FIN 336 Final Project
Adam Church
Southern New Hampshire University
I. Company Overview
Apple Inc. specializes in the design, manufacturing, and marketing of smartphones,
personal computers, tablets, wearables and accessories, and sells a variety of related services
(Apple Inc., 2022). Though founded and currently headquartered in California, Apple has grown
its sphere of influence across all corners of the globe. This scope is truly seen when examining
the availability of Apple’s flagship digital services. The Apple App Store is available in 175
countries and regions, Apple Music is available in 167, and Apple Podcasts features over 1
million shows in more than 100 languages, with availability in 175 countries and regions (Apple,
2020). The company’s sales revenues further show the importance of the international
marketplace. Q1 of 2013 showed 54% of revenue coming from non-domestic markets, while Q1
of 2023 saw that figure rise to 58% (Laricchia, 2023).
II. Economic Environments and Market Conditions
Apple is currently listed on 13 different stock exchanges, eight of which are outside of
the United States. This reflects the truly global economic scale Apple operates on, with example
exchanges being the NASDAQ, Berlin Stock Exchange, Xetra, Frankfurt Stock Exchange, and
more. (Reuters Editorial, n.d.). Alongside the typical stock, the company also offers bonds and
money market funds. With a current market cap approaching $3 trillion, it is impossible to ignore
the recognition and loyalty that surrounds the brand. Apple’s brand strength and devotion to
innovation are two of the main reasons why the company was virtually unaffected by the global
credit crisis. In 2009, Apple’s Q4 earnings increased by more than 47% compared to the
previous year’s Q4. This resulted in Apple share price rising over 6% during after-hours trading
(Caulfield, 2009).
International expansion can expose businesses to many risks they typically would not
face in their domestic markets, such as foreign exchange risk or political risk. Fortunately,
international financial markets and institutions provide companies with a variety of tools to help
mitigate some of these risks. Apple takes advantage of many of these tools, such as selling shares
on foreign exchanges to raise capital. The company also takes advantage of financial derivative
markets by trading forwards, options, and swaps to hedge its exposure to interest rate and foreign
exchange risks (Apple Investor Relations, 2020).
Over 67% of Apple’s revenue is generated outside the United States (Statista, 2021). This
large international presence means that fluctuations in foreign and domestic currency can have a
major impact on the company’s overall revenue. For example, when the US dollar rises in value
compared to a foreign currency, the company’s revenues earned in that foreign currency will
decrease in value once exchanged to the domestic currency. To provide an assessment of the
company’s foreign exchange risk, Apple conducts a sensitivity analysis using a value-at-risk
model to assess the potential impact of exchange rate volatility (Apple Investor Relations, 2020).
“The model’s results concluded, with 95% confidence, a maximum one-day loss in fair value of
$551 million as of September 26, 2020, compared to a Final Project 4 maximum one-day loss in
fair value of $452 million as of September 28, 2019” (Apple Investor Relations, 2020).
Multinational companies are often susceptible to all three types of foreign exchange risks:
transaction, economy, and translation. This was especially true during the global financial crisis
of 2008. Due to various factors such as over-hedging, increased demand as a “safe haven”
currency, and a shortage of supply, the USD’s exchange rate began to soar. By late 2008, the US
dollar had grown by 22% against the Euro (WesternUnion, n.d.). As the difference between
foreign currencies and the US dollar increased, the revenues of many multinational companies
began to plummet. However, unlike many other multinational companies, Apple was able to
successfully hedge against the currency fluctuations by purchasing $2,782 million in forward
contracts, $3,120 million in call options, and $2,668 million in put options (Apple Investor
Relations, 2008). The company’s hedging strategies combined with releasing new products such
as the iPhone led to Apple increasing its revenue by over 38% (Apple Investor Relations, 2008).
III. Risk Mitigation
Apple is no stranger when it comes to hedging against foreign exchange exposure. The
company has continuously used marketable securities, such as forwards, options, swaps, and
money markets, to save billions of dollars against currency fluctuations. Global exchange rates
and interest rates can have a significant effect on any company. Although Apple has exposure to
various global interest rates, its interest income and expenses are most sensitive to fluctuations in
US interest rates. “Changes in U.S. interest rates affect the interest earned on the Company’s
cash, cash equivalents, and marketable securities and the fair value of those securities, as well as
costs associated with hedging and interest paid on the Company’s debt” (Apple Investor
Relations, 2020). Rises in the US dollar tend to have a negative effect on Apple’s net sales and
gross margins. Apple regularly evaluates foreign exchange forwards, options positions, and
interest rate swaps to mitigate the risks associated with exchange rates and interest rates.
One tactic Apple uses in its risk mitigation strategy is diversification. With Apple
products and services already available in 175 countries and regions, the company has begun
acquiring smaller companies outside of their industry. In a 2019 interview with CNBC, CEO
Tim Cook said that Apple buys a company every two to three weeks on average (Feiner, 2019).
Apple’s expansions include various sectors such as payments, augmented reality and virtual
reality, healthcare, video streaming, and mobile device management (Karam, 2020). The
company has also been hiring doctors, health coaches, and engineers to help develop its healthoriented software.
Since before the 07/08 crisis, Apple’s strategy for mitigating risks has remained
essentially unchanged. The company has used expansion into global exchanges to raise capital,
financial derivatives to hedge exchange and interest rate risks, and maintained stockpiles of cash
for uncertain times. Despite criticisms for keeping extreme amounts of cash on hand, Apple was
virtually unaffected by either the 2007-2008 crisis or the Covid-19 pandemic, two of the most
trying periods for businesses in the 21st century.
IV. Ethical and Legal Considerations
Corporate culture and ethics were one of the paramount issues Steve Jobs took on with
his 1997 return to the company he had co-founded over twenty years prior. The stated claim for
the success of the company is by creating innovative, high-quality products and services and on
demonstrating integrity in every business interaction (Auburn, n.d.). Apple defines integrity by
breaking it into four principles: honesty, respect, confidentiality, and compliance. For
enforcement, the company has a code of business conduct that applies to all operations, domestic
and international. Depending on the values of stakeholders and shareholders, corporate social
responsibility actions could be seen as detrimental to profits. Apple has been leading the cause of
sustainable energy sources and improving the quality of life for overseas labor. Apple makes
each overseas supplier sign a code of conduct that ensures compliance with full factory audits
(Auburn, n.d.). While this filters out unsavory businesses from Apple’s supply chain, it may
come at a higher monetary cost and more difficulty in sourcing raw materials. If a company such
as Apple ignored working issues with labor and did not adopt such policies, foreign governments
could increase regulations, further decreasing competition among suppliers or could lead to
customers switching to a company with more favorable ethical behaviors. As such, the ethics and
values that the company continues to showcase are no doubt a driving factor in Apple’s
continued success.
V. Future Risks and Challenges
Apple’s financial statements throughout the years have shown consistent growth and
resilience that has allowed the company to survive not just one, but two economic disasters of
recent history. During the 2008 crisis and the Covid-19 pandemic, the company’s strategies were
more successful in mitigating foreign exchange exposure than other companies. However, Apple
still has many challenges that it will have to overcome in the future. Two ominous challenges on
the horizon for the company are the current global microchip shortage and more rigid antitrust
regulations. The global microchip shortage has been a standing challenge for nearly all in the
automotive and consumer technology industries over the past few years. Apple recently
announced to investors that the chip shortage costs them an estimated $3 billion to $4 billion
dollars in revenue a fiscal quarter (Lovejoy, 2021). As the worldwide demand for these parts rise,
so do their prices. Apple could mitigate the risk of decreased revenues due to increased
microchip prices by entering forward or future contracts with microchip suppliers.
New concerns around the App Store have brought Apple under scrutiny from both
European governments and the United States. The company is currently under investigation for
violating antitrust regulations stemming from the anti-competitive behaviors exhibited in their
App Store. Although numerous smartphone alternatives to the iPhone exist, some regulators
consider Apple’s position on the sales and distribution of iOS apps monopolistic. The European
Union has argued that Apple broke its competition laws since “any app downloaded to an iPhone
or iPad must comply with the company’s rules and guidelines, including using Apple’s payment
system and sharing up to 30% on any sales” (Satariano, 2021). Many companies are considering
these rules and guidelines to be unethical because if they do not comply, they risk losing access
to millions of Apple customers. Apple argues that “tight oversight of the App Store ensures
customers download high-quality apps, protecting users from viruses, fraud and buddy software”
(Satariano, 2021). If the investigations are determined to not be in favor of Apple, the company
will face not only a decrease in revenue but also an influx in competition. To mitigate the risk of
increased competition, Apple should add additional funds to research and development and
continue diversifying its acquisitions. Creating new innovative products will be Apple’s best
defense against an increase in competition.
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