Apple Inc.

Apple Inc. is an American company that makes software, audio players, phones, and personal and tablet computers. One of the industry leaders in the creation of personal computers and cutting-edge multitasking operating systems GUI is Apple Inc. Apple Inc. is a publicly traded firm, and its stock is traded on the NASDAQ and the London Stock Exchange. The best personal computers in the world, Macs, are made by Apple, together with OS X, iLife, iWork, and the FIVEX ANALYTICS GROUP 5 apps for professionals. With the introduction of the iPod and the iTunes store, as well as the innovative iPhone and App Store, Apple completely changed the landscape of digital music. Recently, Apple has introduced iPad 2, defining the future market of digital devices and mobile content. Thesis: Innovation, quality, value chain, strategic development and success are an inevitable part of Apple Inc. competitive advantage.

Introduction

Apple Inc is an American Corporation, found in 1976 (the company's symbol is the bitten Apple), engaged in the development of technology (phones tablets computers laptops), SOFTWARE, and multimedia content. It is rightfully regarded a pioneer in production of touch controls and personal computers. Headquarters of the company is located in Cupertino, California. Due to proper marketing, which is focused on technologies, Apple has established a reputation, which is now comparable with the cult. In many countries of the world, Apple is associated with luxury. In May 2011, Apple was declared the most expensive brand ($153,3 billion). The heyday of the Apple Company began in 2001 with the release of the iPod (mp3 player) and in 2007 with the release of the touch phone iPhone, and iPod tablet computer. The emergence of these products dramatically improved the position of Apple in the market and started bringing in huge profits.

Apple Inc industry

Apple's success, both financial and technological, was associated with the release of the Apple 2in 1977. It has become the prototype of the modern personal computer. The Apple 2 was equipped with a color monitor, a keyboard, a power supply, there was the possibility of working with sound and graphics. In addition, the Apple 2 was placed in a solid plastic case, which was a novelty at that time. Apple 2 became very popular all over the world and the company was able to sell more than 5 million computers. In the late 70s the company started to work on the Macintosh computer, whose sales started in 1984, and for years the Macintosh has become a major product of the company. In addition, in 1980, the company completed the IPO of its shares. Along with the progress, the company had several huge failures. The first problematic project of the company was Apple3, then the computer Lisa. Problems of Apple occurred in the 1990s, because of the increased competition in the PC market, in particular, dramatically strengthened its position Microsoft with its operation system. Competitors of Apple in fact began to replace the company with its established market. Since 2001, the company began to take new markets: first, segment the audio player by releasing the iPod and then in 2007 the market was presented to the touch the iPhone. In 2010 Apple released the iPad tablet computer. The production of these innovations not only increased the revenues of Apple, but also changed the market of mobile phones and computers.

Major competitors of Apple Inc.

Although, Apple inc. has been retaining leading positions in the market, it still has major competitors, innovative decisions of which make the Apple’s products less popular. The major reason why consumers prefer competitors is price, since the products of Apple are expensive and are targeted at consumers with high profits.

Recent research of the company Counterpoint Research provided data, which clearly demonstrate that Apple has lost a large share of its market that moved to Samsung and other competitors. For the most part, it concerns the segment of sales of Smartphones at a price of over $ 400. This tendency has been observed since 2013 and Apple's market share has been rapidly declining.

Because of the competition with Samsung Galaxy S3/4, HTC One, One X and many others, the market share of Apple declined from 73 % to 38 % in May 2012 . On the other hand, Samsung witnessed strong growth, and namely, the company has grown from 20% to 47%. The share of other producers, which represent the Android operation system, have also almost doubled, however, Nokia and Blackberry sales slump led to another loss in important market segment for mobile devices.

Samsung is not the only competitor of Apple, while the company also competes with Google. In addition, the confrontation of these corporations lasts a long time. Intense competition between Apple and Google, expressed in the confrontation between Android and iOS, has a beneficial effect on the consumers worldwide. When the market is presented with numerous competitors, consumers benefit, however, experts agree that the race between Apple and Google can lead to incredible results.

According to the research, conducted by Strategy Analytics, 249.6 million of Android-based Smartphones was released in 2014. It corresponds to 84.6% of the total amount set in the world of "smart" phones. The share of iOS in the world market declined from 13.4% to the current 11.9 percent. In July-September 2014, Apple was prepared to sell 35.2 million of iPhones. Many analysts agree that the main driver of market growth of mobile devices are developing countries like China and India, as now these countries offer phones at a price of $ 100 or less . It creates competition in the market.

From the technical point of view, Apple Inc. lags behind its competitors as well. Apple itself does not produce anything, it only designs parts, which are purchased from different suppliers all over the world and assembled into a final product in the factories of Foxconn in China, where there are perturbations of workers during heavy work conditions. The nearest Apple’s competitor Samsung has its power in sufficient quantity.Additionally, it produces a fair amount of components, which together enables Samsung to benefit at the expense of scale and standardization. Apple is forced to seek manufacturers that can produce innovative components; the latter take advantage of this. Secondly, Apple has significant underinvestment in fixed capital and the same situation is observed in the development of new technologies. Thus, they spent only $3.4 billion for innovations in 2012, which is slightly more than 2% of revenues.For comparison, in Google Inc. this figure is 15%, the situation is similar at Microsoft.

Major business and products of Apple Inc

Major business of Apple is production of personal computers and software. Moreover, the company is rightfully regarded one of the pioneers in the sphere of personal computers and modern multitasking operating systems with graphic interface. The largest source of Apple's profits is iPhone sales, which is generating from year to year, bringing more than half of the company’s total revenue. The range of products of the company is wide, as it strives to create diversity in order to be able to provide its consumers with different kinds of products, which are able to help in all areas of their lives.

At the moment Apple produces the following products: iPod – the multimedia players; iPhone – mobile phones; iPad – a tablet PCs; MacBook Pro professional notebooks; MacBook Air – ultrathin laptops; Mac mini – system units; iMac – computers; Mac Pro desktop computers; Thunderbolt Display monitors for computers; Mac Pro Server and Mac mini Server network. Apple TV – multimedia players. In addition, Apple is known for its software products and web services.

Moreover, in addition to its major products, Apple sells digital content and applications, which are available through the iTunes Store, App Store, iBooks Store, and Mac App Store. The major channels of sales of the company include retail stores, online stores, and direct sales force, while some part of the product is realized through wholesalers, retailers, and value-added resellers .

Taking into account that Apple Inc is constantly widening the range of its product line, it also sells Apple TV, a set-top video device, aimed at bridging the sale of content from iTunes with high-definition televisions Apple also announced about their intention to create the iOS operating system at the side of OS X Mavericks, the tenth version of Mac OS X, and a new Internet radio service iTunes Radio.

Apple Inc’s Financial Analysis

Profitability

2007-09

2008-09

2009-09

2010-09

2011-09

2012-09

2013-09

2015-09

2016-09

TTM

Tax Rate %

30.19

29.89

31.75

24.42

24.22

25.16

26.15

26.37

25.56

25.85

Net Margin %

14.56

14.88

19.19

21.48

23.95

26.67

21.67

22.85

21.19

20.73

Asset Turnover (Average)

1.13

1.00

0.99

1.06

1.13

1.07

0.89

0.89

0.70

0.70

Return on Assets %

16.43

14.89

18.92

22.84

27.07

28.54

19.34

20.45

14.93

14.48

Financial Leverage (Average)

1.74

1.88

1.50

1.57

1.52

1.49

1.68

2.43

2.51

2.50

Return on Equity %

28.52

27.19

31.27

35.28

41.67

42.84

30.64

46.25

36.90

34.69

Return on Invested Capital %

24.84

27.19

30.22

34.69

41.04

42.01

26.08

31.32

21.95

21.06

Interest Coverage

—

—

—

—

—

—

369.79

99.93

43.15

36.76

Source: Morningstar ()

Revenue %

Year over Year

24.29

35.30

32.10

52.02

65.96

44.58

9.20

6.95

27.86

-7.73

3.27

3-Year Average

42.60

32.60

30.48

39.54

49.37

53.94

37.86

19.08

14.30

8.06

—

5-Year Average

33.12

39.23

38.97

36.17

41.16

45.49

39.39

33.63

29.08

14.78

—

10-Year Average

12.99

18.52

21.47

23.37

35.05

39.17

39.31

36.27

32.58

27.29

—

Operating Income %

Year over Year

79.74

42.32

87.09

56.60

83.79

63.48

-11.30

7.15

35.67

-15.73

-3.36

3-Year Average

138.25

56.09

68.52

60.96

75.28

67.57

38.65

15.82

8.84

7.00

—

5-Year Average

203.93

—

104.78

61.96

68.97

65.80

50.84

34.93

31.11

12.18

—

10-Year Average

—

37.44

41.73

42.78

—

124.48

—

66.23

45.72

37.68

—

Net Income %

Year over Year

75.77

38.27

70.36

70.16

84.99

60.99

-11.25

6.68

35.14

-14.43

—

3-Year Average

133.11

53.56

60.57

58.85

75.03

71.77

38.26

15.08

8.56

7.25

—

5-Year Average

121.89

133.93

97.22

60.03

67.11

64.20

50.27

36.84

30.67

12.00

—

10-Year Average

—

31.65

29.92

33.39

—

90.88

87.49

64.28

44.61

36.81

—

EPS %

Year over Year

73.13

36.39

69.40

66.85

82.71

59.50

-9.97

13.58

42.95

-9.87

2.44

3-Year Average

122.87

50.90

58.74

56.80

72.85

69.41

37.92

17.71

13.49

13.53

—

5-Year Average

112.83

124.02

91.24

57.56

64.90

62.22

49.29

37.82

33.62

16.01

—

10-Year Average

—

26.15

25.97

30.11

—

85.81

82.88

62.35

45.10

38.31

—

Source: Morningstar ()

Apple Inc., selected income statement items, long-term trends

USD $ in millions

12 months ended

Net sales

Operating income (loss)

Net income (loss)

Sep 24, 2005

13,931 

1,650 

1,335 

Sep 30, 2006

19,315 

2,453 

1,989 

Sep 29, 2007

24,006 

4,409 

3,496 

Sep 27, 2008

32,479 

6,275 

4,834 

Sep 26, 2009

36,537 

7,658 

5,704 

Sep 25, 2010

65,225 

18,385 

14,013 

Sep 24, 2011

108,249 

33,790 

25,922 

Sep 29, 2012

156,508 

55,241 

41,733 

Sep 28, 2013

170,910 

48,999 

37,037 

Sep 27, 2014

182,795 

52,503 

39,510 

Sep 26, 2015

233,715 

71,230 

53,394 

Sep 24, 2016

215,639 

60,024 

45,687

Source: Stock Analysis on net, 2016

Per the results for 2016 financial year, it is worth noting that revenue decreased to $215,6 billion (-7,7%) for the first time since 2001. During the reporting period, Apple sold 211,9 million of devices at $136,7 billion, which is 8.4% less in quantitative terms and by 11.8% in monetary termsIt is important to note that the reporting period ended on September 24, but it does not include data on sales of the iPhone 7. In addition, the number iPads sales reduced by 16.9% to 45.6 million. Revenue in this area comprised $20.6 billion (-11,2%). The sales of Mac computers have also declined by10.2% in 2016. Their total revenue increased by 22.3% to $24,3 billion. The company's operating expenses decreased at slower pace, reaching $ 155.6 billion (-4,2%), operating profit decreased by 15.7% to $60 billion, and net profit fell by14.4% , comprising $45.7 billion.

Apple Inc. SWOT analysis

This section of the report is devoted to SWOT analysis of the company Apple Inc. the aim of the analysis is to evaluate major strengths and weaknesses of the company in order to see its advantages, disadvantages and weak points. It will help understand what actions and strategies Apple Inc must adopt in order to overcome certain difficulties that it probably has.

Strengths

In this aspect of Apple’s SWOT analysis, the biggest strengths of the company are identified, they help the company to endure threats, able to reduce business performance and lead to weakening of the company’s positions. The most noticeable and influential strengths of the company are as following:

Strong image of the

High profit margins

Effectual innovation process

Popularity and respect of the trademark

Quality of goods and services

Apple is undoubtedly one of the most valuable brands in the world. The company is able to introduce profitable and innovative products and promote them through its strong and stable brand image. Moreover, Apple is able to maintain its premium pricing strategy, giving the company with high profit margins every year. This strength is very important, as it provides the company with opportunity flexible in terms f process and adjust them, while receiving high profits. Furthermore, the company is famous for its passion for fast innovations, which are bawd on its intensive growth strategies. With the help of rapid innovations, Apple is able to be aware of the latest technologies, promote them in the market under their brand name and create competitive advantage. Popularity of Apple’s brand and respect of the consumers have become good strengths for the company, as they made it the most reputable brand name in the world. Critics and leading economists state that people are ready to pay just for the brand name Apple. Such popularity, though, can be easily justified by the high quality goods, which are associated with stability and error-free work.

Weaknesses

Weaknesses can become obstacles to performance and business growth. The following Apple’s weaknesses can be defined:

Imperfect distribution network

High prices

Limitation of sales mainly to high-end market

Expensive maintenance

Imperfect and limited network of distribution is one of the major weaknesses. Apple is characterized by such limitation due to the policy of exclusivity. For example, sellers and distributors are very carefully selected, as Apple prefers working with the authorized sellers. As a result, such exclusive strategy keeps constant control on the distribution of products, however, leads to the limitation of company’s market reach. The second weakness is high price for Apple’s products, which prevents company from further growth in the markets of less-developed countries. As a result, Apple is unable to have most of its sales revenues from the high-end market . Taking into account that high-end market consist of consumers from the middle and upper level classes, the buyers from lower classes cannot afford buying products of Apple, since the price is too high. Finally, maintenance and spare parts for Apple’s iPhones and other concurrent products are rather expensive, so it poses additional difficulties for the company’s customers. Therefore, based on this part of Apple’s SWOT analysis, it is possible to conclude that the company’s pricing and distribution strategies have some limitations and comprise major weaknesses in its business.

Opportunities

Opportunities affect the strategic direction of business of Apple, however, the company has a wide range of them:

Expansion of distribution network

Demand Apple’s products

Creation of new products

Mobile payments

Opportunities of mergers and acquisitions

One of the opportunities for Apple is expansion of its distribution network, as the company is currently lacking proper and unlimited distribution network. Therefore, Apple Inc is strongly recommended to update its distribution strategy in order to be able to provide its products in different markets, which are now closed to the company. As a result of expanded distribution network, the company will be able to reach more customers in global market. In addition, Apple’s products are of constant and growing demand in the market, therefore the company has the opportunity to investigate new product lines through innovation. One of the examples of such step was production of the Apple Watch that has gained huge popularity among the customers worldwide. Apple is one of the companies that have introduced mobile payments, which are possible to make right from the iPhone. This is a perfect opportunity to develop Apple mobile payment system, which could have become a perfect substitution of plastic cards. Finally, the giant Apple Inc is open for cooperation and can consider the opportunity of merger and acquisition with other organization, such as Lenovo, so the synergy of both can be very productive.

Threats

In this part it is necessary to analyze the threats Apple from different sources, such as competitors, which limit and reduce the financial performance of Apple. The threats are as following:

Tough competition

Imitation

Rise of labor cost in the countries, where Apple plants are situated .

Threat of severe competition is one of the biggest for all companies, working in the same market segment. Apple competes with Samsung, which is also using innovation; therefore, aggressive competition can limit profitability and productivity of Apple. Therefore, if Apple wants to stay ahead of its competitors, it is necessary to have strong fundamentals to maintain its competitive advantage. Moreover, Apple is one of the companies, the products of which are imitated and market is overwhelmed with Apple, which are more available for consumers with lower level of income. It leads to decrease of profitability. Finally, increasing labor costs in Apple plants, situated in China, can decrease profit margins or considerably increase prices. As a result of analysis, Apple should take proper action to avert or overcome these threats (Lin et al, 2012).

Analysis of Apple using Porter’s Competitive Forces

Source: Dudovskiy, 2017

At the moment, Apple has a reputation of one of the most expensive and reputable companies in the world. The present Five Forces analysis provides evaluation of external factors, which influence the company’s performance and determine what strategies Apple to take to remain competitive. Moreover, Apple’s Five Forces analysis provides insights of what the company does to ensure leadership regardless of the negative effects of external factors.

The use of strategies by Apple is related to the forces, which the company has to address in order to support its external business environment. These forces limit and reduce market share and revenues of Apple. According to porter, there are five major forces:

Competition (strong force)

Bargaining power of customers (strong force)

Bargaining power of suppliers (weak force)

Threat of substitution (weak force)

Threat of new entrants (moderate force).

Competition (Strong Force)

Apple faces the strong competition and this competition influences each company-competitor. The following external factors influence competition:

High aggressiveness of companies

Low switching cost

Among aggressive competitors of Apple, it is possible to enumerate BlackBerry and Samsung. Such aggressiveness is visible in fast innovation, advertising, and increased imitation. On the other hand, lower switching cost demonstrates that consumers can easily switch to other brands, which are not so expensive.

Bargaining Power Customers

The bargaining power of buyers considerably affects Apple Inc. Therefore, this part of analysis helps understand how consumers influence Apple. The strong power of buyers is based on two external factors:

Low switching cost

Small size of individual buyers

Consumers change their preferences easily; therefore, when they do not buy Apple’s products, it affects the revenues of Apple. However, the purchase of each buyer is small compared to Apple’s entire revenues, so it weakens customers at the individual level.

Bargaining Power of Suppliers

Apple faces the weak force of the bargaining power of suppliers, which is based on the following external factors:

Increased number of suppliers

High overall supply

There are many suppliers which can become potential partners of Apple; therefore, each individual supplier becomes weak. In general, there is a high level of supply for Apple products.

Threat of Substitutes

This threat is weak in influencing Apple’s business. There are two external factors, which influence the threat of substitutes:

availability of substitutes (moderate force)

poor performance of substitutes (weak force)

Modern market is filled with substitutes of Apple, which are less expensive; however, they are of poorer quality. Therefore, many consumers still prefer Apple because of its exclusive quality. As a result, this threat is weak, so the company may not make it a priority, when taking strategies.

Threat of New Entrants

Apple faces with the threat of new entrants that can become new competitors. However, this force has several external factors, such as:

Increased capital requirements (weak force)

High cost of brand development (weak force)

Although, there is a risk f new entrant, this force is not so strong for Apple, because it is rather difficult to become a decent competitor for such a giant as Apple. Firstly, it requires high capitalization and high costs for development of brand. However, it is still necessary to remember to that Apple has competitors, which possesses capacities and resources to enter market. These are such companies as Google, which has already done so by delivering Nexus smartphones to the market.

Potential Strategies

SWOT analysis, provided in the present research, demonstrates that Apple Inc has strengths that can be used to successfully deal with organizational weaknesses. Moreover, the company can use these strengths to develop the opportunity of expansion of its distribution network. Furthermore, strong brand and positive image of Apple can be used to develop and introduce new product lines. However, the company faces the threats of competition and frequent cases of imitation, being the greatest challenges affecting most companies. In this respect, the most suitable and effective course of actions would be addressing these threats with the help of patent portfolio, together with constant and stable innovations to maintain competitive advantage of Apple products.

Taking into account that IOS operational system is not compatible with other systems, many consumers find difficulty in it. Moreover, this fact has become an obstacle for many consumers, who change their preferences from Apple to another brand, the tech products of which are friendlier in terms of compatibility. In this respect, Apple may potentially consider the strategy of merger with other companies, the products of which have different OS. This strategy can become potentially profitable for both organizations, and result in production of new innovative gadgets, which would satisfy the needs of consumers, preferring different operational systems. Moreover, this strategy can help overcome competition and expand the range of Apple products through the use of innovations.

The second strategy that can become potentially successful for Apple is investing in marketing. Taking into account that Apple is one of the most successful companies in the world, its marketing and promotion strategies are not well developed. Probably, the reason is that Apple products do not require advertising, but it is necessary, especially in the conditions of modern highly competitive market.

Recommended Strategy

Out of two potential strategies, listed in the previous section, merger is one of the most potentially successful and desirable for many consumers. It does not mean that Apple should make changes in the already existing products, which have gained their popularity among millions of users. It only means that it would be potentially profitable to join forces and create product that would suit consumers, who respect Apple, but strive for diversity and innovations. In terms of profitability, this strategy would be extremely beneficial and decrease the level and amount of competitors in the market, thus giving opportunity to use potential and resources of both companies.

Conclusion

Innovation, quality, value chain, strategic development and success are an inevitable part of Apple Inc. competitive advantage. Therefore, successful choice of the market niche, quality of goods and services as well correct choice of strategies in combination with wise marketing and management make Apple Inc. an undoubted leader in the market of technologies and modern sophisticated gadgets. Despite this, Apple has threats and drawbacks, which require solutions and proper approach.

Abstract

The paper addresses the problem of evaluating and analyzing strategies, implemented by Apple Inc in order to maintain its competitive advantage and remain leaders in the market. In the process of research it was found out that the company should consider the possibility of merger with other market representatives in order to be able to use its potential and desire of innovations for creation of revolutionary new products. Moreover, Apple was recommended improve its marketing strategy in order to maintain its image and prevent new market entrants from overcoming the brand.

References

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