Knowledge Area Module (KAM) Ijfitts-eportfolio.weebly.com/uploads/5/0/2/8/50286899/stl… · Web viewApple Inc. Case Analysis. Clifford Fallico. Casey Tharp. John Hupp. Jason Fitts

Running head: APPLE INC. CASE ANALYSIS 1

Apple Inc. Case Analysis

Clifford Fallico

Casey Tharp

John Hupp

Jason Fitts

John Lehnherr

STL-435 – Strategic Planning

March 27, 2014

Dr. Whitney Stevens

Southwestern College Professional Studies

APPLE INC. CASE ANALYSIS

Executive Summary

Apple Inc. is one of the leading technology companies in North America and has an opportunity

for greater expansion throughout and become a global known company. One of its opportunities

is to expand in the Asian market. Apple is known for its quality and durability of its products

and user friendly features. The Asia market is still somewhat of unexploited market, Apple will

definitely need to capture and expand in this market sooner than later.

Currently, Apple ranks no. 5 with ethical leadership, no.1 in innovation and no. 10 in the

world’s top brands. With new improved mission and vision statement Apple Inc. should

continue on a rise of its profits and the organization should remain competitive and have a long-

range sustainable strategic plan. While continuing to remain abreast of the ever-going changes in

technology, Apple understands the importance of the competitive edge that it needs to uphold in

order to not lose ground in the market.

Apple remains cognizant of its SWOT analysis and will utilize these components to

capitalize to continue to gain advantages over their competitors. Apple will invest integration

with Facebook, LinkedIn, Instagram, etc… in order to remain competitive in the social

networking market against its competitors. By investing more time in the social network wave,

Apple believes that this will be the catalyst to expanding its market globally.

Technology entertainment continues to be on the rise, Apple will also look to increase its

presence within the television media technologies. It will also invest in improving and gaining

contracts with broadcasting media and or technologies. This would be another opportunity that

Apple Inc. would look into strengthening its strategic planning.

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In today’s economy financials are key to Apple Inc. value. They have more cash than

debt and this puts them in a more stable financial market, than others who have more debt that

they do cash. Apple will continue to monitor its financial statement analysis to continue to

review and analyze the need for improvements and opportunities. With a vigilant review of the

company’s strategic plan and financials this with provide Apple an overview of their company’s

health. The newly proposed strategic plan will provide Apple a better outlook of the areas that

will need attention and investment to remain well-informed and provide information to make

improvements and execute on the opportunities.

Furthermore, Apple will continue to have retail stores and increase as they expand into

the Asia market. This service provides its users a personal business relationship, where a

personal connection is made and still important in today’s consumers. Although, technology has

given us the need for less face to face customer service, Apple’s consumers still have a demand

it. This service that Apple provides is a big investment but its return in profits show that it is

still highly desired by its consumers. Currently, there is no need to look at any downsizing in its

retail stores. Having this service provides their consumers with options of : chatting, email,

phone or walk-in service into these stores.

Apple will continue streamline its manufacturing processes without compromising its

quality. It will ensure to continue to strengthen its reputation while expanding and engaging

with the global market. Safeguarding their brand will be key to its expansion and its optimal

performance.

The newly improved strategy will provide Apple Inc. an increase advantage to investing

in its research and development to continue to provide forefront technology innovations while

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simultaneously, continuing to meet its consumers’ expectations of its products, customer service,

user friendly features and innovative technologies. Apple would like to increase its rankings in

the above categories mentioned, but also look to increase their numbers globally.

Apple Inc. Case Analysis

Apple Incorporated is the most recognizable technology company in the United States,

and arguably the world. The revolutionary company that has brought us the iPod, iPhone, iPad,

Mac computer line and numerous software and technological advances has been at the forefront

of innovation for nearly 37 years. Born in a garage in 1976, the company has evolved into a

world leader in innovation and technology. Apple was named Boston Consulting Group's most

innovative company in the world for the 9th straight year in 2013 (Su, 2013). While many

predicted a letdown after the 2011 passing of its iconic founder Steve Jobs, the company has

continued to transform the industry while remaining the standard all others are measured against.

This document will analyze Apple Inc. by taking an in depth look at its business strategy

while offering recommendations in areas that have been identified for improvement. This

analysis will start with Apple’s mission and vision statements along with the authors’ versions of

each, while comparing them to a leading competitor. Furthermore, the analysis will explore an

internal and external assessment of the company by giving a financial ratio analysis, showing the

firm’s organizational chart and identifying its market strategy while also identifying competitors,

opportunities and threats. Additionally, strategy formulation and implementation will be

discussed through various matrices and analysis. Finally, a strategy evaluation will be conversed

with financial and nonfinancial strategies recommended along with a recommended future

strategic plan in contrast to the current plan.

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Vision and Mission Statement

After researching Apple Inc.’s website and other sources on the internet it became

evident that Apple did not have a vision statement and what multiple sources believed was their

mission statement, could not be verified on the company’s website. However, the rumored

mission statement does appear at the end of their press releases and reads as follows:

“Apple designs Macs, the best personal computers in the world, along with OS X, iLife,

iWork and professional software. Apple leads the digital music revolution with its iPods

and iTunes online store. Apple has reinvented the mobile phone with its revolutionary

iPhone and App Store, and is defining the future of mobile media and computing devices

with iPad.” (Apple Inc., 2013)

This statement does not seem to fit the criteria of a mission statement at all, it is actually just a

listing of their products and accomplishments. Digging further back to 2008 this is the statement

that followed Apple’s press releases:

“Apple ignited the personal computer revolution in the 1970s with the Apple II and

reinvented the personal computer in the 1980s with the Macintosh. Today, Apple

continues to lead the industry in innovation with its award-winning computers, OS X

operating system and iLife and professional applications. Apple is also spearheading the

digital media revolution with its iPod portable music and video players and iTunes online

store, and has entered the mobile phone market with its revolutionary iPhone.” (Blodget,

2013)

The 2008 version is much more in line with what a typical mission statement should be and

according to an article by The Economist written in 2009, Steve Jobs 1980 Apple mission

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statement was, “To make a contribution to the world by making tools for the mind that advance

humankind.” (Economist, 2009) It would seem that none of these statements fit the example of

an effective mission statement which reveals an organization’s customers; products or services;

markets; technology; concern for survival, growth, and profitability; philosophy; self-concept;

concern for public image; and concern for employees (David, 2013, pg. 54).

Since a vision statement for Apple Inc. could not be found, and the company’s mission

statement was basically a laundry list of their products, the authors’ of this paper have developed

both. First the vision statement: “The vision of Apple Incorporated is to strive for perfection

while creating innovative and intentionally crafted products that will continually revolutionize

the way people live.” (Fitts, 2014) This statement speaks to the constant innovation and

development of new products that Apple’s loyal customers have come to eagerly expect. Now

for a look at the revised mission statement:

“Apple Inc. is the leader in innovative products with over 500 million customers

worldwide. Apple develops the Mac personal computer along with OS X, iLife, iWork

and professional software. Apple is at the forefront of the digital music market with its

iPods and iTunes online store along with trailblazing the transformation of the mobile

phone with its ground-breaking iPhone and App Store. Apple has also spearheaded the

advent of mobile media and computing devices with the iPad. Our company is devoted to

ensuring we remain environmentally responsible through our recycling program,

implementation of renewable energy along with energy efficient product design. An

equal opportunity company with over 80,000 employees, we remain committed to our

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stakeholders by continuously looking for new innovational breakthroughs that will

enhance people’s lives.” (Fitts, 2014)

This mission statement addresses the company’s products, customers, employees, commitment

to growth and the environment while remaining true to its overall philosophy of advancing

mankind mentioned by Jobs in 1980.

One of the leading competitors of Apple is Google, and like Apple they do not have a

formal vision statement but on their official site they state their mission as such: “Google’s

mission is to organize the world’s information and make it universally accessible and useful.”

(Google, 2014) As with Apple’s statement, the Google statement does not possess the criteria of

a “good” mission statement recommended by Fred David and fails to measure up with the one

written by the authors’ of this document.

The groups proposed mission and vision statements provided are all-inclusive statements

that correlate directly with the future strategy of the company. These statements address the

various aspects of the company while showing a commitment to growth, expansion and the

environment. While mission and vision statements are the framework from which strategy is

built, the first part of strategy that will be discussed are the internal and external assessments.

Financial Ratio Analysis

Gross Profit Margin 39.05%Operating Profit Margin 21.78%Net Profit Margin 21.48%Inventory Turnover 74.1

(Apple Gross Profit Margin (Quarterly):. (2013, December 31).

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Apple turns over their entire inventory every five days, as a comparison Dell which comes in

second place and has a turnover of every ten days. (Campbell 2012) Apple has extremely good

ratio's in most of the categories that were looked at, no noticeable bad ratios were discovered.

Apples Organizational Chart

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Apples organization chart is configured in a spoke and wheel pattern with the CEO Tim

Cook being in the center. (David, 2013) This is a holdover from the Steve Job's days and the

problem with this organizational chart is that it will not work effectively without Steve Jobs at

the helm, so it will need to be updated into a standard pyramid type of organization.

Improved Chart

This organization chart is configured in a pyramid pattern with the CEO Tim Cook being at the

top. This would work much better for Tim Cook because although he replaced Steve Jobs as

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CEO, no one can truly replace Steve Jobs, as Tim Cook is a much more traditional manager.

This will give more responsibilities to Bob Mansfield, Bruce Sewell, and Peter Oppenheimer. In

doing this it will free Tim Cook up to focus on innovative ideas.

Market Positioning Map

Apple as of 2010 had a 10.5% market share as compared to a 24.8% market share of HP

and a 23.4% market share of Dell in the US PC market. (Foresman, 2010) Apple is much

weaker in the worldwide market share, not even being in the top six. Although Apple gets

higher marks on quality and customer service the price of their product is much higher than their

competitors. This is what puts them out of contention globally. The main way they could

improve their position would be to lower prices of their product, but with the huge profits they

are making on the inventory they are selling this is doubtful to happen.

Marketing Strategy

Apple's marketing strategy since the inception of the company has been to deliver the

most solid product and give the user the best possible experience with their products. This is a

very good strategy and Apple should continue on trying to make any improvements to the ease

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of use of their products and continue to make the most reliable products on the market. Their

direct competitors, especially HP and Dell, have a less than stellar track record of reliable and

not user-friendly experiences with their products.

Website and Facebook Page

Apples website is much more user friendly than Microsoft's or Google's. The design is

much more of a sleek design and everything you need depending on the product you own is

located right on the front page. Google's website was hard to track down, as just typing in the

name of the company just gets you to their search engine, and in Microsoft's case

Apple's Facebook page was very hard to find, and it does not have any information on it

except for the address. They currently have 10.7 million Likes, compared Google which has

nearly 26 million Likes, and Microsoft with 4.1 million Likes. Both Microsoft's and Google's

Facebook page appear to be updated a few times a week with news about the company and their

products. Apple doesn't have any information on Facebook.

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Retail Location

(Apple Appraisal Magazine, 2010)

Apple should focus on market penetration into the Asian market. This market has a

decent economy and the people in this part of the world love high tech products. With

penetration of the Asian market lagging behind the North American market by over 400 hundred

million people per store, this would be the place to target.

Value of Firm Analysis

According to Forbes, Apple has an ethical leadership rank of 5, an innovation rank of 1,

and a trust rank of 10 out of the world’s top brands. (Forbes Top Brands) This with the fact that

it had a revenue of 65 billion dollars and only having to spend 420 on advertising puts Apple at a

very high value firm. As long as they can keep innovating and beating their major competitors

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to the market with solid easy to use products they will continue to be one of the top ten high

value brands in the world.

Strengths and Weaknesses of Apple/products

Weaknesses

1. Poor integration with Facebook

2. Need to cut the need to sync its mobile devices to a computer and evolve into the

technology that the cloud boasts.

3. Needs a bigger presence in the living room, currently Sony and Microsoft have

this dominated this environment.

Strengths

1. Name recognition

2. Marketing power

3. Innovative product technology

Internal Factor Evaluation Matrix

Strengths Weight Rating Weighted Score

Financial performance .20 4 .80Expanding retail stores .08 3 .24Marketing strategies .08 3 .24Quality Product .17 4 .68Customer Service .10 4 .40Product Development .08 3 .24Weaknesses Weight Rating Weighted

ScoreHigh Price .05 2 .10

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Loss of Steve Jobs .10 1 .20Weak cloud services .07 1 .07Inability to acquire outside companies .07 2 .14Totals 1.00 3.01

The financial performance is very important for Apple as they are sitting on a lot of cash

with very little debt. Expanding retail stores is also key to Apples growth potential, many

people cannot walk into a local Apple store and put their hands on the product. Apple has a very

fun market strategy that focuses less on mainstream computer users, and focuses more on a more

niche market. Apple has a high quality product, that is well known for being reliable and less

vulnerable to bugs or viruses, this leads into their customer service which is very strong. It is

imperative that they maintain this advantage.

Apple products have a high price and this scares some customers away, but their loyal

fans do not mind paying the extra premium because they know they are going to get a quality

product with superior customer service. Steve Jobs was a visionary, he is not going to be able to

be replaced, this created a potential weakness. Apple does not have the talent inside of their

company to compete in the cloud space, they have relied heavily on Amazon and Microsoft for

some of their cloud services. It would be very useful for Apple to acquire outside companies to

make up for some of their weaknesses but they have not been successful at this in the past.

Major Competitors

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Apples major competitors are Google, Microsoft, and Samsung. Apples operating

margin since 2007 has been between 15 and 39%, compared to Google which has been between

25% and 36%, Microsoft from 42% to 2%, and Samsung which has had the lowers overall

operating margin from a negative operating margin up to 13%. The top three, including Apple,

have been very competitive, with Samsung just hanging on at the bottom. (Arnold, N. 2013)

Competitive Profile Matrix Apple Microsoft GoogleCritical Success Factors Weight Rating Score Rating Score Rating ScoreAdvertising 0.05 2 0.1 3 0.15 2 0.1Product Quality 0.13 4 0.52 2 0.26 3 0.39Price Competitiveness 0.06 2 0.12 4 0.24 4 0.24Management 0.05 3 0.15 2 0.1 3 0.15Financial Position 0.15 4 0.6 4 0.6 3 0.45Customer Loyalty 0.10 4 0.4 2 0.2 2 0.2Global Expansion 0.10 2 0.2 2 0.2 2 0.2

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Market Share 0.11 2 0.22 4 0.44 3 0.33Innovation 0.15 4 0.6 2 0.3 3 0.45Customer Service 0.10 4 0.4 3 0.3 3 0.3Total 1.00 3.31 2.79 2.81

Key Industry Trends

Key industry trends for the technology sector will be directed "toward the next-

generation pillars of cloud, mobile, social and big data." (Top Industry Trends to Watch) Cyber

security will also be a high priority, as well as the means of collecting data that tracks personal

behavior. Virtual reality will also be big in the future, as can be surmised by Facebook buying

Oculus Rift virtual reality company for 2 Billion dollars.

Opportunities and Threats

Opportunities

1. The demand for tablets is increasing as usage of desktop computer wanes

2. Apple products gaining a foothold in the defense department (huge potential)

3. Cloud based services are gaining traction

Threats

1. Technology changes at a blistering pace

2. Android growth

3. Rising cost in association with manufacturing

External Factor Evaluation Matrix

Opportunities Weight Rating Weighted Score

Demand .20 4 .80High amount of viruses on competitors product

.04 2 .08

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Asian Market .15 2 .30Growth in computer market .12 2 .24

Threats Weight Rating Weighted Score

Market Competition .15 3 .45Price of manufacturing .05 3 .15Government Regulation .05 3 .15Economic Climate .14 2 .28Lower amount of compatible software .10 2 .20

1.00 2.65

SWOT Matrix

Strengths

1. Net sales up $23 billion from 2009 to 2010

2. Operating income up $7 billion from 2009 to 2010

3. Income before taxes up $6 billion from 2009 to 2010

4. Cash and equivalent up $6 billion from 2009 to 2010

5. Total assets up $10 billion from 2009 to 2010

6. Popularity of tablet computers, especially iPads up and PCs down

7. iPhone has revolutionized cell phones and mobile computing

8. Apple is now the most valuable company in the world

Weaknesses

1. Selling and administrative fees up $1.5 billion from 2009 to 2010

2. Total operating expenses up $6.5 billion from 2009 to 2010

3. Short term marketable securities down $4 billion from 2009 to 2010

4. Accounts payable up $7 billion from 2009 to 2010

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5. Total current liabilities up $9 billion from 2009 to 2010

6. Likely plan to charge subscription for fee-based music mediocre results by other firms

Opportunities

1. Younger generation is used to tablet computers and touch screen technology

2. Apple TV gets content from NetFlix and YouTube, could expand by adding more

content

3. Mac Pro and MacBook Pro popular for people working in design and publishing

4. Reputation as a “first mover” will help if a new product is ready to be introduced

5. Sales in Asia lower than Europe, opportunity could exist to increase Asian sales

6. Recession is fading so many consumers will have increased spending ability

Threats

1. Plant, property, and equipment (PPE) increased $1.7 billion in 2010, could be increased

expenses involved with extra maintenance and facilities related expenses

2. Being a “first mover” means other companies can take advantage of their ideas by

creating similar products after they have determined how Apple’s products do

3. Google has secured major record labels for its cloud music service

4. Most computers run on Microsoft Windows operating systems

SO Strategies

1. Increase production of iPads (S6, O1)

2. Use existing resources to increase marketing in Asia (S4, O5)

3. Increase Apple TV content by purchasing from other companies (S4, O2)

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WO Strategies

1. Cut advertising expense since so many customers know about Apple (W1, O4)

2. Use Apple’s reputation to market fee-based music (W6, O4)

ST Strategies

1. Use cash to avoid interest payments on PPE (S4, T1)

2. Use Apple’s reputation to work with major record companies on fee-based music to

compete with Google (S8, T3)

3. Use cash to increase marketing of operating system to compete with Microsoft

Windows operating system (S4, T4)

WT Strategies

1. Reduce accounts payable and redirect funds to PPE (W4, T1)

2. Consider lowering fee for music to penetrate market ahead of Google (W6, T3)

SPACE Matrix

Financial Position

Net income +7 %Qtrly Rev Growth +7 %Gross Margin +3 %Operating Margin +3

EPS +4 Revenue +6 EBITDA +7 (Average 5.28)

Competitive Position

Market share -3 Product quality -1 Product life cycle -3 Customer loyalty -2

Technological know-how -1 (Average -2)

Stability Position

Recession is easing -3 Tablets popular with younger people -2 Smart phone popularity

continues to increase -2 Other firms continue to create new technology -5 (Average -3)

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Industry Position

Apple sells products in almost every country in the world 6 iPhones and iPads can be used

by almost all people 6 Tablets and smartphones continue to grow in popularity 6

(Average 6)

X-Axis = CP -2 + IP 6 = 4 Y-Axis = SP -3 + FP 5.28 = 2.28

This result falls in the Aggressive Profiles category, Apple should pursue aggressive strategies

FP 7 6 5 4 3 2 X 1 CP

-7

-6

-5

-4

-3

-2

-1 0 1 2 3 4 5 6 7

IP

-1 -2 -3 -4 -5 -6 -7 SP

BCG Matrix

Region Net Sales % Net Sales Relative Market Share Industry Growth Rate

Americas $24,498 37.6% .6 +15

Europe $18,692 28.6% .4 +10

Japan $3,981 6.1% .8 +10

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Asia-Pacific $8,256 12.6% .2 0

Retail $9,798 15.1% .6 +15

Total $65,225 100%

Note: Relative Market Share and Industry Growth Rate assumed

Americas, Retail, and Japan came out to be Stars. Europe and Asia are Question Marks

1 0.75 0.5 0.25 020 Japan (6.1%)

10 Americas (37.6%) Retail (15.1%)

Europe (28.6%)

0 Asia (12.6%) -10 -20

IE Matrix

The total IFE score was 3.01 (strong) and total EFE score was 2.65 (medium). This puts the

company in quadrant 4 which means Apple should pursue a grow and build strategy (David,

2013).

IFE (3.01) 3.0 to 4.0 2.0 to 2.991.0 to 1.99

EFE (2.65) X (strong) 3.0 to 4.0

2.0 to 2.99X (medium)

1.0 to 1.99

Grand Strategy Matrix

Apple’s net sales growth exceeded 5 percent from both 2008 to 2009 and 2009 to 2010

which means they are considered to have rapid growth. This would put Apple in the rapid

market growth category which is the first part of the Grand Strategy matrix. They are also in a

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strong competitive position when compared to their competitors which would put them into the

Quadrant I of the Grand Strategy Matrix shown below.

Rapid Market Growth Quadrant 2 Quadrant 1 Market development Market development Market penetration Market penetration Product development Product development Horizontal integration Forward integration Divestiture Backward integration Liquidation Horizontal integration Related diversification Weak competitive position

Strong competitive position

Quadrant 3 Quadrant 4 Retrenchment Related diversification

Related diversificationUnrelated diversification

Unrelated diversification Joint ventures Divestiture Liquidation Slow Market Growth

One strategy for market penetration would be to increase marketing in Asia. Europe

currently accounts for $10 billion more in annual sales than Asia (David, 2013) so there should

be opportunities to reach more customers in Asia, especially since Asia is known as a place

where people like to purchase high tech products. In addition, market development

opportunities probably exist in Asia since there are probably some countries with emerging

economies that Apple has not yet done much marketing in. Another strategy since Apple landed

in Quadrant 1 would be product development. Apple has a lot of cash on hand and could use it

to come up with a new product or spend more on enhancing iPhones and iPads. Forward

integration is another strategy Quadrant 1 companies should consider. Forward integration

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occurs when companies expand activities to include control of direct distribution of its products

(Investopedia, 2014). Apple could consider increasing its number of retail stores which

currently total 317. 233 are in the United States and 84 are in other countries (David, 2013).

Increasing retail stores in other countries would be the best choice since 73% of the stores are

currently in the United States and people in other countries are starting to become more aware of

Apple products.

QSPM Matrix

In an earlier section, expansion into the Asian market was discussed. A QPSM matrix

was done comparing expanding into Asia vs not expanding into Asia. The weighted factors

from the IFE and EFE matrices were used and attractiveness scores for each option were added.

The QPSM showed expanding into Asia was a good idea because the total attractiveness score

(TAS) for expanding into Asia was 4.78 and the TAS for not expanding there was 3.39

Further expansion into Asia

Do not expand further in Asia

Weight AS TAS AS TAS

Opportunities

Demand .20 3 .60 2 0.40

Viruses on competitors product .04 2 0.08 1 0.04

Asian market .15 4 0.60 1 0.15

Computer market growth .12 4 0.48 1 0.15

Threats

Market competition .15 2 0.30 3 0.45

Price of manufacturing .05 2 0.10 3 0.15

Government regulation .05 2 0.10 3 0.15

Economic climate .14 3 0.42 2 0.28

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Lower amount of compatible software .10 3 0.30 4 0.40

1.00

Strengths

Financial performance .20 4 0.80 2 0.40

Expanding retail stores .08 NA NA

Marketing strategy .08 4 0.32 2 0.16

Quality product .17 NA NA

Customer service .10 2 0.20 1 0.10

Product development .08 3 0.24 1 0.08

Weaknesses

High price .05 2 0.10 4 0.20

Loss of Steve Jobs .10 NA NA

Weak cloud services .07 2 0.14 4 0.28

Inability to acquire outside companies .07 NA NA

1.00 4.78 3.39

Apple has had its own retail stores for just over 10 years. They have done very well and

generated $9.7 billion in net sales in 2010 which was more than a $3 billion net increase from

2009. 233 of the 317 retail stores are in the United States (David, 2013) so they should build

more retail stores in other countries, especially Asia.

Apple sold 4.69 million iPads the first quarter of 2011 to reach over 20 million sold since

they started selling them in 2010 (David, 2013). Tablet computers are becoming more popular,

especially younger people who have had them at a younger age than older people who are more

used to PCs. Apple should continue to invest in R&D to constantly improve its iPads and create

updated versions since tablet computers continue to grow in popularity and competitors will

likely continue updating their tablet computers.

Just like with tablet computers, younger people have grown up with touch screen smart

phones and are very used to them. Demand for smart phones will only continue to grow.

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Because there are now so many competitors in the smart phone market, Apple should continue

investing heavily in R&D to constantly improve iPhones and stay ahead of competitors.

Demand for iPhones will likely increase as society continues to become more technology driven.

Apple’s marketing plan has proven to be successful. It sells through its own retail stores,

online and some retail stores. It also sells directly to businesses, educational institutions,

governments, and others (David, 2013). Apple should continue their marketing plan since the

variety of marketing they are currently using is working out well.

Sales of these items continue to increase, especially to professionals who work in

publishing and design (David, 2013). Since Apple products use a different operating system

than most PCs which use Microsoft Windows, Apple should continue to emphasize their

products advantages. Apple relies on their customers to market their products to other

consumers and this has proven to be successful. Setting up internet forums and other avenues

for current Mac users to communicate with each other and people who have not yet purchased

Mac computers could be a great low cost way to increase sales.

Currently Apple TV gets content from NetFlix and YouTube. It could expand by adding

more content from other providers. This would give people who use Apple TV more choices

and once the word gets out that there is increased content, more customers might become

interested in Apple TV. Apple fell into the Aggressive Profile on the SPACE matrix and this

would be one aggressive strategy they could add.

In 2010, Europe accounted for $10 billion more in annual sales than Asia. Apple should

market more heavily in Asia to reach more potential customers, especially since Asian countries

are known for an interest in high tech products. Also there may be countries that have emerging

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economies that have customers that do not know much about Apple products or have an

opportunity to purchase them so a market development strategy could be started to reach

potential customers in these countries.

Apple fell into the Aggressive Profile on the SPACE matrix and Quadrant 1, Rapid

Growth/Strong Competitive position on the Grand Strategy matrix. This means product

development would be a good strategy. Apple already is one of the best companies in the world

at developing new products and they should continue investing in R&D to come up with new

products. Since they have developed so many successful new products in the past, they should

have plenty of in-house expertise to develop new ones. Since they have so much cash on hand,

if necessary they could hire new R&D personnel to work with current R&D personnel on

product development.

Google recently secured the cooperation of all major record companies for its cloud

music service. Apple previously had a deal with Warner Music Group and has signed a deal

with EMI Music and is close to signing deals with two other major record companies for cloud

music service (David, 2013). If it can complete these deals it will be in position to challenge

Google for the cloud based music market share.

Total capital needed: $500 million

EPS/EBIT Analysis

100% Debt 100% Stock 50/50 Debt/Stock Combo

EBIT15,000,000,00

020,000,000,00

0 15,000,000,00

020,000,000,00

0 $15,000,000,000 $20,000,000,000

Interest 25,000,000 25,000,000 0 0 $12,500,000 $12,500,000

EBT14,975,000,00

019,975,000,00

0 15,000,000,00

020,000,000,00

0 14,987,500,000 19,987,500,000

Taxes 4,492,500,000 5,992,500,000 4,500,000,000 6,000,000,000 4,496,250,000 5,996,250,000

EAT 10,482,500,00 13,982,500,00 10,500,000,00 14,000,000,00 10,491,250,000 13,991,250,000

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0 0 0 0#Shares 891,000,000 891,000,000 891,000,000 891,000,000 891,000,000 891,000,000

EPS 11.76487093 15.69304153 11.78451178 15.71268238 11.77469136 15.70286195

Based on the above EPS/EBIT information, it would be best to go with 100% stock to

raise the needed capital of $500 million for the above recommendations. Since Apple’s EBIT

was $18.54 billion in 2010 (wikinvest, 2014), a low estimate of $15 billion and high estimate of

$20 billion was used for EBIT. Apple’s current shares outstanding are 891,000,000 (Apple

AAPL, 2014). EPS is highest with the 100% stock option, second with the 50/50 debt/stock

combo, and last with the 100% debt option.

Projected Income Statement 2011 2010 2009

Net Sales $72,500 $65,225 $42,905

Operating Income $26,000 $22,971 $14,692

Net sales are projected to increase by approximately $7 billion in 2011 based on our

recommendations of adding more retail stores, especially in overseas locations and

recommendations to upgrade iPhones and iPads. Also expanding into more Asian markets

should increase net sales. Operating income is projected to go up approximately $3 billion as we

increase net sales and continue to reduce debt.

Projected Balance Sheet 2011 2010 2009

Assets

Cash and equivalent 16,500 11,261 5,263

Short term securities 15,000 14,359 18,201

Accounts Receivable 6,800 5,510 3,361

Inventories 1,200 1,051 455

Deferred tax assets 1,800 1,636 1,135

Vendor nontrade receivables 8,000 4,414 1,696

27


Other current assets 4,200 3,447 1,444

Total current assets 53,500 41,678 31,555

Long-term securities 27,000 25,391 10,528

PPE, net 4,000 4,768 2,954

Goodwill 800 741 206

Acquired intangible assets, net 400 342 247

Other assets 3,500 2,263 2,011

Total assets 89,200 75,183 47,501

Liabilities and Shareholders' Equity

Accounts Payable 11,000 12,015 5,601

Accrued expenses 8,000 5,723 3,852

Deferred revenue 3,900 2,984 2,053

Total current liabilities 22,900 20,722 11,506

Deferred revenue - noncurrent 1,500 1,139 853

Other noncurrent liabilities 7,800 5,531 3,502

Total liabilities 30,700 27,392 15,861

Common stock 11,168 10,668 8,210

Retained earnings 47,332 37,169 23,353

Accumulated other comprehensive (loss)/income 0 -46 77

Total shareholders equity 58,500 47,791 31,640

Total liabilities and shareholders' equity 89,200 75,183 47,501

Cash and equivalent are projected to go up because of increased net sales. PPE should go

down based on our analysis that it had gone up significantly from 2009 to 2010 and we want to

reduce the rate of acquiring PPE. Common stock is projected to increase by $500 million

because that is the amount of capital we need to raise to implement our recommendations and

our EPS/EBIT analysis showed that the best plan to raise capital was 100% issuing new stock.

Retained earnings will go up based on the extra amount of sales we expect to generate.

Financial Ratios

28


Cash should go up by approximately $5 billion in 2011 based on increased iPad and

iPhone sales and our plans for market penetration and market development in Asia. Accounts

receivable is projected to go up $1.2 billion since more sales will require opening more credit

accounts for customers. Inventories should rise about $1.5 billion because we will need to have

more products on hand to meet increased demand. PPE will go down because we view having

too much PPE as a threat and we want to slow our rate of acquiring PPE. Retained earnings

should rise by about $8 billion since we should generate more sales. Common stock will go up

because we need to sell $500 million in stock to raise capital to finance our recommendations.

Strategy Evaluation

Apple currently holds a minority market share on the global market (Bostic, 2013), and

in order to increase their position, must spend some of their available cash to streamline their

manufacturing processes and increase media saturation in emerging markets. They will need to

utilize their strong customer service reputation and high product quality index to engage

potential new buyers in Asia. Apple can also augment sales with infiltration into the educational

and governmental systems in those markets. Although this approach will cost money initially,

the pressure can be alleviated with securing long-term contracts with schools and other

professionals seeking a superior product.

Apple's official strategy for product availability is summed up in their Annual Form 10-

K (2013); “to ensure a high-quality buying experience for its products in which service and

education are emphasized, the Company continues to expand and improve its distribution

capabilities by expanding the number of its own retail stores worldwide” (p. 5). The Form 10-K

also highlights their belief that direct contact with the consumer is preferred over a virtual

29


presence and the improvement of their retail outlets will greatly improve overall sales. Apple is

also pursuing opportunities to, “help educators teach and students learn” (“Apple,” 2013, p. 5).

This is being accomplished through hardware integration into classroom programs and an

increase in software aimed at the education market. Apple's real world marketing and product

placement strategy mirrors the students' strategy formed through their research and assumptions.

Demand for tablets is growing and Apple's manufacturing process could be more

streamlined to decrease its estimated ten-plus billion dollar price tag (Heisler, 2013). Apple's

expenditures from 2013 to 2014 increased sixty-one percent; up from six and a half billion

dollars. The impact of raw material availability and rising prices can be mitigated through an

efficient and cost effective manufacturing process. One recommendation is for Apple to

increase quality control measures at their plants and facilities and reduce their reliance on

foreign suppliers. In 2010, Apple spent almost two billion dollars on plants, property, and

equipment, with that number rising steadily each year since. An expense increase, as it relates to

maintenance and new equipment purchases, should be implemented simultaneously with more

economical practices. If Apple took this report's Asian marketing advice, then, presumably,

hardware inventory will need to significantly increase to meet this new consumer demand.

Apple recognizes the fluctuation and uncertainty of essential components and the

subsequent effects in their annual Form 10-K (2013), “... many components used by the

Company... are at times subject to industry-wide shortage and significant pricing fluctuations

that can materially adversely affect the Company’s financial condition and operating results” (p.

6). However, Apple goes on to state that they have proprietary methods and materials that, at

times, seem prohibitively expensive, but ultimately reduce operating costs by reducing outside

30


demand on suppliers. Part of this strategy involves the purchase and development of new

machinery and tools for their factories (Heisler, 2013). Apple also assumes a proactive quality

control stance by insisting Apple engineers take prolonged tours at each facility to ensure parts

and people are working properly (Heisler, 2013). The official Apple manufacturing strategy

essentially matches Group 2's proposal of streamlining the manufacturing process and reducing

dependency on outside suppliers.

Conclusion

Overall, this group's strategic plan for Apple Inc. encompasses simple solutions to a

relatively complex problem set; increase revenue while decreasing expenditures. This strategy

will prove successful but, in actuality, will be a time consuming endeavor that will not positively

affect Apple's financial situation in the short term. Becoming one of the most powerful and

richest technology companies in the world was probably not found in Apple's original mission

and vision statements, but, that is the position they currently find themselves. The days of

operating out of a garage are long behind Apple, and an effective business strategy is paramount

to continue their unprecedented success. The formulation and implementation of a strategy can

differ widely from company to company. Apple's current scheme is strikingly similar to an

independent study and strategy conducted by this group.

Apple's leadership and guidance was abruptly changed with the death of Steve Jobs, and

the appointment of Tim Cook as the Chief Executive Officer has been met with mixed reactions.

Regardless, senior leadership has been able to manage the company's introduction of new

products and able to reach new consumers while remaining committed to consumers, company

growth, and to the environment. Despite, possibly, an archaic command structure, the strong

31


leadership exhibited by Apple has enabled them to increase market share and net income more

rapidly than their direct competitors; Google, Hewlett-Packard, and Dell (Forrest, 2013). Apple

products carry with them a premium price tag but also demonstrate a higher level of

sophistication and quality seemingly unmatched by their peers. The advent of cheaper products

was a strategic move for Apple to identify with a new consumer base and increase revenue, but

sacrificed what made their products special. Instead, Apple needs to decrease manufacturing

costs to build a greater profit margin, which would allow the option of offering products at a

lower price point.

Social media and an internet existence have proved mildly profitable for Apple, as they

only contribute less than one third of total net sales (“Apple,” 2013). Indirect distribution

channels, such as retail outlets and cellular network carriers, account for seventy percent of total

net sales (“Apple, 2013). This disparity highlights the importance of embracing new markets in

Asia with retail, brick and mortar stores. Entering these emerging markets will increase

expenditures initially but will significantly increase overall income in the long term. However,

Apple is placed perfectly to out-spend and out-pace their competition since they have ample cash

at hand and carry little debt.

Apple is able to meet demand by investing in research and development and constantly

being on the forefront of technological innovation. Expanding their product lineup with new

hardware and aggressively pursuing new software and musical license agreements will keep

Apple relevant. The students' findings suggest these ventures will increase stock by five hundred

million dollars and add approximately five billion dollars to available cash. These numbers

account for the development of new products and their accompanying design and creation life

32


cycles. However, when combined with increased demand from new markets, will cause

inventory to rise an estimated one and a half billion dollars. An exorbitantly costly

manufacturing operation will diminish the profit margin and decrease shareholder confidence.

Apple is combating this situation with the constant input of its engineers and influx of new

manufacturing techniques and equipment.

This analysis has showcased how successful Apple's strategic vision is when compared to

statistical data and real world feedback. This information will be useful for competitors to

understand Apple's business plan and help identify areas they can either achieve market

dominance or decrease Apple's share. The only negative finding discovered was the

misalignment of its leadership hierarchy. Tim Cook is not Steve Jobs. Apple cannot expect the

same results from a different person in the same operating environment and structure. Mr. Cook

must be allowed to mold his team as deemed necessary to ensure continued success and

prosperity. As long as Apple continues with its strategic vision, it should remain a relevant, and

powerful force in the technological and mobile communication markets.

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