Apple Computer Comprehensive Case Analysis

Industry Summary

Apple Computer’s standard industrial classification (SIC) is 3571. SIC 3571 is used for companies that
manufacture computer hardware. The top computer hardware manufacturers by sales are IBM, Hewlett-Packard,
Compaq, Dell Computer, Cisco Systems, Sun Microsystems, Xerox, EMC, Seagate, and Gateway. Growth in the
computer hardware industry in the United States is predicted to be slow because of the recession and market
saturation. Consumers are holding on to their computers because they are adequate for now. According to
International Data Corp, the industry was supposed to grow 16.6% in 2001. 16.6% growth is good for some
industries, but not computer hardware manufacturers. The computer hardware industry will not see a lot of
growth in the United States until the current recession ends
Hewlett-Packard and Compaq are attempting to merge to make the world’s largest computer hardware
manufacturer. Hewlett-Packard and Compaq together would have 87 billion dollars in earnings a year, operations
in more than 160 countries, and over 145,000 employees. Although Hewlett Packard and Compaq claim the
merger will benefit customers, some critics believe a monopoly will be created and consumers will pay higher
prices.

Company Summary

Steve Jobs and Stephen Wozniak founded Apple Computer in 1976. Their first computer was called the Apple I.
Apple was incorporated in 1977. After incorporating, Jobs and Wozniak introduced the Apple II computer.
Apple went public in 1980. Investors were eager to buy stock in a company on the cutting edge of technology. All
of Apple’s shares were sold in a few minutes.
In 1983 Apple introduced the Lisa computer, which was the underpinning for the Macintosh computer. The Lisa
and the Macintosh had graphical user interfaces that were easy to use.
Jobs tried to take over Apple in 1985, but President and CEO, Sculley, stopped him with the support of the board.
Jobs resigned and Wozniak left to start his own company soon after.
Apple faced some hard times over the years competing with Microsoft, IBM compatible computers, and PC clone
manufacturers. Apple takes pride in being different, but its downfall seems to be that it is too different. Apple
computers are not IBM compatible and over 90% of computers on the market are IBM compatible. Apple has
manage to find a niche in the education and creative markets.

Specific Information
• A distinct competency of Apple is the ability to design innovative computers
• Apple found its niche in the education (27.7% desktop and 34.7% portable), technical, and business sectors
• Apple has an overall market share of 4.5%
• Apple’s culture promotes creativity. Casual dress is allowed, workers are given considerable vacation time, and
generous benefits
• Apple employs approximately 8,568 people in the United States
• Apple is headquartered in Cupertino, California.

Mission Statement Analysis and Revised Mission Statement

Apple’s Mission Statement
Apple Computer is committed to protecting the environment, health, and safety of our employees, customers and
the global communities where we work and live. We recognize that by integrating sound environmental, health,
and safety management practices into all aspects of our business, we can offer technologically innovative
products and services while conserving and enhancing resources for future generations. Apple strives for
continual improvement in our environmental, health and safety management systems and in the environmental
quality of our products, processes and services.

Mission Statement Analysis

Apple’s mission statement is pretty good. It expresses concern for the environment, employees, safety, and
customers. It tells us that Apple’s customers are worldwide but it does not tell us exactly who they are. Apple’s
mission statement expresses concern for being technologically current. It does not say precisely what its products
and services consist of. It does not address concern for survival, profits, and growth. It does address philosophy,
concern for public image, and self-concept be expressing a sincere concern for preserving the environment.
Apple’s mission statement expresses its concern for employees by stating a concern for safety.

Mission Rewrite-
Apple Computer’s mission is to make the most technologically current personal computer and related products on
the market for customers worldwide. Apple strives to give shareholders the best return on their investment in the
industry while maintaining respect for communities, employees, and the environment.

External Analysis Summary

Apple is below average in taking advantage of opportunities. 40-50% of homes in the United States do not have
PCs. These consumers need to be targeted and convinced that they cannot live without a computer. Internet use
has grown worldwide. If Apple can get consumers to use an Internet service it is affiliated with, it may be able to
persuade consumers to buy its computers. 40% of worldwide spending on IT is on computer hardware. Apple
computers are not attractive to a lot of consumers because it is not IBM compatible like the majority of PC users.
There is an increasing demand for faster/advanced technology. Although Apple is very good at creating
faster/advanced technology, IBM compatibility is a bigger issue with customers than advanced technology. Apple
has done a superb job capturing the education market (See EFE matrix).
Apple’s is below average in avoiding threats (See EFE matrix). HP and Compaq are talking of merging and Apple
stands alone. The economic downturn has hurt all companies in the computer hardware industry. Apple is being
hurt by the recession like other computer hardware companies.
Apple’s EFE score was 1.48 (See EFE matrix). 2.5 is an average score. Apple’s 1.48 score is well below average
and tells us that Apple is below average in capitalizing on opportunities and avoiding threats. The EFE matrix was
constructed by listing opportunities and threats, assigning a weight to each opportunity and threat, assigning a
rating to each opportunity and threat, and multiplying weights by ratings. Finally, the weights are added and
compared to the 2.5 average.

Internal Analysis Summary

Apple is below average in utilizing internal strengths to overcome internal weaknesses. Many of Apple’s
customers are loyal and would never consider purchasing anything else. This loyalty is great but Apple needs to
increase the amount of loyal customers that buy its products. Apple manufacturers and designs computers and
operating systems. Apple is the only company that manufactures operating systems and computers. Apple’s
online sales are a perfect compliment to its 27 new stores. Apple is targeting customers that will buy on line and
those that like to see what they are buying in person. Apple’s new stores will most likely increase sales and
improve customer service. The IFE matrix was created by listing Apple’s strengths and weaknesses, assigning
weights to each one, and ratings to each one, and multiplying the weights by the ratings. Finally, the weighted
scores are added and compared to the 2.5 average.
Apple is competitively lagging behind the competition with a CPM score of 2.20 versus Compaq (3.52), and Dell
(3.82). Apple needs to improve its marketing, management, market share, and global expansion to be more
competitive in its industry. IBM compatibility would be a good start for Apple to improve competitiveness.

Financial Analysis Summary

According to our textbook, a current ratio is the extent to which a firm can meet its short-term obligations.
Apple’s 2001 current ratio is 3.39 (See 3 year financial trend paper). Apple’s current ratio is better than the
industries and is an improvement from 2000.
According to our textbook, a quick ratio is the extent to which a firm can meet its short-term obligations without
relying upon the sales of its inventories. Apple’s quick ratio is 3.08 for 2001, which is an improvement from
2000, and it better than the industry (See 3 year financial trend paper).
According to our textbook the debt to equity ratio is the percentage of total funds provided by creditors versus
owners. Apple’s debt to equity ratio is .35 for 2001, which is an improvement from 2000, and is better than the
industry (See 3 year financial trend paper).
According to our textbook the long-term debt to equity ratio is the balance between and equity in a firms long-
term capital structure. Apple’s long-term debt to equity ratio for 2001 is .081, which is an improvement from
2000, and is better than the industry (See 3 year financial trend paper).
The Inventory turnover ratio determines helps determine if a company is holds excessive stocks of inventory.
Apple’s inventory turnover for 2001 is 488 compared to 26.02 for the industry. It is an improvement from 2000.
Our textbook says, “Total assets turnover is whether a firm holds excessive stocks of inventories and whether a
firm is selling inventories slowly compared to the industry average”. Apple’s total asset turnover for 2001 is .
0891. It was 1.17 in 2000 and is lower than the industry average.
Our textbook says, “Gross profit margin is the total margin available to cover operating expenses and yield a
profit. Apple’s gross profit margin for 2001 was 23 (In millions) compared to 27 for 2000, and 30.83 for the
industry in 2001.
Our textbook says, “Operating profit margin is profitability without concern for taxes and interest. Apple’s
operating profit margin for 2001 was .9 down from 13.7 in 2001 and compared to 5.61 for the industry in 2001.
Our textbook says, “Net profit margin is after tax profit per dollar of sales”. Apple’s net profit margin was .098 in
2000, .005 in 2001, and 4.77 in the industry in 2001. Apple is got worse from 2000 to 2001 and is not doing as
good as the industry.
Our textbook says, “Return on total assets is after-tax profits per dollar of assets”. Apples return on total assets
was .116 in 2000, .004 in 2001, and 5.75 for the industry. Apple is getting worse and not doing as well as the
industry.
Return on stockholders equity is profits after taxes for every dollar of shareholder investment. Apple’s return on
stockholder equity was .191 for 2000, .006 for 2001 and 21.93 for the industry. Apple is getting worse and not
doing as well as the industry.
Earnings per share is earnings that shareholders get to keep. Apples earnings per share was 2.18 for 2000, -.07 for
2001 and 2.36 for the industry. Apple is getting worse and not doing as well as the industry.
Price earnings ratio is how much investors are willing to pay for a firms earnings. Apples PE ratio was 37.2 in
2000, 42.8 in 2001, and 35.6 for the industry. Apple is getting better and doing better than the industry.
Apple’s sales have increased 18.1 in 2000, and decreased 13.78 in 2001. The industries sales growth ratio
decreased 6.78 in 2001. Apple is doing worse than it did in 2000 and not as well as the industry in 2001.
Apple’s earnings per share growth ratio increased 26.15 in 2000, decreased 44.2 in 2001, and is worse than the
2001 industry average of a negative 22.78. Earnings per share have decreased for Apples and the industry.
Alternative strategies Summary

My first SO strategy in the TOWS matrix was offer free computer classes for seniors in the new Apple computer
stores. This would introduce apple computers to new customers and be good for the community. My second SO
strategy in the TOWS matrix was to offer interest free financing to parents that have children in school that use
Apple computers. The children are already familiar with Apple computers and the parents would be enticed by
the interest free financing. My third strategy in the TOWS matrix is to market computers to consumers globally.
There is a large untapped market that Apple could pursue more aggressively.

My first ST strategy is to advertise on popular web sites. This would increase Internet sales. My second ST
strategy is to offer free computer classes to displaced workers. The workers may purchase Apple computers when
the get back to work and they will be more employable after completing the computer classes. My third ST
strategy is to make computers that are harder to illegally clone. This would protect Apple from losing profits.

My first WO strategy is to offer discounts to past customers that recommend new customers. They say word of
mouth is the best advertising and who would know better than someone who already owns an Apple product. My
second WO strategy is to offer discounts to AARP members. Older people usually have more disposable income
to purchase discretionary items. My Third WO strategy is to develop a computer that is IBM compatible. IBM
compatibility would make it more competitive because customers would be compatible with the majority of pc
users.

My first WT strategy is to implement a just in time system. A just in time system would cut down on excess
inventory and help the bottom line. My second WT strategy would be to merge with IBM and produce computers
that are IBM compatible. Apple could produce IBM compatible computers or just work in its education and
technical niche if it merged with IBM.

The Grand matrix shows us that Apple is in a slow growth industry and has a weak competitive position. Apple
should consider retrenchment, cocentric diversification, horizontal diversification, conglomerate diversification,
divestiture, and liquidation as strategies. The space matrix confirms that Apple is has a weak competitive position
and is in an industry that is technologically stable but decreasing in sales.

Strategy Recommendation

The two strategies I evaluate in the QSPM are to develop an IBM compatible PC and develop and Apple that is
more competitive with the IBM compatible PCs. After completing the QSPM, developing an IBM compatible
computer was the obvious choice. Developing an IBM compatible PC scored 5.60 on the QSPM and Improving
the Apple PCs scored 4.46 on the QSPM. Apple is alienating itself from a large part of the market by not being
IBM compatible. Apple would sell a lot more computers if it got rid of its operating system and used Microsoft’s
operating system. I recommend developing an Apple computer that keeps the Apple operating system and it
compatible.

Implementation
I recommend that Apple approach IBM, Microsoft, Compaq, or another company in the hardware or software
industry and propose a merger. A company like IBM could supply Apple with the investment dollars, expertise,
and licensing rights to make an IBM compatible computer. Although some die hard Apple fans may not like the
idea of a merger, Apple would be more competitive in the end.