Apple Inc.

Case

Table of content:
1. Introduction..............................................................................................................................4
2. External Environment...4
2.1. Basic Characteristics of the Environment - market definition, size, growth and share4
2.2. PEST Analysis..
..5
2.2.1. Political
Factors
6
2.2.2. Economic
Factors..
6
2.2.3. Social Factors......6
2.2.4.Technological Factors.........................6
2.3. Competitor Analysis..6
2.4. Analysis of industry competition..8
2.4.1. Intensity of rivalry within the industry...8
2.4.2. Bargaining power of suppliers....8
2.4.3. The bargaining power of buyer...8
2.4.4. Threat of new entrance.9
2.4.5. Threat of substitute
product......9
3.
Internal
Analysis..9
3.1.
Analysis.9

Financial

3.2. SWOT Analysis.12

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3.2.1. Strengths..12
3.2.2. Weaknesses13
3.2.3. Opportunities13
3.2.4. Threats13
4. Strategies used by Apple..14
4.1. Differentiation.14
4.2. Value Creation by Focus and Cost Leadership.14
5. Conclusion and Recommendation.14
6. Bibliography16

1. Introduction
Apple Inc. is an international American company that produces computer software, cell phones,
personal computers and consumer electronic products. The well-known products of Apple
include: the iPod, the iPhone, the Macintosh line of computers and the iPad. 301 retail stores in
10 countries are operated by Apple in August 2010. The software of Apple consist on the Mac
OS X operating system, iWork suite of productivity software, Final Cut Studio, Logic Studio a
music production tools suite, iOS; a mobile operating system, the iTunes media browser, the
iLife suite of multimedia and creativity s oftware, Aperture; a professional photography package,
AirPlay, Airprint, etc (Business Insider, 2013).
Apple Company was developed on 1 st April, 1976 by the co-founders named Steve Jobs and
Steve Wozniak in Cupertino, California. The first 30 years of the company was named Apple
Computer Inc. but later on January 9, 2007, the word Computer has removed (Business
Insider, 2013). They introduced Apple I computer in 1976 which was a failure but in 1980, they
launched Apple II which was successful. The IPO offered by the company in 1980 (Datamonitor,
2006).
The purpose of this assignment is to critically analyze the context within which the company
operates by analyzing the external and internal environment. In order to achieve this different
analytical tools and models will be applied. Then the objectives and strategy of Apple will be
identified and evaluated. There will be examples of the implementation of the strategy at the end.
2. External Environment
The external factors can be evaluated using PEST because PEST analysis is valuable strategic
tool for identifying the business positions, size, growth, feasible route for operations and to
classifying the market development and decline (Kotler, n.d.).

2.1. Basic Characteristics of the Environment - market definition, size, growth and share
Apple is defined as the leading digital asset management company and global smart phone
provider. It is the only one who generates and runs both soft-wares and hard-wares. It allows
consumers to buy and share contents (applications, music and movies) via Apple devices (iPad,
iPhone, Mac and iPod) by a exclusive selling media platform called iTunes (Digital Marketing,
2011).
In 2012, Apples CEO (Tim Cook) said that we are very excited with the sales of iPhone over 35
million and approximately 12 million sale of iPads in March quarter. He also said that the
innovative iPad is off to an immense beginning with new innovation that can deliver only by
Apple (Burns, 2012).
Moreover, the sales of iPad, Mac and iPhones have increased by 188% and 7%, correspondingly.
On the other hand, iPod sale was down by 15%. The numbers in Q2, 2012 are down as
compared to Q1, 2012 when Apple smashed all its previous records as you can see in Figure 1. In
that period Apple sold 5.2 million Macs, 15.43 million iPads and 37.04 million iPhones, even
iPod sold well with 15.4 million units (Burns, 2012).

Figure 1: Market Growth by units sold in millions in 2012

Source:
TechChrunch

According to IDCs report (Q1 2012) that in a two horse race with Samsung, Apple was on the
second place in global with the notable growth of 8.8% of total cell phone market ( 4.6% up from
a year ago) and 24.2% of worldwide Smartphone market (18.3% up), as you can see in table 1
(Kahn, 2012).

Table 1: Top 5 Smartphone Vendors, Market Share, Shipments in 2012

Source: IDC

2.2. PEST Analysis

To gain an understanding of Apples business potential, direction of operation and to know
situation of future market, we will use PEST analysis.
2.2.1. Political Factors
There are many problems which cannot be controllable by the company such as; geopolitical
uncertainties, war against terrorism, authority to work and health issues which can affect the
sale of Apples product worldwide. As to reduce operating cost Apple has outsourced in
different countries like Ireland, China, Korea, Czech Republic and Cork. If these countries face
any political instability or any problem which causes to delay in manufacturing operations, will
led to spoil the Apple likeness in the eye of consumers and its dealers (CNetnews 2012).
2.2.2. Economic Factors
Purchasing power depends on the Worlds economic conditions. According to past few years,
unemployment rate is very high in many countries which cause to decrease the sale of Apple
products. Another reason was increase in oil prices which causes inflation in worlds economy.
As a result of these economic factors, purchasing power of people reduced which negatively
affected the sale of Apple products due to its higher price. But now worlds economic conditions
are getting better and company has purchased itself foreign currencies, so Apple revenue has
increased in the global market (Apple Inc 2012).
2.2.3. Social Factors
Two factors always have been on forefront of Apple product throughout the history, the design
and the quality. The purchasing of luxury products have gone up because the purchasing power
of consumers has risen in different market across the world and people prefer to buy iPod,
iPhones and latest technology iPad. As music industry growth has increased which is the biggest
social influence on Apple because the main essential music store is iTunes. Therefore, Apple has
gained so much from social factors because its defining a individuals modern lifestyle.
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2.2.4. Technological Factors

Apple always takes advantage because of its innovative and high technologies products. The
large amount has invested in research and development field by Apple, thats the reason Apple
comes in top of the new innovative products.
2.3. Competitor Analysis
As everyone knows that Apple is a big industry and it is running so many products. Here are
some key competitors of Apple, according to cell phone industry and other products are
following: Google, HPQ (Hewlett-Packard Company), RIM, Samsung, HTC and Nokia. As you
can see smartphone competitors in figure 2, and Apples revenue, gross profit margin, earning
per share, price earning and net income with its direct competitors in table 2.

Table 2: Direct Competitors Comparison in Billion.

Source: Yahoo Finance

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Figure 2: Apples cell phone competitors:

Source: Kantar Media/ The Wall Street Journal

2.4. Analysis of industry competition

Competition in a given industry is defined by the Micheal Porters five competitive forces
shown in figure 3. This model can help to evaluate the impact on Apple and its ability to
compete in market.
Figure 3: Micheal Porters five competitive forces

2.4.1. Intensity of rivalry within the industry

The first force of five forces of Michael Porters model is intensity on rivalry with in the
industry. The Apple Company has done a great job by providing technical support, creating
customer loyalty and producing products. So Apple has not worry about that factor because
Apple products never go on sale. It maintains its productivity without ever marking down a
product by generating superior products from Android phones, rival tablets and eReaders gaining
market share with lower prices (Loma, 2012).

2.4.2. Bargaining power of suppliers

Bargaining power of suppliers can make the profits down of Apple by indicating high prices for
supplies (Sethi, 2012). Thus, the company looking for new suppliers because there is no doubt
that Apple Company is still growing. The company allows new suppliers to reduce the
bargaining power of suppliers by registering online on the Apples website. As a result of this
Apple can decrease their bargaining power through more competitive among large number of
suppliers (Apple, 2010).
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2.4.3. The bargaining power of buyer

The Apple Company should meet the expectations of their customers in order to achieve the
majority shares of market by different segments which come from educational level, age and
income (Gilligan & Wilson, 2003). One another thing is that buyers are more prices sensitive
and they can switch to another retailer if the products are not differentiated (Smith, 2006).
Google provides the competition in overall Smartphone and tablet market because Blackberry
manufacturer (RIM), who was considered as a market leader of Smartphone, now, has only 1
percent of the American market (Travlos, 2012). Apple holds around 75% of profit in industry
so the chances of Apples customer to switch another brand are very less because of its strong
brand loyalty. Whereas, competition is very high now a days and competing companies trying to
attract new customers because this has been done by picking off RIM again, climb of nokia and
Androids rise (Travlos, 2012).
2.4.4. Threat of new entrance
Entering more companies in the market means decreasing the market share of Apple (Hill and
Jones, 2009). Company can maintain the market share and generate profit through
differentiation of brand and product as well as making strong marketing strategy like
competitive advantage (Kurtz et al, 2007). As a new company it is very difficult to compete a
company like Apple which has a strong brand image, innovation, perceived value and good
customer services (Term Paper Warehouse).
2.4.5. Threat of substitute product
If the need of consumers is same then the product can be substituted
otherwise not (Campbell et al, 2002). Therefore, threat of substitute might
have two factors (price and performance) which allows customer to switch
the product as well as willingness of buyers to switch. Threat of substitute
can be reduced as much as buyers become loyal to the products (Campbell,
2002).

No company can present an ecosystem which has created by

Apple. People buy iPhone for standard, apps and other Apples product for
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upgradeability and stability which gives customer the ability to transfer

knowledge and apps among devices (Segan, 2012).
3. Internal Analysis
3.1. Financial Analysis
According to result of Apples 2012 Q1 continues to impress. The reason is
increased in revenue from $24,7 billion to $39,2 billion or by 59% as
contrasted with 2011 Q1.

Quarterly Net income before depreciation

increases from $6,4 billion to $12,4 billion which is also caused by high
revenue, as you can see in figure 4.
Figure 4: Revenue of Apple in billion, 2012

Source: Financial Analysis

By geographically companies sales are improved, which is 1/3rd of sales are from Asia and 1/3rd
is from US. These regions have highest expected growth as compared to Europe who just
accounted for 22%. The market has grown in Asia because the sales from Asia have doubled
from 2011 and most of the revenue came from Apple iPhone which was 58%; it means iPhone
sales ha increased by +85%. Moreover, the iPad growth has increased by 17% which means the
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revenue has increased by +132%. On the other hand, Mac and iPod were less in growth as
shown in figure 5 (Financial Analysis, 2012).
Figure 5: Revenue by Geography and Segment, 2012

Source: Financial Analysis

Shares of Apple in mobile market and tablet market have increased from 48% to 60 %, which is
far better than its competitors (Google Android). Googles share has enlarged just from 15 to
19%. The result was positive in general as shown in figure 6 (Financial Analysis, 2012)
Figure 6: Growth in Shares of Apple and Competitors, 2012

Source: Financial
Analysis

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Equity level did not affect the high return which was 45% and without effecting it has increased
by 68%. Companys equity should not be increase in future, since the company has announced
the dividend and share repurchases. Apples liquidity ratios is 1,6 which is good f or company
and the cash surplus was $110 billion which has improved from$97 billion from Q4 (Financial
Analysis, 2012).
Figure 7: Return on Equity and Equity Level, 2012

Source: Financial

Inventory and A/C receivable are nominal as liabilities, so no other changes happened at balance
sheet. In general, the structure of balance is strong.

Figure 3: Share Value

Source: Financial

The basic share value of Apple Company was ~109$ and the market price was ~610$ in 2012.
Earning should be roughly $52 billion/year or $55,6 per share, if calculating Net income earlier
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than reduction according to last quarter, which makes it ~9 year, however indicator was quit high
(Financial Analysis, 2012).
3.2. SWOT Analysis
Apple Company intends, produces cell phones, personal computers, music players and related
services, networking solutions, peripherals and software. The companys market position can be
measured by its strong operating performance, which has also increased the confidence of
investors. On the other hand, companys margins can be affected by extreme competition (Data
monitor, 2006).

Table 4: SWOT Analysis of Apple

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Source: Strategic Management Insight

3.2.1. Strengths

The major strength of Apple has its strong market position and consumer trustworthiness
which raises due to Apples ecosystem, which in turn to increases Companys
competitive advantage. Second, Apple has a full variety of software, products and apps
which are interlinked and maintain each other. Third, iTV and other new products will be

released soon.
In 2012, 3rd time Apple chosen as the most pioneering company in the world.
At the end of 2012, Apple holds approximately $10,000,000,000 in cash. Company has

no debts and the gross profit margin is also higher than its competitors.
Apple was the second valuable brand in 2012 and its brand value was at $76.5 billion.
High quality customer experience is a key of Apples retail store by providing a direct
speak to well-informed staff which increases brand awareness.

3.2.2. Weaknesses

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High price is the major weakness of Apple because there is a strong completion in market
now, and the consumer of Apple products can easily obtain the similar function products

by its competitors in a lower price.

Decreasing market share can be caused to less influence its customers to using closed

ecosystem of Apple.
Apple Company is often blamed by other companies to disobeying their patents and also
it has lost some trials as well. Such type of things can damage Apples reputation in

market.
In 2012, Tim Cook became a new CEO because of the death of Steve Jobs, which was the
biggest loss for Apple Company. After some time John Browett and Scott Forstall left the

firm, this will have a negative impact on management.

In tech industry, Apples gross profit margin is highest but according to fear of forecasters
that Apples current margin will not be continued due to increasing in prices and tough
competition.

3.2.3. Opportunities

Apples market share will be increase due to high demand of iPad and iPad mini in tablet

market and this will help company to use as competitive advantage.

Apple TV sales will be increased by the launch of iTV which will release soon.
Smartphone and tablet markets are growing which is a good opportunity for Apple to

expand their market share in these markets.

Collecting damages from competitors because companies sometimes violated Apples
patent. So such types of factors can be used by Apple as to damage the competitors
image on market and collecting damages from them will led to increase cash reserves as

well.
The growth of mobile advertising is an opportunity and Apple allows advertising on iPod

touch, iPhone and iPad by developing the platform named iAd advertising.
The requirement of cloud based services is increasing, so Apple can enlarge its services
relate to iCloud and software as well (Strategic Management Insight, 2013).

3.2.4. Threats

Rapid technological change is the biggest threat which Apple and its competitors are
experiencing now days. As customers are become more technology lover and they want
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more and more new products in very short time due to this, companies are facing
pressure. So competition is very high and the one who cannot remain themselves with

rivalry shortly be unsuccessful.

Increment in Tax in USA will affect the Apples growth.
Samsung is the only one who provides application processors to Apple and it has asked to
pay higher price for it. It should be asked Apple to pay more because there are no feasible

substitutes who could provide Apple to application processors (jung, 2012).

The main competitor of iOS is Android OS in mobile market. The power of Apple iOS

can be dominated by Android OS.

Availability of wide range of music stores like Wal-Mart, Amazon and online music
companies like sound cloud and spotify will threat for Apple music store.

4. Strategies used by Apple

Figure 8: Porters model of generic strategies

Source: Papers 4 you/Porter

(1985)

4.1. Differentiation
Apple is using a differentiation strategy by presenting an outstanding design of its products,
personalized services and high quality products. The easiness of product makes target market
varying from beginner to proficient users.
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4.2. Value Creation by Focus and Cost Leadership

Apple has outsourced his production as to reduce its operating cost to third party through vast
economies of scale. Original Equipment Manufacturers (OEMs) is the company that Apple has
outsourced with. Apple focuses on user interface and industrial design to making a product that
not only the highly innovative but also the user-friendly and stylish in nature. Apple has a
command on higher price than average price due to highly personalized and people friendly
devices.

5. AUGMENTED PRODUCTS

This refers to all additional factors which sets the product apart from that of the competition. And
this particularly involves brand identity and image. Is that warm coat in style, its colour trendy
and made by a well-known fashion brand? But also factors like service, warranty and good value
for money play a major role in this.
At the Augmented Product level, the competition is observed in order to copy certain
techniques, tricks and appearance of each others products. This makes it increasingly difficult
for a consumer to define the distinctiveness of a product.
To be able to tower over the competition, production companies focus on factors which
consumers attach extra value to such as extreme packaging, surprising advertisements, customeroriented service and affordable payment terms. This is not just about satisfying the customers
and exceeding their expectations but also about surprising them.

6. Product life Cycle

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Apple and the product life cycle

The more people learn about the product life cycle and try to imagine which companies choose
to stay in a specific stage, the more people think of Apple.
People get a sense that Apple is doing so well do to always keeping itself in the introduction and
growth stages. The introduction stage of this company is obvious, such as coming out with the
original iPhone, iPad, or iPod! However, as the growth stage is concerned, Apple has continued
to shows signs of keeping its products in this stage and sort of moving them backwards

If people were to think of the product life cycle. What we mean by that is instead of letting its
products move into the maturity stage, it keeps on coming out with new features, improving
product quality, or improving technology and styles of its products.
Heres a perfect example of what people talking about. Last 2014, Apple made an announcement
in which multiple new products (existing products with new features and/or sizes) were
introduced. For instance, the new highly expected iPad Mini finally made its debut. Another
great example of Apple not allowing a specific product to fall into the mature stage of the
product life cycle is the new iMac.
A lot of people are going to be talking about the new iPad Mini due to the market share of
Samsung tablets growing, increasing interest of consumers in the tablet industry, and the overall
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hype of competition, especially in the United States. However, today, many people was most
impressed with the new iMac. People cannot wait for this product to hit the Apple Store. I tell ya,
I truly want to go and look at this piece of art! The entire monitor (which is pretty much the
whole computer hardware) has a width of 5 mm.

6. Conclusion and Recommendation

In brief Apple Company is very innovative and early adapters and it is typically the foremost
company who takes new innovative products as compared to other companies. These types of
things usually considered as more risky but it appears to be functioning as Apples advantage.
Strong market position and consumer loyalty which increases due to closed ecosystem and user
friendly products makes different to Apple Company from its competitors.
Another most important factor is that the Apple Company is the First most admired company
in the world. Whereas, it is also credited to first sustainable music downloading business model
in history by its ipod and iTunes online media store.
Apple is a profitable company and its future is bright. But Apple should be careful in legal and
political areas because as to reduce operating cost it has outsourced in different countries and it
has to find different alternate to reduce the risk as Apple buys application processor from
Samsung which can create a problem for it.

7. Bibliography
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