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Introduction

Apple Inc. is an American multinational corporation headquartered in Cupertino, California, that


designs, develops, and sells consumer electronics, computer software, online services, and
personal computers. It was established on Apr 1, 1976 by Steve Jobs, Steve Wozniak and Ronald
Wayne. Its best-known hardware products are the Mac line of computers, the iPod media player,
the iPhone smartphone, and the iPad tablet computer. Its online services include iCloud, iTunes
Store, and App Store. Apple's consumer software includes the OS X and iOS operating systems.
Its products are sold in more than 120 countries in which India, China, US and European
countries like Germany, Italy, France, Spain etc are major user of Apples product.
Vision
In Vision statement, Apple outlines what it wants to be and it wants the worlds in which it
operates to be. Apples vision is of long term and focus on the future. It can be emotive and is a
source of emotion. Apple clearly says that we are constantly focusing on innovation. We believe
in deep collaboration and cross-pollination of our group, which allow us to innovate in a way
that others cant.
Mission
The mission statement of Apple Inc defines the fundamental purpose of organization and
describes why it exists and what it should do to achieve its vision. Apple designs best personal
computers and operating system Mac OS. It leads the digital music revolution through iPod,
iTunes and online music stores. The iPhone has always been a flagship product of Apple and
constantly will be improving.
Business Strategy
Companys has always been a goal of providing the best user experience through technological
advancement and innovation in various product segment like computer, OS, iPad, iPhone, Music
store etc. As a part of strategy, company is providing a single platform - itunes stores to provide
third partys digital content and application. Through iTune store, customer can easily download
music, apps or books directly on their Mac Book or iPhone. Company also support a community
to develop third party software, hardware and digital contents that are offered in the complement
of Apples products and services. Companys strategy involves expansion of retail and online

stores and third party distribution network to reach more customers. Apple is highly committed
to research and development and it is always being a part of its business strategy.
Key points of Corporate Governance
Apple is committed to do business ethically, honestly and in full compliance with laws and
regulation. While dealing with third party for business Apple has always put zero tolerance
approach against corruption. It encourages a creative, culturally diverse and supportive work
environment for its employees. It doesnt tolerate any harassment or discrimination based on
factors such as race, gender, religion, color, marital status, identity characteristics or expression.
Apple gives the highest value of any invention of its employees and protect through patents and
copyrights. The compensation and benefits to the employees, directors and CEO are according to
the companys norms and in line of corporate governance bylaws. According to the Cook, CEO,
Apple has shown a more conciliatory approach when dealing with investors. The company has
instituted in 2013 one of the largest dividend and buyback programs among U.S. companies after
years of shareholder requests (2014). Apple has put it best effort to maintain the integrity of
corporate governance. Its ranking was 2 in the list of companies with low corporate governance
risk (2011).
PESTLE Analysis of Apple
Half of the Apple Inc products are sold in countries other than America. It manufactures most of
products parts outside the US like Czech Republic, Ireland, China, Korea and Cork, therefore
the bad political relation of US with other countries may affect the companys operation.
Inflation, recession and currency exchange rate are three important factors that can influence the
Apples Business. Since Apple has portfolio of luxurious products, recession and inflation may
hamper the sales while countrys respective economical condition may adversely affect the
exchange rate that consequently lower the Apples performance.
Apple products are still the social status of people and due to high purchasing power of
individuals; Apples product will also be in demand.
Apple spends a significant portion of revenue on research and development. With the passage of
time, technology gets obsolete fast and therefore continuous innovations and technological
development are demanded to keep abreast of competitors.

Apple has been a participant in various legal proceedings and claims since it began operation.
Apple has been in number of patent cases in which clashes with Nokia and HTC in 2009 and
2010 was major one. Apple is still in litigation matter with Samsung over $2 billion over
infringement on software patent (www.digitaltrends.com, Apr14).
Apple takes a comprehensive approach to environmental responsibility. Its commitment to have
environment includes properly disposing of electronic equipment at the end of its useful life. It
responsibly recycles the computers and display.
Market Analysis
The industry in which Apple operates includes a wide variety of products, from mp3 player to
personal computers and from cell phones to tablet computers. Due to the dynamic nature of the
industry, most of the companies operating in this industry faces severe competition, but due to
the distinctive combination of design and price, Apple Inc has been be able to capture 65% of the
market share of the portable music segment. Similarly, in the personal computer market niche it
has been able to hold a market share of 2% (O'GRADY, J, 2009). Apples iphone and Tablet PC
are two flagship products that have great number of users across the globe. The figure 1 shows
the country wise smart phone user distribution across the world.

The figure 2 shows the quarter wise global market share held by leading smart phone from 4 th
quarter 2009 to 3rd quarter 2014.

The other figure 3 shows the mobile OS wise global market share held by leading smart phone
manufacturers as till Dec13.

If we analyze the tablet user distribution, then the figure 4 shows the global market share held by
major tablet vendors from 2nd quarter 2011 to 3rd quarter 2014.

Financial Performance
Following table shows condensed Income statement and balance sheet of Apple Inc from year
2010 to 2014.

Source: Selected financial statement from companys annual report (10-K)

The following table shows the quarterly revenue from different operating system and products:

Source: Companys quarterly report (10 - Q)


From the Apples proxy statement, directors compensation details are as follows:

Source: Companys Proxy statement (Def 14a)

Apple Inc has faced frequent up-down in its financial performance since its inception. From the
last two years, the revenue and earnings has been increasing but at diminishing growth rate. Two
get more insight into financial performance; key ratios are analyzed for last five years that are
tabulated as follows:
Ratio

2010

2011

2012

2013

2014

40.5
31.2
23.95

43.9
35.3
26.67

37.6
28.7
21.67

38.6
28.7
21.61

1.61
1.35

1.5
1.24

1.68
1.4

1.08
0.82

19.9

19.2
112.1

14.22

11.96

Inventory Turnover
52.51
Fixed Assets Turnover 16.89
Asset Turnover
1.06
Ratio for shareholders
Earnings Per Share

70.53
17.26
1.13

2
13.48
1.07

83.45
10.67
0.89

57.94
9.82
0.83

USD
2.16
Dividends USD
Payout Ratio %
Book Value Per Share

3.95

6.31
0.38
6

5.68
1.63
28.7

6.45
1.81
28.1

17.98
42.84

19.63
30.64

19.02
33.61

Profitability Ratio
Gross Margin %
39.4
Operating Margin %
28.2
Net Margin %
21.48
Liquidity/Financial Health
Current Ratio
2.01
Quick Ratio
1.72
Efficiency
Receivables Turnover 14.71

USD
Return on Equity %

7.45
11.78
35.28
41.67
Table 1

In year 2013 and 2014, Apple Inc, has shown almost equally poor performance. In the year
2014, Gross margin and operating margin both has gone down to lowest in last five years. Net
profit margin has also touched the level of 21.61%, which is same as of year 2010. As far as
liquidity is concern, Apple Inc has been showing lower liquidity since year 2010. In year 2010,
both current and quick ratios were 2.10 and 1.72 respectively, but in current year 2014, it touched
the level of 1.08 and 0.82. Lower liquidity shows that Apple Inc has been facing liquidity crunch
specifically for last two years. However, liquidity ratios are not at severe level but must have to
ensure not fell down further in future. If we talk about the efficiency, Apple has showed poor
performance in this regard too. Apple Inc improved its efficiency in year 2011 and 2012 but
afterwards, again it declined and in the current year 2014, all the efficiency ratios like receivable

turnover, inventory turnover and asset turnover touched the lowest. It gives a clear message of
deterioration in management efficiency of Apple for past two years. From the shareholders
perspective, certain ratios show a good performance of Apple Inc. For example, Earning per
share has continuously been increasing and in current year 2014, it is at highest level of 6.45.
Apple Inc has just started to pay dividend from year 2012 onwards and this decision will surely
boost shareholders confidence at least in next couple of years. Book value per share is also
almost equal to the last years one. Return on equity had dipped down in year 2013 at the level of
30.64 but in current year 2014, it closed at 33.61 with little improvement. Apple Inc has still has
to prove the better utilization of shareholders money in coming years.
If we look at the stock price movement chart in figure 5, the Apple Inc stock has rising trend.

Last year, between April and July, the Apple stock had went down by 40% in compare to the
same period of year 2012, but later it surged again and currently it is trading at highest price of
$119.00. Over the last five years, the shares of Apple have delivered an average total return of
32.0% per year. This performance places Apple in the top 25 of all the stocks (Market watch,
2011).
The figure 6 shows the expected return on Apple stock year over year in next five years.

The table 2 shows the growth of Apple Inc in current year, next year and next five years (per
annum) in compare to Industry, sector and market. It is expected that Apple Inc will easily beat
both Industry and the market but it would be difficult to surpass the sectors growth rate. The
current quarter EPS is 2.07 that are expected to rise by more than 300% in next year and around
400% in next two years.
Growth Estimate

AAPL

Industry

Sector

S&P 500

Current Qtr.
Next Qtr.
This Year
Next Year

21.70%
19.30%
19.70%
10.20%

58.20%
81.80%
4.40%
-5.10%

N/A
449.10%
20.60%
23.90%

18.80%
19.00%
8.00%
10.60%

Next 5 Years (per annum)

11.34%

7.74%

18.51%

9.81%

Table 2

Apples financial performance with key competitors and Industry The table 3 shows a comparative financial view of Apple Inc with the major competitors like
Blackberry, Google, HP and with Industry.
Indus

Direct Competitor Comparison

AAPL

BBRY

GOOG

HPQ

Market Cap:

697.92B

5.45B

366.57B

73.08B

863.55M

Employees:

92,600

8,057

51,564

N/A

1.16k

Qtrly Rev Growth (yoy):

0.12

-0.42

0.2

-0.03

0.22

Revenue (ttm):

182.80B

4.05B

67.91B

111.45B

541.61M

Gross Margin (ttm):

0.39

0.07

0.58

0.24

0.23

EBITDA (ttm):

60.45B

-1.18B

19.96B

13.15B

25.28M

try

Operating Margin (ttm):

0.29

-0.51

0.23

0.08

0.03

Net Income (ttm):

39.51B

-5.01B

12.89B

5.01B

N/A

EPS (ttm):

6.45

-9.66

19

2.66

0.04

P/E (ttm):

18.45

N/A

28.44

14.72

27.5

PEG (5 yr expected):

1.36

-0.51

1.31

2.08

1.38

P/S (ttm):

3.77

5.4

0.63

1.25

1.33
Table 3

Apple Inc has a largest market capitalization of huge 697.92 billion followed by Google
(366.57B) and HPQ(73.08B). Apple Inc has highest revenue and quarterly revenue growth rate is
12%, higher than BBRY and HPQ but less than Google and Industry. Apple has 2 nd position for
Gross margin just after Google but Apple Inc has highest operating margin. In the terms of
Dollar net income, Apple Inc has fetched 39.51B in current year, three folds higher than the
largest competitor - Google. However, its EPS is three times lower than Googles. P/E ratio is
also lower than Googles and Industry average but higher than BRBY and HPQ. Apples five
years expected PEG is around 1.36, almost equivalent to Googles and Industrys PEG. P/S is
3.77, lower than Google but higher than other competitors P/S and Industry average. Overall,
Apples has a very strong position against its competitors and Industry. Nonetheless, Apple has
always beaten the Industry but Google has always been proved to be its biggest competitor.
Recent strategic move by Apple Inc.
Apple Inc will soon collaborate with IBM on building about 100 industry-specific applications
for iOS, targeting various verticals such as retail, healthcare, banking, travel and transportation,
telecommunications and insurance (www. gurufocus.com, (2014). With this deal Apple will get
to sell more of its iPads and Iphones to corporate consumers while IBM will benefit from close
association with a reputed brand like Apple. On Oct 16, 2014, Apple Inc announced that OS X
Yosemite, the latest major release of the worlds most advanced desktop operating system, is now
available as a free upgrade for Mac users from the Mac App Store. It will boost up the computer
segments growth exponentially. The recent release of iPhone 6, the biggest advancement in
iPhone history will surely give a cut throat competition to other players.
Future Prospects
Apple Inc has been performing poor for last two years, but with the launching of iPhone6 and
most advanced iPad OS, Apple Inc has tried to retain the winning trophy of most advanced and

cool gadgets. The dividend payment has really boosted the investors confidence and the
strategic movement of dealing with IBM will surely lead the Apple to new height.
Recommendation
Nonetheless, Apple has shown an outstanding performance in each and every aspect of business.
However, from the past two years, its performance has got little bit deteriorated. In addition of it,
it has been facing stiff competition with other major players like Samsung and Google and
obviously Apple will have to struggle more to keep abreast of all in tough situation. Third, the
litigation matter with Samsung may put the Apple in deep trouble further. Therefore, the near
future seems very volatile for Apple and thus it is recommended to not invest in Apples stock in
short run. With the long term strategy, Apple Inc will surely reach a new height and fetch a very
good return to investors in long run.
References:
Earning forecast: Information retrieved from:
http://www.nasdaq.com/symbol/aapl/earnings-forecast
Apple Stock Charts (2014): Information retrieved from:
https://in.finance.yahoo.com/echarts?s=AAPL#symbol=AAPL;range=1d
Apple growth (2014): Information retrieved from:
http://www.marketwatch.com/story/apple-is-one-of-the-cheapest-growth-stocks-2011-11-28
Analyst Estimates. Information retrieved from:
https://in.finance.yahoo.com/q/ae?s=AAPL
Apples competitors. Information retrieved from:
https://in.finance.yahoo.com/q/co?s=AAPL
Market shares held by smart phone vendor. Information retrived from :
http://www.statista.com/statistics/271496/global-market-share-held-by-smartphone-vendorssince-4th-quarter-2009/

Market share held by smart phone operating system. Information retrieved from:
http://www.statista.com/statistics/266136/global-market-share-held-by-smartphone-operatingsystems/
Article on Apple Vs Nokia Vs Samsung (2013). Information retrieved from:
http://venturebeat.com/2013/09/09/world-mobile-device-map-rich-apple-poor-nokia-globalleader-samsung/
Market share held by tablet vendor. Information retrieved from:
http://www.statista.com/statistics/276635/market-share-held-by-tablet-vendors/
Article on Apple Vs Samsung patent war timeline (2014). Information retrieved from:
http://www.digitaltrends.com/mobile/apple-vs-samsung-patent-war-timeline/
Financial Analysis of Apple (2014). Information retrieved from:
http://www.researchomatic.com/Financial-Analysis-Of-Apple-Inc-147282.html
Apples corporate governance (2014). Information retrieved from:
http://investor.apple.com/corporate-governance.cfm
Article on low risk of corporate governance (2011). Information retrieved from:
http://www.nasdaq.com/article/board-risk-list-of-companies-with-low-corporate-governancerisk-cm87579
Article on Apples strategic move (2014). Information retrieved from:
http://www.gurufocus.com/news/269351/apples-deal-with-ibm-is-a-good-strategic-move
Apples News (2014). Information retrieved from:
http://www.apple.com/hotnews/