Apple Inc.

– 2015

Forest R. David

A. Case Abstract

Apple is the world’s largest corporation based on a market capitalization of about $683 billion on 11-5-
15. Apple designs, manufactures and markets the world’s single-most popular smartphone, the iPhone,
even though Apple has only about 15 percent of the global market share in smartphones. Apple also
produces the iPad, iPod, iCloud, Mac computers, and other accessory devices. Headquartered in
Cupertino, California, Apple owns iTunes, the popular app and store where customers can download
music. The firm had a poor showing in the first nine months of 2015 on iPad sales but stronger than
expected Mac revenue on back to school sales. Apple revealed a cheaper plastic iPhone tailored as an
entry-level item, but its popularity was not as great as expected. Apple’s products are of excellent
quality but lack many features that allow users to tailor the devices to their own personal preferences.
This strategy has served Apple well for over 10 years, but as users become more mature, it is unclear if
Apple should stick to such a rigid philosophy. Apple is doing great in selling smartphones in China.

 
B. Vision Statement  (actual)  
 
The company is committed to bringing the best user experience to its customers through its innovative
hardware, software and services

C. Mission Statement (actual)  

"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 has recently
introduced iPad 2 which is defining the future of mobile media and computing devices."

(proposed)

Apple brings the finest technological experience to people of all ages and businesses of all kinds all
over the world (1, 3) through our innovative phones, watches, computers, software, music, and
payment methods (2). Materials used to create these products are largely recycled (8), which helps
create more profit (5) for our shareholders. Apple leads the digital music revolution with its iPods and
iTunes online store (7). Apple innovates to change the impossible to possible when it comes to
technology (4). We immensely value the fair treatment and compensation of our employees (6, 9). (85
words)

1. Customers
2. Products or services
3. Markets
4. Technology
5. Concern for survival, growth, and profitability
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 6. Philosophy
7. Self-concept
8. Concern for public image
9. Concern for employees

D. External Audit
Opportunities

1. Competitors, such as Android-based phones, tend to have less control over apps offered to their
customers than does Apple.
2. Back to school sales are a significant driver of Mac sales.
3. Interest rates are at all time lows.
4. The smartphone industry is often associated with strong customer loyalty.
5. Customers are increasingly demanding touch screen laptops as a standard feature.
6. The current culture of customers being trained to update their phones at least every two years, the
long-term outlook for smartphone providers looks promising with 15% annual growth. Brazil,
Russia, China and other emerging markets are doing best.
7. Tablet sales in the USA are projected to increase from $55 billion in 2014 to $63 billion in 2018,
or a 15% total increase. In the Asia Pacific (not including Japan) region, tablet sales are expected
to increase from $65 to $93 billion over the same time frame, or 43%.
8. Smart-wear sales are forecasted to increase from $41 million to $80 million by 2020.
9. 87% of the worldwide electronic market will be tablets and smartphones by 2017.
10. Consumers increasingly demand the ability to change out Micro SD cards.

Threats

1. With phone displays becoming common, many customers may opt only for having one device.
2. Many of Apple’s rivals have prices 50 to 70% lower on comparable products. However, in the
tablet and phone market, top rival Samsung prices their top products in line with Apple prices.
3. Currently, Android-based phones account for just over 60% of smartphone operating systems,
with iOS picking up much of the balance. Through 2018, the outlook is projected to remain the
same.
4. Worldwide PC sales are expected to be $190 billion in 2015, tapering down to $160 billion by
2018.
5. Deezer, Sportify, Pandora, and Amazon are all big players in the music providing business.
6. Jail breaking of iOS to get apps has been on the rise over the past three years.
7. Consumers are increasingly unwilling to pay significant upcharges for storage space on phones.
8. Many other phone models allow users to insert micro cards to save pictures, files, videos, and
apps.
9. Consumers also are increasingly demanding increased user customization of their phones,
computers, and tablets.
10. There is a social stigma associated with Apple users being labeled as sheep and less tech savvy
than Android users.

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 Competitive Profile Matrix

Apple Samsung Lenovo

Critical Success Factors Weight Rating Score Rating Score Rating Score
Advertising 0.05 3 0.15 4 0.20 2 0.10
Price Competitiveness 0.10 2 0.20 3 0.30 4 0.40
Product Variety 0.10 1 0.10 4 0.40 3 0.30
Customer Loyalty 0.08 4 0.32 3 0.24 2 0.16
Global Expansion 0.08 3 0.24 4 0.32 2 0.16
High End Smart Phone Market Share 0.15 3 0.45 4 0.60 1 0.15
Low End Smart Phone Market Share 0.15 1 0.15 4 0.60 3 0.45
Store Locations 0.04 4 0.16 2 0.08 1 0.04
Customer Service 0.05 4 0.20 3 0.15 2 0.10
Product Quality 0.06 4 0.24 3 0.18 2 0.12
User Adaptability of Products 0.07 1 0.07 4 0.28 2 0.14
Tablet Market Share 0.07 3 0.21 4 0.28 1 0.07
Totals 1.00 2.49 3.63 2.19
 
Apple is the largest company in the world based on market capitalization, yet in the CPM above it is
trailing Samsung overall. Apple lost significant weighted score points over product variety, no low-
end phone market share, and rigid products that the consumer cannot adapt. Apple has long prided
itself on easy to operate simple equipment, yet with customers maturing, this rigid strategy should be
altered on select products.

EFE Matrix

Opportunities Weight Rating Weighted Score

1. Competitors, such as Android-based phones, tend to have less
0.04 4 0.16
control over apps offered to their customers than does Apple.
2. Back to school sales are a significant driver of Mac sales. 0.04 4 0.16
3. Interest rates are at all time lows. 0.06 4 0.24
4. The smartphone industry is often associated with strong
0.07 4 0.28
customer loyalty.
5. Customers are increasingly demanding touch screen laptops as a
0.03 1 0.03
standard feature.
6. The current culture of customers being trained to update their
phones at least every 2 years, the long-term outlook for
0.07 4 0.28
smartphone providers looks promising with 15% annual growth.
Brazil, Russia, China and other emerging markets doing best.
7. Tablet sales in the USA are projected to increase from $55 billion
in 2014 to $63 billion in 2018, or a 15% total increase. In the Asia
0.05 3 0.15
Pacific (not including Japan) region, tablet sales are expected to
increase from $65 to $93 billion over the same time frame, or 43%.
8. Smart-wear sales are forecasted to increase from $41 million to
0.01 2 0.02
$80 million by 2020.
9. 87% of the worldwide electronic market will be tablets and
0.08 3 0.24
smartphones by 2017.
10. Consumers increasingly demand the ability to change out Micro
0.05 1 0.05
SD cards.

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 Threats Weight Rating Weighted Score
1. With phone displays becoming common, many customers may
0.06 2 0.12
opt only for having one device.
2. Many of Apple‘s rivals have prices 50 to 70% lower on
comparable products. However, in the tablet and phone market,
0.08 2 0.16
top rival Samsung prices their top products inline with Apple
prices.
3. Currently, Android-based phones account for just over 60% of
smartphone operating systems, with iOS picking up much of the
0.12 2 0.24
balance. Through 2018, the outlook is projected to remain the
same.
4. Worldwide PC sales are expected to be $190 billion in 2015,
0.04 3 0.12
tapering down to $160 billion by 2018.
5. Deezer, Sportify, Pandora, and Amazon are all big players in the
0.04 3 0.12
music providing business.
6. Jail breaking of iOS to get apps has been on the rise over the
0.02 2 0.04
past three years.
7. Consumers are increasingly unwilling to pay significant
0.04 1 0.04
upcharges for storage space on phones.
8. Many other phone models allow users to insert micro cards to
0.04 1 0.04
save pictures, files, videos, and apps.
9. Consumers also are increasingly demanding increased user
0.04 2 0.08
customization of their phones, computers, and tablets.
10. There is a social sigma associated with Apple users being
0.02 3 0.06
labeled as sheep and less tech savvy than Android users.
TOTALS 1.00 2.63

Apple is performing slightly above averaging addressing external issues. The firm is doing
excellent on providing high-end reliable products, but its products are simply out priced in many
markets and consumers are less and less willing to pay $100 or more for memory that costs less
than $20 in the form of a Micro SD card.

E. Internal Audit
Strengths

1. In 2013, the firm, for the first time since 1994, used debt to finance operations, and reported $17
billion in long-term debt, and then reported $29 billion in long-term-debt in fiscal 2014, with varying
maturity dates out as far as 2044.
2. Apple’s overriding strategy always has been to produce elegant, easy-to-use products, often at a
premium price point and manufactures and markets the world’s single-most popular smartphone, the
iPhone.
3. Apple has a culture of not collecting every detail about its users. For example, Apple does not read or
store iMessages or FaceTime. Even if a government were to ask for this data, Apple does not provide
it, nor does the firm keep it on file.
4. Apple must approve all third-party digital content through the iTunes Store or the App Store and
iBooks store.
5. Apple invests heavily in R&D, over $6 billion in 2014 alone, up nearly 100% from 2012.
6. During 2014, Apple acquired several firms, including Beats Music and Beats headphones and a
subscription streaming music service.
7. Apple’s iPhone accounted for 55% of total 2014 revenues, up 11% from fiscal 2011.
8. In a bit of a surprise for analysts, Apple’s Mac sales were up 12% in fiscal 2014, from a stronger than
expected back-to-school sale on Macs. The back-to-school sales were strong enough to boost Mac
revenues to $6.6 billion in the Q4 and Mac has gained market share on Windows for 33 of 34 quarters
dating to Q1 2015.
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 9. Apple holds 27% of the tablet market share.
10. Apple retains on average 48% of their customers.

Weaknesses

1. Apple has only about 15% of the global market share in smartphones.
2. Apple products sacrifice the user being able to customize or tailor the device for their specific needs.
3. Apple’s acquisitions in 2014, however, increased the firm’s goodwill from $1.5 to $4.6 billion.
4. To keep costs low, almost all Apple hardware products are manufactured in Asia, except for a few
Macs that are manufactured in the USA.
5. Apple’s iPad sales had been steady since 2012 but were down 22% in Q1 2015 compared to Q1 2014.
6. Apple does not offer a touch screen laptop.
7. Average iPhone price increases to $687, while Android decreases to $254.
8. The Apple watch is new, but has not been as popular of an item as forecasted.
9. Demand for iPhones in Europe is much weaker than in Britain (19.6% of the French market, 16.9% in
Germany, 13.5% in Italy, and just 6.8% in Spain.
10. Apple phones and iPads have a fixed capacity and users must select the capacity they wish at purchase
then are unable to add space without purchasing a new device.

Financial Ratio Analysis

Apple Alphabet (Google)

Current Ratio 1.11 4.71
Quick Ratio 1.09 4.71
Long Term Debt / Equity 0.45 0.03
Inventory Turnover 117 0
Total Assets Turnover 0.81 0.50
Accounts Receivable Turnover 6.69 5.08
Average Collection Period 55 72
Gross Profit Margin 39% 62%
Net Profit Margin 23% 21%
Return on Total Assets (ROA) 18% 11%
Return on Equity (ROE) 45% 13%

Surprisingly, Apple does not have a large amount of inventory as evidenced by its quick ratio. Alphabet
was compared to Apple for convenience, as Samsung and Lenovo are both foreign and obtaining
statements was more difficult.

Net Worth Analysis (in billions)

Apple

Stockholders' Equity - (Goodwill + Intangibles) $110

Net Income x 5 $265
(Share Price/EPS) x Net Income $701
Number of Shares Outstanding x Share Price $683
Method Average $440

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 Alphabet (Google)

Stockholders' Equity - (Goodwill + Intangibles) $84

Net Income x 5 $72
(Share Price/EPS) x Net Income $442
Number of Shares Outstanding x Share Price $500
Method Average $275

IFE Matrix

Strengths Weight Rating Weighted Score

1. In 2013, the firm, for the first time since 1994, used debt to
finance operations, and reported $17 billion in long-term debt,
0.04 3 0.12
and then reported $29 billion in long-term-debt in fiscal 2014,
with varying maturity dates out as far as 2044.
2. Apple‘s overriding strategy always has been to produce elegant,
easy-to-use products, often at a premium price point and
0.12 4 0.48
manufactures and markets the world‘s single-most popular
smartphone, the iPhone
3. Apple has a culture of not collecting every detail about its users.
For example, Apple does not read or store iMessages or
0.04 3 0.12
FaceTime. Even if a government were to ask for this data, Apple
does not provide it, nor does the firm keep it on file.
4. Apple must approve all third-party digital content through the
0.06 4 0.24
iTunes Store or the App Store and iBooks store.
5. Apple invests heavily in R&D, over $6 billion in 2014 alone, up
0.06 4 0.24
nearly 100% from 2012.
6. During 2014, Apple acquired several firms, including Beats
Music and Beats headphones and a subscription streaming 0.04 3 0.12
music service.
7. Apple‘s iPhone accounted for 55% of total 2014 revenues, up
0.08 4 0.32
11% from fiscal 2011.
8. In a bit of a surprise for analysts, Apple‘s Mac sales were up
12% in fiscal 2014, from a stronger than expected back-to-school
sales on Macs. The back-to-school sales were strong enough to
0.03 3 0.09
boost Mac revenues to $6.6 billion in the Q4 and Mac has
gained market share on Windows for 33 of 34 quarters dating to
Q1 2015.
9. Apple holds 27% of the tablet market share. 0.03 4 0.12
10. Apple retains on average 48% of their customers. 0.05 3 0.15

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 Weaknesses Weight Rating Weighted Score
1. Apple has only about 15% of the global market share in
0.06 2 0.12
smartphones.
2. Apple products sacrifice the user being able to customize or
0.06 2 0.12
tailor the device for their specific needs.
3. Apple‘s acquisitions in 2014, however, increased the firm‘s
0.04 2 0.08
goodwill from $1.5 to $4.6 billion.
4. To keep costs low, almost all Apple hardware products are
manufactured in Asia, except for a few Macs that are 0.03 2 0.06
manufactured in the USA.
5. Apple‘s iPad sales had been steady since 2012 but were down
0.05 1 0.05
22% in Q1 2015 compared to Q1 2014.
6. Apple does not offer a touch screen laptop. 0.03 1 0.03
7. Average iPhone price increases to $687, while Android
0.05 2 0.10
decreases to $254.
8. The Apple watch is new, but has not been as popular of an item
0.03 1 0.03
as forecasted.
9. Demand for iPhones in Europe is much weaker than in Britain
(19.6% of the French market, 16.9% in Germany, 13.5% in Italy, 0.06 2 0.12
and just 6.8% in Spain.
10. Apple phones and ipads have a fixed capacity and users must
select the capacity they wish at purchase then are unable to add 0.04 1 0.04
space without purchasing a new device.
TOTALS 1.00 2.75

Apple is performing rather well on addressing internal issues with an IFE score of 2.75. There are no major
signs of deficiency but improvements can be made on providing cheaper phones and more customizable
phones.

F. SWOT
SO Strategies
1. Invest $400 million advertising targeted at back-to-school Mac sales reminding consumers how the
Macs will link to their other Apple devices (S8, O2).
2. Design a Tablet that is capable of also making a phone call for $300 million (S9, O7, O9).
3. Offer free Apple music for a year to anyone trading in an iPhone on an annual basis (S2, S6, S7, S10,
O6).
4. Continue to have rigorous enforcement on what apps are Apple approved and allowed in the App Store
(S4, O1).

WO Strategies
1. Spend $350 million developing a line of new iPhones that cost under $200 (W1, W7, W9, O9).
2. Develop a line of phones that incorporate removable Micro SD cards for $500 million (W2, W10,
O10).
3. Incorporate touchscreen technology into all Macs for $500 million (W6, O5).
4. Provide users of non-Apple devices to receive 1 year of free Apple music when they trade in a non-
Apple device for a top end iPhone (W1, O4, O6).

ST Strategies
1. Provide 5% rebates for anyone who purchases a new iPhone and/or Mac or iPad in a single purchase
(S7, S8, S9, S10, T1, T2).

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 2. Invest $400 million advertising targeted at back-to-school Mac sales reminding consumers how the
Macs will link to their other Apple devices (S8, T4).
3. Increase promotions from three months to six months on Apple music (S6, T5).

WT Strategies
1. In the line of phones that will incorporate removable Micro SD cards, allow for significantly more
customization (W2, T7, T8, T9).
2. Spend $350 million developing a line of new iPhones that cost under $200 (W1, W7, W9, T2, T3).

G. SPACE Matrix
FP
Conservative Aggressive
7

3 X = 1.0
Y = 1.4
2

CP IP
-7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7
-1

-2

-3

-4

-5

-6

-7
Defensive Competitive
SP

Internal Analysis: External Analysis:

Financial Position (FP) Stability Position (SP)
Debt Ratio 5 Competitive Pressure -7
Cash Available 7 Price Comparison -7
Current Ratio 3 Product Demand -1
EPS 6 Product Line Diversity -3
ROA 6 Inflation -2
Financial Position (FP) Average 5.4 Stability Position (SP) Average -4.0

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 Internal Analysis: External Analysis:
Competitive Position (CP) Industry Position (IP)
Low End Phone Market Share -7 User Dependence on Products 7
High End Phone Market Share -2 Availably of Data Access 6
Product Value -3 Ease of Entry into Market 2
Product Varity -6 Profit Potential 5
Customer Loyalty -3 Leverage 6
Competitive Position (CP) Average -4.2 Industry Position (IP) Average 5.2

Apple is firmly planted in the Aggressive Quadrant of the SPACE Matrix and, coupled with its excellent
capital position, can implement a wide array of strategies. Not offering a cheaper phone is the main
weakness hurting Apple currently. Samsung offers phones on many price points, and it is not unreasonable
for Apple to do so as well without diminishing its brand.

H. Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Apple

Weak Strong
Competitive Competitive
Position Position

Quadrant III Quadrant IV

Slow Market Growth

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I. The Internal-External (IE) Matrix
The Total IFE Weighted Scores
Strong Average Weak
4.0 to 3.0 2.99 to 2.0 1.99 to 1.0
4.0 I II III

High
1

3.0 IV V VI

The 3
EFE
Total Medium
Weighted Apple
Scores

2.0 VII VIII IX

Low

1.0
 

2014 Revenues (in billions)

1. iPhone $102
2. iPad $30
3. Mac $24
4. iTunes $18
Apple generates over 50% of revenues from the iPhone. Not provided in the IE Matrix
were iPod sales and Accessory sales which accounted for $2 and $6 billion respectively.

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J. QSPM

Develop a
Develop a Line of
Cheaper Line iPhones with
of iPhones Increased
Customization

Opportunities Weight AS TAS AS TAS

1. Competitors, such as Android-based phones, tend to have less
0.04 0 0.00 0 0.00
control over apps offered to their customers than does Apple.
2. Back to school sales are a significant driver of Mac sales. 0.04 0 0.00 0 0.00
3. Interest rates are at all time lows. 0.06 2 0.12 3 0.18
4. The smartphone industry is often associated with strong
0.07 0 0.00 0 0.00
customer loyalty.
5. Customers are increasingly demanding touch screen laptops as a
0.03 0 0.00 0 0.00
standard feature.
6. The current culture of customers being trained to update their
phones at least every 2 years, the long-term outlook for
0.07 0 0.00 0 0.00
smartphone providers looks promising with 15% annual growth.
Brazil, Russia, China and other emerging markets doing best.
7. Tablet sales in the USA are projected to increase from $55 billion
in 2014 to $63 billion in 2018, or a 15% total increase. In the Asia
0.05 0 0.00 0 0.00
Pacific (not including Japan) region, tablet sales are expected to
increase from $65 to $93 billion over the same time frame, or 43%.
8. Smart-wear sales are forecasted to increase from $41 million to
0.01 0 0.00 0 0.00
$80 million by 2020.
9. 87% of the worldwide electronic market will be tablets and
0.08 4 0.32 3 0.24
smartphones by 2017.
10. Consumers increasingly demand the ability to change out Micro
0.05 2 0.10 4 0.20
SD cards.

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 Threats Weight AS TAS AS TAS
1. With phone displays becoming common, many customers may
0.06 1 0.06 2 0.12
opt only for having one device.
2. Many of Apple‘s rivals have prices 50 to 70% lower on
comparable products. However, in the tablet and phone market,
0.08 4 0.32 2 0.16
top rival Samsung prices their top products inline with Apple
prices.
3. Currently, Android-based phones account for just over 60% of
smartphone operating systems, with iOS picking up much of the
0.12 2 0.24 4 0.48
balance. Through 2018, the outlook is projected to remain the
same.
4. Worldwide PC sales are expected to be $190 billion in 2015,
0.04 0 0.00 0 0.00
tapering down to $160 billion by 2018.
5. Deezer, Sportify, Pandora, and Amazon are all big players in the
0.04 0 0.00 0 0.00
music providing business.
6. Jail breaking of iOS to get apps has been on the rise over the
0.02 1 0.02 3 0.06
past three years.
7. Consumers are increasingly unwilling to pay significant
0.04 2 0.08 4 0.16
upcharges for storage space on phones.
8. Many other phone models allow users to insert micro cards to
0.04 2 0.08 4 0.16
save pictures, files, videos, and apps.
9. Consumers also are increasingly demanding increased user
0.04 2 0.08 4 0.16
customization of their phones, computers, and tablets.
10. There is a social sigma associated with Apple users being
0.02 2 0.04 3 0.06
labeled as sheep and less tech savvy than Android users.

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 Develop a
Develop a Line of
Cheaper Line iPhones with
of iPhones Increased
Customization
Strengths Weight AS TAS AS TAS
1. In 2013, the firm, for the first time since 1994, used debt to
finance operations, and reported $17 billion in long-term debt,
0.04 0 0.00 0 0.00
and then reported $29 billion in long-term-debt in fiscal 2014,
with varying maturity dates out as far as 2044.
2. Apple‘s overriding strategy always has been to produce elegant,
easy-to-use products, often at a premium price point and
0.12 2 0.24 4 0.48
manufactures and markets the world‘s single-most popular
smartphone, the iPhone
3. Apple has a culture of not collecting every detail about its users.
For example, Apple does not read or store iMessages or
0.04 0 0.00 0 0.00
FaceTime. Even if a government were to ask for this data, Apple
does not provide it, nor does the firm keep it on file.
4. Apple must approve all third-party digital content through the
0.06 0 0.00 0 0.00
iTunes Store or the App Store and iBooks store.
5. Apple invests heavily in R&D, over $6 billion in 2014 alone, up
0.06 2 0.12 3 0.18
nearly 100% from 2012.
6. During 2014, Apple acquired several firms, including Beats
Music and Beats headphones and a subscription streaming 0.04 0 0.00 0 0.00
music service.
7. Apple‘s iPhone accounted for 55% of total 2014 revenues, up
0.08 3 0.24 2 0.16
11% from fiscal 2011.
8. In a bit of a surprise for analysts, Apple‘s Mac sales were up
12% in fiscal 2014, from a stronger than expected back-to-school
sales on Macs. The back-to-school sales were strong enough to
0.03 0 0.00 0 0.00
boost Mac revenues to $6.6 billion in the Q4 and Mac has
gained market share on Windows for 33 of 34 quarters dating to
Q1 2015.
9. Apple holds 27% of the tablet market share. 0.03 0 0.00 0 0.00
10. Apple retains on average 48% of their customers. 0.05 3 0.15 4 0.20

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 Weaknesses Weight AS TAS AS TAS
1. Apple has only about 15% of the global market share in
0.06 4 0.24 3 0.18
smartphones.
2. Apple products sacrifice the user being able to customize or
0.06 2 0.12 4 0.24
tailor the device for their specific needs.
3. Apple‘s acquisitions in 2014, however, increased the firm‘s
0.04 0 0.00 0 0.00
goodwill from $1.5 to $4.6 billion.
4. To keep costs low, almost all Apple hardware products are
manufactured in Asia, except for a few Macs that are 0.03 0 0.00 0 0.00
manufactured in the USA.
5. Apple‘s iPad sales had been steady since 2012 but were down
0.05 0 0.00 0 0.00
22% in Q1 2015 compared to Q1 2014.
6. Apple does not offer a touch screen laptop. 0.03 0 0.00 0 0.00
7. Average iPhone price increases to $687, while Android
0.05 4 0.20 1 0.05
decreases to $254.
8. The Apple watch is new, but has not been as popular of an item
0.03 0 0.00 0 0.00
as forecasted.
9. Demand for iPhones in Europe is much weaker than in Britain
(19.6% of the French market, 16.9% in Germany, 13.5% in Italy, 0.06 3 0.18 2 0.12
and just 6.8% in Spain.
10. Apple phones and ipads have a fixed capacity and users must
select the capacity they wish at purchase then are unable to add 0.04 2 0.08 4 0.16
space without purchasing a new device.
TOTALS 3.03 3.75

Apple has the capital to implement both strategies presented in the QSPM and likely should do both. Both
strategies do however move Apple away from its traditional strategy. Strategy one (above) of producing a
more affordable phone and strategy two of producing phones that allow for increased customization and
user added memory are polar opposites of current and traditional strategy. However, as users mature,
certain populations of Apple users could possibly “graduate” from Apple to Android based phones, while
others who cannot afford Apple are more likely to select an Android based phone and likely stick with that
operating system when they graduate to more expensive phones. Apple should maintain their current
strategies, but also expand their product lines by implementing both strategies above.

K. Recommendations
1. Invest $400 million advertising targeted at back-to-school Mac sales reminding consumers how the
Macs will link to their other Apple devices.
2. Design a Tablet that is capable of also making a phone call for $300 million.
3. Offer free Apple music for a year to anyone trading in an iPhone on an annual basis.
4. Spend $350 million developing a line of new iPhones that cost under $200.
5. Develop a line of phones that incorporate removable Micro SD cards for $500 million.
6. Incorporate touchscreen technology into all Macs for $500 million.
7. Provide users of non-Apple devices to receive one year of free Apple music when they trade in a non
Apple device for a top end iPhone.
8. In the line of phones that will incorporate removable Micro SD cards, allow for significantly more
customization for $800 million.

L. EPS/EBIT Analysis (in millions except for EPS and Share Price)
  Amount Needed: $3,000
Stock Price: $122

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 Shares Outstanding: 5,574
Interest Rate: 3%
Tax Rate: 25%

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom
EBIT $50,000 $70,000 $100,000 $50,000 $70,000 $100,000
Interest 0 0 0 90 90 90
EBT 50,000 70,000 100,000 49,910 69,910 99,910
Taxes 12,500 17,500 25,000 12,478 17,478 24,978
EAT 37,500 52,500 75,000 37,433 52,433 74,933
# Shares 5,599 5,599 5,599 5,574 5,574 5,574
EPS 6.70 9.38 13.40 6.72 9.41 13.44

30 Percent Stock 70 Percent Stock

Recession Normal Boom Recession Normal Boom
EBIT $50,000 $70,000 $100,000 $50,000 $70,000 $100,000
Interest 63 63 63 27 27 27
EBT 49,937 69,937 99,937 49,973 69,973 99,973
Taxes 12,484 17,484 24,984 12,493 17,493 24,993
EAT 37,453 52,453 74,953 37,480 52,480 74,980
# Shares 5,581 5,581 5,581 5,591 5,591 5,591
EPS 6.71 9.40 13.43 6.70 9.39 13.41

M. Epilogue

Apple was the only smartwatch producer in Q3 of 2015 to surpass 300,000 units sold. During a six-month
period in 2015, Apple shipped more Apple Watches than all of its rival wearable makers combined. Before
the Apple Watch launch in April 2015, most analysts expected the device to lead the smartwatch category,
although estimates for its sales ranged widely between 10 million and 30 million a year. The Apple Watch
is by far the most popular wearable on the market, shipping seven million devices in one six-month period.

Walgreens Boots Alliance Inc. (WBA) recently became the first retailer to launch seamless loyalty-
program integration with Apple Pay. Members of Walgreens' Balance Rewards program, which has more
than 85 million active members, can now use Apple Pay to redeem loyalty points, just as they would if they
were using their regular Walgreen rewards card, by adding their loyalty account to their Apple Wallet. The
loyalty information on the card will be automatically sent through the Walgreen system when the user
checks out with Apple Pay at the register, applying all discounts and tacking on any earned points. Apple
makes its mobile payment platform compatible with retail store-branded payment and loyalty cards,
including Dunkin Donuts.

Until October 2015, Apple TV essentially had not changed since 2010, but then Apple launched a surprise
redesign of its TV, signaling the company's newfound interest in revolutionizing the TV experience. A
distinguishing feature of the new and improved Apple TV is the new Siri Remote -- a huge improvement
from the old Apple TV remote with only a few buttons. The Siri Remote has Bluetooth 4.0 wireless
technology, its own accelerometer and gyroscope, a rechargeable battery, and a touch screen. Another even
more important feature is a new App Store for the Apple TV that operates on its own dedicated OS called
tvOS. Orders and shipments for the new Apple TV are scheduled to begin on October 26, 2015.

From its launch in summer 2015 through October 2015, Apple Music obtained more than 6.5 million
paying users and an additional 8.5 million users participating in a free trial. “I’m really happy about it, and
the runway here is really good,” a pleased CEO Tim Cook said. The number of users paying Apple’s $9.99
monthly service fee is now a third that of Spotify, which leads the industry with 20 million paid subscribers
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 across the globe. Spotify dominates the industry, offering a better service for the same price. However,
new music streamers unfamiliar with Spotify are often lured to Apple for its brand, suggests Edison
Investment Research analyst Richard Windsor.

In October 2015, Apple updated its entire iMac family of products, bringing a vastly improved new
Retina® 4K display to the 21.5-inch iMac for the first time and the Retina 5K display to every 27-inch
iMac. The new Retina displays make photos and videos more immersive and true-to-life thanks to a wider
color gamut and spectacular image quality. The updated iMacs also feature more powerful processors and
graphics, two Thunderbolt® 2 ports and new storage options that make the high-performance Fusion Drive
even more affordable. Additionally, Apple introduced a new lineup of wireless accessories, such as the all-
new Magic Keyboard, Magic Mouse 2, and Magic Trackpad 2. The Magic devices feature rechargeable
batteries that completely eliminate the need for disposable batteries.

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