Apple Inc.: Performance in a Zero-Sum World Economy

Apple Inc.: Performance in a Zero-Sum World Economy8I. Current Situation:Current PerformanceApple Founded in a California garage on April 1, 1976, Apple created the personal computer revolution with powerful yet easy-to-use machines for the desktop. The company designed, manufactured, and marketed a range of personal computers, mobile communication and media devices, and portable digital music players, and sold a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The companys products and services included Mac computers, iPhone, iPad, iPod, Apple TV, Xserve, a portfolio of consumer and professional software applications, the Mac OS X and iOS operating systems, third-party digital content and applications through the iTunes Store, and a variety of accessory, service, and support offerings. The company sold its products worldwide through its retail stores, online stores, and direct sales force, as well as third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In addition, the company sold a variety of third-party Mac, iPhone, iPad, and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores. The company sold to SMB, education, enterprise, government, and creative markets.The early success of Apple was attributed largely to marketing and technological innovation. In the high-growth industry of personal computers in the early 1980s, Apple grew quickly, staying ahead of competitors by contributing key products that stimulated the development of software for the computer. Landmark programs such as Visicalc (forerunner to Lotus 1-2-3 and other spreadsheet programs) were developed first for theApple II.Apple also secured early dominance in the education and consumer markets by awarding hundreds of thousands of dollars in grants to schools and individuals for the development of education software.In 1985, amid a slumping market, Apple saw the departure of its founders, Jobs and Wozniak. As Chairman of the Board, Jobs had recruited John Sculley, an experienced executive from PepsiCo, to replace him as Apples CEO in 1983.In May 2001, the company announced the reopening of Apple Retail Stores. Like IBM and Xerox, Apple had opened its own retail stores to market its computers during the 1980s. All such stores had been closed however, when Wintel-type computers began being sold by mass merchandisers, such as Sears and Circuit City, as well as through corporate websites.Apple introduced the iPod portable digital audio player, and the company opened its own iTunes music store to provide downloaded music to iPod users. Given the thorny copyright issues inherent in the music business, analysts doubted if the new product would be successful.In 2002, Apple introduced a redesigned iMac using a 64-bit processor. The iMac had a hemi- spherical base and a flat-panel all-digital display. Although it received a lot of press, the iMac failed to live up to the companys sales expectations. In 2004 and 2005, Apple opened its first retail stores in Europe and Canada. By November 2006, the company had 149 stores in the United States, 4 stores in Canada, 7 stores in the United Kingdom, and 7 stores in Japan.In 2006, Jobs announced that Apple would sell an Intel-based Macintosh. Previously, Microsoft had purchased all of its microprocessors from Motorola.While delivering his keynote speech at the Macworld Expo on January 9, 2007, Jobs announced that Apple Computer, Inc. would from that point on be known as Apple Inc., due to the fact that computers were no longer the singular focus for the company.In July of the following year, Apple launched the App Store to sell third-party applications for the iPhone and iPod Touch. Within a month, the store sold 60 million applications and brought in $1 million daily on average, with Jobs speculating that the App Store could become a billion-dollar business for Apple. In September 2010, Apple refreshed its iPod line of MP3 players, introducing a multi- touch iPod Nano, iPod Touch with FaceTime, and iPod Shuffle with buttons. In October 2010, Apple shares hit an all-time high, eclipsing $300.Additionally, on October 20,Apple updated its MacBook Air laptop, iLife suite of applications, and unveiled Mac OS X Lion, the latest installment in itsMac OS X operating system. On November 16, 2010,Apple Inc., after years of negotiations, finalized a deal to allow iTunes to sell The Beatlesmusic at $1.29 per song. The fivemajorWeb-TVboxes were (1)Apple TV, (2) Boxee, (3) Google TV, (4)WDTVHub, and (5) Roku.On January 18, 2011, Apple announced its first quarter results, which surpassed the analysts expected results. Key financial results are shown below: First Quarter December 31 2011 (Dollars in Thousands except per Share)Revenue $26,741 Gross profit $10,298 Total operating expenses $2,471 Net income $6,004 EPSBasic $6.53 EPSDiluted $6.43 Corporate GovernanceBoard of Directors:Fred A. Anderson Director 61 2004William V. Campbell Co-lead Director 65 1997Millard S. Drexler Director 61 1999Albert A. Gore Jr. Director 57 2000Steven P. Jobs Director and CEO 50 1997Andrea Jung Co-lead Director 51 2008Arthur D. Levinson, PhD Co-lead Director 55 2000Jerome B. York Director 67 1997Top ManagementThe Apple Board of Directors rewarded Cooks performance in covering for Jobs in hisday-to-day operations as CEO with a $5 million bonus and $52.5 million in stock options. The companys financial performance excelled during these six months. A side effect of Jobs latest announcement was the indefinite delay in the announcement of the launch of Rupert Murdocks iPad-only newspaper The Dailywhich had been scheduled to take place later in January 2011 in San Francisco.20Ashareholder proposal for the 2011 Apples Annual Meeting focused on asking the board for an executive succession plan and publishing the plan. The board opposed this proposal. Steven P. Jobs, CEO and Directors Directors Co directors William V. Campbell Andrea Jung Arthur D. Levinson, PhD Executive Dr. Avdias Avie Tevanian Jr. Timothy D. Cook (COO) Nancy R. Heinen Senior Vice President and General Counsel Ron Johnson Senior Vice President Retail Dr. Avdias Avie Tevanian Jr.Chief Software Technology Officer Jon Rubinstein, Senior Vice President, iPod Divison Philip W. Schiller,Senior Vice President, Worldwide Product Marketing Bertrand Seriet, Senior Vice President, Software Engineering Sina Tamaddon, Senior Vice President, Applications II. External EnvironmentA. General EnvironmentApple Care offered a range of support options included assistance that is built into software products, printed and electronic products manuals. The company competitive factors which is affecting both the organization and the industries included price product features , product quality and reliability, marketing & distribution capability and corporate reputation. The company is focused on expanding its market opportunities related to mobile communication and media devices, including iPhone and iPad. The mobile communications and media device industries are highly competitive and included several large, well funded, and experienced participants. (In 2010, only AT & T was the carrier for the iPhone. Verizon began selling a version of the iPhone in early 2011. AT & T activated 11 million iPhone accounts in the first nine months of 2010. Before Verizon, the iPhone had been exclusive to AT & T since its launch in 2007). The company managed its business primarily on a geographic basis. The companys reportable segments considered of the Americas, Europe, Japan, Asia-Pacific and Retail. The Americas, Europe, Japan, Asia-Pacific reportable segments did not include activities related to the Retail segment. The companys iPod and digital content services faced significant competition from other companies. Marketing condition (Only large companies and government were the potential customers since retail buyers only accounted for 47% of sales). In summary, Apple Inc., together with subsidiaries, designs, manufactures, and markets mobile communication and media devices, Its products and services include iPhone, iPod, Mac, iPod, a range of consumer and professional software applications. The company sells its products and services to consumersB. Industrial EnvironmentEvery market including the financial industry can be evaluated through the use of Porter's five-force theory. Porter's uses the five forces, supplier power, barriers to entry, threat of substitutes, buyer power, and the degree of rivalry, as tools that help analyze a company's position against its competitors

Threat of New Entrants:

Startup costs are extremely high so the probability of new entrants is low. The existing companies have capitalized on the distribution channels and have created strong branding awareness that makes it difficult for new comers to compete.

Bargaining Power of Suppliers:

Bargaining Power of Suppliers adjust pricing and quality to make their products more attractive so competition is high leaving them in a low supplier power position.

Bargaining Power of Buyers:

All of Apple's customers have a variety of computer companies from which to chose when it comes to purchasing hardware, software, or peripherals. Switching costs are low. The buyer has the ability to switch when quality, service or price offered elsewhere is better or cheaper. This situation places the buyer power in a strong position that can only be countered by companies with strong product differentiation that would increase the switching costs.

Threat of Substitute Products:

Apple's operating system differentiation can command higher pricing when it is presented to the creative designer community but not to the individual computer buyer unless they are specifically looking for such enhanced graphic capabilities.

Rivalry among competing Firms:

Apple has many competitors that have the advantage of possessing the larger portion of market share. Apple is faced to compete against companies like IBM, Hewlett-Packard, and Dell. Even a smaller company like Gateway poses a threat. Competition is fierce in the computer hardware industry and switching costs are low. Apple is also reliant on promoting its own operating system.

C. Summary of External ForcesThe opportunities Apple's pursuit of the music industry through its iTunes also provides a good opportunity to increase Apple's bottom line and also increase brand awareness. The main Threats is Very competitive industry The market for design, manufacturing, and sales are all extremely competitively aggressive in Apple's business.. Price competition, including sellers with computers with other operating systems, has been very intense as the battles for increased market share rise.

III. Internal EnvironmentA. Corporate CultureThe company managed its business primarily on a geographic basis. The companys reportable operating segments consisted of the Americas, Europe, Japan, Asia-Pacific, and Retail. The Americas, Europe, Japan, and Asia-Pacific reportable segments did not include activities related to the Retail segment. The Americas segment included both North and South America. The Europe segment included European countries, as well as the Middle East and Africa. The Asia-Pacific segment included Australia and Asia, but did not include Japan. The Retail segment operated Apple-owned retail stores in the United States and in international markets. Each reportable operating segment provided similar hardware and software products and similar services.Each of the five operating centers is discussed below.1. Americas2. Europe3. Japan4. Asia-Pacific5. RetailB. Organizational Activities AnalysisMarketing: Finance: Operation and Logistic: Human Resources Management: C. Capabilities/ Core CompetenciesD. Summary of Internal FactorsIV. Analysis Strategic FactorsA. SOWT AnalysisV. Identification of Strategic IssuesVI. Strategic Alternatives and RecommendationsConsider cost leadership and differentiation as business strategies.Consider stability, growth, and retrenchment as corporate strategies. Consider any functional strategic alternatives that might be needed for reinforcement of an important corporate orbusiness strategic alternativeD. STRATEGIC ALTERNATIVESApples strengths can be attributed to many factors. First, Apples premium-price or product differentiation strategy as well as their retail strategy have proven to be essential to Apples past and will continue to play a vital role in Apples future. As a result of their past success as recognition as innovators, Apple has attracted the attention of many companies whom have recognized Apples potential for successful strategic alliances For example, Apples successful alliance with AT&T, provided Apple with the opportunity to improve their iPhones technology. Apple was able to the lower the iPhones price to consumers, as well as, up-grade the iphones network coverage. In addition, Apple entered into partnerships with YouTube and Google in order to provide their iPhone users with cutting edge search, mapping, and video features. These partnerships allow Apple to further differentiate their products and add value to their users. Similarly, Apples reputation as a STRATEGIC ALTERNATIVES Apples strengths can be attributed to many factors. Some customers do not recognize the value that Apples attempts to create for their customers. Price sensitive consumers are reluctant to buy Apples products. Similarly, customers seeking highly customized computers may not choose Apple. For example, Dell, one of Apples biggest competitors and one of the top four P.C. producers, offers customers array of bundling options when purchasing a computer. This allows customers to choose hardware and software components as well as somewhat control the price of the computer. Instead, Apple offers their computer customers packages with very few customization options. Secondly, a problem for Apple exists in their reliance on Apples C.E.O., Steve Jobs. Jobs has been a guiding force at Apple, acting as Apples savior when the company saw their lowest financial numbers in 2002. Steve Jobs was responsible for Apples expansion and the introduction of one of Apples most profitable products, the IPod. There is a question as to if Apple could continue to operate as they do currently in the absence of Steve Jobs. Still, there are alternatives to Apples current problems In regards to Apples low market issues, an alternative would be to add a product with a lower price point to Apples current product line. Similarly, an alternative to Apples reliance on Steve Jobs, would be to create another executive position for someone act as liaison between Apples top executives and Jobs. Thus, preparing Apple for the post Steve Jobs era. In lieu of their drawbacks, Apple is still presented with opportunities to experience growth and success. Apple has established itself as a continuous innovator in the ever changing electronicsApple is continually working to produce products with improved compatibility, allowing their customer more flexibility and increasing the ease-of use of their products. By continuing with their premium price or price differentiation and retail strategies Apple can continue strive and uphold their reputation as an innovator in the electronics industry. E. RECOMMENDATIONWhen Apple first entered the computer industry, they were first movers. They were able to revolutionize the way home computing was both viewed and accessed. This naturally have them a large market share, especially with the huge successes of the Apple II. However, IBM soon entered the market with a more user friendly and compatible computer and Apple saw their market share on the industry drop dramatically to 6.2%. Ever since then, Apple has trailed the computer industry leaders in market share However, in more recent years, they have seen many successes from targeting a smaller market of trendy, higher quality customers that are devoted to their company. While maintaining a low market share of the computer industry, Apple has continued to produce a quality product. This quality has been seen throughout all of its many products and is not viewed as a lesser product compared to the competition. In addition to the quality, Apple has always been able to make more of a profit off of its computers than other distributors. Because of the reliance of companies like Dell and HP on Microsoft's Windows operating system, almost half of their revenues are cut by paying back Microsoft for using their product. This quickly turns Apple's small market share into an extremely profitable market share. Apples low market share is turning far more profit per percentile than their competition because while Apple is making money, the other companies are usually only reaching their break-even point or slightly above.In addition to the competition that is seemingly strangling Apple's computer market share they must also battle against an economic downturn that has affected the whole industry. While all companies have seen a slow in sales and a loss of profits, Apple' has seen a greater loss in its computer revenues. Because of the nature of Apple's products, they are seen more as high-end items and more expensive luxuries rather than as necessities. Because of this many people are buying cheaper, lower quality computers from customized manufacturers in order to save money. Normally, this would lean Apple towards developing a lower priced computer that could compete with these personal computer models However, this strategy has been tested before with the Mac Mini. What Apple found was that the sales of the Mac Mini were cannibalizing on the sales on other, more expensive models. This previous failure should be viewed as a warning and disclaimer against any further pushes into the low-cost market.One Apple product that will never be viewed as a failure is the iPod. Contrary to Apple's computers, the iPod has a giant lead over the competition when market share is concerned. Because of its success, it has introduced an entire generation to the Apple brand. By using the iPod as a gateway, Apple will continue to push its trendy image to new customers in order to gain more and more computer customers. Apple will look at further expanding on their small but efficient market share. However, with the current Microsoft user base, it is going to be increasingly difficult. The company will focus on its core competencies in order to stay successful. Apple's customers are incredibly dedicated. Many people that buy Mac computers continue to buy more Mac computers as well as other Apple branded products, hardware, and software. Even though this is deemed as a niche market, Apple would be foolish to try to take the world of Microsoft and PC distributors head on. The difference in market shares is far too large. By focusing on their current customers and slowly expanding this base, Apple will try to better position itself for a future attempt to capture back the market share that it maintained many years ago. During the time that Jobs was absent from Apple, the company had a long period of ups and downs. New products were released to both success and failures. It was during this time, however, that their status as a niche market retailer began to form. Apple customers were extraordinarily loyal. Many people were buying IBM and other personal computers because they had a need for the devices. On the other hand, many people were buying Apple brand computers because they wanted an Apple machine. Due to this increasing amount of dedication to the company, Apple was able to charge a higher price for their high-end, high-quality computers. This allowed them to stabilize financially as well as discover a new identity as a company. After this new identity was established and Steve Jobs was reestablished as CEO of the company, Jobs was able to take this identity and expand on it. By targeting their now niche market, he was able to follow a product differentiation strategy to turn the company around. With the release of the iPod and iPhone, he was able to tap into markets and succeed in areas that were previously never explored or considered. Even though the deficit in computer industry market share remained relatively unchanged, Jobs foresight allowed Apple to reach new levels of profitability and success.Whether the Apple enthusiasts like it or not, Steve Jobs will not be around forever. While he has done great things for the company, he has left Apple in a precarious situation. What will Apple do when he leaves? Apple's last response to not having Steve Jobs as their CEO was eventually to rehire him as CEO. In order to survive once he is no longer leading the company, Apple needs to begin depending less on Steve Jobs and balancing responsibilities throughout the company and among select individuals. In order to prepare for Jobs future absence from the company, Apple will look ahead and find a future replacement for Jobs. In order to sustain peace in the Apple world, such a replacement will preferably be chosen by Jobs himself. That way, the replacement will be able to learn and continue Jobs success as the company when Jobs role was reduced to that of a chief advisor or to that of no role at all. Continuing the Jobs to prepare for Jobs future absence from the company, Apple will look ahead and find a future replacement for Jobs. In order to sustain peace in the Apple world, such a replacement will preferably be chosen by Jobs himself. That way, the replacement will be able to learn and continue Jobs success as the company when Jobs role was reduced to that of a chief advisor or to that of no role at all. Continuing the Jobs

VII. Evaluation and ControlIn thelong term A&F should continuously look for more opportunities to invest in overseas for expanding into the European and Asian markets. And for the short term, A&F could emphasize on online shopping, sponsoring college events, re-evaluating the needs and preferences of its target market, improve its customer service and review the choice of magazine were A&F places ads. With such a dynamic management team and the desire to the specialty apparel by storm, they configure out away to remain exclusive without being insulting and hurtful.