Apple Incorporation - Case Analysis
Apple Incorporation
Case Analysis
Submitted by:
Billy Sainz
MGT 6359
Dr. Jifu Wang
University of Houston - Victoria
Fall 2004
Table of Contents
Executive summary 04
Company history 04
Company Strategy 05
External analysis 07
General environment analysis 07
Demographic segment 07
Economic segment 09
Political/legal segment 10
Socio-cultural segment 11
Technological segment 12
Five forces model of competition 12
Threat of new entrants 12
Bargaining power of suppliers 13
Bargaining power of buyers 13
Threat of substitute products 13
Rivalry among competing firms 13
Opportunities 13
Threats 14
Industry Structure 16
Market size 16
Industries' dominant economic features 16
Distribution channels 16
Competitors: strongest - weakest 16
Rivals anticipated strategic moves 17
Economies of scale 17
Key success factors 17
Technology related 17
Manufacturing related 18
Distribution related 18
Marketing related 18
Skills related 19
Organizational capabilities 19
Driving Forces 20
Internal Analysis 22
Organizational description 22
Corporate Vision/Mission 23
Long and short range objectives 23
Financial objectives 23
Strategic performance 24
Employee relations 25
Products and services 25
Corporate culture, values, and morals 26
Core competencies 26
Financial Performance 27
Liquidity 27
Merchandise inventory turnover
Current ratio
Inventory turnover in days
Operating cycle
Profitability 28
Return on assets
Return on operating assets
Return on total equity
Net profit margin
Gross profit margin
Long Term 29
Debt ratio
Debt Equity
Debt to tangible net worth
Investor 30
Earnings per share
Price/earnings ratio
Percent of retained earnings
Dividend payout
Dividend yield
Year-end market price 30
Strengths 31
Weaknesses 33
Recommendations 34
References 38
Executive Summary
Apple Computers started the movement into the personal computing arena in 1977 but through changes in management and differences of opinion together with missed opportunities it lost its competitive advantage to companies like Microsoft, Dell, and Gateway. Apple operates in various lines of the computer and music industry today and its operations include not only the designing but also the manufacturing of its computers and software. Apple continues to pursue the personal computer market but not as intently as in the years before. It has opted to change directions a little by venturing into the music world through the marketing of iPod, a digital music player, and iTunes. The opening of 65 new retail outlets, including one in Japan, has precipitated its move into this new world.
Apple continues to work on providing innovative products for its customers but marketing to such as small market has caused some problems. Its market share has been reduced to below 5% and its operating system differs considerably from the Wintel operating system used my dominant Microsoft. Costs of maintaining this difference have increased in comparison to those utilizing the competitive operating system. Software designers are not as enthused about writing programs to support Apple's operating system because of limited potential sales. The advantages that seem to come into Apple's laps are quickly removed because competitors are able to copy, steal, and share them. The one advantage that Apple possesses is its operating system but it has failed to convince the world of its superiority. The operating system in possession has not encountered the problems that Microsoft and its fellow operating systems have encountered. Microsoft upgrades have been plagued with virus and other programming problems, including the ability of hackers breaking into the system and accessing ones computer from another remote spot.
Apple has not capitalized on these problems. It has gained a few customers but nothing in the numbers required to turn the company upwards in reclaiming considerable market share. Apple customers are a devoted group that understand the superiority that they possess but convincing the other 95% of the world because a rather large task.
This case study is to begin with a general environmental analysis that will encompass the demographic, economic, political/legal, socio-cultural, and technological segments. It will cover Porter's five forces and provide insight of the opportunities and threats that Apple faces. The industry structure will be dismantled so that market size, distribution channels, strongest and weakest competitors, and anticipated strategic moves of rivals is captured. Economies of scale and key success factors will be listed along with financials so that a direction can be logically surmised. An internal analysis will also be included so that Apple's mission, vision, and financial objectives are understood. Products and services will be dissected, as will its corporate culture, values, and morals. The core competencies will be noted together with value chain analysis so that Apple can better define it true advantages for continued successful operation in the future. Recommendations will be provided, listing the pros and cons of each, so that Apple management can consider implementation for strengthening their position within the computer and digital music industries.
Company History History of Apple, (2004); History of Apple, Inc. (2004)
In April 1976, college dropouts, Steve Wozniak (26 years old) and Steve Jobs (21 years old) founded Apple Computer. They actually partnered up a few years before when Wozniak, was a self-taught engineer, began building boxes that allowed people to make long-distance phone calls for free. The sell of a few hundred of the boxes led to a continuation that resulted in Wozniak working on the Apple I computer box. The team had sold their van and two calculators to raise the $1300 in start-up money prior to building them in Job's garage. The team sold over 200 to computer hobbyists in the San Francisco Bay area. Wozniak began working on the Apple II and Jobs hired high school computer enthusiasts for building of circuit boards and for designing software. Steve Jobs came up with the idea of placing the circuitry into an attractive modular beige plastic container. Both were trying to provide customers (computer enthusiasts) with a smaller user-friendly computer.
Jobs sought the help of Regis McKenna, a successful advertising relations firm owner, to develop an advertising strategy for the company. McKenna designed the Apple logo and advertised it personal computer magazines. By June 1977 sales reached $1 million and in 1978 they increased to over 35,000 computer sales. Growth continued at miraculous rates that in 1980 the company went public and sales were up to $117 million. Wozniak left three years later and Steve Jobs hired Pepsi Company's John Scully as president. The company experienced a few failures and in 1984 the unveiling of the Macintosh set the stage for Apple's rise and recognition as a household name. Jobs and Scully difference of opinion led to Jobs leaving in 1985. This is about the time that Bill Gates and Microsoft were asking Apple to license its products and make the Microsoft platform an industry standard.
Apple had established itself as a player in the corporate world with entry into the desktop publishing world, with the Mac Plus and Laser Writer printers. Competition in the late 1980s from the Microsoft Windows operating system combined with Apple's failure of the Newton hand-held computers caused earnings to drop dramatically. John Scully resignation and the workforce reductions took its toll as the company tried to shift gears to licensing its operating system to Macintosh clone producers. The strategy of marketing the licenses with intent of building market share actually backfired and lost Apple considerable amount of money and market share. Software was created to allow the Macintosh to connect to IBM-based systems and Apple's sales soared to over $4.07 billion.
In 1997, CEO Gilbert Amelio purchased Steve Job's company NeXT software with hope of creating Apple's next generation operating system. The move did not work and in 1998 CEO Amelio was thrown out and Jobs was placed back into the CEO position. Jobs quickly moved into a deal with Microsoft, cut cloning company licenses, stopped production of Newton handheld devices and printer products, and integrated its Claris software into its main offices. During this timeframe, Apple successfully introduced the iMac and iBook product lines and continues to push them in the consumers and education markets. It also has G4 portable and desktop versions that are marketed with focus on the designing and publish markets.
Company Strategy History of Apple, (2004); History of Apple, Inc. (2004)
The transformations that occurred during the years from inception to present day have included many strategic management variations that drove the equipment and software changes. Wozniak and Jobs initial strategy was to create a small desktop user-friendly computer for the computer enthusiasts. Strategy shifted to manufacturing of the Apple II for the consumer industry. As sales increased, management continued to alter its strategy in order to capture as much market share as possible. It decided to work on the Apple III so that it could break into the office market dominated by IBM. This drive became so strong that Apple prematurely released the Apple III without it undergoing extensive line testing. The product was defective, production was halted and problems repaired but Apple never sold as many of the Apple IIIs as it did of the Apple II. Some management decisions in strategic direction do prove to be wrong so Apple management regrouped and increased R&D spending to the tune of $21 million. Jobs was determined to create an un-intimidating computer that anyone could use and he pushed this strategic concept by introducing the Lisa computer complete with mouse, hand-controlled pointer, and displayed pictures that substituted for keyboard commands.
The strategy shifts can easily be compared with the increase in the customer focus. The move of the spotlight from the computer enthusiasts to the office market consumer is a large increase in directional focus. Jobs vision was to create a "people's computer" designed for people with little technical knowledge. During this trek it was suppose to take away some of IBM's business office market share. The introduction of the Macintosh in 1989 did do that but it was a short-lived core competency that could easily be duplicated. In fact, in the same year, IBM marketed a new operating system that mimicked the Macintosh's ease of use so Apple began to look at multi-tasking functions. During his time as CEO, John Scully had moved the company into the consumer and education computer industry. Apple had also expanded into the global markets during its first few years.
The best of strategies cannot overcome the problems that result due to management unrest or battle of strength amongst management. When Scully was forced out, Michael Spindler licensed Apple's technology to outside firms that eventually ate away at profits. Spindler was also responsible for the introduction of the Power Macintosh in the mid 90s that served as another example of Apple having the right products needed by the market but not the right people to help promote them. Management under Spindler grossly underestimated demand and the resulting $1 billion of unfilled orders caught the eyes of Wall Street and the stock plummeted 15 percent.
Gil Amelio replaced Scully and drastic directional change ensued but even his best-cost cutting strategy took the company from a $70 per share price to $14 and market share decreased from 16 percent to 4 percent. The strategy was good but management was not. Amelio did accomplish the purchase of NeXT along with bring Steve Jobs back as the advisor that eventually took his job. Strategy was realigned with the intent of what had once been. Jobs cut out the licenses, eliminated 15 of 19 products, and withdrew Apple from the printer, scanner, and portable digital assistant business. Apple, under the direction of Jobs, became focused on desktop and portable Macintoshes for professional and consumer customers.
The move was a refocusing of Apple's strategy to supplying a computer that was not only reasonably priced but also popular. Ten months of hard work resulted in the introduction of the iMAC so as the 1990s exited Apple had refocused its strategy as a pared-down version of its previous self. Apple is presently concentrating its business strategy on the digital hub, retail, and the educational sectors. Apple's 2003 annual reports noted that it is committed to bringing the best possible personal computing experience to students, educators, creative professionals, businesses and consumers around the world. It will do this through it innovative hardware, software, peripherals and Internet offerings, including Mac(tm) and the iTunes(r) Music Store(tm). Apple believes that personal computing has entered a new era. It seeks to provide a pathway for linking digital devices so that the consumer can add value through the interconnectivity. Apple feels that its position in being the only personal computer company that designs and manufactures the entire computer provides it an advantage in positioning to offer digital hub products and solutions.
Apple continues with its 2001 program of retailing. It opened 65 retail stores in 2003 and nine during the first quarter of 2004. One of the stores in 2004 was Apple's first international store located in Tokyo, Japan. Stores are strategically located in quality shopping malls and in urban shopping districts. The retail outlets are intended to expand its customer base by bringing in first time computer buyers and attracting those wanting to switch to the Macintosh platform. It can control the retail experience and enhance it by employing knowledgeable personnel and by providing post-sale advice and support. It also offers many third-party products that complement the Company's own products.
Apple continues to provide technological products for the educational sector. It feels that classroom instruction will be enhanced through the integration of technology and that students will be able to attain higher levels of achievement while schools maximize their investments. The last important business strategy sector is the creative profession. This sector is one of the most important markets for Apple's hardware and software products. The company designs its hardware solutions with the creative professional in mind. Specific customer focus is part of Apple's strategy.
External Analysis
General environment analysis
Companies engaged in manufacturing electronic computers are listed under SIC code 3571 and/or NAICS code 334111. Electronic computers are machines that 1) store processing programs and data necessary for program execution, 2) can be freely programmed to user requirements, 3) perform arithmetic computations, and 4) execute processing programs that requires modification of execution by logical decision without human intervention. Personal computers fall into this category (OSHA, 2004).
The electronic computer industry has been struggling since early 2000 when the economy weakened. The US Census Bureau reported a decrease in computer shipments from 1999 $64.7 billion to 62.9 billion in 2000 and continued downward to $49.3 billion in 2001. Unit shipments also declined from 27.2 million (2000) to 22.7 million in 2001.
Rising unemployment and anticipated war with Iraq assisted in reducing the number of computer purchases. The terrorist attack on the Pentagon and the Twin Towers in New York City also added to the decrease. Much equipment was available at reduced costs due to the bankruptcy of many Internet companies in the early 2000s. IDC also reported in 2001 that Dell, Compaq, Hewlett-Packard, and IBM controlled over 40 percent of the world PC shipments. Hewlett-Packard purchased Compaq and became a formidable power competitor for Dell. The control of this large a portion of market share is something Apple would have to contend with each step of the way (Electronic Computer Industry, 2004).
Demographic segment
The United States population 2003 census data was estimated at 281,421,906 inhabitants and Oct. 05, 2004 is estimated at 294,444,408. This is an increase of 13 million people in just a little over four years. Increases in population combined with the advances in technology will continue to drive increased sales in future computer markets (Factfinder.census, 2004).
The same Census bureau report broke down the ages into the groups listed in the Table01 below. Americans begin using computers in the early years so the younger age data are listed on Table 02. Survey of the numbers easily points out that a majority of the American population is of age to readily use a computer in some form or fashion. Even some of the older generations are experimenting with computer use. USA Today back in September 1997 published an article that claimed that 10% of seniors own a PC and that 25% of those have Internet access (USA today, 1997 and www. census.gov, 2004).
Table 01
Median age (years)
36.0
35.8
36.2
8 years and over
210,275,463
210,248,306
210,302,620
21 years and over
99,698,589
99,625,188
99,771,990
62 years and over
40,626,693
40,553,362
40,700,024
65 years and over
33,896,172
33,867,171
33,925,173
Male
4,380,551
4,359,090
4,402,012
Female
9,515,621
9,494,235
9,537,007
Table 02
Under 5 years
9,679,781
9,653,996
9,705,566
5 to 9 years
9,741,730
9,636,901
9,846,559
0 to 14 years
21,144,669
21,038,575
21,250,763
5 to 19 years
8,856,479
8,810,858
8,902,100
Tables taken from U.S. Census data http://www.census.gov/acs/www/Products/Profiles/Single/2003/ACS/Tabular/010/01000US1.htm
The domestic populace included 84 percent of people 25 years and over who had at least graduated from high school and 27 percent had a bachelor's degree or higher. The group also included approximately 8 percent dropout rate of the 16 to 19 year old group. Enrollment for 2003 was 75.1 million students. The median income was $43,564 of which 80 percent of the households received earnings and 17 percent received retire income other than Social Security. Thirteen percent of the population was considered to be living in poverty.
The group's occupational status was broken down into the following categories by percentage.
34 % Management, professional, and related occupations,
36% Sales and office occupations,
16% Service occupations,
13% Production, transportation, and material moving occupations,
10% Construction, extraction, and maintenance occupations (Census.gov, 2004)
The world population estimation for 2005 is 6,449,000,000 people and for 2010 it is 6,812,000,000. Increases for the future can be see in Table 03. The computer industry will be required to support the increases. The computer industry is growing rapidly in the Asian market and number indicates that a majority of the population growth will be concentrated into that area.
Table 03
Economic segment
Computer requirements are increasing across the globe. Data collected and shown on Table 04 has all but 4 countries increasing the number of computers being used per 1000 individuals within each respective country. The data was not restricted to PC type computers but listed computer use in general so Apple computers were included within the data gathered even though it is undergoing a market share loss of computer sales. Table 05 further supports the increased use.
Table 04
Computer by Country
Rates per 1,000 persons. See text of this section for general comments about the data.
YEAR
2000
2001
YEAR
2000
2001
YEAR
2000
2001
Algeria
6
7
Guatemala
0
3
Panama
32
36
Argentina
51
91
Honduras
0
2
Peru
36
49
Australia
465
516
Hungary
85
00
Philippines
20
22
AustriA
276
335
India
5
6
Poland
69
85
Belgium
344
233
Indonesia
0
1
Portugal
05
17
Brazil
44
63
Iran
56
70
Puerto Rico
(NA)
(NA)
Bulgaria
27
(NA)
Iraq
(NA)
(NA)
Romania
27
36
Canada
390
460
Ireland
365
391
Russia
43
50
Chile
85
07
Israel
254
246
Saudi Arabia
57
63
China
6
9
Italy
209
95
Singapore
483
508
Colombia
34
42
Jamaica
43
50
South Africa
62
70
Cuba
0
20
Japan
315
349
Spain
43
58
Czech Republic
22
46
Korea, South
90
461
Sweden
507
561
Denmark
432
540
Kuwait
21
20
Switzerland
502
538
Dominican Republic
(NA)
(NA)
Lebanon
46
60
Syria
4
6
Ecuador
20
23
Malaysia
05
26
Taiwan
225
253
Egypt
2
6
Mexico
51
69
Thailand
24
28
Finland
396
424
Morocco
1
4
Turkey
38
41
France
305
337
Netherlands
395
429
United Kingdom
338
366
Germany
336
382
New Zealand
360
393
United States
585
625
Ghana
3
3
Norway
491
508
Uruguay
00
10
Greece
70
81
Pakistan
4
4
Venezuela
46
53
http://www.census.gov/acs/www/Products/Profiles/Single/2003/ACS/Tabular/010/01000US1.htm
Table 05
Exports felled from $9.6 billion in 2000 to $8.8 billion in 2001 with Canada being the largest regional market for US computer sales (23% of U.S. exports). Asia and Europe accounted for two-thirds of the total exports. Imports of computers dropped from $13.6 billion in 2000 to $12.2 billion, a 15 percent drop. Most of the imports are from Asian sources with Latin America and Europe serving as secondary sources (Electronic Computer Industry, 2004).
Political/legal segment
Apple faces political/legal segment issues both domestically and abroad. Domestically the Federal and State government continues to tighten up on the environmental issues that constrain manufacturing and disposal of the units.
Environmental concerns are issues that directly affect each computer manufacturer. The Environmental Protection Agency updated EPA/310-R-95-002 "Profile of the Electronics and Computer Industry Code in the September 1995. This document provides directives that must be adhered to by companies manufacturing computer components (EPA site, 2004). Apple has willfully promoted the buyback and proper disposal of computer parts in effort to promote product stewardship (Table 06) from the environmental perspective (Apple website, 2004).
Table 06
Apple Environmental Programs
990
Apple's environmental policy released and implemented
991
Phase-out of lead in batteries in advance of the 1996 European battery directive
992
Phase-out of chlorofluorocarbons (CFCs) in Apple manufacturing, as stipulated in the Montreal Protocol on Substances That Deplete the Ozone Layer
Founding member of the U.S EPA ENERGY STAR(r) product labeling program, developed to identify and promote energy efficient computers and monitors
994
Phase-out of NiCad batteries in advance of the 1996 European battery directive
996
First voluntary Apple product take-back program initiated in Germany (gradual expansion to other regions)
First Apple manufacturing site (Sacramento, CA) ISO 14001 certified
997
First Apple products TCO (Swedish Confederation of Professional Employees) certified
999
Introduction of the Apple Product Environmental Specification (APES) files
2000
All Apple manufacturing sites ISO 14001 certified ...
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Founding member of the U.S EPA ENERGY STAR(r) product labeling program, developed to identify and promote energy efficient computers and monitors
994
Phase-out of NiCad batteries in advance of the 1996 European battery directive
996
First voluntary Apple product take-back program initiated in Germany (gradual expansion to other regions)
First Apple manufacturing site (Sacramento, CA) ISO 14001 certified
997
First Apple products TCO (Swedish Confederation of Professional Employees) certified
999
Introduction of the Apple Product Environmental Specification (APES) files
2000
All Apple manufacturing sites ISO 14001 certified worldwide, signifying that Apple has a structured environmental management system (EMS) in place to manage the environmental impact of our operations
2001
Apple's complete product portfolio meets applicable ENERGY STAR(r) requirements (also in 2002/2003)
Started voluntary phase-out of tetrabisphenol A (TBBA) in all plastic enclosure parts > 25 grams
2002
Product take-back solutions implemented in U.S. and Japan
Roll-out of Apple's global Regulated Substances Specification
Signatory of European Union Code of Conduct on Power Supplies, created to encourage manufacturers to design power supplies that minimize energy consumption in off mode
Founding member of U.S. Federal Energy Management Program (FEMP), which introduced energy efficiency requirements for the off mode of computer products
2003
Implementation of supplier survey initiative on substance use
http://www.apple.com/environment/policy/successes.html
The global market differs in its segmentation depending upon which country is involved. Different countries impose varied restrictions on the equipment components and its use once it is operational. China can be used to simplify explanation of some issues. China began allowing computers into its borders in the early 1990s but still places restrictions on its use. It also controls whom, how, and what negotiations take place between foreign companies and local Chinese companies. It limits citizen Internet activity once machines are operational. High tariffs combined with government regulations to prohibit foreign companies from trading directly with the Chinese companies (Kraemer, 2004).
Foreign companies often favor the local companies over the foreigners trying to manufacture within their borders. In many cases additional tariffs are imposed on foreign competitors. International trade regulations also differ between countries with some being lucrative initially but changing in favor of the local company as time progresses. Apple faces the battle of overcoming the market dominance of the PC based computers but does have tremendous opportunity present in the iPod and music associated industry.
Apple and fellow computer companies have recognized that pirating and copying is more easily done in some countries than in others. The laws are in effect in both places but one is more apt to prosecute than the other. This illegal activity directly affects the bottom line for every company involved.
Socio-cultural segment
Cultures are restrictive and the restrictions have effects on company profitability. China Internet traffic increased by 71% from 1997 to 1998 and continues to do so as we approach 2005. Some technological changes are more readily accepted than others. Chinese people still have trouble accepting credit card transactions since the initial cost of computerization is high. Internet sales in many overseas countries are not as successful as in the United States and Europe because many of the customers prefer to view the products they are purchasing. The same applies to other parts of the world so the computer companies have to adjust according to the cultural differences being encountered within the different countries in which they chose to market and sell.
Adapting to the differences in culture is not very easy and some manufacturers are trying to build value into their company name. This is being done in hopes that branding will eventually equate with honesty, integrity, quality, and good service so that storefronts will not be as necessary as they presenting are. Apple computer began opening storefronts in the United States in effort to compete against the PC based companies. Their thought is that by having it available for the customers some will eventually make the switch away from the PC-based systems.
The largest socio-cultural hurdle for companies such as Apple is the lower educational standards of many countries. While many are making great progress, they are limited in number. Those that are progressing can take advantage of the outsourcing that is being done by American companies.
Technological segment (Electronic computer industry, 2004)
The governmental has always favored the computer industry's research and development and it has shown favor by the amount of funding that is made available. This trend has held true since the Cold War. It was just recently that any significant cutbacks occurred and the industry has been unable to make up the difference. Most computer companies began to cut back the amounts of R&D funding in the early to mid-1990s and also began to focus on the short term. Product life cycles have been shortened and the computer has become an everyday commodity.
Many of today's technology driven innovations that are being developed affect the microprocessors, semiconductor, memory storage, and speed capabilities of the computer units. Miniaturization is definitely on top of the required changes for the future. Everything seems to be getting smaller and with the decrease in size comes integration of multiple technologies. Phone, PDA, and Internet modules are being combined into one piece of equipment. Telephones, video players, answering machines, and televisions sets are being intermeshed. The future of technology seems endless.
Five Forces Model of Competition
Every market including the financial industry can be evaluated through the use of Porter's five-force theory. Porter's uses the five forces, supplier power, barriers to entry, threat of substitutes, buyer power, and the degree of rivalry, as tools that help analyze a company's position against its competitors (QuickMBA site, 2003).
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. The probability of success is so low that competitors pursue niche markets rather than trying to compete with the bigger companies. Apple positioned itself years before so it has created its space in the computer industry just as IBM, Hewlett-Packard, Gateway and Dell.
Bargaining Power of Suppliers:
The suppliers are plentiful and must compete with others to ensure that they will be able to retain the business of the computer companies. The position is low especially since the larger companies can readily switch to another supplier without any major repercussions. 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 offered elsewhere is better or cheaper. This situation places the buyer power in a strong position that can only be countered by companies with strong product differentiation that would increase the switching costs. The computer operating systems differentiation makes it difficult for companies to switch but individuals will find it rather easy to change from one computer system to another. The same difficulties and cost apply to the education facilities that have committed to a single operating system.
Threat of Substitute Products:
Substitute products are readily available so this threat is very high. Competitors work to convince their customers that their product is superior to its competitors. The more differentiation of product the less likely the switch to a substitute will occur. If prices are higher then the company with the higher price has to provide justification for the increase. Apple's operating system differentiation can command higher pricing when 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. The market is favorable for the companies that have locked a business or educational facility since substitution will require a change of each computer within the facility and in some cases more than one location. Internet connectivity has increased the ability of switching individual units while the others remain the same.
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 against companies like IBM, Hewlett-Packard, and Dell. Even a smaller company like Gateway poses a threat. Competition is fierce in the computer hardware industry and switching costs are low. Apple is also reliant on promoting its own operating system. The digital hub being pursued by Apple has already been copied by Gateway.
Opportunities
Apple's different operating system
Apple can take advantage of its operating system differences by turning it into an opportunity to develop improvements to the Macintosh platform in order to achiever greater perceived functional and design advantages over competing platforms.
Various computer worms and other hacker anomalies that provide a grand opportunity for Apple to take advantage and garnish some small sectors of this frustrated market. With such a widespread system the vulnerability increases and fixes are not easy to make in short time periods. Micro-soft bashers love to point out that Linux or Apple's OS X are not vulnerable to whatever the exploit du jour is on the Microsoft platform (Bradley, 2004).The Apple Mac OS X is seen as a stable, reliable, and secure system that is also very easy to use (Brainyencyclopedia, 2004).
Apple's pursuit of music industry
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 launching of the iTunes Music Store resulted in over 2 million downloads in only 16 days. All of the downloads were all done on Macintosh computers. Apple's opening of its music store worldwide will be a great opportunity (Brainyencyclopedia, 2004).
Microsoft upgrade costs versus benefit
Microsoft users are finding it less feasible to continually upgrade software packages unless they can truly see a benefit for the money being spent. The last few Microsoft upgrades have been plagued with glitches that provide another grand opportunity that Apple can use to its advantage so long as it doesn't make the same mistake with its issues of upgrades. The customer will continue to look for value when money is spent.
Threats
Very competitive industry
The market for design, manufacturing, and sales are all extremely competitively aggressive in Apple's business. The rapid technological advances made by competitors in the hardware and software segments has increased the number products offered in shorter time spans. Price competition, including sellers with computers with other operating systems, has been very intense as the battles for increased market share rise. All of these affect gross margin, especially when combined with increased reliance on the Internet and the miniaturization of components that decrease prices since they are smaller and simpler.
Competitor's copying programs
Companies such as Future Power USA copied Apples Imac and have been selling it. These copies pose a major threat to Apple sales. The copies look identical to the iMac even to the point of making the colors the same but under different names. These copycat computers can even be considered as substitutes for an iMac. Website www.lowendmac.com states that many other companies are copying the iMac either because they are too lazy to come up with a different design or because the iMac is such a great idea everyone wants to copy it (LowendMac, 1999).
Competitors are quickly mimicking the unique presentations of digital music products. Entry into these markets is costly but unfortunately for Apple the competitors have an abundant supply of funding to address marketing, manufacturing, and technical resource requirements that may arise. Consolidation of major players has made for larger and potentially stronger competitors. Competitors are even promoting free peer-to-peer services.
Microsoft dominance
Microsoft Windows continues to dominate the market. More than 90% of the world's computers use the Microsoft operating system. Apple needs to work on convincing the world that its system is better than Microsoft. This dominance and need to overcome the world's mental state of thought about Windows operating systems is a major threat to Apple (ProComp, 2004).
Windows based PCs have cut prices and lowered product margins to maintain market share since demand has been declining during the past few years. This pattern does not seem any brighter in the near future so these practices are very likely to continue. PC technological advances in software and hardware, and miniaturization of parts, together with a more reliant Internet movement make the competition for market share even hotter.
Apple's operating system has lost some of its market share during the past few years but is working to regain its losses. The introduction of the G5 has helped with sales, as have the Powerbook portables. Apple's operating system has provided graphics and creative designers with a useful tool that is not comparable to Windows operating system applications. This difference must be managed with continued improvements that allow the public to perceive design and functional advantages over the competitors' operating system platforms. Failure to compete effectively could cause a negative affect on Apple's financial and operating results.
Software Piracy
Software piracy has been a problem for software and operating systems producing companies. As the technology advances the more susceptible the companies become to additional piracy. The piracy issue has grown to global proportions and stopping unlawful copying and distribution of copyrighted software does not seem to have a remedy for prevention in the future.
Governmental regulatory increases
Governmental regulations and potential litigation from non-compliance has persisted as a threat from the early years. In 1991, Apple phased out the lead in the batteries and in 1992 dealt with the chloroflurocarbons (CFCs) in manufacturing. The years 1996 brought about implementation of ISO 14000 quality standards and by 2000 all Apple manufacturing sites were ISO 14001 certified as having a structured environmental management system (EMS). Tetrabisphenol A (TBBA) was voluntarily phased-out of all plastic enclosure parts in quantities greater than 25 grams. These are just a few examples of how the governmental regulatory requirements continue to pose a threat to the computer and electronic industry. Apple has initiated a lot of environmental safe programs voluntarily but each is costly to implement even though compliance far outweighs the cost of non-compliance.
Global competition increases
Competition continues to increase worldwide. Other countries are getting into the manufacturing as the expansions of existing companies occur. Cheap labor and parts manufacturing in less privileged countries provide opportunities for larger companies with extra capital to spare for expansion. Pursuit of savings drives them into the other countries and with labor and parts costing less they utilize that as a means for cutting costs making them more competitive.
The amount of product introductions hitting the market requires that each company continue pursuing more innovative products in a shorter period of time. Lack of newly enhanced product will reduce customer demand even more than what is being affected by the weakened economy. Companies must hope that the product introductions will be well received by the consumers. If the product is well received then the company must be in a position to ramp up production in short order but not enough to be overwhelmed by large inventories when the sales regress. This need for judging demand is critical and must be determined as accurately as possible because over supply will lead to dead inventory and not enough supply will lead to unhappy customers. Finding the balance is very difficult. Innovations within the operating systems must continue to support the existing systems at the risk of losing customers should this not occur.
World epidemics affecting distribution and manufacturing
The world has been riddled by a few major epidemics that have disrupted the normal distribution and manufacturing channels of much industry. Some reached proportions that even affected travel into and out of the country. Year ago this type of epidemic would not have created the effects that it presently does in this global system. China, Hong Kong and other Asian countries were subjected to quarantines implemented by the World Health Organization and Centers for Disease Control and Prevention when severe acute respiratory syndrome (SARS) advanced to epedemic proportions. Apple utilizes these countries for manufacture and production of its iPod so diseases such as this affected employee travel, limit freight services, instill governmental restrictions in product movement, and can delay production and operations.
Aggressive pricing practices
Competition in this highly competitive market faces overcoming aggressive pricing practices, frequent new product introductions, shortened product life cycles, new industry standards, continuous product improvements, rapid technological changes, consumer price sensitivity and abundance of competitors. Each section is intense and staying on top of each is difficult for any company to manage. Those with considerable market share continue to battle to prevent relinquishing any while those with little push with the items above to take any amount of market share they can get.
Industry Structure
Market Size
The PC market has spread into nearly 80% of U.S. households. A survey conducted by the Gartner Group predicts that global PC sales will increase to 187,000,000 units (13.9%) this year. This follows an 11% increase in 2003. Price declines have contributed to the robust growth (Fuji-keizai, 2004).
Industries' dominant economic features
The versatility of the computer industry allows a few dominant economic features to stand out. The market size mentioned above is one of these dominant features. It has increased to a range between $890 million to $2 billion. The competitive rivalry is another dominant feature. The national and global levels are in the early maturity stage, which is nice considering that, the local and regional markets a completely saturated. A third dominant economic feature is the technological innovations that continually surface from the many competitors. Innovations such as software advancements, 32 bit and 64 bit chips, networking expansions, and improved design technologies. Each has a direct link to the economic structures of the company and its competitors.
Distribution channels
The distribution channels for PCs have been changing considerably in the past couple of years. The changes are being driven by price declines and the 'mature product' phase of the computer life cycle. Many of the expansions involve channels that already carry PCs or other sources not previously used. A few examples of those not previously used are cable TV firms, telephone companies, and bookstores.
Competitors: strongest - weakest
The focus on the strongest competitor extends beyond Microsoft but that will become clearer in a few sentences. Microsoft's control of the PC market speaks for itself so they can easily been seen as the strongest competitor. Apple will eventually have to tackle trying to take away market share but a head-on battle may not be the best approach (Machanick, 1998).
Another side of competition is the music side that Apple is presently doing well in. Samsung and Napster 2.0 have teamed up to release a new service/hardware combination that is intended to compete directly with iTunes Music Store and iPod. The scheduled release is to offer unlimited downloads and services that the iTunes Music Stores offer. The combined powerhouses present a formidable foe for Apple (SpyMac, 2003).
Rivals anticipated strategic moves
Apple's strategy has not gone unnoticed. Its rivalry has created an air of 'bad blood' between itself and digital rival RealNetworks. Apple management was quoted as stating: "We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod, and we are investigating the implications of their actions under the DMCA and other laws."
The move has prompted Apple to consider restricting iPod software updates so that Real's Harmony technology would no longer be supported (Naraine, 2004).
AOL is tight-lipped on how it intends to use ICQ, which they purchased in 1998. ICQ instant messaging users number to 235 million and Microsoft and AOL were warring over whether Microsoft messenger can access AOL messenger's user base. Apple teamed up with AOL on the messaging offsetting the battled strategic moves that Microsoft intended. The move was a very well planned strategic move for Apple. Speculation has surfaced that video conferencing functionality may be added to iChat (Geek.com, 2002). The move has been seen as being gutsy.
Economies of scale
Expense of software creation was be extremely expensive and but once it has been refined the cost of producing copies for sale is minimized. The difference in expense between Apple and Microsoft is the systems put into place. Apple chose to go with a closed system that not have any others assist with programming, testing, and bugging as did Microsoft. Microsoft gobbled other companies that had made sustainable improvements to their operating system up. This reduced some of Microsoft up front costs and multiplied the progress.
Key success factors
Technology related
The iMac release in 1998 introduced the Unified hardware architecture which featured the new ROM. The first Macintosh computers were equipped with a physical chip on the logic board because RAM and HD space were costly and ROM contained routines required for computer startup and other higher-level Mac OS code. The iMac release divided ROM into boot ROM and Mac OS ROM. The startup and higher-level code routines were separated. The Mac OS ROM no longer needed to be in a chip form but instead is now an image file inside of the MacOS system folder. This change updates with the use of firmware feasible for both ROMs. Each Mac also had a unique machine identification number (Apple museum, 2004).
Apple also offers a better-integrated computer operating system than its competitors. It is also not easily copied so Apple could offer a superior computing solution free of any troubled operating system. The GUI (graphic user interface) system design is better than anything that has been placed onto any Windows platform so Apple has continued to appeal to the creative and professional graphics sector.
Apple has put audio, print spooler, bridging, and Ethernet into one small package call AirPort Express. The system works with any Wi-Fi device and supports streaming music through analog and digital audio jacks and USB printer spooling through USB ports on Mac OS X and Windows XP and 2000. The introduction of AirPort Express raises the bar on these combined features (Technology updates.com, (2004).
Manufacturing related
Apple subcontracts it's manufacturing to third parties so it can focus on its core competencies of testing and developing software. It can also concentrate on ensuring that what is manufactured meets required specifications so quality remains a top focus. Management can ensure that the computers meet customer's requirements by concentrating on their needs instead of fighting line production problems. Other companies (eg. Texas Instruments and Nortel) have begun to follow this lead more than before since they are finding that savings can be high.
Distribution related
Apple has always been a leader in the use of automated systems and the distribution phase is not any different. Apple operates some of its facilities round the clock and after manufacturing they are automatically feed to a system though a case taper where it is prioritized and sorted prior to being palletized. The FloStor system can divert the product for shipment or audit before it is released from the warehouse. Apple's use of this system minimizes the intervention and monitoring time cycles. It even has the capability of paging a maintenance mechanic when problems occur within the system (Flostor, 2004).
Apple not only contends with the physical distribution of its computers but it must also address distribution of its music and iTunes software products. The AirPort Express system is one of Apple's new methods of staying on top of the distribution of its innovations.
Marketing related
Apple has created computers that are aesthetically pleasing when compared to PC and their clones. The company has also produced many great products but it continues to lose market share. Michael Hillmeyer, with Merrill Lynch, commented about Apple by stating that "A product differentiation strategy is difficult in a business increasingly commoditizing." He followed that with comments about the weak state of IT demand and the staleness of Apple product together with the higher costs were affecting financial forecasts (Wilcox, 2003).
Apple had survived rather well through the use of its aesthetics and user-friendly systems but the computer's position changing to a commodity eliminates much of the differentiation. Its opening of the retail stores has also assisted with marketing of product since more people can readily see the name on company storefronts. Branding and logo help keep the name fresh in people's minds and Apple has designed some very creative commercials that help this (Yahoo finance.com, 2004).
Apple's product differentiation in the iPod and iTunes sector will be short-lived since it has a dependency on third parties and also because competitors can easily enter the market. Apple must position itself as the only competitor in the market with stem-to-stern computing solutions. They can be done because the Macintosh and the Mac operating system is better integrated than other computer operating systems, including Windows.
The differentiation is not easily copied by competitors and can provide Apple user with a superior computing solution. It can offer a trouble free operation, rapid response to technological change, and a direct link to customer concerns. Apple differentiation offers a clean, simple product line with a single controlling company dedicated to the production of quality products (Miller, 2000).
Skills related
Apple has spent much of its hiring practices dealing with upper level managers, computer technologists and specialists, programmers, engineers, and R&D scientists. They have gain a reasonable understanding of the skills required to sustain a competitive advantage in their areas of expertise. Apple has chosen to follow other companies in employing engineers as business managers and they have seen the fall out from having done so just as other companies have also seen.
Apple's expansion into the retail store business has been a change to what they are accustomed to hiring. The storefronts use three key employee levels for selling product and providing expert support for customers. The three levels include the store manager, 'genius' position, and 'keyholder'. The company pays the store manager well but lacks in providing a reasonable pay for the 'genius' and 'keyholder' leading to high levels of turnover. 'Keyholders' stay when they are presented with the opportunity of moving up to the 'genius' level but leave soon after since they can command more money working for someone else after gaining experience. Some have even switch to work for other companies earning $50,000 annually after leaving the Apple store (dePlume, 2004).
As Apple transitioned into team building in the late 1990s they soon found that they management staff was lacking in managerial skills required to lead cross-functional teams. As before many of them were engineers with little to no business management experience or academic background.
Organizational capabilities (Beer, 1991)
Evaluating Apple's organizational capabilities requires reviewing environmental/strategy, work system, management process, principles and values, human resources system, and the leadership team. Michael Beer, in his Harvard Business Review, document noted that Apple lacked the capability of developing effective teamwork between its talented engineers in R&D and the sales and marketing people who understood needs for lower cost products. Apple also lacked a work system of cross-functional product development teams and needed business-oriented managers with leadership skills to lead teams that could agree on new businesses. This put Apple in a position of not being able to fulfill its requirements for:
) Defining its environment and understanding its strategy,
2) Lacked a work system,
3) Needed a management process for specifying workable goals and objectives, and
4) Lacked leadership teams to provide direction.
Apple was missing four out of the seven segments from Michael Beer's Organizational Fit Model.
Employees were not sure of the company's strategic directions and were receiving different priorities from R&D and marketing. This again came from lack of functional leadership team cohesiveness in setting one direction for the company. Managers did not want to lose control of their power and moving into cross-functional business teams meant just that plus not having an effective leadership retarded any efforts in that direction.
The work system and management process require that communications lines be effective and Apple's was not. Trust and communication were extremely low in the Apple world. In 1991, John Scully came in and gathered the top 70 managers for an off-site. Lack of lower management involvement made it more difficult to solve problems.
Apple's work on the iPod has shown the improvements of its organizational fit. Teams within Apple have been able to coordinate the work so that they are able to go to market ads and provide packaging that is not only aesthetic but also functional. iPods serve as THE digital music play and provide an avenue where Apple can market the Reflective level with messages and images designed within the Apple culture (800ceoread, 2004).
Driving forces
Companies are often faced with the affects of the driving forces. Driving forces are part of the external analysis and provide the company with insight on opportunity and threats that it must contend with. Some of the examples of driving forces are:
Industry growth rate (short or long-term)
Changes in who buys the product and how it is used
Changes in society - different concerns, attitudes, and lifestyles
Product innovation and technological change
Firms - entering, exiting or mergers
Increased globalization of industry
Changes in cost and efficiency
Regulatory influence and policy changes
Changes in degree of risk and uncertainty
Apple does have to contend with a few of those listed.
Industry growth rate (short or long-term)
The computer industry has been slow for the past number of years. It is affected by a weak economy and less disposable income within the households due to lay offs and outsourcing of jobs outside of the United States. Upgrades have not been technologically advanced enough to warrant constant change so many consumers wait until a few upgrades are offered before purchasing one.
The industry has usually been supported by big business and since the slow down big business has not been expanding so need for additional computer and software is not required. Apple has to face another hurdle when viewing this because big business is more Wintel operating system driven and with the cost of cloned PCs, they are just more affordable.
Changes in who buys the product and how it is used
Changes in society - different concerns, attitudes, and lifestyles
The people purchasing computer have been become accustom to using Windows operating systems. The population growth has increased and all of those individuals that come into computer using modes are being subjected to the Windows environment. Many are not knowledgeable of the Apple operating system and have only heard of Macintosh computers.
The younger generations are coming to know of Apple with the onset of iTunes, iSync, and iPods. This is bringing a younger generation into Apple's marketing world but Apple has yet to convince them that the computer systems provide the quality and ease of use just as the music materials that Apple is able to supply for them.
The products and how they are presented change continuously. The changes also are affected by the different concerns, attitudes, and lifestyle adjustments that continuously occur. The economic changes that have resulted from the 9/11 incidents have created change in attitudes and lifestyles. The economic outfall affected the spending habits of many people. The losses incurred by those directly involved has affected the immediate families and in many cases changed their lifestyles and attitudes.
Product innovations and technological changes
Microprocessors, semiconductors, memory storage, and speeds of computers is ever changing and as the technology improves so must Apple. Many product innovations are being driven in the areas of miniaturization. Companies are spending millions of dollars to provide themselves a position in being the one to make the next innovative improvement. Customers have a desire to possess the latest and greatest so the combination of the companies trying to create the new and the customers desire to be first 'on the block' with the new certainly creates a major driving force.
Firms - entering, exiting, or mergers
Entry into the microprocessor and semiconductor world would be rather difficult especially since the main players have already staked their territories. Much of the computer hardware industry has defined players and market share percentages allotted with a few shuffles taking place among them. Niche companies are being mergered or bought out by the larger companies so the larger ones make some small gains from time to time. The music industry is different since it does not require the capital outlay that would be incurred if entering a hardware market. The same applies to the software developers. New software developers can infiltrate the industry and music related equipment providers can easily provider newer systems or a different avenue for accessing the music clips.
The need to remain competitive on both fronts keeps everyone moving forward. The differentiation in the Apple operating system can hinder the amount of software being created but this works against the company because few products are available to use on their computers. Competitors that can affect the direction of the company can easily copy the iPod and iTunes sectors.
Increased globalization of industry
Companies are surfacing in the global markets. Many companies in other countries are driven by their desire to capture a large market share on their side of the world or by governments pushing them to enter into the global systems. China is a country that is pushing their companies to compete in the global world. These operations affect the direction of the companies that have been trying to infiltrate these foreign places, especially when the governments impose tariffs against the foreign entrants. An American company selling in China cannot promote product differentiation when the consumers know that the same Chinese company is making the parts for both computers but the parts just receive different labels as they exit the facility.
Changes in cost and efficiency
The product life cycles have become shorter as technology advances and consumer whimsical purchasing changes. The mode forces increases in need for being innovative. Innovation and competitiveness cost the companies a considerable amount of money that has a direct affect on the profits. Matters worsen as competitors cut costs when providing their products to market. Apple moved into the retail world by opening 65 stores so costs increased considerably but it will take time to learn if the efficiency of their sales increased proportionately.
Apple's different operating system also incurs addition costs in the selling and administrative costing realms. Apple must provide consumers with superior or value added equivalents to justify the higher prices for their products.
Regulatory influence and policy changes
Government regulations will continue to change domestically and abroad. Environmental issues have been part of Apple's proactive approach to being environmental stewards. This cost must be absorbed into the products being manufactured. Money spent on cleaning up or providing cleaner operations does not add to the value of the product production so it is a negative affecting cost that must be incurred. The choice of not being a good environmental steward could backfire and be far more costly than the amount being spent to do it up front. Entry into the global markets will encounter regulations imposed by the different governments.
Changes in degree of risk and uncertainty
Apple components and products are ordered before manufacturing begins so forecasted sales dictate how much should be ordered. If the sales do not occur then the orders may have been more plentiful than required and excess inventory could adversely affect the company. New innovative product may be presented to the consumer and make the present inventory obsolete so the company again stands to incur all the risk and face uncertainty of the future.
Apple components may not be as plentiful when ordered from third parties because their systems control only 2% of the world market share so many suppliers would want to focus on the Wintel operating system that controls 90% of market share. Their ability to sell products would be much easier even with the additional competition. Apple's control of those that do produce components for them is limited and subject to much risk and uncertainty.
Third parties also provide the music and manufacturing of iPods for Apple. Material restriction or higher cost of licensing materials could adversely affect the company. Forecasting availability of product or music clips could be risky since these third party members hold control.
Internal Analysis
Organizational description
Apple's employee count in October 2004 was approximately 10,912 with sales per employee documented at $770,513. The company is located at:
Infinite Loop
Cupertino, CA 95014
United States
Telephone: (408) 996-1010
Facsimile: (408) 996-0275
The officers and their positions to date are listed as:
Steven P. Jobs Chief Executive Officer and Director
Peter Oppenheimer Chief Financial Officer
Timothy D. Cook Executive Vice President, Worldwide Sales and Operations
Nancy R. Heinen Senior Vice President, General Counsel and Secretary
Philip W. Schiller Senior Vice President, Worldwide Product Marketing
Ronald B. Johnson Senior Vice President, Retail
Jonathan Rubinstein Senior Vice President, Hardware Engineering
Bertrand Serlet, Ph.D Senior Vice President of Software Engineering
Sina Tamaddon Senior Vice President, Applications
Avadis Tevanian, Jr., Ph.D Senior Vice President, Chief Software Technology Officer
Its stock is divided as follows
,063 institutions own 67.5% of the 387.93 million common shares outstanding. This is higher than the average institutional ownership of the Computer Hardware Industry at 50.7%, and higher than the average of the S&P 500 as a whole which is 65.2%.
Corporate Vision/Mission
A computer for every man, woman, and child on the planet.
Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings (Apple website, 2004).
Long and short range objectives (S&P Apple financial report, 2004)
Financial objectives
Apple's revenues have risen 32% to $5.93 billion during its last 3 quarters of operation. This is an increase of $170 million compared to $27 million from previous year. The change is attributed to increased sales of iPod and Macintosh units and decreases in restructuring costs.
Revenue for fiscal year end 2004 is expected to be 27% and an additional 13% is forecasted for 2005 end year. This is contingent to a continued economic recovery, new product introductions and additional retail store openings. Apple's introduction of its iBook has been favorable but Power Mac sales have been disappointing.
Continued store opening may accelerate increases in revenue. Apple projected 88 stores by end of fiscal year 2004. The introduction of the iPod mini is expected to reduce sales of the iPOd, reducing gross margins slightly.
The computer hardware environment continues to be weak but Apple has fared well during the downturn and is anticipated to improve as the economic sectors trend upward. New products and retail store strategy have been paying off in terms of earnings. Technological spending levels might continue to deteriorate and additional challengers to Apple's iPod are expected. Market share losses in the PC segment might continue.
Apple must continue to watch competitor's entry into the music sector in effort to protect its iPod market share. The introduction of the mini-iPod and future developments can counter competitor entry. The PC sector must develop an innovative technological breakthrough that will surpass Wintel operating system performance so as to enhance product sales. Focus might be directed to improvements in the graphic and creative design segments of the Macintosh platform. Apple continues to fare well against the industry (as illustrated in Table 07 below).
Strategic performance
Continued store opening may accelerate increases in revenue and while the introduction of the iPod mini is expected to reduce sales of the iPOd it is an innovative introduction that stays ahead of competitors. The company continues it restructuring. The termination of manufacturing operating in Singapore and associated headcount reduction was favorable. PowerSchool product elimination also helped with the recovery. This restructuring will save about $6 million in quarterly operating expenses.
Business Strategy (2003 Apple Annual report, 2004)
Digital Hub
Apple provides personal computing experiences to students, educators, creative professionals, businesses and consumers around the world through its innovative hardware, software, peripherals and Internet offerings, including .Mac and the iTunes Music Store. It believes that the attributes of the personal computer, including its ability to run complex applications, possess a high quality user interface, contain large and relatively inexpensive storage, and easily connect to the Internet in multiple ways and at varying speeds, can individually add value to these devices and interconnect them as well. Apple designs and manufactures the entire personal computer - from the hardware and operating system to sophisticated applications and provides innovative industrial design, intuitive ease-of-use, and built-in networking, graphics, and multimedia capabilities. It offers digital hub products and solutions and provides interoperability with peripherals and devices from other companies.
Retail
The Company has opened 65 U. S. retail stores by end of fiscal year 2003. It opened and additional 9 stores during the first quarter of 2004, including its first international store in Japan. The stores are opened in high traffic locations in quality shopping malls and urban shopping districts. The company's main goal is to bring new customers to the Company and expand its installed base through sales to both first time personal computer buyers and those switching to the Macintosh platform from competing operating system platforms. It can do this by controlling the customer experience. Store employees are experienced and knowledgeable. The retail stores provide a medium for presenting entire computing solutions to users in areas such as digital photography, digital video, music, children's software, and home and small business computing.
Education
The company has spent 25 years focused on the use of technology in education. Apple believes that integrating technology into the classroom will result in higher levels of student achievement. Products such as eMac and iBook that are designed to meet the needs of education customers, video-editing solutions, wireless networking capabilities, student information systems, one-to-one learning solutions, and high-quality curriculum and professional development solutions.
Creative Professionals
The creative professional makes up the most important market for Apple and third party developer products. These customers use the Company's products for a variety of creative activities including digital video and film production and editing; digital video and film special effects, compositing, and titling; digital still photography; graphic design, publishing, and print production; music performance and production; audio production and sound design; and web design, development, and administration. The Company's operating system, Mac OS X, incorporates powerful graphics and audio technologies and features developer tools to optimize system and application performance when running powerful creative solutions provided by the Company or by third-party developers.
Employee relations
It has been said that apart from Macintosh, Apple's greatest contribution to the computer industry was its talented engineers, who carried the torch to other firms. Steve Jobs predicted it well, saying, just before Macintosh's introduction, "Going out of the eighties, you know there won't be a Mac group. Burrell will be off in Oregon playing his guitar. Andy will be writing the next great American novel. Who knows what? But we'll be scattered all over the globe doing other amazing stuff." (Macintosh, 2004).
Apple employees are still dedicated, loyal, and honest to date. The bosses have changed a few times but the main leader is back and he works hard on taking care of those that work with him. Apple maintains a a stable employee relationship environment. Partnership is firmly embedded in Apple but resources are continually needed to sustain it as the existence of viable partnership arrangements and processes remain long-term goals (Apple case study, 2004).
Products and services
Apple Computer, Inc. designs, manufactures and markets personal computers (PCs) and related software, peripherals and personal computing and communicating solutions. Its products include the Macintosh line of desktop and notebook computers, the Mac OS X operating system, the iPod digital music player and a portfolio of software and peripheral products for education, creative, consumer and business customers. The Company sells its products through its online stores; direct sales force, third-party wholesalers and resellers and its own retail stores. As of September 2003, Apple operated 65 retail stores. In addition to its own hardware and software products, the Company's retail stores carry a variety of third-party hardware and software products. (Reuters, 2004).
Hardware Products
Power Mac(r)
Xserve(r) and Xserve RAID Storage System
PowerBook(r)
iMac(r)
eMac
iBook(r)
Peripheral Products
iPod(tm)
Displays
Software Products and Computer Technologies
Operating System Software
Server Software and Server Solutions
Professional Application Software
Consumer, Education and Business Oriented Application Software
iPhoto(tm)
iChat AV
iSight
Corporate culture, values, and morals
Steve Jobs is Apple. The company began with him as leader and then lost him during the middle years as the company fell on its face. His return has rejuvenated the Company. While he believes in strong leadership he operates in a laid back fashion but still gets the job done. The entire company is passionate about its desires to succeed and return to what it once was technologically. Clicking on the poster below will provide a greater insight on Apple's culture - think different (Macintosh, 2004).
The company logo is a rather odd thing. Who would have considered an apple after it had a bite taken out of it. What does this have to do with computers? The people involved in the development of the Macintosh were artists rather than engineers. They inscribed their names on the inside of the machines much like an artist would his/her painting. In 1988, Apple began its 'Think different' campaign and it signified what Apple people were about. Employees were loyal and devoted computer fans, sometimes bordering on the fanatic. They continuous push to work outside of their standard paradigm. Apple's culture is innovation, proud and loyal. Gina Caamano expressed her thoughts of what Apple was in 2000. Her comment follows:
When I began my journey at Apple I was young and passionate about what "Apple" stood for. It was a company that valued it's people and offered an abundance of opportunities I knew it was unique and special and I wanted to be a part of it. Throughout the years, there were many lessons I learned. It taught me to be adaptable, pushing me to the limit, at times, to grow with it's rapidly changing environment. With Apple, nothing was ever secure nor predictable. When things became too comfortable I knew they would change soon enough. I've seen Apple at it's best and I've seen it at it's worst I've grieved for Apple's failures and I've cheered it's successes. I always felt proud to be a part of such a special and innovative company. There was never a dull moment. Fifteen years later, as I close this last chapter And prepare to move onto a new path I look back at all the gifts Apple has given me And I give thanks for all of them -the incredible people I met whom some are now cherished friends, -And others who have shared the "Apple" experience with me. Apple will always hold a special place in my heart. Since so much of my heart went into Apple (Caamano, 2000).
Core Competencies
Apple's core competencies are focused in the markets of education and the creative professional worlds. Apple has proved its superiority in both of these areas and continues to focus on them. Apple has built an unquestionable strategic position in the K-12 grade educational programs.
It has begun to expand its retail outlets to bring the computers to the people and is making great strides in the iPod and iTunes music world. The innovations have been retaining customer's focus and have returned healthy profits.
Apple's focus on its key factors of success is driven to improving and retaining the iPod segment. It is also determined to continue improvements in the creative professional software and hardware realms. Operations are in tune with the company and with third party suppliers and designers. Apple knows that it has a superior product and it hoping to bring this superior product to the people through its retail outlets.
Apple controls the hardware and software production so it can determine its own future especially since it is not stuck in the Wintel operating system world and battling all of the competitors for a share of that particular market. It can proceed to corner its own niche while pursing increased growth in its own operating system. It must find a way to convince others to join in the promotion of hardware and software components for this reliable operating system.
Financial Performance (Morningstar.com, 2004) and (Moneycental.msn.com, 2004).
Liquidity
Liquidity
998
999
2000
2001
2002
2003
Inventory Turnover (Merch Inv T/O)
7.3
90.6
219.5
87.6
47.8
89.1
Current Ratio
2.43
2.77
2.81
3.39
3.25
2.5
Days Inventory (Inv T/O in days)
21.1
4
.7
2
2.5
4.1
Operating cycle = days sales outstanding / days inventory
15.49
22.06
9.11
0.67
3.55
22.48
Inventory Turnover measures how quickly a company sells the products it produces, i.e., how efficient its marketing efforts are. It is a measure of basic efficiency. Inventory Turnover went from a weak 17.3 times annually to a high of 219.5 times in 2000 but has since regressed to about 89.1 times annually mainly due to the slow economy and other outlying factors since the computer industry began heading 'south' in 2001. Apple continues to rank extremely well when compared to industry at 48 times, sector at 14.4 times and S&P 500 companies at 12.3 times. It ranks at the 93rd percentile in its industry.
Efficiency Ratios (TTM) AAPL Industry Sector S&P 500 Rank in Industry
Inventory Turnover 87.5 48.0 14.4 12.3 93
Current Ratio 2.9 1.3 3.1 1.8 73
Information taken from Fidelity.com
A company operating cycle indicates the time between the acquisition of inventory and the realization of cash from sales of inventory. The shorter the time the better the company is able to turn inventory into cash in hand for continued operations. In 1998, Apple use to take up to 115.49 days to turn the inventory into cash. In 2000 they were able to get money into their hands at a very quick turn of 9.11 days. The market slowdown has lengthened the inventory to cash turnaround to 22.5 days.
The current ratio (current assets / current liabilities) has increased gradually since 1998 to its 2003 number of 3.25. The higher number indicates that the company would be more than able to meet short-term obligations. The higher the number the more liquid the company is. Industry standards for the computer sector are at 3.1 so Apple is better in comparison. It is in much better position when compared to industry and S&P 500 companies. Apple ranks in the 73rd percentile in current ratio documentation.
Inventory turnover in days took a very long time in 1998 but showed drastic improvements into its best year (2000 with 1.7). Turning over inventory in 4.1 days is still great.
Profitability
Profitability
998
999
2000
2001
2002
2003
Return on Assets
7.25%
2.72%
3.14%
-0.39%
.06%
.05%
Return on Operating Assets = Operating Assets / Average Operating Assets (TA)
6.09%
6.96%
7.67%
-5.71%
0.27%
-1.01%
Return on Equity
25.04%
29.12%
22.08%
-0.62%
.62%
.66%
Net Margin
5.20%
9.80%
9.85%
-0.47%
.13%
.11%
Gross Margin
24.90%
27.60%
27.10%
23.00%
27.90%
27.50%
A company always wants to know where it stands when it comes to profitability and many different calculations are made available so that managers can quantify them. A company's return on assets takes the amount of net income received and divides it by the beginning and ending total assets (otherwise termed average total assets). The beginning and ending total assets are added together and divided by two to get an average. The resulting number lets the manager know how well he/she is utilizing the assets to generate profits. Apple provided a generous return in 1999 and 2000 but fell off the cliff in 2001. It has made it into the positive side of the equation in 2002 and 2003 but the numbers are not anything worth bragging about.
Return on equity is the income earned on the shareholder's investment in the company. Apple performed well from 1998 through 2000 but went negative in 2001 with only a modest improvement in 2002 and 2003. The pattern here is the same as with return on assets. Apple has been under performing compared with industry, sector, and S&P 500 companies. While it has shown improvement in 2004 it is still behind the numbers required to show that it is performing well.
Management's effectiveness AAPL Industry Sector S&P 500 Rank in Industry
ROA for TTM 3.1 9.1 8.9 7.1 75
ROA Past 5 Years 5.5 9.1 5.8 6.6 84
ROI for TTM 4.5 17.9 12.3 10.9 71
ROI Past 5 Years 7.9 17.4 9.2 10.7 72
ROE for TTM 4.8 31.7 16.1 19.6 70
ROE for Past 5 Years 10.4 31.0 13.1 19.0 80
Information taken from Fidelity.com
Apple's net profit margin (or return on sales) is a measure of the net income generated by each dollar of sales. The increase in net margin to 9.8 and 9.85% in 1999 and 2000 was positive for the company but again 2001 went negative. Returns in 2002 and 2003 are only modest.
Gross profit margin is the relationship between nets sales and costs of goods sold (beginning inventory) plus purchases minus ending inventory. A comparison of this number with industry data provides information on whether the company had insufficient volume and excessive purchasing or labor costs. Apple's gross margin has remained stable during the ups and downs of all the other indicators. It has fared below industry, sector, and S&P 500 companies and ranks in the 50th percentile so this is not good.
Profitability Ratio AAPL Industry Sector S&P 500 Rank in Industry
ROA for TTM 3.1 9.1 8.9 7.1 75
Gross Margin TTM 27.2 29.8 54.0 47.9 56
Gross Margin for Past 5 Years 26.6 30.4 52.5 46.6 57
Long Term
Long Term Debt
998
999
2000
2001
2002
2003
Debt ratio - Total liabilities / total assets
61.72%
39.86%
39.63%
34.89%
35.03%
38.03%
Debt / equity ratio - total liabilites / SH equity
61.21%
66.27%
65.64%
53.60%
53.80%
61.38%
Debt to tangible net worth = TL / (SHE - intangible assets)
61.21%
66.27%
65.64%
53.60%
55.41%
63.00%
Debt ratio is the total liabilities divided by the total assets. A company tries to maintain a reasonable balance of the amount of debt that is acceptable to management and investors. Apple was over extended in 1998 but has since reduced it to a reasonable high 30% level so it would not appear to uncomfortable from the investor's perspective.
The opposite side of the debt picture is how the debt compares to shareholder equity. Again, Apple was on the extreme high side in 1998 but it got better into 2002. It has worsened slightly in 2003 but not to the point of being alarmed. The debt to tangible net worth just removes any intangibles from the equation and is generated to provide a better perspective on how the company stands when goodwill or trademark values are taken out of the equation. Apple saw difference only in 2002 and 2003 when goodwill was subtracted but the difference was not high enough to create any concern for making change.
Efficiency Ratios (TTM) AAPL Industry Sector S&P 500 Rank in Industry
Total Debt to Equity 0.0 0.4 0.2 0.8 90
Long Term Debt to Equity 0.0 0.3 0.2 0.6 82
Information taken from Fidelity.com
Investor
Investor
998
999
2000
2001
2002
2003
Diluted EPS, Cont Ops$
.05
.81
2.18
-0.11
0.18
0.1
Diluted EPS$
.05
.81
2.18
-0.07
0.18
0.19
Price / Earnings Ratio Apple
8.2
7.5
1.8
---
80.6
---
Price / Earnings Ratio S&P
32.9
36.6
32
30.5
24.2
26.5
Dividend Payout
0
0
0
0
0
0
Dividend Yield
0
0
0
0
0
0
Apple has not paid dividends for a number of years, even during the profitable times. That results in a zero dividend payout and dividend yield. An earnings per share is a calculation of the total earning divided by the number of outstanding shares. Diluted earning per share takes into account all warrants and stock options if exercised and all convertible bonds and preferred stock if converted. Apple does not have a lot of outstanding warrants or stock options so the diluted EPS and diluted EPS from continued operations do not differ significantly.
Apple's price earnings ratio was better in the 1998 to 2000 years but has since gone sour in 2002. When compared to the S&P's ratios the ratios were better for Apple in years mentioned above but were not favorable in 2002.
Year end market price per share
Fiscal Year 2003 versus 2002 (2003 Apple annual report)
Net sales increased $465 million (8%) in 2003 compared to 2002. The company's 3% loss in Macintosh units sales were carried by the positive retail segment sales that increased by 119% ($621 million in 2003 versus $283 million in 2002). Peripheral and other hardware sales rose 57% ($384 in 2003 compared to $287 million in 2002) of which $347 million were in iPod sales. Sales were prompted by iPod redesigns that were compatible with both Macintosh and Windows operating systems combined with iTunes introduction.
Portable systems sales were driven by the consumer purchases of 247,000 PowerBook units while iBooks unit sales were down slightly. Software purchases increased $55 million compared to the prior year. New software titles were introduced during the year and helped along by the retail outlets.
Services and other sales were also positive to a tune of $69 million from nets sales associated with AppleCare Protection Plan (APP) extended maintenance and support services plus its Internet related services. All of the positives were offset slightly with the decreased desktop system movement. IMac systems sales declined 16% and Power Macintosh systems fell 13% as consumers shifted to the portables and the waiting for the Power Mac G5. The release of the G5 increased sales by 26% during the fourth quarter. Professional and creative customers patiently awaited certain software vendor transition their professionally oriented Macintosh software applications to run natively on Mac OS X.
The education channel sector was weak in the U.S. due to less sales of K-12 grade product. Higher education products offset the lower educational sectors slightly. The sale of lower priced eMac and iBook systems compared with the pricier Power Mac and iMac also contributed to the decline. Competition has been tough in the company's one-to-one learning solutions systems. These declines are reflections of weaken economic conditions within the U.S., large budget deficits, and increased competition for desktop computers. The reverse trend is difficult to forecast. Overall personal computer industry growth has slowed due to high market penetration of PCs and longer of consumer, creative, and business personal computer upgrade cycles.
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Information taken from Fidelity.com
Since 1994 Apple has under performed when compared to the S&P 500 index and the Nasdaq Composite. It has generally followed a trend similar to the Nasdaq is following a weakened pattern. It seems to be gaining on both of the indicators into the end of 2004 so the picture seems much brighter but can Apple continue to grow in markets that are easily copied by competitors.
Strengths
Product differentiation
When Apple first hit the market in the early 1980s it had a product that differentiated it from all other computer products on the market but it failed to capitalize on what it had. The system continues to be strength for the company since its closed operating system is not subject to the computer viruses and hacking that affects the Microsoft Windows operating system. The small market share controlled by Apple can be increased every time Microsoft encounters problems.
Apple's system for graphic and architectural production and design is far superior to any Windows application and this strength should receive considerable advertising to capture more of that niche market. Apple cannot not continue to make the mistakes it has made in the past when it could have countered the Windows upgrades as they occurred. The Macintosh's high-resolution graphics and ease of advantage over MS-DOS had made it a natural for software developers who created the "desktop publishing" segment, which was widely credited as saving Apple and the Macintosh (Kawasaki, 1990)
The iPod and iTunes markets are strengths but they can be easily copied by competitors and are subject to the control of third parties. At present it does control the market but without pursuit of a core competency that cannot be easily imitated by others it will fall off of the strength category.
Brand name and image
Branding of products help in keeping consumers abreast of the company products. Whenever a company established a popular brand name or image it can reap some benefits. Some of the benefits associated with the name recognition is the ability to reduce advertising from the recognition perspective. Apple computers got its name from Steve Job's favorite fruit. He has run three months late in filing for a name for his company and threatened his colleagues that he would call the company Apple Computers if they were unable to come up with something better by 5:00 pm that day. His friends didn't so the name stuck. The brand has some to be known for its superior quality and aesthetics. It is valued in the graphic world for having an operating system superior to any Windel platform. The innovations in the music industry have been linked with Apple's brand name and its quality products and services.
Manufacturing both hardware and software
Steve Jobs is pursuing the combination of hardware and software manufacturing and does not intend to lay off any of his employees since they are what make Apple successful. Apple will continue to run lean while management pursues the business of making machines and applications that even their most stringent critics regard as some of the best in the business (Barker, 2003).
Apple does manufacture both hardware and software for its computers so it has the ability of controlling design so that it appeals to the functional uses and aesthetics required by consumers. Some of Apple's clients are web designers and its computers provide the specific hardware and software needs to accommodate them. Output is found to be impressive both for customers and their clients. Apple is providing the most affordable 64-bit technology and a new operating system OS X in effort to position itself in the scientific and academic high performance computing tasks (Robe & Circlaeys, 2004).
Diversified markets
Apple has built an alliance with Sony and Ericsson with aims at capitalizing on the broadband wireless market in the future. Apple's launch of iSync software in 2003 allows synchronizing of personal information management applications and devices such as mobile phones and hand-held computers (PDAs) (Barker, 2003).
Weaknesses
Economic and political uncertainty
Apple's operating performance is affected by the economic and political uncertainty that shadows the United States. Education entities have postponed purchases due to budget cutbacks and shortfalls. Businesses are not expanding and employment reductions in force have provided less disposable income reducing sales. Failure to improve could continue to affect the company and its suppliers negatively. The entire tech market has been weakened by the economic and political uncertainty as well as other constraints.
War, terrorism and public health issues
The wars in Iraq and Afghanistan have caused economic unrest that has melded into the computer and electronic sector and slowed sales. The warring factions have gone beyond the borders and disrupted commerce through terrorist actions such as bombings. The best example is the attack on the New York Twin Towers, the Pentagon, and Spain's railway station. These aggressive acts cause a negative impact the economy that directly affects Apple and its competitor's sales and distribution channels.
Research and development costs higher than competitors
The market requires that participants continually provide innovations and competitive products and technologies. Apple has been working extremely hard to accomplish this and in doing so is spending more money for research and development that its competitors. This increased spending negatively affects its profit margin and with competitors cutting prices on their products it makes it difficult to compete on the same playing field.
Selling, general, and administrative costs are higher than competitors
Expansion into the retail 'bricks and click' world has increased Apple's costs. Marketing fees for advertising its unique operating system and new equipment again affects the bottom line, even though they are necessary expenditures. Competitors are able to enjoy the luxury of utilizing operating systems, in Windows users case, that controls a considerable amount of market share so they do not have to spend anywhere near as much to promote their operating system. Apple has to focus on creating more awareness not only of its products but also of its operating system. It must continue to develop innovative products that offset the expenditures of these group costs.
Component order placement places company at risk
Components and products are ordered before the computers are manufactured so if something occurs that represses sales the company is vulnerable because of the high priced inventory that it retains. This occurs because pricing competition is ever going so to purchases of components and products at present day cost would usually be lower than prices paid for what is presently in inventory. The worst-case scenario is having inventory become obsolete and then having to be written off of the financials. Cancellations of orders usually result in cancellation fees that still affect the companies' financial position.
The process of production requires that a company forecast possible sales so that they can order the products and components necessary for being able to manufacture a desired output. If they are not ordered then the competitor will have the upper hand in getting product to the consumer first. The risk is in making incorrect forecasts. Apple components may not be as plentiful from vendors since their market share is smaller and the operating systems are different. This puts the companies with the Windows operating systems at an advantage since Apple could run into a problem procuring a sufficient supply of components.
Apple relies on third parties
Apple relies on third parties for music and for manufacturing. This can affect the costs being relayed to the consumer. The music sales have been profitable for Apple but they have to contend with the fact that the material is in the control of third party representatives. The fees for having access to these materials can be extremely expensive. Another concern is being outbid or restricted from being able to provide the contents previously provided. Most of the licensing agreements are short-term and do not come with a guarantee that the materials will be licensed in the future. Some music industry parties have announced that consolidation of their distribution might occur in the future. A move such as this would restrict availability of material for Apple's iTunes Music Store and drive costs upward so that they might not be as attractive as they are now. iPod sales could decrease rapidly if material restrictions occurred and Apple would remain at the mercy of these third-party controllers.
The music coming from third parties is not the only thing that Apple should be concerned with. It also has third parties manufacture it products. The company also out sources much of its transportation and logistics management. Outsourcing does lower the fixed operating costs but this is at risk of not having any or at most restricted control. Quantity output and quality of manufacturing are in the control of the third party supplier/manufacturer. The company is ultimately held responsible in the end, especially when defects or other liabilities surface. This is another risk that Apple must contend with.
Apple is also reliant on Motorola and IBM for processor chips so if these companies run short or increase the price on the chips Apple must either absorb the cost or pass it along to consumers. Either of the two scenarios is highly likely especially when the tech market is recessed.
Apple is faced with multiple weaknesses that it cannot control. Each of them or a group of them could affect its operations in a negative direction and Apple will be faced with more hardships than what it encountered in the past. Management must look at how these weaknesses can either be bridged in effort to minimize risk or turned into strengths.
Recommendations
Recommendation 01
Apple should continue to support the educational and creative professional markets.
Pros:
Apple is the company with the best systems in place for each of these markets so they should focus on continued support for each in a restrictive manner. Cost of supporting such programs in a niche market sense should be reviewed financially so that R&D costs do not pull the company into an impossible position of making a profit.
Apple can better integrate its operating systems so that they operate within the Wintel operating platform but are not subjected to the Wintel operational problems. Apple has shown to be a better operating system that is less vulnerable to problems encountered by Microsoft and its fellow operating system packages. It should promote this while melding its operating platform operation into a subunit of the Wintel platform.
Apple should negotiate contracts with the government and the school systems in each state for offering improved success rated teaching software and hardware. Apple's products have been documented as providing students with improved scores so Apple should flaunt these successes with focused experimenting in regions of certain states. Continued successes could create a widespread need for these products. The systems can run independent of other Wintel operating platform computers already being used. This integrating within the school systems engrains the Apple name in all of the youngsters in the United States and even abroad once successes are shown to be ever sustainable. Younger generations will remember the systems they used when in school and will be swayed to purchase such recognizable products in the future.
Cons:
Apple's market share in the PC supported world has dropped to 2% and could be costing the company more money than it is worth. It has continued to lose market share from the 5% level down to the 2% level and this drop might continue unless they are able to come up with some miraculous innovation that revolutionizes the computer world. Extensive R&D costs to maintain innovative product improvements may get to the point of not being feasibly sound economic decisions. Extensive review of financials should help determine the feasibility of continuing with these two programs. If the review finds that the future will only bring losses then the company should abandon continued growth or spin-off this segment of operation so it does not detract from profits in the iTunes or iPod sectors.
Recommendation 02
Apple should consider infiltration of the business sector with an Enterprise Resource Planning (ERP) system merger.
Pros:
Apple can consider increased marketing to specific segments in the business environment. Its ability to operate without major programming issues makes it a lucrative system for accounting or financial type businesses. Loss of data, either through a system crash or invasion by hacker's programs, is detrimental to any business operation. Apple has the ability of producing and controlling its hardware and software. A merger of operations with Peoplesoft, Oracle, or SAP could provide a positive financial influx that will provide continued life to Apple's operating system platform.
The learning curve for many ERP supported programs is lengthy and when combined with the need of learning an operating system subject to problems it becomes even longer. Apple provides an easy to use operating system and user friendly operations that can be taught to even the smallest children so older computer-illiterate employees can easily learn to operate quickly. This lessens the computer intimidation and allows for focusing on learning the ERP program that will be modified to fit the same easy to use formatting. This would be a big plus for the employer and employee.
Cons:
* Apple's might lose control of some of its operation when merging with an ERP company. Management might not be willing to share operating platform information with this ERP company making it difficult to perfect such a blending of operational systems.
Recommendation 03
Apple should consider all work related to its operations in the iPod, iTunes, iSync, and iChat sectors.
Pros:
Apple must continue to spend R&D dollars in finding new innovative ideas that will continue to lead the competitors. It can focus marketing to the different age groups. Advertisement to the younger crowds can utilize pop stars, business people can hear advertising messages from influential people such as Donald Trump, and older folks can be influenced with advertisement from movie stars such as Leonard Nemoy or William Shatner, of Star Trek fame.
Apple should get the iPod and iTunes systems into the schools systems. It should work with teachers and other academic driven management to have these systems made available for students. Promote sales of these products while returning specific sums back to the school for support of other academic programs could benefit word of mouth advertising. Apple could reward high academic achievers with new iTunes materials. This would promote the product and educational achievement simultaneously.
Consider linking up with Sirius or XM Satellite radio for promotion of iPod and iTunes since their markets are increasing at rapid rates. Both of these companies are infiltrating the automotive industry with their product and a tie in with them might help promote Apple's line of products in the music industry as well as store openings and educational and creative profession products.
Cons:
Competitors can come up with ideas faster then Apple. A competitor coming up with a new idea that steers sales in their direction could be harmful to Apple's financial pocketbook. Apple relies on third party suppliers so its inventory might remain high if such a competitor surfaced. Price reductions would ensue as parts price decreased making losses worse as time passes.
Recommendation 04
Apple should continue opening its retail outlets so long as they remain financially successful.
Pros:
Apple has been successful with the opening of 88 retail stores, including the one in Japan. It should continue to open these stores so long as the profits continue. Real estate purchases for these stores should be in prime locations only should the need for selling arise in the future. The opening of these stores has brought the product to the people so that they can easily see, touch, and play with the systems with personnel available to provide assistance and information.
Franchising of stores should also be considered so that costs to Apple are reduced. They could still control sales and system operation without the excessive cost outlay. A franchisee will work harder at promoting the product since their livelihood is tied to the success more closely than an employee. Apple already has data accumulated that shows employees obtain so much training and then 'abandon ship' for better paying positions elsewhere. Franchisees would not just leave since they have a vested interest in the success of the store.
Cons:
Being so wrapped up in opening stores that management does not want to admit failure if profits start dropping off. Each store opening should be viewed economically so that the law of diminishing returns is applied overall. When the numbers show that the company is approaching the even mark or goes negative then it must consider whether to continue support of the existing stores or cutback of the less profitable.
Apple has a number of avenues open for them and has made a strong comeback. Profits look good in the future as the economic picture expands and improves. It was able to make profits during the slow times so it should be able to do much better as everything improves. Its biggest challenge will be determining the best way to continue supporting of its operating platform when it holds only 2% of the market share. It seems rather costly with the continued losses. Management evaluation is needed in this area for sure.
Apple's opening of retail shops has opened the doors for bring products to the consumer. It should consider franchising to reduce it overall costs of operations. All advertising should include blurbs about store openings near customers. Apple should aggressively promote hardware, software, and peripheral products through its retail outlets. Market awareness might help increase market share beyond the 5% it once held a few years ago.
Apple should also take its profits and spend it wisely so that growth and innovations continue. It must realize that not all of its ventures will be profitable and must determine the best approaches that should be taken when a sector begins to produce those needed profits. The four recommendations above can help provide direction for Apple but they must reevaluate continuously since the market is moving quicker each day.
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