CASE STUDY – APPLE INC

Steve Jobs

1955- 2011
The people who are crazy enough to think they can change the world
are the ones who do. (Apple’s “Think Different” commercial )
__________________________________________________________
February 2011

Doctor cleared his throat and said Mr. Jobs you do not have much time to live. At best I think may be six
months. We have tried our best but the resurgence of cancer is too strong it is taken over your entire
body. I understand the sensitivity of the issue if you want we will keep it secret from the media.CEO of
Apple Inc. Steve Jobs got up from his chair and slowly moved out of the cancer treatment facility
thinking about his family and the company Apple Inc. where he has been the major force and in just 13
years transformed Apple from bankruptcy to number 1 company of the world.

Apple Inc. in 2011

On Wednesday March 2, 2011 Apple Inc. launched iPad 2 amid great attention from the media and
customers. CEO Steve Jobs who had taken medical leave from his work took the central stage by
officially launching iPad 2 despite his extremely weak health condition he gave stunning presentation on
this product and shocked the digital world. He was given standing ovation by the audience, during his
presentation he stated, it is just not technology his company innovations are combination of business,
humanities, art and engineering. I work on new product development with passion and love, we do not
give attention to marketing research, I have never hired any consultants, I just work on making the
products better and try to provide more value to the customers. Even the “The Economist “displayed
the release of iPad on its magazine cover page and declared Steve Jobs as the entrepreneur of the
century.

According to the top 100 global brands report released in May 2011 by the most respected brand
researchers MillwardBrown, Apple Inc was declared number 1 global brand of the entire world.

On the occasion of launching iPad 2 in China April 2011, price of iPad 2 was fixed 20% higher than USA,
long queues of customers were witnessed outside Apple sales centers and several people landed in jails
because of fighting which erupted because of jumping lines. One man is reported to sell his kidney to
finance the purchase of iPad 2

Early Child Hood of Steve Jobs and adoption

Biological father of Steve Jobs, Jandali was the youngest of nine children in a rich Muslim family of Syria.
His father owned oil refineries and multiple different businesses and believed strongly in educating his
children. Jindali was sent to USA for pursuing his PhD where while studying he had fallen in love with
Joanne Schieble. Father of Joanne was extremely strict man who threatened her that she better cut off
this relationship with a Muslim man or he will disown her and eliminate her name from his will and
family.

Joanne decided to give her son from Jindali for adoption; her only condition was that couple who adopts
her son should be college graduates. As the circumstances took different shape Joanne son was adopted
by a car mechanic Paul and his wife Clara, both were not college graduates but assured Joanne that they
will do everything to educate their adopted son. Paul and Clara gave their adopted baby name of “
Steven Paul Jobs”

Steve Jobs parents were open about adoption, one day when Steve Jobs was seven years old playing
with a six years old girl, during fight that girl said it simply means your real parents never wanted you
that is why they have given you away. Steve Jobs still remembers the pain, I was struck by lightning and I
started crying and came home running I told them am I an abandoned kid. They took it very seriously
and explained to me in a slow manner that I was the chosen one and very special to them.

Abandoned. Chosen. Special. These three words developed the personality of Steve Jobs and that is how
he regarded himself all his life.

Apple’s History

Steve Jobs and Steve Wozniak , founded Apple Computer on April Fool’s Day , 1976. Working out of the
Jobs family’s garage in Los Altos, California, Wozniak built a computer circuit board that they named the
Apple 1. Within several months they had made 200 units and were looking for a partner for financing.

They found Mike Markkula who was only 33 but had recently retired from Intel where he was bypassed
for a senior marketing position. He wanted to prove a point to the company for over- looking him in
promotion. Markkula proposed to Steve Jobs that jointly they need to write a business plan, if it comes
out well he will finance the new start up Apple.

While making the business plan Markkula predicted that in three years Apple will be in Fortune 500, he
decided he will invest $ 250,000 in return to 33% equity that he will take this money with lot of profit at
the time of floating of shares. He also predicted that a new industry will be born and lot of people will be
employed in this industry. Deal was signed with him by Steve Jobs on swimming pool of Markkula and
Jobs recalls that I thought that this man will never see his $ 250,000 again I was anxious and nervous
while he was confident.

Job’s mission was to bring an easy to use computer to market, which led to the release of Apple 2 in
April 1978. It sparked a computing revolution that drove the PC industry to $ 1 billion in annual sales in
less than 3 years . Apple quickly became the industry leader, selling more than 100,000 Apple -2 by the
end of 1980. In December 1980, Apple launched a successful issuance of common stocks for public .

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Apple was considered to be magical company by stock market and its CEO Steve Jobs was taken as
innovative genius by the entire world.

Apple’s competitive position changed fundamentally in 1981 when IBM entered the PC market. The IBM
PC , which used Microsoft’s operating system and CPU from Intel was a relatively open system that
other producers could copy. Apple on the hand practiced horizontal and vertical integration. It relied on
own proprietary designs and refused to license its hardware to third parties.

IBM PCs not only gained more market share, but they also emerged as the new standard for the
industry. Apple responded by introducing Macintosh in 1984. Mac’s slow processor speed and lack of
compatible software limited sales. Apple’s net income fell by 62% between 1981 and 1984 sending the
company into crises.

Worried because of declining sales Steve Jobs decided to recruit a professional manager to improve the
corporate structure and marketing of Apple products. He decided to recruit the Chief Executive of Pepsi
Cola John Scully to turn around the company by using his management skills. John Scully was initially
reluctant to join Apple but he recollects when Steve Job said “Do you want to sell sugar water for the
rest of your life, or do you want to come with me and change the world” this sentence just got him and
after negotiating salary of $ 1 million he decided to join Apple. John Scully was appointed Chief
Executive and Steve Jobs became the head of research and product development.

Steve Jobs was desperate to hire him as he thought that his Harvard MBA degree and his corporate
exposure is what is required by Apple and at that time he thought Scully was the only solution to Apple’s
current problems.

After spending some time in the company John Scully concluded that there is nothing wrong with the
company it is Steve Jobs who is ruining and destroying the company by his rash and centralized style of
management. John Scully convinced the Board members by his reorganization plan backed by his
excellent presentation skills that Steve Jobs has to be fired because Apple needs to be run by one boss.
And that’s him ,even Markkula who Steve Jobs use to respect a lot also decided to be with the Board in
asking Jobs to sell his shares and leave the company immediately.

In 1985 Steve Jobs left the company with tears in his eyes, he was forced out of the company which he
created and the man he hired John Scully to change the culture of the Apple conspired for his exit.

Jobs locked himself in the house for few days just listening to the song of Bob Dylan “ For the loser now
will be later to win”

Next and Pixar

At the time of exit from Apple, Jobs owned 6.5 million shares of stock almost 11% of the company worth
more than $ 100 million. He sold all his shares and just kept one so he can attend Apple’s annual
meeting. He was only 30 years old he decided that he must start a new computer company to be

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productively employed. After lot of discussions with his friends he came out with a name for his
company “NEXT”.

The best thing which happened to Jobs was when he was fired, he remembers somebody saying the
word “ get lost” he became wiser and mature, this was also stated by one the directors of Apple. This
was a tremendous learning experience for Jobs as he learned from his failure story in Apple with Mac.

The first thing Steve Jobs did for his new company was that he hired Pual Rand, dean of corporate logos
to design his Logo for Next. He charged $ 100,000 for designing this logo. Steve Jobs wanted his
customers to know his company from the first impression. Steve Jobs could go to any extent to get the
design right for his products. NEXT became “NeXT” after the heavy payment to the designer

Steve Jobs also decided to buy PIXAR owned by George Lucas who became famous from star war
movies. Steve Jobs purchased the company for $ 10 million for 70% stake. Jobs because of his
personality and controlling instinct decided to play a role in this company.

No body was making computer animated movies at that time so he decided to explore this new area
and launched Toy Story movie. During the development of this computer animated movie he signed
agreement with Disney for its distribution. Disney forced Steve Jobs to change some characters from
negative personality to positive as he had all toys having negative personality.

After Toy Story success, Steve Jobs decided to go for public offering, this became IPO of the year. Shares
were being traded for $ 49, successful IPO meant that PIXAR will not be dictated by Disney because of
their financial strength. But more important Steve Jobs wanted “co branding” as he wanted his movies
to be jointly owned as the entire credit for Toy Story was being taken by Disney who did not invite Steve
Jobs on the launching ceremony of Toy Story.

By the end of day the shares he retained in Pixar were worth astonishing $ 1.2 billion, Steve Jobs claimed
that I have never done this for money. In a letter to Pixar share holder, Jobs explained that winning the
right to have equal branding with Disney on all the movies, as well as advertising and toys was the most
significant achievement. We want Pixar to grow into a brand that embodies the same level of trust as
the Disney brand.

While NeXT was struggling, on the launching ceremony of its new computer Bill Gates told Steve Jobs
that your machine is just crap and ridiculous. When Steve Jobs asked him to make software for him he
responded by saying first create some market for your product then we will make it for you.

In June 1993 Scully was replaced by the President of the Board as Apple’s margins were continuously
falling. In 1996 a board member Amelio was made the Chief executive who was fan and admirer of
Steve Jobs. He was also aware that Steve Jobs new company Pixar ( 3D animation company) was making
huge profit with Toy Story and he had long term plans with Disney world.

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Apple lost $ 1.6 billion under Amelio and the world wide market share tumbled to around 3% . Amelio
told the Board that the only hope of reviving the company is to get the man who created it and lets
make him my advisor.

When Steve Jobs was considering of joining back Apple he received a letter from Michael Dell, owner of
Dell computers that as a big brother he would like to advise him that he should keep on making cartoon
movies there is no room or space for Apple in the computer industry, he should better throw his money
in the ocean rather than buying shares of Apple or returning as CEO because HP and Dell are now the
leading brands in computers and have no patience for small players.

In September 1997 Steve Jobs became the company’s interim CEO and the day market capitalization of
Apple crossed Dell and he wrote letter to Michael and asked him any more suggestions.

Steve Jobs and the Apple Turnaround

Steve Jobs told the Board of Apple, the stock price for Apple in the stock market is only $ 13 and you
brought me here to fix things and people are the key. Stop the train I need all of you to resign and get
out of this train. Otherwise I am not coming back I have lot of key decisions to make at Pixar. All the
shareholders of Apple want me back and they want all of you out.

Most members were in state of shock and Mike Markkula took Steve Jobs on the side and asked him
that he should let him stay; Steve Jobs gave him a cold stare and said no you have to go.

Amelio, CEO of Apple who brought Steve Jobs as adviser was also asked to leave, Steve Jobs clarifying his
position said he want to focus on few products while Amelio insists on making lot of stupid products. I
have no tolerance for bozos.

During my first encounter with Amelio, he told me he is navigating a huge ship with a big hole towards
destination and he wants to be on the board while he said no word about how he is going to plug that
hole.

Steve Jobs moved quickly to reshape Apple. He hired Taiwanese contract assemblers to manufacture
Mac products and revamped Apple’s distribution system from smaller outlets to national chains. Apple
15 product lines were slashed to just four categories- desk tops and portables for consumers and
professionals. Apple launched a website to set up direct sales for the first time. Internally, Jobs focused
on reinvigorate innovation. Apple slashed its inventory and increased its spending on R & D.

Jobs first real coup came with iMac in August 1998. This was a window based machine with eggshell
design. Following Job’s return , Apple posted a $ 309 million in 1998 fiscal year, reversing the previous
year ‘s $ 1 billion loss.

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Jobs wanted to change the image of the company and Apple to be a cultural force. Apple promoted
itself as a high end alternative to other computer brands. Apple ads were placed in popular and fashion
magazines.

Steve Jobs did not like the experience of buying Apple products from stores. He wanted to open retail
outlets of Apple, Jobs did not have one supporter on the Board to endorse this retailing idea. Jobs
insisted simplicity and lack of distractions were keys to great stores. He decided to go ahead with the
idea of forward integration and opening new design retail outlets.

Now there are 500 Apple sores worldwide. The biggest one is London’s Covent Garden, the tallest in
Tokyo’s Ginza. The average annual sale per store was $ 40 million in 2012. Highest sale per store being
in China.

Steve Jobs because of pressure of handling two companies Pixar and Apple simultaneously his health
started deteriorating, he used to leave home at six in the morning and returning at 9pm and he was
burning out fast with overwork and anxiety. He was diagnosed with cancer for the first time at that point
of time he decided that it is too much pressure handling two companies so he sold his Pixar shares to
Disney and decided to concentrate on Apple his first love.

From Apple Computers to Apple Inc.

Apple’s shift towards digital hub strategy was initiated by the debut of the iPod in 2001, followed by the
iPhone in 2007, then the iPad in 2010. These product lines set Apple on a path toward becoming a full
fledge digital convergence company. The change in the name from ‘Apple Computer’ to “Apple Inc.” In
2007 marked the official repositioning of the company.

The iPod Sensation

While the prospects of for the PC Macintosh improved, it was the iPod that set Apple on the explosive
growth path. The iPod was initially one of the many portable digital music players based on the MP3
standard. Thanks to the sleek design , simple user interface and large storage it soon became the icon of
the digital age. The first iPod stored up to 1000 songs the other MP3 players could only store one hour
of music.

The iPod nano for example had gross margins of 40%. The biggest cost component for the nano was
flash memory. Apple agreed to pay $ 500 million up front in 2005 to intel, Samsung and Toshiba to
ensure uninterrupted supplies of flash memory. Released in 2007 the Touch was the first iPod that built
in wifi, 3.5 inch screen and a multi touch graphical interface. Some 50 million iPod Touch devices have
been sold in 2010. Apple has been charging of $ 75 to $100 higher than the competition. Competitors
like Creative, SanDisk, Samsung all were struggling in front of iPod even Microsoft’s Zune line of music
player could not create any impact in the market.

Competitors found themselves facing a major disadvantage with the emergence of iTunes store.

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iTunes : Two features which dramatically differentiated Apple iPods were its iTunes desktop software
which synchronized iPods with computers and its iTune Music store. The iTune was the first legal site
that allowed music down loads on pay as per song basis. By February 2010, iTune has sold 10 billion
songs and featured the world largest catalog. Over 8000 movies titles could be rented or downloaded
by iPod Touch owners.

The launch of iTunes store had a tremendous impact on the sales of iPod. Before the launch of iTune
store Apple sold on average 113,000 iPods per quarter. After iTunes launch, iPod sales shot up to
733,000 units per quarter and exploded thereafter. An Apple exclusive digital protection software
ensured copy rights by limiting down load of one song to five computers by one user.

The iPhone

Hailed as Time Magazines “ Invention of the Year” the iPhone represented Apple’ bid to reinvent the
phone. Two and half years of development efforts had been devoted to the phone, guarded under
intense secrecy even within the company‘s own employees . The estimated development cost was
around $ 150 million.

Decision to enter mobile phone was an emotional one according to one market analyst as mp3 were
being given in every mobile, Steve Jobs stated “they have entered my market I will attack their market”

Entry into mobile phones was considered risky by market analyst. The industry was dominated by Nokia,
Motorola and Samsung with 60% market share. In addition the products were characterized by short life
cycles, including radio technology where Apple had little experience. In the US market a handset
manufacturer is usually dependent on the operator to provide a subsidy which could lower the price of
new handset by as much as $ 150 or more. Nokia was dominating the market with attractive hard ware
designs and user friendly interfaces, multimedia functions. Then smart phones rose to prominence with
internet browsing , emails and media players.

The iPhone , however changed the rules in the industry. A revolutionary 3.5 inch touch screen interface
placed commands at the touch of user’s fingertips without a physical keyboard. The first model was
priced at $ 499 for an 8GB model. At that time other mobiles from competitors were costing $ 300.

The first generation iPhone sold about six million units over five quarters. With the 3G model, iPhone
revenues exploded to $ 25 billion by the end of 2010. Within three years, the iPhone went from zero to
38% of Apples total revenue. In terms of global smart phones sales ,the iPhone was the biggest growth
story capturing more than 26% of the market

Competitors: Apple has two main competitors in smart phone category . RIM’s black berry smart
phones delivered one of the best e-mail experiences and was a popular chance among corporate
consumers. The leader in smart phones was Nokia . The company strength lied in Europe and emerging
markets such as India, China and Pakistan. Google’s free Android OS is an open platform that allowed

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mobile users to use it for free Android had gained 4% market share. This OS can be a potential threat to
iPhone.

Limitations of the iPhone: Complaints included customers wanted a physical key board, especially
people handling high volume of e-mails. The battery life was weak . The iPhone did not support flash
technology which meant that the device video could not be played on some platforms.

The iPad

The launch of the iPad in 2010 was yet another bold move by Jobs to redefine an industry positioned
between smart phone and laptop, the iPad was priced at $ 499 to & 829. The computer tablet featured a
9.7 inch screen for reading books, watching movies and some business productivity applications.
Between 2008 and 2010 Jobs bought two microprocessor designs for about $ 400 million. The iPad
became the first product of Apple to run on its microprocessor. Battery life of iPad is 10 hours.

More than 450,000 iPads were sold during its first week on the market. Computer tablets prior to iPad’s
launch accounted for less than 1% of the market. According to Job the iPad would kill the note book.

The hype over iPad had produced an immediate competitive response. At least dozen companies have
started producing these computer tablets, HP, Samsung , LG , Panasonic, Toshiba have already launched
tablets in the market. Chinese companies have also launched computer tablets at half the cost.

Indian IT minister announced that we will be launching a computer tablet copy of iPad in 2012 at $ 35
so all students can afford it.

One Failure : Apple TV was announced in 2007, it was an attempt by Apple to bring digital video content
directly into the living rooms. Customers were supposed to download contents from iTunes store and
view on Apple TV. Sales were extremely slow and probably the only failure product approved by Steve
Jobs.

Apple Inc. and the Challenges

Apple’s evolution from a PC manufacturer company to a mobile communication company has been a
spectacular success. Most of the credit goes to one man “Steve Jobs”. Market understands this fact and
without Jobs at the top, company may struggle to maintain its number 1 position in the world.

Fully aware of this fact Steve Jobs came to his home and called Timothy D. Cook , his heir apparent, and
Chief Operating officer of Apple Inc. Jobs told him to conduct the share holders meeting in 2011 as he
will not be attending the annual meeting with the shareholders this time because of his deteriorating
health condition and asked him to put his name for election in the Board so the market should not get
wrong signals. He also stated that just a rumor of his heart attack pulled down the share value by 10%
last week and any negative report about his health may bring the share value down dramatically.

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Steve Jobs continued and started discussing the challenges faced by Apple Inc. He sated that iPod sales
are stagnant in 2010 & 2011 on the other hand Microsoft has introduced Window 7, which led to
resurgence in PC sales. Job stated ‘I am not satisfied with our PC market share which is only 5%’

Timothy D. Cook sitting in his office next morning thought about the risks and challenges which he faces
in case of Steve Jobs permanent disappearance from the company. Influence of Steve Job in product
development and innovation was huge. Steve Job style of management has been centralized he would
communicate with 100 people and would personally approve and supervise all the innovations.

No one use to complain because most of the time Job was right, he was always the smartest man in the
room. Cook realized it would be difficult to bridge the gap which Steve Jobs absence will create.

Cook was worried due to the highly volatile and competitive nature of the industries in which the Apple
Inc. competes, he must continually introduce new products, services and technologies, enhance existing
products and services, and effectively stimulate customer demand for new and upgraded products just
like Steve Jobs.

Cook was also worried that Steve Jobs had the ability to hire talented people and retain them on long
term basis. Experienced personnel in the technology industry are in high demand and competition for
their talents is intense, especially in the Silicon Valley, where most of the Company’s key personnel are
located. Because of Jobs absence it would be difficult to retain key personnel.

Although most components essential to the Apples business are generally available from multiple
sources, certain key components including but not limited to microprocessors, enclosures, certain liquid
crystal displays (“LCDs”), certain optical drives, and application-specific integrated circuits (“ASICs”) are
currently obtained by the Company from single or limited sources, which subjects the Company to
significant supply and pricing risks. Cook thought that he would like to reduce the risk in this area

Suddenly his phone started ringing there was somebody from the stock market who wanted to know
about the health condition of Steve Jobs , Cook replied “ No Comments”.
The man responded “without Steve Jobs Apple Inc. can become bad apple”

"Cook is a star, just a different kind of star from Steve," said New York-based business analyst, who
recommends buying Apple shares and doesn't own any himself. "He's arguably one of the best supply
chain managers in the world, if you look at working capital management, cash-flow management, cash
conversion cycles -- all those great metrics." He has done tremendous work in Apple and the gap left by
Steve Jobs can be filled by Cook. He handled the company in a professional manner during the absence
of Steve jobs for six months in 2007 for liver transplant operation.

Apple Board has been criticized many times by the press for lacking in corporate governance as Steve
Jobs was always reluctant in asking independent non executive directors to sit in the Board. Steve Job
was also very critical that he took CEO of Google as independent external director on the Board but he
is trying to copy the success of iPhone and leading Google towards smart phone industry after
becoming aware of what Apple Inc. was doing.

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Board of Directors of Apple Inc. announced on October 7, 2011 that Timothy D. Cook will replace the
legendry chief executive of Apple Inc.

Steve Jobs died on October 5, 2011

(End of Case Study)

Appendix: Selected Financial Data

Selected Financial Data of Apple Inc

The information set forth below for the five years ended September 24, 2011, is not necessarily
indicative of future financial results

Appendix 1 US Dollars in Millions

2011 2010 2009 2008 2007

Net sales . . . . . . . . . $108,249 $ 65,225 $ 42,905 $ 37,491 $ 24,578

Net income . . . . . . . $ 25,922 $ 14,013 $ 8,235 $ 6,119 $ 3,495

Earnings per common share:

Basic . . . . . . . . . . $ 28.05 $ 15.41 $ 9.22 $ 6.94 $ 4.04

Total assets . . . . . . $116,371 $ 75,183 $ 47,501 $ 36,171 $ 24,878

Total liabilities . . . . . $ 39,756 $ 27,392 $ 15,861 $ 13,874 $ 10,347

Total shareholders’

equity . . . . . . . . . . . . . $ 76,615 $ 47,791 $ 31,640 $ 22,297 $ 14,531

(a) The Company did not have any long-term debt during the five years ended September 24, 2011.
Long-term obligations exclude non-current deferred revenue
(b) The company ‘s financial strength is considered to best in the entire industry of America
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