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Apple Computer, Inc.

is headquartered in Cupertino, California is a leader in the PC field for home,

business and education markets. Their products include the Macintosh line of desktop and notebook
computers, the Mac operating system, the iPod digital music player. The manufacturing facilities are
located in Sacramento, California and Cork, Ireland. Apple produces their own keyboards and “Mouse”
input devices. Apple’s operating segments include the Americas, Europe, and Japan. They sell their
products through online stores, direct sales force, third-party wholesalers and resellers, and its own
retail stores. As of September 2003, Apple and its subsidiaries worldwide had 11,000 employees and
over 2,500 temporary employees.
Apple Computers has experienced both good and bad times since it began its garage operation in
1976. Although it has been a leader in computer technology in the past, it has struggled lately with
keeping pace in the rapidly developing computer industry. In this extremely competitive industry, the
developing technology and evolving computer applications have contributed to this type of business
environment. Over the last two decades, the popularity of personal computers has made the computer
market attractive to consumers worldwide. As mentioned before, Apple developed as a major player in
the computer industry in its early years. Apple grew to a publicly traded company by 1980. Apple
continued to experience early success in the industry being the first computer company to reach one
billion dollars in annual sales in 1982.
Apple Computers faces a highly competitive industry with competition including companies such as
Dell, Gateway, IBM, Hewlett-Packard, Fujitsu, and NEC. Apple’s main strategy in this growing industry
focuses on innovation. Steve Jobs, Apple’s chief executive officer, said: “We would like to see our
market share grow. Our strategy is to innovate. We are the innovator of the industry.” Apple’s focus is
on bringing the best “personal computing experience” to students, educators, creative professionals,
and consumers with its innovative hardware and software.
On January 14th, 2004, Apple announced financial results for its fiscal quarter ended December 27th,
2003. For the quarter, Apple posted a net profit of $63 million. These results compare to a net loss of
$8 million in the year-ago quarter. Revenue for the quarter reached a four-year high of $2.006 billion,
up 36 percent from the year-ago quarter. Gross margin was 26.7 percent, down from 27.6 percent in
the year-ago quarter. International sales accounted for 44 percent of the quarter’s revenue. During
this quarter, Apple shipped 829,000 Macintosh units during the quarter, up 12% from the year-ago
quarter, as well as 733,000 iPod units, up 235% from the year-ago quarter.
Steve Jobs stated that “It was an outstanding quarter for Apple, with double-digit unit and revenue
growth and over 730,000 iPods sold. We’re kicking off 2004 with strong momentum, especially for Mac
OS X, which is now used by almost 40 percent of our installed base, iPod and the iTunes Music Store,
which has a 70 percent share of the legal music download market.”
Fred Anderson, Apple’s CFO commented that “We are very pleased to have exceeded our revenue and
profit targets for the first quarter. Continued strong asset management enabled us to increase cash by
$225 million to just under $4.8 billion. Looking ahead to the second quarter of fiscal 2004, we expect
our third consecutive quarter of year-over-year double-digit growth in both revenue and earnings, with
revenue of about $1.8 billion and earnings per diluted share of $.08 to $.10.”
Mission Statement:
“It is Apple’s mission to help transform the way people work, learn and communicate by providing
exceptional computing and innovative customer service. We will pioneer new directions and
approaches finding innovative ways to use computing technology to extend the bounds of human
potential. Apple will make a difference: our products, services and insights will help people around the
world shape the ways business and education will be done in the 21st century.” Apple’s mission
statement details its strategic position to achieve profitability and the competitive advantage. Apple’s
strategic position is to give users the best computing experience by innovating in hardware, software,
and Internet offerings.
Corporate Governance:
Executive Officers:
Name Position with the Company Age Officer Since
Fred D. Anderson Executive V.P. and CFO 59 1996
Timothy D. Cook Executive V.P. and Worldwide Sales and Operations 43 1998
Nancy R. Heinen Senior V.P., General Counsel and Secretary 47 1997
Ronald B. Johnson Senior V.P., Retail 45 2000
Peter Oppenheimer Senior V.P. of Finance and Corporate Controller 41 1996
Jonathan Rbinstein Senior V.P., Hardware Engineering 47 1997
Philip W. Schiller Senior V.P., Worldwide Product Marketing 43 1997
Bertand Serlet Senior V.P., Software Engineering 42 1997
Sina Tamaddon Senior V.P. , Applications 46 1997
Avadis Tevanian Senior V.P., Chief Software Technology Officer 42 1997
Name Position With the Company Age Director
William V. Campbell Director 63 1997
Millard S. Drexler Director 59 1999
Albert Gore, Jr. Director 56 2003
Steven P. Jobs Director & CEO 48 1997
Arthur D. Levinson Director 53 2000
Jerome B. York Director 65 1997
It is the duty of the Board of Directors to oversee the Chief Executive Officer and other senior
management in the operation of the company on a day-to-day basis. The directors must take a
proactive position and set standards that ensure that the company continues to be successful though
maintenance of the highest standards of responsibility and ethics.
Financial Highlights:
PERIOD ENDING 27-Dec-03 27-Sep-03 28-Jun-03 29-Mar-03
Total Revenue 2,006,000 1,715,000 1,545,000 1,475,000
Cost of Revenue 1,470,000 1,259,000 1,117,000 1,057,000
Gross Profit 536,000 456,000 428,000 418,000
Porter’s 5 Forces
Threat of New Entrants:
There are high entry barriers in the computer hardware/software industry. The two main reasons for
the high barrier are based on the high costs to enter the market, the time it will take before companies
earn revenue on their investment, and product differentiation. This is due to a complex and expensive
development stage, which is needed for severe product testing. As for capital requirements, firms
need to invest substantial financial resources before entering this competitive market. In addition,
once a firm establishes itself in the industry, it may take a number of years before the company sees
any profit.
With such high costs and vast competitors, product differentiation, absolute cost advantages, and
economies of scale play a large part in the contestability of the market. Product differentiation
promotes brand loyalty by offering different products with different characteristics to the consumer. If
Apple consumers are satisfied and loyal to purchasing this brand, new entrants are less likely to enter
the market. In addition, for new entrants into this market, production costs will be higher than for the
existing companies in the industry. Finally, in order for new entrants to compete on the same level
with companies like Apple, Dell, Hewlett-Packard, and IBM, they will need to come up with a relatively
high scale of output to compete at the same level of average cost.
Rivalry Among Firms:
Apple is confronted by aggressive competition in all areas of business. The market for the design,
manufacture, and sale of personal computers and related software is highly competitive. Apple
operates in two branches: hardware and software. The most important rivals for Apple in the hardware
industry are Hewlett Packard, Dell and IBM. In the software market there is far less competition. The
main competitors in this market are Microsoft and Linux.
Bargaining Power of Suppliers:
Apple’s “powerchip” is supplied from either Motorola or IBM. IBM originally produced the chip but
Motorola holds a license to ensure that Apple does not depend solely on one supplier.
As Apple continues to advance with technology changes and increased customer requirements, it
continues with an ongoing need for suppliers. Apple looks for quality, customer focus, cost savings,
innovative business solutions, and technology in all of their suppliers.
Bargaining Power of Buyers:
Apple divides its customers into three groups. The first group consists of consumers who are
purchasing an Apple computer particularly for the brand name and its unique operating system. The
second group is composed of entertainment and media consumers who often work with graphic
programs. The third group purchases Apple products solely for their “trendy” design. Apple pays much
attention to the design layout of their hardware and software. In addition, Apple now relates to
consumers searching for high quality music and media downloading systems as well as advanced
audio players.
Threat of Substitute Products:
With numerous competitors in the industry, Apple is threatened with substitutes from companies such
as Microsoft, Dell, and even Sony to name a few. For Microsoft, Windows is used as a substitute; Dell
Computers are a substitute and Sony products such as the MP3 player may be substituted for the
newly rising iPod. In addition, the growth of mobile phones has also been considered a threat to the
company’s success. They are currently able to execute the same tasks as a computer by downloading
music and the transfer of e-mails.
Internal Environment
The internal environment of Apple Computer, Inc. consists of variables that are within the organization
itself. Strengths and weaknesses are the variables that form the context in which work is done.
Apple Computer, Inc. became a major player in the computer industry when it became a publicly
traded company in 1980. The computer industry has experienced tremendous growth over the last two
decades, and because Apple has been around for so long, they have become a household name within
the computer industry.
Not only does Apple have name recognition within the industry, the name is also synonymous with a
product interface that is easy to use. The only problem with this is that must people learn to use a
personal computer that usually is run with a Microsoft operating program. Despite this, Apple does
have a large loyal customer base.
Apple holds a significant niche in the graphics industry. Their hardware and software have a strong
graphics platform. An example of this is seen in the 2004 Academy Awards used Apple products such
as PowerBooks, Power Mac G5, and Final Cut Pro were used to make host Billy Crystal part of the
nominated films in his opening monologue.
Early in the industry’s life cycle, Apple Computer, Inc. decided to pursue a strategy to competitively
position their product. They decided to focus on a specific market segment and promoted their product
within the educational community. Because of this early strategy, Apple Computer has become a
strong presence in the education markets.
Steve Jobs is considered to be the most important person in Apple’s history and the company’s
present. Not only has he founded Apple Computers, but he also saved it from the brink of disaster
when he returned as CEO in 1997. Steve Jobs has done an amazing job revitalizing Apple Computers.
With Job’s deep understanding of the computer market as a pioneer in two businesses, consumer, and
a technician, he implemented many of the strategies Apple should have done in the beginning. He
added value to the Mac software, customized the products to a target market, and simplified the
product chart. As long as Jobs can maintain Apple’s competitive advantage and sustain it, increasing
market share should not be too much of a problem.
These key strengths form a set of core competencies that Apple Computer, Inc. can use to gain
competitive advantage.
Apple’s ability to compete successfully and maintain attractive gross margins is heavily dependent
upon its ability to ensure a continuing and timely flow of innovative and competitive products and
technology to the marketplace. As a result, the Company incurs higher research and development
costs as a percentage of revenue than its competitors who sell Windows-based personal computers. If
Apple is unable to continue to develop and sell innovative new products with attractive gross margins,
its results of operations may be materially adversely affected by its operating costs structure.
Apple has also been lacking in their business marketing strategies and distribution networks. With
regards to the personal computer industry, the familiarity of the Apple software is not there. The
original goal of teaching on an apple computer has been over shadowed by Microsoft. Education is now
geared toward a version of Windows which is not compatible with Apple hardware. The most important
hardware developed by Apple has been the iPod that is capable of downloading mp3 files to a device.
Many of Apple’s products are manufactured in whole or in part by third-party manufacturers. While
outsourcing arrangements may lower the fixed cost of operations, they also reduce the company’s
direct control over production and distribution. This diminished control will have negative effects on
the quality or quantity of the products manufactured, or the flexibility of the company to respond to
changing market conditions.
Apple’s key business marketing strategy in the company’s early years was to market heavily on the
educational market. Their assumption was, if students learned computer applications and techniques
on Apple computers in school, they would demand Apple products in the business environment,
therefore they could migrate their products through assimilation into the business environment.
Although Apple was and is successful in penetrating the educational environment, the residual
demand for their products in the business environment did not materialize. The development of
Microsoft’s “windows” interface made the conversion from Apple products to Microsoft based products
relatively easy. Apple has become unable to effectively penetrate the business market.
Financial strength and stock price performance has also hindered Apple’s competitive position within
the computer industry. As of March 12, 2004, Apple’s stock closed at $27.56 after opening at $27.32.
The stock’s 52 week high was on March 10, 2004 closing at $28.14 followed by its 52 week low of
$12.72 on April 17, 2003. Compared to its competitors, Apple’s stock is not performing as well as it
needs to be to stay competitive.
Although Apple is having some success in controlling their internal operations relative to responding to
their weakness, they should not be satisfied with being average in this highly competitive business
environment. Every company’s main goal is to establish a competitive advantage over other firms, and
Apple has plenty of room for improvement. Apple needs to identify ways to improve their operations to
gain this competitive advantage.
External Environment
Taking advantage of Apple’s current opportunities could mean the difference between strategic
success and failure. The rapid advancement of technology and business processes creates an
atmosphere of high competition in which Apple must be dynamic to survive. Apple has been able to
effectively do this with the introduction of commercially strong products and services such as the iPod
and iTunes. The rest of this segment will be about Apple’s opportunities and how they are taking
advantage of these opportunities.
The biggest opportunities that Apple has as of right now are in their iPod products and iTunes service.
It is no secret that the iPod has been a huge success. iPod’s are rapidly increasing in demand and have
even been seen with musicians in music videos. It has become the standard for all mp3 players. With
the success of the iPod comes possible spin-offs of different products. The most evident of these spin-
offs is the new iPod mini. It is already become a smash hit and it is hard to find a store that can keep
them in stock. Apple saw the opportunity to make a smaller, less expensive version of the iPod and
marketed it towards teens. With a cheaper price tag than the original iPod it is affordable for teens to
get the same great product that everyone has been talking about. Another spin-off from the iPod is the
iTunes music store. iTunes is a digital music store found on Apple’s website that allows people to
legally download their favorite songs or albums for a fee (usually about .99 per song downloaded). This
has become another huge success for Apple. The iTunes music store accounts for seventy percent of
the legal music download market in the United States. With the success of the iPod, Apple is looking to
make a deal with HP iPods for PC. This would benefit PC users because now the software of these iPods
would be more compatible to what they are used to using.
In the past, it might have been harder to locate an Apple dealer in contrast to a PC dealer. Making use
of the internet and retail outlets, Apple has strived to make that change. Apple has recently adopted
Dell Computers’ procedure of using the Internet to sell their product. The benefit of selling a product
through the internet is it reaches a far wider market and reduces inventory costs. Another tactic Apple
has used to reach a new market is by offering some of their products to retailers such as Sears, Best
Buy, Circuit
City, Target and others. This method exposes people who were not familiar with Apple before to take a
“hands-on” look. Apple is also looking at opening more Apple stores.
Apple has opened more than 70 of their own Apple retail stores in the United States and Tokyo to
make an effort to control more of the point of sale. These techniques help Apple in a positive manner
because now at anytime and any place, anyone can order an Apple product or find an Apple dealer
quickly and easily.
The rapid advancement in technology is a current and strong trend in the global marketplace right
now and it is creating opportunities for Apple. Apple’s Macintosh sales in Europe and Japan have
increased dramatically during the past year because of increases in international consumer sales and
spending. An example of the Apple’s technological progress is in a new product co developed by nova
media which lets your Mac use a cell phone network. The benefit of this is it takes out the hassle of
connecting to the internet with your cell phone by directly connecting.
A great opportunity for Apple can be found in the growing population of older individuals. Apple can
grasp this opportunity by targeting older individual with their integrated and easy to use computer
system that allows for less hassle and more enjoyment.
To stay competitive within the computer industry, Apple has recently adopted Dell Computer’s
procedure of using the internet to sell their products and services. This has proved very lucrative for
Dell, therefore Apple needs to continue to expand and improve the use of the internet for their
Although Apple has lost market share in the education market it is still an opportunity for them to gain
that market share back. Computers are an important tool to help schools maximize their investment in
student technology. Apple’s products and services are designed for education customers and failure to
increase or maintain market share in the education market may have an adverse impact on the
company’s operating results and financial condition.
With the growing market for computers in music and graphic arts, Apple should focus more on the
entertainment market rather than the professional market. The entertainment industry is growing
rapidly and becoming more computer dependent, therefore there are numerous opportunities for
Apple to grow within this market.
Apple operates in a highly competitive market that is constantly making major advancements. If they
are unable to keep pace with these changes, then a share of the market is lost. Risk of obsolescence is
a major concern in their industry. Within two years, a once top of the line computer can become out-
Apple is in direct competition with companies such as Dell and Gateway. These two firms have
captured a major share of the computer market. Dell has been able to gain a large share of the market
by selling customized computers directly to the customer. Also, Dell has recently launched its own
digital music player, the equivalent of Apple’s iPod. Dell has an advantage over Apple with the low
prices they offer. An average Apple computer costs over $2,000, where as a fully loaded Dell computer
can be purchased for under $1,500. However, Apple still currently controls the multimedia area of
Demand for Apple’s products has been negatively impacted by worsening global economic conditions.
Some of the company’s education customers appear to be delaying technology purchases due to
concerns about the overall impact of the weaker economy on their available funding. Continuing
uncertainty about future economic conditions continues to make it difficult to forecast future operating
There is also constantly the threat of legal battles. Apple has often times been on both the defensive
and offensive side of court battles. In December 2003 alone, five separate class actions were filed
against the firm. These suits were based on misleading advertising regarding the battery life of their
product the iPod, and include charges of “false advertising, fraudulent concealment, and breach of
warranty.” When case like this make into the
news, customers begin to worry about investing in their products. Currently, Apple is now offering
replacement batteries to remedy this situation.
Another legal issue Apple may find itself dealing with is music piracy. The Recording Industry
Association of American Inc. (RIAA) has been recently increasing their efforts to end online music
piracy by issuing law suits. Apple has developed a solution to this by creating iTunes which is a music
store where music fans can download digital music for a small fee. Currently Apple is the only
company to offer a solution for buying, managing and listening to digital music. On March 15th 2004,
over 50 million songs had been purchased and downloaded at 99 cents each. Steve Jobs, Apple’s CEO
stated that “With over 50 million songs already downloaded and an additional 2.5 million songs being
downloaded every week, it’s increasingly difficult to imagine others ever catching up with iTunes.”
While this may be true for the moment, eventually competition will enter into this niche that Apple has
With the introduction of the iPod, Apple cannot fully depend on this product for market growth. They
were the first to introduce the digital music player, but competitors have already introduced their
versions of a digital music player. Apple must continue to innovate this technology to avoid imitability.
Apple’s product differentiation poses a high entry barrier to potential competitors through product
design. With these successful products, it encourages the consumer to look deeper into Apple’s
product line. The future outlook is promising as long as Apple can continue to carefully carry out these
opportunities effectively. By weighing all factors to take risks, Apple should be able to take advantage
and make these opportunities strengths. Making use of strategic alliances (i.e. HP for the iPod) will also
be a positive strategic factor and help Apple with continued success.
Marketing Plan:
We feel that the main products that Apple should focus on developing products that are focused on
the multimedia market rather than the business market. These products would include the iPod, the
iMac, the iLife software, and the G5. The reason is for this being that their core competency is in digital
art and design, and the competition in the business is market is too great for them to compete with.
By them focusing their scope on consumers using digital media for commercial and private use, they
will create brand loyalty and recognition. While the iPod is a successful product at the moment, they
cannot depend heavily on it for future success.
By dividing their products into four separate product lines, Apple is able to mass customize their
products according to the needs of the customer. All of the “i” products are focused towards the
consumer market, while the “Power” products are focused towards the professional market. We feel
that they should focus on promoting their higher end products, such as the G5, on the entertainment
industry and marketing industry.
Also, currently Apple is opening retail stores which will make them more available to consumers. This
makes the products more readily available to consumers and enables them to test products before
making the investment.
Currently Apple focuses on the “price is no object niche audience” rather than competing against the
price sensitive mass market that companies such as Dell focus on. We feel that they should continue
this strategy and keep prices at their current levels. Apple’s high prices create a high quality brand
image in the consumers mind.
One promotional suggestion would be for Apple to focus internet advertising featuring new products.
Currently, their website is a user-friendly location for customers to purchase Apple products. Apple
should consider offering promotion deals such as free shipping, discounts on multiple purchases. Also,
by creating a marketing campaign where celebrities from different industries promote their products
would promote sales.
Strategic Alternatives and Recommended Strategies:
In concluding the strategic analysis, we propose that Apple Inc. follow the subsequent
Since one of the company’s weaknesses is absence of effective research and development, they need
to focus on expanding their current R&D efforts. The company’s success depends heavily on the ability
to produce new and innovative products and technology. In an industry were competition is fierce and
the chance that a product may become obsolete is great, Apple can no longer cut their research and
development budget. Apple is known for developing innovative products and bringing them to the
market first. Without the proper R&D these products will become out-dated and quickly become
overshadowed by a competitor’s product. The iPod has been a tremendous success for the company,
partly because the hardware is compatible with all operating systems. It is important for the company
to develop hardware products that bear the Apple brand name, but are now compatible with all
Another suggestion that Apple Inc. should take advantage of is to better position them selves in the
market. Apple currently is the only company in the PC market whose systems do not run a Microsoft
operating system. They make an operating to run with their systems. The “war” for the operating
system was lost long ago, Microsoft dominates the market. It is our recommendation that they adopt
the Microsoft Operating Systems. Ninety six percent of the market knows how to operate windows and
not Mac OS X. The Macintosh would be more attractive for their customers but it could also pull
potential customer over the barrier of purchasing an Apple computer. Having the Microsoft software
will enable users to install software that would not have been well-matched with Apple software. In
edition, software developers would be more willing to produce software for Apple computers, because
there would now be a larger market for it.
Apple distribution centers are few and far between. The current retail stores are costly but are an
asset to the company. They allow the customer to test and use Apple products. The solution to this
problem would be to align with stores such as Circuit City, Best Buy, and Wholesalers to distribute
higher end products. This would greatly reduce costs but still allow customers to experience their
products. Apple should improve its distribution channels by promoting internet and telephone sales, as
Dell has done. Posting advertisements on websites such as and