Question 1

a) Does it make good strategic sense for Apple to be a competitor in the computer,
digital music player, and mobile phone industries?

Yes, Apple’s current strategy is to “bring to its customers compelling new products and
solutions with superior ease-of-use, seamless integration and innovative industrial
design”. Based on this explanation it can be determined that Apple is utilizing a “broad
differentiation” strategy to stay competitive in its industry. Basically, Apple provided a
specific strategy based on a generic one that was just used as a guide. According to
Bowman (Bowman, Cliff), generic strategies should be used as a tool to help form a
solution instead of being the solution itself. To be a competitor in the computer, digital
music player, and mobile phone industries, Apple must used to be just in the personal
computer and software industry and also utilized its strengths and expanded its business
to the entertainment industry. Apple introduction starting from digital music players
(iPod) and online music service (iTunes) in 2001 and it’s another introduction of mobile
phones (iPhone) in 2007.

1|Page
b) Are the value chain activities that Apple performs in computers, digital music
players, and mobile phones very similar and compatible or are there very important
differences from product to product? Which of the three products lines computers,
digital music players, or mobile phones do you think is most important to Apple s
future growth and profitability? Why?

 The marketplace trend seems to be destroying all the boundaries of each industry.

 More than just a digital music player.

 More enhanced tool for full-motion videos and data storing.

 More than just a mobile phone.

 Taking the role as a digital camera, a carry-on PC for memory storing and
internet, and an audio device.
 The value chain activities are not much differences from product to product.
 Instead, Apple has been able to command a premium in the market and gain
above average returns from utilizing the similar and compatible of its value
chain activities across the products.
 Competitive advantages, especially in its mobile phones products.
 The most important industries for Apple s future growth and profitability.

2|Page
Question 2

a) What does a competitive strength assessment reveal about Apple, as compared to

the leaders in the personal computer industry?

Competitive strength assessment for the leading rivals in the Apple industry are design
and innovation oriented, greater horizontal and vertical integration, R&D oriented,
everything ready device, price, quality/product performance, peripheral synchronization
capabilities, customization availability, software compatibility, reputation/image, market
position and breadth of product offering. Strength of Apple like:

• Apple develops its own software and creates hardware in house that complements the
software perfectly. This helps Apple deliver products that are easier to use and showcase
innovative design.

• Apple in recent years has taken the above success factor to another level with its
introduction of the iPod and iPhone. When Apple released each of these products they
also released “iTunes” and the “App Store”. These products perfectly complemented the
products and also provided another successful revenue source for Apple.

• The success of the iPod and end users considering it to be a fashion statement has
greatly benefited the Apple brand and is transferable to its other product categories.

• Competence in design – wherein they received awards from the Industrial Designers
Society of America, aesthetics makes it more appealing for consumers aside from its
functionality

• Apple guards the secrets behind its own technology in order to protect their
proprietary technology and other innovating capabilities. By guarding their secrets it
makes it difficult for competitors to copy Apple’s technological advances.

3|Page
b) Use the methodology in Table 4.4 to support your answer. Among these competitors,
who enjoys the strongest competitive position?

Among HP and Acer, Dell Inc. enjoys the strongest competitive position with Apple.
Apple’s operating in a fast-cycle market. Firm’s capabilities that contribute to
competitive advantage aren’t shielded from imitation because imitation of Apple is very
fast and inexpensive. Apple s products and services have more restriction than its rivals.
Competitive Advantages likes design and innovation oriented ,greater horizontal and
vertical Integration.

In addition, designing from scratch to finish bundled with applications and peripherals.
Plug and Play” solutions to R&D oriented an everything ready device Firm
Infrastructure HRM Technology Development PROCUREMENT Inbound Outbound
Operations Marketing/Sales Service Logistics Logistics Alliances with Design &
Horizontal & Plug and play I-tunes gives a major suppliers Innovation vertical solutions
major edge Integration Linkages with Technology Complete bundle Operating system
independent Driven of applications more secure, and software vendors less prone to virus
attacks Collaborating I-pod and I-tunes Apple’s retail with other combo gives experience,
new leaders. brand awareness mac consumers a push. bought more. Apple has been able
to command a premium in the market and gain above average returns owing to its
innovation and differentiation of technologically superior products.

This learning and innovation in its products has led apple to leverage its expertise in the i-
pod,i-phone, i-tunes, i-works suite of products. Over due course of time Apple has been
able to perfect the chain of activities in Innovation and design leading to a fit between the
activities which is difficult to imitate and hence offers them an edge over competitors.
Diffusing products New products: Ideation Designing/funding Product Creation across
company.

4|Page
c) Who is in the weakest overall competitive position?

Acer is in the weakest overall competitive position. It is because its most revenue is
(63.8%) was relying in the mobile phone industry. But its mobile phone industry that
have very intense competitive. Apple and Nokia are major players to Acer. Continued
problems with the iPhone 3G launch for both the old and new model and criticism “for
short batter lif led to a class action law suit against Apple” have possibly created a
negative brand image for Apple in relation to its product quality. Futhermore, decreasing
gross margins despite falling component prices and Apple’s expectation of “its operating
profit margin to fall over the next quarter” will likely tie up more net income that can be
used towards future growth opportunities and potential health problems for Apple’s CEO
Steve Jobs” present a problem for the potential strength of the future management team.

5|Page
d) Has Apple’s strategy resulted in a substantial competitive advantage over its rivals
in the computer industry? What is the basis for whatever competitive advantage it
has?

Yes Apple’s strategy resulted in a substantial competitive advantage over its rivals in the
computer industry. It’s true because innovation plays a dominant role in the competitive
dynamics in fast cycle markets. The basis competitive advantage that Apple’s has is a
stronger brands value, product differentiation and industry innovator. Apple’s greatest
competitive advantage is differentiation of their products. Their computers and digital
music devices set the standard for innovation and quality. They have various versions of
almost every product including: Mac computers, software, iPhones, and iPods. Apple is
well known for being an industry innovator. Apple guarantee’s their customers’ state of
the art products that are not available anywhere else. In addition, Apple has managed to
create a community of intensely brand loyal customers. These consumers who are proud
to be a part of the “Apple culture” stand by their purchasing decisions with pride and
commitment. In fact, most consumers who decide to go Mac never go back to a PC.

6|Page
Question 3

a) What is your assessment of Apple Computer’s financial performance the past three
years? (Use the financial ratios in Table 4.1 of Chapter 4 as a guide in doing your
financial analysis.)

Based on the ratios, we can see the differences of ratios in Apple, Inc. financial statistics
from 2005 until 2007. In their gross profit margin, ratios showed that profit margin are
decrease from 40.9% in 2005 to 40.8 % in 2006. But in 2007, the gross profit margins
were increase to 51.4% and this percentage is the highest compare to 2005 and 2006. So
the higher percentage is better than and the trend should be upward.

For operating profit margin, the ratio is consistently increased in 2005, 2006 and 2007.
The percentage for the both three years is 11.8%, 12.7% and 18.4%. This was proving
that Apple, Inc. is consistently gained the profitability of the current operation.

The return on total assets (ROA) for Apple, Inc. for the two year are almost remain the
same that is 11.5% in 2005 and it showed a little increase to 11.6 % in 2006. But in 2007
the ratio were increased to 13.8%. These ratios measure the return on total investment in
the enterprise.

We take a look for return on stockholders (ROE) equity for 2005 is 17.9% , 2006 is
19.9% while for the 2007 it increase to 24.1% which mean the return on stockholders
earning on their investment.

For inventory turnover ratio, Apple Inc. state 84.4% in 2005 which is decrease a little to
71.5% in 2006. But in 2007, the numbers of inventory turnover ratio were decreased to
69.4%. It is not a good for Apple Inc. to measure the number of inventory per year
because inventory turnover is low.

The debt-to-equity ratio in year 2005 and 2006 is remaining the same which is 0.08%.
But in 2007, the ratios of debt-to-equity were increase to 0.10%. These ratios show that
Apple Inc. has higher creditworthiness and good balance sheet strength.

7|Page
For the current ratio, Apple Inc. state 2.7% in 2005 and it decreased to 1.8% but after that
in 2007 it increase 0.9% which is 1.9%. This current ratio shows that ability of Apple Inc.
to pay current liabilities using assets that can be converted to cash in the near term.

In 2005 Apple Inc states revenue growth 68.3% and its decrease consistently in 2006
which is 38.7% and also decreases for the 2007 to 24.3%. That means income that a
company gains from its business activities are not good.

R&D as percent of sales of Apple Inc remains the same in 2005 and 2006 which is 4.0%.
But in 2007 the percent of R&D sales decrease to 3.0%.

From the analysis in overall financial ratios, Apple computer’s financial performance for
the past three years are all remain that have much more differences in the ratio changes.

8|Page
Question 4
a) What steps should Apple take to improve its corporate performance and to
strengthen its position in its most important markets?

There are many steps should Apple take to improve its corporate performance and to
strengthen its position in its most important markets.Apple will success if it targets a
smaller market of trendy, higher quality customers that are devoted to their company. If
apple maintain a low market share of the computer industry, Apple has continued to
produce a quality product. In addition to the quality, Apple has always been able to make
more of a profit off of its computers than other distributors. Because of the reliance of
companies like Dell and HP on Microsoft's Windows operating system, almost half of
their revenues are cut by paying back Microsoft for using their product. This quickly
turns Apple's small market share into an extremely profitable market share.

Business Strategy Thus, the computer manufacturers hold a power over the suppliers as
opposed to the suppliers holding a power over the manufactures. It is the suppliers that
are in direct competition with each other to obtain exclusive contacts with the
manufactures to have them use their products. The suppliers, therefore, are often forced
to slash prices or merge with larger companies in order to survive. Hence the bargaining
power of suppliers is moderate. Bargaining Power of Buyers Large businesses,
governments, and schools, which buy computers in large volumes, have the power to
bargain on price, quality and service. Personal computer buyers are price-sensitive.
However, buyers have less power when the switching costs and brand-loyalties are high.
Thus, PC manufacturers can reduce a threat of buyer power by differentiating their
products. For example: Apple’s unique operation system and its computers specifically
targeted to publishing and designing industry prevent their buyers from switching to
competitors’ products.

Its sleek product design represented by iMac and iBook also acquired many fans and
increased brand-loyalty. But, despite several ways in which manufacturers have

9|Page
differentiated their products and found ways to increase switching costs, customers still
see units as very similar and thus choose primarily on price. Hence the bargaining power
of buyers can be concluded to be strong. Industry Rivalry The five main manufacturers
namely IBM, Dell, HP, Apple, Compaq are in competition to produce the least-expensive
and most efficient machine. Japanese companies such as Fujitsu, Toshiba, NEC, and
Sony also have large market shares. Some companies such as IBM and Apple focus more
on innovation while others such as Dell focus on distribution channel and service, which
creates differentiation to some extent. The technology paradox holds in the PC industry.

High-tech companies such as PC makers thrive when they provide ever greater amount of
advanced technology, while the price sharply falls. Since the quality of a PC is largely
determined by the microprocessor and application system installed, the profitability and
prosperity of the PC industry’s is dependent of the profitability and prosperity of these
suppliers. As the PC has become a more commodity-like product, price-competition has
become severe in the industry. The price of PCs has declined since 1990’s. Cost-cutting
is now critical for PC producers to cover the decreasing profit margin. Apple’s used
Business Strategy Low-cost production at Dell contributes its positive growth rate, while
all other major firms are experiencing negative growth rates. Another important aspect of
competitive advantage is globalization. Many PC makers in the US now earn around 40%
of their revenues in international markets. Although PC markets in the US, Europe, and
Japan have matured and the demand has slowed down, demand in Asia-Pacific (except
for Japan) is expected to grow. The effects of intense competition are beginning to be felt
as companies exit via selling to other companies or simply exiting the industry altogether.
Regardless of the number of companies present, the computer industry will continue to
expand and remain competitive for a number of years to come. Hence the threat to
industry rivalry can be concluded to be strong. While all companies have seen a slow in
sales and a loss of profits, Apple' has seen a greater loss in its computer revenues.
Because of the nature of Apple's products, they are seen more as high-end items and more
expensive luxuries rather than as necessities.

Because of this many people are buying cheaper, lower quality computers from
customized manufacturers in order to save money. Normally, this would lean Apple
10 | P a g e
towards developing a lower priced computer that could compete with these personal
computer models. However, this strategy has been tested before with the Mac Mini. What
Apple found was that the sales of the Mac Mini were cannibalizing on the sales on other,
more expensive models. This previous failure should be viewed as a warning and
disclaimer against any further pushes into the low-cost market.

One Apple product that will never be viewed as a failure is the iPod. Contrary to Apple's
computers, the iPod has a giant lead over the competition when market share is
concerned. Because of its success, it has introduced an entire generation to the Apple
brand. By using the iPod as a gateway, Apple will continue to push its trendy image to
new customers in order to gain more and more computer customers. Apple will look at
further expanding on their small but efficient market share. However, with the current
Microsoft user base, it is going to be increasingly difficult.

The company will focus on its core competencies in order to stay successful. Apple's
customers are incredibly dedicated. Many people that buy Mac computers continue to
buy more Mac computers as well as other Apple branded products, hardware, and
software. Even though this is deemed as a niche market, Apple would be foolish to try to
take the world of Microsoft and PC distributors head on. The difference in market shares
is far too large. By focusing on their current customers and slowly expanding this base,
Apple will try to better position itself for a future attempt to capture back the market
share that it maintained many years ago. Apple brand computers because they wanted an
Apple machine. Due to this increasing amount of dedication to the company, Apple was
able to charge a higher price for their high-end, high-quality computers. This allowed
them to stabilize financially as well as discover a new identity as a company. After this
new identity was established and Steve Jobs was re-established as CEO of the company,
Jobs was able to take this identity and expand on it. By targeting their now niche market,
he was able to follow a product differentiation strategy to turn the company around. With
the release of the iPod and iPhone, he was able to tap into markets and succeed in areas
that were previously never explored or considered. Even though the deficit in computer
industry market share remained relatively unchanged, Jobs’ foresight allowed Apple to
reach new levels of profitability and success. Whether the Apple enthusiasts like it or not,
11 | P a g e
Steve Jobs will not be around forever. While he has done great things for the company,
he has left Apple in a precarious situation. What will Apple do when he leaves? Apple's
last response to not having Steve Jobs as their CEO was eventually to rehire him as CEO.
However, it is the manner in which Jobs runs the company that allows for such
innovative success, not Jobs himself. The Apple board of directors will meet with Steve
Jobs to discuss the future of the company within the next year.

12 | P a g e