Apple

COMPANY BACKGROUND

Apple Inc. (commonly known as Apple) is an American multinational technology company

headquarters in Cupertino, California, that designs, develops, and sells consumer

electronics, computer software, and online services. Its best-known hardware products are

the Mac personal computers, the iPod portable media player, the iPhone smartphone, the

iPad tablet computer, and the Apple Watch smart watch. Apple's consumer software includes

the OS X and iOS operating systems, the iTunes media player, the Safari web browser, and

the iLife and iWork creativity and productivity suites. Its online services include the iTunes,

the iOS App Store and Mac App Store, and iCloud.

Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne on April 1, 1976, to

develop and sell personal computers.[5] It was incorporated as Apple Computer, Inc. on January

3, 1977, and was renamed as Apple Inc. on January 9, 2007, to reflect its shifted focus towards

consumer electronics. Apple (NASDAQ: AAPL) joined the Dow Jones Industrial Average on

March 19, 2015.

Apple is the world's second-largest information technology company by revenue after Samsung

Electronics, the world's largest technology company by total assets, and the world's third-

largest mobile phone manufacturer. On November 25, 2014, in addition to being the largest

publicly traded corporation in the world by market capitalization, Apple became the first U.S.

company to be valued at over US$700 billion.[7] As of July 2015, Apple employs 115,000

permanent full-time employees; maintains 453 retail stores in sixteen countries; and operates

the online Apple Store and iTunes Store, the latter of which is the world's largest music retailer.

Apple's worldwide annual revenue in 2014 totaled $182 billion for the fiscal year ending in

October 2014. The company enjoys a high level of brand loyalty and, according to the 2014

edition of the Interbrand Best Global Brands report, is the world's most valuable brand with a

valuation of $118.9 billion. By the end of 2014, the corporation continued to receive

significant criticism regarding the labor practices of its contractors and its environmental and

business practices, including the origins of source materials.

1976–84: Founding and incorporation

Home of Paul and Clara Jobs, on Crist Drive in Los Altos, California. Steve Jobs formed Apple

Computer in its garage with Steve Wozniak and Ronald Wayne in 1976.

Apple was established on April 1, 1976, by Steve Jobs, Steve Wozniak and Ronald Wayne to sell

the Apple I personal computer kit. The Apple I kits were computers single handedly designed

and hand-built by Wozniak and first shown to the public at the Homebrew Computer Club. The

Apple I was sold as a motherboard (with CPU, RAM, and basic textual-video chips), which was

less than what is now considered a complete personal computer. [15] The Apple I went on sale in

July 1976 and was market-priced at $666.66 ($2,763 in 2015 dollars, adjusted for inflation).

Apple was incorporated January 3, 1977, without Wayne, who sold his share of the company

back to Jobs and Wozniak for $800. Multimillionaire Mike Markkula provided essential business

expertise and funding of $250,000 during the incorporation of Apple. During the first five years

of operations revenues grew exponentially, doubling about every four months. Between

September 1977 and September 1980 yearly sales grew from $775,000 to $118m, an average

annual growth rate of 533%.

The Apple II, also invented by Wozniak, was introduced on April 16, 1977, at the first West

Coast Computer Faire. It differed from its major rivals, the TRS-80 and Commodore PET,

because of its character cell-based color graphics and open architecture. While early Apple II

models used ordinary cassette tapes as storage devices, they were superseded by the

introduction of a 5 1/4 inch floppy disk drive and interface called the Disk II. The Apple II was

chosen to be the desktop platform for the first "killer app" of the business world: VisiCalc,

a spreadsheet program.[27] VisiCalc created a business market for the Apple II and gave home

users an additional reason to buy an Apple II: compatibility with the office. Before VisiCalc,

Apple had been a distant third place competitor to Commodore and Tandy.

By the end of the 1970s, Apple had a staff of computer designers and a production line. The

company introduced the Apple III in May 1980 in an attempt to compete

with IBM and Microsoft in the business and corporate computing market.[30] Jobs and several

Apple employees, including Jef Raskin, visited Xerox PARC in December 1979 to see the Xerox

Alto. Xerox granted Apple engineers three days of access to the PARC facilities in return for the

option to buy 100,000 shares (800,000 split-adjusted shares) of Apple at the pre-IPO price of

$10 a share.

Jobs was immediately convinced that all future computers would use a graphical user interface

(GUI), and development of a GUI began for the Apple Lisa. In 1982, however, he was pushed

from the Lisa team due to infighting. Jobs took over Jef Raskin's low-cost-computer project,

the Macintosh. A race broke out between the Lisa team and the Macintosh team over which

product would ship first. Lisa won the race in 1983 and became the first personal computer sold

to the public with a GUI, but was a commercial failure due to its high price tag and limited

software titles.[

On December 12, 1980, Apple went public at $22 per share,[34] generating more capital than any

IPO since Ford Motor Company in 1956 and instantly creating more millionaires (about 300)

than any company in history.[35]

2011–present: Post-Jobs era

On October 5, 2011, Apple announced that Jobs had died, marking the end of an era for

Apple. Apple's first major product announcement by Apple following Jobs's passing occurred on

January 19, 2012, when Apple's Phil Schiller introduced iBooks Textbooks for iOS and iBook

Author for Mac OS X in New York City. Jobs had stated in his biography that he wanted to

reinvent the textbook industry and education.

From 2011 to 2012, Apple released the iPhone 4S and iPhone 5, which featured improved

cameras, an "intelligent software assistant" namedSiri, and cloud-sourced data with iCloud;[123]

[124][125] the third and fourth generation iPads, which featured Retina displays;[126][127][128]and

the iPad Mini, which featured a 7.9-inch screen in contrast to the iPad's 9.7-inch screen.

[129] These launches were successful, with the iPhone 5 (released September 21, 2012) becoming

Apple's biggest iPhone launch with over 2 million pre-orders and sales of 3 million iPads in three

days following the launch of the iPad Mini and fourth generation iPad (released November 3,

2012). Apple also released a third-generation 13-inch MacBook Pro with a Retina display and

new iMac and Mac Mini computers.

On October 29, 2011, Apple purchased C3 Technologies, a mapping company, for $240 million,

becoming the third mapping company Apple has purchased.[133] On January 10, 2012, Apple

paid $500 million to acquire Anobit, an Israeli hardware company that developed and supplied

a proprietary memory signal processing technology that improved the performance of the

flash-memory used in iPhones and iPads.[134][135] On July 24, 2012, during a conference call with

investors, Tim Cook said that he loved India, but that Apple was going to expect larger

opportunities outside of India. Cook cited the reason as the 30% sourcing requirement from

India.

On August 20, 2012, Apple's rising stock rose the company's value to a world-record $624

billion. This beat the non-inflation-adjusted record for market capitalization set by Microsoft in

1999.[140] On August 24, 2012, a US jury ruled that Samsung should pay Apple $1.05 billion

(£665m) in damages in an intellectual property lawsuit.[141] Samsung appealed the damages

award, which the Court reduced by $450 million.[142] The Court further granted Samsung's

request for a new trial.[142] On November 10, 2012, Apple confirmed a global settlement that

would dismiss all lawsuits between Apple and HTC up to that date, in favor of a ten-year license

agreement for current and future patents between the two companies. It is predicted that

Apple will make $280 million a year from this deal with HTC.

A previously confidential email written by Jobs a year before his death, was presented during

the proceedings of the Apple Inc. v. Samsung Electronics Co. lawsuits and became publicly

available in early April 2014. With a subject line that reads "Top 100 – A," the email was sent

only to the company's 100 most senior employees and outlines Jobs's vision of Apple Inc.'s

future under 10 subheadings. Notably, Jobs declares a "Holy War with Google" for 2011 and

schedules a "new campus" for 2015.

In March 2013, Apple filed a patent for an augmented reality (AR) system that can identify

objects in a live video stream and present information corresponding to these objects through a

computer-generated information layer overlaid on top of the real-world image. Later in 2013,

Apple acquired Embark Inc., a small Silicon Valley-based mapping company that builds free

transit apps to help smartphone users navigate public transportation in U.S.

cities, and PrimeSense, an Israeli 3D sensing company based in Tel Aviv. In December 2013,

Apple Inc. purchased social analytics firm Topsy. Topsy is one of a small number of firms with

real-time access to the messages that appear on Twitter and can "do real-time analysis of the

trends and discussions happening on Twitter". The company also made several high profile

hiring decisions in 2013. On July 2, 2013, Apple recruited Paul Deneve, Belgian President and

CEO of Yves Saint Laurent as a vice president reporting directly to Tim Cook. A mid-October

2013 announcement revealed that Burberry executive Angela Ahrendts will commence as a

senior vice president at Apple in mid-2014. Ahrendts oversaw Burberry's digital strategy for

almost eight years and, during her tenure, sales increased to about US$3.2 billion and shares

gained more than threefold.

At the Worldwide Developer's Conference on June 10, 2013, Apple announced the seventh

iOS operating system alongside OS X Mavericks, the tenth version of Mac OS X, and a

new Internet radio service called iTunes Radio. iTunes Radio, iOS 7 and OS X Mavericks were

released fall 2013. On December 6, 2013, Apple Inc. launched iBeacon across its 254 U.S. retail

stores. Using Bluetooth wireless technology, iBeacon senses the user's exact location within

the Apple store and sends the user messages about products, events and other information,

tailored to the user's location.

Alongside Google vice-president Vint Cerf and AT&T CEO Randall Stephenson, Cook attended a

closed-door summit held by President Obama on August 8, 2013, in regard to government

surveillance and the Internet in the wake of the Edward Snowden NSA incident. On February 4,

2014, Cook met with Abdullah Gül, the President of Turkey, in Ankara to discuss the company's

involvement in the Fatih project. Cook also confirmed that Turkey's first Apple Retail Store

would be opened in Istanbul in April 2014.

An anonymous Apple employee revealed to the Bloomberg media publication that the opening

of a Tokyo, Japan, store was planned for 2014. A Japanese analyst has stated, "For Apple, the

Japanese market is appealing in terms of quantity and price. There is room to expand tablet

sales and a possibility the Japanese market expands if Apple’s mobile carrier partners

increase."[161] As of June 13, 2014, Apple operated three stores in Tokyo. [162] On October 1, 2013,

Apple India executives unveiled a plan to expand further into the Indian market, following

Cook's acknowledgment of the country in July 2013 when sales results showed that iPhone

sales in India grew 400% during the second quarter of 2013.

Apple Inc. reported that the company sold 51 million iPhones in the Q1 of 2014 (an all-time

quarterly record), compared to 47.8 million in the year-ago quarter. Apple also sold 26 million

iPads during the quarter, also an all-time quarterly record, compared to 22.9 million in the year-

ago quarter. The Company sold 4.8 million Macs, compared to 4.1 million in the year-ago

quarter.[164] On May 28, 2014, Apple confirmed its intent to acquire Dr. Dre and Jimmy Iovine's

audio company Beats Electronics—producer of the Beats by Dr. Dre line of headphones and

speaker products, and operator of the music streaming service Beats Music—for $3 billion, and

to sell their products through Apple's retail outlets and resellers. Iovine felt that Beats had

always "belonged" with Apple, as the company modeled itself after Apple's "unmatched ability

to marry culture and technology."[165][166][167] In August 2014, an Apple representative confirmed

to the media that Anand Lal Shimpi, editor and publisher of the AnandTech website, had been

recruited by Apple without elaborating on Lal Shimpi's role.

COMPANY PROFILE

Ask anyone to name an innovative company and odds-on they will mention Apple. It has had a

reputation for leadingedge products since college dropouts Steve Jobs and Steve Wozniak first

founded the company. Apple memorably unveiled the Macintosh in 1984 and proceeded to

build a hard-core following of customers who appreciated good design and were willing to pay

premium prices while overlooking any interoperability issues with Windows - a factor that

Apple has subsequently addressed with its OS-X operating system. Amongst a wealth of

innovations introduced over the years, the radical, all-in-one design of the iMac was one

turning point, bringing colour and light to the drab world of computing.

The same lateral thinking and attention to detail has been applied to products such as the

original iPod in 2001, the PowerBook in 2003, Mac Mini in 2005 and, in 2007, the iPhone. In its

traditional computing market, Apple continues to maintain its position as a leading innovator,

strengthening its range of high quality laptop and desktop products. This has led to total Mac

unit sales growing to over 7m and delivering $10.3bn of core revenues in 2007 – an increase of

40% on 2006. Allied to this, the iPod range has been extended with the new iPod Touch and an

increased capacity for the classic models. Despite the average unit price decreasing from $195

to $161, there was an increase in unit sales from 39.4m to 51.6m, and overall iPod sales

generated $8.3bn. The launch of the iPhone created global publicity and cemented Apple’s

reputation as a company that continuously produces truly innovative, sector-disrupting

products. With sales in the fiscal year of 1.4m units, the iPhone contributed only a small

proportion of Apple revenues. However it created huge consumer pull. Additionally the iPhone

demonstrated Apple’s ability to break through existing paradigms – it is sold at a fixed price, is

linked to a specific contract and is only available through specific mobile operators. As with the

introduction of iTunes, Apple has entered a new market and challenged existing business

models. This is a key element of Apple’s approach to innovation: while many see the product as

the focus, for Apple it is the interplay between the product and the service that allows it to

fundamentally change the underlying business model operating in the sector. First it was music

and now it is movies. Via its iTunes service, Apple has challenged the way the music industry

operates and the company has now expanded its music videos, audio-books, television shows,

movies and podcasts repertoire still further with major links to all the key studios. In 2007

iTunes had its three billionth download and this helped music related products and services

account for a significant $2.5bn of sales. Of course customers also expect a suitably ‘Apple’

experience when they enter a store. And they get it. Apple now has 197 stores worldwide and

this has redefined computer retail. All of the above innovations have translated into

corresponding financial success with Apple’s share price doubling in 2007. Total sales increased

by 24% to just over $24bn while net income increased by a staggering 76% to just under

$3.5bn. This is all ample evidence to highlight that innovation in Apple is not hype: Apple really

delivers its goal to provide ‘innovative integrated digital lifestyle solutions’ and is a company

that consistently demonstrates the power of innovation in driving profitable, sustained growth.

The key drivers in this sector continue to be the increasing convergence of devices, and the

continued trend towards the provision of a suite of web-based, lifestyle related products that

allow for the easy interoperability of music players, cameras, communications, and desktop

applications. At the same time it hard to see the industry moving backwards in terms of the

need to provide cool, good-looking and ultrafunctional devices where product reliability and

performance are hygiene factors. This will obviously play into the hands of the likes of Apple

and Sony’s Vaio business, but equally there will always be a requirement for solid, ‘work-horse’

machines for the corporate and personal market. This is where companies like Dell have

succeeded in the past, and it is likely that further innovations will be made in the manufacture

of low cost machines allied to the speedy delivery of units through the already renowned

supply chain. Other drivers are the increased inter-operability between platforms such as the

Windows and Mac operating systems. As many manufacturers chase the prize to be had from

creating the leading convergent device, the need to offer plug and play operation across

ubiquitous networks continues to be both a fundamental target and a major innovation

challenge.

Apple's Supply Chain Management Strategy

Apple has created a new market and changed the structures of music and mobile industries.

Apple's iPad contributed to increase in purchase of digital albums. Until today, Apple's business

goes well although there are competitors like Samsung. Speaking of Samsung, value

propositions of Apple and Samsung is not the same. Although Apple and Samsung make

smartphones, their philosophies and missions are in a different position. However, it is

interesting that Apple keeps showing a good performance in terms of sales and improved brand

loyalty. I asked myself, "What is the secret behind Apple's products."

Figure 1. Apple Supply Chain

The above figure is the supply chain of Apple. If you look at this, there is no big difference from

other companies' supply chain process. However, successful companies make a difference by

making impossible ideas possible. Firstly, I did research for Steve Jobs' thoughts for supply

chain. One of the supply chain lessons from Steve Jobs isCustomer comes first, cost cutting

comes second. Steve believed that we need to make better products. As long as a new product

has a strong value proposition and differentiation, delivering products to customers is not a

problem. In addition, employees at Apple spend a lot of time with suppliers to produce

accurately designed products as Apple intended.

Since Apple has retail stores, the company can make demand forecast easily. Thus, Apple is able

to increase the inventory turnover by decreasing average inventory. If Apple keep more stocks,

these are more likely to be obsolete or damaged. In addition,, Apple's product life cycle is

longer than seasonal items so that Apple is not easily affected by seasonal factors. However,

Apple takes an aggressive action during holidays. Since demand of products can increase rapidly

during this period, Apple orders products by air instead of sea. This is because shipping

products by ship takes a lot compared to air freight. In addition, Apple has a warehouse in

California so that the company orders all products from the warehouse, resulted in simplified

supply chain process. In other words, Apple retail stores act as a stocking point between

upstream and downstream. Lastly, simplifying product process is a good strategy to eliminate

unnecessary product lines. I think this is related to lean manufacturing. When Jobs returned to

Apple in 1997, he chose only 4 product category so that it was able to decrease the complexity

of supply chain.

OPERATIONS MANAGEMENT STRATEGY

Operations Strategy of Apple Inc.

Already, we can see Tim Cook is changing Apple. In contrast to Jobs’ rare appearance before

the press and analysts, Cook took the opportunity to discuss Apple’s business strategy at the

recent Goldman Sachs’ Technology Conference. When questioned about the future of the

iPhone, Apple’s largest revenue stream, Cook underscored that smartphones only represent 9%

of the global handset market and even within smartphones, 3 out of 4 customers bought

something other than Apple.

Apple manufacturing partners and practices have also come into the spotlight following the

unprecedented disclosure of their supply chain partner audit combined with the hiring of a

third party employment practices review agency. Most recently, Apple invited ABC Nightline

into their primary supplier Foxconn. In increasing increments, Cook is making Apple more

accessible.

In the past, his operational expertise has been a perfect counter to Jobs’ legendary product

instincts and will serve Apple this year. What we won’t learn in 2012 is whether Cook can plant

the seeds for a new platform in the years beyond. It’s a no-brainer to assume Apple Labs is

cooking away. There just won’t be much evidence in 2012.

What we can expect is that Apple will continue to get paid for the integrated value they

deliver. Apple products initially cost more than most competitors. They win by tightly

integrating hardware and software for a superior user experience. Many would argue Apple’s

integration provides a lower aggregate cost as well.

Apple 2012

2012 will be dominated by the following four themes, all targeted at cementing users and

developers into Apple’s lush, walled garden of peerless user experience:

Scaling all operations (manufacturing, retail, Internet) to meet global demand

Rapid expansion in China and developing economies

New product form factor: Apple TV

Apple’s iCash Mountain Problem

1. Scaling: Flawlessly Synchronizing Billions of Transactions

With revenue greater than $46B in the fourth calendar quarter of 2011, any conversation about

Apple strategy has to begin with the challenges of scale. The iPhone and iPad have plenty of

runway left for growth as does Apple retail, but as numbers grow, so do the consequences of

the smallest hiccup.

Meeting demand for hundreds of millions of annual units requires flawless execution across the

supply chain, distribution and with their manufacturing partners. We’ve become so

accustomed to high tech products that it’s easy to forget what a shortage of

a single component can do. When floods struck Thailand last fall, it disrupted disk drive

supplies for nearly six months.

Last year, Apple sold 156 million IOS-based devices (iPhone, iPad and iTouch) which is more

than the 122 million Macs sold since its 1984 introduction. In Tim Cook’s own words, “the

trajectory is off the charts.”

Geometric growth plays to Cook’s strengths. In fact, if there’s a hallmark to Apple’s business

strategy in 2012, it begins with leveraging his unique competencies.

2. China…and other developing countries

Any conversation about scaling quickly turns to Apple’s China opportunity. Focusing just on

iPhone, Apple currently sells it exclusively through China Unicom (196 million subscribers). This

is slightly less than the combined subscriber base of Verizon Wireless and AT&T. But in a

country of billions, it doesn’t compare to China Mobile’s 616 million subscribers. It’s no surprise

that Cook visited China Mobile this past June.

As important as Apple’s innovation machine has been for the developed world, 2012 success in

China and emerging economies will be fed by incremental product improvements. They may be

combined with creative cost and/or pricing strategies that subsidize purchasing much like

Verizon and AT&T has for U.S. iPhone customers. With rapidly growing middle classes, one

might consider market access more important in the developing world than ground-breaking

innovation.

And the above doesn’t account for iPad or iTouch. Apple’s Asia Pacific sales (minus Japan) grew

approximately 200% last year and account for 20% of Apple’s total revenue. Add in an

expanded global retail presence and there’s not much that stands in the way of superior

revenue growth in 2012.

3. Next Platform Form Factor: Apple TV

The speculation regarding an Apple “next generation television” has evolved significantly.

According to Cook, the current Apple TV hockey puck has been a “hobby” product. Shortly

before his death, Steve Jobs told biographer Walter Isaacson that he had finally figured out TV.

True or false, there are several reasons why flat screen TV’s make sense for Apple:

Market size & headroom for premium pricing: The global market for flat screen displays is over

77 million units and grew 15% last year. Apple needs large markets like this to move the needle

even if they only appeal to the high end of the market.

Platform expansion via form factor: Just as the iPad is essentially a larger iPhone, an Apple flat

screen will enlarge the form factor again. It will leverage technologies such as Siri for a new

control interface. Facetime will evolve into home video conferencing, likely enhanced by

motion sensing technology that automatically follows action. As connection speeds improve,

iCloud based recording (currently limited by upload speeds) and playback (available today) will

be incorporated.

Apple ecosystem lock-in: Just as Frito-Lay thinks about the “share of stomach” it captures with

drinks and snack foods, Apple seeks “share of screens” be it on Mac, iPod, iPhone or iPad. Just

as salty snacks drive you to drink more soda, Apple TV will leverage device interoperability via

iCloud. Apple TV widens the moat that keeps competitors away while fertilizing the soil in land

of Apple.

Innovation Bluebird: Borrowing from Donald Rumsfield, the biggest unknowable that we know

today is that Apple’s legions of independent apps developers will provide something surprising.

The causal gaming phenomena of Angry Birds didn’t exist before mobile apps. TV will offer a

new and much larger landscape in which to play.

Hardware opportunity: As important as iTunes, mobile advertising and iCloud may be in Apple’s

future, they currently constitute a thin sliver of overall revenue and profits. For now, the route

to growth remains hardware.

But Apple TV will face challenges. First are the flat screen incumbents. LG, Samsung and Visio

have not been sleeping and will quickly counter Apple’s moves at lower price points. They will

most likely scale Google’s Android interface; perhaps a long shot might be Microsoft. Assuming

Apple pushes Facetime as a family video conferencing play, you can bet that competitors will

counter with a similar feature based on Google Voice or Microsoft’s Skype and Kinect

technology.

The second and more troublesome foe will be current content producers and distributors.

After watching Apple iTunes disrupt music distribution, pricing and margins, movie and TV

studios as well as cable, satellite and phone companies will be very wary. If you need evidence

of their strength, just look at Neflix’s recent struggles (see Netflix at a Crossroad).

Can Apple drive the same disruption through television that they did in mobile phones?

Without question, Apple will make good money but we won’t know if it’s only a good business

or a more serious disruption in 2012.

4. Apple’s iCash Mountain Problem

Do you recall the mountain of cash Donald Duck’s rich uncle Scrooge McDuck possessed? Tim

Cook has a $100B mountain and it’s rapidly growing. Far beyond what’s needed for a rainy day,

Cook cannot continue to ignore it.

Declaring a special dividend to return some to stockholders is simple but hardly strategic.

Technology acquisitions like the 2008 acquisition of P.A. Semi which brought the iPad’s ARM

processor in-house will continue, but they don’t dent the bank.

The current maelstrom of patent lawsuits in the mobile space suggests that Apple will

ultimately use some to settle issues much as Google did with its acquisition of Motorola

Mobility.

Similarly some will go to addressing market expansion issues such as the current licensing spat

between Apple and China’s Proview regarding use of the iPad trade name in China. Or Apple

could follow Amazon’s Kindle strategy and subsidize hardware pricing to lower entry price.

The problem is none of these strategies drain more cash than is coming in. The obvious next

question is what if Apple pursued a large acquisition? This raises three significant challenges, at

a minimum:

Regulatory: As the most valuable company on earth, regulators in all geographies would

scrutinize any deal for monopoly concerns. It’s hard to think of a large technology acquisition

that wouldn’t cause concern.

Cultural fit: Strong cultures exclude rather than include. Add in Apple’s penchant for secrecy

and try to name an asset of scale that would naturally fit in the Apple world. I can’t.

Assimilation capability: Companies such as Cisco that have a track record of acquiring and

assimilating large entities; Apple has never done so. Starting with a big bite would be

challenging.

Having said this, Apple could acquire an infrastructure capability outside of traditional tech that

enriched the breadth of Apple’s ecosystem. For example, what if Apple acquired a financial

services player? Blend Apple’s mobility hardware/software, advertising and iTunes to offer an

electronic wallet with Apple’s legendary ease of use?

Apple could buy a “no-name” bank and quietly use their existing financial infrastructure to

leverage its 200 million iTunes customers and software expertise into an Apple iWallet. In the

midrange, they could look at Intuit ($17B market capitalization) though that might raise

regulatory flags. Alternatively, they could go big, buy Mastercard ($50B market capitalization).

Stepping outside the technology arena would reduce regulatory monopoly concerns while

leveraging Apple’s technology, branding and retail expertise. Going big doesn’t directly address

the cultural fit and assimilation issues but neither does it require much in the near term.

Mastercard is a well-run, growing firm.

Please take above for what it is: an example to illustrate a strategic choice versus a fully vetted

alternative.

This graph originally appeared in a Bernstein analysts report on Apple and was included in

a Fortune blog post (Is Apple suing Samsung — and tooling up its factories?, Nov 15). As you

can see, Apple has been dramatically increasing its capital expenditures, particularly outside of

retailing. For 2012, they are expected to spend north of $7 billion on top of what they spend on

their retail arm. Note that this is very much in line with what we discussed in our previous post

on Apple’s operations. They bet big on technology that lets them have distinctive products.

With their limited product line and high volume, they can make commitments that other tech

firms may shy away from. It also means that (if they are right) other firms are going to be hard

pressed to catch up if Apple has locked up a large amount of supplier capacity.