Apple is a US company whose business is the design, development and marketing of personal computers, portable digital music players, media devices, cellular phones and other personal electronic devices. Apple’s website describes the company as a corporation that develops and markets software, software services, networking services and solutions, peripheral equipment, and internet applications (Apple.com, 2013). The company is one of the most recognized consumer brands in the world and is poised to become the first trillion dollar company of the world. The Apple brand is so strong that it already commands a very strong brand premium. The base customers of Apple’s products span the entire world, across all demographics.
Apple’s products are now household names including the iMac, iPhone, iPad and iPod. Yahoo! Finance (2012) states that Apple has a market capitalization of US$ 650 million, a profit margin of 26.9%, a return on assets of 24% and a return on equity of 44%. Apple’s revenue is around US$150 billion annually, and is considered a “strong” buy by analysts worldwide. Bloomberg Business Week (2013) states that the company “uses little or no debt in its capital structure and may have less financial risk that the industry.” Thus, a lot of competitors are playing catch-up with Apple, with Samsung recently launching a salvo of similar products, targeting Apple’s very market – and partly succeeding partly failing. Another threat is the emergence of the Android operating system which is also eating into the Apple IOS system, and may have a long term effect on Apple’s market share and dominance in the consumer electronics industry.
The general environment wherein Apple is operating is described below and arranged in decreasing level of importance.
– Technological – the two critical issues in the technological environment is the convergence of devices and the relatively shortening of the product lifecycles of these devices. Apple is threatened by innovation coming from competitors and in the fast moving consumers electronic market, the threat does not go away. More and more, products are converging into one another (phones having high resolution cameras, music players and fitness devices, etc.) thus making Apple’s broad line of products obsolete. Because of constant and fast innovation among the players in this industry, the product life cycle is getting shorter and shorter, with more and more innovations launched periodically to satisfy the ever increasing demand of the market for what’s next and what’s hot. This is an excellent opportunity for a company such as Apple, who is known for its constant innovation, strong research and development, and industry leading innovations and offerings that constantly excite the consumer electronic market. Apple is leading in this field and its ability to integrate portable devices into a convergent, seamless, exciting new platform has helped the company retain its leadership position.
– Economic and Global – the world economy is evolving, with the US economy the base of Apple’s operations, is still in a state of recovery. This is a threat because consumers may remain unconvinced to spend more. Apple, with its higher-than-competitor prices or “premium” maybe too unattractive to consumers in a bear economy. However this is an opportunity for Apple to produce value-for-money products with higher-than-average quality to corner the now more discriminating market. Related to the US economy is the emergence of the Chinese economy. The Chinese market for consumer products such as Apple’s is fueled by increasing relative wealth of the Chinese consumers. This means that economically speaking, there may be a shift in markets from the US to China. This is an opportunity for Apple to create marketing schemes that would capture the Chinese market.
The attractiveness of this industry that Apple operates in can be categorized using Porter’s Five Forces Model of Competition. The two most critical are:
– Threat of New Entrants – The consumer electronics market can be penetrated in a number of different ways. In the last 10 years, the number of entrants in the market has increased significantly, however there are several critical barriers to entry that plague new entrants. Apple is one of the several large, well-entrenched and known brands that are in this market and its popularity is a key factor that has enabled the company to keep a leadership position.
Developing a successful brand is one the most critical barriers to entry for new entrants into the consumer electronics market. Needless to say, Apple has cultivated brand loyalty thus, deterring competitors from eating into Apple’s markets. Apple has done so through the successful use of its capital resources and its size advantage, utilizing economies of scale to fend off threats that are “leaner” in nature (i.e. those relying on third party suppliers to keep costs down). Another threat comes from Apple’s own suppliers, those that have established the same competitive economies of scale as Apple, and are diversifying their businesses towards the consumer end of the electronics market. This type of entry is known as a forward-vertical integration. For example Acer Inc., a relatively new and unknown brand brought its products to the market through forward vertical integration, and is now an US$ 8 billion company with worldwide operations.
Threats and Opportunities
Apple is a company that competes in the consumer electronics market. This market is not confined to a single country or demographic. According to the online resource Businesswire (2012), the consumer electronics market is a global reaching industry, with many producers of electronic products marketing and selling high value products internationally. The article from Businesswire adds that the “consumer industry’s growth can be attributed to revolutionary technological developments taking place in the consumers electronics industry.” It is in this sector that Apple flourishes in. This sector of the electronics market is also significantly attractive, despite the very high level of competition. Even if new entrants into the market are able to penetrate or at the very least introduce their products, the barriers to full entry are substantially difficult for any of them. Thus one of the most apt descriptions of this industry is its continued growth and high degree of competition.
Currently, the consumer electronics market is a collection of a few large companies offering high end products and several smaller companies that are pursuing their niche markets. As a result of the increasing dependence we have on computers, cellular phones and other electronic devices, the market has enlarged to be in excess of US$ 300 billion. Studies show that this industry grows by a rate of 5% annually, fueled by consumer awareness, new technological innovation, automation in production, and lowering manufacturing costs.
Masi (2009) states that Apple’s strength in the market started with its success in the music segment of the consumer electronics market. Apple started with the iPod and iTunes, two products that still dominate their respective markets to date. Apple strategically maneuvered both products such that they open up to new services and with each other seamlessly. For instance you can buy music on iTunes, download it into your iPod, which may influence you to utilize other products (iPod docks, for example) or services (downloading Disney on iTunes).
Apple’s once small-ish core of Mac users have grown significantly, with the growth of its PC hardware and software business. Apple’s MacBook is now a widely popular PC of choice, while the IOS has established itself as a strong alternative to Microsoft Windows or other operating systems in the market.
Resources and Strengths
Apples resources and strengths are listed below:
– Most recognized consumer electronics brand in the world
– Dominant player in the global mobile phone market
– Impressive financial performance, potentially the first US$ trillion company in the world
– Robust R&D
– Holds a fifth of the global market share for smart phones
– Offers unique and proprietary design for operating systems, hardware and services
– High customer service commitment
Apple has numerous competitors in the market and in terms of price and quality of design, Apple strategy is to position itself in the higher priced but more elegantly designed segment of the market it competes in. Whether the product offered are personal computers, mobile phones, or music players Apple positions itself for at the premium priced level. This makes the products less accessible to lower tiered socio-economic levels but has helped Apple keep a core customer base that continuous to patronize the company’s offerings.
With this positioning, Apple has kept its strong leadership position in the consumer electronics industry. Apple is the most dominant player in the United States and has maximized on opportunities that the US market has offered the company. Its ability to integrate and innovate has given Apple the ability to remain competitive despite focusing on the higher priced segment of the consumer electronics market, a segment that not a lot of players position themselves in. This philosophy is very divergent from what the competitive landscape offered to customers, that is, products that are non-differentiable and cost-competitive but has worked in Apple’s favor.
In an analysis of the key statistics of Apple versus its closest competitors, Google for its operating systems competitor (i.e. Android operating systems), Hewlett Packard for its personal computing business, and RIMM (e.g. Blackberry phones) for its mobile phone business, Apple exhibits leading positions in all critical metrics. According to Yahoo! Finance (2013), the average industry market capitalization is US$16.36 billion. Apple is the largest capitalization in the market at US$ 613 billion. It also has more employees than Google but less than HP, and has about 40% less employees on the average compared to the entire industry. Apple revenues are the largest at US$ 148 billion (2011), as well as its Earnings before Interest and Depreciation Expenses at US$ 55.82 billion. The market has responded well to Apple, with a market price valuation of 15.39 per share versus US$ 5.61 per share for the entire industry. Apple is performing well against the industry, as exhibited by its financial ratios. Apple is number one in market capitalization, the highest price-earnings ratio in the market, it has the highest revenue growth, the highest earnings per share growth, the highest long-term company growth, and is second to Dell in terms of Return on Equity and PEG ratio.
Esch (2004) states that leadership has been core strength of Apple, with Steve Jobs taking command of the company and turning it around into the most valuable company in the world now. In this article by Esch for the online resource Lowendmac.com, he states that
“Few would argue that much of Apple’s success over the last six years can be attributed to Steve Jobs. He gave Apple a strong mandate, pared down the product line, and really helped focus the company on delivering OSX. Without these three things, it’s entirely possible that Apple wouldn’t be in as good shape as it is today.”
Steve was Apple’s CEO and Chairman of the Board and was responsible for driving innovation leading to undeniable success for the company. With Steve Jobs gone, Apple’s core leadership team must not lose the momentum created by Apple and will have to step up to continue the high performance expected from the company.
Apple’s financial performance has always been lauded and admired, however its social purpose has always been its Achilles heel. In an article written by Paul Klein (2012) for Forbes magazine, he quotes Apple’s SVP Bob Mansfield saying that the company makes “the most environmentally responsible products in the industry”. It does so by designing everything with environmental consciousness in mind without sacrificing the company’s bottom line goals. To add to that, Apple has an initiative called Apple Distinguished Educators program that pioneers teaching and learning with recognition of the educational program called K-12. Critics say however, that this is just another way of churning profit because the largest company in the world should have a more refined social purpose. In fact, the company uses CSR strategies that are common place such as:
– CSR position statements
– Online reports
– Employee communication programs
– Social media
– Stakeholder involvement
Apple’s CSR strategies require reinvigoration because the company is acting like a slumbering giant, not like Microsoft or Samsung or other tech companies that have taken up the mantle of improving the lives of those that they employee and the communities they work in.
Apple believes that man is the master of change in the world. In their products and services, the company strives to make customers masters of these products. This vision is cascaded through all of Apple’s employees, in that all employees are made to understand the vision and strive to participate in reaching it. Similarly, its mission of bringing quality products to the world is evident in the type and level of innovation that Apple brings with each product that they release. It satisfies the need of students, educators, professionals and customers around the world for products that push the importance of technology in our daily lives.
Apple is a capitalist corporation that seeks to make profit and provide its shareholders optimum value. Apple’s strength is in ensuring that it delivers excellent products which in turn ensure that leading position in the electronics industry. Apple’s objective is also be highly competitive. It is a phenomenal success in the last 10 years, being the world’s most admired company in 2008, 2009 and 2010, owing that to a distinct out-of-the-box thinking that has led to the world now enjoying such innovatively designed products. This same distinction has made Apple one of the most profitable companies, this year posting a gross revenue of about half a trillion US dollars and a return on equity of about 44%. Apple now seeks to further differentiate itself by instilling an honest work ethic in its organization. Apple is seeking further growth, seeking even to change its objectives from time to time to prove that established boundaries do not limit the company.
Apple is a company that will continue to grow and succeed. Currently, the company is pushing its commitment for stronger intellectual property rights, which translates to a commitment to licensing and the formation of stronger relationships between hardware and software. Apple must continue becoming an organization that learns. It could form strategic alliances with other entities having strategic competencies. Apple can work with companies that enhance their already competitive position, through a sharing of knowledge or the opening up of new platforms that would expand the company’s market dominance.
Apple Inc. 2013. Various Press Releases and News Articles. Retrieved from http://www.apple.com/hotnews
Bloomberg Business Week. 2012. Apple Inc. Retrieved from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=AAPL&dataset=balanceSheet&period=A¤cy=native
Businesswire. 2012. Research and Markets: Consumer Electronics Market Forecast for 2012. Retrieved from http://www.businesswire.com/news/home/20090904005206/en/Research-Markets-Consumer-Electronics-Market-Forecast-2012
Esch, SV., 2004. Apple’s Success and Jobs’ Succession. Macscope. Retrieved from http://lowendmac.com/scope/04/0121.html
Investor Guide.com 2012. Apple Inc. Retrieved from http://www.investorguide.com/stock-analysis.php?ticker=AAPL
Klein, P. 2012. Apple: Performance Without Purpose. Forbes. Retrieved from http://www.forbes.com/sites/csr/2012/08/22/apple-performance-without-purpose/
Masi, B. 2009. Strategic Analysis of Apple, Inc. University of Hartford. Retrieved from http://www.scribd.com/doc/24134877/Strategic-Analysis-of-Apple-Inc-Brian-Masi SWOT Analysis: Where is Apple going now? SWOT Analysis of Apple Inc. 2012. Retrieved from http://www.divisiontwo.com/articleshttp://www.cnet.com
Morningstar. 2012. Apple, Inc. Retrieved from http://financials.morningstar.com/valuation/price-ratio.html?t=AAPL®ion=USA&culture=en-us
Yahoo! Finance. 2012. Apple, Inc. Retrieved from http://finance.yahoo.com/q/in?s=AAPL+Industry Retrieved on October 4, 2012