APPLE INC 2010 CASE ANALYSIS

Submitted to Mr. Shafqatullah Submitted by FahadJaved 15540 ShahidJaved 17181 RawatAbbasi 25396 Akhwand Abdus Subhan(23876) Muhammad Zeeshan Baig(20788)

1. PEST and industry analyses Political 85% of facilities where Apple products are assembled and packaged for distribution are in China, In case of any political conflicts, apples production can severely get effected. 55% of apples sales were outside USA in 2009, and apple does not have control over the political relationship with other countries, so its quite risk if any political conflict arise it might affect apples international sales.

Economical economic condition is also becoming one of the factors that influence growth of every busiess. Economic recession that was started few years back has strongly effect the sales of technological gadgets. The net sales of Apple products are growing with a declining rate, which reflects that the purchasing power of consumers are seriously declining. A 26.8% of growth in sales was observed between 2007 and 2008 but between 2008 and 2009 sales growth was only 11.1% which shows a declining trend.

Social Globalization, Virtual World, and Lifestyle are a social factor that gives a huge impact to the business development of technological industry. Possessing latest technological gadgets are considered as status symbols in many societies which have increased the sales of prestigious technological gadgets. Apple that is considered as innovator in the industry brings in innovative trends which later on gives other companies to a gate ways to enter into those new market. Another big social influence to Apple Inc products is the rapid growth of the music industry, which have increased markets over the cyber space as well. In 2010 more then 50Million customers visited the Itune store.

Technological The technological environment for Apple's market has grown substantially over past years. Most specifically, phones and computers have become a hot commodity. Apple is on top of the market for innovating products and the main thing about these products is that their life cycles are very short, making it inevitable for more products to be sold later. The increase in technology is encouraging competitors to improve, which then keeps
Apple improving.

PC

MP3 player/online music services Low - Since iPod nano launched, some competitors such as Rio and Olympus had preferred to stop. - Economies of Scale: iPod has maximum percentage of market share. - Product Differentiation: iPod has its own music store like iTunes which allows customers download music conveniently. The complete set of iPod, iTunes and the accessories for iPod. - Cost Advantage: High demand in proprietary technology. Apple has several patents for iPod and favorable access to raw materials by the contract with Samsung. Moderate - There are various competing firms such as Samsung, Sony, iRiver, etc., but iPod has almost maximum percentage of the market share.

Mobile Products

Low - Economies of Scale and R&D is especially a big part of the cost in computer manufacturing industry. Threat of Entry - A great sum of money must be invested to attain the economies of scale and it is difficult to enter the market with existing firms already operating - Cost Advantage: High demand particularly in proprietary technology.

Low The cell phone industry is highly concentrated. - Since start-up costs for a cell phone factory are extremely high, the threat of new entrants is low. - A great sum of money must be invested to attain the economies of scale and it is difficult to enter the market with existing firms already operating

High - There are relatively few competing firms compared to other industries, but Microsoft has most of the market share.

High - There are relatively large number of competing firms such as Samsung, LG, Motorola, and other Chinese brands etc.

Threat of Rivalry

- Lower priced PC makers like Dell have been growing in the market.

- But if it does not keep the products innovative, the other companys products which are lower in price than iPod can be a significant threat in anytime. Moderate - The substitutes for MP3 player can be a CD player, MD player, radio, etc.; but cheaper and easier access to MP3 files has been making customers leave from the other music players. High - The suppliers for raw materials and labor can be the threat, but the supplier who holds the main profitability is the song writers, singers and players. - Another big threat is the illegal free music download websites or P2P file- sharing sources. Easy and cheap access to MP3 files can encourage the MP3 player market, but on the other hand, this can be the threat to iTunes. Low - Mobile phones can be substituted by home phones, internet messengers, etc., but the main convenience of mobile phones which is the portability cannot be easily substituted. Low - Cell phone manufacturer provide such high volume orders that suppliers have been cautious not to temper with the relationship and ended up being in a low bargaining position - Apple which is already in the industry of PC and MP3 mostly deals with internal mediates and suppliers.

Low Threat of Substitutes - Many types of products such as PDA, DVD player, Tabs exist as a substitute for PC, but these can substitute only one or two functions of PC.

Moderate - The major suppliers are of raw materials and the labor which is highly proprietary in technology and has the power to impact price. - Besides the threat of the labor which includes the technicians, there are relatively various suppliers for the raw materials.

Threat of Suppliers

Moderate Threat of buyers - The number of buyers is huge and growing as new technologies are introduced at a fast pace. - Apple differentiated by creating its own operating system and unique design, but other companies like Dell or HP differentiate by lower price marketing.

Low - The number of buyers is continually increasing and they keep demanding new and updated products. - The internet speed and the music file providers are developing and these environments encourage the MP3 buyers. - IPod has relatively loyal customers.

Low - The number of buyers is even huger than the PCs. Also the buyers keep increasing with the new market of other developing countries.

2. Financial analyses

Efficiency Days Sales Outstanding Days Inventory Payables Period Cash Conversion Cycle Receivables Turnover Inventory Turnover Fixed Assets Turnover Asset Turnover Liquidity/Financial Health Current Ratio Quick Ratio Financial Leverage

2004-09 33.95 4.76 78.97 -40.27

2005-09 21.86 4.91 59.62 -32.84

2006-09 20.29 5.79 68.77 -42.7

2007-09 21.96 7.09 96.25 -67.19

2008-09 22.81 7.31 89.74 -59.61

2009-09 24.6 6.85 79.02 -47.58

2010-09 24.82 6.95 81.31 -49.53

10.75 76.69 12.03 1.11 2004-09 2.63 2.33 1.59

16.69 74.35 18.28 1.42 2005-09 2.96 2.63 1.55

17.99 63.07 18.41 1.34 2006-09 2.24 1.76 1.72

16.62 51.47 15.42 1.13 2007-09 2.36 2.09 1.74

16 49.9 15.15 1 2008-09 2.46 2.07 1.88

14.84 53.28 15.86 0.99 2009-09 2.74 2.48 1.5

14.71 52.51 16.89 1.06 2010-09 2.01 1.72 1.57

Margins % of Sales Revenue COGS

2004-09 7998 72.71

2005-09 8334 70.98

2006-09 11486 71.02

2007-09 14128 66.03

2008-09 18469 65.69

2009-09 19870 59.86

2010-09 20871 60.62

Gross Margin SG&A R&D Other Operating Margin Net IntInc& Other EBT Margin Profitability Tax Rate % Net Margin % Asset Turnover (Average) Return on Assets % Financial Leverage (Average) Return on Equity % Return on Invested Capital %

27.29 17.16 5.91 0.28 3.94 0.69 4.63 2004-09 27.94 3.33 1.11 3.71 1.59 5.94

29.02 13.34 3.83 11.84 1.18 13.03 2005-09 26.45 9.58 1.42 13.62 1.55 21.29

28.98 12.6 3.69 12.7 1.89 14.59 2006-09 29.42 10.3 1.34 13.83 1.72 22.8

33.97 12.34 3.26 18.37 2.5 20.86 2007-09 30.19 14.56 1.13 16.43 1.74 28.52

34.31 11.58 3.41 19.32 1.91 21.23 2008-09 29.89 14.88 1 14.89 1.88 27.19

40.14 9.67 3.11 27.36 0.76 28.12 2009-09 31.75 19.19 0.99 18.92 1.5 31.27

39.38 8.46 2.73 28.19 0.24 28.42 2010-09 24.42 21.48 1.06 22.84 1.57 35.28

5.94

21.29

22.8

28.52

27.19

31.27

35.28

3. IFAS, EFAS, TOWS matrix and SPACE matrix (each of these should have segments for PC industry, Personal media industry, Mobile phone industry, and Tablet computers industry)

Space Matrix
FINANCIAL STRENGHTS (FS) Return on investment = +6 Leverage = Working Capital = Cash Flow = Ease of Exit = +4 +5 +6 +5 ECONOMIC STABILITY (ES) Technological Change = Inflation rate = -5 -2

Price range of competitors = -6 Barriers to entry = Competitive Pressure = -4 -4

INDUSTRY STRENGHT (IS) Potential Growth = Profit Potential = Capital Requirement= +6 +5 +6

COMPETITIVE ADVANTAGE (CA) Market Share = Product quality = Customer Loyalty = Technology Knowledge = Product lifecycle = -4 -5 -3 -4 -3

Technology Knowledge= +5 Ease of entry = +5

Average IS score = 5.4 Average FS score = 5.2 Average ES score = -4.2 Average CA score = -3.8

ES + FS = +1 (y-axis)

CA + IS = 1.4 (x-axis) Aggressive Strategy

+1

+1.14

4. INTERNAL FACTORS ANALYSIS SUMMARY INTERNAL FACTORS STRENGHTS Different Operating System(phone industry) Financial Standing Market Share(media industry) iTunes(media industry) WEAKNESSES Weak holding in PC industry WEIGHT RATINGS WEIGHTED SCORE 0.1 0.2 0.2 0.2 0.3 1 4 5 5 5 5 0.4 1 1 1 1.5 4.9

EXTERNAL FACTORS ANALYSsIS SUMMARY EXTERNAL FACTORS OPPORTUNITIES Growth (phone industry and tablet) Music sold through internet (media industry) THREATS Competition from Andriod (phone industry) Technological Advancement Recession Competition from Zune Player (media industry) WEIGHT RATINGS WEIGHTED SCORE 0.2 0.1 0.3 0.2 0.1 0.1 1 5 4 4 4 4 4 1 0.8 1.2 0.8 0.4 0.4 4.6

TOWS Matrix Internal Factor Strengths 1. Different Operating System(phone industry) 2. Financial Standing Weakness 1. Weak holding in PC industry

External Factor

Opportunities 1. Growth in developing countries.

Threats 1. Competition from Andriod (phone industry) 2. Technological Advancement

SO Apple should penetrate into the emerging market as there is the growth in the industry. As they have enough finances along with an innovative operating system. S1,S2,O1 ST As the technological is advancing day by day, so apple should use its financial strengths and invest on the R&D to become more competitive S2,T2

WO Apple should try to penetrate into the market of emerging countries to increase their profits in the desktop industry. W1,O1

WT As apple is weak in Pc industry and technological advancement and experience cure is high with competitor, so they should focus on other developing markets rather than developed markets. W1,T2

5. Based on your these analyses, suggest the strategies that Apple should adopt in the PC industry, Personal media industry, Mobile phone industry, and Tablet computers industry. You should mention the rationale for the strategic choices made by you for each industry by showing clear link between the analyses you had made and the strategy you chose.
Recommendation Based on the case study analysis, we would suggest 3 recommendations to Apple incorporation. Firstly, as desktop computers are getting older day by day and are being replaced by Laptops and tablets, Apple incorporation should halt the production of desktops and utilize their resources on laptops and tablets. Secondly, as demand of technological products is increasing in developing country like India, China Pakistan and other South East Asian countries, Apple should penetrate by entering in these markets to increase their market share. Therefore, they should start their manufacturing and retail outlets in this part of the world. Thirdly, Apple should focus on research and development to make their devices and operating system that can easily get integrated with business applications like various ERPs and other Microsoft business applications.