A SWOT Analysis of Apple

Howard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited. One of the most talked about stories of 2013 is the fall of Apple (NASDAQ: AAPL). Falling from their 52 week high of $705 down to $419 has got everyone talking about the future of Apple. You cannot read or watch investing news without hearing about where Apples stock price could eventually end up; estimates range from to below $400 to $1000. One of the best ways to cut through the hype and develop a clear picture of a company is to use a SWOT analysis. Here I go through the strengths, weaknesses, opportunities, and threats of Apple. Strengths -Apple is one of the most recognizable brands in the world. Interbrand ranked Apples brand at No. 2 most valuable brand, behind only The Coca-Cola Company, valued at $76.5 billion. -Most discussion surrounding Apple today is the large amount of cash holdings it has stockpiled. As of right now Apple has over $40 billion in cash; coupled with no debt Apple has the power to, under much speculation, purchase other companies, institute stock buyback programs, or to increase its dividend yield. -Apple has been regarded as one of the most innovative companies in technology. Starting in 1984 with their Macintosh personal computer Apple continues to produce market disrupting products like the iPod, iPhone, and iPad. Forbes named Apple the 5th most innovative company in 2011 and the No. 26 in 2012. -Starting in 2001 Apple started to build retail stores. As of 2012 there 395 retail stores worldwide. Apple stores are the most profitable stores earning $5,647 per square foot. Weaknesses -Apples iPad has been the undisputed king of the tablet computer market. In 2010 the iOS operating system accounted for 83.9% of the tablet market. Fast forward to 2012 Apple is still on top with 53.8% of the tablet market; a respectable majority of the market but a quickly declining share. Who was responsible for the decline of Apple? Google (NASDAQ: GOOG) with their Android operating system has started to challenge Apple in the tablet market. In 2010 the Android OS accounted for only 14.2% of the market, by the end of 2012 it has skyrocketed to 42.7% of tablet computers sold. -Since 2011 Apple has been going through major management changes. In 2011 Apple lost its famous visionary CEO Steve Jobs, himself an icon of the company, to cancer. Tim Cook became the new CEO and has had mixed responses during his tenure. In 2012 retail chief John Browett and iOS chief Scott Forstall both announced they would be leaving the company. John Browett left immediately and Scott Forstall will stay as an advisor and leave in 2013.

Opportunities -Apple is in a good position to capitalize on the increasing demand for smartphones. The smartphone market is estimated to have a compound annual growth rate of 12.56% from 2013 to 2016. With the iPhone the top selling smartphone Apple has an opportunity in emerging markets like China and India. -With the $40 billion in cash that Apple has reserved they have the potential to buy up companies with patents that would allow Apple to grow past the limit that their current patents restrain them to. -Also with the potential for increasing iPhone and iPad sales comes more earning potential for Apple's mobile advertising model iAd. iAd allows for third party developer of apps on the iOS OS to embed iAd and earn revenue from advertising, while Apple takes 70% of the ad revenue which gives a large potential of earnings for Apple Threats -Googles Android operating system is currently the biggest threat to Apple. As of 2012 the Android OS has claimed 42.7% of tablet sales. Android smartphone sales have increased from 57.5% of total smartphones worldwide in 2011 to 75% of smartphone sales in 2012. The Android OS seems to be growing too fast for Apple to keep up with. -A new threat that Apple has to watch out for is BlackBerry (NASDAQ: BBRY) attempt to reestablish themselves in the smartphone market with the BlackBerry 10 operating system and new smartphones Z10 and Q10. With over 1 million new BlackBerry devices already sold BlackBerry looks to be off to a good start for regaining its place in the smartphone market. -Samsung currently provides Apple with components for most of their products including NAND flash memory, mobile processors, displays and more. Apples dependency on Samsung for their high tech components can become a problem for Apple. In 2011 Apple spent $7.8 billion on Samsung components; by the end of 2012 that number increased to $11 billion. Apple is expected to increases its expenditure to Samsung over the next two years which leaves Apple exposed to price increases from Samsung which Samsung has previously pressured Apple over.