Introduction

Apple Inc. is an American multinational corporation headquartered in Cupertino, California, that

designs, develops, and sells consumer electronics, computer software, online services, and

personal computers. It was established on Apr 1, 1976 by Steve Jobs, Steve Wozniak and Ronald

Wayne. Its best-known hardware products are the Mac line of computers, the iPod media player,

the iPhone smartphone, and the iPad tablet computer. Its online services include iCloud, iTunes

Store, and App Store. Apple's consumer software includes the OS X and iOS operating systems.

Its products are sold in more than 120 countries in which India, China, US and European

countries like Germany, Italy, France, Spain etc are major user of Apple’s product.

Vision

In Vision statement, Apple outlines what it wants to be and it wants the worlds in which it

operates to be. Apple’s vision is of long term and focus on the future. It can be emotive and is a

source of emotion. Apple clearly says that we are constantly focusing on innovation. We believe

in deep collaboration and cross-pollination of our group, which allow us to innovate in a way

that others can’t.

Mission

The mission statement of Apple Inc defines the fundamental purpose of organization and

describes why it exists and what it should do to achieve its vision. Apple designs best personal

computers and operating system Mac OS. It leads the digital music revolution through iPod,

iTunes and online music stores. The iPhone has always been a flagship product of Apple and

constantly will be improving.

Business Strategy

Company’s has always been a goal of providing the best user experience through technological

advancement and innovation in various product segment like computer, OS, iPad, iPhone, Music

store etc. As a part of strategy, company is providing a single platform - itunes stores to provide

third party’s digital content and application. Through iTune store, customer can easily download

music, apps or books directly on their Mac Book or iPhone. Company also support a community

to develop third party software, hardware and digital contents that are offered in the complement

of Apple’s products and services. Company’s strategy involves expansion of retail and online

stores and third party distribution network to reach more customers. Apple is highly committed

to research and development and it is always being a part of its business strategy.

Key points of Corporate Governance

Apple is committed to do business ethically, honestly and in full compliance with laws and

regulation. While dealing with third party for business Apple has always put zero tolerance

approach against corruption. It encourages a creative, culturally diverse and supportive work

environment for its employees. It doesn’t tolerate any harassment or discrimination based on

factors such as race, gender, religion, color, marital status, identity characteristics or expression.

Apple gives the highest value of any invention of its employees and protect through patents and

copyrights. The compensation and benefits to the employees, directors and CEO are according to

the company’s norms and in line of corporate governance bylaws. According to the Cook, CEO,

“Apple has shown a more conciliatory approach when dealing with investors. The company has

instituted in 2013 one of the largest dividend and buyback programs among U.S. companies after

years of shareholder requests” (2014). Apple has put it best effort to maintain the integrity of

corporate governance. Its ranking was 2 in the list of companies with low corporate governance

risk (2011).

PESTLE Analysis of Apple

Half of the Apple Inc products are sold in countries other than America. It manufactures most of

products’ parts outside the US like Czech Republic, Ireland, China, Korea and Cork, therefore

the bad political relation of US with other countries may affect the company’s operation.

Inflation, recession and currency exchange rate are three important factors that can influence the

Apple’s Business. Since Apple has portfolio of luxurious products, recession and inflation may

hamper the sales while country’s respective economical condition may adversely affect the

exchange rate that consequently lower the Apple’s performance.

Apple products are still the social status of people and due to high purchasing power of

individuals; Apple’s product will also be in demand.

Apple spends a significant portion of revenue on research and development. With the passage of

time, technology gets obsolete fast and therefore continuous innovations and technological

development are demanded to keep abreast of competitors.

Apple has been a participant in various legal proceedings and claims since it began operation.

Apple has been in number of patent cases in which clashes with Nokia and HTC in 2009 and

2010 was major one. Apple is still in litigation matter with Samsung over $2 billion over

infringement on software patent (www.digitaltrends.com, Apr’14).

Apple takes a comprehensive approach to environmental responsibility. Its commitment to have

environment includes properly disposing of electronic equipment at the end of its useful life. It

responsibly recycles the computers and display.

Market Analysis

The industry in which Apple operates includes a wide variety of products, from mp3 player to

personal computers and from cell phones to tablet computers. Due to the dynamic nature of the

industry, most of the companies operating in this industry faces severe competition, but due to

the distinctive combination of design and price, Apple Inc has been be able to capture 65% of the

market share of the portable music segment. Similarly, in the personal computer market niche it

has been able to hold a market share of 2% (O'GRADY, J, 2009). Apple’s iphone and Tablet PC

are two flagship products that have great number of users across the globe. The figure 1 shows

the country wise smart phone user distribution across the world.

The figure 2 shows the quarter wise global market share held by leading smart phone from 4 th

quarter 2009 to 3rd quarter 2014.

The other figure 3 shows the mobile OS wise global market share held by leading smart phone

manufacturers as till Dec’13.

If we analyze the tablet user distribution, then the figure 4 shows the global market share held by

major tablet vendors from 2nd quarter 2011 to 3rd quarter 2014.

Financial Performance

Following table shows condensed Income statement and balance sheet of Apple Inc from year

2010 to 2014.

Source: Selected financial statement from company’s annual report (10-K)

The following table shows the quarterly revenue from different operating system and products:

Source: Company’s quarterly report (10 - Q)

From the Apple’s proxy statement, directors compensation details are as follows:

Source: Company’s Proxy statement (Def 14a)

Apple Inc has faced frequent up-down in its financial performance since its inception. From the

last two years, the revenue and earnings has been increasing but at diminishing growth rate. Two

get more insight into financial performance; key ratios are analyzed for last five years that are

tabulated as follows:

Ratio 2010 2011 2012 2013 2014

Profitability Ratio

Gross Margin % 39.4 40.5 43.9 37.6 38.6

Operating Margin % 28.2 31.2 35.3 28.7 28.7

Net Margin % 21.48 23.95 26.67 21.67 21.61

Liquidity/Financial Health

Current Ratio 2.01 1.61 1.5 1.68 1.08

Quick Ratio 1.72 1.35 1.24 1.4 0.82

Efficiency

Receivables Turnover 14.71 19.9 19.2 14.22 11.96

Inventory Turnover 52.51 70.53 112.12 83.45 57.94

Fixed Assets Turnover 16.89 17.26 13.48 10.67 9.82

Asset Turnover 1.06 1.13 1.07 0.89 0.83

Ratio for shareholders

Earnings Per Share USD 2.16 3.95 6.31 5.68 6.45

Dividends USD 0.38 1.63 1.81

Payout Ratio % 6 28.7 28.1

Book Value Per Share USD 7.45 11.78 17.98 19.63 19.02

Return on Equity % 35.28 41.67 42.84 30.64 33.61

Table 1

In year 2013 and 2014, Apple Inc, has shown almost equally poor performance. In the year

2014, Gross margin and operating margin both has gone down to lowest in last five years. Net

profit margin has also touched the level of 21.61%, which is same as of year 2010. As far as

liquidity is concern, Apple Inc has been showing lower liquidity since year 2010. In year 2010,

both current and quick ratios were 2.10 and 1.72 respectively, but in current year 2014, it

touched the level of 1.08 and 0.82. Lower liquidity shows that Apple Inc has been facing

liquidity crunch specifically for last two years. However, liquidity ratios are not at severe level

but must have to ensure not fell down further in future. If we talk about the efficiency, Apple has

showed poor performance in this regard too. Apple Inc improved its efficiency in year 2011 and

2012 but afterwards, again it declined and in the current year 2014, all the efficiency ratios like

receivable turnover, inventory turnover and asset turnover touched the lowest. It gives a clear

message of deterioration in management efficiency of Apple for past two years. From the

shareholder’s perspective, certain ratios show a good performance of Apple Inc. For example,

Earning per share has continuously been increasing and in current year 2014, it is at highest level

of 6.45. Apple Inc has just started to pay dividend from year 2012 onwards and this decision will

surely boost shareholders’ confidence at least in next couple of years. Book value per share is

also almost equal to the last year’s one. Return on equity had dipped down in year 2013 at the

level of 30.64 but in current year 2014, it closed at 33.61 with little improvement. Apple Inc has

still has to prove the better utilization of shareholder’s money in coming years.

If we look at the stock price movement chart in figure 5, the Apple Inc stock has rising trend.

Last year, between April and July, the Apple stock had went down by 40% in compare to the

same period of year 2012, but later it surged again and currently it is trading at highest price of

$119.00. Over the last five years, the shares of Apple have delivered an average total return of

32.0% per year. This performance places Apple in the top 25 of all the stocks (Market watch,

2011).

The figure 6 shows the expected return on Apple stock year over year in next five years.

The table 2 shows the growth of Apple Inc in current year, next year and next five years (per

annum) in compare to Industry, sector and market. It is expected that Apple Inc will easily beat

both Industry and the market but it would be difficult to surpass the sector’s growth rate. The

current quarter EPS is 2.07 that are expected to rise by more than 300% in next year and around

400% in next two years.

Growth Estimate AAPL Industry Sector S&P 500

Current Qtr. 21.70% 58.20% N/A 18.80%

Next Qtr. 19.30% 81.80% 449.10% 19.00%

This Year 19.70% 4.40% 20.60% 8.00%

Next Year 10.20% -5.10% 23.90% 10.60%

Next 5 Years (per annum) 11.34% 7.74% 18.51% 9.81%

Table 2

Apple’s financial performance with key competitors and Industry -

The table 3 shows a comparative financial view of Apple Inc with the major competitors like

Blackberry, Google, HP and with Industry.

Direct Competitor Comparison AAPL BBRY GOOG HPQ Industry

Market Cap: 697.92B 5.45B 366.57B 73.08B 863.55M

Employees: 92,600 8,057 51,564 N/A 1.16k

Qtrly Rev Growth (yoy): 0.12 -0.42 0.2 -0.03 0.22

Revenue (ttm): 182.80B 4.05B 67.91B 111.45B 541.61M

Gross Margin (ttm): 0.39 0.07 0.58 0.24 0.23

EBITDA (ttm): 60.45B -1.18B 19.96B 13.15B 25.28M

Operating Margin (ttm): 0.29 -0.51 0.23 0.08 0.03

Net Income (ttm): 39.51B -5.01B 12.89B 5.01B N/A

EPS (ttm): 6.45 -9.66 19 2.66 0.04

P/E (ttm): 18.45 N/A 28.44 14.72 27.5

PEG (5 yr expected): 1.36 -0.51 1.31 2.08 1.38

P/S (ttm): 3.77 1.33 5.4 0.63 1.25

Table 3

Apple Inc has a largest market capitalization of huge 697.92 billion followed by Google

(366.57B) and HPQ(73.08B). Apple Inc has highest revenue and quarterly revenue growth rate is

12%, higher than BBRY and HPQ but less than Google and Industry. Apple has 2nd position for

Gross margin just after Google but Apple Inc has highest operating margin. In the terms of

Dollar net income, Apple Inc has fetched 39.51B in current year, three folds higher than the

largest competitor - Google. However, its EPS is three times lower than Google’s. P/E ratio is

also lower than Google’s and Industry average but higher than BRBY and HPQ. Apple’s five

year’s expected PEG is around 1.36, almost equivalent to Google’s and Industry’s PEG. P/S is

3.77, lower than Google but higher than other competitors’ P/S and Industry average. Overall,

Apple’s has a very strong position against its competitors and Industry. Nonetheless, Apple has

always beaten the Industry but Google has always been proved to be its biggest competitor.

Recent strategic move by Apple Inc.

“Apple Inc will soon collaborate with IBM on building about 100 industry-specific applications

for iOS, targeting various verticals such as retail, healthcare, banking, travel and transportation,

telecommunications and insurance (www. gurufocus.com, (2014)”. With this deal Apple will get

to sell more of its iPads and Iphones to corporate consumers while IBM will benefit from close

association with a reputed brand like Apple. On Oct 16, 2014, Apple Inc announced that OS X

Yosemite, the latest major release of the world’s most advanced desktop operating system, is

now available as a free upgrade for Mac users from the Mac App Store. It will boost up the

computer segment’s growth exponentially. The recent release of iPhone 6, the biggest

advancement in iPhone history will surely give a cut throat competition to other players.

Future Prospects

Apple Inc has been performing poor for last two years, but with the launching of iPhone6 and

most advanced iPad OS, Apple Inc has tried to retain the winning trophy of most advanced and

cool gadgets. The dividend payment has really boosted the investor’s confidence and the

strategic movement of dealing with IBM will surely lead the Apple to new height.

Recommendation

Nonetheless, Apple has shown an outstanding performance in each and every aspect of business.

However, from the past two years, its performance has got little bit deteriorated. In addition of it,

it has been facing stiff competition with other major players like Samsung and Google and

obviously Apple will have to struggle more to keep abreast of all in tough situation. Third, the

litigation matter with Samsung may put the Apple in deep trouble further. Therefore, the near

future seems very volatile for Apple and thus it is recommended to not invest in Apple’s stock in

short run. With the long term strategy, Apple Inc will surely reach a new height and fetch a very

good return to investors in long run.

References:

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http://www.nasdaq.com/symbol/aapl/earnings-forecast

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http://www.marketwatch.com/story/apple-is-one-of-the-cheapest-growth-stocks-2011-11-28

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https://in.finance.yahoo.com/q/ae?s=AAPL

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