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iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

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Page 1: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside
Page 2: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

iLiberty-The Licensing of OS XiLiberty-The Licensing of OS X

•Leasing out the Mac Operating System, Leasing out the Mac Operating System, OS X, to outside PC makers.OS X, to outside PC makers.•iLiberties would have the same internal iLiberties would have the same internal components.components.•All manufacturing and R&D would be All manufacturing and R&D would be done by the PC companiesdone by the PC companies

Page 3: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

Overall benefits for Apple from Overall benefits for Apple from this strategythis strategy

• Increased sales with extremely high Increased sales with extremely high profit margins.profit margins.

• Increased sales of software and Increased sales of software and peripheral hardware across the board.peripheral hardware across the board.

• Expanding cash flow to continue Expanding cash flow to continue Apple’s policy of technical innovation.Apple’s policy of technical innovation.

Page 4: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

Benefits of LicensingBenefits of Licensing

• Taking advantage of others’ large Taking advantage of others’ large and effective marketing campaigns.and effective marketing campaigns.

• Taking advantage of others’ superior Taking advantage of others’ superior production efficiencyproduction efficiency

• Competing for school and company Competing for school and company contracts.contracts.

Page 5: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

How this changes Apple’s How this changes Apple’s strategystrategy

•Apple’s current strategy: leveraging their Apple’s current strategy: leveraging their superior operating system to boost superior operating system to boost hardware sales.hardware sales.•Old focus: HardwareOld focus: HardwareNew focus: Operating SystemNew focus: Operating System•Production of “lower end” hardware.Production of “lower end” hardware.

Page 6: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

Why switching over from PCs to Why switching over from PCs to iLiberties is worth it to the iLiberties is worth it to the

consumer:consumer:

•The iLiberties will be less expensive and the The iLiberties will be less expensive and the OS will be of a higher quality than those of OS will be of a higher quality than those of the PCsthe PCs

•Mac OS X is more ‘hacker proof” and “virus Mac OS X is more ‘hacker proof” and “virus proof” than Microsoft Windows XPproof” than Microsoft Windows XP

•OS X is extremely intuitive and easy to learnOS X is extremely intuitive and easy to learn•Wide availability of software for MacsWide availability of software for Macs

Page 7: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

SWOT Analysis: StrengthsSWOT Analysis: Strengths

• In 2004 Apple had $2.96 billion in cash In 2004 Apple had $2.96 billion in cash available for investment in new available for investment in new technologies. technologies.

• It has a loyal customer base that is It has a loyal customer base that is accustomed and comfortable on its OSX accustomed and comfortable on its OSX operating system.operating system.

• High quality operating system and High quality operating system and hardware/peripheral products are stable, hardware/peripheral products are stable, reliable and virtually virus free. reliable and virtually virus free.

Page 8: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

SWOT Analysis: WeaknessesSWOT Analysis: Weaknesses

•Doesn’t get its products the exposure Doesn’t get its products the exposure they deserve they deserve •The company has been struggling in The company has been struggling in recent years to keep up market share.recent years to keep up market share.•Apple’s quality over quantity motto Apple’s quality over quantity motto doesn’t permit the production of cheaper doesn’t permit the production of cheaper PCs at a lower level of quality.PCs at a lower level of quality.

Page 9: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

SWOT Analysis: SWOT Analysis: OpportunitiesOpportunities

• Microsoft’s weakening grip on their Microsoft’s weakening grip on their market sharemarket share

• The Windows operating system has The Windows operating system has many flaws that make it prone to viruses many flaws that make it prone to viruses and security breaches. Technological and security breaches. Technological solutions to this are not an option.solutions to this are not an option.

• Profit margins are extremely high with Profit margins are extremely high with Operating Systems.Operating Systems.

Page 10: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

SWOT Analysis: ThreatsSWOT Analysis: Threats

• Windows continues to solidify its Windows continues to solidify its status as status as thethe featured operating featured operating systemsystem

• Apple’s market share in the computer Apple’s market share in the computer market continues to decline.market continues to decline.

• Its current situation and its future Its current situation and its future with its market share. with its market share.

Page 11: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside
Page 12: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

Advertising MediumsAdvertising MediumsTelevisionTelevision

NBCNBC•The ApprenticeThe Apprentice• 6:00 p.m. News6:00 p.m. News

FoxFox•The OCThe OC

MTVMTV•The NewlywedsThe Newlyweds•MTV Video Music AwardsMTV Video Music Awards•The Real WorldThe Real World

ESPN and The WBESPN and The WB•Hourly CommercialsHourly Commercials

Page 13: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

Advertising MediumsAdvertising Mediums

NEWSPAPERSNEWSPAPERS•The New York TimesThe New York Times•Education SectionEducation Section•Technology SectionTechnology Section•Business SectionBusiness Section MAGAZINESMAGAZINES

•SeventeenSeventeen•Disney MagazineDisney Magazine•Sports IllustratedSports Illustrated

Page 14: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside
Page 15: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

i Think

i Liberty

i Create

i Learn

i Plan

i Question

i Play

i Change

i Design

i Invent

i Explore

i Challenge

Page 16: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

Target Cities and PopulationsTarget Cities and Populations

Group 1 Population

New York City, NY 8,008,278

Los Angeles, CA 3,694,820

Chicago, IL 2,896,016

Houston, TX 1,953,631

Philadelphia, PA 1,517,550

Phoenix, AZ 1,321,045

San Diego, CA 1,223,400

Dallas, TX 1,188,580

Detroit, MI 951,270

San Jose, CA 894,943

Indianapolis, IN 781,870

San Francisco, CA 776,733

Columbus, OH 711,470

Austin, TX 656,562

Las Vegas, NV 478,434

Group 2 Population

Baltimore, MD 651,154

Boston, MA 589,141

Washington, DC 572,059

Seattle, WA 563,374

Denver, CO 554,636

Fort Worth, TX 534,694

Portland, OR 529,121

Cleveland, OH 478,403

Atlanta, GA 416,474

Sacramento, CA 407,018

Minneapolis, MN 382,618

Miami, FL 362,470

St. Louis, MO 348,189

Pittsburgh, PA 334,563

Tampa, FL 303,447

Sales Representatives

Page 17: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

Marketing FinancialsMarketing Financials

NEW YORK TIMES NEW YORK TIMES

(5 year cost)(5 year cost)11stst 5 months: $66,680.00 5 months: $66,680.00

11stst year: $188,424.00 year: $188,424.00

22ndnd year: $144,124.80 year: $144,124.80

33rdrd – 5 – 5thth years: $169,505.28 years: $169,505.28 (total)(total)

5 year total: $502,054.045 year total: $502,054.04

MAGAZINES

(5 year cost)

Seventeen: $277,140.00

Disney: $109,850.00

Sports Illustrated: $960,000.00

Page 18: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

Marketing FinancialsMarketing Financials

TELEVISIONTELEVISION

• Allotted $600,000.00 per 30 second commercial, Allotted $600,000.00 per 30 second commercial, averages depending on time slotsaverages depending on time slots

• Television Total (5 year cost): $45,000,000.00Television Total (5 year cost): $45,000,000.00

• Total Marketing 5 year Cost: Total Marketing 5 year Cost:

$ 79,000,000.00$ 79,000,000.00

Page 19: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

How this will affect the sale of How this will affect the sale of Apple made MacsApple made Macs

•We do not expect sales of Apple made We do not expect sales of Apple made Macs to dip.Macs to dip.•Different target markets for iLiberty and Different target markets for iLiberty and traditional Macs. traditional Macs. •iLiberties target: Consumers for which iLiberties target: Consumers for which price is most important.price is most important.•Apple made Macs target: Consumers who Apple made Macs target: Consumers who desire superior quality and performance.desire superior quality and performance.

Page 20: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

Survey ResultsSurvey Results

• People who rate “quality” as the most important People who rate “quality” as the most important differentiator: 62%differentiator: 62%

• People who reported spyware, adware, or virus People who reported spyware, adware, or virus problems on their computers:problems on their computers:

Mac Users: 4%Mac Users: 4%PC Users: 69%PC Users: 69%

• PC Users who said they would switch away from PC Users who said they would switch away from Windows if an alternative was available: 51%Windows if an alternative was available: 51%

Page 21: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

FinancialsFinancials

• We have the ability to finance this venture We have the ability to finance this venture through debt due to our low debt-to-equity through debt due to our low debt-to-equity ratio.ratio.

CompanyCompany RevenueRevenue COGSCOGS Gross MarginGross Margin R&DR&D Debt to EquityDebt to Equity

AppleApple 100100 7272 2828 88 0.610.61

DellDell 100100 8282 1818 11 2.172.17

IBMIBM 100100 6363 3737 66 2.752.75

IntelIntel 100100 4343 5757 1414 0.250.25

MicrosoftMicrosoft 100100 1818 8282 1414 0.30.3

Hewlett-PackardHewlett-Packard 100100 7474 2626 55 0.980.98

Avg.Avg. 100.00100.00 58.6758.67 41.3341.33 8.008.00 1.181.18

Page 22: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

FinancialsFinancials

• Expected return on sales – High profit marginExpected return on sales – High profit margin

Microsoft ClientMicrosoft Client RevenueRevenue Operating ExpenseOperating Expense Operating IncomeOperating Income OI % Rev.OI % Rev.

20032003 10,39410,394 1,9941,994 8,4008,400 80.82%80.82% in millionsin millions

20022002 9,3609,360 1,7841,784 7,5767,576 80.94%80.94%

Total Macintosh unit salesTotal Macintosh unit sales 3,0123,012

iPod unit sales iPod unit sales 939939

Page 23: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

FinancialsFinancialsCommon Sized

Income Statement & Ratio Analysis

In $ mil.              

      Year 1 Year 2 Year 3 Year 4 Year 5

Net Sales     100.00% 100.00% 100.00% 100.00% 100.00%

CGS     70.27% 65.76% 63.27% 65.24% 64.20%

Gross Profit     29.73% 34.24% 36.73% 34.76% 35.80%

Expenses              

  SG&A   22.47% 24.77% 23.59% 23.19% 22.84%

  R&D   6.34% 6.00% 5.80% 5.72% 5.64%

  Other   0.49% 0.45% 0.41% 0.40% 0.37%

Operating Profit     0.43% 3.03% 6.93% 5.45% 6.95%

Page 24: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

FinancialsFinancials  Pro Forma Income Statement (in $ mil.)    

Total Apple Sales Without iLiberty              

      Year 1 Year 2 Year 3 Year 4 Year 5

Net Sales     9166 9805.6 10303 10790 11214

CGS     6480 6556 6691 7242 7404

Gross Profit     2686 3249.6 3612 3548 3810

Expenses              

  SG&A   2069.5 2469.65 2493.96 2568.56 2627.48

  R&D   541.71 586.54 617.49 645.23 665.13

  Other   44.913 44.13 42.246 43.16 41.49

Operating Profit      29.877  149.28  458.304  291.05  475.9

Page 25: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

FinancialsFinancialsSales from

iLibertyIn $ mil.              

      Year 1 Year 2 Year 3 Year 4 Year 5

Net Sales     130 420 740 805 845

CGS     52 168 296 322 338

Gross Profit     78 252 444 483 507

Expenses              

  SG&A   19.5 63 111 120.75 126.75

  R&D   47.66 27 23 18 15

  Other   0.637 1.89 3.034 3.22 3.13

Operating Profit      10.203  160.11  306.966  341.03  362.12

Page 26: iLiberty-The Licensing of OS X Leasing out the Mac Operating System, OS X, to outside PC makers.Leasing out the Mac Operating System, OS X, to outside

FinancialsFinancialsTotal Sales With

iLiberty in $ mil.              

      Year 1 Year 2 Year 3 Year 4 Year 5

Net Sales     9296 10225.6 11043 11595 12059

CGS     6532 6724 6987 7564 7742

Gross Profit     2764 3501.6 4056 4031 4317

Expenses              

  SG&A   2089 2532.65 2604.96 2689.31 2754.23

  R&D   589.37 613.54 640.49 663.23 680.13

  Other   45.55 46.02 45.28 46.38 44.62

Operating Profit     40.08 309.39 765.27 632.08 838.02