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A- Case Summary Apple was by two college drop out students: Steve Wozniak and Steve Jobs with the motto of “Think Differently”. In the early 1980s, Steve Wozniak left the company and Steve Jobs hired John Sculley as the President of the company. After facing many failures, Apple launched its Macintosh computers for house hold users. In mid 1980s, Steve Jobs had to leave the company because of his controversial relations with the president. At that time John Sculley rejected the offer of Microsoft‘s CEO, Bill Gates to license the Macintosh operating system to Microsoft. After this refusal, Gates developed DOS operating system and in late 1980s, the competition between DOS and Macintosh decreased Apple’s sale, workforce and resignation of John Sculley. So, Apple’s current CEO planned to purchase NextStep operating system of Jobs in order to improve the Macintosh operating system. In late 90s Jobs again became the CEO of the company and be started surprising relations with Microsoft by developing a Macintosh version of office software. Apple also took cost saving measures like streamlining the product line, production of printers. Steve Jobs brought Apples’ focus on two concepts of consumer series with the prefix “I” for internet like iMac, iBook laptop and professional with prefix “power” such as PowerMac desktop and PowerBook laptop series. Under Jobs, Apple again becomes the innovator of computer market. His leadership leads the company to USB and Firewire ports, introduction of iPod and iTunes website put Apple in the digital computing age.
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Apple manages its business on geographic locations having offices in Americas, Europe, Japan and Asia Pacific. Apple’s sale is continuously growing. In the era of 2000, Apple opens 86 retail stores in USA and two international stores in Tokyo and Osaka which increases its sales. It introduces eMac line of cathode ray screen, but its most impressive and fastest growing market is of iPod line of digital music players and iTunes music store website. The three major competitors of Apple are Dell, Hewlett-Packard and IBM, however Apple also competes with Microsoft in software industry. Dell is the largest computer manufacturer with extremely low cost production strategy. Dell has entered the in the line of music against Apple by its Jukebox. Hewlett Packard is a big brand name and leading provider of technology. Apple combined with IBM enjoyed profit jointly but now Lenovo took over IBM and become a competitor of Apple. Apple’s new products like speech recognition program will help take industry into a new age of computers and is according to the company’s motto and it is hoped that it will double the profit margin in the near future. Overall, Apple is continuously growing and its future seems bright. With the slight change in their strategies, they can become giants in technology industry.
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B) SWOT ANALYSIS a) Strengths: (i) Produce innovative products by using innovative technology
(ii) Produce aesthetic / stylish products (iii)They make diversified products
(iv) Customers of Apple computers are brand loyal (v) Have technology of interacting with computer using human senses (vii)They have virus free systems (vii) First company which adapt calligraphic font style (viii) Introduce USB and firewire ports for digital connection (ix) Make music website b) Weaknesses (i) Apple has high manufacturing and inventory cost
(ii) Management is not stable (iii)Has low market share in software industry
(iv) Majority of retail stores located in U.S.A. (v) No compatibility options in their soft wares
4 (vi)Decline in sales of iMac
(vii)Less emphasis on marketing issues to create awareness for their innovative products c) Opportunities (i) Should expand on the basis of sales (ii) Should open retail stores in different countries (iii)Should target government and educational institutions
(iv) Should make compatible soft wares (v) Should capitalize on the basis of virus free systems (vi) Should introduce the speech recognition program (vii)They should focus on customized products for customers (viii)Should start making their own microprocessor chips d) Threats (i) Merger & acquisitions of competitors (ii) High cost can be a limitation in future (iii) High market share of Microsoft Windows (iv) Competition increases in music downloading sites C) Internal / External Factor Evaluation
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a) IFAS Internal Factors
Weight Rating (out of1)
(1 - 5)
0.10
3.5
Weighted
Comments
Score
Strengths (i) Produce innovative
0.35
Good R&D efforts
products Stable products to control (ii) They make
0.10
4
0.40
markets
diversified products (iii) Brand loyal
0.15
4
0.6
customers (vi) Virus free systems
0.05
2
0.10
0.10
3
0.30
and inventory cost
customer
High level of security
stylish products Enabling
0.05
2
0.10
Weakness (i) High manufacturing
end
Cutting edge, high end
(vi) Introduce USB and firewire ports
High
satisfaction level
(v) Produce aesthetic products
shocks in different product
peripherals More
0.05
3
0.15
portable
focus
development and R&D
on
6
(ii) Has low market share
in
software
0.15
4
0.6
Less awareness
0.10
3
0.30
Extremely
industry (iii) No compatibility options in soft wares
high
end
products (iv) Decline in sales of iMac
0.05
2
0.10
0.10
4.5
0.45
(v) Less emphasis on marketing issues to create awareness
TOTAL
Low
investment
in
marketing
1.00
3.45
b) EFAS Internal Factors
Weight
Rating
(out of1)
(1 - 5)
Weighted Score
Opportunities (i) Should expand on the basis of sales
Comments
Emphasize on the sales 0.10
2
0.20
of innovative products
7
(ii) Should target government and
Find a propitious niche 0.15
3
0.45
educational institutions (iii) Should capitalize on the basis of virus
Give advanced security 0.15
4
0.60
free systems (iv) Should introduce speech recognition
Give 0.10
3
0.30
new meaning to
technology
program (v) Should focus on customized products
Cater the segment in a 0.05
3
0.15
Threats (i) Mergers &
better way
Rival companies become giants and good name
0.15
3.5
0.7
0.15
4.5
0.67
It is a question for Apple
0.10
3.0
0.30
Well positioned rival
0.05
2
0.10
acquisitions of competitors (ii) High cost can be a limitation in future (iii) High market share of Microsoft (iv) Competition increases in music downloading sites
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TOTAL
1.00
3.47
D) Problem Statement “How Apple can provide differentiated products with low cost in order to maximize its market share?”
E) Alternatives (a) Continue without any change Advantages (i) Produce innovative products
Disadvantages (i)Low market share
(ii) Virus free systems
(ii) high operation and marketing cost
(iii) Brand loyal customers.
(iii) less emphasis on marketing
(iv)producing diversified products
(iv) Competing against giants of the industry
b) Should capitalize on the basis of virus free systems Advantages
Disadvantages
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(i) Increase in sales of computers (ii) Market share will increase
(i) R&D cost will become higher
(iii) Start competing microsoft on the
(ii) High marketing efforts are needed
basis of virus free softwares. (iv)New segments will be attracted.
to create awareness. (iii) Low compatibility with other
systems .
c) Should introduce speech recognition program Advantages (i) More user friendly system (ii) Open new market horizons (iii) Increase diversity of products
Disadvantages (i) Cost will increase which affects the price of product (ii) Has to maintain big data dictionary for different words of different
(iv) Capture new consumers
languages.
(v) Helps in improving brand name
d) Go for strategic alliance for producing specific products (microprocessors) Advantages
Disadvantages
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(i) Reduction in cost (ii) Reduction in product development process
(i) Contradiction between cultures of organizations (ii) Privacy of developing innovative
(iii) No compatibility issues
products will be slightly affected
(iv) Sharing of resources (v) Increased profit margin e) Go for customized products Advantages (i) Targeted niche will be highly satisfied (ii) Understand the changing
environment easily (iii) No new channel needs to be introduced for sales
Disadvantages (i) Cost will extensively increase (ii) Difficult to cater all requirements of customers along with innovation (iii) Chance of ambiguity will increase which affects the brand name (iv) Chances of failure will increse
F- Best Alternative According to the current situation, the best strategy or alternative for Apple is: “Go for strategic alliance”
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G- Reason Its reason is that no doubt Apple is going fine now but for future growth it is must to create something new and stylish while keeping the cost optimized. This does not mean that Apple start making whole product with the collaboration, instead they have to go for alliance in making high cost products. This will help Apple in optimizing cost and development process with innovation. Somehow, a problem of organizational culture conflict will occur but it is manageable. Now a days, to sustain and compete in the market companies go for strategic alliances just to reduce the cost and gain high profit margins. So, Apple should go for this strategy. H- TOWS Analysis Internal Factors
External Factor Opportunities (O)
Strengths (S)
Weaknesses (W)
(i) Produce
(i) High manufacturing
innovative products
cost
(ii) Brand loyal
(ii) No compatibility
customers
issues
(iii) Virus free
(iii) Less emphasis on
systems
marketing issues
SO Strategies
WO Strategies
(i) Capitalize on virus
Apple should
Apple should
free system
emphasize more on
emphasize on making
expansion in order
new and focus on
(ii) Introduce speech
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recognition system (iii) Target govt. and educational institutions
to increase market
creating awareness
share by developing
among the customers.
new innovative products and provide better after sale services to make customers more brand loyal.
Threats (T)
ST Strategies
WT Strategies
(i) Merger &
Apple should have
Apple should have to
acquisitions of
to keep its cost
focus on producing new
competitors
optimize by
compatible products
strategic alliance
and focus on marketing
and make high cost
its products.
(ii) High cost cab be a limitation in future
products cheaper. (iii) High market share of Microsoft
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Raio Analysis 2002
2003
2004
2005
2006
2007
208
2009
3.25
2.50
2.63
2.63
2.63
2.63
2.63
2.63
1. Liquidity Ratios Current Ratio Quick Ratio
3.22
2.47
2.59
2.59
2.59
2.59
2.59
2.59
Invetory to net working capital
0.01
0.02
0.02
0.02
0.02
0.02
0.02
0.02
Cash Ratio
3.08
2.37
2.45
2.45
2.45
2.45
2.45
2.45
Net Profit margin
1.03%
1.01%
3.43%
3.50%
3.46%
3.37%
3.32%
Gross Profit margin
27.92% 27.52% 27.29% 27.29%
27.3%
Return On Investment
1.13%
1.11%
3.33%
3.33%
3.25%
3.17%
3.09%
3.02%
2%
2%
5%
6%
6%
7%
7%
7%
127.60
110.84
81.97
81.97
81.97
81.97
81.97
81.97
3.97
4.54
2. Profitability Ratios
Return On Equity
3.42%
27.286% 27.29% 27.29%
3. Activity Ratios Inventory turnover day of Invetory Asset turnover Net working Capital turnover
0.91 1.54
0.91 1.76
6.12 1.03 1.89
6.12 1.05 1.89
6.12 1.07 1.89
1.08 1.89 13.45
6.12 1.09 1.89 15.54
6.12 1.101 1.89
fixed Assets turnover
6.31
6.69
8.32
9.90
Average Collection period
46.47
56.22
44.31
44.31
44.31
44.31
44.31
44.31
143.15
199.70
130.90
130.90
130.90
130.90
130.90
130.90
Debt to asset ratio
35%
38%
37%
37%
37%
37%
37%
37%
debt to equity ratio
54%
61%
59%
63%
67%
71%
75%
79%
Long term debt to capital
87.13
92.06
383.06
463.48
560.80
678.55
821.03
993.44
current liabilities to equity
40%
56%
53%
58%
63%
67%
72%
76%
Days of Cash
11.57
6.12
17.85
4. Leverage Ratios
Z-Value ,Index of Sustainable Growth ,And Free Cash Flow Z=1.2X+1.4X+3.3X+0.6X+1.0X X1 X2 X3 X4 X5
0.59 0.37 0.01 1.86 0.91
0.52 0.35 0.01 1.63 0.91
0.54 0.33 0.05 1.71 1.03
0.55 0.34 0.05 1.59 1.05
0.56 0.34 0.05 1.49 1.07
0.57 0.35 0.05 1.40 1.08
0.58 0.35 0.05 1.33 1.09
0.58 0.36 0.05 1.26 1.10
3.30
3.05
3.33
3.30
3.28
3.26
3.24
3.22
14 Apple,s Consolidated Statements Of Financial Positions Projected 2005-2009 (In $ millions) Period Ending Assets Current Assets Cash and Cash Equivalents Short-term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long -term Investments Property, Plant and Equipment Goodwill intagible Assets Accumulated Amortization Other Assets Deffered Long-term Asset Charges Fixed Assets Total assets Liabilities Current Liabilities Accounts Payable Short/Current Long-term Dbt Other Current Liabilities Total Current Liabilities Long term Debt Other Liabilities Deffered Long-term Liability Charges Minority Interest Negative Goodwill Total Non Curerent Liabilities Total Liabilities Stockholders Equity Misc.Stocks,Options ,Warrants Redeemable Preferred Stock Prefrred Stock Common Stock Retained Earinings Treasury Stock Capital Surplus Other Stockholders,equity Total Stockholders Equity EFN Total Liabilities And Stockholders,equity
2002
2003
2004
2005
2006
2008
2009
2,252 2,085 731 45 275 5,388 39 621 85 34 131 910 6,298
3,396 1,170 956 56 309 5,887 669 85 24 150 928 6,815
2,969 2,495 1,005 101 485 7,055 707 80 42 80 86 995 8,050
3,592 3,019 1,216 122 587 8,537 707 80 42 97 86 1,012 9,548
4,347 3,653 1,471 148 710 10,329 707 80 42 117 101 1,048 11,377
5,260 4,420 1,780 179 859 12,498 707 80 42 142 120 1,090 13,589
6,364 5,348 2,154 217 1,040 15,123 707 80 42 171 141 1,142 16,265
7,701 6,471 2,607 262 1,258 18,299 707 80 42 207 167 1,203 19,502
1,658 1,658 316 229 545 2,203
2,053 304 2,357 235 235 2,592
2,680 2,680 294 294 2,974
3,243 3,243 294 294 3,537
3,924 3,924 294 294 4,218
4,748 4,748 294 294 5,042
5,745 5,745 294 294 6,039
6,951 6,951 294 294 7,245
1,826 1,926 2,514 2,514 2,514 2,514 2,514 2,514 2,325 2,394 2,670 3,231 3,909 4,730 5,723 6,925 (56) (97) (108) (131) (158) (191) (232) (280) 4,095 4,223 5,076 5,614 6,265 7,053 8,006 9,159 397 894 1,494 2,220 3,098 6,298 6,815 8,050 9,548 11,377 13,589 16,265 19,502
EFN Total Assets Total Libilites Total Equity EFN
2007
2005 2006 2007 2008 9,548 11,377 13,589 16,265 3,537 4,218 5,042 6,039 5,614 6,265 7,053 8,006 398 894 1,494 2,220
2009 19,502 7,245 9,159 3,098
15 Apple's Income Statement Projected 2005-2009
Period Ending
2002
2003
2004
2005
2006
2007
2008
2009
Total Revenue Cost Of Revenue Gross Profit Operating Expenses
5,742 4,139 1,603
6,207 4,499 1,708
8,279 6,020 2,259
10,018 7,284 2,733
12,121 8,814 3,307
14,667 10,665 4,002
17,747 12,904 4,842
21,474 15,614 5,859
Research Development Selling General And Administrative Non-recurring Expenses Other Total Operating Expenses Operating Income or Loss
446 1,111 29 17
471 489 1,212 1,421 26 23 (1) 326
592 1,719 28 394
716 2,080 34 477
866 2,517 41 578
1,048 3,046 49 699
1,268 3,686 60 846
Income from Consulting Operations Total Other Income/Expenses Net Earning Before Interest and Taxes Interest Expense Income Before Tax Income Tax Expense Minnority Interest Net Income from Continuing Operations
70 87 87 22 65
93 92 92 24 68
60 386 3 383 107 276
73 467 4 463 120 343
88 565 4 561 146 415
106 684 5 679 176 502
129 827 6 821 213 608
156 1,001 8 993 258 735
-
1 -
-
-
-
-
-
-
Net Income
65
69
276
334
394
465
549
647
Preferred Stock and other adjustments Net Income applicable to Common Shares
65
69
276
334
394
465
549
647
Non-recurring Events Discontinued Operations Extraordinary Items Effect of Accounting Changes Other Items
Assumption Growth rate 2004 = 33.38% 2003 = 8.098% Average = 21%
