases access to

target markets, sharing =nancial risks, achieve synergy andcompetitive advantage, enlarge company$s distri#ution channels,#roaden #usiness and political contact #ase. There are also somesigni=cant disadvantages' diverse or conGicting operating practices,cultural #arriers, clash of egos and company cultures, time consumingin terms of communication, trust-#uilding, and coordination costs,#ecoming too dependent on another =rm for essential e&pertise over


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the long-term, sharing of future pro=ts, #arriers to future =nancingopportunities, etc.

9et$s also consider Apple$s performance using key performanceindicators in the following ta#le'

Ta#le (. ey Performance Indicators 7f Apple, E(E - E(

Indicator E(E E(( E(1arnings per share

K1PSL(/.(/ H.DC 00.(/

2eturn on e!uity

K271LB. .C /.

2eturn on assets

K27AL (C.D0 .C .H

"urrent 2atio

K"urrent

Assets)"urrent

9ia#ilitiesL

.E( (.D( (./

Vuick 2atio

KK"urrent Assets-

InventoriesL)"urren

t 9ia#ilitiesL

(.BD (./C (.0C

;e#t)1!uity E./H E./ E.0BK8ote. "onstructed #y the author using the data of Apple Inc. ThreeRear Financial 3istory and ikinvest. Rear E( is #ased on three!uarters of E(.L

"onsidering key performance indicators we can see that Applesigni=cant improvements in their performance during last three years.For e&ample, earnings per share increased almost three times ifcomparing E( and E(E. 2eturn on e!uity and return on assets alsoimproved, on average #y /. Apple shows a steady improvement inde#t)e!uity ratio, which con=rms the right direction. In addition toimprovements, Apple had slight decline in current and !uick ratio, ofcourse the changes are not very signi=cant, #ut it does not show a

good trend.

VIII. An%-*! o t"# Or$%n!&%t!on;Funt!on%-Str%t#$!#

Apple as a corporation is well run and is structured properly tooptimi:e their success. Their marketing, =nance, operation, and 32


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work together for a common goal and that is the pro#lem with somecompanies, the structure itself makes it impossi#le for them to reali:ethe full potential of the company #ecause too many people havepower. The =nancial strategy is to make money #ut do it in a waywhere they don$t lose as much money trying new ideas. They feel that

they can make that money in the having the #est and highest pricedelectronics. In order to make money, you must invest and in situationsyou lose money and this also =ts into appealing to the customers#ecause they want to make money #y designing cutting edgetechnology. Apple focuses on long term employees wanting to create aconsistent company as a result most of their management team waspromoted from within. Internal hires produce #etter long term returnsfor investors. Apple$s management avoids the spot light and insteadstays focused on the company.

There a few reasons that Apple runs so smoo

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