The Consumer
Products Industry
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Executive Summary
 Computer Hardware Industry
 Computers & Media Are Converging
 To thrive, companies must diversify their product lines and
continually innovate to remain competitive
 Apple
 Apple is making a comeback
 The iPod is a runaway success
Can Apple Capitalize & Overcome Their Own Demons?
The Consumer
`
Products Industry
Consumer Products
A Broad Topic
Consumer Products – Three Categories
Cyclical
Goods
Non-Cyclical
Goods
Apparel/Accessories
Appliance & Tool
Audio & Video Equip.
Auto & Truck Parts
Footwear
Furniture & Fixtures
Jewelry & Silverware
Photography
Recreational Products
Textiles - Non Apparel
Tires
Beverages (Alcoholic)
Beverages (Non-Alcoholic)
Crops
Fish/Livestock
Food Processing
Office Supplies
Personal & Household
Products
Tobacco
Technology
Computer Hardware
Computer Peripherals
Computer Services
Computer Storage
Devices
Software & Programming
WIDE VARIETY OF PRODUCTS CROSSING
MULTIPLE INDUSTRY SECTORS
Area of
Focus
Computer Hardware Industry
The Products
Notebooks
Desktops
PDAs
MP3 Players
Routers
Servers
Storage Devices
The Players
Computer Hardware Industry - Size
Typical Basket of Goods
Computer
Hardware
Industry
0.19% of Typical Basket of
Goods
Apparel
4%
Recreation
6%
Medical Care
6%
Other Goods &
Services
4%
Housing
41%
Education &
Communication
6%
Source: Dept. of Commerce
Transportation
17%
Source: Dec 2004 CPI Report from BLS
Food &
Beverage
16%
Computer Hardware Industry - Size
Computer
Hardware
Industry
GDP
Consumer Products
$147.6 Billion in 2004
Durable Goods
1.3% of GDP
Computers &
Peripherals
Source: Dept. of Commerce
Industry Size & Growth
GDP
$200
$180
$160
$140
$8,000
$120
$6,000
$100
$80
$4,000
$60
$2,000
Total
$40
Computer HW Industry
$20
Source: Dept. of Commerce
20
03
20
01
19
99
19
97
19
95
19
93
19
91
$0
19
89
$0
19
87
Total GDP (Billions)
$10,000
Computer HW Industry GDP (Billions)
$12,000
Industry Size & Growth
% Growth: GDP vs. Revenue
9%
60%
Total
Computer HW Industry
7%
Apple
50%
40%
30%
20%
5%
10%
4%
0%
3%
-10%
Source: Dept. of Commerce & Apple, Inc.
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
-40%
1993
0%
1992
-30%
1991
1%
1990
-20%
1989
2%
1988
GDP
6%
Computer HW Industry & Apple
8%
Market Structure - Oligopoly
Desktop Market
2002
Toshiba
4%
Notebook Market
2002
Apple
3%
Dell
27%
Toshiba
11%
Apple
5%
Dell
24%
Other
36%
Other
32%
IBM
5%
H-P
16%
H-P
19%
Gateway
6%
IBM
12%
Source: U.S. Business Reporter
Market Structure – Oligopoly or Monopoly?
Hard Drive-Based Music
Player Market 2004
iRiver
2%
Creative
3%
Rio
3%
H-P
4%
Apple
88%
Source: www.macobserver.com/article/2004/11/03.2.shtml
Production & Cost Issues
Revenues
$100,000
$90,000
$80,000
IBM
H-P
Dell
Gateway
Apple
Sony
Toshiba
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
Source: www.hoovers.com
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
$0
19
Revenue (millions)
$70,000
Production & Cost Issues
Revenues per Employee
$1,000
$900
$800
IBM
H-P
Dell
Gateway
Apple
Sony
Toshiba
$600
$500
$400
$300
$200
$100
Source: www.hoovers.com
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
$0
19
Revenue (thousands)
$700
Production & Cost Issues
Net Income
$9,000
$7,000
$3,000
-$3,000
-$5,000
Source: www.hoovers.com
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
19
91
-$1,000
92
$1,000
19
Net Income (millions)
$5,000
IBM
H-P
Dell
Gateway
Apple
Sony
Toshiba
Economic Factors for the Industry
 Economic
Consumer Income
Consumer Confidence
Government Spending
 Non-Economic
Brand Image & Brand Loyalty
New Technologies/Obsolescence
Referral Marketing
Natural Disasters, War & Terrorism
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Apple’s Background
"So we went to Atari and said, 'Hey, we've got this
amazing thing, even built with some of your parts, and
what do you think about funding us? Or we'll give it to
you. We just want to do it. Pay our salary, we'll come
work for you.' And they said, 'No.'
So then we went to Hewlett-Packard, and they said, 'Hey,
we don't need you. You haven't got through college yet.'"
--Apple Computer Inc. founder Steve Jobs on attempts to get Atari and H-P interested
in his and Steve Wozniak's personal computer.
Apple’s Background
1976
The Beginning
Steve Wozniak creates
Apple I
Steve Jobs sees potential
and insists they sell it
together -- Apple is born
1985 -1997
The Missteps
The GUI wars and the
decision not to license
the Mac OS
Leadership issues
Supplier issues
Apple I is sold without
monitor or keyboard (mini
mac concept not new)
Left in the dust because
of incompatibility
Failed products
(Performa, Lisa, Newton)
1997 - Present
The Rebound
Steve Jobs the CEO,
take 2
A succession of hits
– iMac
– iBook
– iPod
– iPod Mini
Revolutionizes the Music
Industry with iTunes
Apple’s History of Innovation
Newton
PDA
iTunes
Mac & PC
PowerMac G3 &
Powerbook G3
Mac
First Apple
Computer
Apple III
70’s
Apple Disk II
PowerMac G4
Cube
PowerMac
80’s
90’s
2000 - 2005
New
iMac
Mac II
Performas
Powerbooks
iMac &
iBook
5 consecutive
quarters of profits.
Turnaround is in
full swing
Source: www.apple-history.com
The iPod’s Success Factors
Accessories
PC and MAC Compatible
Design
iTunes Music Store
Auto Integration
Apple’s Demand Factors - Income
Income
Income
As income of
consumers fall, it
puts downward
pressure on Demand
Curve for Apple’s
premium products.
Apple’s products are
normal goods
When income rises,
demand for their products
increases
As Income of
consumers rises,
demand for Apple’s
premium products
increases.
Quantity
Prices of
Related Goods
Price
Apple’s Demand Factors – Prices of Related Goods
Apple faces negative
pressure on their
demand curve when
competitors reduce
prices
Substitutes
Computers made by
other manufacturers
Complements
Software
Peripherals
Internet service
Apple must continue
to innovate in
computers and addons to counter pricing
pressure
Quantity
Apple’s Demand Factors – Taste
Price
Taste
Apple faces negative
pressure on their
demand curve when
competitors
introduce products
that attract
consumers away
from Apple products
Industry leader in design
and quality
Brand image
“Cool” factor
“Must have” gadgets
Apple must continue to
make the coolest and
most stylish products
to keep and attract
customers
Quantity
Apple’s Demand Factors – Expectations
Price
Expectations
Apple faces negative
pressure on their
demand curve when
consumers decide to
not purchase current
products because they
expect better products
in the future
Consumers expect the
coolest products from
Apple
Consumers expect to pay
premiums for these
products
Apple must keep new
innovations secret to
avoid reductions in
demand for current
products
Quantity
Apple’s Demand Factors – Number of Buyers
Price
Number of
Buyers
Apple faces negative
pressure on their
demand curve when
competitors are better
able to attract
customers (buyers)
Apple historically has
catered to a niche market
It now wishes to attract the
mass consumer market
Apple must continue to
offer products that will
attract new buyers to
the Apple brand
Quantity
Apple’s Production & Cost Issues
Quality
Defects in:
Design or Manufacturing
Inventory
High or Low Levels of
product components
Third
Parties
High reliability on third
parties to manufacture
and transport products
=
Decreased Sales
&
Decreased Profits
=
Negative effects on
Operating Results and
Financial Condition
=
Lots of headaches and
potential negative
effects on Operating
Results and Financial
Condition
Apple’s Market Power
Top Global Brand
(Brandchannel.com)
98 U.S. and 4 International
Retail Locations
21 Online stores around the
world
Over 17 Strategic
Partnerships
Innovative Product
Design
Stiff Competition
Computers
Digital Music Players
Music Download Services
Strategies and Goals
Continue to Innovate
Maintain Digital Music Lead
Expand Distribution
Network
Appeal to Mass Market
Keep Costs Low and
Quality High
Leverage Designs of
Hardware and Software
Invest in New Product
Areas and R&D
Apple is committed to
bringing the best
personal computing
and music experience
to students, educators,
creative professionals,
businesses and
consumers around the
world through its
innovative hardware,
software, peripherals
and Internet offerings.
Apple Inc., ‘04 Annual Report
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Economic
Environment
Apple Revenues
1997
Sales (millions)
Macintosh Net Sales
iPod
Other Music Products
Other Services & Products
Total
Units (thousands)
Macintosh Net Sales
iPod
Avg Sales Price
Macintosh Net Sales
iPod
Gross Margin
1998
1999
2000
2001
2002
2003
$ 5,671 $ 4,862 $ 5,082 $ 6,885 $ 4,403 $ 4,534 $ 4,491 $
143
345
4
36
1,410
1,079
1,052
1,098
960
1,061
1,335
$ 7,081 $ 5,941 $ 6,134 $ 7,983 $ 5,363 $ 5,742 $ 6,207 $
2,874
-
2,763
-
3,448
-
4,558
-
3,087
-
3,101
381
3,012
939
2004
4,923
1,306
278
1,772
8,279
3,290
4,416
$ 1,973 $ 1,760 $ 1,474 $ 1,511 $ 1,426 $ 1,462 $ 1,491 $ 1,496
n/a
n/a
n/a
n/a
n/a $
375 $
367 $
296
19%
25%
28%
Source: Apple, Inc.
27%
23%
28%
28%
27%
Apple Revenues
$9,000
$8,000
iPod
$7,000
$6,000
Other Music
Products
$5,000
$4,000
Other Services &
Products
$3,000
$2,000
Macintosh Net
Sales
$1,000
$0
1997 1998 1999 2000 2001 2002 2003 2004
Source: Apple, Inc.
Apple Revenues
$12,000
Apple Revenues (millions)
$10,000
$8,000
$6,000
$4,000
$2,000
$0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: Apple, Inc.
Apple vs. GDP
$12,000
$14,000
$12,000
$10,000
GDP
Consumer Products
Computers &
Peripherals
$8,000
$8,000
$6,000
$6,000
$4,000
$4,000
$2,000
$2,000
$0
$0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: Dept. of Commerce & Apple, Inc.
GDP (billions)
Apple Revenues (millions)
Durable Goods
$10,000
Apple vs. Consumer Products
$12,000
$9,000
$8,000
GDP
Consumer Products
$10,000
$7,000
$8,000
$6,000
$5,000
$6,000
$4,000
$4,000
$3,000
$2,000
$2,000
$1,000
$0
$0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: Dept. of Commerce & Apple, Inc.
Consumer Products (billions)
Apple Revenues (millions)
Durable Goods
Computers &
Peripherals
Apple vs. Durable Goods
$12,000
$1,200
$10,000
$1,000
GDP
Consumer Products
$8,000
$800
$6,000
$600
$4,000
$400
$2,000
$200
$0
$0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: Dept. of Commerce & Apple, Inc.
Durable Goods (billions)
Apple Revenues (millions)
Durable Goods
Computers &
Peripherals
$12,000
$120
$10,000
$100
$8,000
$80
$6,000
$60
$4,000
$40
$2,000
$20
$0
$0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source: Dept. of Commerce & Apple, Inc.
GDP
Consumer Products
Computers & Peripherals (billions)
Apple Revenues (millions)
Apple vs. Computer & Peripherals
Durable Goods
Computers &
Peripherals
Apple’s Focus on R&D
Apple
Dell
HP
IBM
R&D $
(millions)
$489
$464
$3,506
% of Net
Sales
$5,673
5.9%
6.0%
1.1%
5.0%
“It took us three years to build the NeXT computer. If
we'd given customers what they said they wanted, we'd
have built a computer they'd have been happy with a
year after we spoke to them - not something they'd want
now. “
Steve Jobs
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Forecasts &
Projections
Forecasts & Projections
Computer
Media
The Computer
Hardware
Industry
&
Recommendations for Apple
 Continue making “must have” products
 Leverage the power of the iPod
 Stay ahead of the competition
 Partner with companies that complement the Apple brand
 Expand retail footprint
 Keep costs low and quality high
 Increase market share in the education, business and
government sectors
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