(Approved by AICTE (Govt.

Of India), New Delhi) For partial fulfillment of Post Graduate Diploma in Management Assignment On

APPLE

SUBMITTED TO: Prof. R.J.Masilamani

Faculty of Strategic Management IPER PGDM

SUBMITTED BY:
Amit Choubey Deepak Varyani Divya Jyoti Joshi Mayank Daga Sana Ismail Vishaka Nireshvaliya Trimester- IV IPER PGDM

CONTENTS
S.NO 1 2 3 4 5 6 PARTICULARS Sector of Apple About Apples Product Portfolio Strategic Audit: SWOT & Porters 5 forces Model Environmental Analysis Vertical Integration of Competitors Diversification

COMPUTER SECTOR IN WHICH APPLE IS INTO:

PRODUCT PORTFOLIO OF APPLE

SWOT ANALYSIS
Strategic factors Strenghts Innovation Superior innovation constitutes the most important competitive advantage for Apple because the company is famous for its technical revolutions, inventions, and development as well as its engineering excellence. As this source of competitive advantage is widely regarded as the most important one in terms of future profitability, innovation is especially vital for Apples future performance. By regarding the PC not just as a commodity but as a premium product, Apples puts special emphasis and its huge creativity skills into the design of its products. Therefore, Apples customers get a higher value for Apples products due to aesthetics, lifestyle, or similar reasons. As this leads to higher sales and profits, this is an important cornerstone of Apples intermediate-term performance. Comment

Creativity & design

Weaknesses Incompatibility As Apples hardware, software, and other products arent compatible with the Wintel standard, this incompatibility deters possible customers and PC-producers. This leads to lower sales and profits, thereby weakening especially Apples long-term performance. High operating costs are caused by high Marketing and R&D costs and reduce overall profitability. This also immediately weakens Apples short-term performance.

High operating costs

Opportunities Technological forces Apple can take advantage of the importance of technological forces which enable possible first mover advantages through superior R&D and

innovation leadership in the future. This can lead to high returns, thereby improving Apples long-term performance. High barriers to entry in the PC industry High barriers to entry due to high brand loyalty, high economies of scale, and other factors offer the opportunity to maintain market share as the potential new entrants are unlikely to enter the industry. This ensures Apples profits and constitutes an opportunity in terms of intermediate-term performance. Apple can use the iPod and its superior design/quality to earn high profits in this growth market, thereby improving its current performance.

MP3 player market in growth stage

Threats Substitute products in the PC industry As many customers regard the PC as a commodity, these are often attracted through the lower price of the Wintel-standard products. This threat can lead to lower profits in the intermediate-term. Intense rivalry in the consolidated PC industry can cause price wars which are an important threat to Apples profitability as they would reduce profits immediately and therefore leading to inferior performance in the shortterm.

Rivalry among established companies in PC industry

However, the increased use of Apple computers is prompting hackers to target the platform. In February 2006, there was documentation of the first known Apple OS X worm. By using iChat instant messaging, it spreads to other users and deletes files from their Mac computers. (Sophos) If Mac OS X becomes as wide of a target as Windows, Apples perceived differentiation as the more secure platform may disappear.

OTHER PARAMETERS: Although participation in such activities may add value, they may not be a source of competitive advantage. Ultimately, the value, rarity, inimitability, and/or organization (VRIO)of an activity

or resource determine its sustainability as a source of competitive advantage.Within this context, we can identify a firms strengths, weaknesses, opportunities, and threats(SWOT). Strengths Technical savvy Product lines are easy to use and stable. Recent integration with Microsoft products lines and Intel processors demonstrate ability and willingness to adapt to a diverse customer base. (Mossberg) Such innovation, however, would not be sustainable without a learning environment tolerant of mistakes. While the pure technical expertise alone is not a valuable or rare resource, it becomes very costly to imitate when it exists within the socially complex, entrepreneurial culture of Apple. Financial vitality Cash reserves remained robust and stable despite stagnant marketshare growth in the computer hardware and software arenas. Apple exploited this byresisting market pressures to reduce costs, tightly integrating product packages, andforming strategic alliances (i.e. securing the backing of all major music distributors in thesupport of iTunes). Brand loyalty The only way that Apple could maintain the financial vitality describedabove is via a fanatical, almost cult-like, affair with its customer base. Such brandloyalty is extremely costly and time-consuming to imitate. Steve Jobs As discussed earlier, Jobs proved to be a vital component to Applessuccess. During his absence (1985-1996), Apple experienced the most turbulent(financial and innovative) timeline in its history. Immediately upon his return, hereplaced most of the Board of Directors, pruned and focused the new product ideas, anddelivered seven consecutive quarters of positive earnings to shareholders. (Linzmayer,289-99) As such, Jobs is certainly a valuable, rare, and hard to imitate resource thatApple fully exploits.

Weaknesses

Market share Apple has historically been strongest in the US geographical andeducational vertical markets. With the educational market facing tightening budgetconstraints and the US approaching a PC saturation point, Apple may need to burn cashmore quickly and succumb to market cost pressures on its products without a strategicinnovation, integration, or divesture. Steve Jobs For virtually the same reasons Jobs is a strength, he is simultaneously aweakness. The aggressive drive to bring innovative visions to life was noticeably absentand painfully felt (especially by shareholders) during his departure. The apparentabsence of succession planning coupled with a lust for the limelight positioned Jobs asApples single consciousness in the eyes of consumers and shareholders.

Opportunities These are the positive opportunities which are present in the industry of which Apple is a part of.

Consumer electronics With the startling success of the iPod and iTunes, Apple enteredthe consumer electronics market. By expanding the iTunes concept to

downloadablemobile phone features and movies (podcasts), the door is now open to develop new and potentially profitable strategic alliances with peripheral component manufacturers(speaker, home stereo, etc.) and media transmission giants (Disney, TBS, Verizon, etc.). PC hardware and software market growth With cross-licensing of operating system platforms in place, Apple entered the high-volume business environment traditionallydominated by Windows-based PCs. The introduction of Intel-based processors prompted businesses to replace PCs with iMacs. They did this to gain a level of stability andreliability in their business applications that PCs failed to provide. An example is JapansAozora Bank Ltd., who is replacing 2,300 PCs with iMacs. (Wing field) Apple must establish themselves as a credible player in business desktop applications to overcome the desktop publishing stereotype.

Threats

Legal risks In a market that literally changes at the speed of thought, patent and copyright infringement risks remain high. As long as operating systems and support software packages continue to converge and remain relatively easy to imitate, present and future lawsuits are inevitable. The Apple records claim against iTunes remains unresolved. Competition This threat occurs primarily on two fronts: PC hardware/software and consumer electronics. For the same reasons discussed in the opportunities section, the threat of imitability (cloning, pirating, etc.) increases. As relative newcomers to the consumer electronics arena, will Apple retain a competitive advantage as they diversify their offerings (speakers, home entertainment systems, etc.)

PORTERS 5 FORCES MODEL

Analysis and Conclusion

The industry analysis of Apple Inc. will focus specifically on the portable personal computer manufacturing and sales and on the United States market, although many of the firms involved in the industry produce, market and sell internationally. Considering the threats faced by firms operating in this industry the industry is moderately attractive overall. Many firms within the industry have thrived, but competition is very high, while suppliers and buyers have moderate influence over the competitors. There are several avenues by which new competitors may enter the market, but they face substantial hurdles in successfully establishing a viable brand. Finally the threat of substitutes is credible in some use-cases, but will not completely usurp personal computers in the foreseeable future. Rivalry Between Competitors While once an industry defined by few large companies and extremely expensive products, pursuing a niche audience, the advent of the personal computer (PC) has caused an industry explosion which now includes dozens of manufacturers pursuing many millions of customers in the United States. As a result of the penetration of computers into everyday life and business the PC is becoming more and more a commodity product. For most users, and business economy is more important that performance specification and other bells and whistles. The result has led many manufacturers to pursue low-cost and best-cost provider strategies. Those at the lowest end compete on rock-bottom prices foregoing all but the most basic features. Those in the middle range including Dell, HP, and Lenovo compete for customers offering a range of options for varying prices. The similarity of their products due to industry standard setting also leads to price competition that drives down prices and squeeze margins. The desire of companies to buy large numbers of PCs for the lowest bid available also exercises considerable downward pressure on prices offered by these firms. The nature of technological development also imposes increased competition on the members of the industry. The technology behind many key components of PCs continues to become more efficient with increased processing power and less energy consumption. Moores Law predicts that the number of transistors on a processing chip roughly doubles every eighteen to twenty-four months.1 While is more an estimate than a law industry leaders like Intel, Inc. have kept this pace for decades. This perpetual innovation and development puts pressure on computer manufacturers to streamline production and refresh products at a pace largely unseen in business for centuries. Supplier Power Suppliers have considerable leverage over the manufacturers of portable personal computers. While many industry standards like universal serial bus (USB) and wireless technology are open and issued by independent or collaborative standards bodies like the USB Implementers Forum (USB-IF, universal serial bus) and Institute for Electrical and Electronics Engineers (IEEE, wireless standard 802.11n) manufacturers also rely on privately owned standards. Often the

technology must be licensed or requires entrance to a paid-membership industry group for use. For instance, for the specifications and use of the PCI-Express/Express Card standard, which is present in nearly all personal computers, membership to the industry group PCI-SIG is required. In addition, the relative concentration of suppliers for some inputs puts pressure on competitors. Within the personal computer industry, central processing units (CPUs) are sourced from a duopoly, Intel Corp. and Advanced Micro Devices, Inc. (AMD). Despite having two options, the semi-conductor market is dominated by Intel, with AMD licensing technology from Intel for use in production of their CPUs.4 Despite having compatible chip technologies; these two companies use proprietary chip designs that require different motherboard socket designs. Because of this incompatibility in design, for a PC manufacturer to switch suppliers of CPUs they must also switch to a new type of motherboard, which drives up switching costs. Despite this power the chip manufacturers hold, they are not present in the PC manufacturing business and therefore are reliant on PC manufacturers for a bulk of their business. This leads to discounts for bulk purchasing and exclusivity agreements, which alleviates some pressure from the dominant suppliers. Buyer Power As in all industries buyers have the final say and exercise considerable influence over manufacturers. The variety of buyers with many, widely varying needs directly impacts PC makers who must adapt and react by offering broad product lines. The marked distinction between power users seeking the latest and greatest and average users who need a product that is just good enough poses an obstacle to manufacturers who want to tap as many customers as possible. Manufacturers are benefited by the wide acceptance and use of PCs which causes high demand for products. Proprietary systems and brand loyalty are also used to keep customers coming back. Highly compatible closed-systems are routinely used to keep customers within a circle of products provided by single companies. Threat of Potential Entrants There are many avenues by which a new entrant may enter the portable personal computer market; however there are several hindrances that may prevent successful entrance. Currently in the market there are several large, well entrenched players that have substantial brand recognition and loyalty, including Dell, HP, Lenovo, and Apple among others. Developing a successful brand among many others is difficult. These players also dominate and keep costs down with economies of scale, which cannot easily be achieved by a new entrant without substantial capital investment. Despite obstacles there are still possibilities for entrance. New entrants may come from newly established lean organizations which rely primarily on third-party original equipment manufacturers (OEMs) for production. Established OEMs often operating in Asia have already achieved economy of scale and can pass these savings onto new firms that practice re-branding

as a market entrance plan. The increasing convergence of mobile devices resulting from the push of smart-phones and netbooks is bringing phone makers into the portable personal computer market. Nokia, a well established phone maker, has fired its first test shot by planning to release a netbook of its own.Another mode of entrance is a result of forward vertical integration by OEMs. This trend has increased in popularity over the past decade, bringing companies like Acer, Inc. into direct competition with well-known industry giants. Formerly an unknown, by 2005 Acer had revenues of over $1 Billion in the United States, $8.17 Billion worldwide.6Today Acer has over $16.5 Billion in revenues worldwide and oversees brands such as eMachines and Gateway. Threat of Substitutes The consumer technology sector has grown substantial over the past decade with the advent of alternatives to personal computers growing from PDAs and now feature-rich smart phones The increase in technology in the average American living room. These developments result in the spread of consumer technology dollars away from PCs. However, despite the spread it is unlikely that smart phones, like the iPhone or Blackberry, will significantly diminish the importance of PCs in the near future. This diversification of consumers digital lifestyles presents an opportunity for diversification of PC manufacturers, a step many are already taking. Recommendations Based on the industry analysis, I recommend: Create a differentiation strategy: The commodity PC market presents a perpetual downward pressure on prices, which erodes firm profitability. Developing and brand image that separates the firm from the competitive rat race will reduce the effect of destructive competition and pad margins. Develop close relationships with suppliers: Because there are few suppliers of key components required in PC manufacturing developing close relationships with suppliers is of utmost importance. Rather than searching for the supplier of lowest cost, maintaining a collaborative and exclusive business relationship will help mitigate the power of suppliers and help to lock in attractive component prices. Consumer electronics diversification: While the PC market has grown increasingly crowded with competitors and customers saturated other areas of consumer electronics continue to grow. Developing complementary products in other categories provides broader sources of revenue by accessing more customers in markets with less intense competition.

ENVIRONMENTAL ANALYSIS
Environment Economic 1. Recovering economy Threat (& why?)
1. Signs

Opportunity(& why?)
1. Economic

of economic turnaround are present,but many consumers are unconvinced and spending less. Apples premium portable computers may be out of consumer price ranges.

recovery will cause consumer spending. Apples higg quality may attract customers.

Demographic Rising prices and stagnant wages leave workers and 1. Flattening of wages families with less money to leveling affluence spend on perceived luxury goods. Political/Legal FCC Internet Regulation may stifle innovation on the 1. Potential FCC Internet Internet, reducing new methods for Apple to Regulation capitalize on the power of the 2. Healthcare Reform internet. Technological 1. Apples broad line of devices may become obsolete 1. Device Convergence with the advent of multi-use portable devices. 2. Shortening Product 2. Increased pressure to Lifecycle innovate may result in missed opportunities and inventory losses.

Apple, known for high quality, dependability, and longlasting products will attract customers seeking value for their money. Apples useful portable devices could be leveraged in modern healthcare settings, funded in-part by government money, increasing demand. 1. As a leader in portable devices Apple can innovate and lead the way in platform convergence. 2. High R&D commitments may propel Apple to lead the industry by out-innovating competitors

Sociocultural

1. Apples portable computers 1. Apple can lead innovation may lose relevance among in on-the-go devices utilizing 1. Increasing desire for on-the- new on-the-go devices. R&D portable knowhow. 2. Device manufacturing will go devices be equated with pollution and

2. Greater concern for the climate change. environment

2. Apples lead in environmentally-sound practices will be a marketing advantage. 1. Massive population with increased buying power for Apples products. 2. Apple has already made steps to improve environmental-friendliness, can be used to the firms advantage.

Global

1. The developing Chinese economy will require higher 1. Developing Chinese wages for factory workers. 2. Emissions regulation will economy impose huge burdens on 2. Potential world-wide Apples production costs. climate regulation

Vertical Integration of Competitors

Sony is an example of a competitor with a unique position against Apple. Sony Music supplies Apple with many of the songs for iTunes. Sony also creates a version of the Walkman portable music player that is a direct competitor to the iPod. (Hall)Sony is attempting to vertically integrate forward directly to the music buyer. Sony integrated their music system (Mora) into the Sony Walkman. Sony is exclusively distributing certain songs on Mora. (Hall) Mora currently targets Japanese consumers. If Sony can gain additional momentum (such as collaborating with other record labels), their service could present formidable challenge to iTunes in additional markets.

Diversification
Apple already has a well-positioned diversified strategy, but can continue to broaden its scope while creating value in related and unrelated markets including eBooks and medical equipment. Current Diversification Apple has already implemented a successful strategy of diversification, both related and unrelated. Beginning as a company which produced full-sized desktop computers Apple now offers a line of desktops, notebook computers, mobile digital media players, and a mobile phone, among many other devices. Apple has also entered the content distribution business, selling music and applications for its devices as well as renting digital video, playable across many of its most popular devices. Despite this broad range of diversification, there are still opportunities for Apple to further diversify. Related Diversification

As discussed in the Environment Analysis above, the world of consumer electronics technologies is converging on a point of highly portable, rich media, Internet connected devices. Apple has already entered this market with the highly popular iPhone, which performs many of the most desired functions. The growing consensus is that a tablet format device may be the next step, bridging the divide between laptops and smartphones. Apples patents dealing with touch screen technology and experience developing the iPhone and iPod Touch will translate perfectly to a larger form, highly functional tablet device. A growing category in digital technology is the eReader device, which allows consumers to transport and read books in a digital format. While the Amazon Kindle is currently the leading product in this market, the category is still young and could be redefined. If Apple could incorporate an e-book reader into a convergence device, or develop a successful standalone device it would be wise of them to diversify the iTunes store to include e-book downloads in addition to music, movies, TV shows, and podcasts among other types of content already available. This is one of the next logical progressions of the iTunes store which has come very far from its initial offering of music only. Unrelated Diversification In the United States medical equipment and devices are a growth area of the economy. As new healthcare legislation is enacted the importance of modernizing our system will come to the forefront. Apples high quality portable devices would provide excellent platforms for care providers to utilize in streamlining care. In order to gain the most value from this growth area without considerable risk or heavy capital investment Apple should work with medical equipment manufacturers and care providers to establish Apples devices, particularly a future tablet, as a standard for medical technology platforms. Using a combination of new digital medical technologies developed by medical equipment manufacturers and current technology for connectivity Apple could open its portable and mobile platforms open for development of unique and efficient medical tools. Examples of potential products would include digital thermometers and blood pressure monitors that connect via USB or the Apple proprietary Dock Connector to an Apple device to automatically log measurements and do real-time analysis based on historical values to identify trends that may pose health risks.