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This case discusses the apples inc. Apple Inc. is one of the world's most successful and most recognizable companies, established by Steve Jobs and Steve Wazniak. Over its 30 year existence, the company had seen a lot of changes in the computer industry. During its life it faced many problems like changing of CEOs and shifting in its major strategies which costs a lot to the company. But at last it was Steve jobs who saved the company and afterwards it started competing in the market. Steve Jobs Bring new era to Apple inc. He shifted the strategies to differentiation strategy and launched many products like iMac, ipod, iphone. On April 4, 2010, Apple Inc launched the iPad, the company's third major innovation released over the last decade under its iconic CEO Steve Jobs. Apple's strategy of shifting its business into non-PC products had thrived so far, driven by the smashing success of the iPod and the iPhone. Yet challenges abounded. Macintosh sales in the worldwide PC market still languished below 5%. Growth in iPod sales was slowing down. iPhone faced increasing competition in the smartphone industry. What would the future hold for the computer giant in a rapidly changing world? How should the company allocate resources between its more traditional offerings (computers) and its newer products (iPods, iPhones, Apple TV, etc.) in order to maintain and improve its market position. Also, how should Apple's unique retail strategy be used to support the company's product decisions, and by capitalizing on new and emerging trends thus further maintaining its competitive advantage. Mission Statement Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings (www.apple.com)
DEEPLIST Analysis:
Demographic: Demographic factors highly affect the computer industry. As buyers are of all ages and different genders, also every individual have different choice like the use of iPod, iPhone and iPad is increasing in young generation. Literacy rate is increasing in our country and use of internet and computer in education as well as in homes also increasing. Children and teenagers are more interested in playing games on computers and increasing usage of social website, chatting etc. Information technology playing a vital role in business world due to these virtual organizations, are increasing. So demographic factors plays important role in the industry. Economical: In the past few years, the industry has been affected by the slow economic and that resulted in low consumer spending. There is no sign of improvement, consumer spending and investment might decrease as well. Discount rate 13.5% from the central bank of Pakistan and it is the highest rate in Pakistan that negatively affecting this industry. Due to weak economic conditions, Pakistans educational is encountering large budget deficits. This factor has a negative impact over Apples sales in the educational segment. Sales of products that include components obtained from foreign suppliers can be adversely affected by currency exchange rate fluctuations and by international trade regulations. Social Factors: Social Factors also influence the industry as different segments of the society have different buying behavior and income so it affects the overall demand of the computers. The computer and internet usage is growing worldwide and is a good source of opportunities for the computer industry. Customers has become more experienced and computer literate in our country comparing with past. Education has become a prime issue for the new generation, which is a key factor for the companys business.
Political and legal: Political uncertainties and terrorism activities are directly impacting the overall business of the company. Energy crisis more and more taxes badly affecting the industry. For instance, when government implied 15 % sales tax it become difficult for the companies to manage profits. The company has to comply with the environment regulations such as environment safe disposal or recycling. Technological: As computer industry is a technology oriented industry so Technological factor greatly influence the industry as well as Apple Inc. As the technology changes it affects all the production processes, People appreciate more & more advances in their systems and are switching over to new information appliances. Technology is evolving at a rapid pace now days. Internet availability and usage is growing and leads to good opportunities for the industry. The
traditional desktop and tower systems might become outdated by the entrance of new revolutionary products. New technology demand is increasing by schools and professionals.
SWOT Analysis
Strengths: y y y y y y y y y y y y y y Leader in innovative & differentiated Products Integrated Product (Computers + OS) Easy to use (plug & play solutions) Brand Image Superior Quality Colorful and Trendy Extensive Marketing Distinctive Advertising Retail strategy Customer loyalty E- Commerce (Online Sales) Strong financial position Loyal customer base Strong Top management
y Weakness: y y y y y y y Opportunities: y y y y y
Premium Price Heavy Research & Development No Customization Lack of Compatibility Cannibalization High inventory and its cost Dependency on Suppliers e.g. Motorola, IBM
Fast growing Industry (Customer Electronics Industry) Technological advancements Extend new products to loyal customers High Potential music phone market Strategic Alliances with peripheral component manufacturers (speaker, home stereo, etc) and media transmission giants (Disney, TBS, Verizon, etc).
y y Threats: y y y y y y Problems: y y y y
Creating new software markets and selling the hardware into these markets. Music downloads from ITunes
Very Extensive Competition Substitute Products Technological Advancements Economic downfall Price competition low market share
Frequent changes in strategies and top management Apple Mac, application softwares not easily available Premium segment; requires heavy R & D costs Operates in Niche market
.05
3.0
0.15
.10
3.0
0.30
Strategic Alliances
.08
3.0
0.24
.07
3.0
.21
Capitalize the Halo effect of ipod It is to improve quality for customer and reduce costs Success of Apple App store
Threats Very Extensive Competition .12 4.0 0.48 Especially in download and laptop market (20% increase) Other MP3 players and online music streaming websites Technology is always improving Current recession decreased buying customer power High resistance from Dell, Intel & HP Apple has lowest market share only 4.2 %
Substitute Products
.12
3.0
0.36
.05 .10
2.0 2.0
0.15 0.20
Price competition
.08
2.0
0.16
.05
2.0
.10
Total
1.00
3.07
Results: The EFE total shows that Apple Inc. is in good position to handle the external factors impact on the company.
.10
3.0
0.30
.02
3.0
.06
Distinctive Advertising
.05
3.0
.15
Retail strategy
.015
3.0
.045
Customer loyalty
.05
2.0
.10
.03
2.0
.06
.015 .010
2.0 2.0
.03 .02
.05
1.0
.05
Segment Heavy Research & Development No Customization .10 .05 2.0 1.0 .20 .05 Requirement of industry Apple lacks in customization of its computers Customers face difficulty in compatibility Due to contracts with white box channel Apple have to hold higher inventory They make chips & processors for Apple
Lack of Compatibility
.05
2.0
.10
Cannibalization
.05
2.0
.10
High inventory and its cost Dependency on Suppliers e.g. Motorola, IBM
.06
2.0
.12
.05
2.0
.10
Total
1.00
2.32
Suppliers
Determinants Defining Questions Fragmented or highly concentrated Assess the Power of SUPPLIER 4 Comments Suppliers are not fragmented in this case
Concentration
Presence of substitutes Product differentiation Switching Cost
Are there any substitutes for your supplier s products? Is there an actual vs. perceived differences in the product of supplier? Are switching cost is high or low?
Can they make what you make themselves? Is the supplier s product essential to the quality?
There is no 1s, three 2s, two 3s, and two 2s. so supplier s have high power.
Buyers
Determinants Defining Questions Assess the Power of Buyer Fragmented or highly concentrated 2 Comments not concentrated they have less bargaining power for prices and models They are in position to charge high prices Product differentiation is high because of innovative product
Concentration
Does the buyer purchases represents significant fraction of the buyer s cost? Is there an actual vs. perceived differences?
Switching Cost
Profits
Can they make what you make themselves? Is the product you offer important to the quality of the buyer s product or service?
Buyer information
Does the buyer have complete information on the product he may purchase?
There are one 1, Four 2 s, zero 3 s and three fours. So buyer s power is low.
Rivals
Comments
Does your business have high cost? How frequently there a problem of excess capacity in your industry? Is your product or service commodity? How costly is it for your buyer to switch B/W providers? Are there a large numbers of firms of equal size and power Are there competitors with different strategies and frames? How high are the rivals corporate stakes? Low or high?
4 N/A
4 4
Exit barriers
There are no 1s, no 2s, one 3s, seven 4s and one 5s so we can say that rivalry is high.
New entrants
Determinants Economies of scale Product difference Defining Questions Assess the Power of NEW ENTRANTS 3 2 Comments A major factor to cover high cost Product differentiation is not high because of imitate products. Due to more rivalry in the marker Quick and low switching cost because of the required quality High capital is required to get in this industry Difficult for the new entrant to cover This industry is more focused on the cost competitiveness N/A Very high chances of retaliation
2 4
Capital requirements
2 2
N/A 1
There are two 1s, four 2s and one 4s so the threat of new entrant is very low
Substitutes
Determinants Price performance defining Questions Rate the threat 4 Comments
Switching cost
More product are easily available at a lower price Whereas Dell and HP have better marketing and distribution strategies
High power of the supplier Rivalry among the firms is very high
IE Matrix
iv
Vi
vii 1.0
viii
ix
Score of IFE=2.32 Score of EFE=3.07 Results: IE Matrix of Apple Inc. is telling us that the company is in Grow and Build quadrant. IE strategies: Grow and Build y Backward, forward, horizontal integration y Market Penetration y Market Development y Product Development
Designing/ Financing
Product Development
Distribution
Customer Service
Apple has been able to perfect the chain of activities in innovation. Apple starts from its new ideas of product design, designs it through its own resources and funding, then manufactures it and finally markets it wholeheartedly.
Suppliers
It is the strongest advantage for a company to be independently manufacturing from scratch to finished product with application and peripherals .Apple produces its own disk drives, monitors, computers chassis and unique chips. The company never backward integrated in Microprocessors. In 1990s it was supplied by Motorola. Later on Apple switched to IBM and then finally to Intel (2005) for its Core Duo microprocessors.
(http://www.docstoc.com/docs/47369957/Apple-Inc-Corporate-Analysis)
Production
The bundled packages of Apple-developed hardware and software became the cornerstone for its own production process though there were situations when the company outsourced the
production of iMacs to Foxconn electronics. Apple achieved unparalleled performance via 64bit architecture, integrated distinctive styling with the multi-colored translucent iMac cases, and redefined intuitive operation with the iPod. The research and development oriented products give an extraordinary performance and products like Mac which soon became an identity of Apple Inc.
(http://www.docstoc.com/docs/47369957/Apple-Inc-Corporate-Analysis)
Distribution
Earlier Apple used small outlets to deal with its customers. Later in 1997, Steve job revamped the distribution system by eliminating relationships with thousands of small outlets and expanding in Nationals presence. For the first time it also a website to directly deal with it customers. By 2001, the online store accounted for 40% of the companys sales. In 2001, company opened its own retail store in Virginia. The company now owns 135 and above stores all over the world.
(http://www.docstoc.com/docs/47369957/Apple-Inc-Corporate-Analysis)
(http://www.docstoc.com/docs/47369957/Apple-Inc-Corporate-Analysis)
Customer Service
Apple believes in keeping a place in customers heart, the customer loyalty is a great strength to the company. The credit for such a strong relationship between the company and its
customers goes to companys customer service and the nature of products which fulfills the need of todays stylish people. Apple created a virtual love affair with their customer base by delivering technically superior products (iPods vs. other MP3 players, Macs vs. PCs, etc.), and aggressively pursuing hardware and software updates. Apple integrated their primary activities so well that it is transparent to the consumer where one activity begins and the other ends. A perfect example of this is Apples willingness to develop software to run Windows XP on its new Intel-based iMac and then post it online free to iMac users. In such an environment, customer service merely becomes the realization of receiving a little more than expected.
(http://www.docstoc.com/docs/47369957/Apple-Inc-Corporate-Analysis)
y This value chain analysis is comprehensive enough so we used it for our reports.
Financial Ratios
Financial ratios are a valuable and easy way to interpret the numbers found in statements. It can help to answer critical questions such as whether the business is carrying excess debt or inventory, whether customers are paying according to terms, whether the operating expenses are too high and whether the company assets are being used properly to generate income. When computing financial relationships, a good indication of the company's financial strengths and weaknesses becomes clear. Examining these ratios over time provides some insight as to how effectively the business is being operated.
Leverage ratios
Equity Multiplier:
It is the ratio of the total assets to the total equity. It tells us about how much the company has assets for the equity. It can be calculated as: Equity multiplier = Total Assets / Total Equity 2009= 47501/ 31640 = 1.50 times 2008 = 36171 / 22297 = 1.62 times
Activity ratios
Inventory turnover:
It tells about whether a firm holds excessive stocks of inventories and weather a firm are slowly selling its inventories compared the industry average.
Inventory turnover = CGS / Inventory 2009 = 25683 / 455 = 56.44 times 2008 = 24294 / 509 = 47.72 times If it is above the previous year then it is best for the company so in this company the ratio is below the previous year so we can say the company is not going well.
Profitability ratios
Gross Profit Margin:
It tells about the total margin available to cover operating expenses and yield a profit. Gross profit margin = Gross Profit / sales 2009 = 17222/ 42905 = 40.13 % 2008 = 13197 / 37491= 35.20 % If it more than the previous year then it is best and healthy for the company. But for this company we have seen that it is increasing in 2009 as compared to 2008 which means that the company is performing well. And the impact of increase in the Gross profit margin will positively affect the company.
Return on Asset:
Return on asset = net income / total asset 2009 = 8235 / 47501 = 17.33% 2008 = 6119/ 36171= 16.91 % It tells after tax profit per dollar of asset and also called ROI.It is better than the previous so the company is healthy and performing efficiently.
Return on Equity:
Return on equity = net income / total stock holders equity 2009= 8235/ 31640 = 26.02 % 2008 = 6119 / 22297= 27.44 % It tells after tax profits per dollar of stockholders investment in the firm. We have seen a increase in it. So it will show good impact on the company. This shows that the company is performing well.
Growth ratios
Sales Growth:
Sales growth = current sales previous sales / previous sales 2009 = 42905 37491/ 37491 = -5.6 % 2008 = 37491- 19315 / 19315 = 9.0 % It tells the firms growth in sales. It is below than the previous year so it is not good for the company.
Conclusion:
The conclusion of the financial position of the company Apple Inc. is not good as we have seen that the sales are increasing from 2004 2006 but it will not affect the profits of the company because the company net profit growth goes negatively. And we have also seen the decrease in the profitability, liquidity and other ratios of the company. This shows that the company sales are increasing but there are some other factors involved in it which affect the company negatively. The company overall financial position is decreasing. We have seen the increase in the average inventory sales period, average collection period. The company return on assets and return on equity also decreases. We have seen the increase in the total assets turnover and interest earned ratio which shows positive impact on the business. But if we overall look at the financial position of the company then we say that the financial position of the company is bad. In simple words we can say that the company is not going in right direction. Reference: http://blog.accountingcoach.com/days-sales-in-inventory/