Apple Inc Market Analysis - Case Study Example

Apple’s Case Study Name Institution Apple’s Case Study Executive summary Apple Inc. started out as a computer based company but a time went bur the company diverted resources into new ventures such as mobile phones and music players. These new ventures have impacted positively on its operations and its brand. This is because these new ventures have captured the eyes of the consumers and have been accepted widely across the world. This has led to Apple becoming even more innovative as it tries to compete with its rival companies. In relation to these statements, this paper conducts a market analysis for Apple Inc. A market analysis is supposed to guide any given firm or organization on the manner it is to conduct its operations. This is to say that by conducting a market analysis it becomes easier for Apple to strategize on the ways it is going to tackle the hurdles that may present themselves especially when dealing with uncharted territory. In addition to these, this paper looks at the various competitive advantages Apple has over its rivals. These competitive advantages enable Apple to appeal to its customers and maintain its worth in the market. Therefore, by understanding the various competitive advantages it becomes easier to see why Apple products realize great returns at the end of every financial year compared to other rival companies. Finally, this paper conducts a profitability analysis for Apple Inc. A profitability analysis helps in determining what action would amount to realization of profits by the company. In conducting the profitability analysis this paper looks at factors that may affect Apple as it tries to realize profit from its products. Lastly the paper looks at the indicators of profitability. These indicators show whether the company is making profits or losses. Additionally, it is easier to tell the amount of profit its making by looking at these indicators. Introduction Apple Inc is a well renowned corporation whose main focus is in innovation of new technological ideas, more so when it comes to technology involving computers and mobile handsets. Apple initially started by concentrating its resources in the creation of computers. This was due to the rising demands of computers as technology evolved. However, Apple faced stiff competition from other computer manufacturers who had created a name for themselves. This was the case of Dell who enjoy a bigger market for its desktop computers and laptops. However, this did not deter Apple from entering the market and started production for its Macintosh personal computers. The Macintosh pc’s gained market but could not out do Dell pc’s which enjoyed almost 50% of the total market. As Apple gained popularity it ventured into new technological innovations characterized by the introduction of non-computer devices. This led to Apple altering its brand name from Apple computers to Apple Inc. this made it possible for apple to venture into the mobile industry around 2000. An industry that was primarily dominated by Nokia and Motorola. However, Apple’s mobile devices, iPhone, have become quite popular among the smartphones, which can be attributed to the various features it bears. These phones together with iPods contribute more than half of the profit gained by Apple (Haslam et al, 2013). Therefore, this paper looks at the market analysis of Apple and how it has been able to compete with its rivals. Additionally, the paper looks at the various competitive advantages that Apple enjoys. In relation to this statement, this paper looks at how these factors have impacted on the operations of Apple Inc. Market Analysis It is quite important for any firm or corporation to conduct a market analysis for its products as this helps the firm organize its operation to adhere to the prevailing market. Apple Inc having indulged in new venture, that is the production of non-computer devices, a market analysis would assist in determining the viability of the new ventures. Therefore, when conducting market analysis there are various factors that it has to put into consideration if the market analysis is to be successful. Market size One of the factors that Apple has to look at is the market size. The availability of market for its products would in great ways determine whether it is profitable for Apple to continue with the production of its mobile phones and iPods. Data about market size is easily from customer surveys conducted by the company. Additionally, Apple could look at financial statements of its main rivals in determining whether a ready market for its products exists. Industry cost structure This also helps organisation to proper organize their finances in the production of their products. The cost of production is normally depended on the cost of adding value. However, since Apple produces its own software such as the operating system, industrial cost for production of personal computers, smart phones and iPods is lower. This is in comparison to its major rivals who are depended on other players in the market for such software. Distribution channels The ability to distribute its finished products also greatly determines the profits that a firm which in this case Apple would make from its products. This can be achieved by looking at the existing distribution channel available to the company, and whether such channels reach out to the intended customers. If so, then it becomes quite easy for the company to introduce new innovations to the market. Additionally, Apple should try and come up with new distribution ideas which would ensure that their products reach the intended market within the intended time. Competitive advantages Competitive advantages refer to factors or activities for any given firm that gives it an edge when compared to its rivals. This is to mean that the company is capable of realizing more returns from its products when compared to its rival companies. Apple enjoys various competitive advantages over its rival firms which has seen it realize profits and make a name for itself in the technological industry (Newsom et al, 2009). These advantages include: Innovation Apple has over the years been innovative in coming up with new ideas, which have proven to be quite successful. Some of the products such iPads and iPods, have taken the world by storm as they have helped Apple gain new markets, which it never had when it only dealt with computers. Additionally, the technology used in these products is unique in that no other products use such technology. This is attributed to the fact that operating systems used to power these products are unique to these products. This is to say that it is literally impossible to come across other products that use this software (Smart advantage 2013; Wonglimpiyarat, 2012). Apple hardware designs Apple has also been accredited with unique designs for their products, which are appealing to almost every user (Wonglimpiyarat, 2005). This and the fact that apple does not do much changes to its design has left many users identifying themselves with apple products. This has also benefited apple since it is quite easy for users to identify apple products, unlike other companies, which have differing designs for their products. A good example is the iPhone which has almost identical design features from the time it was introduced to the market. This has made it possible for individuals to identify themselves with the mobile phones (Lee, 2013) Apple Marketing Strategy Apple has also benefited greatly from the marketing strategy it has adopted over the years in selling its products to the world. Most of Apple’s marketing strategies focus on both the old generation and the young generations. This is evident from the numerous adverts that depict Apple products in comparison to their rival companies. Apple always seem to know what the audience wants, and this has played a big part in fighting off competition from other companies who puts little effort in their adverts (Newsom et al, 2009). Additionally, the placement of the company’s logo greatly markets Apple products. This is because the company’s logo is placed in a manner that is visible to other individuals. Therefore, this makes it a great advertising tool that has worked for Apple as sales for its products roar year after year. Integration of Apple products Most companies tend to keep their products independent of each other, but this has not been the case with Apple who have ensured that their products are integrated to each other. This is to mean that an individual who owns Apple electronics is capable of synchronizing these products. This makes it easier for them to not only store large information but also share the same data easily. Therefore, this ability to integrate their products has led to consumers purchasing Apple products so as to satisfy all their needs (Haslam et al, 2013; West & Mace 2010). Profitability Analysis Profitability is defined as the ability of any given firm in any given industry to realize returns for the sale of its products after deducting the costs of production. Profitability is essential as it determines the continuity of any given firm. This is because firms use profits to expand their ventures, meaning that without profits then a firm cannot expand or meet its objectives. Profitability of firms is heavily dependent on various factors, which may act to the benefit of the firm or against the firm. These factors affect all kind of industries and Apple would benefit greatly if it understood these factors and how they relate to the profitability of the company (Stephan & Tsapin 2008). Threat of new entrants/ Barriers of entry This is one of the factors that is likely to affect the profitability of Apple in relation to its products. The reason behind this is that new entrants bring in unwanted competition, which could greatly affect profits of existing firm. Additionally, new entrants bring substitutes which offer the same functions but at a lower price, thus affecting the realization of profits by existing firms. This is because such factors make it impossible for new entrants in any given industry to compete with already established firm (Stephan & Tsapin 2008). Apple being a new entrant in the mobile phone industry faces challenges of marching phones from already existing companies. Competition from rival companies Apple should also put into consideration competition from it major rivals as rival companies could greatly affect the profits realized by Apple. This is because rival companies especially those that have established themselves tend to control the market to their benefit (Stephan & Tsapin 2008). Therefore, should be wary of companies such as Dell which enjoy a bigger share as they can influence the profit they realize. Factors assessing profitability In trying to understand how profitable a firm is various factors have to be put into perspective. This is because by looking at this factors it then becomes easier to assess and determining whether a firm is profitable or not. One of the factors that could be used to determine profitability is growth of the firm which in this case is Apple. Growth relates to whether a firm is expanding or not and this can be assessed by looking as to whether the firm is able to open up new branches. As earlier stated it is quite impossible for any firm to expand it it is not realizing profits. This is because firms use profits accrued to expand their ventures. Therefore, the ability of Apple to open branches across the globe shows that it is able to realize profits from its business ventures. Additionally, the fact that Apple has been able to tap into ideas and innovations shows that the company is able to realize profits. This is because tapping into unknown territory is quite risky as companies may end up making huge losses. Additionally, for such ventures to be undertake the company need to be doing quite well in order to support the new ventures. The shifting from computer production to the mobile industry clearly shows that Apple is indeed profitable as it is capable of supporting the new venture (Stephan & Tsapin 2008). Additionally, sales growths have also been used to determine whether a given firm is profitable or not. Therefore, a firm that is profitable should have high sales compared to firms that are less profitable within the same industry. Sales growth of Apple for instance can be obtained by looking at the financials statements of the firm at the end of every year. This is because such financial statement put into consideration the cost input towards the production of the firm’s products. Therefore, it is only after deduction of input cost is one able to determine as to whether a firm is profitable or not (Stephan & Tsapin 2008). In addition to these factors Apple could also rely on various rations that are normally used when calculating the profitability if any given firm. These ratios inform the firm on the position it currently stands in relation to profits. These ratios are divided into two; margin rations which are used to indicate the profit accrued from sales of a firm’s products. Return ratios which are used to indicate the profit from investments done by the company (Magoon, 2008). Net Profit Margin This is one of the most important ratios when it comes to determining the profitability of any given firm. It is calculated by dividing net profit after tax with net sales and then multiplying by 100%. The reason behind this is the fact that this ratio takes into account all the expenses accrued by the company. These expenses are the calculated against the net revenue of the company after sale of its products (Magoon, 2008). Therefore, in determining whether Apple is profitable one should look at the net sales for Apple which was $156,508 in 2012. This was a 44.5% increase compared to the previous year, 2011, when net sales stood at $108,249. Similarly, the net sales in 2011 represented a 65% increase when compared to net sales in 2010 which were $65,225 (Apple Inc., 2012). Therefore, profitability of Apple’s profitability has been on upward trend. Gross profit ratio This ratio is equally important as it illustrates how a company s efficient in conducting its operations. This ratio is obtained by calculating gross profit against the net revenue. However, gross profit is calculated by deducting operating costs from the revenue accrued by the firm. The ratio is depicted in percentage as guided by the formula below (Magoon, 2008). Gross profit for Apple in 2012 was $68,662 which represented an increase of 43.9% compared to that of year 2011 which was $43,818 down from $25,684 in 2010 (Apple Inc., 2012). Therefore, it is clear gross margin of Apple has been on an increasing trend over the years. Return on Equity As earlier stated profitability ratios are divided into two; margin ratios and return ratios. The ratios discussed above are margin ratios as they deal with sales of Apple’s products. However, this ratio is classified under return ratios as it deals with the profit on investments. The ratio is used to determine profit of the company accrued from the cash invested by the company in its operations. This ratio is quite significant as investors base their decision on it (Magoon, 2008). It is calculated using the following formula; return on equity = net income/shareholder’s equity x 100. In 2012, total shareholder’s equity amounted to $118,210 which represented an increase of 54.2% up from $76,615 in 2011 (Apple Inc., 2012). A firm is profitable if the percentage of return on equity is high and that of Apple is considerable. Conclusion In conclusion, Apple Inc. has come along way in establishing itself as a force to reckon not only in the world of computers but also in the world of non-computer products. However, this can be attributed to the competitive advantages Apple has over it rivals. Competitive advantages have helped Apple maintain their relevance in the technological world. Additionally, these factors have also made it easier for Apple to venture into new ground such as mobile phones. In addition to these, the ability for Apple to understand the various factors that affect profitability have led to it withstanding competition and realizing profits. This is evident from the growth rate experienced at Apple as it has opened up subsidiaries across the world. Sale from its products also indicates that Apple is quite profitable when compared to other products within the market. Additionally, by looking at the profitability ratios it is easy to determine whether Apple is profitable or not. References Apple Inc. (2012). Apple 2012 10-K Annual Report filed Oct 31, 2012. Retrieved from http://files.shareholder.com/downloads/AAPL/2659161791x0xS1193125-12-444068/320193/filing.pdf Haslam, C., Tsitsianis, N., Andersson, T. & Yin, Y.P. (2013). Apple’s financial success: The precariousness of power exercised in global value chains. Accounting Forum, 1-12. Lee, H.J. 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