FINA1035 Strategic Financial Management - Exam Case Study Aug 12.Docx

8/12/2019 FINA1035 Strategic Financial Management - Exam Case Study Aug 12.Docx

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WHAT DOES THE FUTURE HOLD FOR APPLE INC.

AFTER STEVE JOBS ?

Case study will be released 14 days prior to the exam.

Students :

- must conduct additional research which should include the Annual Reports, website and updated news data

- will be provided with a new copy of the case study in the exam- will NOT BE ALLOWED TO TAKE THIS COPY INTO THE EXAM.

Written by Scott Duncan, University of Greenwich


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WHAT DOES THE FUTURE HOLD FOR APPLE INC. AFTER STEVE JOBS ?

The period from August to October 2011 could be likened to a roller- coaster ride for AppleIncorporated (Inc.) , its shareholders and other stakeholders. Several gloomy statementsfrom the company during this time were followed by upbeat announcements. Each was

perceived to affect Apples future prospects and therefore its share price.

The first such statement was in August when Apple announced that Steve Jobs, its legendaryco-founder and Chief Executive Officer since 1997 was retiring with immediate effect

because of continuing ill health. Apples share price fell by 6 percent on the news although itlater recovered. Jobs and the board of Apple handed over the role of CEO to Tim Cook whohad been acting CEO during Jobs earlier periods of medical absence to try and combat hiscancer.

On a happier note, on 4thOctober, Apples management team presented the latest versions ofseveral key products at a major launch event at Apples headquarters at Cupertino inCalifornia

the iCloud digital storage facility that allows users to store data such as emails,documents, photos and music remotely and on-line rather than on a computer harddrive

the latest version of its mobile operating system , iOS 5 updates to the iPod the latest version of the iPhone , the iPhone 4S.

Whilst the new version of the iPhone undoubtedly included several new and improvedfeatures such as a voice recognition system developed by a company called Siri acquired byApple in 2010, a faster dual core A5 processor, a better camera and improved battery lifeversus the previous iPhone 4 , several experts expressed disappointment that the upgrade didnot go further . As an example, they pointed out that the upgrade did not improve the phonechassis. Apple shares initially slipped 5 percent after the launch.

The next day, however, on 5thOctober, Steve Jobs died. He was 56. Tributes poured in frommany of his fans, friends, business colleagues and world leaders including US president

Barack Obama. Bill Gates, founder of Microsoft said The world rarely sees someone whohas had the profound impact Steve has had, the effects of which will be felt for manygenerations to come. For those of us lucky enough to get to work with him, it has been aninsanely great honour. Larry Ellison the boss of Oracle the technology software giant saidHe was the most brilliant person in our industry. Sir Richard Branson, the founder ofVirgin described him as the the entrepreneur in the world I most admire.

On 18thOctober, an upbeat Apple corporation announced its results for its financial year to24 September 2011 (described as financial year 2011 or 2011 by Apple and similarly forearlier financial years). Net sales for 2011 totalled $ 108 billion - an increase of 66% versus2010, net income after taxes increased to $ 25.9 billion - up 84% versus 2010 and diluted

earnings per share increased to $ 27.68 - up 83% versus 2010. Despite these spectacularfigures, Apples share price quickly dropped by 6 percent .


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The following day, 19thOctober , Apple stores around the world closed for several hours asthe company held a private service for employees to remember Steve Jobs. The service washeld in Cupertino, California and was webcast to staff worldwide.

Steve Jobs death provided the moment to reflect on where Apple had come from and,

importantly, where it might be going.

Summary of Apples History

Steve Jobs and Steve Wozniak, both college drop-outs, assembled and sold their firstcomputer in 1976. Wozniak was a self-taught computer engineer. Apple Computer wasincorporated in January 1977 in Cupertino, California and after the success of its computersoffered shares to the public in 1980 and 1981. Apple developed new and improved versionsof their computer range for use by individuals at home (personal computers) and for small

businesses and their first Macintosh computer was launched in 1984.

Steve Jobs left Apple in September 1985 after major disagreements with Apples new ChiefExecutive, John Sculley, who had been hired in 1983 and founded a new computer company

NeXT Incorporated . He also bought a computer company called Pixar from Lucasfilm in1986. Pixar went on to make Toy Story the first animated film made entirely bycomputer generated images for Walt Disney studios. After the huge success of Toy Storyand the other animated films made by Pixar, Jobs later sold Pixar to the Disney Corporationfor $ 7.4 billion in 2006.

After a series of Chief Executives in the 1990s and huge losses at Apple in 1996 ($ 816million) and 1997 (nearly $ 1 billion) , Jobs returned to Apple in 1997 when Apple bought

NeXT for $400 million. Jobs was appointed Chief Executive Officer (CEO) of Apple inSeptember 1997 and immediately started the work of saving Apple from bankruptcy andreturning the company to profitability .

Under Jobs leadership over the next few years, Apple launched its massively successfuliMac computer range in 1998 and then the products that were to transform Apple from acomputer hardware and software manufacturer into a leader in the information technologyand entertainment sector:

- the iPod launched in October 2001-

the iTunes internet music store in April 2003- the iPhone in June 2007- the iPad tablet computer in January 2010.

Summary of Apple Corporation at its 2011 Year End

Apple Inc. and its wholly-owned subsidiaries (collectively Apple or the Company)designs, manufactures and markets mobile communication and media devices, personalcomputers, and portable digital music players, and sells a variety of related software,services, peripherals, networking solutions, and third-party digital content and applications.The Companys products and services include iPhone , iPad , Mac , iPod , Apple

TV , a portfolio of consumer and professional software applications, the iOS and Mac OS X operating systems, iCloud , and a variety of accessory, service and support offerings.


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The Company also sells and delivers digital content and applications through the iTunesStore , App Store, iBookstore, and Mac App Store. The Company sells its productsworldwide through its retail stores, online stores, and direct sales force, as well as throughthird-party cellular network carriers, wholesalers, retailers, and value-added resellers. Inaddition, the Company sells a variety of third-party iPhone, iPad, Mac and iPod compatible

products, including application software, printers, storage devices, speakers, headphones,and various other accessories and peripherals, through its online and retail stores. TheCompany sells to consumers, small and mid-sized businesses (SMB), and education,enterprise and government customers.

The Companys fiscal year is the 52 or 53-week period that ends on the last Saturday ofSeptember. The Company is a California corporation established in 1977.

= registered trademark

The Legacy of Steve Jobs

The reviews of Steve Jobs contribution and his legacy to Apple started as soon as hestepped down as Apples CEO in August 2011. The comments by Steve Dineen in LondonsCityAM newspaper on 26 August 2011 were typical. He said of Jobs A man of his talentand vision will be missedBut Apple is in a stronger position today than it ever has

been. Its rivals rather than encroaching on Apple territory are backing off in key battlegrounds HP (Hewlett Packard ) axing its smartphone and tablet computer operations beingthe latest example.

Right now, Apple is king of the jungle, the second most valuable company in the world andone of only 10 to top the S&P 500. And its all because of one man. Yesterday ( the day thatJobs stepped down as CEO ), Jobs was being hailed as one of the all-time greats of the

business world worthy of standing shoulder to shoulder with the likes of Andrew Carnegie,Henry Ford and Bill Gates.

But Jobs has never revolutionised the business world despite envious looks from rivals.Apple is famous for its vertically integrated business model: the supply chain is tightlymonitored, Apple controls both the platform and software, the distribution and retail. Everyaspect of every product is centrally controlled from Cupertino. The business modelfacilitates Apples sumptuous design rival tablets dont compete with the iPad 2 (launched

in March 2011) , they still compete with its predecessor and allowed Apple to commandunbeatable margins.

But Andrew Carnegie had mastered the art of vertical integration 100 years before Jobsapplied the same principles. Carnegie founded the giant US steel corporation, CarnegieSteel, in the late 19thcentury and his empire spanned coalfields and railroads as well as thefurnaces that produced the steel.

Production techniques pioneered by Henry Ford are still used across the world Apple hasjust streamlined them. Indeed the apocryphal Ford quote ( that customers could have anycolour of Ford car they wanted as long as it was black ) could just as easily apple to Apple :

Any colour you like as long as its brushed aluminium.


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Jobs was renowned for his fierce business acumen, playing hard-ball with suppliers anddevelopers. But he paled in comparison with Bill Gates co-founder of Microsoft whostruck a famously golden deal to supply an operating system ( MS DOS) to IBM for itscomputers and mercilessly exploited the competitive advantage for more than two decadescrushing any competition , often to the concern of regulators.

Dineen continued So why was Jobs so special? Apples chief designer Jonathan Ive oncesaid New is easy. Doing something better is very hard. And this was Jobs true genius taking what exists and making it better , cherry picking the best of Ford, a touch ofCarnegie , a sprinkle of Gates and adding to it an unparalleled , unflinching confidence inhis products . Where most of his S&P 500 peers follow the money, Jobs followed the

product confident the money rewards would ultimately flow. When he unveiled the latestApple product at one of the legendary product launches in California, he really meant itwhen he said I think this is the coolest thing weve ever made. And he was usually right.Dineen concluded In many respects Jobs was the perfect chief executive visionary,astute, in command of both the big picture and the smallest detail. He had an uncanny ability

to surround himself by the most talented people: Apple co-founder Steve Wozniak , acomputer wizard of a far higher order than Jobs ; Essex born Jonathan Ive, one of the mosttalented consumer product designers of his generation ; his successor Tim Cook , a ruthlesswhip and supreme negotiator on the supply side of the business . Cooks unenviable task aschief executive will not be to take the company in a new direction that would be easy. Thedifficult part will be making it better.

A few days after Jobs death, however, another view of him emerged. In an article in theSunday Times by commentator John Arlidge headed A world in thrall to the iTyrant,Arlidge claimed that Steve Jobs was a bullying boss whose best ideas were copied fromothers. But he had a gift for giving us easy-to-use products we did not even know wewanted1. The article contained some comments about Jobs that were lessthan-complementary and similar to an article that appeared in Forbes magazine in September20112. The Arlidge article continued Even his friends say he was a tough nut. Appleinsiders talk about him as a good Steve, bad Steve changeable boss sometimes praisingsometimes bluntly dismissing staff. He regularly humiliated those he did not think were upto the mark. When MobileMe, Apples early cloud computing system, suffered teething

problems, he summoned the entire MobileMe team and told them they should hatethemselves and hate each other. It was always Jobs way or the highway! One ex-Appleengineer recalls Jobs asking him to design a new DVD burning application. The engineer

prepared detailed plans and presentation slides but they werent needed. Jobs apparently

walked into the engineers office, didnt look at any of the work, picked up a marker pen,went over to a whiteboard and drew a rectangle and said Heres the application. Its gotone window. You drag your video into the window. Then you click the button that saysburn. Thats it. Thats what were going to make. Then Jobs walked out of the office.

Staff and investors accused Jobs of over-obsessive secrecy. CCTV cameras monitorworkers every move at Apple headquarters in Cupertino , California, and the company has

been known to spread dis (false) information about product plans to its own workers. Eventhough he was vital to the companys future, he concealed his cancer from shareholders. Hewas a control freak.

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He also believed that.. the customer is not always right. He (Steve Jobs) was !!!Apple, unlike most big companies , does not use focus groups to test the reaction to its new

products. When one reporter asked last year what market research went into the iPad, Jobssaid it was his understanding of technology and popular culture. He continued Its not theconsumers job to know what they want.

Arlidge does concede, however, that ...Steve Jobs unique contribution was to make high-tech so easy that even grown-ups could use it. From the way it is designed to the way itworks it says You know you can do this. Its easy. The driving force behind the elegantsimplicity of Apples products was Jobs.

In a recent biography about Jobs by Walter Isaacson published after Jobs death , Jobs isalso portrayed as constantly striving for almost unachievable perfection in everything hedid. He comes across as a near impossible person to work closely with and prone to severemood swings and huge tantrums.

Apples New Management Team

Tim Cook, Steve Jobs successor as CEO, has big boots to fill but has spent yearspreparing for the job said James Ashton in the Sunday Times on 9thOctober 2011. Ashtoncontinued (Apple) investors knew that Apples co-founder was nearing the end when hehanded over the reins to Cook in August. Nevertheless, Jobs passing leaves a giant void atthe top of that company. There is a nagging fear that Apple which redefined the consumerelectronics, music and mobile industries over the last decade may be good, very good butnever great again.

Ashton continued The reason there is concern (at the change in CEO) but little panic, isthat Apple has been preparing for the handover for years. Cook, an expert in supply chainmanagement, has been in a caretaker role (as temporary CEO) during Jobs earlier periodsof sick leave. Former colleagues say he is not to be underestimated. Cook might not be atalisman like Jobs, but he shares the same attention to detail, particularly on the customerservices side said an executive who has worked with Cook.

It was also noted by Ashton at the recent October launch event for the new iOS 5 operatingsystem and iPhone 4S, that Cook did not try and follow Jobs style of dominating the event.Instead, Cook acted as ringmaster, introducing a string of executives who showed off the

new products. Ashton continued And then there is the next layer of Apple seniorexecutives . To some observers , they are seen as a band of loyal and long servinglieutenants , relative unknowns and used to seeing Jobs calling the shots. With more than 30years of service between them , however, the like of Phil Schiller, Apples chief marketerand software boffin Scott Forstall are expected to step further out of the shadows.

Other observers have different views about the future management style at Apple.

I accept that when a strong leader goes from a company , you often see the impetus go we have seen that at Microsoft after Steve Ballmer took over from Bill Gates said KeithSpringer of Springer Financial advisors. He continued But Apple is different . The people

there are part of a strong culture.


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Re-enforcing this view, Tim Cook in his first internal memo as CEO to Apple staff said F

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Jessica Mintz, a contributor to www.msnbc.com , is uncertain about the future and said Thedeparture of Steve Jobs as Apple's CEO raises the question of whether the company will seechanges in its famously insular corporate culture, one that places a premium on secrecy,opaqueness and a go-it-alone approach. So far, new CEO Tim Cook is promising to leave theculture unchanged, but that may be a tall order at a company whose identity is so closely tiedup with that of its co-founder and longtime CEO4.

Others go even further than Mintzs views. There is bound to be an impact said RobEnderle of Enderle Group based in California. Jobs was an integral part of the company.His hands were on every product they made over the last 10 years. One of the main thingsthat Cook has already done is to re-instate the philanthropy programme. Jobs had no time for

that. Non critical decisions will be made differently. Also, we will see product erosion.

It seems clear that many aspects of the management style of Apple will remain unchanged.For example Apples Code of Business Conduct issued to all Apple staff5.

Details of the senior executive team reporting to Cook are shown at Annex 4. There hasbeen no announcement by Apple yet as to who will succeed or take over the responsibilitiesof Ron Johnson formerly Senior Vice President of Retail for the last 11 years who leftApple in June to become CEO of retail giant JC Penney.

In November 2011, most of Cooks direct reports were granted a further 150,000 free Appleshares as share options exercisable between 2013 and 2016 - as part of the Employee andSenior Executive Share option scheme.

Corporate Governance

Apples board of directors, their roles outside Apple and the board committees they sit on asApple board members are as follows :

William V. Campbell - Chairman and former CEO Intuit Corp.- Audit Committee

Tim Cook - CEO Apple Millard S. Drexler - Chairman and CEO J. Crew

- Compensation Committee- Nominating Committee

Albert A. Gore Jr. - Former Vice President of the United States- Compensation Committee- Nominating Committee

Andrea Jung - Chairman and CEO Avon Products

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- Board co-lead- Compensation Committee chair

Arthur D. Levinson Chairman Genentech- Board co-lead- Nominating Committee chair

- Audit Committee Ronald D. Sugar - Former Chairman and CEO Northrop Grumman Corporation

- Audit Committee chair.

The company does not have a Chairman of the Board but has two Co-lead Directors currently Arthur Levinson and Andrea Jung.

A key aspect of the boards role is to ensure compliance with the laws and regulations of thecountries in which the company operates. An extract of key aspects of Apples corporategovernance guidelines is shown at Annex 5.

At Apples Annual General Meeting in February 2011, the board resisted pressure fromshareholders who requested that all its directors should require 50 percent shareholdersupport to gain re-election to the board in line with over two thirds of companies in the S&P500 who had already done so.

Product Sales Performance

Unit sales and net revenue by product line for financial years 2011, 2010 and 2009 areshown at Annex 6.

At the 4thOctober event which launched the new iPhone 4S and the iOS 5 mobile operatingsystem, Tim Cook also provided some key data about the sales performance of several ofApples product ranges:

there are now 60 million Mac computer users around the world over 300 million iPods have been sold worldwide since its introduction 10 years ago

in 2001

the iTunes store is now the number 1 music store in the world. There are now 20million songs and music tracks available for sale from the iTunes library. 16 billionmusic tracks have been downloaded since the on-line iTunes store was launched in2003

There are now over 500,000 software applications (or apps) available to users ofthe iPhone, iPad and other mobile Apple devices from Apples Apps store. Applehas already paid developers over $ 3 billion to develop such apps. Over the last 3years, customers have downloaded over 18 billion apps from the store.

iPhone 4S and its Prospects

Mobile phones have come a long way in the last couple of decades. From just a callinginstrument, todays mobile phones have become smarter and many - called smartphones- now undertake all those activities that are performed by computers and laptops including

connecting to the internet, playing music and taking photographs. In 2010, more than 1.5billion mobile handsets were shipped globally, of which almost 20% or 300 million were


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smartphones6. By 2015, the market research company Synergyst estimates that smartphoneswill make up to 45% of the 2.1 billion mobile handset shipments worldwide. This growthwill primarily be due to ever declining smartphone prices as a result of intense competition,

popularisation of application stores and continued adoption of 3G and 4G technologies 7.

In the second quarter of 2011, it is estimated that 108 million smartphones were soldworldwide up 7 percent versus the first quarter of 2011. Apples iPhone is estimated tohave been the top seller with a 19 percent share 3 percentage points better than Samsungwhich achieved a 16 percent share. This share was achieved before the new iPhone 4S waslaunched. Market share details including share by mobile operating system are shown atAnnex 7.

In a June 2011 survey of smartphone users primarily in the USA by the market researchorganisation ChangeWave, 70% of iPhone customers rated themselves very satisfiedwith the phone. This percentage rating for very satisfied was substantially higher than itsrivals the nearest of which HTC - achieved a 49% very satisfied rating 8.

Apple does not disclose its profit margins by product line but Deutsche Bank analyst ChrisWhitmore estimates that Apple earns a gross margin of about 70 percent on the new iPhone4S in the USA . This is based on estimated bill of material costs, the unit sales revenue andthe substantial subsidy per handset that Apple receives from its network carrier partners.Whitmore also estimates that the iPhone 4S is more profitable than its smartphonecompetitors9.

The iPhone 4S sold a record 4 million units in its opening weekend that began on 14thOctober 2011. The iPhone range including the iPhone 4S, however, faces or is about to facesome tough competition from major players in the industry :

Samsungs Galaxy S II smartphone was voted Phone of the Year at theprestigious T3 Gadget Awards in October 2011 based on the votes of almost 1million respondents . The top-of-the-range Galaxy S II phone which runs the Androidoperating system triumphed ahead of the iPhone thanks to its attractive looks,intuitive operation and unrivalled technical specification including screen and

powerful 8 megapixel camera. Its the first time in three years that Apple or HTChavent won in this category1011

Apple has, however, launched a series of legal challenges against Samsung in 2011

claiming infringement of Apples designs and patents. Almost immediately, Samsungwhich is a major supplier of various components and technologies to Apple, launcheda series of counter claims in various international courts saying that it must protect itsown intellectual property which Apple has used and abused without licence or

permission. Samsung alleges that Apple is unfairly using five of its patents that deal

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with communications standards developed by Samsung as well as technology forwireless data transfers between smartphones and computers 11. On 13 October 2011,a Californian judge refused Apples request for a preliminary injunction againstSamsungs Galaxy smartphones and tablets but further court hearings are expected in2012 . A court hearing is scheduled for March 2012 in Australia to try and settle the

disputes there12

.

Nokia has abandoned its Symbian operating system in June 2011 following a majorcollapse in sales and share price and teamed up with Microsoft and its WindowsPhone 7 operating system. The first fruits of this cooperation were announced at theend of October 2011 the Nokia Lumia 800 and 710 smartphones.

On 19th October 2011, Motorola announced the revamp of its top-selling Razrhandset making it thinner and lighter than its previous model and running GooglesAndroid operating system. This is the first product launched by Motorola sinceGoogle announced the acquisition of Motorolas smartphone arm Motorola

Mobility for $12.5 billion in August 2011.

At the same time, Google revealed the latest version of its Android mobile operatingsystem codenamed Ice cream sandwich which will go head to head with Applesnew iOS 5 mobile operating system . Samsungs Galaxy Nexus smartphone will bethe first to use the new operating system.

Sony announced at the end of October that it had paid !1.05 billion ( 926 million )in cash to buy out its former partner Ericsson from the SonyEricsson mobile phone

joint venture formed 10 years ago . Sony will take full control of the worlds sixthlargest mobile phone maker and remove the Ericsson name from the products.

BlackBerry manufacturer Research In Motion ( RIM) launched its new operatingsystem BlackBerry OS 7 which has improved browsing and voice-activated search inMay 2011. Unfortunately for RIM, however, many of its 70 million BlackBerryusers suffered a total and worldwide blackout of communications for several daysduring early October 2011. The fault was traced to a software update at RIMs

processing centre in Slough, England. The problem left many BlackBerry usersextremely angry . Large corporations whose executives used BlackBerrys because ofthe added encryption and security of the BlackBerry system versus most othersmartphones were particularly annoyed . RIMs profits and share price were already

depressed in the first half of 2011 as a result of lower sales versus the same period in2010 even before the disastrous communications blackouts suffered by users inOctober 2011.

HTC retained its position as number 5 in the world in terms of market share with 11percent of the global smartphones market in the second quarter of 2011 as a result ofsuccessful models such as the HTC Titan.

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The Chinese telecoms giant Huawei launched its low-cost Vision smartphone on 7thNovember 2011. It uses the Android operating system and will be available in theUK in time for Christmas 2011.

Prospects for the iPad and the Tablet Market

By the end of September 2011, Apple has sold just under 40 million iPads since it waslaunched in 2010. The iPad 2 was launched in March 2011.

Market research company Gartner forecast in September 2011 that:

worldwide tablet sales are on track to surpass 63 million units in 2011 , a 261%increase over 2010, when 17.6 million tablets were sold

By 2015, sales will reach 326 million units Apples will sell 47 million iPads in 2011 a market share of 73 %, down from 83%

in 2010 Apple will continue to dominate the tablet market with at least a 50% market share

through 2014 but its share will continue to erode over the next few years ascompetitors launch new tablets into the market

Tablet computers using Googles rival Android operating system will sell 11 millionunits in 2011 , an overall market share of 17.3% in 2011 - up slightly from its 14.3%market share in 2010

Android based tablets will close the gap slightly over the next few years, but by2015, Apple will still be in the lead with 148.7 million tablets sold to Androids116.4 million.

Beyond Apple and Android, other tablet operating systems such as MicrosoftWindows Mobile will not gain more than a 5% market share.

So far, Androids appeal in the tablet market has been constrained by high prices, weak userinterface and limited tablet applications said Carolina Milanesi, research VP at Gartner, in astatement. Most of Apple's competitors are struggling to meet Apple's prices withoutconsiderably sacrificing margins. Screen quality and processing power are the two hardwarefeatures that vendors cannot afford to compromise on said Roberta Cozza, principal analystat Gartner, in a statement.

A week after this Gartner forecast, however, Amazon launched its iPad killer , said Steve

Dineen in CityAM. a new version of Amazons Kindle tablet called the Kindle Fire whichwill have a 7 inch screen, run a custom version of Googles Android operating system andsell for $ 199 in the USA - less than half the price of the iPad 2 . Unlike the previous Kindlee-reader, the Kindle Fire will be wi-fi only. It does not come with a camera or microphone.Analysts say that the aggressive pricing means that the device will almost certainly be a lossleader with Amazons profit coming from the sale of digital content for the device such asfilms, music, apps and e-books purchased through Amazons apps store. It will be availablein the USA from 15 November 2011 but dates for availability outside the USA are not yetclear.


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At the same time, Amazon also announced

a) a new version of Amazon's classic e-ink Kindle, now called the Kindle Touch.The new version lacks a keyboard and is smaller and lighter than past models.The Kindle Touch will cost from $99 for a Wi-Fi-only version. A Kindle Touch

3G, with free cellular service, will cost from $149. Both begin shipping on 21stNovember.

b) a stripped-down, entry-level version of the Kindle priced at $79, available from5thNovember. This Kindle - Amazon's tiniest, weighing in at less than 6 ounces -carries sponsored advertisements. A $109 version is available without the ads.

CNN Money commented13 If Amazon can unseat Apple as the tablet king - or even make adent - it will have pulled off a victory where other power players have failed. In the mostextreme example, Hewlett Packard, killed off its TouchPad last month after just 49 days onthe market. Other rivals are hanging on, but most of their devices have flopped critically andcommercially. BlackBerry maker Research in Motion released its PlayBook tablet in April to

harsh reviews criticising the device's unfinished feel. A major software update which RIMsays will fix some of version1s flaws is due out soon. Two Android-based tablets -Samsung's Galaxy Tab and Motorola's Xoom - debuted at prices above the iPad's $499 price

point. Their sales have disappointed. And so the iPad has remained largely the only game intown. A report last month from stockbrokers R.W. Baird said that about 93% of currenttablet users are iPad owners, and 94% of potential buyers are looking at the iPad.

Another challenger to the iPad gained publicity on 2nd November 2011, when Stufftechnology magazine awarded its Gadget of the year award to the Eee Pad Transformertablet made by Taiwanese manufacturer Asus. This touch screen tablet was launched in April2011, uses the Android operating system and can be also be used with a detachable keyboardwhich boosts battery life14.

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Apples Financial Results

A summary of Apples financial performance for the 5 years ended 24 September 2011 is asfollows :

Details of Apples financial performance for financial years 2009 to 2011 are shown at thefollowing Annexes :

- profit and loss account at Annex 10- balance sheet at Annex 11- cash flow statements at Annex 12.

Apples annual report for year to 24 September 2011 filed with the New York stockexchange indicates the following:

- Apple spent $2.4 billion on research and development in 2011 which is up from$1.8 billion in 2010 and $1.3 billion in 2009.

- Advertising expense was $933 million in 2011, $691 million in 2010 and $501million in 2009.

- The company currently owns 6.2 million square feet of building space andleases a further 7 million square feet - a total of 13.2 million square feet .Most ofthis space is in the U.S. including Apples data centres in North Carolina and

Newark NJ and 2.6 million square feet of the Headquarters in Cupertino,California which will be demolished to make room for Apples new spaceshipcampus. Apple Retail Stores spread throughout the world account for 3 millionsquare feet of the leased space.

- At the end of September 2011, Apples balance sheet included $81.6 billion forcash , cash equivalents and marketable securities up $30.6 billion from $51

billion at year end 2010 and up from $34 billion at year end 2009. Interest


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income totalled $519 million in 2011, $311 million in 2010 and $407 million in2009. The weighted average interest rate earned by the company on its cash, cashequivalents and marketable securities was 0.77% in 2011, 0.75% in 2010 and1.43% in 2009. The companys marketable securities investment portfolio wasinvested primarily in highly rated securities15. Almost two-thirds of the cash,

cash equivalents and marketable securities were held by Apples foreignsubsidiaries and were generally based in US dollar denominated holdings.Amounts held by foreign subsidiaries are generally subject to US corporateincome tax on repatriation to the USA.

- This huge and growing mountain of cash, cash equivalents and marketablesecurities has been the subject of speculation for some time. Some analystsforecast that Apple may use this mountain to start to pay shareholder dividends -it has paid none to date since its start up in 197716. Others suggest that Applemay be eyeing a major acquisition.

- Apple opened 40 new retail stores during 2011, 28 of which were outside theU.S., ending the year with 357 stores open compared to 317 stores at the end of2010. As of September 24, 2011, the company had a total of 245 U.S. retailstores and 112 international retail stores. During 2011, the company had anaverage of 326 stores compared to an average of 288 stores during 2010. Theaverage revenue per store increased 27% to $43.3 million in 2011 compared to$34.1 million in 2010. The Retail segment represented 13% and 15% of total netsales in 2011 and 2010, respectively.

- Apple had 60,400 full time employees at year end 2011 up almost 30% fromthe total of 46,650 at year end 2010 which was a 36% increase from the numberat year end 2009. Analysts believe that the big increase in 2011 was mostly onengineering staff. Full time equivalent temporary employees and contractorstotalled 2,900 at year end 2011 about the same as year end 2010.

Details of Apples sales, operating income and assets for 2009 to 2011 for each of Applesfive operating regions Americas, Europe, Japan, Asia-Pacific and Retail are shown atAnnex 14.

In a conference call with stock analysts at the time of the release of Apples 2011 results,Tim Cook also indicated that China is now Apples second biggest market after the USA

where Apple achieved sales of $41.8 billion in 201117

.

Apples share price closed at $379.26 per share on 14th November 2011 . Details of theshare price change and of the change versus the NASDAQ over the 12 months to that dateare shown at Annexes 16 and 17. At this share price, Apples P/E ratio is 13.7 based onhistoric 2011 earnings. At the 14th November 2011 share price, Apples marketcapitalisation was $ 352.5 billion making it the second largest company by marketcapitalisation in the world after Exxon who had a market capitalisation of $ 378.5 billion on

"&P03+.?1 147G) .) I))0S "$"DEvening Standard article 20 October 2011 What should Apple do with its $81 billion?"E'00 I))0S "&


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the same date. Market capitalisations and P/E ratios of other major companies in the sametechnology sector as Apple were as follows at the same date:

Company Market Capitalisation-$ billions

P/E ratio (*)

Apple 352.5 13.7Microsoft 225.1 9.7

IBM 220.8 14.8

Google 198.5 20.9

Memo :Technology Sector Average( incl. the above companies)

20.3

* = Based on Earnings per share of previous 12 months18

Acquisitions by Apple

Apple has made many acquisitions over the years primarily to access the technology,expertise, skilled engineers and patents of the acquired companies. It has then incorporatedthese technologies into its products. Apple generally does not disclose the purchase price ofthese acquisitions but an analysis of its financial results indicate that Apple spent $ 244million on business acquisitions net of cash acquired in financial year 2011 and $ 638million in financial year 2010.

Apples largest acquisition to date was in 1997 when it acquired NeXT software companyfor just over $400 million. This acquisition brought Steve Jobs back to Apple.Over the years it has acquired:

- computer chip manufacturer PA Semi for around $ 275 million in 2008- mobile advertising company Quattro Wireless for about $275 million in 2010- chip manufacturer Intrinsity for about $120 million in 2010- Siri the company that has developed the voice activated personal assistant

software for use in the iPhone 4S - for about $ 200 million in 2010 amongst othersmaller acquisitions19.

The most recent acquisition is of the 3D mapping technology company C3 technologiesbased in Sweden in August 2011. It is likely that Apple will incorporate this state of the artsoftware made by C3 Technologies into its iOS maps app in the iPhone and iPad. Theestimated purchase price was around $ 265 million. In 2011 Apple also purchased $3.2

billion in intangible assets, which likely includes its $2.6 billion share of the Nortel patentpurchase that it went in on with other companies, including Microsoft20.

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There has been some speculation21that the UK technology company ARM Holdings whosechips and technology are used in a number of Apples products such as the iPhone may be atakeover target for Apple . ARM achieved sales of 407 million, earned profits after tax of86 million , had total net assets ( total assets less current and long term liabilities) of 895million and generated 177 million cash from its operating activities in its financial year

ended 31 December 201022

.

Apple and the Environment

Apple demonstrates concern for its impact of the environment and its carbon footprint.Apples website states:

Apple reports environmental impact comprehensively. We do this by focusing on ourproducts: what happens when we design them, what happens when we make them, and whathappens when you take them home and use them.

It goes on to say that Apples total Carbon Footprint in 2010 G+1 901C7)1.8?0 H79 "%JB/.??.7) /039.6 37)1 7H =900)47(10 =+1 0/.11.7)1J

The breakdown of the total carbon footprint was as follows:

Manufacturing:Manufacturing including extraction of raw materials and product assembly

accounts for 46 percent of Apples total greenhouse gas emissions.

Transportation:Six percent of Apples greenhouse gas emissions are a result of transporting our

products from assembly locations to distribution hubs in regions where our productsare sold.

Product Use:The use of our products generates 45 percent of Apples total greenhouse gasemissions.

Recycling:One percent of Apples total greenhouse gas emissions are related to recycling.

Facilities:Apples facilities including corporate offices, distribution hubs, data centres, andretail stores account for 2 percent of our total greenhouse gas emissions.

Apple also adds that Unlike other manufacturers who may have one or a few products thatare ENERGY STAR qualified, every single Apple product not only meets but exceeds theUnited States Environmental Protection Agencys strict ENERGY STAR guidelines forefficiency. Apple is the only company in the industry that can make this claim. They

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produce a life cycle assessment which complies to ISO 14000 environmental management

standards: in ISO 14040:2006 and 14044:200623.

Risks

Apple faces many risks as it looks to a future without Steve Jobs. These include the risksreferred to earlier in this case study. Other key risks identified in Apples 2011 annual reportare shown in Annex 20.

The policies of Apples board on the management of risk are shown at Annex 21.

Key Issue

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Annex 1

Tim Cooks First Memo as CEO to Apple Staff

Team:

I am looking forward to the amazing opportunity of serving as CEO of the most innovativecompany in the world. Joining Apple was the best decision Ive ever made and its been the

privilege of a lifetime to work for Apple and Steve for over 13 years. I share Stevesoptimism for Apples bright future.Steve has been an incredible leader and mentor to me, as well as to the entire executive teamand our amazing employees. We are really looking forward to Steves ongoing guidance and

inspiration as our Chairman.I want you to be confident that Apple is not going to change. I cherish and celebrate Applesunique principles and values. Steve built a company and culture that is unlike any other inthe world and we are going to stay true to thatit is in our DNA. We are going to continueto make the best products in the world that delight our customers and make our employeesincredibly proud of what they do.I love Apple and I am looking forward to diving into my new role. All of the incrediblesupport from the Board, the executive team and many of you has been inspiring. I amconfident our best years lie ahead of us and that together we will continue to make Apple themagical place that it is.

Tim

'7(960 c GGGJ/767)0G1J)039039.0M0* E34P060/809 #:""


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Annex 2

Page 1 of 2

Possible Changes to Apples Culture ?

Jessica Mintz writing in www.msnbc.comon 25 August 2011 said

The departure of Steve Jobs as Apple's CEO raises the question of whether the companywill see changes in its famously insular corporate culture, one that places a premium onsecrecy, opaqueness and a go-it-alone approach.

So far, new CEO Tim Cook is promising to leave the culture unchanged, but that may be atall order at a company whose identity is so closely tied up with that of its co-founder andlongtime CEO.

Jobs is the prodigy who helped build the first iconic personal computer, was cast out andthen returned to build Apple into one of the worlds most valuable companies with hisinsistence on sleek design and attention to even the most minute details of user experience.And he did it all under a cloak of secrecy that only enhanced the products appeal.

Cook is an understated and hard-working leader, the yin to Jobs hot-burning charismaticyang. Cook, formerly Apples chief operating officer, has been with the company for 13years, keeping the supply chain in order and production lines running smoothly. Despite thesignificant differences between Jobs and Cook, turning the reins over to Cook may prove to

be far smarter, in a cultural sense, than finding a substitute Jobs.

If you try to be Steve Jobs, the next person will never be Steve Jobs. Its an opportunity forfailure, said Mike Mannor, assistant professor of management at the University of NotreDames Mendoza College of Business.

Cook faces a tough challenge. Jobs has been given an extraordinary amount of credit forApples return from the brink of bankruptcy in the 1990s. That could prove damaging to theApple culture now that hes in a less prominent role as chairman, said Jennifer Chatman, a

professor at the UC Berkeley Haas School of Business.

If people believe its the Steve Jobs show, they dont feel as accountable, Chatman said.

In business, the departure of a charismatic CEO can be a disaster or a non-event.

It took Disney four chief executives after Walt Disney to regain its identity and its marketposition. For Southwest Airlines, the transition was much smoother. The difference,Chatman says, is that Southwest founder Herb Kelleher was extremely committed tosharing the success of the company. The real question we have, because a big part of Applesculture has to do with secrecy and opaqueness, is to what extent do employees in theorganization feel that they have been responsible for the success of Apple?

Continued on page 2


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Annex 2

Page 2 of 2

If Cook were taking over in a normal succession, he would be thinking about how to

solidify his vision and define the next era for the company. But this handover was promptedby Jobs health problems, and Chatman said its clear Jobs feels he still has work to do at thecompany.

That kind of shadow leadership is very confusing for people within the organization. IfTim Cook is viewed as the future of this company, we need to know where he stands, in akind of independent way, she said.

Industry experts say Apple has several years worth of products already in the pipeline, buteventually, the Cupertino, California-based company will have to come up with the nextgadget for fans to covet. Andrew Hargadon, director of the UC Davis Graduate School of

Management's Center for Entrepreneurship and a former Apple product designer, said hedoesnt fear a lack of good ideas.

The community is great when coming up with opportunities, Hargadon said. The role ofthe authority is to say which idea were going to pursue and which others we will not. ... Ithink that was Jobs brilliance, keeping them from doing all the possible things out there todo.

In the worst case, Apple could see a repeat of history. John Sculley, who remained CEO afterJobs was pushed out in the 1980s, was so desperate to show he was every bit as creative asSteve was that we ended up with more products, 45 or 50 different products, Hargadon said.When Jobs returned, he cut the product line down to seven or eight.

In a way, Apple has been rehearsing this moment for years, starting when Jobs took amedical leave of absence in 2004 to recover from treatment for a rare form of pancreaticcancer. He has since taken two more health breaks, in 2009 and this year.

Apple has had to contend with what exactly it would be without Steve Jobs there every day.After the third time, theyve become pretty good at that, said Mannor. From a day-to-day

perspective, the culture has already adapted to what its like without Steve Jobs.

2011 msnbc.com. Reprints


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Annex 3

Apples Code of Business Conduct

The way we do business worldwide

Apple conducts business ethically, honestly, and in full compliance with all laws andregulations. This applies to every business decision in every area of the company worldwide.

Apples Principles of Business Conduct

Apples success is based on creating innovative, high-quality products and services and ondemonstrating integrity in every business interaction. Apples principles of business conductdefine the way we do business worldwide. These principles are: Honesty. Demonstrate honesty and high ethical standards in all business dealings.

Respect. Treat customers, suppliers, employees, and others with respect and courtesy. Confidentiality. Protect the confidentiality of Apples information and the information

of our customers, suppliers, and employees. Compliance. Ensure that business decisions comply with all applicable laws and

regulations.

Your Responsibilities

Apples Business Conduct Policy and principles apply to employees, independentcontractors, consultants, and others who do business with Apple. All such individuals areexpected to comply with Apples Business Conduct Policy and principles and with allapplicable legal requirements. Apple retains the right to discipline (up to and including

termination of employment) or end working relationships with those who do not comply.If you have knowledge of a possible violation of Apples Business Conduct Policy or

principles, other Apple policies, or legal or regulatory requirements, you are required tonotify either your manager (provided your manager is not involved in the violation), HumanResources, Legal, Internal Audit, Finance, or the Business Conduct Helpline. If you haveknowledge of a potential violation and fail to report it, you may be subject to disciplinaryaction.

When facing a tough decision: Use good judgment. Apply Apples principles of business conduct, review our policies,

review legal requirements, and then decide what to do.

Need some help? When in doubt about how to proceed, discuss pending decisions withyour manager, your Human Resources representative, or the Legal Department. If youneed more support, contact the Business Conduct Helpline.

Retaliation is Not Tolerated

Apple will not retaliateand will not tolerate retaliationagainst any individual for filing agood-faith complaint with management, HR, Legal, Internal Audit, Finance, or the BusinessConduct Helpline, or for participating in the investigation of any such complaint.

Source:www.apple.com/businessconduct


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Annex 4

Apples Senior Executives November 2011

CEO - Tim Cook

Eddy Cue - Senior Vice President, Internet Software and Services

Scott Forstall - Senior Vice President , iOS Software

Jonathan Ive - Senior Vice President, Industrial Design

Bob Mansfield - Senior Vice President, Hardware Engineering

Peter Oppenheimer - Senior Vice President and Chief Financial Officer

Philip Schiller - Senior Vice President , Worldwide Product Marketing

Bruce Sewell - Senior Vice President and General Counsel

Jeff Williams - Senior Vice President , Operations

Source:www.investor.apple.com


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Annex 5

Page 1 of 3

Extract from Apples Corporate Governance Guidelines :

( Continued on page 2)


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Annex 5

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(Continued on page 3)


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Annex 5

Page 3 of 3

Source : www.apple.com


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Annex 6

Apples Sales from 2009 to 2011


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Annex 7

MARKET SHARE OF WORLDWIDE SMARTPHONE MARKET Q2 2011

Rank Brand Millions Sold Market Share Q2- %

Memo :Market Share Q1

%

1 Apple 20.3 19 18

2 Samsung 17.8 16 13

3 Nokia 16.7 15 24

4 RIM 13.3 12 14

5 HTC 12.2 11 10

6 LG 5.4 5 5

7 Sony Ericsson 5.3 5 5

8 Motorola 4.4 4 4

9 Huawei 4.0 4 2

10 ZTE 2.7 3 2

Others 5.9 5

Total 108 100

SMARTPHONE OPERATING SYSTEM WORLDWIDE

MARKET SHARES Q2 2011

Rank Operating System Market Share Q2 2011 Memo :

Market Share Q1 2011

1 Android 45 35

2 iOS 19 183 Symbian 16 25

4 Blackberry 12 14

5 Bada 5 3

6 Phone 7 1 2

7 Windows Mobile 0.5 2

Others 1 1

Source : TomiAhonen Consulting , August 2011

Ahonen takes the average of the big 4 analysis houses - Gartner, IDC, Canalys and Strategy Analytics


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Annex 8

PERCENTAGE OF SMARTPHONE USERS WHO RATED

THEMSELVES VERY SATISFIED WITH THEIR PHONE

Apple 70%HTC 49%Motorola 38%LG 34%Samsung - 28%

RIM - 27%Nokia - 21 %

Source : Survey of 4163 smartphone consumers of whom 89% of respondents were in theUSA and 11% were from outside the USA in June 2011 by ChangeWave research


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Annex 9

Page 1 of 3

Samsung versus Apple Legal Battle

The UKs Guardian newspaper reported on 26thSeptember 2011 that

Samsungs battle with Apple in tablets and smartphones had entered a new legal stageand added that The Korean company Samsung could lose orders from the Americancompany which is its largest single customer as the two wrangle over 'trade dress' and patentinfringement cases.

The article continued :Samsung and Apple are suing each other in nine countries over 20 cases. Apple first firedits salvo in April by suing Samsung in a California court, saying Samsungs Galaxysmartphone and tablet devices infringed Apples mobile technology patents and design.Samsung shot back with claims of its own and alleged that Apple is unfairly using five of its

patents that deal with communications standards developed by Samsung as well astechnology for wireless data transfers between smartphones and computers.

The growing legal battles between Samsung Electronics and Apple could crimp growth atthe fastest-growing divisions inside the Korean firm, while also worsening its business tieswith its largest customer, analysts have warned.

Samsung and Apple will square off in significant US court hearing in October about aninjunction case in which Apple is trying to block imports of the Galaxy S II smartphone.

Observers say the intellectual property battle with Samsung is part of Apple's broaderstrategy of using the courts to help cement the unassailable lead its iPad has in the tabletmarket.

The two companies have been locked in an acrimonious global battle over smartphone andtablet patents since April, and Apple has successfully blocked Samsung from selling its latesttablets in Germany and some smartphone models in the Netherlands. It has also forced itsrival to delay launching its new Galaxy tablets in Australia until a court hearing scheduledfor March 2012 rules on the dispute in that country.

Apple, which alleges that Samsung has infringed a number of its designs and hardware

patents, and its "trade dress" which refers to how the allegedly infringing devices look. Akey element of the "trade dress" allegations relate to the iPhone 4 and the iPad, and productsfrom Samsung such as the Galaxy smartphones and tablets.

If Samsung loses another round, that could dent its ambitious attempt to close the gap withApple in the global tablet market. The Galaxy gadgets, powered by Google's Androidoperating system, are seen as the biggest challengers to Apple's mobile devices.

But the head of the firm's mobile division, JK Shin, said on Monday: "We are confident ofmeeting our sales targets for tablets and handsets made earlier this year." Samsung plans to

boost tablet sales more than fivefold this year and sell 300m handsets in all.



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Annex 9

Page 2 of 3

Apple and Samsung are vying for the lead position in the smartphone market, where eachsells more than 20m handsets per quarter, having both overtaken the struggling Nokia.

Samsung also sells simpler "featurephones", where it has also outdistanced Nokia.

Samsung still trails badly in sales of its own tablets, where Apple racked up 14m iPad salesin the first half, versus analysts' forecast sales estimates of about 7.5m Samsung tablet

products for all of 2011.

Industry discussion suggests that Samsung shipped many more tablets than were actuallysold to end users in 2010. It shipped at least 2m; NH Investment Securities estimates thatcustomers bought a total of 1.6m.

Analysts say that Samsung could be hit if Apple decides to take its business elsewhere.

"Samsung's tablet business will be most affected and its chip business will also take a hit asApple moves to diversify away from Samsung to the likes of Toshiba," said Nho Geun-chang, an analyst at HMC Investment Securities.

"But taking passive steps for fear of losing its biggest customer will slow down stronggrowth momentum at its telecoms business, which Samsung doesn't want to see as the

business is set to become the biggest earnings generator this year and make up for weakeningchip profits. It'll be a costly battle for Samsung."

The South Korean conglomerate supplied Apple with about $5.7bn in components last year,some 4% of Samsung's total sales. Apple's portion grew to 5.8% of Samsung's sales in thefirst quarter, driven by booming sales of iPads and iPhones, for which Samsung supplieschips, along with Japan's Toshiba.

Analysts said that losing chip orders from Apple would be a longer-term challenge forSamsung. "For Samsung, [the] biggest concern is reduced order from Apple. WithoutApple's big backing, it would be difficult for Samsung to boost its chip market sharesharply," said HMC's Nho.

"Apple is leveraging the fact that it's got alternative suppliers. They may offer inferior ormore expensive components but it's something consumers barely notice and something

Apple can successfully use to pressure Samsung."

Samsung's smartphone business has been growing rapidly, powered by its flagship Galaxylineups. Some analysts expect Samsung to overtake Apple as the world's No. 1 smartphonevendor and report record profits in July-September, as it has much broader lineups than thehigh-end focused Apple.

Samsung's smartphone sales soared more than sixfold in the second quarter, easily eclipsingApple's 142% growth, though Apple sold about 1m more units. Nokia sales fell 30%.Some analysts said Samsung's aggressive stance could help it gain some support fromconsumers.



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Annex 9

Page 3 of 3

"These legal battles are raising perception among consumers that Samsung is the only onecapable of competing against Apple," said Choi Do-youn, an analyst at LIG Investment &

Securities.

Despite the global court cases, both companies could end up settling the cases, HSBC said ina note."The most likely scenario is an out-of-court settlement, after a long-drawn IP battle.As in the case of the Nokia-Apple dispute, this issue too is likely to be settled out of thecourt, after a long drawn legal dispute," said HSBC analyst Daniel Kim.

Source : Guardian newspaper 26thSeptember 2011


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Annex 10

Apples Profit and Loss Accounts for Financial Years 2009 to 2011


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Annex 11

Apples Balance Sheet for Financial Years 2009 to 2011


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Annex 12

Apples Cash Flow Statements for Financial Years 2009 to 2011


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Annex 13

Details of Apples Cash, Cash Equivalents and Marketable Securities at Year End 2011


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Annex 14

Summary of Sales, Operating Income and Assets by Operating Region


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Annex 15

Page 1 of 2

CHINA BECOMES APPLES SECOND LARGEST MARKET IN 2011

Bloomberg News , wrote on 19 October 2011

Apple Inc. said China has become its largest market after the U.S. as the iPhone, iPad andiMac computer maker opened an online store last year and six retail outlets in the past threeyears in the Asian nation.

China, the worlds most populous country, accounted for 16 percent of Apples fourth-quarter sales, or about $4.5 billion, Chief Executive Officer Tim Cook said on a conference

call yesterday. Revenue in the nation was almost four times the year- earlier level, he said.

Demand in China was a bright spot in Apple earnings reported yesterday, which missedanalyst estimates for the first time in at least six years as iPhone sales lagged behind targets.The Cupertino, California-based companys sales in the Asian country jumped to $12.5

billion in the year ended Sept. 24 from $2.8 billion the previous 12 months, Cook said.

Ive never seen a country with as many people rising into the middle class that aspire to buyproducts that Apple makes, Cook said on the call. China, the skys the limit there.

Apple has a network of more than 200 Apple Premium Resellers in the country that arefocused on the companys products, Cook said. Combined with other types of resellers and

partner China Unicom (Hong Kong) Ltd., the nations only carrier now offering the iPhonewith a service contract, there are 7,000 points of sale for the iPhone in China he said.

Largest Market

Even at that rate, Apple isnt expanding fast enough in China, said Shaun Rein, managingdirector of China Market Research Group., a Shanghai-based company that advises retailersand other clients about doing business in the country.

China should be Apples largest market, and I think they are actually underperforminghere, Rein said. They havent opened enough Apple stores. Apple needs to accelerate storeopenings much, much more.

The China market can sustain 100 or more stores easily, Rein said.Carolyn Wu, a Beijing-based spokeswoman for Apple, said she had no comment on Reinsanalysis beyond remarks made by Cook that the company is continuing to makeinvestments in China.

China is the worlds largest mobile-phone market by subscribers, with 940 million usersregistered as of the end of August, according to the nations Ministry of Industry and

Information Technology.(Continued on page 2)


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Annex 15

Page 2 of 2

Feverish Growth

The country probably overtook the U.S. as the largest personal-computer market in thesecond quarter, after three decades of American dominance in an industry pioneered byApple and International Business Machines Corp., research firm IDC said in August.Personal-computer shipments in China rose 14 percent to 18.5 million units during thesecond quarter, the first time they surpassed the number in the U.S., where they fell 4.8

percent to 17.7 million, IDC said at the time.Apple sales in China, Hong Kong and Taiwan rose to 12 percent of the companys total lastfiscal year, compared with 2 percent in 2009, Cook said on the call. Revenue is growing at

a feverish pace, in the region, making it the companys fastest-growing by far, he said.

Apple opened its first store in Hong Kong last month, as well as its third store in Shanghai.The company also has two outlets in Beijing.

Its an area of enormous opportunity, Cook said. It has quickly become No. 2 on our listof top revenue countries, very, very quickly. Were obviously placing additional investment.Were building more stores there, as well as doing quite a few other things.Fourth-quarter profit was $6.62 billion, or $7.05 a share, compared with $4.31 billion, or$4.64 a share, a year earlier, Apple said yesterday in a statement. That missed analysts

predicted profit of $7.31 a share, the first time Apple disappointed in at least 26 quarters.

Source : Bloomberg, 19 October 2011


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Annex 16

Apples Share Price - 12 Months to 14 November 2011

Source : Yahoo Finance, 14 November 2011


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Annex 17

Apples Share Price versus NASDAQ 12 months to 14 November 2011

Source : Yahoo Finance 14 November 2011


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Annex 18

Page 1 of 2

Courts Agrees Nortel Patent Sale to Apple/RIM group

Reuters reported on 11 July 2011 that

Apple Inc, Microsoft Corp, Research in Motion Ltd and three other leading tech companiesreceived court approval on Monday to buy wireless patents from bankrupt Nortel NetworksCorp for $4.5 billion.

Judges in the United States and Canada approved the sale of 6,000 patents and applications,which fetched three times what some analysts expected from the four-day auction in June.

Nortel Networks Corp filed for bankruptcy protection from creditors in January 2009 andcourts in the two countries are overseeing the disposal of the company's assets as the formertelecommunications giant winds down its operations.

The group of six that won the auction, a collection that bid as Rockstar Bidco LP, alsoincluded EMC Corp, Ericsson and Sony Corp.

The auction was "record breaking in terms of this case and in the patent industry generally,"Lisa Schweitzer of Cleary Gottlieb Steen & Hamilton LLP, which represents Nortel, told aDelaware Bankruptcy Court hearing.

The auction started with a "stalking horse" bid of $900 million by Google Inc, a companywith a relatively small pool of wireless patents in a booming industry increasingly fraughtwith lawsuits over intellectual property.

The price paid after 19 rounds of bidding indicated the lengths the Apple group was willingto go to thwart the mobile ambitions of Google, according to analysts.

The winning group would likely try to maximize their return on the patents by using them tolitigate against others, with Google and its Android mobile phone software first on the list,analysts said.

Also bidding were Intel Corp and RPX Corp, which licenses patents to clients for a fee.Apple initially bid on its own, but partnered with the Rockstar group after round five.

The sale spans wireless, data networking, optical, voice, Internet and semiconductortechnologies. The most prized relate to emerging 4G standards such as long-term evolution(LTE).



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Annex 18

Page 2 of 2

Several large technology companies such as Verizon Communications Inc and Hewlett-Packard Co objected to the sale. Most objections were resolved by reiterating the sale did notnegate licensing agreements involving the patents included in the sale.

Delaware bankruptcy judge Kevin Gross said it would be a "$4.5 billion mistake" not toapprove the sale.

The money will become part of the Nortel estate and will eventually be distributed tocreditors that range from suppliers to investors holding the company's bonds.

"This is truly a 'wow' transaction," said David Botter of Akin Gump Strauss Hauer Feld LLP,which represents the official committee of creditors.

The transaction is expected to close in about a month, according to Schweitzer.

The Rockstar group got antitrust clearance on June 23 for the transaction. However, theAmerican Antitrust Institute has asked the Justice Department for "an in-depth investigation"into the consortium's patent portfolio purchase.

This sale fetched a higher price than all of Nortel's other asset sales combined. Nortel has

now raised almost $8 billion from asset sales.

The hearing was held simultaneously by way of a telecast with the Ontario Superior Court ofJustice, where it was approved by Judge Geoffrey Morawetz. Nortel is based in Mississauga,Ontario.

The case is In re: Nortel Networks Inc, U.S. Bankruptcy Court for the District of Delaware,No. 09-10138.

Source : Reuters , 11 July 2011


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Annex 19

Page 1 of 3

Apple and its Environmental Footprint

Apples website quotes the following :

How Apple calculate its carbon footprint

To accurately measure a companys environmental footprint, its important to look at theimpact that companys products have on the planet. For the past three years, Apple has useda comprehensive life cycle analysis to determine where our greenhouse gas emissionscome from. That means adding up the emissions generated from the manufacturing,transportation, use, and recycling of our products, as well as the emissions generated by ourfacilities. We've learned that about 98 percent of Apple's carbon footprint is directly related

to our products. The remaining 2 percent is related to our facilities.

Minimizing the impact of our growth.

We know that the most important thing we can do to reduce our impact on the environmentis to improve our products environmental performance. Thats why we design them to useless material, ship with smaller packaging, be free of toxic substances used by others, and beas energy efficient and recyclable as possible. So as our growth continues to outpace that ofthe rest of the industry, Apple remains committed to creating products that have the leastamount of impact on the environment. Since 2008, as our revenue grew 74 percent, ourgreenhouse gas emissions grew only 57 percent. And were the only company in our industry

that can claim that every product we sell not only meets but exceeds the strict energyguidelines of the ENERGY STAR specification.

Material use

Over the past decade, Apples designers and engineers have pioneered the development ofsmaller, thinner, and lighter products. As our products become more powerful, theyre usingless material to produce and generating fewer carbon emissions. For example, althoughtodays 21.5-inch iMac is more powerful and has a much larger screen than the first-generation, 15-inch iMac, it is designed with 50 percent less material and generates 50

percent fewer emissions. Even the iPad became 33 percent thinner and up to 15 percentlighter in just one generation, producing 5 percent fewer carbon emissions.



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Annex 19

Page 2 of 3

Toxic substance removal.

Designing greener products means considering the environmental impact of the materialsused to make them. From the glass, plastic, and metal in our products to the paper and ink inour packaging, our goal is to continue leading the industry in reducing or eliminatingenvironmentally harmful substances.One of the environmental challenges facing our industry today is the presence of toxicsubstances such as arsenic, brominated flame retardants (BFRs), mercury, phthalates, and

polyvinyl chloride (PVC) in products. Although most countries still allow use of thesesubstances, we have worked with our manufacturing partners to eliminate them from our

products. Not only is every product we sell free of BFRs and other harmful toxins, we havealso qualified thousands of components to be free of elemental bromine and chlorine, puttingus years ahead of anyone else in the industry. In addition, every display we make whether

its built into a system or available as a stand-alone features mercury-free LEDbacklighting and arsenic-free glass.

Responsible manufacturing

Apple is committed to ensuring that working conditions in our supply chain are safe, workersare treated with respect and dignity, and manufacturing processes are environmentallyresponsible. Apple also has a Supplier Code of Conduct and publishes supplier audit reports.

Smaller packaging

Apple employs teams of design and engineering experts who develop product packagingthats slim and light yet protective. Efficient packaging design not only reduces materialsand waste, it also helps reduce the emissions produced during transportation.For example, the packaging for iPhone 4 is 42 percent smaller than for the original iPhoneshipped in 2007. That means that 80 percent more iPhone 4 boxes fit on each shipping pallet,more pallets fit on each boat and plane, and fewer boats and planes are used resulting infewer CO2emissions.

Energy efficiency

A significant portion of greenhouse gas emissions Apple accounts for are produced whenyou plug in our products and start using them. Thats why we design our products to be asenergy efficient as possible. Because we design both the hardware and the operating system,were able to make sure they work together to conserve power. Take Mac mini, for example.Through innovations both big and small, it uses as little as one-fifth the power consumed bya typical lightbulb. Mac mini uses even less power than a single 13-watt CFL lightbulb,making it the most energy-efficient desktop computer in the world.Apples A5 chip in iPad 2 and A4 chip in iPhone 4, iPod touch, and Apple TV are anotherexample of energy-efficient design. Apple engineers designed the A5 and A4 chips to beextremely powerful yet remarkably energy efficient. With them, your Apple devices can

perform complex jobs while maximizing battery life.



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ENERGY STAR qualification

Unlike other manufacturers who may have one or a few products that are ENERGY STARqualified, every single Apple product not only meets but exceeds the United StatesEnvironmental Protection Agencys strict ENERGY STAR guidelines for efficiency. Appleis the only company in the industry that can make this claim.

Source : www.apple.com/environment


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Risks Identified by Apple Inc. in 2011 Annual Report

- Global economic conditions could materially adversely affect the Company.- Global markets for the Companys products and services are highly competitive

and subject to rapid technological change. If the Company is unable to competeeffectively in these markets, its financial condition and operating results could bematerially adversely affected.

- To remain competitive and stimulate customer demand, the Company mustsuccessfully manage frequent product introductions and transitions.

- The Company faces substantial inventory and other asset risk in addition topurchase commitment cancellation risk.- Future operating results depend upon the Company s ability to obtaincomponents in sufficient quantities.

- The Company depends on component and product manufacturing and logisticalservices provided by outsourcing partners, many of whom are located outside ofthe U.S.

- The Company relies on third-party intellectual property and digital content,which may not be available to the Company on commercially reasonable termsor at all.

- The Company s future results could be materially adversely affected if it isfound to have infringed on intellectual property rights.

- The Company s future performance depends in part on support from third-partysoftware developers.- The Company s future operating performance depends on the performance of

distributors, carriers and other resellers.- The Company s Retail business has required and will continue to require a

substantial investment and commitment of resources and is subject to numerousrisks and uncertainties.

- Investment in new business strategies and initiatives could disrupt theCompanys ongoing business and present risks not originally contemplated.

- The Company s products and services experience quality problems from time totime that can result in decreased sales and operating margin.

- The Company is subject to laws and regulations worldwide, changes to whichcould increase the Companys costs and individually or in the aggregatematerially adversely affect the Company s financial condition or operatingresults.

- The Companys success depends largely on the continued service andavailability of key personnel.

- Political events, war, terrorism, public health issues, natural disasters and othercircumstances could materially adversely affect the Company.

(Continued on page 2 )


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Risks identified by Apple Inc. in 2011 Annual Report (Continued)

- The Company may be subject to information technology system failures ornetwork disruptions that could damage the Companys reputation, businessoperations, and financial conditions.

- The Company may be subject to breaches of its information technology systems,which could damage the Companys reputation, business partner and customerrelationships, and access to online stores and services. Such breaches couldsubject the Company to significant reputational, financial, legal, and operationalconsequences.

- The Company s business is subject to a variety of U.S. and international laws,rules, policies and other obligations regarding data protection.

- The Company expects its quarterly revenue and operating results to fluctuate.- The Companys stock price is subject to volatility.- The Company s business is subject to the risks of international operations. (1)- The Company is exposed to credit risk and fluctuations in the market values of

its investment portfolio.- The Company is exposed to credit risk on its trade accounts receivable, vendor

non-trade receivables and prepayments related to long-term supply agreements.This risk is heightened during periods when economic conditions worsen.

- Unfavorable results of legal proceedings could materially adversely affect theCompany.(2)

- Changes in the Companys tax rates, the adoption of new U.S. or internationaltax legislation or exposure to additional tax liabilities could affect its futureresults.

Notes :

(1)= This risk includes the risk of fluctuations in exchange rates versus the US $(2)= Apple is currently subject to the following legal actions in addition to the dispute

with Samsung- legal action against Apple in the USA alleging that the company and AT&T

Mobility violated the federal antitrust laws by monopolizing and/or attempting tomonopolize the aftermarket for voice and data services for the iPhone and that

the Company monopolized and/or attempted to monopolize the aftermarket forsoftware applications for iPhones.

- Legal action against Apple in the USA alleging unlawful tying of music andvideo purchased on the iTunes Store with the purchase of iPods and unlawfulacquisition or maintenance of monopoly market power and unlawful acquisitionor maintenance of monopoly market power under various Californian and USFederal Acts including the Sherman Act, the Cartwright Act and the CalifornianConsumer Legal Remedies Act and Californian monopolization law.


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Apples Board Oversight of Risk Management

The Board of Apple believes that evaluating how the executive team manages the variousrisks confronting the Company is one of its most important areas of oversight. In carryingout this critical responsibility, the Board has designated the Audit Committee with primaryresponsibility for overseeing enterprise risk management. A Risk Oversight Committeeconsisting of key members of management, including the Companys Chief FinancialOfficer and General Counsel, was formed to assist the Audit Committee in fulfilling itsoversight responsibilities with regard to risks inherent to the business of the Company, theidentification, assessment, management, and monitoring of those risks, and risk management

decisions, practices, and activities of the Corporation. The Risk Oversight Committee reportsregularly to the Audit Committee, and the Audit Committee makes periodic reports to theBoard regarding such briefings.

While the Audit Committee has primary responsibility for overseeing enterprise riskmanagement, each of the other Board committees also considers risk within its area ofresponsibility. For example, the Nominating Committee reviews risks related to legal andregulatory compliance as they relate to corporate governance structure and processes, and theCompensation Committee reviews risks related to compensation matters. The Board isapprised by the committee chairs of significant risks and managements response to thoserisks via periodic reports. While the Board and its committees oversee risk managementstrategy, management is responsible for implementing, supervising day-to-day riskmanagement processes and reporting to the Board and its committees on such matters.

With respect to risk related to compensation matters, the Compensation Committeeconsiders, in establishing and reviewing the Companys executive compensation program,whether the program encourages unnecessary or excessive risk taking and has concluded thatit does not. Executives base salaries are fixed in amount and thus do not encourage risk-taking. Bonuses are capped and are tied to overall corporate performance, and also are arelatively small percentage of executive officers total compensation opportunities. Themajority of compensation provided to the executive officers is in the form of long-term

equity awards that are important to help further align executives interests with those of theCompanys shareholders. The Compensation Committee believes that these awards do notencourage unnecessary or excessive risk-taking since the ultimate value of the awards is tiedto the Companys stock price, and since awards are staggered and subject to long-termvesting schedules to help ensure that executives have significant value tied to long-termstock price performance.

The Compensation Committee has also reviewed the Companys compensation programs foremployees generally and has concluded that these programs do not create risks that arereasonably likely to have a material adverse effect on the Company. The CompensationCommittee believes that the design of the Companys annual cash and long-term equity

incentives provides an effective and appropriate mix of incentives to help ensure the( Continued on page 2 )


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Companys performance is focused on long-term stockholder value creation and does not

encourage the taking of short-term risks at the expense of long-term results. In general,bonus opportunities for Company employees are capped, and the Company has discretion toreduce bonus payments (or pay no bonus) based on individual performance and any otherfactors it may determine to be appropriate in the circumstances. As with the compensation ofthe Companys executive officers, a substantial portion of the compensation for employeesgenerally is delivered in the form of equity awards that help further align the interests ofemployees with those of shareholders.

Source :Apples 2011 Annual General Meeting of shareholders 23 February 2011

papers to shareholders from Board of Apple Inc.

Documents

FINA1035 Strategic Financial Management - Exam Case Study Aug 12.Docx