MANAGEMENT THEORY INTO MANAGEMENT PRACTICE, APPLE INC.

CASE, MODULE:
MOD001127, SID: 1230580

Management Theory into Management

Practice Assignment
Module: MOD001127

Year 2013
SID Number: 1230580
Module Leader: Roger Jeynes
Apple Inc. Case

Word Count:
2,985

Table of content:
1. Introduction..............................................................................................................................4
2. External Environment...4
2.1. Basic Characteristics of the Environment - market definition, size, growth and share4
2.2. PEST Analysis..
..5
2.2.1. Political
Factors
6
2.2.2. Economic
Factors..
6
2.2.3. Social Factors......6
2.2.4.Technological Factors.........................6
2.3. Competitor Analysis..6
2.4. Analysis of industry competition..8
2.4.1. Intensity of rivalry within the industry...8
2.4.2. Bargaining power of suppliers....8
2.4.3. The bargaining power of buyer...8
2.4.4. Threat of new entrance.9
2.4.5. Threat of substitute
product......9
3.
Internal
Analysis..9
3.1.
Analysis.9

Financial

3.2. SWOT Analysis.12

2

3.2.1. Strengths..12
3.2.2. Weaknesses13
3.2.3. Opportunities13
3.2.4. Threats13
4. Strategies used by Apple..14
4.1. Differentiation.14
4.2. Value Creation by Focus and Cost Leadership.14
5. Conclusion and Recommendation.14
6. Bibliography16

1. Introduction
Apple Inc. is an international American company that produces computer software, cell phones, personal
computers and consumer electronic products. The well-known products of Apple include: the iPod, the
iPhone, the Macintosh line of computers and the iPad. 301 retail stores in 10 countries are operated by
Apple in August 2010. The software of Apple consist on the Mac OS X operating system, iWork suite of
productivity software, Final Cut Studio, Logic Studio a music production tools suite, iOS; a mobile
operating system, the iTunes media browser, the iLife suite of multimedia and creativity s oftware,
Aperture; a professional photography package, AirPlay, Airprint, etc (Business Insider, 2013).
Apple Company was developed on 1st April, 1976 by the co-founders named Steve Jobs and Steve
Wozniak in Cupertino, California. The first 30 years of the company was named Apple Computer Inc. but
later on January 9, 2007, the word Computer has removed (Business Insider, 2013). They introduced
Apple I computer in 1976 which was a failure but in 1980, they launched Apple II which was successful.
The IPO offered by the company in 1980 (Datamonitor, 2006).
The purpose of this assignment is to critically analyze the context within which the company operates by
analyzing the external and internal environment. In order to achieve this different analytical tools and
models will be applied. Then the objectives and strategy of Apple will be identified and evaluated. There
will be examples of the implementation of the strategy at the end.

2. External Environment
The external factors can be evaluated using PEST because PEST analysis is valuable strategic tool for
identifying the business positions, size, growth, feasible route for operations and to classifying the market
development and decline (Kotler, n.d.).

2.1. Basic Characteristics of the Environment - market definition, size, growth

and share
Apple is defined as the leading digital asset management company and global smart phone provider. It is
the only one who generates and runs both soft-wares and hard-wares. It allows consumers to buy and
share contents (applications, music and movies) via Apple devices (iPad, iPhone, Mac and iPod) by a
exclusive selling media platform called iTunes (Digital Marketing, 2011).
In 2012, Apples CEO (Tim Cook) said that we are very excited with the sales of iPhone over 35 million
and approximately 12 million sale of iPads in March quarter. He also said that the innovative iPad is off to
an immense beginning with new innovation that can deliver only by Apple (Burns, 2012).

Moreover, the sales of iPad, Mac and iPhones have increased by 188% and 7%, correspondingly. On the
other hand, iPod sale was down by 15%. The numbers in Q2, 2012 are down as compared to Q1, 2012
when Apple smashed all its previous records as you can see in Figure 1. In that period Apple sold 5.2
million Macs, 15.43 million iPads and 37.04 million iPhones, even iPod sold well with 15.4 million units
(Burns, 2012).

Figure 1: Market Growth by units sold in millions in 2012

Source:
TechChrunch
According to IDCs report (Q1 2012) that in a two horse race with Samsung, Apple was on the second
place in global with the notable growth of 8.8% of total cell phone market ( 4.6% up from a year ago) and
24.2% of worldwide Smartphone market (18.3% up), as you can see in table 1 (Kahn, 2012).

Table 1: Top 5 Smartphone Vendors, Market Share, Shipments in 2012

Source: IDC
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2.2. PEST Analysis

To gain an understanding of Apples business potential, direction of operation and to know situation of
future market, we will use PEST analysis.

2.2.1. Political Factors

There are many problems which cannot be controllable by the company such as; geopolitical
uncertainties, war against terrorism, authority to work and health issues which can affect the sale of
Apples product worldwide. As to reduce operating cost Apple has outsourced in different countries like
Ireland, China, Korea, Czech Republic and Cork. If these countries face any political instability or any
problem which causes to delay in manufacturing operations, will led to spoil the Apple likeness in the
eye of consumers and its dealers (CNetnews 2012).

2.2.2. Economic Factors

Purchasing power depends on the Worlds economic conditions. According to past few years,
unemployment rate is very high in many countries which cause to decrease the sale of Apple products.
Another reason was increase in oil prices which causes inflation in worlds economy. As a result of these
economic factors, purchasing power of people reduced which negatively affected the sale of Apple
products due to its higher price. But now worlds economic conditions are getting better and company
has purchased itself foreign currencies, so Apple revenue has increased in the global market (Apple Inc
2012).

2.2.3. Social Factors

Two factors always have been on forefront of Apple product throughout the history, the design and the
quality. The purchasing of luxury products have gone up because the purchasing power of consumers has
risen in different market across the world and people prefer to buy iPod, iPhones and latest technology
iPad. As music industry growth has increased which is the biggest social influence on Apple because the
main essential music store is iTunes. Therefore, Apple has gained so much from social factors because
its defining a individuals modern lifestyle.

2.2.4. Technological Factors

Apple always takes advantage because of its innovative and high technologies products. The large
amount has invested in research and development field by Apple, thats the reason Apple comes in top of
the new innovative products.

2.3. Competitor Analysis

As everyone knows that Apple is a big industry and it is running so many products. Here are some key
competitors of Apple, according to cell phone industry and other products are following: Google, HPQ
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(Hewlett-Packard Company), RIM, Samsung, HTC and Nokia. As you can see smartphone competitors
in figure 2, and Apples revenue, gross profit margin, earning per share, price earning and net income
with its direct competitors in table 2.

Table 2: Direct Competitors Comparison in Billion.

Source: Yahoo Finance

Figure 2: Apples cell phone competitors:

Source: Kantar Media/ The Wall Street Journal

2.4. Analysis of industry competition

Competition in a given industry is defined by the Micheal Porters five competitive forces shown in
figure 3. This model can help to evaluate the impact on Apple and its ability to compete in market.

Figure 3: Micheal Porters five competitive forces

2.4.1. Intensity of rivalry within the industry

The first force of five forces of Michael Porters model is intensity on rivalry with in the industry. The
Apple Company has done a great job by providing technical support, creating customer loyalty and
producing products. So Apple has not worry about that factor because Apple products never go on sale. It
maintains its productivity without ever marking down a product by generating superior products from
Android phones, rival tablets and eReaders gaining market share with lower prices (Loma, 2012).

2.4.2. Bargaining power of suppliers

Bargaining power of suppliers can make the profits down of Apple by indicating high prices for supplies
(Sethi, 2012). Thus, the company looking for new suppliers because there is no doubt that Apple
Company is still growing. The company allows new suppliers to reduce the bargaining power of suppliers
by registering online on the Apples website. As a result of this Apple can decrease their bargaining power
through more competitive among large number of suppliers (Apple, 2010).

2.4.3. The bargaining power of buyer

The Apple Company should meet the expectations of their customers in order to achieve the majority
shares of market by different segments which come from educational level, age and income (Gilligan &
Wilson, 2003). One another thing is that buyers are more prices sensitive and they can switch to another
retailer if the products are not differentiated (Smith, 2006). Google provides the competition in overall
Smartphone and tablet market because Blackberry manufacturer (RIM), who was considered as a market
leader of Smartphone, now, has only 1 percent of the American market (Travlos, 2012). Apple holds around
75% of profit in industry so the chances of Apples customer to switch another brand are very less
because of its strong brand loyalty. Whereas, competition is very high now a days and competing
companies trying to attract new customers because this has been done by picking off RIM again, climb
of nokia and Androids rise (Travlos, 2012).

2.4.4. Threat of new entrance

Entering more companies in the market means decreasing the market share of Apple (Hill and Jones,
2009). Company can maintain the market share and generate profit through differentiation of brand and
product as well as making strong marketing strategy like competitive advantage (Kurtz et al, 2007). As a
new company it is very difficult to compete a company like Apple which has a strong brand image,
innovation, perceived value and good customer services (Term Paper Warehouse).

2.4.5. Threat of substitute product

If the need of consumers is same then the product can be substituted otherwise not
(Campbell et al, 2002). Therefore, threat of substitute might have two factors (price
and performance) which allows customer to switch the product as well as
willingness of buyers to switch. Threat of substitute can be reduced as much as
buyers become loyal to the products (Campbell, 2002). No company can present
an ecosystem which has created by Apple. People buy iPhone for standard, apps

and other Apples product for upgradeability and stability which gives customer the
ability to transfer knowledge and apps among devices (Segan, 2012).

3. Internal Analysis
3.1. Financial Analysis
According to result of Apples 2012 Q1 continues to impress. The reason is
increased in revenue from $24,7 billion to $39,2 billion or by 59% as contrasted
with 2011 Q1. Quarterly Net income before depreciation increases from $6,4 billion
to $12,4 billion which is also caused by high revenue, as you can see in figure 4.

Figure 4: Revenue of Apple in billion, 2012

Source: Financial Analysis

By geographically companies sales are improved, which is 1/3 rd of sales are from Asia and 1/3 rd is from
US. These regions have highest expected growth as compared to Europe who just accounted for 22%.
The market has grown in Asia because the sales from Asia have doubled from 2011 and most of the
revenue came from Apple iPhone which was 58%; it means iPhone sales ha increased by +85%.
Moreover, the iPad growth has increased by 17% which means the revenue has increased by +132%. On
the other hand, Mac and iPod were less in growth as shown in figure 5 (Financial Analysis, 2012).

Figure 5: Revenue by Geography and Segment, 2012

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Source: Financial Analysis

Shares of Apple in mobile market and tablet market have increased from 48% to 60 %, which is far better
than its competitors (Google Android). Googles share has enlarged just from 15 to 19%. The result was
positive in general as shown in figure 6 (Financial Analysis, 2012)

Figure 6: Growth in Shares of Apple and Competitors, 2012

Source: Financial
Analysis
Equity level did not affect the high return which was 45% and without effecting it has increased by 68%.
Companys equity should not be increase in future, since the company has announced the dividend and
share repurchases. Apples liquidity ratios is 1,6 which is good f or company and the cash surplus was
$110 billion which has improved from$97 billion from Q4 (Financial Analysis, 2012).

Figure 7: Return on Equity and Equity Level, 2012

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Source: Financial
Inventory and A/C receivable are nominal as liabilities, so no other changes happened at balance sheet. In
general, the structure of balance is strong.

Figure 3: Share Value

Source: Financial
The basic share value of Apple Company was ~109$ and the market price was ~610$ in 2012. Earning
should be roughly $52 billion/year or $55,6 per share, if calculating Net income earlier than reduction
according to last quarter, which makes it ~9 year, however indicator was quit high (Financial Analysis,
2012).

3.2. SWOT Analysis

Apple Company intends, produces cell phones, personal computers, music players and related services,
networking solutions, peripherals and software. The companys market position can be measured by its
strong operating performance, which has also increased the confidence of investors. On the other hand,
companys margins can be affected by extreme competition (Data monitor, 2006).
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Table 4: SWOT Analysis of Apple

Source: Strategic Management Insight

3.2.1. Strengths

The major strength of Apple has its strong market position and consumer trustworthiness which
raises due to Apples ecosystem, which in turn to increases Companys competitive advantage.
Second, Apple has a full variety of software, products and apps which are interlinked and
maintain each other. Third, iTV and other new products will be released soon.
In 2012, 3rd time Apple chosen as the most pioneering company in the world.
At the end of 2012, Apple holds approximately $10,000,000,000 in cash. Company has no debts
and the gross profit margin is also higher than its competitors.
Apple was the second valuable brand in 2012 and its brand value was at $76.5 billion.
High quality customer experience is a key of Apples retail store by providing a direct speak to
well-informed staff which increases brand awareness.

3.2.2. Weaknesses

High price is the major weakness of Apple because there is a strong completion in market now,
and the consumer of Apple products can easily obtain the similar function products by its
competitors in a lower price.
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Decreasing market share can be caused to less influence its customers to using closed ecosystem
of Apple.
Apple Company is often blamed by other companies to disobeying their patents and also it has
lost some trials as well. Such type of things can damage Apples reputation in market.
In 2012, Tim Cook became a new CEO because of the death of Steve Jobs, which was the biggest
loss for Apple Company. After some time John Browett and Scott Forstall left the firm, this will
have a negative impact on management.
In tech industry, Apples gross profit margin is highest but according to fear of forecasters that
Apples current margin will not be continued due to increasing in prices and tough competition.

3.2.3. Opportunities

Apples market share will be increase due to high demand of iPad and iPad mini in tablet market
and this will help company to use as competitive advantage.
Apple TV sales will be increased by the launch of iTV which will release soon.
Smartphone and tablet markets are growing which is a good opportunity for Apple to expand their
market share in these markets.
Collecting damages from competitors because companies sometimes violated Apples patent. So
such types of factors can be used by Apple as to damage the competitors image on market and
collecting damages from them will led to increase cash reserves as well.
The growth of mobile advertising is an opportunity and Apple allows advertising on iPod touch,
iPhone and iPad by developing the platform named iAd advertising.
The requirement of cloud based services is increasing, so Apple can enlarge its services relate to
iCloud and software as well (Strategic Management Insight, 2013).

3.2.4. Threats

Rapid technological change is the biggest threat which Apple and its competitors are experiencing
now days. As customers are become more technology lover and they want more and more new
products in very short time due to this, companies are facing pressure. So competition is very
high and the one who cannot remain themselves with rivalry shortly be unsuccessful.
Increment in Tax in USA will affect the Apples growth.
Samsung is the only one who provides application processors to Apple and it has asked to pay
higher price for it. It should be asked Apple to pay more because there are no feasible substitutes
who could provide Apple to application processors (jung, 2012).
The main competitor of iOS is Android OS in mobile market. The power of Apple iOS can be
dominated by Android OS.
Availability of wide range of music stores like Wal-Mart, Amazon and online music companies
like sound cloud and spotify will threat for Apple music store.

4. Strategies used by Apple

Figure 8: Porters model of generic strategies

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Source: Papers 4 you/Porter

(1985)

4.1. Differentiation
Apple is using a differentiation strategy by presenting an outstanding design of its products, personalized
services and high quality products. The easiness of product makes target market varying from beginner to
proficient users.

4.2. Value Creation by Focus and Cost Leadership

Apple has outsourced his production as to reduce its operating cost to third party through vast economies
of scale. Original Equipment Manufacturers (OEMs) is the company that Apple has outsourced with.
Apple focuses on user interface and industrial design to making a product that not only the highly
innovative but also the user-friendly and stylish in nature. Apple has a command on higher price than
average price due to highly personalized and people friendly devices.

5. Conclusion and Recommendation

In brief Apple Company is very innovative and early adapters and it is typically the foremost company
who takes new innovative products as compared to other companies. These types of things usually
considered as more risky but it appears to be functioning as Apples advantage. Strong market position
and consumer loyalty which increases due to closed ecosystem and user friendly products makes different
to Apple Company from its competitors.
Another most important factor is that the Apple Company is the First most admired company in the
world. Whereas, it is also credited to first sustainable music downloading business model in history by its
ipod and iTunes online media store.
Apple is a profitable company and its future is bright. But Apple should be careful in legal and political
areas because as to reduce operating cost it has outsourced in different countries and it has to find
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different alternate to reduce the risk as Apple buys application processor from Samsung which can create
a problem for it.

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