Apple, Inc.

Formulation Presentation

March, 7 2008
Mathew Lugo, Brooks Johnston, Jessica-Anne
Stoudemire, Kerri Barringer, & Ben Ponds
Executive Summary

Presented by: Kerri Barringer

Apple Profile
Products: Desktop Industry:
computers, laptops,  Key Players:
digital music players,  Dell
software  Hewlett-Packard
 Microsoft
Markets: High-end,
technology-savvy  Keys to success:
users  Innovation
Size: $8.3 billion in  Quality support services
sales in 2004
Apple’s Mission & Vision
Mission: Apple is in the
business of innovating,
manufacturing, and
marketing/selling
computer hardware and
software solutions, related
peripherals, and
communications
equipment.
Vision:
 To be a leading
innovator of new
technologies that
change the way people
go about their daily
General Sector of the External
Environment

Presented by: Ben Ponds

Operating Environment
Economic Factors
 Intense growth – dependent on machines
 Demand for product services & support
Social Factors
 Wireless communication
 Powerful & portable devices
Political Factors
 Copyrights protection
Technological Factors
 Strong rivalries among top competitors
 Continuously changing products
Ecological Factors
 Pollution
 Corporate Social Responsibility
Summary
 Product support services
 Powerful & portable devices
Industry Analysis

Presented by: Matt Lugo

Porter’s Five Force’s Model
1. Rivalry Among Existing Competitors
 Innovation; First to enter the market
2. Substitute Products
 Competitors with similar products
3. Powerful Suppliers
 Forward Integration
4. Powerful Buyers
 Backward Integration
5. Threat of Entry
 Advanced Knowledge
 Capital Requirement
Competitor Profile: Hewlett Packard

Hewlett-Packard Sector: Technology

Company provides Industry:Diversified
various products, Computer Systems
technologies, Products: Servers,
software, solutions, Business Critical
and services Systems & Software
worldwide.
Competitor Profile: Dell

Engage in the Sector: Technology

design, development, Industry: Personal
manufacture, Computers
marketing, sale, and Products: Desktops,
support of various Mobility Products,
computer systems Software &
and services peripherals
worldwide.
Competitor Profile: Microsoft
The world's #1 Sector: Technology
software company Industry: Application
provides a variety of Software
products and Products: Video
services, including game consoles,
its Windows servers and storage
operating systems software, and digital
and Office software music players.
suite.
Apple’s Position within the
Industry
Personal Computers Apple needs to focus
 Lack customer & on product
product service differentiation to avoid
 Competitors dominate becoming a low-
market margin commodity,
Multi-Media especially in terms of
Peripherals digital music and
 Innovative; first to communications.
enter the market
Value Chain Analysis

Presented by: Brooks Johnston

Value Chain Analysis
Supporting Activities:
 General Administration:
 Identify new-product market opportunities &
environmental threats, public image & corporate
citizenship
 Human Resource Management
 Recruit, train, motivate, challenge, and promote the
most talented employees
 Procurement
 Good relationship with suppliers,
Value Chain Analysis
Primary Activities:
 Technology Development
 Research & development leading to product and process
innovations, timeliness of technology developments,
encourage creativity
 Operations
 Product design, productivity of equipment, effective
quality control systems
 Marketing and Sales
 Identify customer segments, innovate sales &
advertising, image of quality, favorable reputation, brand
loyalty
 Service
 Ability to provide replacement parts or tech support,
warranty/guarantee, quality of customer education &
training
Core Competencies & Competitive
Advantage
Procurement
 First computer software company to negotiate with
RIAA to allow consumers to legally download music
online
Technology & Development
 Main objective is to be the leading innovator of new
technologies that change the way people live their daily
lives
Marketing & Sales
 Identify specific customer segments and needs, develop
an image and reputation of quality, innovative
advertising
Strengths Relative to Rivals
iPod & iTunes software revolutionized the music
industry, worked with RIAA to develop deal
Considered the BMW or “cool” computer system
to own
PC is a mature industry/product—Apple found
new ways to spark demand
Successfully differentiate products
Brand Image and Recognition
Weaknesses Relative to Rivals
Apple’s market share is low as prices for
windows-based machines fall
Apple has limited number of suppliers to obtain
raw materials
Apple uses third-party music content—potential to
limit music or limit availability in the future
Promotional activities focus on core groups—
misses the larger audience of PC’s for non-
graphics based business and home users
Cell phone vs. iPod
Industry Specific Competitive
Advantages

Development of innovative new

technologies
Dell grew successfully by eliminating the
middle-man and selling direct
Microsoft is #1 software company
HP is currently the #1 PC manufacturer
Financial Analysis of Apple

Presented by: Kerri Barringer

 Operating Income and Net Income

1,000,000

800,000

600,000
Dollars (in thousands)

400,000

Operating Income
200,000
Net Income

0
2000 2001 2002 2003 2004

-200,000

-400,000

-600,000
Years
 Asse ts, Liabilitie s, Stockholde r's Equity

9,000,000

8,000,000

7,000,000

6,000,000
Dollars (in thousands)

5,000,000
Total As s ets
Total Liabilities
Total Stockholder's Equ
4,000,000

3,000,000

2,000,000

1,000,000

0
2000 2001 2002 2003 2004
Years
 Net Profit Margin

15

10

0
2000 2001 2002 2003 2004

-5
Apple
Percent

Dell
-10
HP
Industry
-15

-20

-25

-30

-35
Years
 Current Ratio

3.5

2.5

Apple
Years

Dell
2
HP
Industry

1.5

0.5

0
2000 2001 2002 2003 2004
 Total Debt to Equity

1.5

0.5
Apple
Dell
HP
Industry
0
2000 2001 2002 2003 2004

-0.5

-1

-1.5
 Revenues/Total Assets

2.5

1.5
Apple
Dell
Year

HP
Industry
1

0.5

0
2000 2001 2002 2003 2004
SWOT Summary & Core Issue

Presented by: Matt Lugo

SWOT Summary
Strengths:
 Innovation; first to enter the market
 Product & Market Development
Weakness:
 Customer and Product Services
Opportunities:
 Strategic Alliances with leading communication firms
Threats:
 Forward integration
 Becoming a low- end commodity
Core Issue of Apple
Apple needs to focus on product
differentiation to avoid becoming a low-
margin commodity, especially in terms of
digital music and communications.
Long Term Objective & Strategic
Scenarios

Presented by: Ben Ponds

Long Term Objective
Technological Leadership
 Product Development
 Quality Support Services
5-year Expectations
By 2010 most cell phones will have mp3
capability.

High quality customer support services will

be in great demand.
Future Scenarios for Apple
Best Case
 Leader in music capable cell phones

 Unsurpassed customer support

Worst Case
 Become a low-scale commodity

 Fail to integrate quality support services

Most Likely
 Continue to successfully differentiate out products

 Retain strong support and service operations

Possible Objective Shifts
Worst Case Scenario
 Competitive position
Best Case Scenario
 Productivity
 Public responsibility
Corporate Level Business
Alternatives

Presented by: Brooks Johnston

Corporate Level Strategic
Alternatives

Enter communications industry

 Establish relationship with cell-phone carrier
Expand customer service capabilities
 Add brick & mortar locations that focus on
training clinics to use Apple products, service
their product problems, Apple “Geek Squad”,
etc…
International Corporate-Level
Alternatives

Global brick & mortar locations

Nearly 2.4 billion people living in China
and India alone, accounts for 37% of the
global population
Major areas of economic growth are in new-
markets (China & India), and in product &
service expansion
Strategic Alliances as Corporate-
Level Alternatives

Establish relationship with cell phone

carrier
 Entrenched in professional media creation
markets, provide fundamental intellectual
property to be used in consumer oriented
software
Acquisition & Restructuring
Corporate-Level Alternatives

Apple is limited to the number of suppliers

it can use to obtain raw materials
Some key components are subject to
industry-wide availability constraints and
pricing pressures
Apple needs to find multiple component
suppliers
Possibly acquire suppliers
Keys to Success
International
 Country specific economic, social, political,
technological, and ecological factors
Strategic Alliances
 Challenge in negotiating contract terms &
copyright agreements
Acquisition and Restructuring
 Finding multiple component suppliers
Long-Term Objective: Technology
Leadership

Enter communications industry:

 Focus on product development and
differentiation in areas of digital music and
communication
Expand customer service capabilities:
 Global brick & mortar locations that focus on
quality support services (training and tech
support)
Business Level Strategic
Alternatives

Presented by: Jessica-Anne

Stoudemire
Business Level
Strategic Alternatives

Strategic Business Units

 Multimedia Devices and Software
 iPod, iTunes, etc.
 Computers
 iMac, iBook, etc.
 Computer Hardware
 Computer Software
 Safari, iMovie, etc.
Generic Competitive Options
Differentiation

Focus Differentiation
Differentiation: Pros and Cons
Pros: Cons:
 Larger market than focus  No cost advantage
differentiation

 Hard to sustain due to

 High customer loyalty
imitation
 Could achieve greater
 Reputation for innovative
differentiation with
products
focused marketing

• Relevant Rival: Microsoft

Focus Differentiation:
Pros and Cons
Pros: Cons:
 Ability to meet  Less opportunities for
targeted segment’s growth
needs  Targeted segment’s
 Ability to adapt to demand has large
segment’s changing impact on revenue
needs or demands  Non-focus oriented
 High customer loyalty competitors can better
within segment compete in pricing

• Relevant Rival: Dell

 Generic Competitive Option:
Differentiation

Grand Strategies
 Market Development
 Product Development

 Innovation

 Strategic Alliances
Generic Competitive Option:
Focus Differentiation

Grand Strategies:
 Concentrated Growth
 Concentric Diversification

 Strategic Alliances

 Product Development

 Innovation
Strategic Choice
In order to achieve the long term objective
of technological leadership it is
recommended that Apple establishes a
strategic alliance with a leading
communication provider