Apple Being Engaged in Design - Essay Example

?Slide APPLE, INC. Comprehensive Case Analysis Slide 2 Company Background Incorporated by Steve Jobs & Steve Wozniak in 1977 Listed on the stock exchange in 1980 Engaged in the design, development, and distribution of personal computers and digital equipment, sofware & support services Is world renowned for its pioneering efforts in personal electronic communications devices and systems Apple or "the company" is engaged in design, development and marketing of personal computers, media devices, and portable digital music players. The company also sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The company's portfolio of offerings comprises Macintosh (Mac) computing systems, iPods line of portable digital music and video players, iPhone handsets and iPad portable multimedia and computing devices. The company primarily operates in the US. It is headquartered in Cupertino, California and employs 46,600 employees. (Datamonitor 2011) Slide 3 Industry Analysis Macro-environment Analysis Political issues Stigma of big business (SEC scandal) Tighter policies imposed by gov’t Different policies by different gov’ts Economic issues Global economic crisis Strong emerging economies Slide 4 Industry Analysis Macro-environment Analysis Social issues Growth of social networking Connectivity push by many countries Technological issues International Protection of IPR Continuous R&D Slide 5 Industry Analysis Macro-environment Analysis Legal issues Pursuit of litigation for IPR globally Dangers of faulty product design Environmental issues Sustainability compliance Pollution caused by product disposal Slide 6 Industry Analysis Porter’s Five Forces Model Internal Rivalry High due to cutting edge R&D High due to changes in demand Threat from Substitutes Low due to quality issues Price might be a factor Slide 7 Industry Analysis Threat from New Entrants Low due to high entry barriers Bargaining Power of Suppliers High due to limited sources Bargaining Power of Buyers Low for new products, but may vary with time Slide 8 Competitive Advantage Sources of competitive advantage Design and innovation orientation The company's competitors include Microsoft, Dell, Hewlett-Packard, Fujitsu, Samsung Electronics, Sony and Toshiba, among others.The company is currently focused on market opportunities related to mobile communication devices including the iPhone.The mobile communications industry is highly competitive with several large, well-funded and experienced competitors. The launch of iPhone spiked the demand for smartphone with touch functionality and other innovative features. This made several players in the mobile phone market, such as Nokia, HTC, RIM, Palm, Samsung and LG Electronics, launch their respective smartphone devices in the market creating significant competition. Unique vision (primarily by Steve Jobs) Apple has been usually viewed along with its charismatic and visionary founder, Mr. Jobs who has always been instrumental in managing the growth of the company and leading it to its current size. Network of interrelated support services (i.e., the APP store) bundled with peripherals Mobile apps are one of the most important factors in driving sales of smartphones. Apple is the strongest player in the mobile apps market, with approximately 350,000 apps. Its closest competitor, the Android market has 250,000 apps, while Blackberry and Windows Phone 7 has 20,000 and 9,000 apps respectively. The mobile app market is expected to exceed $9 billion by 2014. With its innovative products such as iPhone and iPad, Apple is in a position to increase its share in the growing smartphone and tablet market. Strong horizontal and vertical integration ‘Plug-and-play’ solutions Slide 9 SWOT Analysis (Datamonitor, 2011) Strengths Powerful brand image According to industry sources, Apple is the fourth largest player in the global mobile phone market. The company holds a market share of approximately 5% and trails Nokia, Samsung and LG Electronics, which hold 29%, 18.5% and 6.5%, respectively. Moreover, in the global smartphone market, Apple's iOS platform is the third largest player, with a market share of approximately 18.5%. The company is projected to take the second spot by overtaking the Symbian platform by the end of 2011. Strong brand image gives the company an edge over regional and global competitors. Customer brand loyalty The Apple brand is well recognized amongst most consumers. Apple's products enjoy a high level of brand awareness and brand recognition throughout all its markets. This is evident with the rapid sales of new Apple launches. For instance, net sales of iPad and related products and services was $5 billion and unit sales of iPad were 7.5 million during 2010. iPad was released in the US in April 2010 and in various other countries over the remainder of 2010. Also, the company sold 7.33 million iPads in the first quarter of 2011. Apple leverages its brand image to differentiate its product offering and drive sales. The company's strong brand enables it to command a premium pricing and create significant demand for its products such as iMac, iPod, iPhone and iPad. In FY2010, net sales of iPhone increased 93% to $25.2 billion. Also, the net sales of Mac desktops and portables increased 43% and 18%, respectively, while net sales of other music related products and services increased 23% compared to 2009. Profitable financial performance Apple reported robust financial performance in the past few years. The company's total revenue increased to $65,225 million in FY2010 from $19,315 million in 2006, representing a compounded annual growth rate (CAGR) of 36%. The company's net income rose at a CAGR of 63% to $14,013 million from $1,989 million in 2006. Following the trend, Apple's net income margin also improved to 21.5% in 2010 from 10.3% 2006. Focused R&D driving innovation Apple has a strong focus on research and development (R&D) as continual investment in R&D is critical for the development and enhancement of innovative products and technologies. In addition to evolving its PCs and related solutions, the company continues to capitalize on the convergence of the PC, digital consumer electronics and mobile communications by creating and refining innovations, such as the iPod, iPhone, iTunes Store, Apple TV and iPad. Apple leverages its unique ability to design and develop its own operating system, hardware, application software, and services to provide its customers new products and solutions with superior ease-of-use, seamless integration, and innovative industrial design. Slide 10 SWOT Analysis Weaknesses Patent infringement lawsuits The company is involved in legal complaints relating to patent infringement. For example, in January 2010, Nokia filed a revised suit against Apple with the US International Trade Commission (ITC), alleging that Apple has infringed Nokia's patents in almost all of its mobile phones, portable music players, and computers. Motorola Mobility had filed complaints against the company in the US District Court for the Districts of Florida, Illinois, Delaware and in the International Trade Commission (ITC). These complaints include claims of patent infringement related to certain of the company's products. Problems in design quality and production processes The company's products and services experience quality problems from time to time. Apple sells highly complex hardware and software products and services that can contain defects in design and manufacture. Defects may also occur in components and products that the company purchases from third parties. There can be no assurance the company will be able to detect and fix all defects in the hardware, software and services it sells. Product recalls For instance, in 2010, due to antenna problems in the newly launched iPhone 4 smartphone, demands for product recall were raised. Instead of the complete product recall, the company offered iPhone 4 customers a free case that will mitigate reception problems. Similarly, in 2008, Apple announced Ultracompact USB Adapter Exchange Program. Under certain conditions, the new Ultracompact Apple USB power adapter's metal prongs broke off and remained in a power outlet, creating the risk of electric shock. Therefore, the company decided to exchange every Ultracompact power adapter for a new redesigned adapter, free of charge. Product defects may harm Apple's reputation and add significant warranty and other expenses. Product vision reliant on Steve Jobs Most, if not all, of Apple’s best loved products were the result of Steve Job’s visions and understanding of the market. During the period that Jobs left Apple and concentrated on Pixar, Apple’s market share was eroded and its revenues fell due to lack of new innovations that met market needs. It was only when Jobs returned to Apple that it regained its leadership in the market with the new electronic consumer products. Mr. Jobs' involvement with the company is highly weighed by all the stakeholders, as he has been instrumental in Apple's success after he rescued the company in 1996 by returning from a 12 year absence. The sequential launch of many high end tech-gadgets such as iPhone in 2007 followed by iPad in 2010 has enabled the company to create iconic brands for itself with the sleek handheld devices in techo-gadgets space. Apple is currently also the largest technology company in terms of market capitalization. Slide 11 SWOT Analysis Opportunities Strong growth of market for smartphones and tablets The worldwide smartphones market segment is forecast to record strong growth in coming years. The shipments for smartphones are expected to exceed 400 million globally.The number is expected to reach approximately 850 million by the end of 2013. Apple is the third largest player in the smartphone market segment in the US since launching its first mobile device, iPhone, in 2007. iPhone is a multimedia and internet-enabled mobile phone, combining mobile phone, widescreen iPod and internet functionalities and applications that support email, web browsing and maps on a mobile phone. The company also experienced strong growth in its iPhone business in recent years. Its iPhone and related offerings revenues almost doubled, at a rate of 93.2% in 2010 over 2009, to record revenues of $25,179 million from $13,033 million in 2009. Moreover, the demand for tablets is increasing over the years. Globally, tablet shipments are expected to touch 150 million units by 2013. Apple launched the iPad in January 2010. In FY2010, the iPad generated $5 billion in revenues and showed unit sales of 7.5 million. In the first quarter of 2011, iPad sales were 7.33 million. Positive outlook for mobile advertising market Global mobile advertising market is forecast to recover and have a modest growth in near future. According to industry sources the mobile advertising market is forecast to reach approximately $25 billion globally by the year 2015, riding on the strong growth of smartphones in both developed and emerging nations. Steady popularity of social networking Social networking has greatly revolutionized the way people communicate, and there is a continued uptrend in people’s networking activity. Because of this, the demand for mobile devices is also steadily increasing, and Apple has revolutionized the way people keep online. Traditionally communication was through computers; it has now switched to other mobile devices such as the iPad, iTouch, the iPhone, etc., and fuelling the sales of these products as well as the demand for new designs and features. Growth potential of emerging markets Many companies based in the West have succumbed to the economic crisis that has caused drops in revenues, layoffs and closures. Apple, on the other hand, is experiencing strong sales in the emerging markets that have not been hard hit by the crisis and still experience strong demand that fuels strong revenue streams. Slide 12 SWOT Analysis Threats Rising popularity of Google Android and other new products by rivals The Google Android OS for smartphone is gaining rapid popularity. With the acquisition of Android Inc. in 2005, and the subsequent launch of Google’s mobile OS “Android” changed the competitive landscape of smartphone business globally. According to Andy Rubin, Google's Vice President of Engineering and one of the cofounders of the earlier Android Inc., approximately 350,000 Android smartphone are activated daily. In comparison with this, every day approximately 150,000 iPhone are activated. Additionally, Android is fast emerging as the preferred mobile OS for OEMs with multiple OEMs using the platform for their devices. HTC and Samsung have been aggressively pushing new mobile phones based on the Android platform. Also, Sony and Motorola are also actively leveraging the Android platform. Moreover, the online application store for Android applications “Android Market” is growing at a rapid pace.The Android Market currently offers approximately 250,000 apps, compared to 350,000 offered by Apple's App Store, although Android has been a late entrant in the market. Increasing popularity of Android may affect the attractiveness of Apple's iOS affecting the market share of Apple. Death of Steve Jobs The absence of Steve Jobs is feared to delay the launch of next level iPad-II series and other related launches, which may sublime the growth sustainability of the company. Apple needs more dynamic innovations if it has to continue its momentum of expanding. Without Mr. Jobs' involvement, that may turn out to be a challenge. Intensifying competition for markets Apple operates in a highly competitive and rapidly evolving technology industry. The company faces intense competition in consumer electronics, PCs and related software and peripheral products markets. Rapid technological advances in both hardware and software, increasing the capabilities and use of PCs and digital electronic devices, characterize these markets. Rapid changes in the technology have resulted in the frequent introduction of new products with competitive prices, features and performance characteristics. Dependence on specific suppliers The company depends on third party suppliers for various components used in its products. Although most components essential to the company's business are generally available from multiple sources, certain key components including microprocessors, enclosures, certain liquid crystal displays (LCDs), certain optical drives, and application-specific integrated circuits (ASICs) are currently obtained by the company from single or limited sources. Moreover, many key components that are available from multiple sources including NAND flash memory, dynamic random access memory (DRAM) and certain LCDs, are subject to industry-wide shortages and significant commodity pricing fluctuations. The company's dependence on few suppliers makes it susceptible to supply and pricing risks, which may adversely affect the company's operations. Risk of piracy and patent / IPR infringements Slide 13 Corporate Strategy Alignment Strategic alignment explores the relationships among the following: Business Strategy - Apple’s business strategy is anchored on innovation, its motto being “Think Different” Also, Apple's products can be grouped under five product lines: desktops, portables, iPod, other music related products and services; peripherals and other hardware; software; service; and other sales. Apple's desktop product line includes iMac, eMac, Mac mini, Power Mac, Mac Pro, and Xserve. Portables includes MacBook, iBook, MacBook Pro, and PowerBook. iPod products include the iTunes Store and iPod services, and the company's own and third party iPod accessories. Other music related products and services include hardware accessories of the company and third parties, wireless connectivity and networking solutions. Software and services comprise Apple branded operating system and application software, third party software, AppleCare, and internet services. (Datamonitor 2009) Organizational Infrastructure – The Company has a segmented and stratified structure that creates an ‘elite’ group among the most valuable and productive employees. The company manages its business primarily on the basis of geographic segments. The company operates through four operating segments: the Americas, Europe, Japan, and retail. The Americas, Europe, and Japan reportable segments do not include activities related to the retail segment. The others segment (the operations of which are not reflected in the four reportable segments) accounts for Apple's operations in Asia Pacific, which includes Australia and Asia (except Japan), and FileMaker, a subsidiary that develops, publishes, and distributes desktop-based database management application software for Mac OS and Windows-based systems. (Datamonitor, 2009) Slide 14 Corporate Strategy Alignment Firm resources - Apple is well equipped with the latest technological and analytical tools and the most competent technical personnel. It is also financially sound and is supported by a strong cash flow. Distinctive competencies – The highly skilled personnel support a culture of innovation and of creating designs that improve on the conventional according to customer wants Slide 15 Liquidity & Solvency Ratios Slide 16 Asset Utilization Ratios Slide 17 Profitability Ratios Slide 18 Comparison with Competitors Slide 19 Z-score for predicting bankruptcy (Data for financials sourced from 10-K Report) Slide 20 5-Cs of Credit Character – Strong integrity relied upon by consuming public Capacity – Adequate cash flow Capital – Low risk capital structure Collateral – High quality assets Conditions – Strong performance even during economic crisis Slide 21 Recommendation The result of the preliminary evaluation shows strong merit in recommending that Apple Inc. be included as a potential target company for conversion to Cap One Blue Chip Accounts. Read More