Apple Inc Case Analysis

Apple Inc. Case Analysis MB 730 Strategic Analysis Professor McClellan Date: 09/23/2012 Name: Allen (Hanlin) Wang Overview of the PC Industry The personal computer industry came up during the 1970s.

A personal computer is one intended for individual use, as opposed to a mainframe computer where the end user’s requests are filtered through operating staff, or a time sharing system in which one large processor is shared by many individuals. In the 1980s, personal computers were mostly used by business corporations.

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Until the 1990s, due to the internet age and information age, personal computer became common to enter into people’s household. The most common known personal computer manufacturers include HP, Dell, Acer, Lenovo, Toshiba, Fujitsu, IBM, Compaq, NEC, and Apple. Among all these brands, the global leading personal computer manufacturers accounted for more than 50% of worldwide PC market share in 2011 are HP with 17. 2 shares, Dell with 13.

0 shares, Acer with 12. 1 shares, and Lenovo 11. 2 shares. (See Exhibit 1 — Global PC market share information. i]) Apple as a comparatively high-priced manufacturer focusing on design-focused affluent customers achieved a market share of 4.

5% in Q1 2012. HP acquired Compaq Computer in 2002 and overtook IBM to regain its strong market position. In 2007, HP became the world’s largest technology company. It has a good brand equity and strong financials with revenues of 127. 24 billion and a net income of 7.

07 billion in 2011. The weakness of HP is weak internal controls and flat R;D spending. Dell is also one of the best known PC brands in the world. Dell has a price advantage of its product with retail stores in Walmart, Bestbuy, and Stapes.

Dell’s Direct Model approach enables the company to offer direct relationships with customers such as corporate and institutional customers. Also, Dell faces a huge range of products and components from many suppliers from various countries which makes Dell unable to switch suppliers. Acer has built its international capacity by joint ventures and acquisition of American and Europeans PC companies. Although Acer has become the third largest in the industry, the company suffered from the lack of international experience of managers to engage in the global market.

Lenovo acquired a high-profile US PC brand (IBM) which added more reputation globally to its brand.

It has the advantage of cheap labor cost in mainland China and a strong sales position in China and other emerging markets. Lenovo switched from the brand of IBM to Lenovo in 2010, it has poor brand perception in the global PC industry. PC Industry Five Forces Model Major PC manufacturers are competing to produce the least expensive yet most advanced computer. The two areas of highest competition are technologic innovation and price.

PC demand is found to be growing over the past year which is mostly in the sale of notebooks, and an increase in the international market indicates the market will continue to expand.

(See Exhibit 2 — Five Forces of PC Industry[ii]) Competitive Force 1: Rivalry among Existing The leading Personal Computer Manufacturers – namely HP, Dell, Lenovo, Acer and Apple – are in competition to produce the least expensive and most efficient machine. Japanese companies such as Fujitsu, Toshiba, NEC, and Sony also contain large market shares in the industry.

Apple focuses more on innovation while Dell and HP focus on low price, distribution channels and service, which creates differentiation to some extent. In today’s PC industry, although technology holds an important role of all companies, the price of the products has sharply fallen. The profitability and prosperity of the Personal Computer Industry depends on components of suppliers because the quality of a computer is majorly determined by the microprocessor and application system installed. In recent decade, PC has become a more commonly used product to household, price competition has become an important strategy in the industry.

The price of PCs has declined since 1990, and even more price dropped in the recent five years. Dell is one of the industry leaders. Chiefly low-cost production contributes to its positive growth rate. Most PC manufacturers switch their target to the international markets because the demand in Asia-Pacific is growing. Competitive Force 2: Threat of New Entrants This industry is characterized by heavy-weight players.

It is difficult for a company to build superior products based on the same information, and larger companies often engage in buying out the smaller companies, increasing their competitive edge.

Established mobile phone makers can also be a threat to the PC industry because they can shift to manufacture PCs or PC-similar products easily due to advanced technical expertise and established sales channels. Given the advent of modern platform-based software applications, such as online office, online operating systems and cloud computing, it becomes growingly difficult for new entrants to compete. Competitive Force 3: Bargaining Power of Suppliers Components to manufacture a personal computer are microprocessor, motherboard, memory storage, monitor, keyboard and mouse.

The suppliers of these components are highly standardized and available from a large numbers.

Software suppliers tend to have much more market power than hardware suppliers. There is not a competitor to Microsoft Windows software, thus some software players can dominate the industry. The key input of a PC is the microprocessor. Intel has a significant market power as it is the only major supplier of microprocessors and has an 80% market share. As other hardware suppliers largely rely on abundant commodity resources such as cheap labor, they are hardly in the position to exercise a relevant amount of bargaining power.

Competitive Force 4: Bargaining Power of Buyers The bargaining power of buyers is strong because personal computer buyers are price-sensitive. Large businesses, government organizations and schools are the primary volume buyers which have bargain power on price. Differentiating products is a good way to divest buyers’ power and prevent buyers from switching to other products, such as high switching costs and brand loyalties.

Apple has its unique operation system and its computers are specifically targeted for the publishing and design industry.

Although differentiated products increase switching costs, buyers still choose products based on price. Competitive Force 5: The Threat of Substitute Products and Services On the first view substitution threats by mobile phones seem to be imminent. Today’s smart phones have almost all PC function included, such as internet browser, email, word processor and advanced calculators. Xbox with gaming system and DVD player are also substitutes.

However, personal computers on their own have also adopted several non-traditional functions such as TV, newspaper, books, videogames, DVD player, telephone and others.

It is a multifunctional device with variety of uses in a household. The treat of substitute is overall weak in the PC industry. Apple Personal Computer Competitive Advantages Apple computer had an important role in the personal computer industry ever since the comnpany was founded. It has several competitive advantages, such as innovation, standardization, individualism, and Hype. One of the reasons that Apple shines above the rest in reputation is innovation.

Apple’s main purpose isn’t to make money, but to design and develop good products.

Apple has never created a new product, neither computers nor smartphones, but it always turned an existing product to standardize the industry. With this value, Apple has brought to market innovative products such as the iMac, the iPod, the iPhone and the iPad, each of which has enjoyed cult-like reception from Apple. Apple products are great by rating of users. The users of Apple become a large percentage of marketing factors for Apple itself. In fact, Apple was ranked with Google and Symantec as the three computing companies with the most brand loyalties base by Satmetrix Systems.

Apple users blog, tweet and post statuses about their gadgets, which helps inspire a viral-like reaction to the latest Apple products without requiring Apple to increase marketing spending. Apple products are very different in exterior appearance when compared to their competitors. Apple creates products that are clearly differentiated from other available products for various reasons. The signature look and feel of Apple products, combined with the familiar Apple logo helps to create instant product recognition.

Apple consciously works to set itself apart from other computer companies, creating unique and simple design when being compared to any other PC manufacturer.

The result of Apple user is a feeling of exclusivity that is exciting moment for an Apple user to experience any new Apple product. Steve Jobs, the former president and of Apple was an excellent showman. The now-famous Apple press conferences to introduce new products attract worldwide attention. Apple is a master at hinting at innovation to pique mass interest, resulting in an unveiling with circus-like flair.

The hype for products means long lines at the Apple Store when a product is finally released, despite the fact that few have actually tested the product.

SWOT Analysis of iPhone and iPod Apple Computer designs, manufactures and markets personal computers and related software, services, peripherals, and networking solutions. The company’s strong operating performance has strengthened its market position and has also increased investor confidence. (See Exhibit 3 — Apple iPhone and iPod SWOT Analysis[iii]) Strengths The iPhone and iPod have several features that add to the strength of the product.

These include its unique look and feel accompanied by a likewise unique operating system. The multi-touch screen is a new patented technology.

These new features are presented to a large and loyal user base that Apple has accrued over the years. Additionally, most of its marketing was given support from all over the internet, saving the company in advertising fees. Finally, innovation is one of Apple’s key strengths. The invention of iPod for example has provided Apple with a wider market coverage and helped to increase the company profits by iTunes and Apple online store. Weaknesses

Apple uses Foxcoon as its manufacture supplier to minimize labor cost. Foxconn is currently the company’s sole manufacturer, lack of management skill of Foxcoon could cause delivery delays for Apple. In a market where speed to market is critical, Apple’s dependency for key components could put it at a competitive disadvantage. Also Foxconn has been reported very frequently to apply poor labor standards and was only recently involved into a major violent strike with approx. 2000 members of its Taiyuan factories workforce. For a company like Apple, which is highly depending on brand mage, this concerns a major threat to one of its core assets.

Another issue is that Apple has higher research and development costs than its competitors. Most Apple users have commented that the sensitive screen of iPhone and iPod lead to easy breakage and short batteries usage might push people to switch to other brands. Finally, price of music download files might increase, which could people refraining from buying iPod (incl. iTunes). Opportunities Apple has constantly been able to create new and updated products such as iPhones, iPod Touches, and iPod Nano.

There is significant demand for a better mobile computing experience. The iPhone tries to combine both powerful computing as well as entertainment into one system. Demand for wireless connectivity and networking products is likely to increase in the future. Apple is ideally positioned to capitalize on this growth, as it already provides a number of offerings in this area. Moreover, Apple is planning to increase its retail points of presence internationally.

Threats The majority of threats come from other companies including Nokia, Samsung, Sony, and Google with their respective products.

Also, ongoing economical uncertainties (European debt crisis, Asian stock market low) may trigger reduction in consumer spendings. Price competition in the market for smart phone and mp3 players has been particularly intense.

Apple’s competitors have aggressively cut prices and lowered their product margins to gain market share in response to weaknesses in demand. Due to the slowdown of the global economic environment, it will be hard for any company in the industry to keep a growth momentum of both revenues and profits. Recommendation of Investment in Apple

I would recommend to invest in Apple Inc. Despite its high stock price and its position as already highest valued enterprise worldwide in terms of market capitalization, its core features of innovative design, wide and loyal customer base, patented technologies as well as proprietary customer platforms (iTunes, iCloud, iStore) – excluding competition and maximizing switching costs – lay the groundwork of a sustainable and profitable business. ———————– [i] Exhibit 1 Global PC Market Share by Units, Percent.

006 – 2011 |Rank |2006 |2007 |2008 |2009 |2010 |2011 | |1 |Dell | |Industry Pioneer |High research and development | |Brand Image |Dependency for key components | |Synergistic portfolio |Music price in ITunes | |Strong media content | | |Opportunities |Threats | |Wireless products |Strong competition | |New innovation product |Slow Economy | |Retail store expansion |Highly developed market |