Apple Inc.

is the company which designs, manufactures and is involved in

marketing mobile communication and media devices, personal computers, and
portable digital music players. Collectively known as Apple or the Company,
they also sell a variety of related software, services, peripherals, networking
solutions, and third-party digital content and applications. The companys
portfolio of offerings include iPhone, iPad, iPod, Apple TV, a variety of consumer
and professional software applications, iOS and Mac OS X operating systems,
iCloud, and a range of accessories, services, and support offerings.
The federal securities laws require publicly traded companies to disclose
information on a
continuing basis. Part the data that must be disclosed is encompassed in the
annual reports on
Form 10-K.
This form provides a comprehensive overview of the companys business and
financial condition. It includes audited financial statements to support the data
disclosed. The
following are excerpts from Apples 10-K that were submitted to the United
States Securities and
Exchange Commission for fiscal year 2011. These excerpts contain forwardlooking statements
that involve risks and uncertainties to Apple that were used to conduct a
strategic analysis and
derive Apples competitive strategy.
The external analysis includes an examination of the political, economic, sociocultural, technological, legal, and environmental (PESTLE) macro-forces that
affect the industry in which the Company contends in. Michael Porters Five
Forces constitute the remaining portion of the external analysis to determine
whether or not Apples industry is attractive. The internal examination of Apple
consists of a SWOT analysis, or the xamination of the strengths, weaknesses,
opportunities, and threats of the Company. The following discussing the findings
of this strategic analysis.
Analysis of the PESTLE Forces
1. Political
The political surroundings and conditions in which Apple Inc is operating has
been safe positioned for a long time. However according to Datamonitor (2013),
39.2 % of the Apple Inc total revenues were accounted from United States during
FY 2012 and the rest 60.8% of total sales were accounted from outside of United
States. For that reason the wars, terrorism, geopolitical suspicions, civic health
issues, and other business intermissions which can lead to bad global relations
may possibly interfere and disrupt the international trade and the global
economy, and in consequence it will cause a strong negative effect on the Apple
Inc Company, their suppliers, logistics contributors, industrialized sellers and
nonetheless consumers, as well as channel associates.
A political factor that can easily interfere is the government dictating
protectionism policies. It happened in Japan where Apple had adjusted to the
new conditions and requirements as a consequence affecting the Companys
revenue.

The business operation of Apple Inc is a matter of disruption that can be caused
by any natural calamity, deficiency of power, terrorist attacks, nuclear conflict
accidents, labour clash, community health issue and many other proceedings
beyond its control. There is a potential adverse concern on the financial situation
and operational outcome as a result of these political factors. A negative impact
will be made on the Companys demand of products if such events or natural
disaster happens also Apple Inc will be struggling to produce and deliver its
goods and services to the consumers as well as channel partners. The suppliers
can confront with difficulties in receiving components which can generate
interruptions and inefficiency in the Company supply chain. A good example of a
situation which Apple has encountered with is the Iraq war. Apple Inc its also
operating in Middle East and for the duration of Iraq war the company was
strongly affected by insecurity in concern of currency instability, high delivery
cost and assurance expenditure. Nevertheless conflicts between Arabs
communities generates prospective threats for Apple`s industry in these
countries.
On the other hand the statement abovementioned is evocative for the political
forces that can make indirectly influence on the international trade and
worldwide economy which affects Apple`s Inc production. Other than that, the
manufacturing of Apple Inc merchandises takes place outside the U.S in
countries like China, Korea and Czech Republic for that reason China`s leadership
transition will have an impact on Apple Inc operation. (Carnegie Endowment
website, 2012)
2. Economic
Apple Inc has been in a secure position ever since 1990 recession and 1999
economical fall down but still it can be a matter of economic cycles like inflation,
GDP and interest rate. The functionality operation and performance of the Apple
Inc depends considerably on the global economic factors and conditions
indicated accordingly to its annual reports. Insecurity concerning worldwide
economic situation causes a high possibility for the consumers and businesses to
withdraw its payments and spending in reaction to unemployment, less credit
access, negative financial news, turndown income or asset values which can
generate a financial unconstructive materially outcome of the demands products
and services of Apple Inc. However the demands can fluctuate essentially from
the Company generally prospects that increases prices on goods retailed
externally from U.S in order to balance the effect of fortification of U.S Dollar.
According to Apple Annual report of 2010, Apple Inc has applied financial tools
like foreign currency presumptuous and selection contracts prevaricating
confident coverage in foreign currency exchange rates. Other than that it
extends financial assets in multiple currencies and according to Yahoo UK and
Ireland Finance 2012 Apple has improved its revenue thankfully to international
market.
Another economical factor which can persuade the Company is the global
recession where the inflation rate is extremely high whereas customers earnings
did not change considerably and besides that the unemployment rate is
influencing the consumer spending behaviour particularly `Luxury products`. On
the other hand Apple`s revenue is not affected by the recession even though the

Apple`s are premium products thankfully to designers of iPhone, iPads and Pc`s
which are distinguished from its competitors and it has resulted in an increased
demand of Apple big-ticket purchases.
3 Socio-cultural
The socio life these days is controlled by the innovative technology and Apple
Inc is on the first place, it is the king of this trend market because of its exclusive
premium products and the ability to design and develop its own operating
system and application software with an introspective concept that Apple
concedes factors that demonstrates what customers desires.
Nowadays, owning a high-tech computer, iPhone or an iPod has become am
aspect to demonstrate others that a person fit in the cool society.
An additional huge social impact which is acknowledged its advertise on
cyberspace and has become fundamental is the music industry whereas Apple
has created the biggest virtual media store of online music recognized as iTunes.
The music fanatics targeted by Apple are aged 13-35 years old for that reason it
may possibly became a big challenge for the Company because the 65 aged
populations has increased in the last period.
Other than that the usage of social networks like Facebook, Instagram, Twitter
and Linked In have a strong impact on Apple`s industry since the iPhone
application usage is increasing due to outstanding number of social network site
users. Also there is an additional requirement of computers with application that
helps out students to train and develop.
Therefore the global social-cultural trends are certainly influencing positively the
industry of Apple Inc.

4. Technological
As a high-tech company Apple has constantly been in the spotlight of developed
advancing and high quality products. This movement emerge from the head start
when Apple observed that the assiduity of giants carrier as HP and Intel were
generating headway into the technological evolution of computer hardware. To
balance the performance capability attained by the new chips and hardware
systems, Apple and Microsoft has combated for the optimal operative system.
Since that time technology has significantly ameliorated offering the company
extra prospects to contract the hardware size and create it to a greater extent
high-speed and powerfulness. Additional media devices can be linked to
computers to make possible wireless communication.
According to 4GTrends website one of the major impact in mobile technology
expansion was in 2008 when the 3G mobile phones were accessible such as
Apples iPhone 3G. Nowadays 4G technology is enclosed in computers,
Notebooks, pcs, digital cameras and any other consumers devices. Therefore
the products and services are in a high competitive position for a place on the
market. Apple Inc is continuously investing a lot in new technologies to improve
its existing products and to increase the variety of the services tender
throughout exploration and improvement. For example in 2011 Apple has
launched a new service for its customers which can serve to storing documents,

contacts, music, photos etc and through wi-fi connection it can be transferred to
multiple ios devices. Furthermore Apple Inc has definitely gain the battle upfront
its competitors it stays on top of the market thankfully to the devotement and
originality.
5. Legal
a. The Company currently hold rights to patent and copyrights relating to certain
aspects of its iPhone, iPad, Mac and iPod devices, peripherals, software and
services.
The Company has register or has applied for trademark and service marks in the
U.S. and a number of foreign countries.
b. Many of the Companys products are designed to include intellectual property
obtained from third parties.
While it may be necessary in the future to seek or renew
licenses relating to various aspects of its products and business methods, based
upon
past experience and industry practice, the Company believes such licenses
generally
could be obtained on commercially reasonable terms; however, there is no
guarantee
that such licenses could be obtained at all. Because of technological changes in
the
industries in which the Company competes, current extensive patent coverage,
and
the rapid rate of issuance of new patents, it is possible that certain components
of the
Companys products and business methods may unknowingly infringe existing
patents or intellectual property rights of others. From time to time, the Company
has
been notified that it may be infringing certain patents or other intellectual
property
rights of third parties. (Page 8)
Legal forces in the industry Apple competes in have a steady trend. Currently,
Apple and its
competitors face minimal regulatory intervention. There are key legal forces that
cannot be
completely disregarded though. As the former statement above discusses, the
ownership of
patents, copyrights, trademarks, and services are an important factor in the
Companys
operations. Successful financial and operational results are therefore partly
attributed to the
rightful ownership of these legal requirements. As discussed in the latter
statement, legal issues
regarding intellectual property require careful, continuous scrutiny. This is to
avoid accidental
infringement caused by the rapid technological changes, extensive patent
coverage, or the rapid
rate of issuance of new patents.
6. Environmental

a. On March 11, 2011, the northeast coast of Japan experienced a severe

earthquake
followed by a tsunami, with continuing aftershocks. These geological events have
caused significant damage in the region, including severe damage to nuclear
power
plants, and have impacted Japans power and other infrastructure as well as its
economy.
Certain of the Companys suppliers are located in Japan, and certain of its
other supplier integrate components or use materials manufactured in Japan in
the
production of its products. To the extent that component production has been
affected, the Company has generally obtained alternative sources of supply or
implemented other measures. The Company does not currently believe these
events
will have a material impact on its operations in the first quarter of 2012 unless
conditions worsen, including, but not limited to, power outages and expansion of
evacuation zones around the nuclear power plants.
generally, environmental forces do not have a material impact on the industry
Apple contends in.
However, the statement aforementioned is indicative that there exist potential
environmental
drivers that may affect Apples financial condition and operating results. The
earthquake and
tsunami that occurred early 2011 in Japan heavily impacted the country and its
component
production. Luckily, the Company was able to attain alternative sources for the
supplies. This is
a prime example of how an environmental force could potential devastate
Apples supply chain
had they not been able to obtain other solutions. Furthermore, if the sole-source
suppliers the
Apple uses were in Japan, the outcome could have easily been devastating.
Furthermore, the
report indicates that risk still exist from this geological event if conditions are to
worsen.

Analysis of Porters Five Forces:

7. Intensity of Competitive Rivalry
a. The markets for the Companys products and services are. These
markets are characterized by frequent product introductions and highly
competitive and the
Company is confronted by aggressive competition in all areas of its business
rapid technological
advances that have substantially increased the capabilities and use of mobile
communication and media devices, personal computers, and other digital
electronic

devices. The Companys competitors who sell mobile devices and personal
computers
based on other operating systems have aggressively cut prices and lowered their
product margins to gain or maintain market share. The Companys financial
condition and operating results can be adversely affected by these and other
industrywide downward pressures on gross margins. Principal competitive factors
important to the Company include price, product features, relative
price/performance, product
quality and reliability, design innovation, a strong third-party software and
peripherals ecosystem, marketing and distribution capability, service and
support,
and corporate reputation. (Page 6)
The intensity of competitive rivalry in the computer manufacturing industry is
strong. Apples
competitors that carry comparable products attempt to gain or sustain market
share through
strategies involving dramatic price cuts and reduced product margins. These
strategies from
competitors create an industry-wide downward pressure on gross margins which
can
substantially affect Apples standing. Nonetheless, Apple has identified several
elements that it
can integrate into its strategic planning to create a competitive advantage. This
includes price,
product features, relative price/performance, product quality and reliability,
design innovation, a
strong third-party software and peripherals ecosystem, marketing and
distribution capability,
service and support, and corporate reputation.
8. Threat of New Entrants
a. The Companys competitors who sell mobile devices and personal computers
based
on other operating systems have aggressively cut prices and lowered their
product
margins to gain or maintain market share.
b. R&D expense increased $647 million or 36% to $2.4 billion in 2011 compared
to 2010.
c. The Company currently holds rights to patents and copyrights relating to
certain
aspects of its iPhone, iPad, Mac and iPod devices, peripherals, software and
services.
The statements above demonstrate determinants that Michael Porter uses to
assess whether an
industry has a strong threat of new entrants. These determinants indicate that
there are high
barriers to entry thus reducing the threat of new entrants. For instance, the fact
that aggressive competition has created a downward pressure on product
margins indicates that there is a high

level of expected retaliation. Capital requirements are high as well since heavy
R&D investments
are required to remain competitive. Furthermore, the current market players,
including Apple,
hold several patents and copyrights to withhold their proprietary product
differences from other
competitors. Overall, there is a weak likelihood of new entrants to the industry
the Company
competes in.
9. Bargaining Power of Suppliers
a. Although most components essential to the Companys business are generally
available from multiple sources, a number of components are currently obtained
from
single or limited sources, which subjects the Company to significant supply and
pricing risks. Many components are at times subject to industry-wide shortages
and
significant commodity pricing fluctuations. In addition, the Company has entered
into
various agreements for the supply of components; however there can be no
guarantee
that the Company will be able to extend or renew these agreements on similar
terms,
or at all. Therefore, the Company remains subject to significant risks of supply
shortages and price increases that can materially adversely affect its financial
condition and operating results. (Page 7)
The bargaining power of suppliers of the industry in which Apple competes in is
assessed as
strong. It can be derived from this excerpt that there are two key types of
suppliers to the
Company. There exists the suppliers that offer the basic components that are
commodity in
nature and then there are the suppliers that offer the more sophisticated
electrical components.
The majority of Apples suppliers are those that provide components that are
readily available
from multiple sources since supplier concentration is low. Some of the key
components,however, are procured from a single or limited source. This
increases the supply and pricing
volatility for these items. The statement above also depicts that even though
various supply and
price agreements have been contracted, there is no guarantee that these
statements of work can
be extended or renewed on similar terms. Therefore, supplier power is
recognized to be strong.
10. Bargaining Power of Buyers
a. The Company believes providing direct contact with its customers is an
effective way
to demonstrate the advantages of its products over those of its competitors.
(Page 2)
b. The Company believes that sales of its innovative and differentiated products

are
enhanced by knowledgeable salespersons who can convey the value of the
hardware
and software integration, and demonstrate the unique solutions that are
available on
its products. (Page 6)
c. Principal competitive factors important to the Company include price, product
features, relative price/performance, product quality and reliability, design
innovation, a strong third-party software and peripherals ecosystem, marketing
and
distribution capability, service and support, and corporate reputation. (Page 6)
The bargaining power of buyers the industry in which Apple competes in is
assessed as
moderate. The key buyers for the Company are consumers, small and mid-sized
businesses
(SMB), and education, enterprise and government customers which is
indicative of a robust
buyer volume. Larger entities may be able to negotiate on the terms of the
contracts with the
Company. The smaller organizations and regular consumers do not have this
same bargaining
leverage over the Company. The quote above from Apples 10-K denotes several
determinants
the Company uses to reduce overall buyers bargaining power. Apples attempts
to highlight
product differences by advocating direct contact with consumers to depict the
advantages of its products over those of its competitors. It also strengthens
buyer information by providing
knowledgeable salespersons to convey the products value-added. The Company
has identified
several elements that it can integrate into its strategic planning to address the
price sensitivity
and bargaining leverage of their customers. These elements include price,
product features,
relative price/performance, product quality and reliability, design innovation, a
strong third-party
software and peripherals ecosystem, marketing and distribution capability,
service and support,
and corporate reputation.
11. Threat of Substitute Products or Services
a. The Companys digital content services have faced significant competition
from other
companies promoting their own digital music and content products and services,
including those offering free peer-to-peer music and video services. The
Company
believes it offers superior innovation and integration of the entire solution
including
the hardware (iPhone, iPad, Mac, and iPod), software (iTunes), and distribution of
digital content and applications (iTunes Store, App Store, iBookstore and Mac App

Store). Some of the Companys current and potential competitors have

substantial
resources and may be able to provide such products and services at little or no
profit
or even at a loss to compete with the Companys offerings. (Page 6)
This statement acknowledges that substitute products from competitors do exist
in regards to
providing digital music and content products and services. Competitors offers
include free peerto-peer music and video services. Even though there is the existence of
substitute products,
Apple asserts that its products and services remain superior to that of the
competitors.
Unfortunately, that superiority they offer may be offset by the fact that
competitors may offer such products and services at little or no profit, or even at
loss, in order to contend with Apples
offering. Therefore, the threat of substitute products is assessed as moderate.

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