Apple Case Competition

Jonathan Diamond w Katie Edwards w Natasha Fong-CohenKatherine Oglietti w Mustafa Onerci w Leilani Pallares

Apple’s Strategic Goals and Challenges Moving Forward

2

I. Current Situation

IV. Recommendations

III. Potential Strategies

II. Analysis

Agenda

3

Agenda

IV. Recommendations



• Main Problem• Apple’s History• Mission Statement

II. Analysis

4

Agenda

IV. Recommendations


II. Analysis

• Company Strategy• SWOT Analysis• Value Chain• Financial Analysis

• Product Lines• Competitive

Strengths• Industry

Attractiveness


5

Agenda

IV. Recommendations



II. Analysis

• Develop new markets

• New geographic markets

• Enter new segments• Improve operations• Create value

through stock price

6

Agenda

IV. Recommendations


II. Analysis


• Develop new products • New geographic markets• Product lines


• Main Problem• Apple’s History• Mission Statement

8

Apple’s main challenge moving forward


How can Apple continue to increase shareholder value?

9

2007

Developing innovative products is critical


1976 20101984 1991 2001

Wozniak/Jobs Sculley Jobs

Personal Computers

NOW• iMac• 8% market share• Still the heart of Apple??

THEN• Apple II• 10,000 units sold• Just the beginning…

Notebook Computer

NOW• Macbook Air• Portability and power• Critical acclaim for design

and ease of use

THEN• Powerbook• Early adoption of future

mobility demands

Personal Media Player

NOW• Different product lines• Audio, video, wifi• 10 billion+ iTunes sales

THEN• 8gb model• Revolutionized

listening to music for a generation

Mobile Phone

NOW• Regularly updated models• Innovative technologies• Most popular smartphone

Tablet Computers

NOW• Ignited a market• Industry leader• Competitors on its heels

10

The products are the mission for Apple

Apple Mission Statement

Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork, and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple reinvented the mobile phone with its revolutionary iPhone and App Store, and has recently introduced its magical iPad which is defining the future of mobile media and computing devices.

“

”I. Current Situation

11

II. Analysis

• Company Strategy• SWOT Analysis• Value Chain• Financial Analysis

• Product Lines• Competitive

Strengths• Industry

Attractiveness

12

SWOT Analysis

STRENGTHS• Marketing• Product R&D• Top engineering talents

OPPORTUNITIES• Emerging markets• Telecommuting trend

WEAKNESSES• Centralized decisions• Prices too high for some

consumers• Cannibalization

THREATS• Competitors in many

industries• Intell. property loss• Trends change rapidly

II. Analysis

13

Core competencies along the value chain

II. Analysis

Supply Chain Mgmt.

Operations Distribution Sales & Marketing Services Profit

Margin

Product R&D, Technology and Systems Development

HR Management

General and Administrative

14

Apple performed well financially

II. Analysis

2009 2008 2007 2006 20050%

5%

10%

15%

20%

25%

60%

62%

64%

66%

68%

70%

72%

As Percentage of Sales

Selling, general and administrative (SG&A)Total operating expensesOperating incomeNet incomeCost of sales

• Earnings improved consistently despite the economic downturn• Increasing sales• Increasing operational

performance

15


II. Analysis

• Return on equity did not improve much

2009 2008 2007 2006 20050%

5%

10%

15%

20%

25%

30%

$-

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

ROE & EPS

ROE Earnings per common share-diluted

16


II. Analysis

ROE =

Profit Margin

Profit

Sales

Asset Turnover

EquityTotal Assets

Equity Multiplier

Total AssetsSalesx x

17


II. Analysis

2009 2008 2007 2006

$(2,000)

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Free Cash Flows

• Free cash flow was around $10B• Mainly financed debt• Apple managed to defer its payments

18

Product Line: Personal Computer

II. Analysis

• Shift in preference to notebooks• Strength in music & graphics processing• Critical acclaim in design• Focused differentiation strategy

19

Product Line: Personal Media Player

II. Analysis

• Dominating market position for players and downloads

• Industry beginning to decline

• Live streaming• Cannibalization

2005 2006 2007 2008 2009 $-

$1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000

$10,000

iPod and Music Services Sales

iPod SalesOther music related products and services

20

Product Line: Mobile Phone

II. Analysis

• Phones rebounded strongly from recession, particularly smartphones

• Developing countries offer most growth opportunity

• RIM dominates business segment• Android and Mobile 7 are an

emerging threat; iPhone has decreasing product differentiation

• High brand loyalty and low price sensitivity

21

Product Line: Tablet Computer

II. Analysis

• Market is growing 37% annually from 2010-2014

• Apple is the leader • Competitors starting to catch

up

22

First, these products are competitive…

II. Analysis

Personal Computer Personal Media Player

Mobile Phone Tablet Computer0123456789

10

012345678910

7.3 7.356.55

7.15

Competitive Strength Rating Cutoff

23

…these industries are most attractive…

II. Analysis

Personal Computer Personal Media Player

Mobile Phone Tablet Computer0123456789

10

012345678910

7.4

5.95

7.85 7.6

Industry Attractiveness Rating Cutoff

24

…and together, we create a matrix!

II. Analysis

Industry attractiveness

Weak Average Strong

High

Medium

Low

Competitive Strength

Personal Computers

Size=

Relative

Revenue


Mobile Phone

Tablet Computer

25


• Develop new markets• New geographic markets• Enter new segments• Improve operations• Create value through

stock price

26

Evaluating Apple’s alternatives



Develop new products

New geographic markets

Enter new segments

Improve operations

Value through stock

Through growth Other options

27




• WHAT: Idea generation• WHY: This is what Apple does!• HOW: Continue to fund R&D



Enter new segments

Improve operations

Value through stock


28





• WHAT: Emerging markets• WHY: Growing middle class• HOW: Targeted products/B&M


Enter new segments

Improve operations

Value through stock


29






• WHAT: Business-consumer• WHY: Large market opportunity• HOW: Custom. products

Enter new segments

Improve operations

Value through stock


30






Enter new segments

• WHAT: Vertical integration• WHY: Control of product quality• HOW: Bring manufact. in-house

Improve operations

Value through stock

Through growth Through increased margins

31






Enter new segments

Improve operations

• WHAT: Increase EPS• WHY: Increase sharehold. value• HOW: Repurchase of shares

Value through stock


32

IV. Recommendations/Implementation

• Develop new products • New geographic markets• Product lines

33

Apple should continue to innovate

IV. Recommendations

Short term Long term

• Focus R&D resources on cloud

• Innovate this new market

• Seek out acquisitions for capabilities

• Decentralized innovation process

• Stronger relationship between R&D and marketing

• Market research through crowdsourcing and developers

34

Emerging markets are opportunities

IV. Recommendations

Short term Long term

• Brazil and China• Increase local

responsiveness• Contracts with

international telecom companies

• Targeted products (with less functionalities and cheaper price)

• Increased brick & mortar presence

35

Each product line needs a strategy

IV. Recommendations

iPod

iPad

Computers

iPhone

• Develop paid subscription svc.• Consider reducing # of

products in the iPod line

• Develop capacity to integrate PC technology

• Market is growing 37%

• Focus on notebooks• Expand in emerging markets

through focused differentiation

• Improve differentiation through product features/capabilities

• Expand into emerging markets through partnerships

36

Creating a plan for change

IV. Recommendations

• Reinforce culture• Establish organizational structures to change• Decentralize innovation process• Gain buy in from the Board of Directors

37

Continuing the Steve Jobs Legacy

IV. Recommendations

Increasing shareholder value by…• Improving current product lines• Position ourselves long-term for success• Developing new innovation• Entering new geographic markets

38

Appendix

SWOT Analysis (iPad)

SWOT Analysis (iPod)

SWOT Analysis (iPhone)

Popup (Notebook)

Competitive Strength

Industry Attractiveness

Porter’s 5 Forces

Questions?Personal Computer Industry

PC Market Share

Popup (Desktop)

SWOT Analysis (iMac)

Popup (Media Player)

Popup (Mobile Phone)

Popup (Tablet)

39

Appendix: Competitive Strengths

Competitive Strength Measure Importance Weight

Rating Score Rating Score Rating Score Rating Score

Costs relative to competitors' costs

0.2 1 1 2 0.4 2 0.4 1 0.2

Ability to benefit from strategic fit with company's other businesses

0.2 10 2 8 1.6 8 1.6 10 2

Relative market share 0.15 3 0.45 10 1.5 5 0.75 8 1.2Competitively valuable capabilities

0.15 9 1.35 9 1.35 9 1.35 9 1.35

Brand image and reputation 0.1 9 0.9 9 0.9 9 0.9 9 0.9Profitability relative to competitors

0.1 8 0.8 10 1 7 0.7 6 0.6

Ability to match or beat rivals on key product attributes

0.05 7 0.35 3 0.15 8 0.4 9 0.45

Bargaining leverage with suppliers/buyers; caliber of all iances

0.05 9 0.45 9 0.45 9 0.45 9 0.45

Competitive Strength 7.3 7.35 6.55 7.15

Personal Computer Personal Media Player Mobile Phone Tablet Computer

Back to Appendix

40

Appendix: Industry Attractiveness

Industry Attractiveness Measure Importance Weight

Rating Score Rating Score Rating Score Rating Score

Intensity of competition 0.25 10 2.5 8 2 10 2.5 9 2.25

Cross-industry strategic fit 0.2 10 2 8 1.6 9 1.8 10 2

Market size and potential growth rate

0.1 8 0.8 3 0.3 10 1 10 1

Emerging opportunities and threats

0.1 3 0.3 2 0.2 7 0.7 8 0.8

Resource requirements 0.1 1 0.1 7 0.7 3 0.3 2 0.2

Industry profitability 0.1 7 0.7 5 0.5 6 0.6 5 0.5

Seasonal and cyclical influences

0.05 5 0.25 5 0.25 5 0.25 5 0.25

Societal, political, regulatory, and environmental factors

0.05 5 0.25 5 0.25 5 0.25 5 0.25

Industry uncertainty and business risk

0.05 10 0.5 3 0.15 9 0.45 7 0.35

Overall weight industry attractiveness scores

7.4 5.95 7.85 7.6

Personal Computer Personal Media Player Mobile Phone Tablet Computer

Back to Appendix

41

Appendix: PC Market Share

Back to Appendix

27%

24%11%

8%

8%

21%

Market Share in 2009

Hewlett Packard

Dell

Acer

Apple

Toshiba

Others

69,829Total Shipments

2000 2005 2006 2007 2008 2009 -

5,000

10,000

15,000

20,000

25,000

30,000

Hewlett PackardDellAcerAppleToshibaOthers

Market Share 2005-2009

42

Appendix: Personal Computer Industry

Back to Appendix

56%44%

2005DesktopsPortables

69%

2009

43

Appendix: Pop-up (Desktop)

Back to Appendix

Personal Computers

NOW• iMac• 8% market share• Still the heart of Apple??

THEN• Apple II• 10,000 units sold• Just the beginning…

44

Appendix: Pop-up (Media Player)

Back to Appendix


NOW• Different product lines• Audio, video, wifi• 10 billion+ iTunes sales

THEN• 8gb model• Revolutionized

listening to music for a generation

45

Appendix: Pop-up (Mobile Phone)

Back to Appendix

Mobile Phone

NOW• Regularly updated models• Innovative technologies• Most popular smartphone

46

Appendix: Pop-up (Notebook)

Back to Appendix

Notebook Computer

NOW• Macbook Air• Portability and power• Critical acclaim for design

and ease of use

THEN• Powerbook• Early adoption of future

mobility demands

47

Appendix: Pop-up (Tablet)

Back to Appendix

Tablet Computers

NOW• Ignited a market• Industry leader• Competitors on its heels

48

Appendix: Porter’s 5 Forces

SUBSTITUTES BUYERS NEW ENTRANTS

SUPPLIERS RIVALRY

Personal Computer

MEDIUM-HIGH MEDIUM LOW HIGH HIGH

Personal Media Player HIGH MEDIUM-

HIGHMEDIUM-

HIGH MEDIUM HIGH

Mobile Phone HIGH HIGH MEDIUM MEDIUM HIGH

Tablet Computer HIGH LOW-

MEDIUM MEDIUM MEDIUM LOW

Back to Appendix

49

Appendix: SWOT Analysis (iMac)

STRENGTHS• Critical acclaim in design• Strength in music &

graphics• Very cool, trendy

OPPORTUNITIES• Halo effect• Growing middle class in

emerging markets

WEAKNESSES• Premium pricing• Learning curve• OS Compatibility

THREATS• Most growth driven by

low-end portable PCs• Economic recession

Back to Appendix

50

Appendix: SWOT Analysis (iPad)

STRENGTHS• High demand• Quality design• More functional than

other tablets

OPPORTUNITIES• International growth• Mobile workforce

productivity• Leverage cloud tech.

WEAKNESSES• High price point keeps

out some consumers• Product limitations

(can’t make calls)

THREATS• E-readers (Kindle)• Competitors are

catching up• Better microprocessors

Back to Appendix

51

Appendix: SWOT Analysis (iPhone)

STRENGTHS• Buyers not price

sensitive• Controls launch• Brand loyalty

OPPORTUNITIES• Smartphone market is

strong• Increasing international

demand

WEAKNESSES• Increasingly limited

product differentiation• Low appeal to business

consumers

THREATS• Android• Windows Mobile 7

Back to Appendix

52

Appendix: SWOT Analysis (iPod)

STRENGTHS• Brand recognition• Quality• Compatibility

OPPORTUNITIES• Live streaming

WEAKNESSES• Diminishing industry

THREATS• Live streaming• Many lower priced

competitors• Other downloading svrs.

Back to Appendix

Documents

Apple Case Competition