Project Report

A Study on Consumer’s Perception Towards Apple

Submitted in Partial Fulfillment for the Award of the Degree of

BACHELOR OF BUSINESS ADMINISTRATION

Under the guidance of:

Ms. Priyanka Antervedi
Department of Business administration,
Submitted By: KAJAL GUPTA

Enrollment No. 0401951

Allen house Business School, Kanpur

Allen house Business School

(Affiliated to CSJM University, Kanpur)

Student’s Declaration
This is to certify that I Kajal Gupta, student of BBA IV semester at
Allen house Business School, Kanpur hereby declare that I have
completed the summer project titled “A study on consumer’s
perception towards Apple” under the guidance of Mrs. Priyanka
Antervedi in partial fulfillment of the requirement for the award of
Degree of Bachelor of Business Administration at Allen house Business
School, Kanpur. This is an original piece of work & I have not submitted
it earlier elsewhere.

Date: 03/06/21

Signature:

Place: Allen house Business School

Name: Kajal Gupta

University Enrollment No.: 0401951

 CERTIFICATE FROM THE INSTITUTE GUIDE

This is to certify that the summer project titled “A Project Report on Apple” is an

academic work done by“Kajal Gupta” submitted in the partial fulfillment of the

requirement for the award of the degree of Bachelor of Business Administration at

Allen house Business School, Kanpur under my guidance &direction.

To the best of my knowledge and belief the data & information presented by

him/her in the project has not been submitted earlier.

Signature:

Name of the Faculty: Ms. Priyanka Antervedi

Designation: Assistant Professor

 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to our beloved director Dr.
Bhagwan Jagwani & Director Administration Dr. Ruby Chawla & Head of
Department Mr. Shishir Gupta for inspiring me to take up this project and for their
able guidance and support in completing my project.

I am really thankful to my project guide Ms. Priyanka Antervedi who gave me

such a wonderful opportunity by giving me this project and also guided me well
during the completion of the project. I acknowledge my sincere gratitude to my
project guide of ALLENHOUSE BUSINESS SCHOOL, KANPUR for his
valuable guidance and suggestions.

Student name:

Kajal Gupta
 CONTENT

S.L TITLE PAGE NO

1. Introduction 6
2. History 7-10
3. Review of Literature 11-15
4. Methodology 16
5. The PC Industry 17-19
6. Strategic Alliances and Entertainment 20
7. External Analysis 22-30
8. Value Chain Analysis 31-33
9. INDUSTRY ANALYSIS 33-40
10. SWOT Analysis 41-43
11. Financial Analysis 44-48
12. Conclusion 49-51
13. Recommendations 52
14. Limitation of the Study 53
15. Bibliography 54
 Introduction

Apple Computer’s 30-year history is full of highs and lows, which is what we
would expect in a highly innovative company. They evolved throughout the years
into an organization that is very much a representation of its leader, Steven Jobs.
Apple made several hugely successful product introductions over the years. They
have also completely fallen on their face on several occasions. They struggled
mightily while Jobs was not a part of the organization. Apple reached a point
where many thought they would not survive. When asked in late 1997 what Jobs
should do as head of Apple, Dell Inc.'s (DELL) then-CEO Michael S. Dell said at
an investor conference: "I'd shut it down and give the money back to the
shareholders.” (Burrows, Grover and Green).

Well, times changed. Less than 10 years later, Business Week ranked Apple as the
top performer in its 2008 Business Week 50. Apple attributes their recent success
to robust sales of iPod music players (62 million in 2008). They are optimistic
about the economies of scope with media giants, such as Disney and Pixar.

Apple rarely introduces a new type of product. Thus, instead of being the pioneer,
they are an expert “second mover” by refining existing products. Portable music
players and notebook computers are examples. Apple increases the appeal of these
products by making them stylish and more functional. They now appear poised to
make significant strides in the home computer market and to creating a total digital
lifestyle whereby the home is a multimedia hub.
 History
Apple Computer Company was founded on April 1, 1976, by Steve Jobs, Steve
Wozniak, and Ronald Wayne as a business partnership. The company's first
product is the Apple I, a computer designed and hand-built entirely by Wozniak.To
finance its creation, Jobs sold his only motorized means of transportation, a VW
Microbus, for a few hundred dollars, and Wozniak sold his HP-65 calculator
for US$500 (equivalent to $2,274 in 2020).Wozniak debuted the first prototype at
the Homebrew Computer Club in July 1976.The Apple I was sold as
a motherboard with CPU, RAM, and basic textual-video chips—a base kit concept
which would not yet be marketed as a complete personal computer. It went on sale
soon after debut for US$666.66 (equivalent to $3,032 in 2020).Wozniak later said
he was unaware of the coincidental mark of the beast in the number 666, and that
he came up with the price because he liked "repeating digits".

Apple Computer, Inc. was incorporated on January 3, 1977,without Wayne, who

had left and sold his share of the company back to Jobs and Wozniak for $800 only
twelve days after having co-founded Apple. Multimillionaire Mike
Markkula provided essential business expertise and funding
of US$250,000 (equivalent to $1,067,683 in 2020) to Jobs and Wozniak during the
incorporation of Apple. During the first five years of operations, revenues grew
exponentially, doubling about every four months. Between September 1977 and
September 1980, yearly sales grew from $775,000 to $118 million, an average
annual growth rate of 533%.

The Apple II, also invented by Wozniak, was introduced on April 16, 1977, at the
first West Coast Computer Faire. It differs from its major rivals, the TRS-
80 and Commodore PET, because of its character cell-based color graphics
and open architecture. While early Apple II models use ordinary cassette tapes as
storage devices, they were superseded by the introduction of a 5+1⁄4-inch floppy
disk drive and interface called the Disk II in 1978.The Apple II was chosen to be
the desktop platform for the first "killer application" of the business
world: VisiCalc, a spreadsheet program released in 1979. VisiCalc created a
business market for the Apple II and gave home users an additional reason to buy
an Apple II: compatibility with the office.[47] Before VisiCalc, Apple had been a
distant third place competitor to Commodore and Tandy.

By the end of the 1970s, Apple had a staff of computer designers and a production
line. The company introduced the Apple III in May 1980 in an attemp963.*t to
compete with IBM in the business and corporate computing market. Jobs and
several Apple employees, including human–computer interface expert Jef Raskin,
visited Xerox PARC in December 1979 to see a demonstration of the Xerox
Alto. Xerox granted Apple engineers three days of access to the PARC facilities in
return for the option to buy 100,000shares (5.6 milli963.*on split-adjusted shares
as of March 30, 2019) of Apple at the pre-IPO price of $10 a share.

Jobs was immediately convinced that all future computers would use a graphical
user interface (GUI), and development of a GUI began for the Apple Lisa.In 1982,
however, he was pushed from the Lisa team due to infighting. Jobs then took over
Wozniak's and Raskin's low-cost-computer project, the Macintosh, and redefined it
as a graphical system cheaper and faster than Lisa.In 1983, Lisa became the first
personal computer sold to the public with a GUI, but was a commercial failure due
to its high price and limited software titles, so in 1985 it would be repurposed as
the high end Macintosh and discontinued in its second year.

On December 12, 1980, Apple (ticker symbol "AAPL") went public selling
4.6 million shares at $22 per share ($.39 per share when adjusting for stock
splits as of March 30, 2019), generating over $100 million, which was more capital
than any IPO since Ford Motor Company in 1956.[58] By the end of the day,
300 millionaires were created, from a stock price of $29 per share[59] and a market
cap of $1.778 billion.

Apple Inc. is an American multinational technology company that specializes

in consumer electronics, computer software, and online services. Apple is
the world's largest technology company by revenue (totalling+

$274.5 billion in 2020) and, since January 2021, the world's most valuable
company. As of 2021, Apple is the world's fourth-largest PC vendor by unit sales
and fourth-largest Smartphone manufacturer. It is one of the Big
Five American information technology companies, along
with Amazon, Google, Microsoft, and Facebook. Apple was founded by Steve
Jobs, Steve Wozniak, and Ronald Wayne in 1976 to develop and sell
Wozniak's Apple I personal computer. It was incorporated by Jobs and Wozniak
as Apple Computer, Inc. in 1977, and sales of its computers, including the Apple
II, grew quickly. They went public in 1980 to instant financial success. Over the
next few years, Apple shipped new computers featuring innovative graphical user
interfaces, such as the original Macintosh, announced with the critically acclaimed
advert "1984". However, the high price of its products and limited application
library caused problems, as did power struggles between executives. In 1985,
Wozniak departed Apple amicably while Jobs resigned to found NeXT, taking
some Apple co-workers with him.

As the market for personal computers expanded and evolved through the 1990s,
Apple lost considerable market share to the lower-priced duopoly of Microsoft
Windows on Intel PC clones. The board recruited CEO Gil Amelio, who attempted
to save the struggling company with extensive reforms and layoffs. In 1997, Apple
bought NeXT, bringing back Steve Jobs, who replaced Amelio as CEO later that
year. Apple returned to profitability under the revitalizing "Think different"
campaign, launching the iMac and iPod, opening a retail chain of Apple Stores in
2001, and acquiring numerous companies to broaden their software portfolio. In
2007, the company launched the iPhone to critical acclaim and financial success.
In 2011, Jobs resigned as CEO due to health complications, and died two months
later. He was succeeded by Tim Cook.

In August 2018, Apple became the first publicly traded U.S. company to be valued
at over $1 trillionand the first valued over $2 trillion two years later. It has a high
level of brand loyalty and is ranked as the world's most valuable brand; as of 2021,
more than 1.65 billion Apple products are in use worldwide. However, the
company receives significant criticism regarding the labor practices of its
contractors, its environmental practices, and business ethics, including anti-
competitive behavior, and materials sourcing.
 Review of Literature

Steve Jobs and Steve Wozniak founded Apple on April 1, 1976. The two Steves,
Jobs and Woz (as he is commonly referred to – see woz.org), have personalities
that persist throughout Apple’s products, even today. A job was the consummate
salesperson and visionary while Woz was the inquisitive technical genius. Woz
developed his own homemade computer and Jobs saw its commercial potential.
After selling 50 Apple I computer kits to Paul Terrell’s Byte Shop in Mountain
View, CA, Jobs and Woz sought financing to sell their improved version, the
Apple II.

They found their financier in Mike Markkula, who in turn hired Michael Scott to
be CEO. The company introduced the Apple II on April 17, 1977, at the same time
Commodore released their PET computer. Once the Apple II came with Visicalc,
the progenitor of the modern spreadsheet program, sales increased dramatically. In
1979, Apple initiated three projects in order to stay ahead of the competition: 1) the
Apple III – their business oriented machine, 2) the Lisa – the planned successor to
the Apple III, and 3) Macintosh.

In 1980, the company released the Apple III to the public and was a commercial
flop. It was too expensive and had several design flaws that made for less-than-
stellar quality. One design flaw was a lack of cooling fans, which allowed chips to
overheat. In late 1980, Apple went public, making the two Steves and Markkula
wealthy – to the tune of nine figures. By 1981, the Apple III was not selling well
and Scott infamously fired 40 people on Feb 25 (“Black Wednesday”). Scott’s
direct management style conflicted with the culture Jobs and Markkula preferred,
and Scott resigned in July. Markkula stepped into his position as CEO. In August
1981, IBM released their PC. Unimpressed and unafraid, Apple welcomed IBM to
the PC market with a slightly smug full-page ad in the Wall Street Journal. It
would not be long before IBM’s PC dominated the market.

The Xerox Alto was the inspiration for Apple’s Lisa. Apple employees were able
to examine the Alto in exchange for allowing Xerox to invest in Apple before
Apple’s initial public offering (IPO). Apple released the Lisa in January 1983 and
was notable for being the first computer sold to the public that utilized a Graphic
User Interface (GUI). Unfortunately, the Lisa was not compatible with existing
computers, and therefore came bundled “with everything and a list price to
match.”At $9,995 (over $21,000 in 2005 dollars), the Lisa missed its target market
by a wide margin.

Jobs attempted to control the Lisa project. Scott, unimpressed with the
performance of Jobs on the Apple III project, had Jobs head up the dog-and-pony
show for the pending IPO. Jobs, looking for a project to lead, inserted himself into
the Macintosh development team. Using his considerable influence, Jobs was able
to procure the resources to produce a computer that was faster than Lisa, used a
GUI, had a mouse, and sold for ¼th of Lisa’s price. Apple introduced the
Macintosh with great fanfare during the 1984 Super Bowl. The Orwellian-themed
commercial (directed by Ridley Scott, of ‘Alien’ fame) portrayed IBM as Big
Brother and embodied Macintosh and Apple as freedom-seeking individuals
breaking away from this oppressive regime.The commercial was largely successful
and sales for the Mac started strong. However, Mac sales later faded. John Sculley
left PepsiCo to join Apple in April 1983. He was famous for engineering the
“Pepsi Challenge”, in which blinded testers tasted both Coke and Pepsi to unveil
the ‘truth’ of the taste of Pepsi. In response to lagging Mac sales, Sculley
contrived the ‘Test Drive a Macintosh’ campaign. In this promotion, prospective
users could take home a Macintosh with only a refundable deposit on their credit
card. While lauded by the public and the advertising industry, this campaign was a
burden on dealers and significantly impeded the availability of Macs to serious
buyers. In 1985, Apple tried to have lightening strike twice with their ‘Lemmings’
commercial during the Super Bowl. In what was becoming Apple’s typical
patronizing fashion, these commercial insulted current PC users by portraying
them as witless lemmings, unthinkingly doing harm to themselves. Although Jobs
attempted to overthrow Sculley, the board backed Sculley. Jobs left Apple to form
NeXT computer. After Jobs left in 1985, sales of the Mac “exploded when Apple’s
LaserWriter met Aldus PageMaker.” Apple dominated the desktop publishing
market for years to come. Under Sculley, Apple grew from $600 million in annual
sales to $8 billion in annual sales by 1993. Apple introduced Mac Portables in
1989 and the first PowerBooks in 1991. By 1992, PC competition ate into Apple’s
margins and earnings were falling. Sculley was under pressure to have Apple
produce another breakout product. He focused his energy on the Newton –
Apple’s introduction of the Personal Digital Assistant (PDA). Despite Sculley
generating substantial demand for Newton, it did not live up to the hype due to it
being severely underdeveloped. Sculley resigned in 1993 and Michael Spindler
replaced him.

Spindler spent most of his time and energies on regaining profitability, with the
end goal of finding a buyer for Apple. Over the next several years, Spindler
shopped Apple to Sun Microsystems, Eastman Kodak, AT&T, and IBM.
Meanwhile, Apple was unable to meet the growing demand for its products due to
supplier problems and faulty demand predictions. To add insult to injury,
Microsoft released Windows 95 with great fanfare in 1995. After significant
quarterly losses in 1996, the board replaced Spindler with Dr. Gil Amelio, CEO of
National Semiconductor. Dr. Amelio tried to bring Apple back to basics,
simplifying the product lines and restructuring the company. One of Apple’s most
pressing issues at the time was releasing their next generation operating system
(code named “Copland”) to compete with Windows 95. A6.-melio and his
technology officers found that Copland was so behind schedule that they looked
outside the company to purchase a new OS. Ultimately, and somewhat ironically,
they decided to purchase NeXT computer from Jobs. Naturally, Apple welcomed
Jobs back into the fold. The board became increasingly impatient with Amelio due
to sales not rebounding quickly enough. Apple bought out Amelio’s contract after
just 1 ½ years on the job. Jobs eventually claimed the CEO position. Then, he
cleaned house by revamping the board of directors and even replacing Mike
Markkula (who had been with the company since the beginning). Jobs
simultaneously put an end to the fledgling clone licensing agreements (which
created a few Mac clones) and entered into cross-licensing agreements with
Microsoft. On May 6, 1998, Apple introduced the new iMac, a product so secret
that most Apple employees had never heard of it. The new iMac was a runaway
success with its translucent case, all-in-one architecture, and ease of use. It
brought Apple to a new market of users – those who had never owned a computer
before. Jobs further simplified the product lines into four quadrants along two
axes: Desktop and Portable on one, Professional and Consumer on the other.
Apple completed the matrix with the introduction of the consumer-based iBook in
1999.

The year 2001 was an important year for consumers of Apple products. Apple
opened their first 25 retail stores (totaling 163 stores in 4 countries as of May
2006). In September 2001, Apple introduced the new iMac featuring a screen on a
swivel.The new iPods (portable music players) was a tremendous success. Apple
sold so many that Apple’s dependence on Mac sales was significantly less. This
was no small feat considering that the 2001 iMac became Apple’s best-selling
product “by a long shot”. Apple offered iTunes (a free application) to help their
consumers organize music on iPods and Macs.

In 2003, Apple expanded iTunes by 1) opening the iTunes music store to allow
Mac users to purchase music online and 2) expanding iTunes to Windows users.
Sales of iPods skyrocketed and currently provide the bulk of product sales to
Apple. In 2005, Apple announced that it would start using Intel-based chips to run
Macintosh computers. In April 2006, Apple announced Boot Camp, which allows
users of Intel-based Macs to boot either Mac or Windows OS. This functionality
allows users who may need both OSs to own just one machine to run both, albeit
not simultaneously.
 Research Methodology
A research methodology is a strategy used to implement that plan. Research
design and method because good research design ensures that the data you obtain
will help you answer your research question more effectively.

Research method

Secondary Data Analysis

The PC Industry

We can glean Insight into the history and composition of the PC Industry from its
eponymous title. In the late 1970s, as Wozniak and Jobs were starting Apple
computer, personal computers were an emerging product. The following chart
(Reimer) gives an overall view of the major market players since the mid-1970s.

PC Share of Market

100%

90%

80%
IBM SOM
70% Apple II SOM
Share of Market

60% Mac SOM

Amiga SOM
50% C64 SOM
40% TRS 80 SOM

30%

20%

10%

0%

By 1983, the market share of the Apple II fell to 8% while the PC had 26%.
Market share of Macintosh peaked at slightly more than 10% in the early 1990s
and has since tapered to between 2-3%. The IBM PC and its clones became the
standard due to the success of the open nature of the PC. This allows product
developers to offer vastly more products for the platform.

Some argue that not licensing the Mac OS was a mistake. Bill Gates and
Microsoft were encouraging Apple to license their OS in the early 1980s, because
they were developing software for Apple and had much riding on the success of
the company. When Apple did not license, Microsoft began developing their
operating system, Windows.

The Online Music Industry:-

While Apple clearly dominates the online music industry, the battle for domination
is not over. Although digital music sales are growing rapidly, the Recording
Industry Association of America (RIAA) states that digital sales account for only
4% of all music sales. (Borland) Analysts at Forrester (Bartiromo) and Gartner
(Bruno) validate this. Apple’s sales are between 66% and 75% of downloads and
80% of music players. (Bruno) Apple is part to a suit alleging monopolistic
practices concerning their market share dominance of players and downloads. The
other players in the download market are (the revised) Napster, Yahoo Music,
Rhapsody, and illegitimate file-sharing services. Portable music players competing
with the iPod include those made by Creative, Samsung, iRiver, and Sony. A
major point of contention between these services and player manufacturers is the
control of a variety of incompatible Digital Rights Management (DRM) schemes.

The Future of Apple:

Personal Computers – A Shift in Strategy:-

Apple has historically taken a far different path than the traditional Windows and
Intel combination. Microsoft provides the Windows operating system to separate
downstream hardware producers such as Dell. Apple vertically integrated both the
operating system software and hardware completely under Apple. A consumer
running Microsoft Windows can choose from a myriad of systems based on the
Intel processor, while a consumer running Apple’s OS X must purchase Apple
hardware.

Apple is adjusting this strategy by migrating their microprocessors from IBM and
Motorola PowerPC to Intel. Analysts believe that the Intel-based Macintosh may
be able to run Microsoft Windows applications by the end of 2006. (Burrows)

In addition to switching processors, Apple positioned their computers as an

immediate option for the traditional Microsoft Windows user. With Apple Boot
Camp, users may now use Mac OS X or Windows on an Apple computer.
(Sutherland).By allowing users to run Windows on an Intel Mac, Apple reduced
the switching costs for traditional PC users. Apple may steal away customers that
are willing to pay a premium for a system that runs both Windows and Mac OS X.

Apple continues to retain a strategic option to license its technology to clone

makers such as Dell. Past attempts at licensing Apple technology (to IBM,
Gateway, and others) failed on accord of Apple’s rigid demands. Many
technology leaders (such as a 1985 letter by Bill Gates to Apple CEO John
Sculley) criticized Apple for keeping a closed architecture. Apple cofounder Steve
Wozniak criticizes this strategy, “We had the most beautiful operating system, but
to get it you had to buy our hardware at twice the price. That was a
mistake.”Whether Apple would be willing to pursue this reversal of vertical
integration is unclear. Although such a move would cannibalize a portion of
Apple’s own hardware sales, it would also provide royalty-based revenue that
could approach $1 billion annually. (Burrows) Jobs traditionally sided against
licensing Apple technology. He referred to Mac clone producers as “leeches” and
he personally killed Power Computing (a Mac clone producer) by terminating their
license in 1997.

Apple in the Living Room:-

Apple’s iPod and iTunes are a powerful combination that fosters a network style of
increasing returns. (Barney, 124) By selling iPods, Apple increases the consumer
demand for music from iTunes. By placing more musical choices on iTunes
(including less popular songs that appeal to niche audiences), there is more demand
for iPods. Apple had 70% of the legal music download market in early 2005.
(Yoffie)

Apple is shooting for the digital living room of the future. For example, Apple just
released a “boom box” portable version of the iPod. This iPod (the iPod Hi-Fi)
comes with a remote control. Instead of forming a strategic alliance, Apple
engineered the iPod Hi-Fi and designed it with high-fidelity features. (Burrows)
Apple is clearly trying to develop a stronger core competency in the entertainment
area.
 Strategic Alliances and Entertainment

Jobs had the early strategic vision to complement computing with movie
entertainment. After founding NeXT, he personally acquired a majority interest in
the young movie company Pixar in February 1986. Jobs went on to invest ¼ of his
personal wealth into Pixar.

In 1995, Pixar solidified its position within animated movies with the debut of Toy
Story. Grossing $358 million worldwide, it became the 3 rd-largest grossing
animated movie in history. After this success, Jobs took Pixar public and
negotiated far better terms with Disney. Later successes included Toy Story 2,
Monsters Inc., and Finding Nemo. The alliance between Pixar and Disney has
tremendous potential for economies of scope. As CEO of Apple and Disney’s
largest shareholder, Jobs is the strategic link between Disney, Apple, and Pixar.
Opportunities include combining the animated movie expertise of Disney and
Pixar, as well as sharing the content of Disney’s ABC or ESPN networks over
Apple’s digital offerings. (Burrows, Grover, and Green)

A current example of the fusion between Disney, Jobs, Apple, and technology is
video on the iPod. Disney’s Desperate Housewives was one of the first television
programs available for purchase and download to the newer video-enabled iPod.

There are concerns about whether these synergies will come to fruition. There are
fears that the personality and style of Jobs may conflict with Disney, and that
Disney CEO Iger could be “Ameloied” -- driven out of office by Jobs in a manner
similar to how Jobs drove Amelio out of the CEO post at Apple. (Burrows, Grover,
and Green).
 External Analysis

Technological Environment:-

Brand Awareness – Style at a Premium

Apple’s products are trendy and stylish. After Jobs returned in 1997, Apple
retained designer Jonathan Ive to differentiate their computers from the typical
beige box. Ive’s design of the iMac included clear colorful cases that distinguished
Apple computers. Apple’s iPod (with the trademark white ear buds and simple
track wheel) commands a 15%-20% premium over other MP3 players.

Apple and Pixar limit the number of computer products and movies that they sell.
Product differentiation with focused quality and style also extend to the Jobs Pixar
– “Pixar's executives focus on making sure there are no ‘B teams,’ that every
movie gets the best efforts of Pixar's brainy staff of animators, storytellers, and
technologists.” (Burrows, Grover, and Green)

Apple positions its Macintosh computers as higher quality and higher price. HP,
Dell, and other PC manufacturers are pricing many systems under the $1,000
threshold. “Apple is struggling to meet demand for its new MacBook Pro laptop
despite a $1,900 price tag that is nearly twice that of garden-variety rivals.” Apple
has only recently entered the low-end (below $500) consumer market with the Mac
Mini. Although the Mac Mini is a base model with few features, it comes encased
in a very small and distinctive package. Apple portrays this computer as “Small is
Beautiful”. (Apple) Likewise, the iPod Shuffle was Apple’s first entry into the
lower-end ($100 range) of flash-memory-based portable music players.
Interoperability:-

Although Apple competes directly with Microsoft for operating systems, the
release of iTunes for Windows in 2002 was a key strategic move. This decision
expanded the potential customer base to nearly all personal computer owners, even
though Apple only has 2%-3% of all personal computer sales. Conversely, Apple
depends on Microsoft for a version of Microsoft Office. As the most widely used
office suite of applications, Macintosh users rely on Office to correspond with
companies that standardized on Windows. This is from a strategic alliance
between Apple and Microsoft after Jobs returned in 1997. Apple’s iTunes
service has a technological hook (asset specificity) to Apple’s iPod. Although
versions of iTunes exist for both Apple and Microsoft operating systems, the
iTune’s AAC file format prevents other portable music players (such as iRiver or
Samsung) from playing purchased songs.

Technology and the Digital Lifestyle:-

Apple not only dominates the music player market, its iLife suite provides
consumers with easy-to-use software for music and video composition. With
“podcast” a household word, Apple’s Garage Band application makes the
recording of podcasts and music very easy.

Regulatory Environment:-

While introducing new technologies, there is a persistent threat of legal action by

competitors. For example, Apple sued Microsoft in 1988 (settled in 1997 for an
undisclosed amount) for perceived similarities between Microsoft Windows and
Macintosh audiovisual works.Microsoft has generally been the focus for
government antitrust charges (such as U.S. v. Microsoft) (US DOJ, 2006). Both
federal and state governments assert that Microsoft’s dominance blocked fair
competition within the software industry. This is an advantage for Apple, because
its operating systems are a viable substitute for Windows. Furthermore,
Microsoft’s continued support for Office for Macintosh reduces the perceived level
of market monopoly and abuse. Manufacturers will continue to trespass on
Apple’s intellectual property. For example, the company tex9 released an open
source music program called xtunes that was very similar to iTunes. In 2002,
Apple took legal action against tex9, who then altered the programme and renamed
it sumi. Legal threats can surface from somewhat unusual sources. Apple Corps
Ltd. is the London-based company that owns the rights to the music of the Beatles.
Paul McCartney and Ringo Starr recently sued Apple over the use of the Apple
logo in iTunes, claiming that it violated Apple’s agreement not to produce music
under an apple-based logo.

Research and development is a key component to Apple’s sustained competitive

advantage. Apple is currently taking legal action against several popular technical
web sites for releasing proprietary product research. Sites such as
appleinsider.com have allegedly posted verbatim content from documents
protected by employee non-disclosure agreements. (McCullagh) Release of
critical insider information could give Apple’s competitors a jump in producing
rival products.
 Industry Analysis Using Porter’s Five Forces Model

Apple operates in two primary industries:

i. Computing - Hardware and Software

ii. Delivery of Entertainment and Media
Apple has always been under intense competition within the computer,
software, and entertainment industries. “Looking to 2005...Every time that Apple
had jumped into the lead in a product category during the past two decades, it had
had difficulty in sustaining its leadership position.” We use Porter’s Five Forces
Model to understand why Apple’s industries are so competitive.

Threat of
New
Entrants

Bargaining Level of Bargaining

power of Threat in an power of
Suppliers Industry Buyers

Threat of
Substitutes

Figure : Porter’s Five Forces Model

Figure : Summary of Industry Threats (Computer Equipment and
Entertainment Distribution)

Type and Organization Examples

Severity of
Threat

Entry – Verizon Streaming audio and video with V CAST.

High
Threat

Amazon On demand online services to purchase music

(similar to iTunes).

Google They make everything.

The “Next New entrants with disruptive technology.

Google”

Rivalry – Microsoft Windows Operating System, Windows Media

High Player for playing music and video.
Threat

Linux Competition to Mac OS X Operating System.

Napster, Online music sources – alternatives to iTunes

Rhapsody Music Store.

Dell, HP, Alternate sources for computer hardware.

Lenovo

iRiver, Small, stylish MP3 Players.

Samsung,
Creative

DreamWorks Animated movies.

YouTube.com Online video.

Substitute XM, Sirius Satellite Radio for music.
s –
Moderate
Threat

XBox, PS2 Entertainment Media, Media and Music.

Various Internet Streaming Radio and Podcasts.

Music CDs, Alternative means to acquire music.

DVD-Audio
and
SuperAudio
CD

Broadcast, Alternative sources for video.

Cable,
Satellite,
NetFlix, TiVo,
Theatres

Suppliers Motorola, Suppliers of Processors and computer memory.

– High IBM, Intel,
Threat Samsung

Microsoft Strategic Alliance / Supplier of Office for Mac.

The Big Five - Sources of music. Will they raise prices and break
BMG, EMI, the dollar per song model? Some in the record
Sony, industry resent Apple’s distribution model. “Apple
Universal, and reaps billions from selling its hit music player, but
Warner there are sparse profits from the songs being sold
over the Net.” (Burrows, Grover, and Green)

Disney, ABC, Suppliers of Television and Movies. Will they sign

NBC, CBS, exclusive contracts with other online services?
Fox, Pixar,
 Sony Note that this threat is reduced for Disney / Pixar.

Buyers – Consumers and Consumers share music using peer-to-peer

Moderate Illegal peer-to- networks without paying for music.
Threat peer file
sharing

Distributors Apple retailers may pressure for lower prices or

better terms. For example, the release of the Apple
Store in 2001 “infuriated longtime independent
Apple retailers that didn’t appreciate Cupertino
cannibalizing their sales.” (Linzmayer, 300)

Consumer Consumers or businesses may reduce spending on

Attitudes and personal computers or non-essential (potentially
Behaviors high elasticity of demand) music players if they
fear economic downturns.

Consumer Consumers and businesses may continue to use

Refresh Cycles previous-model iPods and Macs rather than
upgrade to current iPods, iMacs, or OS
The total industry threat for the industry space that Apple occupies (computer
equipment and distribution of entertainment) is a high threat industry. Apple must
continue to pursue product differentiation (i.e. the style and ease-of-use of an iPod)
and economies of scope (i.e. offering ABC television shows on iTunes) to maintain
their sustained competitive advantage in this industry.

Which External Threats are Most Significant:-

i. Computer Hardware and Software: Open Source software such as the

Linux Operating System and Open Office applications threaten both
Apple and Microsoft. The low (often, free) cost of the software may
allow it to overtake Apple and Microsoft, especially in developing
markets such as China.
ii. Music Products: Major online retailers such as Amazon are considering
entry into the online music market. With a wide internet presence and a
household name, Amazon could present a formidable challenge to Apple.
If the major record labels (Universal, Sony BMG, EMI, and Warner)
negotiate better terms with new competitors to iTunes, Apple may be
unable to provide some of the music content that they currently offer.
The major music labels dislike Apple’s dollar per song pricing. They
would prefer to earn higher profits with “variable pricing”. (Wingfield)
With variable pricing, the most popular songs would be greater than $1,
and less popular songs would be less than $1. Although the labels
recently renewed their contracts with Apple, there may be provisions that
allow future changes in the pricing model. (Wingfield and Smith).
 iii. Suppliers: The recent shift to Intel processors could present a significant
threat to Apple. With only two companies (Intel and AMD) producing
Intel-compatible processors, there is a strong potential for tacit collusion
and oligopoly power between these suppliers. Apple purchasing must
now directly compete with HP, Lenovo, and Dell. If shortages or
exclusive agreements materialize, Apple could face problems with
obtaining raw materials. Apple should consider additional sources such
as Advanced Micro Devices (AMD).

Figure: CPU Market Share

Additional External Threats:-

Security:
Apple software, like all large software products, has security vulnerabilities that
hackers may exploit. A significant exploitation in the future could damage many
businesses and households using Apple computers. This would affect future
customer purchasing decisions. Apple enjoys a competitive advantage, because
their OS X is mature and stable due to its basis on BSD Unix. In fact, “computer
security folks back at FBI HQ use Macs running OS X”. However, the increased
use of Apple computers is prompting hackers to target the platform. In February
2006, there was documentation of the first known Apple OS X worm. By using
iChat instant messaging, it spreads to other users and deletes files from their Mac
rtfgvbcomputers. If Mac OS X becomes as wide of a target as Windows, Apple’s
perceived differentiation as the more secure platform may disappear.

Vertical Integration of Competitors:

Sony is an example of a competitor with a unique position against Apple. Sony
Music supplies Apple with many of the songs for iTunes. Sony also creates a
version of the Walkman portable music player that is a direct competitor to the
iPod.

Sony is attempting to vertically integrate forward directly to the music buyer.

Sony integrated their music system (Mora) into the Sony Walkman. Sony is
exclusively distributing certain songs on Mora. (Hall) Mora currently targets
Japanese consumers. If Sony can gain additional momentum (such as collaborating
with other record labels), their service could present a formidable challenge to
iTunes in additional markets.
 Value Chain Analysis

To determine where Apple developed distinctive capabilities, Porter’s generic

value chain model provides a systematic framework for identifying Apple’s
utilization of resources. Primary activities for Apple include Technology and
Product Design, Production, Sales and Marketing, Customer Service, and Legal
Services.

Technology and Product Design:

This component represents the true core (no pun intended) of Apple’s capability.
From being the first platform to run an electronic spreadsheet (VisiCalc on the
Apple II Plus) to the first to establish a “digital lifestyle” hub (the Macintosh
product lines), Apple’s history is rich with cutting-edge technology development.
Apple drives to be the best, no simply the first. The Apple operating system is
universally regarded as more stable and reliable than Windows, while the desktop
publishing software bundles (iMovie, iPhoto, iTunes, etc.) are the most
comprehensive available to end users. Ives best summarizes the entrepreneurial
culture within Apple by saying that “it’s very easy to be different, but very difficult
to be better.”

Production:
Because Apple had long refused to license its operating system to external entities,
the bundled packages of Apple-developed hardware and software became the
cornerstone of Apple’s 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.
While every product introduction has not been a success (Lisa, Newton, etc.),
Apple treats component production as a natural extension of the design process.

Sales and Marketing:

We could simply title this section “Steve Jobs”. Since his return as CEO in 1997,
Jobs personally unveils all new product introductions, reviews corresponding
marketing campaigns, and approves new product development guidelines. In a
departure from their turbulent history, Jobs “entered into patent cross-licensing and
technology agreements with Microsoft.” (Linzmayer, 290) After years of
unimpressive market share growth and cannibalization of a loyal consumer base,
the door to the expansive PC market was now more accessible to Apple than ever
before. Apple continued to command a market premium for producing a “better
mousetrap” throughout its history.

Customer Service:

How has Apple retained substantial cash reserves during the explosive growth and
dominance of PCs worldwide? 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. (Wingfield) In such an
environment, customer service merely becomes the realization of receiving a little
more than expected.Although Apple employs many resources and capabilities to
support their primary activities (human resources, supply procurement, etc.), the
most strategically relevant would be Legal Services.
Legal Services:

In a market climate of constant change and innovation, it is inevitable that the drive
to expand product and service offerings will subject Apple to patent and copyright
infringement claims. The dispute over the Apple logo on its iTunes Music Store,
for example, continues despite a previously reached settlement with Beatles’ Apple
Corps Ltd. in 1991. (Dow Jones Newswires) While such litigation as Microsoft’s
Windows infringement on Mac OS patents has been highly publicized, use of legal
guidance to drive acquisition versus internal development strategies for such
products as GarageBand and iMusic have proven highly valuable. Intellectual
property is sacred to Apple. There was a recent attempt to uncover the identities of
internal “sources who leaked confidential information about an unreleased product
to online media outlets in 2008.’’

Industry Analysis

Competitive Rivalry Apple faces a strong competitive rivalry force or strong competition. This
means that Apple’s competitors have a huge influence on each other. Apple is in direct
competition with other hardware and software suppliers such as Google, Microsoft and Samsung
(Mavrick, IJSER International Journal of Scientific & Engineering Research, All of these
companies, Apple included, spend significant capital on Research and Development as well as
Marketing in order to keep up with and potentially out due each other. One major factor that
keeps the industry highly competitive is the low cost of switching companies (Mavrick, 2015). It
does not require substantial capital for a customer to move from Apple’s iPad to a Google
Chromebook or any other tablet computer, for example. The industry competitiveness is a key
consideration for Apple, and one it has dealt with through continually developing new and
unique products in order to strengthen its market share (Mavrick, 2015). Apple also combats
price-based competition by staying away from low end markets and ensuring high end products
(Sophlee, 2015). Since Apple products never go on sale they have been able to position
themselves in consumers’ minds as high end products with great quality, great customer service
and unique products (Sophlee, 2015). Buyer Bargaining Power As mentioned above, there is a
low switching cost for consumers in this industry. This aspect strengthens the buyers bargaining
power and is a key force that Apple should consider when making decisions. There are, however,
two different types of buyer bargaining power that we must consider; individual buyer
bargaining power and the collective buyer bargaining power (Mavrick, 2015). As an individual
buyer your bargaining power is low because the loss of any one customer to a company is
negligible when it comes to the amount of revenue lost (Mavrick, 2015). However, the
bargaining power of the collective buyer is very high and the loss of numerous buyers to
competitors could be potentially detrimental to the company and will significantly affect
revenues (Mavrick, 2015). Apple has combated this force by continually investing in research
and development to continuously develop new products such as the Apple Watch and Apple Pay
(Sophlee, 2015). Apple also tries to increase the switching cost for their products by keeping
critical product features the same and easily transferable across Apple products only; such as
contacts, calendar, Pages, Numbers, iCloud, iPhoto, iMovie and etc (Sophlee, 2015). IJSER
International Journal of Scientific & Engineering Research, Supplier Bargaining Power The
bargaining power of suppliers is very low in this industry. The bargaining position of suppliers is
weak due to the large number of potential suppliers Apple has to choose from (Mavrick, 2015).
Apple is free to choose from a vast array of potential suppliers for its component parts for all of
its products (Mavrick, 2015). The switching cost for Apple to move between suppliers is
relatively low and not a significant obstacle, giving Apple more leverage over suppliers
(Mavrick, 2015). Apple also requires a large volume of product which gives them more power
over the suppliers. Since Apple requires a large volume of products, Apple is a major customer
for any supplier; therefore, suppliers will fight to keep Apple as a customer in hopes to not lose
their business and money (Mavrick, 2015). Apple has taken their power to another level by
designing their own chips (Sophlee, 2015). By designing their own chips Apple has greatly
reduced the supplier power of chip suppliers (Sophlee, 2015). Apple has also bought the
manufacturing equipment necessary for producing their part components and only allows the
equipment to be used for the manufacturing of Apple components (Sophlee, 2015). Apple keeps
increasing their power over suppliers and driving down their costs while forcing their
competitors to find different manufacturers and suppliers (Sophlee, 2015). Threat of Substitutes
The threat of substitutes in the industry is moderate. Substitutes would not include the same
products but like products that might satisfy the same need for the product. Apple stays ahead of
the game in this aspect by creating products that replace their own products before someone else
can do it (Mavrick, 2015). Apple has created a cheaper version of the MacBook in order to
mitigate the threat of another companies substitute (Sophlee, 2015). Apple created a substitute
for their own product so they would continue to profit off of the substitute instead of losing that
business to a competitor. Apple has also created the Apple Watch to replace the need for an
iPhone (Sophlee, 2015). The Apple Watch can perform the same functions as the iPhone but is
more compact and easier to transport everywhere (Sophlee, 2015). Another IJSER International
Journal of Scientific & Engineering Research, substitute for a iPhone would be a land line
telephone but the threat of a land line is very minimal as an iPhone can perform many more
functions that a land line (Sophlee, 2015). Also a desk top would be a substitute for a MacBook,
however, a MacBook can perform all the functions of a desk top at the same speeds and in some
cases even faster minimizing the threat of this substitute (Sophlee, 2015). Apple tries to stay
ahead of their competitors in all factors even if it means potentially retiring their own products
with their new products. Threat of New Entrants The threat of new entrants in this industry, that
could actually affect market share, is relatively low. This is due to the extremely high cost of
establishing a reputable company within the industry that already has established well respected
and trusted companies (Mavrick, 2015). There is also a high cost associated with establishing a
brand reputation that would exceed existing brands (Mavrick, 2015). Any new entrant into the
market for personal computers or smartphone would need to have extensive capital to spend on
research and development and manufacturing to develop and produce products prior to even
entering the market (Mavrick, 2015). Customers are already loyal to existing companies that
have been around since the beginning and breaking this loyalty would cost a massive amount of
money in marketing as well (Mavrick, 2015). Though it is possible for a new company to enter
the market and be successful, at this time it is very unlikely (Sophlee, 2015). Apple has also
created a supply chain that exists in their favor and has a great defense against low end
disruption from new entrants (Sophlee, 2015). New entrants would find it very difficult to
compete with Apples supply chain cost structure (Sophlee, 2015). Ethical Issues Industry wide
Ethical Issues The consumer electronic industry has changed the way individuals live their lives.
For many reasons we have incorporated these devices into our daily activities. This particular
industry is one of the most lucrative around the globe. Although it is recognized as one of the
IJSER International Journal of Scientific & Engineering Research, most lucrative industries, it is
definitely not recognized as being the most ethical industry (Mawson et al., 2016). The high-tech
products, that are widely used, are manufactured in factories with harsh working conditions
(Mawson et al., 2016). This is a recognized issue in this industry and many cases and issues have
developed for these major corporations that participate in the electronics industry (Mawson et al.,
2016). Companies such as Apple, Microsoft, Google, and Samsung are competing to create the
latest and greatest in consumer electronics (Mawson et al., 2016). Manufacturers in this industry
are facing heavy amounts of pressure to produce and meet requirements. Products are taking
precedence and being moved through the supply chain much faster, all while the health and
safety of the factory workers is being dismissed (Mawson et al., 2016). Majority of electronic
companies are outsourcing manufacturing and value chain activities, it is known that these
resources are much cheaper abroad (Jefferies, 2014). Benefits are created for an organization
when involving outsourcing; many of these corporations are also using the benefits of
outsourcing as a way of getting around fair labor practices, even dismissing their own standards
regarding company codes of conduct (Jefferies, 2014). Awareness has risen regarding these
issues that have not yet truly been addressed. Journalist and activists have been documenting and
reporting on all conditions involving these manufacturing facilities, bringing light to these issues
and wanting solutions put in action (Jefferies, 2014). For many years now negative reports in
newspapers and magazines have damaged the reputations of companies such as Apple, Dell,
IBM, Lenovo, Motorola, Nokia, Sony, Toshiba, and many others (Jefferies, 2014). From an
ethical standpoint, the biggest flaw in this industry is in the outsourcing of the manufactured
goods. This industry wide flaw makes it near impossible to find an electronic product that is
produced ethically (Jefferies, 2014). These corporations must remember and keep in mind that,
regardless how large the corporation is, they still have a social responsibility to the public
(Jefferies, 2014). Not only are they in the business of developing and producing the IJSER
International Journal of Scientific & Engineering Research, Volume 7, Issue 3, March- latest and
greatest in electronics but they also must maintain a responsible presence with the public
(Jefferies, 2014). There are some corporations in the industry that have made initiatives for
“greener” products. Meaning that attention is placed on the materials that are being used in
manufacturing and the value chain is monitored and reported (Hawthorne, 2012). Initiatives and
policies have been put in place servicing all fronts of company operation in order to be effective
and maintain good face in the public eye (Hawthorne, 2012). Several companies have become
“greener” and environmentally friendly; most have partnered and participated in recycling
electronics and energy efficiency in the delivered products (Hawthorne, 2012). In doing so, these
corporations are painting an image aimed towards openness and transparency for their end user
and the public (Hawthorne, 2012). These major corporations are in business for the long haul,
they are here to deliver and change consumer electronics entirely for many years to come. They
should to be aware of all facets in their business; everything should be created and produced
whole heartedly with the right intentions and no one should be taken advantage of. Apple Inc.’s
Ethical Issues Apple has encountered many different ethical issues as an organization during
their tenure. The issues have ranged from things such as child labor law violations, workers
natural rights being violated, workers low wage cases, to unethical methods of hiring. These are
some ethical issues that have come to light; however, it would not be a surprise if there were
more violations that are still unknown. Apple was mentioned in a 2016 report, published by
Amnesty international, detailing how human rights were being abused in the mines of the
Democratic Republic of Congo (Ethical, 2016). These mines supply cobalt, a key component in
the lithium-ion-batteries that are used in all of Apples electronic devices. More than 20% of
cobalt is currently exported from the DRC (Ethical, 2016). The work conditions in these mines
are brutal for those that are heavily IJSER International Journal of Scientific & Engineering
Research, Volume 7, Issue 3, March-2016 419 ISSN involved and working and have men,
women, and children working night and day (Ethical, 2016). The supply chain is what links this
activity to Apple and the final products that are distributed to its consumers. The cobalt is
collected from the mines and sold to manufacturers, distributors and suppliers (Ethical, 2016).
These manufactures, distributors and suppliers then sell the cobalt to different companies
including Apple (Ethical, 2016). Amnesty international contacted Apple regarding its findings of
the working conditions in the mines and Apple stated that they were currently evaluating whether
or not the cobalt in its products originated from the DRC (Ethical, 2016). With regard to child
labor, Apple stated “Underage labor is never tolerated in our supply chain and we are proud to
have led the industry in pioneering new safeguards. We not only have strict standards, rigorous
audits and industry-leading preventative measures, but we also actively look for any violations.
Any supplier found hiring underage workers must 1) fund the worker’s safe return home, 2) fully
finance the worker’s education at a school chosen by the worker and his or her family, 3)
continue to pay the worker’s wages and 4) offer the worker a job when he or she reaches the
legal age (Amnesty International, 2016).” Apple also stated, “We have been reporting on our
supply chain for 10 years because we believe in transparency and the feedback that comes with it
makes us better. Of more than 1.6 million workers covered in 633 audits in 2014, our auditor’s
uncovered 16 cases of underage labor and all were successfully addressed. We take any concerns
seriously and investigate every allegation (Amnesty International, 2016).” It is a positive factor
that Apple has a policy in place regarding findings of child labor but only 16 cases have been
documented. What if there were more that we are not of aware of and might have not been
addressed? There have been allegations made for several years now that child labor is an issue
with organizations like Apple. There have been lawsuits filed against four major tech firms,
including Apple, that involve salary and job mobility (Prasad, 2013). These cases arose through
the finding of emails that were exchanged between Steve Jobs, Eric Schmidt and other industry
competitors IJSER International Journal of Scientific & Engineering Research discussing how
they would not poach each other’s valued engineers (Prasad, 2013). Due to this deal workers
were unable to find another job at a different firm (Prasad, 2013). This allowed salaries to be
determined and capped by employers; if employees are unable to move around and seek higher
paying jobs then the company can fully control salaries (Prasad, 2013). The case received
considerable attention and involved high dollar amounts as well as specific demands from both
workers and employers (Prasad, 2013). Another issue Apple has faced is accusations of unethical
hiring practices in its supply chain. When this issue came to the attention of Apple, they quickly
resolved it. Apple reported that its supplier was using recruiters who were charging potential
employees a fee and Apple insisted that the recruiters repaid all employees who were charged the
fee. Workers who were charged this fee typically raised the cash by taking a loan from the
company that tied them to employers—a modern-day version of the ancient practice of bonded
labor. Apple made its suppliers return $4 million dollars to its 4,500 workers. Individual’s rights
shall not be violated and no terms should be set with employees that violate their rights. Apple
must continue to evaluate and report on possible cases such as these. An undercover
investigation was conducted into factories in China where Apple products are assembled. The
investigation filming of Apples production line showed works fal963.*ling asleep at their
positions due to working 16 hour shifts for 18 consecutive days (Wopschall, 2011). The
undercover reporters found that standards were being breached on the factory work floor
(Wopschall, 2011). Apple had often claimed to protect its Chinese workers from the violation of
their rights but this documentary proves that they have failed to do so (Wopschall, 2011). The
factory workers were still facing the harsh conditions of twelve individuals to a room, twelve to
sixteen hour work days, over fourteen consecutive days working and denied requested time off
(Wopschall, 2011). Apple denied these allegations and has stated that they will be further
investigated (Wopschall, 2011). IJSER International Journal of Scientific & Engineering
Research, Volume 7, Issue 3, March-2016 421 ISSN Overall, unethical practices are becoming a
continuous trend across all industries. A nature that is unlikely to stop due to the money that is
saved from these unethical practices. The companies will continue to claim they are investigating
and looking into the claims but in actuality they will not be completely addressing the problems.
Could this be the cost of doing business on such a global scale? Firms, like Apple will continue
to pay the fines, take the bad publicity, and address some problems because in the end the fines
and bad press are cheaper than practicing ethical behavior in their factories around the globe.
Industry Financial Analysis Apple announced the biggest profit in history with net income of
$53.4 Billion. As shown in Apple’s 10-K financial reports for fiscal year 2015, the latest set of
annual reports available, Apple’s full year total revenue totaled $233.7 Billion and net income
almost reached $53.4 billion, which is an increase of 26% from the previous year where revenues
totaled $39.5 billion. This has been driven by their expansion into the international market using
different products and services. The increase in revenue has been promoted by the massive
increase in iPhone 6 and iPhone 6s sales in the last year. The product has proved to be a
benchmark in the mobile handset industry dominating the market of major suppliers like
Samsung and Nokia. This was driven by the nature of the product as the style and application
features appeal to many people around the world. The company has also allocated a lot of
resources to the marketing department. This has led to the increase in market share in
international markets hence the increase in sales of the iPhone and revenue. This is evident from
the fact that international sales of different products by the company accounted for 62% of total
revenue. This shows that there is a shift in trend in the International market as more people are
willing to get Apple products. The company also has benefited from the sale of other products
such as the Apple watch and mac. These products have also contributed heavily to the good
performance of the company by creating an increase in revenue. The Mac was released in the
end of the last IJSER International Journal of Scientific & Engineering Research, quarter in 2015
with great and new features that got the attention of technology lovers around the world. This
means that it has a lot of potential to perform better this year. This can lead to higher revenues
for this product and forecast good results for the year 2016. As Exhibit 1 provides, Apple’s
return on assets and net profit margin ratios for 2015 increased by almost 1.3% each comparing
with the year before. The asset turnover of 2015 remained at the same as what it was in 2014, but
the inventory turnover slightly increased in 2015, which explain that the company did well if we
compare it with 2014. However, in 2013 the assets and inventory turnover were slightly
improved than the one of 2015. This explains when the company was expanding in purchase of
more inventories in the year of 2013. These inventories were driving the company towards a
great performance in future. The year 2014 saw a slump in inventory as the company focused
more on the production process. These efforts led to the production of the Mac computer in the
year 2015, which was a massive boost for the company’s sales. The year 2015 also witnessed the
production of the iPhone 6 and iPhone 6S, which were global, hits in terms of production. The
year 2015 was very busy for the company as it led to new products being launched in the market
and setting up of future ventures that would lead to growth in the company. Exhibit 2 shows the
income statements for Apple, Samsung, Google, and Microsoft for the fiscal year 2015. Apple
holds the biggest numbers regarding revenues, cost of revenues, and net income. However,
Apple spent less on research and development than what the other three companies did. Talking
about the R&D, Samsung, Google, and Microsoft are spending almost the same on R&D despite
the huge gap in their revenues. Apple is unique from the other companies due to the blueprints
that the company founder left for future generations. The company has a lot of projects for the
future that need proper formulation of policies and strategies to develop. This is evident from the
fact that the company spends the least amount of money among the tech giants on research and
IJSER International Journal of Scientific & Engineering Research development. R&D is vital for
the performance of any company as it helps to provide the clients with a new product that will
increase sales and maintain the market share. The competition for new products is evident
between Samsung and Apple as seen in the quick response that Apple had when Samsung
produced Galaxy S6 and Galaxy S6 edge. This market share is important for the growth of any
company as it provides a platform where products can have a readily available market. Samsung
has, however, invested more on research and development as they hope to get a piece of Apple’s
market share in America. This is a stronghold for Apple products and it has a special connection
with people in the different states in America. It can be argued that most of the funds spent on
R&D were to benefit the company in getting a higher International market share. As what’s
appear in the table, Samsung has the second biggest revenue with 177.5 billion yet the cost of
revenue reached to 62% of the total revenue. Samsung and Google net income are almost the
same despite the fact that Samsung’s revenue was 58% higher than Google. Samsung also spent
on SG&A 44 Billon, almost twice as much as apple spending on SG&A. Samsung‘s net income
totaled with 16.856 Billion where Google and Microsoft net income reached to 16.348 and
12.186 Billion respectively. Where Apple net income is $53.3 Billion, which means 14% higher
than the other three companies combined! Samsung recorded the largest revenue due to the fact
that it was gaining an increasing in the market share from other countries abroad. The company
launched an initiative that saw it penetrate the International market hence the high revenues
recorded for that year. However, this venture came at a high cost in terms of marketing and
advertising their products in other markets especially in the United States. The net income of
Samsung and Google is almost as same as each other despite the massive disparity in revenue
between the two companies. This is because Samsung has a very high cost of revenue compared
to Google. Samsung and Google deal in different types of products that a governed by unique
principles. Google does not face a lot of competition from IJSER International Journal of
Scientific & Engineering Research the market and has a very low cost of operation. The
company does not need to invest a lot of money into advertising compared to the amount of
revenue it generates from advertising. This is the main reason why Google has a lower cost of
revenue compared to Samsung, hence the similarity in the net income of the two companies
despite the high revenue for Samsung. However, Samsung and Google still doing far better than
Microsoft. Samsung spent a lot of money on SG&A compared to the rest due to the need to
create awareness of the product among people in the new market. If the company gets a good
percentage of the market share in the United States, then it will record a higher net income in the
2016 financial year. This is because less money will be spent to increase sales for the different
products.

SWOT Analysis
 Although participation in such activities may add value, they may not be a
source of competitive advantage. Ultimately, the value, rarity, inimitability,
and/or organization (VRIO) of an activity or resource determine its
sustainability as a source of competitive advantage. Within this context, we
can identify a firm’s strengths, weaknesses, opportunities, and threats
(SWOT).

 Strengths:-
i. Technical savvy – Product lines are easy to use and stable. Recent
integration with Microsoft products lines and Intel processors demonstrate
ability and willingness to adapt to a diverse customer base. (Mossberg)
Such innovation, however, would not be sustainable without a learning
environment tolerant of mistakes. While the pure technical expertise alone
is not a valuable or rare resource, it becomes very costly to imitate when it
exists within the socially complex, entrepreneurial culture of Apple.
ii. Financial vitality – Cash reserves remained robust and stable despite
stagnant market share growth in the computer hardware and software arenas.
Apple exploited this by resisting market pressures to reduce costs, tightly
integrating product packages, and forming strategic alliances (i.e. securing
the backing of all major music distributors in the support of iTunes).
iii. Brand loyalty – The only way that Apple could maintain the financial
vitality described above is via a fanatical, almost cult-like, affair with its
customer base. Such brand loyalty is extremely costly and time-consuming
to imitate.
iv. Steve Jobs – As discussed earlier, Jobs proved to be a vital component to
Apple’s success. During his absence (1985-1996), Apple experienced the
most turbulent (financial and innovative) timeline in its history.
 Immediately upon his return, he replaced most of the Board of Directors,
pruned and focused the new product ideas, and delivered seven consecutive
quarters of positive earnings to shareholders. As such, Jobs is certainly a
valuable, rare, and hard to imitate resource that Apple fully exploits.

 Weaknesses:-
i. Market share – Apple has historically been strongest in the US geographical
and educational vertical markets. With the educational market facing
tightening budget constraints and the US approaching a PC saturation point,
Apple may need to burn cash more quickly and succumb to market cost
pressures on its products without a strategic innovation, integration, or
divesture.
ii. Steve Jobs – For virtually the same reasons Jobs is a strength, he is
simultaneously a weakness. The aggressive drive to bring innovative
visions to life was noticeably absent and painfully felt (especially by
shareholders) during his departure. The apparent absence of succession
planning coupled with a lust for the limelight positioned Jobs as Apple’s
single consciousness in the eyes of consumers and shareholders.

 Opportunities:-
i. Consumer electronics – With the startling success of the iPod and iTunes,
Apple entered the consumer electronics market. By expanding the iTunes
concept to downloadable mobile phone features and movies (podcasts), the
door is now open to develop new and potentially profitable strategic
alliances with peripheral component manufacturers (speaker, home stereo,
etc.) and media transmission giants (Disney, TBS, Verizon, etc.).
ii. PC hardware and software market growth – With cross-licensing of
operating system platforms in place, Apple entered the high-volume
 business environment traditionally dominated by Windows-based PCs. The
introduction of Intel-based processors prompted businesses to replace PCs
with iMacs. They did this to gain a level of stability and reliability in their
business applications that PCs failed to provide. An example is Japan’s
Aozora Bank Ltd., who is replacing 2,300 PCs with iMacs. (Wingfield)
Apple must establish themselves as a credible player in business desktop
applications to overcome the “desktop publishing” stereotype.

Threats:-
i. Legal risks – In a market that literally changes at the speed of thought, patent
and copyright infringement risks remain high. As long as operating systems
and support software packages continue to converge and remain relatively
easy to imitate, present and future lawsuits are inevitable. The Apple
records claim against iTunes remains unresolved.
ii. Competition – This threat occurs primarily on two fronts: PC
hardware/software and consumer electronics. For the same reasons
discussed in the opportunities section, the threat of imitability (cloning,
pirating, etc.) increases. As relative newcomers to the consumer electronics
arena, will Apple retain a competitive advantage as they diversify their
offerings (speakers, home entertainment systems, etc.)
iii.
 Financial Analysis

2nd Quarter 2008:-

Apple’s financial performance continued to strengthen over the last several

quarters. In the most recent earnings announcement, Apple reported significant
growth in net revenues driven by the strong performance of its iPod product line.
Net sales for the 2nd quarter grew to $4.36 billion, which is a 34% increase over 2 nd
quarter 2007 results. Net income increased by 41% to $410 million.

The iPod product line continues to drive the financial performance of the company.
In the 2nd quarter alone, Apple sold 8.5 million iPods, representing a 61% increase
over the 5.3 million units sold in the 2 nd quarter of the prior year. Mac sales
showed slight growth of only 4%. Apple’s year-to-date revenues total just over $10
billion and earnings total just under $1 billion. For the 3 rd quarter, CFO Peter
Oppenheimer stated, “…we expect revenue of about $4.2 to $4.4 billion” which
will push total sales above last term’s annual numbers.

Historical Performance:-

Although sales remained stagnant during 1998-2002, sales more than doubled
since (see graph below). This dramatic shift in performance is primarily due to the
increase in sales from the iPod product line.
Apple Revenue Growth
16000

14000
Net Sales

12000

10000

8000

6000

4000

2000

0
1998 1999 2000 2001 2002 2003 2004 2005
Stock Price Performance:-

Another interesting way to consider the financial performance is to evaluate how

Apple’s stock price performed against the market and against its main competitors.
As we see from the chart above, Apple’s performance has been inconsistent over
the last 20 years compared to the S&P 500. It also has not performed at the same
level as its main competitors, Dell and Microsoft. However, performance
improved since 2003.

Profitability Measures:-

Apple substantially improved in its key measures of profitability in the last few
fiscal years. In terms of return on assets, return on equity and profit margin, Apple
strengthened financially and now has similar ratios to that of its competitors and
the overall computer hardware industry .
 2006 2007 2008 Microso Dell Indust S&P
ft '08 '08 ry '08 500

Return on 1.01 3.43 11.56 19.75% 15.42 11.98 8.13%

Assets % % % % %

Return on 1.63 5.44 17.88 28.56% 67.31 36.61 19.61%

Equity % % % % %

Profit 1.11 3.33 9.58 31.57% 6.39 6.36% 13.75%

Margin % % % %
In
P/E Ratio 33.89 22.63 18.51 26.32 22.09

reviewing Apple’s 1st and 2nd quarter 2008 earnings releases, gross margins
dropped slightly. Apple attributes this decline primarily to price pressures,
especially in the iPod product line. (1 st Quarter 10Q) This will continue to affect
performance over time. However, Apple’s ability to maintain the momentum it
built in the marketplace will control the speed with which erosion will occur.

Liquidity and Leverage Measures:

Apple historically held very little long-term debt. The table below compares
Apple’s liquidity measures to their competitors, their industry, and the general
market. During the period of strong financial performance, Apple accumulated
cash. This strengthens Apple’s position should they choose to access the capital
markets.

2006 200 2008 Microsoft Dell Industry S&P

7 '08 '08 '08 500

Current 2.5 2.6 3 2.88 1.11 1.81 1.82

Ratio

Quick 2.47 2.59 2.9 2.85 1.08 1.45 1.31

Ratio
Product Unit Sales:-

In the last several years, there have been dramatic changes to Apple’s product sales
by category. Apple breaks its unit sales into four primary categories: desktops,
notebooks, iPods, and peripherals. The graph below shows the product mix for
Apple in 2002. Note the domination by desktops and notebooks and the small
contribution by iPods.

2002 Product Sales 2005 Product Sales

Desktops Desktops

Notebooks Notebooks

iPod iPod

Peripherals Peripherals

When you compare the same graph for 2005, you see dramatic differences in the
product mix for Apple. The iPod sales now account for 32.5% compared to 2.5%
for 2002. The combined sales of computers (desktop/notebook) lost share,
dropping from 79% to 45% of sales. This drop merely represents a shift in Apple’s
product mix, not their global computer market share (which remains stable in the
2-3% range). Meanwhile, sales of peripherals (including wireless connectivity and
networking solutions), remained stable. (Hoover’s)
Operating Segments:-

Apple breaks its sales into five “operating segments”. The chart below shows the
sales by segment for each year 2002-2005. On a percentage basis, only the retail
segment appears to be outperforming the others.

Sales by Region Segment

16000

14000
Total Sales

12000
Other
10000
Retail
8000 Japan
6000 Europe
4000 America's
2000

0
2002 2003 2004 2005

Year

Net sales in the retail segment grew to $2.35 billion in 2005. In the 1 st quarter
2006, sales growth continued in the retail segment to $1.1 billion (a 91% increase
over the same period last year). This increase was due to growth in the number of
stores (from 101 to 135) and to a 41% same-store sales growth. (1st Quarter 10Q)

Although the retail segment was the only segment to realize growth as a percentage
of total sales, all of the segments had solid growth. In the Americas, sales
increased 65% and continued to represent approximately 47% of total worldwide
sales. Sales in Japan and Europe grew by 92% and 47%, respectively. (1 st Quarter
10Q)
 Conclusion

We feel that Apple must focus on several key aspects to continue to grow and
succeed. They must continue a stable commitment to licensing, push for economies
of scope between media and computers, and become a learning organization.

Apple apparently made a commitment to licensing. Although it should continue,

Apple may want to consider other forms of strategic alliances. An equity strategic
alliance may offer Apple the opportunity to obtain additional competencies. An
effective way for a company like Apple to accomplish this would be in the form of
a joint venture.Apple should continue pushing the new line of media-centric
products. Meanwhile, Apple should not lose focus on its computers. Macintosh
computers were 39% of Apple’s sales in 2005. (Burrows) This very innovative
company exploits its second-mover position. In the future, they will need to
continue innovating to expand the boundaries of both media and computers.One
persistent element of both competitive advantage and risk is Steve Jobs. He is both
synonymous with Apple’s success and has a large equity interest in Apple and
Disney. If he were to divest his leadership position, the reaction of both the market
and consumers would be uncertain. Given his position within the organization as
well as the history of the company when he was gone, Apple must find a way to
learn as an organization. This will allow the company to withstand a departure by
Jobs. Based on the actions of the organization, we feel that the mid-term
performance of Apple will be strong. This period allows Apple time to overcome
their challenges if they move swiftly. For this reason, we feel that they will
continue to succeed and will continue to outperform their peers.
Apple avoids competition:-

If you look at the history of Apple, you'll see that instead of rising to competition,
they often ignore it, or try to use legal means, or bundling clout, to erase it.

When challenged by a larger market force, as with the IBM PC and its clones in
the early 80s, and with Windows 3.0, 95 and then NT 4.0 in the 90s, they miss
obvious marketing opportunities, ways to make their products stronger by
participating in markets that others develop. This is an art that Microsoft has
mastered, there's no reason Apple couldn't have learned the same lessons, but they
didn't.

And when dealing with smaller competitors, Apple routinely and often
unconsciously forced them out of business by bundling, or declaring that they will
bundle a competitive offering. When the Internet happened, Apple struggled
against it instead of embracing it, preferring to invest in technologies that
eventually ended up on the scrap heap. A wasted lead in content development,
developers going to Windows, a poor Java implementation on the Mac. The
bottom line, the strategy of avoiding competition has been disastrous for Apple.
But they want to do it again.

The same old strategy:-

The cloners, Motorola, Power Computing, UMAX, IBM and others, are poised to
ship products that would take Apple out of the hardware business, because they're
cheaper, faster, bigger, more powerful machines than Apple's new products. These
are the computers that Mac users want and are, in my opinion, entitled to.
Even though we haven't seen the license agreements with the cloners, it appears
that Apple has the contractual right to forbid them to ship the computers, for any
reason at all. Apple wants to keep their hardware business, so they exercise that
right.

I despise companies that use hardball tactics to put their competitors out of
business. I admire companies that rise to competition. I happily buy new products
when I have a choice. I don't like to buy products that I'm forced to buy.
 Recommendations

For Company:-

i. Lowering the cost of products and maintaining the same quality standards.
ii. Can form joint – ventures.
iii. Knowledge Management.
iv. More number of retail stores for easy access.
v. Continuous innovation to expand.

For Others

i. Do not compromise on price for quality.

ii. Choose the products based on individual needs.
iii. Be unique and different.
 Limitations of the Study

The limitations which Apple uses in their market research to the development of
their marketing plan are imperative as it confirms the research is up-to-date and
accurate/specific. This is because if the research is wrong then it would influence on
the marketing plan which would not be successful and effective. Market research is
when Apple collects and gathers data because it is valued to the business as it
classifies the gap in the market and classifies the opportunity for the business in
order to be successfull.

Market research helps this business by determining whether it should enter into a
new market or not. Market research also helps Apple by suggesting them on whether
they should launch a new product/services and methods on how to promote the
brand awareness in market so they can target large group of audiences. To conclude,
market research also helps Apple to optimise their marketing campaign and to
improve their customer services, and improve on the business to meet customer’s
expectations. Marketing plan based on Apple is outlining their strategies and tactics.
It would have a time-bound; it is focused on limited period of time and involves all
the marketing details, research, and plan. The purpose of this would be to help Apple
to accomplish their objectives by guiding them with instructions and suggestions.
 Bibliography

i. https://www.slideshare.net/Yogihne/mba-project-reportonappleinc
ii. https://www.surveymonkey.co.uk/r/2XW6K5C
iii. https://en.wikipedia.org/wiki/Apple_Inc.
iv. https://www.bartleby.com/essay/Project-Report-on-Apple-Inc-
P3LZVY436ZYS
v. https://www.studymode.com/subjects/major-project-report-on-apple-inc-
page1.html