Midterm

M E N U

• quick facts about apple

• industry analysis

• swot analysis

• pest analysis

• value chain

• value creation activities

• activity system

• perceptual maps (competitors)

QUICK FACTS1 Infinite LoopCupertino, CA 95014, United States(408) 996-1010, Fax: (408) 974-2113 www.apple.com

Year of Founding:Company Type:

Ticker Symbol:Stock Exchange:

CEO :COO:

Fiscal year-end: 2008 Employees:

2008 Revenue ($ mil.):2007 Income ($ mil.):Primary NAICS code:

Primary SIC code:Top Competitors:

HHI:Ranking:

Brands/Divisions/Affiliate:

1976Public CompanyAAPLNASDAQSteven P. JobsTimothy D. CookSeptember35,100 32,4793,496334111 (Electronic Computer Manufacturing)3571 (Electronic Computers)Dell, Hewlett-Packard, Microsoft3026 (calculated using sales of closest competitors)#103(Fortune 500) & #39(FT Global 500)Apple Computer Inc, MacBook Pro, Xserve, Mac OS X, Intel, iPod, iPhone, Safari

NOTE: For the purpose of this study the “Personal Computer industry” has been the chosen primary focus as it is the largest revenue stream for Apple NOTE: For the purpose of this study the “Personal Computer industry” has been the chosen primary focus as it is the largest revenue stream for Apple Inc.Inc.

QUICK FACTS - Apple’s recent financial performance

QUICK FACTS – Apple Evolution

QUICK FACTS – MilestonesApril 1, 1976 Apple Computer is founded by Jobs and Wozniak

July, 1976 Apple launches its first computer

April 17, 1977 Apple introduces its first mainstream computer, the Apple II

Jan 24, 1984 Apple introduces its first Macintosh Computer

1984 Advertizing campaign for the first Macintosh Computer

Sept 17, 1985 Sculley syndrome – Steve Jobs resigns from Apple

Mar 2, 1987 Apple’s Macintosh II is introduced

March, 1990 Mac II Line expands (IIx, IIcx, IIci & IIcfx)

1991 The emergence of PowerBook

1993 Apple introduces 19 computers; Sculley ousted as chief

May, 1995 Apple lets third parties install its OS; huge failure

Dec 20, 1996 Steve Jobs returns to Apple as Adviser

May 6, 1998 Apple unveils the iMac

July 2, 1999 The dawn of the iBook

Oct 23, 2001 The March of the iPod – iPods introduced at $399

July 31, 2004 Steve Jobs treated for Cancer

Jan 9, 2007 the iPhone (17.4 million sold since 2007)

Oct 14, 2008 Jobs jokes about his health concerns

Jan 14, 2009 Jobs announces leave of absence for health issues

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Top Competitors Dell HP MicrosoftAll Competitors Acer Adobe Amazon Archos Best Buy Blockbuster Bose Linksys Cisco Comcast Creative Dell D-Link eMachines eMusic Ericson Fujitsu Siemens Gateway, Inc Hewlett-Packard High Tech Computer IBM Kyocera Lenovo Medianet Digital

Microsoft Motorola, Inc MTV Networks Napster NEC Netflix NETGEAR Nokia Palm, Inc Panasonic Philips Electronics RealNetworks Red Hat Reigncom RIM Samsung Electronics Samsung Group Sandisk SANYO Seagate SGI Sony Sony Ericsson Mobile Sun Microsystems Target Time Warner Cable Toshiba Wal-Mart Western Digital Yahoo!

NAICS Codes33411 – Computer & Peripheral Equipment Manufacturers

334111 – Electronic Computer Manufacturing (primary)

334112 – Computer Storage Device Manufacturing

334220 – Radio & TV broadcasting and Wireless Communication Equipment Mfg.

334290 – Other Communication Equipment Manufacturing

511210 – Software Publishers

512199 – Other Motion Picture and Video Industries

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ICS &

SIC US SIC Codes

3571 – Electronic Computers (primary)

3572 – Computer Storage Devices

3577 – Computer Peripheral Equipment, nec

3669 – Communication Equipment, nec

7372 – Prepackaged Software

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2002 NAICS code NAICS Industry Definition

31 – 33The Manufacturing sector comprises establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. The assembling of component parts of manufactured products is considered manufacturing, except in cases where the activity is appropriately classified in Sector 23, Construction.

334Industries in the Computer and Electronic Product Manufacturing subsector group establishments that manufacture computers, computer peripherals, communications equipment, and similar electronic products, and establishments that manufacture components for such products. Convergence of technology motivates this NAICS subsector.

3341This industry group comprises establishments primarily engaged in manufacturing and/or assembling electronic computers, such as mainframes, personal computers, workstations, laptops, and computer servers; and computer peripheral equipment, such as storage devices, printers, monitors, input/output devices and terminals. Computers can be analog, digital, or hybrid.

3342This industry group comprises establishments primarily engaged in one or more of the following manufacturing activities: (1) telephone equipment; (2) radio and television broadcasting and wireless communications equipment; and (3) other communications equipment.

51The Information sector comprises establishments engaged in the following processes: (a) producing and distributing information and cultural products, (b) providing the means to transmit or distribute these products as well as data or communications, and (c) processing data.

511Industries in the Publishing Industries (except Internet) subsector group establishments engaged in the publishing of newspapers, magazines, other periodicals, and books, as well as directory and mailing list and software publishing.

5112This industry comprises establishments primarily engaged in computer software publishing or publishing and reproduction. Establishments in this industry carry out operations necessary for producing and distributing computer software, such as designing, providing documentation, assisting in installation, and providing support services to software purchasers. These establishments may design, develop, and publish, or publish only.

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INDUSTY ANALYSIS - Growth in Units sold and Revenue

(Historical and Forecasted)

2002 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E

Units(thousands) 148,156 164,036 183,369 211,588 231,489 264,068 298,098 312,664 350,586 381,234 415,331

Revenue ($ millions) 172,597 181,189 187,147 187,810 190,765 217,849 236,411 230,605 248,231 259,135 271,019

YoY Unit Growth 4.7% 10.7% 11.8% 15.4% 9.4% 14.1% 12.9% 4.9% 12.1% 8.7% 8.9%

YoY Revenue Growth

3.4% 5.0% 3.3% 0.4% 1.6% 14.2% 8.5% -2.5% 7.6% 4.4% 4.6%

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INDIVIDUAL STENGTHS

HIP BUT CAN MAC SUCCESSFULLY MIGRATE TO LOW-PRICED OFFERINGS FOR VOLUME

IT’S ALL ABOUT EXECUTION

BROADER PRODUCT PORTFOLIO THAN COMPETITORSLOSS LEADER IN PCs

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TALK OF THE STOCK

This is the last 5 year stock performance between Apple and its competitors. If the stock price of any company can be considered as a proxy of investor/market confidence, Apple definitely is proving a point above.

S . W . O . T

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rnal)

Steve Jobs’ unparallel leadership and vision for Apple Inc. over the past three decades

Apple – not just a brand; it’s a cult

The “cool” image that the company has developed over the

years

Apple’s emphasis on innovation and going back to the drawing board for all the products.

SW

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Apple’s geographic location gives it a strategic advantage

and thus is a strength

Only because you have a hammer doesn’t mean every

problem is a nail:

Apple products typically have a simple and

appealing design as against competitor’s

overcomplicated solutions

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Although a succession is planned, what can be deemed as a potential weakness is the company’s dependence on Steve Jobs’ involvement and vision. His absence has affected company performance and thus investor confidence in the past.

Apple’s capital structure is NOT optimized. They are not leveraged and thus their reliance on equity is an innate weakness. Though this is an industry trend, it still makes apple vulnerable to a stock acquisition, despite any poison pills or other defenses they may have developed.

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The potential size of the Chinese and Indian markets makes PC growth in these countries very high. Even with their low penetration rates, China and India accounted for 25% of industry growth last year and estimates are that they represented more than 20% of PC unit growth in 2008.

A shift in age demographic is an opportunity for Apple. Typically, younger audience prefer Apple’s products due to its simplicity, functionality and design

With the industry trend moving towards Ultra Low Cost Computers (ULCC), Apple’s MAC computers if

migrated to low price offerings can create higher volume in sales

Given the upside potential from low penetration rates (China is at 17% and India is at 9%, strong growth over the next five years is expected,

with China growing PC units at 16% per year and India at 18%.

Apple has created opportunities based on its innovative products and the trend

continues

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PPO

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A shift in age demographic is an opportunity for Apple. Typically, younger audience prefer Apple’s products due to its simplicity, functionality and design.

With the industry trend moving towards Ultra Low Cost Computers (ULCC), Apple’s MAC computers if migrated to low price offerings can create higher volume in sales

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Apple distinguishes itself based on the simplicity, effectiveness and form factor and uniqueness of its products. It is a price leader but its products justify this price. However, competition is mimicking Apple by attacking the ‘uniqueness’ mentioned previously and due to larger volumes and highly diversified product portfolios, competition can generate more effective pricing, thereby stealing market shares.

Despite recent efforts, Apple has been unable to create an image of seriousness about its products (iPhone for pushing emails and higher end MACs for office use) The brand has a perceptual map which associates it with fun, cool and hip but not dependent; thereby unable to cater to the office audience.

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2000 - 2009

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In 2008, the federal budget spent $610 billion on social security, $330 billion on Medicare, $204 billion on medicaid, $607 billion on military, a whopping $244 billion as interest on national debt and a collective $936 billion on everything else; a small fraction of which was stimulus to sectors like education and infrastructure development which would further stimulate demand for computers.

POLITICAL – The Bush Era

The 911 attack puts US in war mode. The war in Afghanistan follows which costs US

hundreds of billion of dollars

In 2000, the US federal debt was $5.6 trillion.George W declared as winner of the 200 presidential elections. His priority was pushing tax-cuts right away.

Three major tax cuts were passed by 2003May 1, 2003:federal debt rises to $6.5 trillion

Nov 3, 2004: Bush wins re-electionMay 1, 2003:federal debt rises to $6.5 trillionMay 1, 2003:federal debt rises to $6.5 trillion

2004:federal debt rises to $7.5 trillion 2005:federal debt rises to $7.8 trillion 2006:federal debt rises to $8.3 trillion 2007:federal debt rises to $8.7 trillion

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Official Name: United States of America

Form of State: Federal Republic

Legal System: Based on the constitution of 1787

Federal Legislature: Bicameral

Electoral System: Universal direct suffrage from the age of 18

National Elections: November 4th 2008 (presidential, House of Representatives and one third of senate

Head of the State: Executive president elected by popular vote via an electoral college of 538 members,

for a maximum of two four-year terms. Barack Obama (Democrat) replaced George W Bush

(Republican) as president on January 20th 2009, with Joe Biden as vice-president

State Legislatures: Each of the 50 states, except Nebraska (which has a unicameral system), has a

legislature that essentially follows the model of the federal legislature.

National Government: The administration is appointed by and responsible to the president.

Cabinet secretaries: Agriculture Tom Vilsack

Commerce To be announced

Defense Robert Gates

Education Arne Duncan

Energy Steven Chu

Health & human services Tom Daschle

Homeland security Janet Napolitano

Housing & urban development Shaun Donovan

Interior Ken Salazar

Justice Eric Holder

Labor Hilda Solis

State Hillary Clinton

Treasury Timothy Geithner

Chairman of the Federal Reserve: Ben Bernanke

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ECONOMICThe National Debt has steadily

increased from 2000 to 2008

As can be seen, the unemployment rate through the first half of this decade was steadily declining until the economic meltdown in late 2007.

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By observing a 12 month moving average of the

inflation rate instead of the annual inflation

rate, we can observe that inflation has

risen from around 2% in 2000 to 3.5% in 2009. The all time high in

this time period though was a little over 4%.

ECONOMIC

Inflation directly affects the operations of any capital intensive company like Apple due to a rise in transportation, raw materials and therefore inbound logistics of the company.

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While the Real GDP during the period 2000-2008 has grown, the percentage change in this growth tells another story. 2004 can

be marked as the point on the timeline when the GDP growth stopped matching the growth in the country’s national debt

described earlier.

Unemployment sharply rose towards the end of the decade

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ON

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ICThe above graph is the Consumer Sentiment Index maintained by the University of Michigan. A discrete look at the timeline in the left graph above (University of Michigan) again points out 2004 as the beginning of an economic end. This index was adjusted to 100 in 1976. The right graph shows consumer sentiment from January

2000 to July 2008 and is seasonally adjusted.

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Although declining GDP numbers have a negative impact on the sales of personal computers through 2007-2008, 2009 and onwards is expected to be a year of GDP healing and sales recovery for the industry. This may be attributed to recent economic policies declared by the Obama

administration such as stimulus packages

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2000 2008

Average Personal Saving have dropped over the past decade. In general, people have become more

dependent on credit. In addition to high levels of debt, Americans tend to save very little, with rates of

savings actually dipping into negative numbers in recent years for periods of time unseen since

the Great Depression.

When Apple Inc. launched its online store selling 'applications' for the iPhone device this summer, many people dismissed it as a niche sales channel for technogeeks. But chief executive Steve Jobs recently revealed that in its first month, users downloaded more than 60 million programmes and the business sold in excess of $1m (pound 500m) in applications each day. Jobs told the Wall Street Journal that applications could "crest half a billion soon".Now companies in every sector are tapping into 'application culture' but now things are changing, partly because the industry is maturing, and partly because of the recession. Suddenly there is much more interest in products that apply the flip side of Moore's law: instead of providing ever-increasing performance at a particular price, they provide a particular level of performance at an ever-lower price. The most visible manifestation of this trend is the rise of the netbook, or small, low-cost laptop.

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LAge demographic

accepting internet as a medium of life has

dramatically increased in the past decade.

Tech Savvy

Geek Web 2.0

Internet savvy

Online Shoppers

WORD POOL

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GYExponential increase in availability of Wireless Internet Access

Computing taken to a higher level with the invention of

nanotechnology

Advances in technology gave easier and cheaper access to global positioning systems

Commercial use of Biometric Technology made possible

measuring of physical characteristics for security

and identification

Few examples amongst countless Tech advances between 2000-09

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H/W and Component Manufacturer

OS and S/W Manufacturer

BRANDED O E M

Retailer

Wholesaler

Customer

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Silicon Manufacturer

H/W and Component Manufacturer

OS and S/W Manufacturer

BRANDED O E M

Retailer

Wholesaler

Customer

VA

LUE C

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CTIV

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S Inbound Logistics:

Innovation

CEO’s vision and passion

Investing in higher quality raw material and components relative to competitors

Operations:

Superior R&D

Developing important strategic alliances (Intel, AT&T)

Vertical system Integration

Diversification of product portfolio

Hiring the right people for the right job

Outbound Logistics:

Timely market entry of products

Price Leader

Marketing and Sales:

Effective and superior Marketing Campaigns

Unparallel shopping experience to end customer

Training customer reps for in-store sales

Effective Promotion of online sales

After sales service:

Unparallel and unquestionable service (ex. Genius Bar)

Opportunity:Lack of

competition to PCs

Value Proposition: Cool, Hip, Simple and yet advanced computersTarget : Younger audience (not afraid to try/break stereotypes)Revenue Model: Price leader

Capabilities: R&D, Timely Implementation, CEO’s vision

Activities: Refer to activity system on next slideBusiness Processes

Resources (Finance: equity, HR – high quality, Technology: state of the art)

APPLE

’s A

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SYSTEM

Innovate Timely Market Entry

Price Leader

Branding – the Cool Cult

Strong HR skills: Hire right

Product Differentiation: am a Mac, am a

PC

Innate Vertical Integration

Diversification – Complimentary

success from iTunes and

iPhone

Consumer Targeting

Global Supply Chain

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PHigh Quality

ExpensiveCheap

Low Quality

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Functionality

High Quality

Low Quality

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