1

Apple Inc.: Performance in a Zero-Sum World Economy

I. Current Situation:
A. Current Performance
Apple Founded in a California garage on April 1, 1976, Apple created the personal computer
revolution with powerful yet easy-to-use machines for the desktop. The company designed,
manufactured, and marketed a range of personal computers, mobile communication and media
devices, and portable digital music players, and sold a variety of related software, services,
peripherals, networking solutions, and third-party digital content and applications. The
companys products and services included Mac computers, iPhone, iPad, iPod, Apple TV,
Xserve, a portfolio of consumer and professional software applications, the Mac OS X and iOS
operating systems, third-party digital content and applications through the iTunes Store, and a
variety of accessory, service, and support offerings. The company sold its products worldwide
through its retail stores, online stores, and direct sales force, as well as third-party cellular
network carriers, wholesalers, retailers, and value-added resellers. In addition, the company sold
a variety of third-party Mac, iPhone, iPad, and iPod compatible products, including application
software, printers, storage devices, speakers, headphones, and various other accessories and
peripherals through its online and retail stores. The company sold to SMB, education, enterprise,
government, and creative markets.
The early success of Apple was attributed largely to marketing and technological innovation. In
the high-growth industry of personal computers in the early 1980s, Apple grew quickly, staying
ahead of competitors by contributing key products that stimulated the development of software
for the computer. Landmark programs such as Visicalc (forerunner to Lotus 1-2-3 and other
spreadsheet programs) were developed first for theApple II.Apple also secured early dominance
in the education and consumer markets by awarding hundreds of thousands of dollars in grants to
schools and individuals for the development of education software.
In 1985, amid a slumping market, Apple saw the departure of its founders, Jobs and Wozniak. As
Chairman of the Board, Jobs had recruited John Sculley, an experienced executive from PepsiCo,
to replace him as Apples CEO in 1983.
In May 2001, the company announced the reopening of Apple Retail Stores. Like IBM and
Xerox, Apple had opened its own retail stores to market its computers during the 1980s. All such
stores had been closed however, when Wintel-type computers began being sold by mass
merchandisers, such as Sears and Circuit City, as well as through corporate websites.
Apple introduced the iPod portable digital audio player, and the company opened its own iTunes
music store to provide downloaded music to iPod users. Given the thorny copyright issues
inherent in the music business, analysts doubted if the new product would be successful.
In 2002, Apple introduced a redesigned iMac using a 64-bit processor. The iMac had a hemi-
spherical base and a flat-panel all-digital display. Although it received a lot of press, the iMac

2
Apple Inc.: Performance in a Zero-Sum World Economy
failed to live up to the companys sales expectations. In 2004 and 2005, Apple opened its first
retail stores in Europe and Canada. By November 2006, the company had 149 stores in the
United States, 4 stores in Canada, 7 stores in the United Kingdom, and 7 stores in Japan.
In 2006, Jobs announced that Apple would sell an Intel-based Macintosh. Previously, Microsoft
had purchased all of its microprocessors from Motorola.
While delivering his keynote speech at the Macworld Expo on January 9, 2007, Jobs announced
that Apple Computer, Inc. would from that point on be known as Apple Inc., due to the fact that
computers were no longer the singular focus for the company.
In July of the following year, Apple launched the App Store to sell third-party applications for
the iPhone and iPod Touch. Within a month, the store sold 60 million applications and brought in
$1 million daily on average, with Jobs speculating that the App Store could become a billion-
dollar business for Apple.
In September 2010, Apple refreshed its iPod line of MP3 players, introducing a multi- touch
iPod Nano, iPod Touch with FaceTime, and iPod Shuffle with buttons. In October 2010, Apple
shares hit an all-time high, eclipsing $300.Additionally, on October 20,Apple updated its
MacBook Air laptop, iLife suite of applications, and unveiled Mac OS X Lion, the latest
installment in itsMac OS X operating system. On November 16, 2010,Apple Inc., after years of
negotiations, finalized a deal to allow iTunes to sell The Beatlesmusic at $1.29 per song. The
fivemajorWeb-TVboxes were (1)Apple TV, (2) Boxee, (3) Google TV, (4)WDTVHub, and (5)
Roku.
On January 18, 2011, Apple announced its first quarter results, which surpassed the analysts
expected results. Key financial results are shown below:
First Quarter December 31 2011 (Dollars in Thousands except per Share)
Revenue $26,741
Gross profit $10,298
Total operating expenses $2,471
Net income $6,004
EPSBasic $6.53
EPSDiluted $6.43
B. Corporate Governance
Board of Directors:
Fred A. Anderson Director 61 2004
William V. Campbell Co-lead Director 65 1997

3
Apple Inc.: Performance in a Zero-Sum World Economy
Millard S. Drexler Director 61 1999
Albert A. Gore Jr. Director 57 2000
Steven P. Jobs Director and CEO 50 1997
Andrea Jung Co-lead Director 51 2008
Arthur D. Levinson, PhD Co-lead Director 55 2000
Jerome B. York Director 67 1997
C. Top Management
The Apple Board of Directors rewarded Cooks performance in covering for Jobs in hisday-to-day operations as
CEO with a $5 million bonus and $52.5 million in stock options. The companys financial performance excelled
during these six months. A side effect of Jobs latest announcement was the indefinite delay in the announcement
of the launch of Rupert Murdocks iPad-only newspaper The Dailywhich had been scheduled to take place later
in January 2011 in San Francisco.20Ashareholder proposal for the 2011 Apples Annual Meeting focused on
asking the board for an executive succession plan and publishing the plan. The board opposed this proposal.
Steven P. Jobs, CEO and Directors
o Directors
o Co directors
William V. Campbell
Andrea Jung
Arthur D. Levinson, PhD
o Executive
Dr. Avdias Avie Tevanian Jr.
Timothy D. Cook (COO)
Nancy R. Heinen Senior Vice President and General Counsel
Ron Johnson Senior Vice President Retail
Dr. Avdias Avie Tevanian Jr.Chief Software Technology Officer
Jon Rubinstein, Senior Vice President, iPod Divison
Philip W. Schiller,Senior Vice President, Worldwide Product Marketing
Bertrand Seriet, Senior Vice President, Software Engineering
Sina Tamaddon, Senior Vice President, Applications

4
Apple Inc.: Performance in a Zero-Sum World Economy
II. External Environment
A. General Environment
Apple Care offered a range of support options included assistance that is built into software
products, printed and electronic products manuals. The company competitive factors which is
affecting both the organization and the industries included price product features , product
quality and reliability, marketing & distribution capability and corporate reputation. The
company is focused on expanding its market opportunities related to mobile communication and
media devices, including iPhone and iPad. The mobile communications and media device
industries are highly competitive and included several large, well funded, and experienced
participants. (In 2010, only AT & T was the carrier for the iPhone. Verizon began selling a
version of the iPhone in early 2011. AT & T activated 11 million iPhone accounts in the first
nine months of 2010. Before Verizon, the iPhone had been exclusive to AT & T since its launch
in 2007). The company managed its business primarily on a geographic basis. The companys
reportable segments considered of the Americas, Europe, Japan, Asia-Pacific and Retail. The
Americas, Europe, Japan, Asia-Pacific reportable segments did not include activities related to
the Retail segment. The companys iPod and digital content services faced significant
competition from other companies. Marketing condition (Only large companies and government
were the potential customers since retail buyers only accounted for 47% of sales).
In summary, Apple Inc., together with subsidiaries, designs, manufactures, and markets mobile
communication and media devices, Its products and services include iPhone, iPod, Mac, iPod, a
range of consumer and professional software applications. The company sells its products and
services to consumers
B. Industrial Environment
Every market including the financial industry can be evaluated through the use of Porter's five-
force theory. Porter's uses the five forces, supplier power, barriers to entry, threat of substitutes,
buyer power, and the degree of rivalry, as tools that help analyze a company's position against its
competitors

Threat of New Entrants:

Startup costs are extremely high so the probability of new entrants is low. The existing
companies have capitalized on the distribution channels and have created strong branding
awareness that makes it difficult for new comers to compete.

Bargaining Power of Suppliers:


5
Apple Inc.: Performance in a Zero-Sum World Economy
Bargaining Power of Suppliers adjust pricing and quality to make their products more attractive
so competition is high leaving them in a low supplier power position.

Bargaining Power of Buyers:

All of Apple's customers have a variety of computer companies from which to chose when it
comes to purchasing hardware, software, or peripherals. Switching costs are low. The buyer has
the ability to switch when quality, service or price offered elsewhere is better or cheaper. This
situation places the buyer power in a strong position that can only be countered by companies
with strong product differentiation that would increase the switching costs.

Threat of Substitute Products:

Apple's operating system differentiation can command higher pricing when it is presented to the
creative designer community but not to the individual computer buyer unless they are
specifically looking for such enhanced graphic capabilities.

Rivalry among competing Firms:

Apple has many competitors that have the advantage of possessing the larger portion of market
share. Apple is faced to compete against companies like IBM, Hewlett-Packard, and Dell. Even a
smaller company like Gateway poses a threat. Competition is fierce in the computer hardware
industry and switching costs are low. Apple is also reliant on promoting its own operating
system.

C. Summary of External Forces
The opportunities Apple's pursuit of the music industry through its iTunes also provides
a good opportunity to increase Apple's bottom line and also increase brand awareness. The main
Threats is Very competitive industry The market for design, manufacturing, and sales are all
extremely competitively aggressive in Apple's business.. Price competition, including sellers
with computers with other operating systems, has been very intense as the battles for increased
market share rise.


6
Apple Inc.: Performance in a Zero-Sum World Economy
III. Internal Environment
A. Corporate Culture
The company managed its business primarily on a geographic basis. The companys reportable
operating segments consisted of the Americas, Europe, Japan, Asia-Pacific, and Retail. The
Americas, Europe, Japan, and Asia-Pacific reportable segments did not include activities related
to the Retail segment. The Americas segment included both North and South America. The
Europe segment included European countries, as well as the Middle East and Africa. The Asia-
Pacific segment included Australia and Asia, but did not include Japan. The Retail segment
operated Apple-owned retail stores in the United States and in international markets. Each
reportable operating segment provided similar hardware and software products and similar
services.
Each of the five operating centers is discussed below.
1. Americas
2. Europe
3. Japan
4. Asia-Pacific
5. Retail
B. Organizational Activities Analysis
Marketing:
Finance:
Operation and Logistic:
Human Resources Management:

7
Apple Inc.: Performance in a Zero-Sum World Economy
C. Capabilities/ Core Competencies
D. Summary of Internal Factors
IV. Analysis Strategic Factors
A. SOWT Analysis
V. Identification of Strategic Issues
VI. Strategic Alternatives and Recommendations
Consider cost leadership and differentiation as business strategies.
Consider stability, growth, and retrenchment as corporate strategies. Consider any
functional strategic alternatives that might be needed for reinforcement of an
important corporate or business strategic alternative
D. STRATEGIC ALTERNATIVES
Apples strengths can be attributed to many factors. First, Apples premium-price
or product differentiation strategy as well as their retail strategy have proven to be
essential to Apples past and will continue to play a vital role in Apples future. As
a result of their past success as recognition as innovators, Apple has attracted
the attention of many companies whom have recognized Apples potential
for successful strategic alliances For example, Apples successful alliance
with AT&T, provided Apple with the opportunity to improve their iPhones
technology. Apple was able to the lower the iPhones price to consumers, as
well as, up-grade the iphones network coverage. In addition, Apple entered
into partnerships with YouTube and Google in order to provide their iPhone users
with cutting edge search, mapping, and video features. These partnerships
allow Apple to further differentiate their products and add value to their users.
Similarly, Apples reputation as a STRATEGIC ALTERNATIVES Apples
strengths can be attributed to many factors.
Some customers do not recognize the value that Apples attempts to create for their
customers. Price sensitive consumers are reluctant to buy Apples products.
Similarly, customers seeking highly customized computers may not choose Apple.

8
Apple Inc.: Performance in a Zero-Sum World Economy
For example, Dell, one of Apples biggest competitors and one of the top four P.C.
producers, offers customers array of bundling options when purchasing a
computer. This allows customers to choose hardware and software components as
well as somewhat control the price of the computer. Instead, Apple offers their
computer customers packages with very few customization options.
Secondly, a problem for Apple exists in their reliance on Apples C.E.O., Steve
Jobs. Jobs has been a guiding force at Apple, acting as Apples savior
when the company saw their lowest financial numbers in 2002. Steve Jobs
was responsible for Apples expansion and the introduction of one of Apples most
profitable products, the IPod. There is a question as to if Apple could continue to
operate as they do currently in the absence of Steve Jobs. Still, there are
alternatives to Apples current problems In regards to Apples low market issues,
an alternative would be to add a product with a lower price point to Apples current
product line. Similarly, an alternative to Apples reliance on Steve Jobs, would be
to create another executive position for someone act as liaison between Apples top
executives and Jobs. Thus, preparing Apple for the post Steve Jobs era. In lieu of
their drawbacks, Apple is still presented with opportunities to experience growth
and success. Apple has established itself as a continuous innovator in the
ever changing electronics
Apple is continually working to produce products with improved compatibility,
allowing their customer more flexibility and increasing the ease-of use of their
products. By continuing with their premium price or price differentiation and
retail strategies Apple can continue strive and uphold their reputation as an
innovator in the electronics industry.
E. RECOMMENDATION
When Apple first entered the computer industry, they were first movers. They were
able to revolutionize the way home computing was both viewed and accessed. This
naturally have them a large market share, especially with the huge successes of the
Apple II. However, IBM soon entered the market with a more user friendly and
compatible computer and Apple saw their market share on the industry drop
dramatically to 6.2%. Ever since then, Apple has trailed the computer industry
leaders in market share However, in more recent years, they have seen many
successes from targeting a smaller market of trendy, higher quality customers that

9
Apple Inc.: Performance in a Zero-Sum World Economy
are devoted to their company. While maintaining a low market share of the
computer industry, Apple has continued to produce a quality product. This quality
has been seen throughout all of its many products and is not viewed as a lesser
product compared to the competition. In addition to the quality, Apple has always
been able to make more of a profit off of its computers than other distributors.
Because of the reliance of companies like Dell and HP on Microsoft's Windows
operating system, almost half of their revenues are cut by paying back Microsoft
for using their product. This quickly turns Apple's small market share into an
extremely profitable market share. Apples low market share is turning far more
profit per percentile than their competition because while Apple is making money,
the other companies are usually only reaching their break-even point or slightly
above.In addition to the competition that is seemingly strangling Apple's computer
market share they must also battle against an economic downturn that has affected
the whole industry. While all companies have seen a slow in sales and a loss of
profits, Apple' has seen a greater loss in its computer revenues. Because of the
nature of Apple's products, they are seen more as high-end items and more
expensive luxuries rather than as necessities. Because of this many people are
buying cheaper, lower quality computers from customized manufacturers in order
to save money. Normally, this would lean Apple towards developing a lower
priced computer that could compete with these personal computer models
However, this strategy has been tested before with the Mac Mini. What Apple
found was that the sales of the Mac Mini were cannibalizing on the sales on other,
more expensive models. This previous failure should be viewed as a warning and
disclaimer against any further pushes into the low-cost market.
One Apple product that will never be viewed as a failure is the iPod. Contrary to
Apple's computers, the iPod has a giant lead over the competition when market
share is concerned. Because of its success, it has introduced an entire generation to
the Apple brand. By using the iPod as a gateway, Apple will continue to push its
trendy image to new customers in order to gain more and more computer
customers.
Apple will look at further expanding on their small but efficient market share.
However, with the current Microsoft user base, it is going to be increasingly
difficult. The company will focus on its core competencies in order to stay
successful. Apple's customers are incredibly dedicated. Many people that buy Mac

10
Apple Inc.: Performance in a Zero-Sum World Economy
computers continue to buy more Mac computers as well as other Apple branded
products, hardware, and software. Even though this is deemed as a niche market,
Apple would be foolish to try to take the world of Microsoft and PC distributors
head on. The difference in market shares is far too large. By focusing on their
current customers and slowly expanding this base, Apple will try to better position
itself for a future attempt to capture back the market share that it maintained many
years ago. During the time that Jobs was absent from Apple, the company had a
long period of ups and downs. New products were released to both success and
failures. It was during this time, however, that their status as a niche market retailer
began to form. Apple customers were extraordinarily loyal. Many people were
buying IBM and other personal computers because they had a need for the devices.
On the other hand, many people were buying Apple brand computers because they
wanted an Apple machine.
Due to this increasing amount of dedication to the company, Apple was able to
charge a higher price for their high-end, high-quality computers. This allowed
them to stabilize financially as well as discover a new identity as a company.
After this new identity was established and Steve Jobs was reestablished as CEO of
the company, Jobs was able to take this identity and expand on it. By targeting
their now niche market, he was able to follow a product differentiation strategy to
turn the company around. With the release of the iPod and iPhone, he was able to
tap into markets and succeed in areas that were previously never explored or
considered. Even though the deficit in computer industry market share remained
relatively unchanged, Jobs foresight allowed Apple to reach new levels of
profitability and success.
Whether the Apple enthusiasts like it or not, Steve Jobs will not be around forever.
While he has done great things for the company, he has left Apple in a precarious
situation. What will Apple do when he leaves? Apple's last response to not having
Steve Jobs as their CEO was eventually to rehire him as CEO. In order to survive
once he is no longer leading the company, Apple needs to begin depending less on
Steve Jobs and balancing responsibilities throughout the company and among
select individuals. In order to prepare for Jobs future absence from the company,
Apple will look ahead and find a future replacement for Jobs. In order to sustain
peace in the Apple world, such a replacement will preferably be chosen by Jobs
himself. That way, the replacement will be able to learn and continue Jobs success

11
Apple Inc.: Performance in a Zero-Sum World Economy
as the company when Jobs role was reduced to that of a chief advisor or to that of
no role at all. Continuing the Jobs to prepare for Jobs future absence from the
company, Apple will look ahead and find a future replacement for Jobs. In order to
sustain peace in the Apple world, such a replacement will preferably be chosen by
Jobs himself. That way, the replacement will be able to learn and continue Jobs
success as the company when Jobs role was reduced to that of a chief advisor or to
that of no role at all. Continuing the Jobs

VII. Evaluation and Control
In the long term A&F should continuously look for more opportunities to invest in overseas for
expanding into the European and Asian markets. And for the short term, A&F could emphasize
on online shopping, sponsoring college events, re-evaluating the needs and preferences of its
target market, improve its customer service and review the choice of magazine were A&F places
ads. With such a dynamic management team and the desire to the specialty apparel by storm,
they configure out a way to remain exclusive without being insulting and hurtful.