APPLE INC. 2008

Presentation prepared by:

JENNIFER TRANG CAO

MERCY ANTONY

TEJAL SINORA

LASHUNDA PRICE

LOGAN TISDALE

ISSUES

STEVE JOBS:

Steve Jobs founded Apple Computers in 1976 in California along with his colleague Steve

Wozniak. Apple I was the first personal computer. Since then the computer business has been growing

rapidly and so has been the company. During his position as a CEO Jobs has played a major role in the

company’s success. The company performance has been a roller coaster ride associated with Jobs’

presence and absence. There is a pressure to keep Jobs at the CEO’s position due to the success stories

he has written in the history of Apple. Once Jobs was forced to leave the company and the directors

brought in other three CEOs one by one. They did apply different strategies to create the success that

Jobs had. But it did not work out properly with some exceptions and company had to face certain

difficulties. Then the directors decided to bring Jobs back at the position of CEO. However, there is too

much dependence on the present CEO Steve Jobs. Although he is the founder of the company, he is not

immortal.

LOW MARKET SHARE:

Apple is a very well known brand and it has quality products. Every now and then Apple brings

out a new and unique product. But even after the innovative products and the popularity it enjoys, it has

low share in the worldwide PC market (3% in 2007). Apple’s competitor Dell has competitive advantage

through its manufacturing, distribution and marketing. It’s the industry leader in US (world market share

is 14.9 %). Another of Apple’s competitor, HP, worked its way through aggressive consumer marketing

and by giving importance on product designing. This gave HP the highest market shareholder in 2007

(18.8%). Due to the pricing strategy of Apple’s products and due to its low compatibility with products

other than Apple’s, it suffered low market share constantly.

EXTERNAL ENVIRONMENT

The industry has a fast growth. Everyday new and innovative products flood the markets. From

mobile phones to laptops there is a new product advertised almost every week. The major players of the

industry are Dell, HP, Apple, Acer and Lenovo. There is a high entry barrier due to the standardization

of the PC components. If any new players wish to come into this business, they need to have a

differentiated strategy form the existing companies. Also, a high learning curve exists which means the

customers take time to get accustomed with the new product. The existing brand names make the entry

barriers high.

Suppliers for this industry are powerful. There are only a handful of companies like Intel and

Microsoft which manufactures microprocessor and operating systems (OS). These suppliers are hard to

switch due to dominant production of such components. There is always a threat of forward integration

by the suppliers since the products manufactured by these suppliers are highly sophisticated and the

other components needed for the production of PCs are not so difficult to imitate. But there are many

sources which do provide small PC components like memory chips, disk drives and keyboards.

Substitutes for most of the products are easily available at a lower price. Although buyers do

look for quality and brand name, some of the components they need are purchased from these substitute

providers at a low cost. For example if a consumer cannot afford to buy an Apple iphone then he/she has

the option to buy any alternative low cost smart phone from some other company. There is high

competition due to high industry growth. Manufacturers of these products try every possible strategy to

attract the attention of customers through promotion and advertising. Apple fights with its highly

innovative products whereas Dell and HP have better marketing and distribution strategies. According to

the present conditions Apple does have a Gross margin of 35% which exceeds that of Dell’s 19% and

HP’s 24%. In this extremely competitive environment, companies are highly responsive to any new

product as they can imitate at low costs.

It is almost reaching a status of mature market with intense competition but it is still growing.

There are companies which are coming up with low cost strategies to compete with the existing

manufacturers and this had led to intense rivalry. Companies like Acer and HP acquired Compaq are

already competing with Apple and other companies with notebooks on the basis of cost. Also there are a

wide range of MP3 players available in the market which ranges from $30 to $499 and from 1 GB to

160GB. Also there are several websites which give access to downloading and listening music which

becomes a high threat for products like itunes.

The type of consumers for this market can be categorized as home, small and medium sized

business, corporate, education and government. Since buyers are mostly not concentrated they have less

bargaining power for prices and models. Buyers do have a high switching cost which discourages them

from buying a similar product from another supplier. But there are a number of substitutes available

which makes buyers powerful to choose from the available options and also because they are very price

sensitive. The customers always have an advantage of choosing the electronic good according to the

need and taste. This industry has a vast customer base and companies have to be customer oriented and

should innovate according to their demand. Apple targets customers who are “techno savvy”, who look

for something unique. They have a wide range of products like computers (Mac book), ipods and

iphones which are highly differentiated. Customers desire to buy its products as they are “icons of the

digital industry”.

Exit barriers for this industry are high. There is a lot of capital requirement to establish a firm

inside the electronics and PC industry. There is a chance of exit becoming almost impossible due to

strategic interrelationships between these firms. Not all the products are made by the same firm. And so

they have to depend on other firms in the industry for making a final product ready for the customers. So

it is very difficult if one firm leaves, leaving the other dependent firms in dilemma. Technological

changes in the industry are very fast. Everyday a new product or a new application or version for the

existing product is available. Consumers are very demanding and it makes it necessary for the firms to

compete with each other and become the first mover or the best as a second mover in bringing out a new

innovation. The young generation in particular is very trendy and they love to show of the new things as

a fashion statement. And so they expect companies to give them something which is different than what

others have. It is both an opportunity and a threat when it comes to rapid technological changes.

Companies have to move faster than the imagination of both their competitors and the consumers. If not,

it is not long before they go down in history forever.

INTERNAL ANALYSIS

Strengths and Weaknesses: Apple Inc. makes a difference in the PC industry through its

innovative product design and high standard applications. Macintosh has been the powerful tool to build

the success story of the company. The “integrated system” of computer was its differentiated strategy

which presented the Macintosh along with its own Operating System (OS). The new step in “Consumer

Electronics Industry” has outshined Apple Inc’s performance as a smart company. The innovative

products like iPod and iPhone have been very successful in potential music market. Customers have a

great trust on company’s elegant products and they always look forward to be loyal to the brand. Apple

keeps it Price strategy different from its competitors which give computers and other entertainment

devices at low cost. The high prices (especially Computer) keep it access limited to only people with

high income level. The Apple computer had compatibility issues with Microsoft Office and IBM PCs,

which motivated the research and development at the company. As the company has a wide product line,

each new product makes the previous one dull against it; the issue of cannibalization may be a reason of

bothering the expected revenue generation of the products.

Core Competencies: Apple has been the leader of the Consumer Electronics industry and has

maintained a distinct image in PC manufacturing and Music too. The Core competencies responsible

behind the success are mainly the “Unique resources” and “Differentiation strategy”. It offers the best

designed hardware and incomparable software in its products. The Apple has been giving “Plug and

Play” solutions. The hard drive based player called iPod has a stunning design which has become the

“icon of the digital age”. Apple has a “Think Different” motivation and it believes in “Value Creation”.

The success of some products like iPod and iPhone cannot decide its sustainable competitive advantage

because the industry has intense rivalry and imitation is also a threat. Hence, Innovation plays a key role

to remain the leading company in the dynamics of fast-growing markets, and Apple definitely can

withstand the changes with its innovative skills. Apple has been able to command a premium in market

and gain above average returns owing to its innovation and differentiation of technologically superior

products.

VALUE CHAIN ANALYSIS

Technology and Product Design: This Component is the true core of Apple’s Capability. The

learning and innovation in technology in its products has led Apple to leverage its expertise in iPod,

iPhone, iTunes and iWorks suite of products. Over due course of time, Apple has been able to perfect

the chain of activities in innovation.

New Products Ideation

New Products Ideation

Designing/ Funding

Designing/ Funding

Product CreationProduct Creation Diffusing Products across company

Diffusing Products across company

It is really the strongest advantage for a company to be independently manufacturing from scratch to

finished product with application and peripherals. Apple starts from its new ideas of product design,

designs it through its own resources and funding, then manufactures it and finally markets it

wholeheartedly.

Production: The bundled packages of Apple-developed hardware and software became the

cornerstone for its own production process. Apple achieved unparalleled performance via 64-bit

architecture, integrated distinctive styling with the multi-colored translucent iMac cases, and redefined

intuitive operation with the iPod. The research and development oriented products give an extraordinary

performance and products like Mac which soon became an identity of Apple Inc. While every product

introduction has not been a success (Lisa, Newton), Apple treats component production as a natural

extension of design process.

Marketing and Advertising: Distinctive marketing campaigns have been a strategy of Apple

to attract customers and to spread the information among them. Television commercials, Print

Advertisements, Posters in Public areas and wrap advertisement campaigns have been successful

ways of outshining the new product. Apple continues to command a market premium for producing a

“better mousetrap” throughout its history. Steve Jobs personally unveils all new product

introductions, reviews corresponding marketing campaigns and approves new product development

guidelines. This adds to better targeting to the market and consequently, it is a special concern of

company’s CEO.

Customer Service: Apple believes in keeping a place in customer’s heart, the customer loyalty

is a great strength to the company. The credit for such a strong relationship between the company and

its customers goes to company’s customer service and the nature of products which fulfills the need

of today’s stylish people. Apple created a virtual love affair with their customer base by delivering

technically superior products (iPods vs. other MP3 players, Macs vs. PCs, etc.), and aggressively

pursuing hardware and software updates. Apple integrated their primary activities so well that it is

transparent to the consumer where one activity begins and the other ends. A perfect example of this

is Apple’s willingness to develop software to run Windows XP on its new Intel-based iMac and then

post it online free to iMac users. In such an environment, customer service merely becomes the

realization of receiving a little more than expected.

STRATEGIC ALTERNATIVES

Apple’s strengths can be attributed to many factors. First, Apple’s premium-price or product

differentiation strategy as well as their retail strategy have proven to be essential to Apple’s past and

will continue to play a vital role in Apple’s future. As a result of their past success as recognition as

innovators, Apple has attracted the attention of many companies whom have recognized Apple’s

potential for successful strategic alliances For example, Apple’s successful alliance with AT&T,

provided Apple with the opportunity to improve their IPhone’s technology. Apple was able to the

lower the IPhone’s price to consumers, as well as, up-grade the Iphone’s network coverage. In

addition, Apple entered into partnerships with YouTube and Google in order to provide their IPhone

users with cutting edge “search, mapping, and video features”. These partnerships allow Apple to

further differentiate their products and add value to their users. Similarly, Apple’s reputation as an

innovator and creator of easy-to-use cutting edge products continues to strengthen apple by keeping

Apple on the radar of the technologically savvy consumer, as well as providing support for Apple’s

product differentiation strategy.

Still, there have been some drawbacks or weakness as a result of Apple’s choosing to

employ a product differentiation strategy. First, Apple’s selection of a premium price or product

differentiation strategy also limits Apple’s market share. Some customers do not recognize the value

that Apple’s attempts to create for their customers. Price sensitive consumers are reluctant to buy

Apple’s products. Similarly, customers seeking highly customized computers may not choose Apple.

For example, Dell, one of Apple’s biggest competitors and one of the top four P.C. producers, offers

customers array of bundling options when purchasing a computer. This allows customers to choose

hardware and software components as well as somewhat control the price of the computer. Instead,

Apple offers their computer customers packages with very few customization options.

Secondly, a problem for Apple exists in their reliance on Apple’s C.E.O., Steve Jobs. Jobs

has been a guiding force at Apple, acting as Apple’s savior when the company saw their lowest

financial numbers in 2002. Steve Jobs was responsible for Apple’s expansion and the introduction of

one of Apple’s most profitable products, the IPod. There is a question as to if Apple could continue to

operate as they do currently in the absence of Steve Jobs.

Still, there are alternatives to Apple’s current problems. In regards to Apple’s low market

issues, an alternative would be to add a product with a lower price point to Apple’s current product

line. Similarly, an alternative to Apple’s reliance on Steve Jobs, would be to create another executive

position for someone act as liaison between Apple’s top executives and Jobs. Thus, preparing Apple

for the post Steve Jobs era.

In lieu of their drawbacks, Apple is still presented with opportunities to experience growth

and success. Apple has established itself as a continuous innovator in the ever changing electronics

industry. Apple’s commitment to employing the latest technology and providing their customers

with cutting edge, stylish, sleek product designs have provided them with a sense customer loyalty.

Apple’s customers are willing to pay Apple’s premium prices because they are satisfied with Apple’s

products. Apple is continually working to produce products with improved compatibility, allowing

their customer more flexibility and increasing the ease-of use of their products. By continuing with

their premium price or price differentiation and retail strategies Apple can continue strive and uphold

their reputation as an innovator in the electronics industry.

RECOMMENDATION

When Apple first entered the computer industry, they were first movers. They were able to

revolutionize the way home computing was both viewed and accessed. This naturally have them a large

market share, especially with the huge successes of the Apple II. However, IBM soon entered the market

with a more user friendly and compatible computer and Apple saw their market share on the industry

drop dramatically to 6.2%. Ever since then, Apple has trailed the computer industry leaders in market

share. However, in more recent years, they have seen many successes from targeting a smaller market of

trendy, higher quality customers that are devoted to their company. While maintaining a low market

share of the computer industry, Apple has continued to produce a quality product. This quality has been

seen throughout all of its many products and is not viewed as a lesser product compared to the

competition. In addition to the quality, Apple has always been able to make more of a profit off of its

computers than other distributors. Because of the reliance of companies like Dell and HP on Microsoft's

Windows operating system, almost half of their revenues are cut by paying back Microsoft for using

their product. This quickly turns Apple's small market share into an extremely profitable market share.

Apple’s low market share is turning far more profit per percentile than their competition because while

Apple is making money, the other companies are usually only reaching their break-even point or slightly

above.

In addition to the competition that is seemingly strangling Apple's computer market share they

must also battle against an economic downturn that has affected the whole industry. While all companies

have seen a slow in sales and a loss of profits, Apple' has seen a greater loss in its computer revenues.

Because of the nature of Apple's products, they are seen more as high-end items and more expensive

luxuries rather than as necessities. Because of this many people are buying cheaper, lower quality

computers from customized manufacturers in order to save money. Normally, this would lean Apple

towards developing a lower priced computer that could compete with these personal computer models.

However, this strategy has been tested before with the Mac Mini. What Apple found was that the sales

of the Mac Mini were cannibalizing on the sales on other, more expensive models. This previous failure

should be viewed as a warning and disclaimer against any further pushes into the low-cost market.

One Apple product that will never be viewed as a failure is the iPod. Contrary to Apple's

computers, the iPod has a giant lead over the competition when market share is concerned. Because of

its success, it has introduced an entire generation to the Apple brand. By using the iPod as a gateway,

Apple will continue to push its trendy image to new customers in order to gain more and more computer

customers.

Apple will look at further expanding on their small but efficient market share. However, with the

current Microsoft user base, it is going to be increasingly difficult. The company will focus on its core

competencies in order to stay successful. Apple's customers are incredibly dedicated. Many people that

buy Mac computers continue to buy more Mac computers as well as other Apple branded products,

hardware, and software. Even though this is deemed as a niche market, Apple would be foolish to try to

take the world of Microsoft and PC distributors head on. The difference in market shares is far too large.

By focusing on their current customers and slowly expanding this base, Apple will try to better position

itself for a future attempt to capture back the market share that it maintained many years ago.

During the time that Jobs was absent from Apple, the company had a long period of ups and

downs. New products were released to both success and failures. It was during this time, however, that

their status as a niche market retailer began to form. Apple customers were extraordinarily loyal. Many

people were buying IBM and other personal computers because they had a need for the devices. On the

other hand, many people were buying Apple brand computers because they wanted an Apple machine.

Due to this increasing amount of dedication to the company, Apple was able to charge a higher price for

their high-end, high-quality computers. This allowed them to stabilize financially as well as discover a

new identity as a company.

After this new identity was established and Steve Jobs was reestablished as CEO of the

company, Jobs was able to take this identity and expand on it. By targeting their now niche market, he

was able to follow a product differentiation strategy to turn the company around. With the release of the

iPod and iPhone, he was able to tap into markets and succeed in areas that were previously never

explored or considered. Even though the deficit in computer industry market share remained relatively

unchanged, Jobs’ foresight allowed Apple to reach new levels of profitability and success.

Whether the Apple enthusiasts like it or not, Steve Jobs will not be around forever. While he has

done great things for the company, he has left Apple in a precarious situation. What will Apple do when

he leaves? Apple's last response to not having Steve Jobs as their CEO was eventually to rehire him as

CEO. In order to survive once he is no longer leading the company, Apple needs to begin depending less

on Steve Jobs and balancing responsibilities throughout the company and among select individuals. In

order to prepare for Jobs’ future absence from the company, Apple will look ahead and find a future

replacement for Jobs. In order to sustain peace in the Apple world, such a replacement will preferably be

chosen by Jobs himself. That way, the replacement will be able to learn and continue Jobs’ success as

the company when Jobs’ role was reduced to that of a chief advisor or to that of no role at all.

Continuing the Jobs mindset is the most important characteristic of a CEO at Apple. As long as the

company has existed, the most success Apple has seen has come when Steve Jobs was at the helm.

However, it is the manner in which Jobs runs the company that allows for such innovative success, not

Jobs himself.

The Apple board of directors will meet with Steve Jobs to discuss the future of the company

within the next year. From the conclusion of that meeting, or series of meetings, Jobs will begin to look

for a potential replacement—preferably from inside the company—in order to ensure that the Apple

spirit stays alive within the company. Jobs will then serve a dual role as CEO and Chief Advisor as he

mentors the future leader of the company. After two years of mentoring, Jobs will have the option of

stepping down as CEO and further establishing himself as Chief Advisor. If he feels that the company is

not ready for this he will have the option to retain his position as CEO as he sees fit. This option gives

Apple the security it needs to ensure that it still lies in the best and most capable hands possible.

The previous CEO's were able to do some great things in the name of Apple. Future CEO's have

the potential to do just the same, if not better. Because of the company's past, Apple is in a great position

to maintain its profitability. The continued success of its niche computers as well as the dominating iPod

brand, Apple must rely less on Steve Jobs and rely a little more on the fact that they are a successful

company with a dedicated customer base. This is something that losing Steve Jobs cannot change.

FIVE FORCES MODEL

Low

Threat of New

Entrants

Current Competitor

s very Intense

Very

High

Threat of Substitutes

High

High

Low Low

Bargaining power of Suppliers

Bargaining Power of

Customers

APPENDICES

A QUICK VIEW ON MARKET SHARE AND FINANCIAL ASPECTS OF APPLE INC.

The market share of PC manufacturers in 2007

The profitability ratios for Apple from 2004-2008 3rd Quarter

Debt Equity Ratio for Apple Inc. from 2004-2008 3rd Quarter

Stock prices for Apple Inc. from 1981-2008 3rd Quarter

SALES FOR APPLE FROM 1984-2008

SWOT Analysis:

Strengths:

Branding (Well established Brand) Innovation Differentiated product Integrated Product (Computers + OS) Ease of Use Technically Elegant Products Superior Quality Colorful and Trendy Marketing and Distinctive Advertising Retail strategy Customer loyalty Online Sales (Informative website) Financial Vitality

Weaknesses:

High Priced Proprietary system No Customization Lack of Compatibility Cannibalization

Opportunities:

Fast growing Industry (Customer Electronics Industry)

Technological Innovations Extend new products to loyal customers High Potential music phone market Strategic Alliances

Threats:

Extensive Competition Substitute Products Low prices of Competitors Technical Advancements Economy downfall