apple-CASE STUDY

Apple Inc.

Team Members:Mohit Bhatnagar_______________________________________

Case Abstract

• Apple Inc., originally Apple Computer, Inc., is an American multinational

corporation headquartered in California that designs, develops, and sells consumer

electronics, computer software and personal computers. The company was founded on April

1, 1976, and incorporated on January 3, 1977. The word "Computer" was removed from its

name on January 9, 2007, to reflect its shifted focus towards consumer electronics. Its best-

known hardware products are the Mac line of computers, the iPod, the iPhone and the iPad.

Its software includes the OSX and iOS operating systems, iCloud, the iTunes media

browser, the iLife and iWorkcreativity and production suites.

• Apple is the world's third-largest mobile phone maker after Samsung and Nokia.

Fortune magazine named Apple the most admired company in the United States in

2008, and in the world from 2008 to 2012. However, the company has received widespread

criticism for its contractors' labor practices, and for its environmental and business

practices. As of August 2012, Apple has 393 retail stores in fourteen countries as well as the

online Apple Store and iTunes Store. It is the largest publicly-traded corporation in the

world by market capitalization, with an estimated value of US$626 billion as of September

2012. The Apple market cap is larger than that of Google and Microsoft combined. As of

September 24, 2011, the company had 60,400 permanent full-time employees and 2,900

temporary full-time employees worldwide; its worldwide annual revenue in 2010 totaled

$65 billion, growing to $108 billion in 2011.

Vision Statement

• ―We believe that we are on the face of the earth to make great products and that's not changing. We are constantly focusing on innovating. We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution. We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot. And frankly, we don't settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we're wrong and the courage to change. And regardless of who is in what job those values are so embedded in this company that Apple will do extremely well.‖

Timothy D. Cook

Apple‘s CEO

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 has reinvented the mobile phone with

its revolutionary iPhone and App Store, and is defining the future of mobile media

and computing devices with iPad.

EFE Matrix

Opportunities Weight Rating Weighted

Score

1 Global smartphone market is on fire 0,10 4 0,40

2 Increase in worms and viruses on PCs so the antivirus solution can

be developed by Apple0,05 4 0,20

3 Possible ventures with other companies 0,02 2 0,04

4 Downloadable music and MP3 players are highly marketable 0,02 2 0,04

5 The online computers sales is rapidly increasing 0,04 3 0.12

6 The laptop and tablet market growth is high 0,07 3 0.21

7 Constant growth of PC and mobile phone industry 0,05 4 0.20

8 Huge untapped market to expand to 0,07 3 0,21

9 Growing demand for internet music and other online programs

(cloud based services)0,02 2 0,04

10 Robust outlook for mobile advertising market 0,05 3 0,15

11 Strong growth in smartphone segment. 0,07 3 0,21

12 Open market in gaming console industry to compete with PS3 and

Xbox0,01 1 0.01

13 Growing market of ―Green‖ and energy efficient products 0,01 2 0.02

Global smartphone market is on fire

Threats Weight Rating Weighted

Score

1 Economic recession can have a significant negative effect on the

company due to higher prices of its products 0,09 2 0,18

2 Rising popularity of Google Android and Windows ecosystems in

the mobile and tablet space 0,06 2 0,12

3 Intense competition from Dell, HP, Sony and Toshiba0,03 2 0,06

4 Dependence on specific suppliers 0,02 2 0,04

5 Companies not seeing Apple as compatible with their software 0,04 1 0,04

6 Downloading free music from other online source without paying

cost is common it may impact the iTunes sales0,02 1 0.02

7 Microsoft launched Microsoft Windows 7 and 8 which are gaining

market share0,05 2 0.10

8 The growing tablet market is competing with ipad0,02 3 0,06

9 Apple is involved in several legal actions 0,06 3 0,18

10 High product substitution0,03 2 0,06

TOTAL 1,00 2.71

IFE Matrix

Strengths Weight Rating Weighted Score

1 iTunes Music Store is an excellent source of revenue, especially with the

iPod and the accessibility on Windows platform. 0,03 3 0,09

2 Apple Computers have good brand loyalty and image by setting high

standards for quality and use.0,09 4 0,36

3 Partnership with Intel Computers in 2006 – Present (Intel's

microprocessors)0,04 2 0,08

4 Strong Research & Development Department driving innovation, creating

its own software (free of viruses) and hardware 0,10 4 0,40

5 Creators of high tech technology such as iphone or imac 0.07 4 0.28

6 Holds 5% market share and is 4th largest player in mobile phone market. 0.08 3 0.16

7 18.5% market share of global smartphone market 0.09 3 0.27

8 Robust financial performance. (strengthens investors‘ confidence and

provides capital for future growth avenues)

Low debt—more maneuverable.

0.08 4 0.32

9 Entering into new product lines ex: Laptops to iPhones and iPads 0,03 3 0,09

10 Excellent distribution network globally to make its products accessible

online and stores0.04 4 0.16

11 The iOS has given it a lead as compare to its competitors 0.02 3 0.06

Weaknesses Weight AS TAS AS TAS AS TAS

1Weak relationship with Microsoft. (low product

compatibility)0,05 0 0,00 0 0,00 0 0,00

2Apples market share is far behind from major

competitor Microsoft.0,07 0 0,00 3 0,21 2 0,14

3Its high priced products and accessories make them

inaccessible to many of customers0,04 3 0,12 2 0,08 4 0,16

4

It has less presence in B2B market, as compare to its

competitors like Dell and HP. It can be seen that Apple

mainly focuses on B2C so its losing large chunk of

market

0,03 0 0,00 0 0,00 0 0,00

5Comes without expandable memory and the battery is

fixed (in mobile products)0,01 0 0,00 0 0,00 0 0,00

6 Former CEO Steve Jobs died 0,04 3 0,12 1 0,04 0 0,00

7Coming off of the failure of two items apple tv and

mac mini0,02 3 0,06 0 0,00 0 0,00

8 Patent infringement. 0,02 1 0,02 0 0,00 0 0,00

9Not shareholder friendly (did not declare or pay cash

dividends in either 2011 or 2010)0,04 0 0,00 0 0,00 1 0,04

10 Product recalls. 0,01 2 0,02 0 0,00 0 0,00

TOTAL 2,36 2,10 3,02

Patent infringement.

Competitive Profile Matrix

CPM Apple Microsoft Dell Samsung Nokia

Critical Success factorsWeight Rating Score Rating Score Rating Score Rating Score Rating Score

Store Locations 0,10 4 0,40 3 0,30 2 0,20 2 0,20 3 0,30

Financial profit 0,12 4 0,48 4 0,48 2 0,24 2 0,24 2 0,24

Consumer loyalty 0,10 4 0,40 2 0,20 2 0,20 3 0,30 3 0,30

Market penetration 0,11 3 0,33 4 0,44 2 0,22 4 0,44 3 0,33

Advertising 0,07 3 0,21 4 0,28 2 0,14 3 0,21 3 0,21

Product variety 0,09 2 0,18 3 0,27 3 0,27 4 0,36 4 0,36

Market Share 0,11 2 0,22 4 0,44 2 0,22 3 0,33 3 0,33

Product quality 0,08 4 0,32 3 0,24 4 0,32 3 0,24 2 0,16

Price competitiveness 0,10 1 0,10 3 0,30 3 0,30 3 0,30 4 0,40

e-commerce 0,06 4 0,24 4 0,24 2 0,12 2 0,12 1 0,06

Employee dedication 0,06 4 0,24 3 0,18 3 0,18 2 0,12 3 0,18

Totals 1,00 3,12 3,33 2,41 2,86 2,87

Financial Ratio Analysis

• Apple‘s Annual Report indicates that its business industry is Computer Hardware

and its sector is technology. Yet, many analysis consider Apple as being a direct

competitor with other hardware manufacturers such as Hewlett-Packard and even

Google, yet there is no comparison between Apple and other phone-related

manufacturers or devices, through 38% of its business is driven by iPhone and

related products. So, such competitors like Samsung or Nokia, should be strongly

considered due to the fact that they run its businesses in the same field. This usually

happens and is always a challenge when companies have wide product lines with a

different marketing mix in each line, like Apple which both belongs to the industry

of ―Computer Hardware‖ and ―Telecommunication Services‖.

Ratios Apple Google HP Industry

Market Cap 498.3 174.48 89.80 320.58

% Qtrly Rev Growth 82.70 26.60 3.60 24.30

$ Revenue 108.249 31.12 127.16 87.45

%Gross Margin 39.07 64.97 24.14 39.07

$ EBITDA 36.02 12.16 18.25 26.73

%Operating_Margin 29.02 34.35 10.49 31.92

$ Net Income 25.92 8.85 9.12 N/A

$ EPS 27.68 27.29 3.92 20.99

Employees 46,600 26,316 324,600 100,300

Price / Earnings 11.9 20.1 -4.9 13.6

Dividend yield% 1.0 N/A 3.9 1.3


Ratios Apple Microsoft Dell Samsung Nokia

Revenue Net-sales(mil) 108,249 69,943 61,494 86,860 30,376

Gross margin % 40.5 77.7 18.5 25.2 29.3

Operating income 33,790 27,161 3,433 8,413 -0,843

Operating margin % 31.2 38.8 5.6 9.7 -2.8

Net income 25,922 23,150 2,635 7,210 -0,915

Earnings per Share 27.68 2.69 1.35 48.03 -0.24

Dividends N/A 0.61 N/A N/A 0.26

Net margin % 23.95 33.10 4.29 8.3 -3.01

Asset Turnover (Avg) 1.13 0.72 1.70 1.08 1.03

Return on Assets 27.07 23.77 7.29 8.93 3.09

Financial Lvrg (Avg) 1.52 1.90 4.97 1.32 3.05

Return on equity 41.67 44.84 39.31 11.89 -8.87

Return on invested Capital 41.67 38.23 22.44 11.88 -6.24

Current ratio 1.61 2.60 1.49 1.46 1.46

Quick ratio 1.35 2.35 1.26 0.72 1.04

Receivable turnover (efficiency

ratio)19.9 5.00 9.97 7.60 5.24


Ratios APPLE DELL HP SAMSUNG GOOGLE INDUSTRY

Profitability Ratios

Gross Margin (%) 40,05 22,3 24,14 25,2 64,97 39,07

Operating Margin

(%)29,02 5,6 10,49 9,7 34,35 31,92

Return on Assets (%) 27,07 6,9 -4,7 8,93 11,8 8,03

Return on equity (%) 41,67 41,86 19,8 11,89 15,5 23,9

EBIT Margin (%) 35,6 6,4 -3,1 N/A 28,1 16,75

Leverage 1,5 4,5 3,7 N/A 1,3 2,75

Liquidity Ratios

Current Ratio 1.61 1,49 1,1 1,46 3,9 1,9

Quick Ratio 1,35 1,26 0,6 0,72 3,7 1,5

Working Capital per

share ($)20.32 7.44 2.7 N/A 128.99 38.9

Other Ratios

Earnings per share 27.68 3.49 3.21 48.03 6.53 15.5

Receivable Turnover 19.9 9.97 6.1 7.60 7.0 10.1

Assets Turnover 1.1 1.4 1.0 1.2 0.6 1.06

Interest Coverage 15.6 15.6 N/A N/A 161.1 64


Financial Year 2012 2011 2010 2009 2008

Earnings per share

($) 44.15 27.68 15.15 6.29 9.08

Profit Margin (%) 26.67 23.95 21.48 19.19 14.88

Return on equity

(%) 42.84 41.67 35.28 31.27 27.19

Return on Assets

(%) 23.70 22.28 18.64 17.34 12.22

Price per sales 3.50 2.92 3.20 2.5 4.41

Price per Earnings 11.89 12.31 15.10 19.04 30.17

Price to book Value

Ratio 4.16 4.12 4.37 3.39 6.81

Book Value per

share ($) 126.1 82.64 52.31 35.32 23.74

Gross Margin (%) 43.9 40.5 34.4 40.1 34.3

Operating Income

($ mil) 55,241 33,792 18,387 11,744 6,271

Operating Margin

(%) 35.3 31.2 28.2 27.4 19.3

Assets Turnover 1.07 1.13 1.06 0.99 1.00


The table below shows some financial statement data for Apple during the last five years

0

5

10

15

20

25

30

35

40

45

50

2008 2009 2010 2011 2012

Return on Equity

Gross Margin

Operating Margin

Return on Assets

Trend of Apple‘s basic ratios during ‗08-‘12

Internal Analysis

Financial Position (FP)

External Analysis

Stability Position (SP)

Liquidity 7 Technological changes -1

Earnings per share 6 Price elasticity of demand -6

Sales 7 Competitive pressure -3

Revenues 7 Barriers to entry into Market -4

Return on equity 5

Financial Position (FP) Average 5,8 Stability Position (SP) Average -3,5

Below are provided the most important determinants of the organization overall strategic position.SPACE MATRIX

Liquidity: according to the current ratio Apple is one of the

most reliable corporations within the Industry with minimum

investment risk

Earnings per share: the trend during the last years shows that

Apple from 2008 to 2012 this has been increased four times.

In comparison to the Industry this ratio shows that Apple is

extremely shareholders friendly corporation, which indicates

great internal strength

Sales: is far better from all Apple‘s competitors

Revenues: Apple‘s consolidated income statements and

balance sheets note that Apple‘s revenues increased a

whopping 52 percent in 2010, while its net income increased

70 percent. Also, notice that Apple has zero long-term debt

on its balance sheet

Return on equity: Apple is second among its competitor on

return on equity

Technological changes: the Company has been an innovator

in the area of computer hardware and telecommunications

since its recovery

Price elasticity of demand: high prices of Apple‘s products is

a major weakness

Competitive pressure: the companies which Apple is

competing with, are urban corporations with dynamic

strategies, both in computer hardware & telecommunication

sector

Barriers to entry into market: the extreme competence

advantages of the already existing companies in computer

hardware sector, makes it very hard for new companies to

enter the market

Below are provided the most important determinants of the organization overall strategic position.SPACE MATRIX

Internal Analysis

Competitive Position (CP)

External Analysis

Industry Position (IP)

Market Share -6 Profit Potential 6

Product Variety -2 Growth Potential 6

Product quality -1 Financial Stability 5

Customer loyalty -1 Resource Utilization 5

Control over suppliers and distributors -3

Competitive Position (CP) Average -2,6 Industry Position (IP) Average 5,5

Market share: Apple has a very low market share according

to S&P industry survey for 2009

Product variety: Apple offers a wide range of technological

products, including iPads, iPods, iPhones, iTunes, PCs and

more. Apple is perhaps the best known ―first mover‖

company ever, as the firm has a 35-year history of being the

first to introduce blockbuster, successful new products.

Product quality: Apple meanly focuses on its products quality

using the most recent technologies and innovations

Costumer loyalty: The i-halo effect has been synonymous

with Apple for the last years. In basic terms its definition is

customers who buy an i-product, become hooked on Apple‘s

products and their ease of use.

Control over suppliers and distributors: Apple already has a

very efficient network of distributors and suppliers and

intents to develop it further

Profit potential: today Apple‘s profit potential is at the same

level as industry but according to the trend observed from

2008-2012 it shows that Apple will soon exceed the industry

Growth potential: demand in computer hardware products is

expected to increase

Financial stability: Apple has minimum long-term debts and

liabilities that shows its financial stability

Resource Utilization: Apple makes reasonable management

of its human and material resources

SPACE MATRIX

• After illustrating the SPACE Matrix it is obvious that the company should follow aggressive strategies. This means that Apple should implement backward, forward, horizontal integration, as well as market penetration, market development, product development and diversification (related or unrelated).

X‘X 5,5 + (-2,6) = 2,9

Y‘Y 5,8 + (-3,5) = 2,3(X,Y) = (2,9 , 2,3)

QSPM: Quantitative Strategic Planning Matrix

It determines the relative attractiveness of various strategic alternatives

Create a new

game console

(strong R&D

department)

Acquire Red

Hat Linux

or/and Maxtor

or Western

Digital

Develop new product lines in

China and India

Opportunities Weight AS TAS AS TAS AS TAS

1 Global smartphone market is on fire 0,10 0 0,00 0 0,00 2 0,20

2Increase in worms and viruses on PCs so the antivirus

solution can be developed by Apple0,05 0 0,00 4 0,20 0 0,00

3 Possible ventures with other companies 0,02 4 0,08 3 0,06 1 0,02

4Downloadable music and MP3 players are highly

marketable0,02 2 0,04 0 0,00 0 0,00

5 The online computers sales is rapidly increasing 0,04 0 0,00 3 0,12 0 0,00

6 The laptop market growth is high 0,07 0 0,00 3 0,21 2 0,14

7 Constant growth of PC and mobile phone industry 0,05 0 0,00 1 0,05 4 0,20

8 Huge untapped market to expand to 0,07 2 0,14 0 0,00 4 0,28

9Growing demand for internet music and other online

programs (cloud based services)0,02 3 0,06 0 0,00 0 0,00

10 Robust outlook for mobile advertising market 0,05 0 0,00 0 0,00 0 0,00

11 Strong growth in smartphone segment. 0,07 0 0,00 0 0,00 2 0,14

12Open market in gaming console industry to compete with

PS3 and Xbox0,01 4 0,04 0 0,00 0 0,00

13 Growing market of ―Green‖ and energy efficient products 0,01 0 0,00 0 0,00 1 0,01



Create a new

game console

(strong R&D

department)

Acquire Red

Hat Linux

or/and Maxtor

or Western

Digital


China and India

Threats Weight AS TAS AS TAS AS TAS

1Economic recession can have a significant negative effect

on the company due to higher prices of its products0,09 2 0,18 3 0,27 4 1

2Rising popularity of Google Android and Windows

ecosystems in the mobile and tablet space 0,06 0 0,00 2 0,12 0 2

3 Intense competition from Dell, HP, Sony and Toshiba 0,03 3 0,09 2 0,06 4 3

4 Dependence on specific suppliers 0,02 0 0,00 1 0,02 3 4

5Companies not seeing Apple as compatible with their

software0,04 3 0,12 2 0,08 0 5

6Downloading free music from other online source without

paying cost is common it may impact the iTunes sales0,02 0 0,00 0 0,00 0 6

7Microsoft launched Microsoft Windows 7 and 8 which are

gaining market share0,05 0 0,00 2 0,10 0 7

8 The growing tablet market is competing with ipad 0,02 0 0,00 0 0,00 0 8

9 Apple is involved in several legal actions 0,06 0 0,00 0 0,00 0 9

10 High product substitution 0,03 1 0,03 0 0,00 3 10



Create a new

game console

(strong R&D

department)

Acquire Red

Hat Linux

or/and Maxtor

or Western

Digital


China and India

Strengths Weight AS TAS AS TAS AS TAS

1iTunes Music Store is an excellent source of revenue, especially

with the iPod and the accessibility on Windows platform.0,03 0 0,00 0 0,00 0 1

2Apple Computers have good brand loyalty and image by setting

high standards for quality and use. 0,09 2 0,18 0 0,00 0 2

3Partnership with Intel Computers in 2006 – Present (Intel's

microprocessors)0,04 1 0,04 3 0,12 2 3

4

Strong Research & Development Department driving

innovation, creating its own software (free of viruses) and

hardware

0,10 4 0,40 2 0,20 1 4

5 Creators of high tech technology such as iphone or imac 0.07 2 0,14 0 0,00 0 5

6Holds 5% market share and is 4th largest player in mobile phone

market.0.08 0 0,00 0 0,00 2 6

7 18.5% market share of global smartphone market 0.09 0 0,00 0 0,00 2 7

8

Robust financial performance. (strengthens investors‘

confidence and provides capital for future growth avenues)

Low debt—more maneuverable.

0.08 3 0,24 2 0,16 4 8

9Entering into new product lines ex: Laptops to iPhones and

iPads0,03 4 0,12 0 0,00 2 9

10Excellent distribution network globally to make its products

accessible online and stores0.04 3 0,12 0 0,00 4 10

11 The iOS has given it a lead as compare to its competitors 0.02 0 0,00 0 0,00 0 11

TOTAL 2,36 2,10 3,02



Create a new

game console

(strong R&D

department)

Acquire Red

Hat Linux

or/and Maxtor

or Western

Digital


China and India

Weaknesses Weight AS TAS AS TAS AS TAS

1Weak relationship with Microsoft. (low product

compatibility)0,05 0 0,00 0 0,00 0 0,00

2Apples market share is far behind from major competitor

Microsoft.0,07 0 0,00 3 0,21 2 0,14

3Its high priced products and accessories make them

inaccessible to many of customers0,04 3 0,12 2 0,08 4 0,16

4

It has less presence in B2B market, as compare to its

competitors like Dell and HP. It can be seen that Apple

mainly focuses on B2C so its losing large chunk of market

0,03 0 0,00 0 0,00 0 0,00

5Comes without expandable memory and the battery is fixed

(in mobile products)0,01 0 0,00 0 0,00 0 0,00

6 Former CEO Steve Jobs died 0,04 3 0,12 1 0,04 0 0,00

7Coming off of the failure of two items apple tv and mac

mini0,02 3 0,06 0 0,00 0 0,00

8 Patent infringement. 0,02 1 0,02 0 0,00 0 0,00

9Not shareholder friendly (did not declare or pay cash

dividends in either 2011 or 2010)0,04 0 0,00 0 0,00 1 0,04

10 Product recalls. 0,01 2 0,02 0 0,00 0 0,00

Develop new product lines in China and India

This strategy aims to handle the high cost structure of products, as well

as to expand the product lines, which is a major opportunity. By establishing

new product lines in China and India, Apple will implement its high

technological competencies, which combined with the low labor cost of

China and India, will manage to reduce the overpricing of its products and

will gain a competitive advantage among other companies.

Apple has to focus on the global market, and both China and India are

two of the most populated countries in the world and they are experiencing

lately, increased use of computers and computer technology products. The

economies of the said countries are rapidly improving with more disposable

income than ever before.

Currently, all of Asia, accounts for about 5% of Apple‘s total revenue;

however, with more advertising and focus on China and India, can be fully

exploited because the market has no prejudices yet. If tapped properly, these

two countries can provide significant revenues for Apple in the future. This

is the alternative strategy that should be followed by Apple among the other

two, due to the highest total attractive score it took, at the QSPM process.

Epilogue

Apple, is arguably the most successful company ever in many respects.

But there are major financial risks with being the premier ―first mover‖ in any

industry. Rival firms across the globe are getting better and better at quickly

duplicating successful Apple products and offering them at lower prices.

Success of Apples iPad, iPhone and Mac‘s new versions, helped Apple to

replace Microsoft as the world‘s most valuable technology company in 2010.

Apple thinks that there is yet room for improvement, to substitute the

already created wonders.

Innovation never stops.

The Technology of the Future

Coming Straight from the Past

Documents

apple-CASE STUDY