PEST and Industry Analyses Final

8/13/2019 PEST and Industry Analyses Final

1/11

APPLE INC 2010

CASE ANALYSIS

Submitted to Mr. Shafqatullah

Submitted by

FahadJaved 15540

ShahidJaved 17181

RawatAbbasi 25396

Akhwand Abdus Subhan(23876)

Muhammad Zeeshan Baig(20788)


2/11

1. PEST and industry analyses

Political

85% of facilities where Apple products are assembled and packaged for distribution are

in China, In case of any political conflicts, apples production can severely get effected. 55% of apples sales were outside USA in 2009, and apple does not have control over the

political relationship with other countries, so its quite risk if any political conflict arise it

might affect apples international sales.

Economical

economic condition is also becoming one of the factors that influence growth of everybusiess. Economic recession that was started few years back has strongly effect the sales

of technological gadgets. The net sales of Apple products are growing with a declining

rate, which reflects that the purchasing power of consumers are seriously declining. A26.8% of growth in sales was observed between 2007 and 2008 but between 2008 and

2009 sales growth was only 11.1% which shows a declining trend.

Social

Globalization, Virtual World, and Lifestyle are a social factor that gives a huge impact tothe business development of technological industry. Possessing latest technological

gadgets are considered as status symbols in many societies which have increased the

sales of prestigious technological gadgets. Apple that is considered as innovator in theindustry brings in innovative trends which later on gives other companies to a gate ways

to enter into those new market. Another big social influence to Apple Inc products is the

rapid growth of the music industry, which have increased markets over the cyber space aswell. In 2010 more then 50Million customers visited the Itune store.

Technological

The technological environment for Apple's market has grown substantially over past

years. Most specifically, phones and computers have become a hot commodity. Apple is

on top of the market for innovating products and the main thing about these products is

that their life cycles are very short, making it inevitable for more products to be sold later.

The increase in technology is encouraging competitors to improve, which then keeps

Apple improving.


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PC MP3 player/online

music services

Mobile Products

Threat of Entry

Low

- Economies ofScale and R&D isespecially a big part

of the cost in

computermanufacturing

industry.

- A great sum ofmoney must be

invested to attain

the economies ofscale and it is

difficult to enter the

market with

existing firms

already operating

- Cost Advantage:

High demand

particularly in

proprietarytechnology.

Low

- Since iPod nanolaunched, somecompetitors such as

Rio and Olympus had

preferred to stop.- Economies of Scale:

iPod has maximum

percentage of market

share.

- Product

Differentiation: iPodhas its own music

store like iTunes

which allows

customers downloadmusic conveniently.

The complete set of

iPod, iTunes and theaccessories for iPod.

- Cost Advantage:

High demand inproprietary

technology. Apple

has several patents foriPod and favorable

access to raw

materials by thecontract withSamsung.

Low

The cell phoneindustry is highlyconcentrated.

- Since start-up costs

for a cell phonefactory are extremely

high, the threat of

new entrants is low.

- A great sum of

money must be

invested to attain theeconomies of scale

and it is difficult to

enter the market withexisting firms already

operating

Threat of Rivalry

High

- There arerelatively few

competing firms

compared to otherindustries, but

Microsoft has most

of the market share.

Moderate

- There are variouscompeting firms such

as Samsung, Sony, i-

River, etc., but iPodhas almost maximum

percentage of the

market share.

High

- There are relativelylarge number of

competing firms such

as Samsung, LG,Motorola, and other

Chinese brands etc.


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- Lower priced PC

makers like Dellhave been growing

in the market.

- But if it does not

keep the productsinnovative, the other

companys products

which are lower in

price than iPod can bea significant threat in

anytime.

Threat of

Substitutes

Low

- Many types of

products such as

PDA, DVD player,Tabs exist as a

substitute for PC,

but these cansubstitute only oneor two functions of

PC.

Moderate

- The substitutes for

MP3 player can be a

CD player, MDplayer, radio, etc.; but

cheaper and easier

access to MP3 fileshas been makingcustomers leave from

the other music

players.

Low

- Mobile phones can

be substituted by

home phones,internet messengers,

etc., but the main

convenience ofmobile phones whichis the portability

cannot be easily

substituted.

Threat of

Suppliers

Moderate

- The major

suppliers are of rawmaterials and the

labor which ishighly proprietary

in technology andhas the power to

impact price.

- Besides the threat

of the labor which

includes thetechnicians, there

are relatively

various suppliersfor the rawmaterials.

High

- The suppliers for

raw materials andlabor can be the

threat, but the supplierwho holds the main

profitability is thesong writers, singers

and players.

- Another big threat is

the illegal free music

download websites orP2P file- sharing

sources. Easy and

cheap access to MP3files can encouragethe MP3 player

market, but on the

other hand, this can be

the threat to iTunes.

Low

- Cell phone

manufacturer providesuch high volume

orders that suppliershave been cautious

not to temper with therelationship and

ended up being in a

low bargainingposition

- Apple which isalready in the

industry of PC and

MP3 mostly dealswith internalmediates and

suppliers.


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Threat of buyers

Moderate

- The number of

buyers is huge and

growing as new

technologies areintroduced at a fast

pace.

- Apple

differentiated by

creating its ownoperating system

and unique design,

but other

companies like Dell

or HP differentiateby lower price

marketing.

Low

- The number of

buyers is continually

increasing and they

keep demanding newand updated products.

- The internet speed

and the music file

providers are

developing and theseenvironments

encourage the MP3

buyers.

- IPod has relativelyloyal customers.

Low

- The number of

buyers is even huger

than the PCs. Also

the buyers keepincreasing with the

new market of otherdeveloping countries.


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2. Financial analyses

Efficiency 2004-09 2005-09 2006-09 2007-09 2008-09 2009-09 2010-09

Days Sales

Outstanding33.95 21.86 20.29 21.96 22.81 24.6 24.82

Days Inventory 4.76 4.91 5.79 7.09 7.31 6.85 6.95

Payables Period 78.97 59.62 68.77 96.25 89.74 79.02 81.31

Cash Conversion

Cycle-40.27 -32.84 -42.7 -67.19 -59.61 -47.58 -49.53

Receivables

Turnover10.75 16.69 17.99 16.62 16 14.84 14.71

Inventory Turnover 76.69 74.35 63.07 51.47 49.9 53.28 52.51

Fixed Assets

Turnover12.03 18.28 18.41 15.42 15.15 15.86 16.89

Asset Turnover 1.11 1.42 1.34 1.13 1 0.99 1.06

Liquidity/Financial

Health2004-09 2005-09 2006-09 2007-09 2008-09 2009-09 2010-09

Current Ratio 2.63 2.96 2.24 2.36 2.46 2.74 2.01

Quick Ratio 2.33 2.63 1.76 2.09 2.07 2.48 1.72

Financial Leverage 1.59 1.55 1.72 1.74 1.88 1.5 1.57

Margins % of Sales 2004-09 2005-09 2006-09 2007-09 2008-09 2009-09 2010-09

Revenue 7998 8334 11486 14128 18469 19870 20871

COGS 72.71 70.98 71.02 66.03 65.69 59.86 60.62


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Gross Margin 27.29 29.02 28.98 33.97 34.31 40.14 39.38

SG&A 17.16 13.34 12.6 12.34 11.58 9.67 8.46

R&D 5.91 3.83 3.69 3.26 3.41 3.11 2.73

Other 0.28

Operating Margin 3.94 11.84 12.7 18.37 19.32 27.36 28.19

Net IntInc& Other 0.69 1.18 1.89 2.5 1.91 0.76 0.24

EBT Margin 4.63 13.03 14.59 20.86 21.23 28.12 28.42

Profitability 2004-09 2005-09 2006-09 2007-09 2008-09 2009-09 2010-09

Tax Rate % 27.94 26.45 29.42 30.19 29.89 31.75 24.42

Net Margin % 3.33 9.58 10.3 14.56 14.88 19.19 21.48

Asset Turnover

(Average)1.11 1.42 1.34 1.13 1 0.99 1.06

Return on Assets % 3.71 13.62 13.83 16.43 14.89 18.92 22.84

Financial Leverage

(Average)1.59 1.55 1.72 1.74 1.88 1.5 1.57

Return on Equity % 5.94 21.29 22.8 28.52 27.19 31.27 35.28

Return on Invested

Capital %5.94 21.29 22.8 28.52 27.19 31.27 35.28


8/11

3. IFAS, EFAS, TOWS matrix and SPACE matrix (each of these should have segments for PC

industry, Personal media industry, Mobile phone industry, and Tablet computers

industry)

Space Matrix

FINANCIAL STRENGHTS (FS) ECONOMIC STABILITY (ES)

Return on investment = +6 Technological Change = -5

Leverage = +4 Inflation rate = -2

Working Capital = +5 Price range of competitors = -6

Cash Flow = +6 Barriers to entry = -4

Ease of Exit = +5 Competitive Pressure = -4

INDUSTRY STRENGHT (IS) COMPETITIVE ADVANTAGE (CA)

Potential Growth = +6 Market Share = -4

Profit Potential = +5 Product quality = -5

Capital Requirement= +6 Customer Loyalty = -3

Technology Knowledge= +5 Technology Knowledge = -4

Ease of entry = +5 Product lifecycle = -3

Average IS score = 5.4

Average FS score = 5.2

Average ES score = -4.2

Average CA score = -3.8


9/11

ES + FS = +1 (y-axis) CA + IS = 1.4 (x-axis)

+1

Aggressive Strategy

+1.14

4.

INTERNAL FACTORS ANALYSIS SUMMARY

INTERNAL FACTORS WEIGHT RATINGS WEIGHTED SCORE

STRENGHTS

Different Operating System(phone industry) 0.1 4 0.4

Financial Standing 0.2 5 1

Market Share(media industry) 0.2 5 1

iTunes(media industry) 0.2 5 1

WEAKNESSES

Weak holding in PC industry 0.3 5 1.5

1 4.9


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11/11

Documents

PEST and Industry Analyses Final