Running head: Case Analysis: Case 10 - Apple Inc.
Case Analysis: Case 10 - Apple Inc. in 2010
Anna R. Stith
BSADA 195: Strategic Management
Holy Names University
Case Analysis: Case 10 - Apple Inc. in 2010
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Abstract
This is an analysis of Apple Inc.’s business strategy. Most of the information provided in
this analysis covers year-end 2007 through 2010; however, general predictions are made
past year 2010. Steve Jobs’ performance, chief elements of Apple’s strategy, and key
success factors contributing to Apple’s competitive sustainability will be discussed.
Additionally, five-forces analysis are given pertaining to the computer, digital music
player and smartphone industries. The paper expounds upon the digital music player and
smartphone competitive environments as well as provides an overview of Apple Inc.’s
financial performance. It concludes with general recommendations of actions the firm
could take in order to ensure the success of the iPad, which may be Apple’s mass weapon
of competition going forward.
Keywords: Apple Inc., business strategy, key success factors, Steve Jobs, business
performance, iPad, iPod, iPhone, computer tablet, smartphone, digital music player.
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Evaluating Steve Jobs’ Performance as CEO
It certainly appears that Steve Jobs performed well as CEO. One indicator of
Jobs’ performance is to take a juxtaposed looked at Apple Inc.’s (APPL) business
performance under Job’s leadership to that of his predecessors, Sculley, Spindler and
Amelio.
The apparent shaky business performance of Job’s predecessors caused financial
loss and, in turn, caused layoffs and the inability to gain market share. In the case study
entitled, “Apple Inc. in 2010” Marino and Gamble (2010) revealed, “During the
remainder of 1985, Apple continued to encounter problems and laid off one-fifth of its
employees while posting its first ever quarterly loss” (p. C-142). What’s more, Sculley
was kept onboard as CEO for nearly a decade, he made little to no headway when it came
to gaining market share in the industry. Marino and Gamble (2010) pointed out,
“However, by 1990, PCs running Windows 3.0 and Word for Windows were preferred by
businesses and consumers and held a commanding 97+ percent share of the market for
personal computers.”
Spindler wore the CEO hat next. Marino and Gamble (2010) writes:
Under Spindler, Apple released the PowerMac family of PCs in 1994…Even
though the PowerMac family received excellent reviews by technology analysts,
Microsoft’s Windows 95 matched many of the capabilities of the Mac OS and
prevented the PowerMac from gaining significant market share (p. C-142).
He was fired in 1996.
At the start of 1996, Amelio became Apple Inc.’s next leader and although he
proactively streamlined operations as well as rehired Jobs as part of the NeXT acquisition
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terms, he also failed to increase the bottom line in due time. The case study reads, “In
1997, after recording additional quarterly losses, Apple’s board terminated Amelio’s
employment with the company and named Steve Jobs interim CEO” (p. C-143).
Interestingly enough, Ameilio was given a small fraction of the time his predecessors
were given in order to prove his CEO skills.
Now with Jobs as CEO (interim), the iMac was released (1998) and the release of the
iBook followed (1999). According to the case study, “The company was profitable in
every quarter during 1998 and 1999, and its share price reached an all-time high in the
upper $70 range” (p. C142). This would provide hard-lined evidence that under Jobs’
leadership, Apple realized success in the form of financial and market share gain, and this
was only the beginning. Steve Jobs was named “permanent” CEO in 2000.
In
2001 Apple Inc. released the iPod and in 2003 they launched iTunes. “The author writes,
“The company’s market share in the United States had improved by 4 percent in 2005 to
8 percent in 2009 primarily because of the success of the iPod and iPhone. These
products created a halo effect…” (p. C143) By this time, the proof of Job’s performance
was definitely in the numbers as Apple Inc., not only realized financial and market share
gains, but because of the iPod/iTunes product offering, was able to leverage customer
satisfaction into renewed consumer interest in Apple computers.
It seems that Jobs performed the five tasks of strategic management superbly. The
following is a breakdown of his strategic management performance:

Developing a strategic vision: When it came to the computer industry, Jobs
always had a vision. In fact, he resigned from Apple in 1985 because he felt
strongly that Scully lacked vision. Additionally, it was Jobs’ vision to, not only
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produce iPods, but to also provide the iTunes application. It was this strategic
vision that aided Apple Inc. in being a market dominator in legal online music
download services. He gifted Apple Inc. with focus that would carry the company
onward for years to come.

Setting objectives: Had Jobs not set benchmarks for the company to meet, most
likely, Apple Inc. would not have continued to experience growth. In other words,
their success would have, most likely, been short-lived. Marino and Gamble
(2010) reported, “Apple Inc. celebrated record quarterly revenues and unit sales
of computers during its third quarter of 2010” (C-142). Add to this, Apple Inc.
successfully entered new markets such as the smartphone segment, which means
that Jobs had to plan ahead, setting objectives to successfully execute actions that
ensured sustainable. Furthermore, objectives seemed to encompass both financial
and strategic elements.

Crafting a strategy to achieve objectives: Outcomes under Jobs leadership
strongly imply that he had a playbook, which detailed every action necessary in
order to win.

Implementing and executing the chosen strategy efficiently and effectively: Had
Jobs’ neglected this task, goodwill (customer loyalty earned by fulfillment of a
brand’s promise) would not have been established and the Apple brand would
have been even further jeopardized. Inconsistencies in the execution of the
strategic plan would have ultimately translated into customer dissatisfaction
instead of customer loyalty.
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
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Evaluating performance and initiating corrective adjustments: Jobs was known for
making improvements. In reference to infrastructural changes made by Jobs, the
case study states, “He not only consistently pushed for innovation new ideas and
products but also enforced several structural changes, including ridding the
company of unprofitable segments and divisions” (p. C-143).
Overall, I would give Jobs an A- as he seemed to have mastered the strategy-
making, strategy-executing process; however, there is certainly always room.
Strategy
Product Innovation and Technological Superiority
Since the beginning, Apple Inc. has thrived off of differentiation via product
styling and technological superiority. The iMac, for instance, was first released in 1998
and it offered a monitor that came in several different colors, offering consumers more
personalization than other brands of PCs on the market at the time. Most likely, it was the
stylish appeal of the product that captured consumers’ attention. The case study reads,
“Apple introduced the limited feature iMac…The company was profitable in every
quarter during 1998 and 1999, and its share price reached an all-time high in the upper
$70 range” (Marino and Gamble, 2010, p. C142). Apple Inc. would continue to rack up
on style points for sure. Marino and Gamble (2010) acknowledges, “The MacBook Air
had won critical acclaim for both its design and ease of use, and was one of the products
helping Apple Inc. gain ground in the competitive computer industry” (C-147).
Indeed, when it comes to setting itself apart from the competition, Apple reigns
supreme, and it has been this resource strength that has made Apple an unrivaled
competitor in they style and technological capability categories. Marino and Gamble
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reports, “Apple’s proprietary operating system and strong graphics-handling capabilities
differentiated Macs from PCs…”(C-143). Then there was that pivotal moment in Apple
Inc.’s history when the iPod/iTunes product and service offering, which due to style and
technological innovation, created a breakthrough. The authors assert, “Aside from the
iPod’s stylish design and ease of use, another factor that contributed to the popularity of
the iPod was Apple’s iPod/iTunes combination” (p. C150).
Differentiation via Wide Product Selection and next-generation products
Apple also created differentiation by offering a wide product selection. For its line
of computers alone, the firm offered at least 10 different configurations, each targeting a
specific type of consumer. Marino and Gamble (2010) describes, “Apple’s computer
product line consisted of several models in various configurations. Its desktop lines
included the Mac Pro (aimed at professional and business users)…”(p. C-143). Another
product of Apple that offered a wide selection is the iPod; it had four different models to
choose from. What’s more, Apple was known for quickly introducing next-generation
products to the market. The smartphone industry is a prime example of how Apple
maximized the strategic benefits of next-generation products. Since its debut in 2008, it
has released five different next-generation models, all which outsold the previous.
Expertise and Resource Strength
Job’s push to make innovative, technologically superior products that were
guarded from imitation certainly gave Apple Inc. its competitive edge. One can deduce
that the pieces of Apple’s strategic plan fit because products flew of the shelves, the
customer-base continued to expand, market share percentages increased, resulting in
year-after-year profits. If there were inconsistencies in Apple’s strategy, then the bottom-
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line would not have grown, especially not to the tune of $15.7 billion in one quarter (third
quarter, 2010). As the textbook, Crafting and Executing Strategy, states, “Unless a
strategy exhibits tight fit with both the external and internal aspects of a company’s
overall situation, it is likely to produce less than the best possible business results”
(Thompson Jr., Strickland III, and Gamble, 2010, p. 15).
Strategic Evolution
The strategy seemed to be evolving as Apple entered new geographic territory
(e.g., the release of the iPhone 3G is 70 countries) as well as entered new product markets
(e.g., the tablet market). Also, Apple made the decision to cut its premium pricing by a
small margin in order to win more customers. As previously mentioned, there have been
major changes, or adaptations, to Apple’s infrastructure. Nevertheless, it seems that a
small part of Apples recipe for success has been a level of dedication, not throwing ideas
and products out the window simply because they don’t instantly attract consumers.
Value Chain Activities for the iPod, iPhone and iPad
Again, a big part of Apple’s success thus far is the avoidance of putting all of its
eggs in one industry basket. Product diversification has been part of the reason Apple
gets to realize the halo effect. Consumers fell in love with one product, like the iPod, and
feel as though they must have an iPad and iPhone too. It’s just that simple - at least from
the consumer’s point of view.
If you go to Apple.com and click on the iPod link, you will see the slogan,
“Engineered for maximum funness” - yes, funness. We can refer to this product as the
gateway drug. Furthermore, the iPod is one of the least expensive of all of Apple’s
gadgets. Once a consumer has enjoyed the ease and use of the iPod, he or she is hooked
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and is now on the hunt for a bigger (Apple) thrill. At this point, a consumer is considering
the iPhone, then the iPad and so forth. What’s more, with the exception of the iPod, it
seems Apple is able to market these products across market segments: personal,
education, and business. Therefore, from a marketing standpoint, the product offering
makes sense. The real question becomes how feasible is it from a value-chain standpoint?
Since Apple’s distinct competency is innovation in combination with
technological superiority, Research and Development (R&D) had to be, not only a
primary activity, but the leading value chain activity. In fact, it might not be too
presumptuous to claim that Apple leveraged as much value chain activities as possible in
order to be able to spend considerable amount of internal resources in R&D. Case-inpoint: Today, Apple lists 17 Assembly Facilities. An assembly facility is responsible for
assembling and distributing product and 14 out of 17 of these facilities are located
overseas in China. This has taken much of the heavy load from management’s shoulder
that would otherwise be bogged down with the day-to-day operations of an assembly
plant. Besides, China might be a bit more proficient (and cheaper) at performing this
activity. Essentially, management has been able to direct its time and energy to R&D
activities; therefore, its resource advantage in this department has been to perform at a
minimum. Moreover, Apple can maximize its profit margins!
Outsourcing as a resource strategy presumably works for the iPod, iPhone and
iPad as the inputs as well as the outputs, including the interfaces are virtually the same.
Speaking of applications, for the iPod and iPhone many of the applications are developed
by independently and can be downloaded either for free or for a nominal fee. Again,
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Apple leverages internal resources (management and operations) in order to focus their
attention on what they do best: generate and market product innovations.
Contrarily, computers do not share components with these products; therefore,
one has to wonder whether being a computer industry player is in alignment with the
company’s key success factors and whether it is conducive to earning attractive profits in
the future. On the other hand, the inputs for computers are considered a commodity and if
outsourcing the assembly and distribution portions of the value chain makes it beneficial
opportunity wise as well as feasible value chain wise then it might make sense for Apple
to continue to be a player in the computer industry.
Of the market segments, computers, tablet computers, digital music players, and
smartphones, it is challenging to pick only one product that offers good opportunity and
continued growth in the future. The reason being the smartphone and tablet computer
industries have synergy in that they use most of the same technology and, from a
consumer’s perspective, they are complimentary products. For instance, a business
person might appreciate having a tablet computer with her in meeting; however, she will
still need her smartphone to make very important calls between various meetings. In fact,
it might be profitable for industry members to aggressively market and promote this duo
product offering to the business sector.
5-Forces Analysis: Computer, Digital Music Player and Smartphone
In 2010, of the computer, digital music player and smartphone industries, the
smartphone industry presented the most intense competitive pressure especially when it
came to competitive pressure associated with the threat of new entrants. In all, industry
players were making game-point moves as they put forth their best effort to win
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customers and jockeyed for market position as well as buyer demand was growing
rapidly. Marino and Gamble (2010) reported, “With the market for smartphones growing
rapidly and supporting high average selling prices, competition was becoming more
heated” (C-151). The authors went on to list new entrants (HTC, Motorola, Acer and
Samsung) as well as the industry players who were looking for presence in this new
market (Google and Microsoft).
The following is a five-forces analysis of the computer, digital music player and
smartphone industries:
Competitive Forces on the Computer Industry
The state of competition for the computer industry was evaluated as follows:
Competitive pressures created by the rivalry among competing sellers.
Pressure: Low
Besides a couple of acquisitions, like HP acquiring Compaq in 2002 and Acer
acquiring Gateway in 2007 as well as Packard Bell in 2008, for the most part, computer
industry players were not “actively” making fresh, bold moves to improve market
standing and business performance. True, the acquisitions afforded rises in units shipped;
however, they did not result in significant changes in market position. Additionally, the
computer industry is virtually an oligopoly (HP, Dell, Acer, Apple and Toshiba). Overall,
the pressure associated with rivalry among competing sellers is low.
Competitive pressures associated with the threat of new entrants.
Pressure: Low
From 2007 - 2010, there had not been a new industry player. Most likely, this is
due to the high entry barriers that confront would-be industry players; however, even
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without this challenge, pressures stemming from the threat of new entrants in this market
would, conceivably, be pretty low. For one, the economic downturn caused the industry
to decline and created an undesirable market for new entrants: “However, the effects of
the recession” states Marino and Gamble, “caused a dramatic decline in industry
revenues in 2008 and 2009” (p. C-142). This combined with changes in buyer
preferences created a rather bleak outlook of the computer industry. In other words, an
outlook not conducive to earning profits. Considering these factors, the resulting pressure
stemming from the threat of new entrants was low.
Competitive pressures from sellers of substitute products.
Pressure: Low/moderate
Apple entered the market for tablet computers in 2010 and the iPad; however, the
earlier tablet computer models had limited processing capabilities and could not run
popular software applications, like MS Word, Excel or Powerpoint. (Marino and Gamble,
2010, C-153). For those users who mainly desired Internet access, the tablets were
readily available and somewhat attractively priced, compared to desktop computers.
Other than this and until tablet computers’ technological capabilities were beefed up,
there were no real substitute for the desk-top computer per se; therefore pressures
associated with the threat of substitute products was relatively low.
Competitive pressures from supplier bargaining power
Pressure: Moderate/low
At this point, supplier-seller collaborations were pretty much set-in-stone.
Perhaps, this is why the price of computers hadn’t fluctuated much. However, Intel
(INTC) was the dominant supplier of computer inputs and collaborated partnerships, like
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that with Microsoft, which fashioned competitive pressure in this category. On the other
hand, computer inputs were (and still are) pretty much, commodities; therefore, the
resulting competitive pressure in 2010 was shifting from moderate to low.
Competitive pressures from buyer bargaining
Pressure: Low
Computers are, for the most part, a household product (1-2 per household), and
because buyers of computers, for the most part, purchased (and still do) infrequently, this
results in weak buyer bargaining power and the resulting pressure is low.
Competitive Forces on the Digital Music Player Industry
Using the five-forces analysis to evaluate the state of competition for the digital
music player industry, the following was determined:
Competitive pressures created by the rivalry among competing sellers.
Pressure: Moderate/low
There were indicators of a strong pressured environment when it came to rivalry
among competing sellers of digital music players. For instance, there were at least a
dozen industry members promoting their digital music players. However, other players
struggled to make their presence known. Marino and Gamble reported, “Although Apple
didn’t introduce the first portable digital music players in 2010 and the name iPod had
become a generic term used to describe digital media player” (C-149). In fact, from 2004
to 2010 at least, Apple Inc. held a 70 to 73 percent market share. So while industry
members were making moves to capture market share, they failed miserably; therefore,
the pressure associated with rivalry among competing sells was virtually non-existent.
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Competitive pressures associated with the threat of new entrants.
Pressure: Low
As mentioned previously, existing industry members are struggling in the market,
resulting in a low-pressured, competitive environment. Furthermore, there hasn’t been
expressed interest in reputable players moving into this market segment. Lastly, but not
least, adding to the low-pressure cooker in this industry, buyer demand is slowing down.
Unless consumers need more storage space or perhaps lose their device, they are not
rushing to the stores to buy a digital music player. The culmination of these factors
results in a low pressure environment.
Competitive pressures from sellers of substitute products.
Pressure: Low
While smartphones do have the capability to play music, they aren’t normally the
go-to for such because of battery drainage; no one wants to run out the charge on their
phone in order to listen to music. In fact, the first to combine the digital music player and
the smartphone was Apple with the release of its iPhone 3G in 2008. Essentially though,
at the time, most smartphones were not considered by consumers to be comparable to the
digital music player; and therefore, did not create high pressure associated with the threat
of substitute products.
Competitive pressures from supplier bargaining power.
Pressure: Low
In a sense, digital music player inputs are considered a commodity and this would
make the resulting supplier bargaining power weak, thus the competitive pressure
stemming from supplier bargaining power is low.
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Competitive pressures from buyer bargaining.
Pressure: Low
This competitive pressure also rates low. Apple Inc. gets to capitalize on customer
loyalty when it comes to the digital music player and its complimentary apps. Case-inpoint, while Apple did decrease its price, it still sells at premium pricing above the
competition and this indicates that there is little to no buyer bargaining power.
Competitive Forces on the Smartphone Industry
Using the five-forces analysis to evaluate the state of competition for the smartphone
industry, the following was determined:
Competitive pressures created by the rivalry among competing sellers.
Pressure: High
In 2010 rivalry within the smartphone industry was definitely strong and it
appears to have not eased. According to Marino and Gamble (2010), “With the market
for smartphones growing rapidly and supporting high average selling prices, competition
was becoming more heated” (c-151). In fact, many of key ingredients existed that create
high pressure among rivals, such as competing sellers making fresh moves to improve
their market standing as well as slowing buyer demand. Also, in order to attract more
customers, rivals deployed and continue to deploy different strategies, like the absence of
contracts and credit checks, which makes it easier for consumers to switch brands.
Moreover, rivals are located in different countries, like China. And in 2010, HP acquired
Palm, entering the smartphone market. All these factors make for a highly competitive
environment among rivals.
Competitive pressures associated with the threat of new entrants.
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Pressure: High/moderate
In 2010, the smartphone industry was growing rapidly and the pool of entry
candidates was relatively large with Google and Microsoft getting into position to battle
it out with Apple for market share percentage. At the time, newcomers could expect to
earn attractive profits and there was little to no pushback from existing industry members.
Besides higher entry barriers keeping the smaller would-be industry members from
entering the market, the pressure associated with the threat of new entrants was pretty
high.
Competitive pressures from sellers of substitute products.
Pressure: N/a
There is no substitute product for the smartphone.
Competitive pressures from suppliers bargaining power.
Pressure: Low
There were some supplier-seller collaborations, like Google, which supplied, and
still does, software for the Android line of smartphone products and Microsoft, which
supplied, and still does, software for the Nokia smartphones. However, these
collaborations are seemingly win-win opportunities as oppose to power plays. At the
same time, inputs for the smartphones are readily available and may even be a
commodity. Just as well, no suppliers, other than software suppliers, threatened to
integrate forward into the smartphone industry. As a result, the pressure affecting the
bargaining power of suppliers was, and continues to be, low.
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Competitive pressures from buyer bargaining power.
Pressure: Low
This competitive pressure ranks low as Apple gets to capitalize on customer
loyalty and continue to keep pricing on the high end for smartphones. And although diehard iPhone fans are prone to buy every next-generation phone that hits the market,
consumers usually purchase not more than a single unit; therefore, there’s no need for
retailers to keep a huge inventory. Such factors result into weak buyer bargaining power.
Apple Inc. vs. “The Competition” in the MP3 Industry
From 2004 to 2010, Apple Inc. held 70 to 73 percent of total market share.
Marion and Gamble (2010) summarizes, “However, none of Apple’s key rivals in
the media player industry had been able to achieve a market share greater than 5 percent
in 2010. Most consumers did not find many convincing reasons to consider any brand of
media player other than Apple” (C-149).
The iPod/iTunes combination has been a powerful force in the industry since the
launch of iTunes in 2003. By 2010, many industry members have entered this market;
their presence is faint at best. And while one offered a stunning user interface, it lacked
downloading music accessibility. For instance, reviews touted Microsoft’s Zune HD
player as, “…a close second (in user interface capabilities), and it's the strongest device
you can buy if you don't want to use iTunes” (www.pcmag.com).
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The table below provides a competitive strength assessment of Apple Inc. against three
rivals:
Unweighted Competitive Strength Assessment of Apple iPod Touch vs. Sony W-Series,
Samsung Galaxy Player and Zune HD (2007 - 2010)
Strength Rating (Scale: 1 = Very weak; 10 = Very strong
Samsung
Apple iPod
Galaxy Player Sony W-Series
KSF/Strength Measures
Touch
MS Zune HD
4.0
Quality/product performance
9
5
4
4
Reputation/image
10
4
3
2
Manufacturing capability
9
5
4
4
Technological skills
10
5
4
3
Dealer network/distribution
capability
New product innovation
capability
9
2
2
2
10
2
3
3
Financial resources
10
2
3
3
Relative cost position
9
2
3
3
Customer service capabilities
Unweighted overall
strength rating
9
2
4
3
85
29
30
27
When compared to Apple, all other digital music player industry members hold
very weak market positions; therefore, it really does not make sense to pick out the
weakest link. However, it seems that Sony would be among the very weak. Selling at a
premium price of three-hundred dollars, it entered the same class as the Ipod Touch; once
again, it lacks technological competencies. The reviews criticize, “The Web experience
isn't great—Sony's browser is no match for Apple's Safari. And you don't get access to an
App Store with thousands of titles that comes with the iPod touch” (Gideon, 2013, MS
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Zune Review & Rating). So, Sony lacks luster in both its browsing capability and music
accessibility.
Apple Inc. exhibited core competencies, especially in this market segment, in
technological superiority as it offers both the device and application that has been
seemingly impossible for the competition to emulate and overcome. And it is this core
competency that aided Apple in strongly differentiating its line of iPods from others in
the market.
Apple Inc. vs. “The Competition” in the Smartphone Industry
“The iPhone was named Time magazine’s Invention of the Year in 2007” (Marino
and Gamble, 2010, p. C-150). Additionally, more than 270,000 first-generation iPhones
were sold during the first 30 hours. The iPhone would continue to rock the market with
next-generation models, increasing download speeds, number of apps, and overall
functionality including GPS. It also became compatible with Microsoft Exchange, a plus
for the business person. And just like the iPod/iTunes combination, the iPhone had the
AppStore. The case study reported, “In January 2010, more than 3 billion apps had been
downloaded by iPhone and iPod Touch users” (Marino and Gamble, 2010, p.C-150).
What’s more, the iPhone was available in 80 countries by year-end 2010.
Having stated all this, Apple was certainly a force to be reckoned with in the
smartphone industry but not without some fierce competition. Marino and Gamble (2010)
reported, “Google’s entry into the market with its Android operating system had allowed
vendors such as HTC, Motorola, Acer, and Samsung to offer models that matched many
of the features of the iPhone” (C-151). In fact, the most competitive rival, in the market at
the time was Research In Motion (NASDAQ: BBRY), which due to their business sector
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positioning, held 42.6% of the market share for smartphone subscriptions (2009). Nokia
owned 38% market share as a phone vendor and it was predicted that once Microsoft
released its Windows Mobile 7 Phone with all the functionality of the Zune media player
included, it would exceed iPhone’s software capabilities.
The table below provides a competitive strength assessment of Apple Inc. against the
three rivals:
Unweighted Competitive Strength Assessment of Apple iPod Touch vs. Sony W-Series,
Samsung Galaxy Player and Zune HD (2007 - 2010)
Strength Rating (Scale: 1 = Very weak; 10 = Very strong
Apple iPod
Google
Nokia
KSF/Strength Measures
Touch
Blackberry
Android
Quality/product performance
10
8
10
8
Reputation/image
5
9
4
8
Manufacturing capability
6
8
6
7
Technological skills
10
8
10
7
5
9
5
8
9
5
9
8
Financial resources
9
7
9
7
Relative cost position
8
7
8
6
Customer service capabilities
Unweighted overall
strength rating
7
69
7
68
7
68
6
64
Dealer network/distribution
capability
New product innovation
capability
In 2010 iPhone had not even made its way to the Top 5; however and once again,
due to Apple’s innovative edge, it didn’t take the firm long to surpass rivals. The table
above illustrates that while Blackberry and Nokia led in the reputation/image category,
Apple and Google had technological pull, which ultimately became the name of the
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smartphone game. Essentially, Apple possessed most of the key success factors needed in
order to win in this market: technological apt, reputation, resource as well as
manufacturing and distribution competence. Unlike with its other products, however,
Apple has had a harder time keeping its competitors from matching its smartphone
capabilities and this has really shaken things up.
According to a Reuter’s article entitled, “Apple’s Cash Plan Takes Heat off Cook,
Buys Him Time”, “Cook on Tuesday acknowledged that Samsung, which has
smartphones in all price categories, is its top competitor” (Gupta and Berkowitz, 2013).
Samsung runs on the Google Android system. Meanwhile, the producers of the
Blackberry (RIM) have slid down to the bottom of the competitive barrel. Today, Apple
iPhone holds approximately 38% of the market share and Blackberry holds close to 6%;
Nokia remains in the game but fails to capture significant market share, even with its
Microsoft 7.5 Windows phones. While Apple’s distinct competency, innovation, is
making it a top contender, it fails to provide the company with a substantial competitive
advantage in this industry segment. At this point, its any player’s game.
Financial Performance
Profitability
From year-end, 2007 through year-end, 2009, Apple Inc.’s financial performance
has been outstanding. Ultimately, the proof lies in its bottom-line; however, on one’s
way to Apple’s bottom line the proof can be found in one financial ratio after the
other. For starters, gross profit margins from 2007, 2008 and 2009 were at 33.96%,
34.34% and 35.96% respectively. Perhaps, if it were not for Apple’s product
diversification, the firm would not have obtained such a high net profit margin. Put
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another way, Apple’s gross profit margin might have been much less had they put all
of most of their eggs in one industry basket, that is, the computer basket; however, it
seems Apple’s iPod/iTunes, iPad and iPhone baskets have helped the company to
make out like bandits.
What’s more, Apple’s net profit margins for year-end, 2008 and year-end, 2009
were 14.88% and 15.61% respectively. Squeezing this much net profit from sales revenue
indicates that management is doing an above average job at maximizing profitability,
keeping a bit over $0.15 for each dollar of sales. This also indicates that management is
keeping the cost of selling goods to a minimum. By comparison, in 2009, The HewlettPackard Company (HPQ) did not even reach a net profit margin of 7%. (www.stockanalysis-on.net, 2013)
Liquidity
Now taking a birds-eye view of a couple of liquidity ratios, which can also be
considered indicators of how durable the company’s safety nets are in terms of its
ability to pay short-term debts. Generally speaking, liquidity ratios lower than 1.0
indicates that a company is unable to pay liabilities within a year or less. A ratio
between 1.0 and 2.0 means just the opposite with ability-to-pay rating higher closer to
2.0. Having stated this, Apple’s current ratios for 2007, 2008 and 2009 were 2.72,
2.77, and 2.79 respectively. Apple’s quick ratio basically reiterates its strong ability
to pay off liabilities at a given notice, even without relying on the sale of inventories.
Apple’s quick ratios are, 2.68 (2007), 2.77 (2008), and 2.76 (2009).
Yet another indicator of Apple’s liquidation capacity is its working capital ratios,
which were 16- million dollars in 2007, 25-million dollars in 2008 and 34.5-million
Case Analysis: Case 10 - Apple Inc. in 2010
23
dollars in 2009. These are big amounts of cash, at least enough to cover liabilities;
however, not so big that they indicate an excessive amount of capital is not being put
to (good) use.
Leverage
Apple’s debt-to-assets ratios were 0.42, 0.46 and 0.48 for 2007, 2008 and 2009.
This means that a little less than 50% of Apple’s assets are owed to creditors. And
Apple’s debt-to-equity ratios were 0.74 in 2007, 0.88 in 2008 and 0.93 in 2009. While
the company has not quite reached 1.0, which would indicate high debt, as of 2009,
the ratio was headed in the wrong direction. By comparison, Google (GOOG) hit its
lowest debt-to-equity ratio of 0.2193 just this year (2013) while Hewlett-Packard hit
its all-time high of 1.233. (www.ycharts.com, 2013).
Activity
Activity ratios are perhaps the most telling in terms of management and
operational efficiency - or the lack thereof. Apple’s activity ratios are favorable,
meaning it is able to quickly turn inventory and other assets into cash. For instance,
its days of inventory, which measures a firm’s management efficiency where fewer
days are better. From 2007 through 2009, Apple’s inventory rolled over, on average,
close to every eight days. This is pretty impressive considering its wide product
selection. This low average is not only indicative of Apple’s ability to manage
inventory but it also indicates that Apple has a good relationship with its many (a
couple hundred) suppliers. Interestingly enough, today, Apple.com lists 17 final
assembly facilities, all but one are located overseas. Considering its days-of-inventory
Case Analysis: Case 10 - Apple Inc. in 2010
24
ratio is close to an eight-day average, its inventory management is even more
impressive. (Our Suppliers, para.1)
Undoubtedly, Apple manages its inventory efficiently, even impressively; but
what about its accounts receivables? Are retailers paying on accounts in due time?
The short answer is, “Yes.” For example, for 2009, average collection period was
33.61 days, which is just three days shy of being net-30 on average, out of hundreds,
maybe even a couple of thousand sellers/retailers - pretty impressive.
Dividends
Apple has not paid one dividend since it went public in 1980. Nevertheless, up until
recently, the public purchased Apple stock just as fervently as they purchase its
products. On April 23, 2013, Apple did declare a cash dividend of $3.05 per share of
the Company's common stock, made payable to shareholders on May 16, 2013. This
announcement came smack-dab in the middle of Apple’s biggest market-value slide.
Reportedly, the Price/earnings (P/E) ratio for Apple today (late-April) is 9.23, which
is very telling because this time last year the P/E ratio was 13.66 and late-April 2009
the P/E ratio was 34.83.
Future Competitive Positioning
As of 2010 Apple continued to up-end technology markets. Mario and Gamble
(2010) reported:
The company’s quarterly revenue of 15.7 billion was its highest-ever quarterly
sales figure, and the company set a new record for quarterly shipments of
computers with 3.47 million Macs shipped during the quarter. The company also
sold 3.3 million iPads by June 26, 2010, close of the quarter. (C-153)
Case Analysis: Case 10 - Apple Inc. in 2010
25
Apple momentum continued to increase for a long while. And although there were a few
bumps in the road, that did not slow Apple’s success down much as all.
Presently,
however, with the lost of Steve Jobs and the pace of growth slowing, skeptics have hinted
that it will be nearly impossible for Apple to continue the level of performance it has
experienced in the past - like two quarters ago. However, between recent share price
slides and missed goals set by analysts, Apple Inc. is under a bit more pressure to produce
the next huge gadget. The iPad mini comes to mind, which was Apple’s answer to
Amazon’s Kindle. However, the iPad mini was merely a retooled innovation - so, not
really an innovation at all.
Having stated all this, if Apple’s ingenuity has been compromised due to the lost
of Jobs, then the organization might need to abandon some of its older strategy elements
and adopt new ones. For instance, the firm could more aggressively market and promote
its existing product lines (computers, iPads and iPhones) and services to the business and
public sectors. More and more, administrative support employment opportunities are
requiring applicants to be Mac savvy. This is telling because there was a time when
organizations insisted on solely using PCs; the halo effect might be growing to
encompass Apple computers as well as iPhones and iPads in the business sector, which
means the public sector would follow. Apple would just need to convince businesses that
they have become a lot more Windows compatible and overall more software
applications friendly and dependable. Even if the majority of businesses aren’t willing to
throw out their PCs and plug in Macs, Apple could position itself to aggressively market
the iPad to businesses, just as they have done in the education sector.
Case Analysis: Case 10 - Apple Inc. in 2010
26
In a nutshell, Apple has an obligation to leave no stone unturned when it comes
to maximizing profits from its current product line and services. However, Apple has set
the expectation that it is the gadget trend-setter and customer loyalty, thus goodwill, will
be tested if Apple doesn’t stay at the forefront of technological innovation. Therefore,
Apple better pull something out of their rabbit’s hat promptly, even if it means stepping
out of their comfort zone.
Case Analysis: Case 10 - Apple Inc. in 2010
27
References
"Apple - Supplier Responsibility - Supplier List." Apple. N.p., n.d. Web. 27 Apr. 2013.
<http://www.apple.com/supplierresponsibility/our-suppliers.html>.
"HPQ - Stock Quote and Charts for Hewlett-Packard." YCharts - Stock Charts, Stock
Ratings & Economic Indicators. N.p., n.d. Web. 27 Apr. 2013.
<http://ycharts.com/companies/HPQ>.
"Hewlett-Packard Co. (HPQ) | Profitability." Stock Analysis on Net. N.p., n.d. Web. 27
Apr. 2013. <http://www.stock-analysis-on.net/NYSE/Company/Hewlett-PackardCo/Ratios/Profitability>.
Gideon, Tim. " Microsoft Zune 120GB Review & Rating | PCMag.com ." Technology
Product Reviews, News, Prices & Downloads | PCMag.com | PC Magazine. N.p.,
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<http://www.pcmag.com/article2/0,2817,2330611,00.asp>.
Gupta, P., & Berkowitz, B. (n.d.). Apple's cash plan takes heat off Cook, buys him time|
Reuters. Business & Financial News, Breaking US & International News
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Thompson, Arthur A., A. J. Strickland, and John Gamble. Crafting and executing
strategy: the quest for competitive advantage: concepts and cases. 17th ed.
Boston: McGraw-Hill/Irwin, 2010. Print.