Jimenez 1

Sam Jimenez
Writing Assignment 2
Econ 202 Section 003
Alex

Apple Computers
AAPL
Information Technology
Computer Hardware

Apple Computers is a major competitor in the modern computing and

technology industry. They engineer and produce products ranging from
personal computers to smartphones as well as tablets and other personal
devices. Along side their major product line, they sell many accessories and
additives to their products. Not to mention, they program all software for
their devices, which includes iOS and OS X; software thats exclusive to their
devices. Founded in 1976, Steve Jobs led the company to greatness
especially in more recent years with the release of iPhones, iPods, and iPads
until he recently passed away. Apple heavily relies on foreign supply for their
products, which they are often criticized for. They sell products on a
massively global scale, competing for market share and selling to anywhere
from full-scale corporations, to the single everyday person. However, most of
their sales exist in the United States. Apple has many different competitors
for their different products. The following numbers are domestic statistics for
the 2013-year. Competing in the operating system market, Microsoft
dominates where Apple is projected to have less than 10% of the market (OS
Shares). However, in the computer system market, HP leads with a 26.5%
where Apple has about 13% (Hughes). This explains their lack of market
share in the OS market because they are the only ones authorized to
produce OS X computers. In the mobile phone market Apple has 40% of the

Jimenez 2
market, followed by Samsung with 27% (comScore). In the mobile operating
system market, Apple follows Androids 50% with 41% market share
(comScore). Finally, in the tablet market, Apples suspected share is close to
80% that is then followed by Samsung (Lee). Ultimately, Apple has their foot
in most of the personal technology doors and continues to fight for market
shares in them all.
Although Apple is present in many of the different modern computer
technology markets, what is observed is that Apple is in oligopoly market
structure. This is because most of these stated markets consist of the same
companies who are similar to Apple. Samsung, as noted in two different
markets, also makes personal computers. HP, the major computer producer,
also makes tablets. Many of these companies have different amounts of
shares in the same markets. Moreover, there are few producers with shares
in the markets. For example, Apple, Samsung, LG, Motorola, and HTC share
87% of the smartphone market in the U.S (comScore). This further proves
the oligopolistic characteristic of few, powerful firms. Also, we observe
relatively high barriers to entry. These firms have established credibility and
earned many diehard fans. There are constant arguments over Android vs.
Apple or OS X vs. Windows 8. For a new competitor to obtain a decent
amount of market share would be extremely difficult. We also see that the
products are often differentiated to the consumer. Most consumers will stand
by their favorite firm whether thats Apple, Android, Samsung, HP, etc. This
results in fairly price in-elastic demands for products and allowing these firms

Jimenez 3
to be price makers to some extent. However, we see some price wars exist
with Samsung, among others, who will advertise their lower price
comparative to other similar products by Apple. It is not hard to distinguish
that Apple interacts in a very oligopolistic market.

2013 Revenue: 170,910,000,000 Net Income: 37,037,000,000 (After taxes)

2012 Revenue: 156,508,000,000 Net Income: 41,733,000,000 (After taxes)
2011 Revenue: 108,249,000,000 Net Income: 25,922,000,000 (After taxes)
At face value, we observe very large numbers of revenue and profit.
We see Apple on their way to generating almost $200 billion in revenue each
year. Apple had almost doubled their revenue in 2 years going from about
108 billion to about 171 billion. However, in the same time span, we see not
as drastic of an increase in profit/net income, about 42% increase. However,
from 2011 to 2012, there was an increase of net income of 61.5% that then
decreased 12% from 2012 to 2013. I at first believed that this huge increase
then decrease is due to Apples exploitation of cheap labor in Asia. I had
thought that Apple had heavily streamed their production into Asia a few
years ago and this would ultimately bring their costs down and net income
up. However, after looking at the 10-k, I observed a drastic increase to cost
from 2011 to 2012 going from $64,431,000 to $87,846,000, an increase of
36%. Also, further research showed me that this labor situation had taken
place before 2010 (Criticism). So this 61.5% increase of net income had to
come from another source, and it was obviously their revenue. Apples
revenue increased 45.6% from 2011 to 2012 resulting in the huge increase

Jimenez 4
to net income. Then, when evaluating the next year-to-year change, a
decrease in net income is observed. This comes from a larger increase to
cost and a lesser increase to revenue. From 2012 to 2013, revenue increase
by less than 10% but costs increased by more than 20% which then
ultimately reduced profit. Regardless, what is observed overall is that Apple
is expanding. We see their revenue increasing, and their net income,
although decreasing last year, is still a very large size and has remained
positive. This large positive net income definitely makes sense for their
oligopolistic market structure.
One of the risk factors Apple highlights is the ever-changing nature and
strong competitiveness of the business and their risk of not being able to
compete. Apple recognizes that there are many other viable firms that
produce similar products to their own who are consistently release new
technology and attempt to undercut the price of Apple. What this means is
that Apple fears that their research and development costs might go up
because they must release newer technology in a short amount of time while
keeping the cost down to stay competitive. Apple states in this risk factor
that, the Company must make significant investments in research and
development. What this means is that they recognize the possibility that
their input costs may increase in the future because of the need for new and
competitive products comparable in price to their competitors. If their
research and development costs were to go up, in the short run we would
see an increase in the price and a decrease quantity sold ultimately resulting

Jimenez 5
in a decrease of revenue, an obvious increase in costs, and an overall
decrease in profit. Though, I would not expect these cost increases to be so
significant that Apple would earn losses in the short run. This is because
Apples current research costs are around 4 billion dollars. For them to start
earning losses, they would have to incur research costs about 10 times that
amount keeping yearly revenue the same, which is unlikely. Also, in the long
run, we would expect Apple to continue earning this profit and producing
because the high barriers to entry would prevent others from competing
away business, but again their profit would be less than if the research costs
were to remain constant. Ultimately, Apple worries about the possible, future
increase in research costs due to the extreme competitiveness to the market
because if costs were to increase, their profit would decrease.
Apple also highlights that the consumer demand for the market is very
variable. Stating that, The success of new product introductions depends on
a number of factors including, but not limited to, timely and successful
product development, market acceptance the availability of application
software for new products, the effective management of purchase
commitments and inventory levels in line with anticipated product demand.
What they are saying here is that they recognize the risk of not being able to
have the demand curve they expect for a new product because they cannot
predict not only how the market will actually purchase their product but
other factors as well. What this means is that they may have an unexpected
decrease in the demand curve because consumers may not show the

Jimenez 6
interest Apple was hoping for. Ultimately, with a decrease in demand, we
observe a loss of profit. In the short run, we would see a decrease in price
and a decrease in quantity yielding a decrease in revenue while costs remain
constant. This decrease in demand could ultimately yield to economic losses
in the short run. In the long run, there are a few options. If the economic
losses are great enough, the firm may exit the industry, though this is
unlikely due to its extremely high capital as well as the necessary ongoing
support for devices already in the hands of consumers. Apple could also
accept their time of losses, spend higher costs in research to get a new
product that would be accepted in the market to eventually increase the
demand and return profits to a positive or 0 state. This risk factor Apple
highlights exhibits the worry Apple has on not accurately predicting the very
variable demand for their new products in the market and the possibility of
incurring economic losses because of this.
Works Cited
comScore Reports February 2014 U.S. Smartphone Subscriber Market
Share. comScore. comScore, Inc., 4 Apr. 2014. Web. 23 Apr. 2014
Criticism of Apple Inc. Wikipedia. Wikimedia Foundation, Inc., 19 Apr. 2014.
Web. 23 Apr. 2014
Hughes, Neil. Apple's Domestic Mac Sales Surge 28.5% as Overall PC Market
Shrinks 7.5% [u]. appleinsider. Quiller Media, Inc., 9 Jan. 2014. Web.
21 Apr. 2014

Jimenez 7
Lee, Micheal. Samsung Inches in on Apple's US Tablet Dominance. ZDNet.
CBS Interactive, 28 Jan. 2014. Web. 22 Apr. 2014
OS Platform Statistics. w3schools.com. Refsnes Data. Feb. 2014. Web. 23
Apr. 2014