Apple Company Analysis - Essay Example

Apple Company Analysis Apple Inc. designs, manufactures and markets personal computers and associated software products, computing, peripherals and communications solutions (Annual Report, 2011). Initially, the company was called Apple Computers Inc. The company has diversified its products to offer portable music players and phones, for instance, iPods, iMacs, MacBooks, iPhones and iPads. In addition, Apple Inc. is the producer of the iTunes software program that is used to store and play music in one place (Annual Report, 2011). The company’s clients are varied with respect to the variety of products, for instance, educators, business organizations, and daily basis customers. Owing to its wide range of products, the company has the capability to target a wide range of customers, with most sales being conducted online and a host of others from direct sales, retailers and the company’s retail shops. The company has current operations distributed all over the world; in the United States, Japan, Europe, Asia Pacific and some parts of Africa. This paper is to present the reader with a complete analysis of Apple Inc. The paper includes a detailed SWOT analysis of the company as well. Apple Company Analysis On April 1, 1976, three men, Steve Jobs, Steve Wozniak, and Ronald Wayne co-founded Apple Inc (Annual Report, 2011). The company did not receive immediate attention in the market but until 1984 when the company introduced the Macintosh computer. Jobs and Wozniak left the company in 1985 in pursuit of other goals. The company went ahead with the release of new computer models that were unique in style and more portable as opposed to other computer models. Even with these improvements, the company could not cement its position as a dominant computer manufacturing company across the globe and in 1997, one founder Steve Jobs rejoined the company when it was losing huge sums of cash. Apple released the iMac in 1998 and immediately gained profits with increasing market share thus turning the downward spiral of the company around. Apple’s revolution of the digital music distribution came with the introduction of the iPod in 2001 along with iTunes and in 2007, the company expanded its scope of production and entered the smart-phones world when it released the iPhone. Today, Apple is among the leading innovators in computer hardware and software, phones and a host of digital portable devices. The company started an advertisement dubbed the “Get a Mac” advertisement campaign that featured two celebrities which has successfully been running and most watched on You Tube (Annual Report, 2011). Furthermore, by 2008, the company had grown into a large business entity in that it employed over 35, 000 people selling over 32.5 billion units in more that 270 stores. Apple Inc. has also increased the market share of its products, for instance, iMac increased its market share from 9% in 2007 to 21% in 2008, MacBook having a 17.6% market share of laptop sales in 2007, and a 70% market share of music portable players with the production of iPods. The company had a quick start in the smart-phone market with the introduction of the iPhone taking over a market share of 26.7% in 2007 but later dropping to 19.2% in 2007. SWOT Analysis The BCG Matrix The BCG matrix or the Boston Consulting Group matrix helps firms to determine the resources spent and how, and the firm’s returns. The star in this model is the iPhone. Stars are profitable products with strong market anticipation for growth that tend to provide the company with more attention and have an increasing effect on the revenue of a company. A major contributor to Apple’s increasing income is the iPhone. In 2008, Apple recorded increased revenue by 38% thanks to the huge success of the 3G iPhone that saw 6.9 million pieces sold within the first full quarter (Annual Report, 2011). Conversely, iPhone 3G’s hype has gone down and sooner than later, the product will eventually become a cash cow. Apple consumers will begin getting bored with this product hence; Apple should develop a new product to attract their customers’ attention. Apple has question mark products; the Mac laptops. A question mark product is a Strategic Business Unit (SBU) with a weak existence in the market. Recent developments have seen a rise in the use of mobile internet as well as a decline in the prices of laptops. Consequently, the laptop market has increasingly grown. On the contrary, the US laptop market is not dominated with Apple laptops, with Apple holding a mere 6.6% share of the laptops market. The low market share of Apple is associated with the high prices of their laptops, with the cheapest selling at $1, 099 in 2008 compared to those priced cheaply at around $500 (Annual Report, 2011). The cash cow product of Apple is the iPod. A cash cow product has the ability to dominate the market as well as generate huge sums of cash; but in a market structure with slow growth. Since its inception, the product has had a valuable share of the MP3 player market, boosting a massive 70% in 2004 and maintaining this level more than four years later. However, recent research shows that the product has declined its growth in the market, hence, Apple should consider being more innovative and proceeding with overseas development. The dog product of Apple is the Mac desktop. A dog is an SBU with a low share of sluggishly growing market. Owing to the increased use of mobile internet services and reduced prices of many laptops, the Mac desktop market has drastically declined over the past few years. Furthermore, the market share of Mac desktops is about 8.5% lagging behind HP and Dell with a desktop market share of 25.3% and 31.9% respectively (Annual Report, 2011). Application of the Growth/Product Matrix Apple’s products are directed towards different audiences. The iPhones and iPads are for the whole market i.e. everyone is informed about these products in the marketing strategies. On the other hand, the marketing strategies of the MacBook Air are directed towards businesses and business people. Furthermore, an iPod/iPhone is less expensive and can be afforded by nearly everyone thus the company targets a wider range of market with these products. On the other hand, the MacBook Air costs about little higher than $1, 700 and is less than an inch thick with a feature to allow someone view an online movie for 30 days after its DVD release. In addition, the laptop is turned on the moment it is flipped open. The efforts made by Apple to make products targeted towards business people is a perfect example of diversified production since this product is new and is aimed at satisfying the needs of a new market. Owing to the light weight and high speed of the MacBook Air, Apple believes that the product will address the issue of mobility faced by business people in the current business world. Laptops from Apple have the least market share due to their high cost. This is no reason to think reducing the prices will increase the product’s dominance in the market. On the contrary, Apple feels that it can succeed as a company despite the high prices of their laptops and computers due to the fact that Macs’ sales growth in the recent times has outshined the PC market growth. HP and Dell are believed to offer a wide range of consumers with products at lower costs as compared to Apple yet Apple believes that making innovative products is the key to their success as the products will target a specific slot who appreciates the high quality products of Apple and their artistic appeal/appearance (Annual Report, 2011). Apple has and is still growing within the U.S market. This has not stopped the need for overseas markets and as a result, Apple is to work on establishing a strong existence in overseas markets. The market for high tech products has and is still rapidly growing in Asia, Europe and Africa. The CEO of HP, Mark Hurd stated that “emerging markets accounted for nearly half of the industry’s PC shipments at the end of 2007, and well over half of the growth” (Kerin, Hartley and Rudelius, 2009). On the contrary, Apple was only ranked 17th in global computer/PC shipments in the same year. Opening of stores in Australia and China was a major step in Apple’s plans to dominate the overseas markets and increase its presence (Kerin, Hartley and Rudelius, 2009). Strengths Apple is among the most established IT brands in the world with a loyal set of enthusiastic consumers who have always advocated for the brand. This loyalty is a symbol that Apple not only recruits new customers, but it also retains them giving the company an opportunity to extend the sell of other products like the iPod to this set of customers. The iPod plays a great role in the company’s access to a new set of consumers who buy other Apple products due to the great experience with the iPod. In addition, notebook sales are very solid thus adding up to the company’s revenue. Weaknesses It has been reported that the iPod Nano could be having a faulty screen (Kerin, Hartley and Rudelius, 2009). The company commented that a number of the products had screens that can break under impact and it had plans to replace all faulty screens, just like with faulty batteries of the early iPods that were replaced for free. In early 2000, Apple revealed that it will end its IBM relationship and switch to Intel as their chip supplier. Some analysts argued that the swap from IBM to Intel would really confuse some consumers of Apple products (Kerin, Hartley and Rudelius, 2009). Opportunities Apple can develop its iTunes application and MP3 player technology into a mobile phone to allow users to manage the music files stored on the device. There is an increasing trend in free subscription to podcasts which can be played on iPods and other MP3 devices. If these subscriptions are paid for, for instance, they can generate revenue for the company. Possible Threats One of the major threats to the company’s success is economic crises. Its widespread effects result in controlled spending hence they will purchase lees of the luxury products. A good number might choose to stick with their old iPod, iPhone etc. instead of getting a new one. In addition, those who are in need of a laptop or a phone will go for the cheaper ones rather than the MacBook Air or the iPhone respectively. The company may record deficits and declines in sales and revenue until the economic crises stabilizes and people feel safe about their jobs and financial positions. Competitors are another threat to Apple’s iTunes program in the online music sector. Companies with similar services include RealNetworks Inc. and Napster Inc (Kerin, Hartley and Rudelius, 2009). These companies benefit from this service in that they can work with a host of MP3 players. On the contrary, the music downloaded from these websites is not compatible with iPods and since iPods have dominated the MP3 market, these competing products pose little threat to Apple’s share of the market. However, their presence means that Apple should work towards developing innovative products to ensure its strong existence in the future MP3 market. Another threat to iTunes is the sharing of music illegally. Despite the increased concern of the Recording Industry Association of America (RIAA) with the increased illegal file sharing practice among peers, there are still reported cases of illegal file sharing. A 2007 research showed that more than 19% of the US population still took part in illegal file sharing activities (Kerin, Hartley and Rudelius, 2009). Music swapping programs like Limewire continue to reap off iTunes revenues through sharing of files illegally thus denying iTunes the chance of realizing its maximum capacity. Inventory Management Stating of the inventories is done at the lowest cost, computed with the FIFO (first in first out) method or market (Kerin, Hartley and Rudelius, 2009). Provisions are made for the differences in market value and cost in cases where the cost of the inventory is higher than the market value. The inventories of Apple Inc. are primarily made of components and finished products for all the period on hand. Value Chain Apple’s value chain can be summarized to design, procurement, manufacturing, distribution and logistics, and sales. The design stage of the value chain involves extensive research and product design after which raw materials have to be gathered, combined to manufacture the products, distribute the products to their different stores around the world and commence selling of the products. Apple has total control of the design of the products since design is the major uniqueness of their products and the greatest selling point as well as asset. Apple Inc. has a customer value proposition which is to produce products of the highest quality as well as provide their customers with great experience. Apple does not acquire production raw materials by themselves instead; they procure them from other companies in other countries (Annual Report, 2011). For instance, semi-conductors are bought from Samsung and other companies in Taiwan and Germany, memory chips are acquired from Japan and/or Korea, circuitry and display panes are bought from Taiwan and Korea and a host of other chipsets from Europe and infrequent metals from Asia and Africa (Annual Report, 2011). Distributing and selling of Apple products is managed by the company itself due to the sales experience required by the customers when they visit stores or buy products online. This experience is a vital component of the product mix. In addition, handling of the sales and distribution process by themselves helps the organization to reduce the gap between them and their customers, allowing them to have a better measurement of the changes in the market trends and customer reactions and/or opinions. Forecasting: Financial Analysis In 2012, Apple’s revenue increased from $24.7 billion in 2011 to $39.2 billion, an estimated 59% (Apple Inc, 2012). As a result of the increased revenue, there is a general increase in net income before depreciation from $6.4 billion to $12.4 in 2012. According to Apple Inc (2012), the company’s median target is $770.00 with an expected low of $600.00 and a high of $1, 111.00 where the median estimate represents an increase of 36.11% from the last price. The graphs below show forecasts from the last twelve months and for the next twelve months. Source: Apple Inc (NASDAQ:AAPL) at http://money.cnn.com/quote/forecast/forecast.html?symb=AAPL. Discussion Question: Suppose that you were thinking about opening a new restaurant. How would you go about forecasting demand and sales? Forecasting the demand and sales of a new restaurant is best assessed based on the market available for the product i.e. a forecast that is based on market research results carried out. Suppose a new restaurant is to be opened where one has identified his/her customer’s profile, one has to familiarize with some behaviors of the customer, for instance, how often they eat, how much they spend on a meal on average. Having the right responses to these questions will have solved a number of other questions, for instance, the number of clients who fit your profile live within the restaurants vicinity, how often the product will be bought and the much you can charge for the product. From this information, one can estimate the total number of sales made in a particular duration. In addition, by determining the number of clients within the restaurant’s vicinity who fit the desired profile, the owner of the restaurant can easily estimate the demand of his/her products. The interesting fact about Apple Inc. is that it almost ran out business but it managed to rekindle its objectives and became a leading innovator in the industry. The company’s products symbolize the dedication they have towards meeting customer requirements and their impressive innovation shows how far they are ahead of their competitors. Apple is among the topmost consumer electronics companies worldwide and nothing can come in their way regarding products that continue to impress people in the future. References Annual Report Form 10-K Apple Inc. (2011). Retrieved from http://files.shareholder.com/downloads/AAPL/2178609497x0xS1193125-11-282113/320193/filing.pdf Apple Inc (NASDAQ:AAPL). (2012). Retrieved from http://money.cnn.com/quote/forecast/forecast.html?symb=AAPL. Kerin, R., Hartley, S., & Rudelius, W. (2009). Marketing. 9. New York: McGraw Hill Irwim. Read More