Apple Inc Performance in a Zero_Sum World Economy

Apple Inc.: Performance in a Zero-Sum World Economy

I.

Current Situation:

A. Current Performance Apple Founded in a California garage on April 1, 1976, Apple created the personal computer revolution with powerful yet easy-to-use machines for the desktop. The company designed, manufactured, and marketed a range of personal computers, mobile communication and media devices, and portable digital music players, and sold a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The company’s products and services included Mac Mac computers, iPhone, iPad, iPod, Apple TV, Xserve, a portfolio of consumer and professional software applications, the Mac OS X and iOS operating systems, third-party digital content and applications through the iTunes Store, and a variety of accessory, service, and support offerings. The company sold its products worldwide through its retail stores, online stores, and direct sales force, as well as third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In addition, the company sold a variety of third-party Mac, iPhone, iPad, and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores. The company sold to SMB, education, enterprise, government, and creative markets. The early success of Apple was attributed largely to marketing and technological innovation. In the high-growth industry of personal computers in the early 1980s, Apple grew quickly, staying ahead of competitors by contributing key products that stimulated the development of software for the computer. Landmark programs such as Visicalc (forerunner to Lotus 1-2-3 and other spreadsheet programs) were developed first for theApple II.Apple also secured early dominance in the education and consumer markets by awarding hundreds of thousands of dollars in grants to schools and individuals for the development of education software. In 1985, amid a slumping market, Apple App le saw the departure of its founders, Jobs Job s and Wozniak. As Chairman of the Board, Jobs had recruited John Sculley, an experienced executive from PepsiCo, to replace him as Apple’s CEO in 1983. in 1983. In May 2001, the company announced the reopening of Apple Retail Stores. Like IBM and Xerox, Apple had opened its own retail stores to market its computers during the 1980s. All such stores had been closed however, when Wintel-type computers began being sold by mass merchandisers, such as Sears and Circuit City, as well as through corporate websites. Apple introduced the iPod portable digital audio player, and the company opened its own iTunes music store to provide downloaded music to iPod users. Given the thorny copyright issues inherent in the music business, analysts doubted if the new product would be successful. In 2002, Apple introduced a redesigned iMac using a 64-bit processor. The iMac had a hemispherical base and a flat-panel all-digital display. Although it received a lot of press, the iMac

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failed to live up to the company’s sales expectations. In expectations. In 2004 and 2005, Apple opened its first retail stores in Europe and Canada. By November 2006, the company had 149 stores in the United States, 4 stores in Canada, 7 stores in the United Kingdom, and 7 stores in Japan. In 2006, Jobs announced that Apple would sell an Intel-based Macintosh. Previously, Microsoft had purchased all of its microprocessors from Motorola. While delivering his keynote speech at the Macworld Expo on January 9, 2007, Jobs announced that Apple Computer, Inc. would from that point on be known as Apple Inc., due to the fact that computers were no longer the singular focus for the company. In July of the following year, Apple launched the App Store to sell third-party applications for the iPhone and iPod Touch. Within a month, the store sold 60 million applications and brought in $1 million daily on average, with Jobs speculating that the App Store could become a billiondollar business for Apple. In September 2010, Apple refreshed its iPod line of MP3 players, introducing a multi- touch iPod Nano, iPod Touch with FaceTime, and iPod Shuffle with buttons. In October 2010, Apple shares hit an all-time high, eclipsing $300.Additionally, on October 20,Apple updated its MacBook Air laptop, iLife suite of applications, and unveiled Mac OS X Lion, the latest installment in itsMac OS X operating system. On November 16, 2010,Apple Inc., after years of negotiations, finalized a deal to allow iTunes to sell The Beatles’music Beatles’music at $1.29 per song. The fivemajorWeb-TVboxes were (1)Apple TV, (2) Boxee, (3) Google TV, (4)WDTVHub, and (5) Roku. On January 18, 2011, Apple announced its first quarter results, which surpassed the analysts’ ana lysts’ expected results. Key financial results are shown below: First Quarter December 31 2011 (Dollars in Thousands except per Share) Revenue $26,741 Gross profit $10,298 Total operating expenses $2,471 Net income $6,004 EPS – Basic Basic $6.53 EPS – Diluted Diluted $6.43

B. Corporate Governance Board of Directors:

Fred A. Anderson Director 61 2004 William V. Campbell Co-lead Director 65 1997

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Millard S. Drexler Director 61 1999 Albert A. Gore Jr. Director 57 2000 Steven P. Jobs Director and CEO 50 1997 Andrea Jung Co-lead Director 51 2008 Arthur D. Levinson, PhD Co-lead Director 55 2000 Jerome B. York Director 67 1997

C. Top Management The Apple Board of Directors rewarded Cook’s performance in covering for Jobs in hisday-to-day hisday-to-day operations as CEO with a $5 million bonus and $52.5 million in stock options. The company’s financial performance excelled during these six months. A side effect of Jobs’ latest announcement was the indefinite delay in the announcement of the launch of Rupert Murdock’s iPad-only iPad-only newspaper The Daily — which which had been scheduled to take place later in January 2011 in San Francisco.‖20Ashareholder proposal for the 2011 Apple’s Annual Meeting focused on asking the board for an executive succession plan and publishing the plan. The board opposed this proposal. •

Steven P. Jobs, CEO and Directors o

Directors

o

Co directors

o



William V. Campbell



Andrea Jung



Arthur D. Levinson, PhD

Executive 

Dr. Avdias ―Avie‖ Tevanian Jr.



Timothy D. Cook (COO)



Nan Nancy cy R. Heine einen n Sen Senior Vice ice Pre Presiden dent and Gener eneral al Coun Counssel



Ron Johnson Senior Vice President Retail



Dr. Avdias ―Avie‖ Tevanian Jr.Chief Software Technology Officer



Jon Rubinstein, Senior Vice President, iPod Divison



Philip W. Schiller,Senior Vice President, Worldwide Product Marketing



Bertrand Seriet, Senior Vice President, Software Engineering



Sina Tamaddon, Senior Vice President, Applications

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II.

External Environment

A. General Environment Apple Care offered a range of support options included assistance that is built into software products, printed and electronic products manuals. The company competitive factors which is affecting both the organization and the industries included price product features , product quality and reliability, marketing & distribution capability and corporate reputation. The company is focused on expanding its market opportunities related to mobile communication and media devices, including iPhone and iPad. The mobile communications and media device industries are highly competitive and included several large, well funded, and experienced participants. (In 2010, only AT & T was the carrier for the iPhone. Verizon began selling a version of the iPhone in early 2011. AT & T activated 11 million iPhone accounts in the first nine months of 2010. Before Verizon, the iPhone had been exclusive to AT & T since its launch in 2007). The company managed its business primarily on a geographic basis. The company’s reportable segments considered of the Americas, Europe, Japan, Asia-Pacific and Retail. The Americas, Europe, Japan, Asia-Pacific reportable segments did not include activities related to the Retail segment. The company’s iPod and digital content services faced significant competition from other companies. Marketing condition (Only large companies and government were the potential customers since retail buyers only accoun ted for 47% of sales). In summary, Apple Inc., together with subsidiaries, designs, manufactures, and markets mobile communication and media devices, Its products and services include iPhone, iPod, Mac, iPod, a range of consumer and professional software applications. The company sells its products and services to consumers

B. Industrial Environment Every market including the financial industry can be evaluated through the use of Porter's fiveforce theory. Porter's uses the five forces, supplier power, barriers to entry, threat of substitutes, buyer power, and the degree deg ree of rivalry, as tools that help analyze anal yze a company's position against its competitors Threat of New Entrants:

Startup costs are extremely high so the probability of new entrants is low. The existing companies have capitalized on the distribution channels and have created strong branding awareness that makes it difficult for new comers to compete. Bargaining Power of Suppliers:

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Bargaining Power of Suppliers adjust pricing and quality to make their products more attractive so competition is high leaving them in a low supplier power position. Bargaining Power of Buyers :

All of Apple's customers have a variety of computer companies from which to chose when it comes to purchasing hardware, software, or peripherals. Switching costs are low. The buyer has the ability to switch when quality, service or price p rice offered elsewhere is better or cheaper. This situation places the buyer power in a strong position that can only be countered count ered by companies with strong product differentiation that would increase the switching costs. Threat of Substitute Products:

Apple's operating system differentiation can command higher pricing whe n it is presented to the creative designer community but not to the individual computer buyer unless they are specifically looking for such enhanced graphic capabilities.

Rivalry among competing Firms:

Apple has many competitors that have the advantage of possessing the larger portion of market share. Apple is faced to compete compe te against companies like IBM, Hewlett-Packard, and Dell. Even a smaller company like Gateway poses a threat. Competition is fierce in the computer hardware h ardware industry and switching costs are low. Apple is also reliant on promoting its own operating system.

C. Summary of External Forces The opportunities Apple's pursuit of the music industry through its iTunes also provides a good opportunity to increase Apple's bottom line and also increase brand awareness. The main Threats is Very competitive industry The market for design, manufacturing, and sales are all extremely competitively aggressive in Apple's business.. Price competition, including sellers with computers with other operating systems, has been very intense as the battles for increased market share rise.

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III.

Internal Environment

A. Corporate Culture The company managed its business primarily on a geographic basis. The company’s reportable operating segments consisted of the Americas, Europe, Japan, Asia-Pacific, and Retail. The Americas, Europe, Japan, and Asia-Pacific reportable segments did not include activities related to the Retail segment. The Americas segment included both North and South America. The Europe segment included European countries, as well as the Middle East and Africa. The AsiaPacific segment included Australia and Asia, but did not include Japan. The Retail segment operated Apple-owned retail stores in the United States and in international markets. Each reportable operating segment provided similar hardware and software products and similar services. Each of the five operating centers c enters is discussed below. 1. 2. 3. 4. 5.

Americas Europe Japan Asia-Pacific Retail

B. Organizational Activities Analysis Marketing: Finance: Operation and Logistic: Human Resources Management:

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C. Capabilities/ Core Competencies D. Summary of Internal Factors

IV.

Analysis Strategic Strategic Factors Factors

A. SOWT Analysis

V. VI.

Identification Identification of Strategic Issues Strategic Alternatives and Recommendations

Consider cost leadership and differentiation as business strategies. Consider stability, growth, and retrenchment as corporate strategies. Consider any functional strategic alternatives that might be needed for reinforcement of an important corporate or business strategic alternative D. STRATEGIC ALTERNATIVES

Apple’s strengths can be attributed to many many factors. First, Apple’s premium premium-price -price or product differentiation strategy as well as their retail strategy have proven to be essential to Apple’s Apple’s past and will continue continue to play a vital role role in Apple’s future. future. As a result of their past success as recognition as innovators, Apple has attracted the attention of many many companies whom have recognized Apple’s potential for successful strategic alliances For example, Apple’s successful alliance with AT&T, provided provided Apple Apple with the opportunity opportunity to improve improve their iPhone’s iPhone’s technology. Apple was able to the lower the iPhone’s price to consumers, consumers, as well as, up-grade the i phone’s phone’s network coverage. In addition, Apple entered entered into partnerships with YouTube and Google in order to provide their iPhone users with cutting edge ―search, mapping, and video features‖. These partnerships allow Apple to further differentiate their products and add value to their users. Similarly, Apple’s reputation as a STRATEGIC ALTERNATIVES Apple’s strengths can be attributed to many factors. Some customers do not recognize the value that Apple’s attempts to create for their customers. Price sensitive consumers are reluctant to buy Apple’s products. Similarly, customers seeking highly customized computers may not choose Apple.

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For example, Dell, one of Apple’s biggest competitors and one of the top four P.C. producers, offers customers array of bundling options when purchasing a computer. This allows customers to choose hardware and software components as well as somewhat control the price price of the computer. computer. Instead, Apple offers offers their computer customers packages with very few customization options. Secondly, a problem for Apple exists in their reliance on Apple’s C.E.O., Steve Jobs. Jobs has been a guiding force at Apple, acting as Apple’s savior when the company saw their lowest financial numbers in 2002. Steve Jobs was responsible for Apple’s expansion and the introduction of one of Apple’s most profitable products, the IPod. There is a question as to if Apple could continue to operate as they do currently in the absence of Steve Jobs. Still, there are alternatives to Apple’s current problems In regards to Apple’s low market issues, an alternative would be to add a product with a lower p rice point to Apple’s current product line. Similarly, an alternative to Apple’s reliance on Steve Jobs, would be to create another executive position for someone act as liaison between Apple’s top executives and Jobs. Thus, Thus, preparing Apple Apple for the post Steve Jobs era. In lieu of their drawbacks, Apple is still presented with opportunities to experience growth and success. Apple has established itself as a continuous continuous innovator in the ever changing electronics Apple is continually working to produce products with improved compatibility, allowing their customer more flexibility and increasing the ease-of use of their products. By continuing with their premium price or price differentiation and retail strategies Apple can continue strive and uphold their reputation as an innovator in the electronics industry. E. RECOMMENDATION

When Apple first entered the computer industry, they were first movers. They were able to revolutionize the way home computing co mputing was both viewed and accessed. This naturally have them a large market share, especially with the huge successes of the Apple II. However, IBM soon entered the market with a more user friendly and compatible computer and Apple saw their market share on the industry drop dramatically to 6.2%. Ever since then, Apple has trailed the computer industry leaders in market share However, in more recent years, they have seen many successes from targeting a smaller market of trendy, higher quality customers that

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are devoted to their company. While maintaining a low market share of the computer industry, Apple has continued to produce a quality product. This quality has been seen throughout all of its many products and is not viewed as a lesser product compared to the competition. In addition to the quality, Apple has always been able to make more of a profit off of its computers than other distributors. Because of the reliance of companies like Dell and HP on Microsoft's Windows operating system, almost half of their revenues are cut by paying back Microsoft for using their product. This quickly turns Apple's small market share into an extremely profitable market share. Apple’s low market share is turning far more profit per percentile than their competition because while Apple is making money, the other companies are usually only reaching their break-even point or slightly above.In addition to the competition that is seemingly strangling Apple's computer market share they must also battle against an economic downturn that has affected the whole industry. While all companies have seen a slow in sales and a loss of profits, Apple' has seen a greater loss in its computer revenues. Because of the nature of Apple's products, they are seen more as high-end items and more expensive luxuries rather than as necessities. Because of this many people are buying cheaper, lower quality computers co mputers from customized manufacturers manufacturers in order to save money. Normally, this would lean Apple towards developing a lower priced computer that could compete with these personal computer models However, this strategy has been tested before with the Mac Mini. What Apple found was that the sales of the Mac Mini were cannibalizing on the sales on other, more expensive models. This previous failure should be viewed as a warning and disclaimer against any further pushes into the low-cost market. One Apple product that will never be viewed as a failure is the iPod. Contrary to Apple's computers, the iPod has a giant lead over the competition when market share is concerned. Because of its success, it has introduced an entire generation to the Apple brand. By using the iPod as a gateway, Apple will continue to push its trendy image to new customers in order to gain more and more computer customers. Apple will look at further expanding on their small but efficient market share. However, with the current Microsoft user base, it is going to be increasingly difficult. The company will focus on its core competencies in order to stay successful. Apple's customers are incredibly dedicated. Many people that buy Mac

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computers continue to buy more Mac computers as well as other Apple branded products, hardware, and software. Even though this is deemed as a niche market, Apple would be foolish to try to take the world of Microsoft and PC distributors head on. The difference in market shares is far too large. By focusing on their current customers and slowly expanding this base, Apple will try to better position itself for a future attempt to capture back the market share that it maintained many years ago. During the time that Jobs was absent from Apple, the company had a long period of ups and downs. New products were released to both success and failures. It was during this time, however, that their status as a niche market retailer began to form. Apple customers were extraordinarily extraordinarily loyal. Many people were buying IBM and other personal computers computers because they had a need for the devices. On the other hand, many people were buying Apple brand computers because they wanted an Apple machine. Due to this increasing amount of dedication to the company, Apple was able to charge a higher price for their high-end, high-quality computers. This allowed them to stabilize financially as well as discover a new identity as a company. After this new identity was established and Steve Jobs was reestablished as CEO of the company, Jobs was able to take this identity and expand on it. By targeting their now niche market, he was able to follow a product differentiation strategy to turn the company around. With the release of the iPod and iPhone, he was able to tap into markets and succeed in areas that were previously never explored or considered. Even though the deficit in computer industry market share remained relatively unchanged, Jobs’ foresight allowed Apple to reach new levels of profitability and success. Whether the Apple enthusiasts like it or not, Steve Jobs will not be around forever. While he has done great things for the company, he has left Apple in a precarious situation. What will Apple do when he leaves? Apple's last response to not having Steve Jobs as their CEO was eventually to rehire him as CEO. In order to survive once he is no longer leading the company, Apple needs to begin depending less on Steve Jobs and balancing responsibilities throughout the company and among select individuals. In order to prepare for Jobs’ future absence from the company, Apple will look ahead and find a future replacement for Jobs. In order to sustain peace in the Apple world, such a replacement will preferably be chosen by Jobs himself. That way, the replacement will be able to learn and continue Jobs’ success

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as the company when Jobs’ role was reduced to that of a chief advisor or to that of no role at all. Continuing the Jobs to prepare for Jobs’ future absence from the company, Apple will look ahead and find a future replacement for Jobs. In order to sustain peace in the Apple world, such a replacement will preferably be chosen by Jobs himself. That way, the replacement will be able to learn and continue Jobs’ success as the company when Jo bs’ role was reduced to to that of a chief advisor advisor or to that of no role at all. Continuing the Jobs

VII. Evaluation and Control In the long term A&F should continuously look for more opportunities to invest in overseas for expanding into the European and Asian markets. And for the short term, A&F could emphasize on online shopping, sponsoring college events, re-evaluating the needs and preferences of its target market, improve its customer service and review the choice of magazine were A&F places ads. With such a dynamic management team and the desire to the specialty apparel by storm, they configure out a way wa y to remain exclusive without being insulting and hurtful. h urtful.

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Apple Inc Performance in a Zero_Sum World Economy

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