Apple

apple is the world’s most valuable company by market cap. The company has achieved this feat by
beating the curse that bedevils most hardware vendors, even tech ones such as Motorola, Sony
Ericsson, Nokia and Blackberry. This scourge is that their products become commoditised. Apple has
overcome this bane because its devices are not just devices. Apple’s products such as the iPhone can
be better seen as ‘subscription’ payments to access Apple’s platform and services. Already 500 million
people use Apple’s iOS platform and that number is growing at doubt-digits each year. 

It’s almost redundant to say that Apple enjoys strong brand recognition globally and has extensive
market penetration – sales in fiscal 2016 reached US$215.6 billion. Along with Microsoft’s Windows and
Google’s Android, Apple’s iOS is one of the major global digital platforms. As Apple and Google have the
only two global mobile platforms and no third competitor is in sight, the pair is likely to connect the world
between them. That market is already 3.5 billion users strong and is expected to expand to 4.7 billion
users by 2020. While Apple’s iOS is not the leading mobile platform by number of users, it dominates
among people who spend the most

Description
. Apple Inc., incorporated on January 3, 1977, designs, manufactures and markets mobile communication and media devices,
personal computers and portable digital music players. The Company sells a range of related software, services, accessories,
networking solutions and third-party digital content and applications. The Company's segments include the Americas, Europe,
Greater China, Japan and Rest of Asia Pacific. The Americas segment includes both North and South America. The Europe
segment includes European countries, India, the Middle East and Africa. The Greater China segment includes China, Hong Kong
and Taiwan. The Rest of Asia Pacific segment includes Australia and the Asian countries not included in the Company's other
operating segments. The Company's products and services include iPhone, iPad, Mac, iPod, Apple Watch, Apple TV, a portfolio of
consumer and professional software applications, iPhone OS (iOS), OS X and watchOS operating systems, iCloud, Apple Pay and
a range of accessory, service and support offerings.

The Company sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, television
APP Store, iBooks Store and Apple Music (collectively Internet Services). The Company sells its products through its retail stores,
online stores and direct sales force through third-party cellular network carriers, wholesalers, retailers and value-added resellers.
The Company sells a range of third-party Apple compatible products, including application software and accessories through its
retail and online stores. The Company sells to consumers, small and mid-sized businesses and education, enterprise and
government customers.

iPhone is the Company's line of smartphones based on its iOS operating system. iPhone includes Siri, a voice activated intelligent
assistant, and Apple Pay and touch ID on qualifying devices. The Company offers iPhone 7 and 7 Plus, featuring new camera
systems, stereo speakers and water and dust resistance. The Company also sells iPhone SE, which has a four-inch Retina display.
iPhone works with the iTunes Store, App Store, iBooks Store and Apple Music for purchasing, organizing and playing digital
content and applications. iPad is the Company's line of multi-purpose tablets based on its iOS operating system. iPad includes iPad
Pro, iPad Air and iPad mini. Mac is the Company's line of desktop and portable personal computers based on its macOS operating
system. The Company's desktop computers include iMac, 21.5 inches iMac with Retina 4K display, 27 inches iMac with Retina 5K
display, Mac Pro and Mac mini. The Company's portable c

Quality Rating

Quality rating and whyPer Yahoo!

Finance’s website there are 38 sell-side analysts following
Apple, or at least have ratings on the shares, and none of them have a Sell rating on
them. There are:

 Strong Buys: 11

 Buy: 21
  Hold: 6

Porter Competition Analysis

Competitive Rivalry

Apple faces the strong force of competitive rivalry or competition. This component of
Porter’s Five Forces analysis model determines the intensity of the influence that competitors
have on each other. In Apple’s case, this influence is based on the following external factors:

1. High aggressiveness of firms (strong force)

2. Low differentiation of products (strong force)
3. Low switching cost (strong force)

Threat of New Entrants

 Establishing a business to compete against firms like Apple Inc. requires high
capitalization. Also, it is extremely costly to develop a strong brand to compete against
large companies like Apple. These external factors make new entrants weak. However,
there are large firms with the financial capacity to enter the market. For example, Google
has already done so through products like Nexus smartphones. Samsung also used to be
a new entrant. These examples show that there are large companies that have the
potential to directly compete against Apple Inc. Thus, the overall threat of new entry is
moderate. This part of the Five Forces analysis shows that Apple
Threat of Substitution

The competitive threat of substitution is weak in affecting Apple Inc.’s computing technology,
consumer electronics, and online services business. This component of Porter’s Five Forces
framework determines the strength of substitute products in attracting customers. In Apple’s
case, substitutes exert a weak force based on the following external factors:

1. Moderate to high availability of substitutes (moderate force)

2. Low performance of substitutes (weak force)
3. Low buyer propensity to substitute (weak force)

Some substitutes to Apple products are readily available in the market. For example, instead of
using iPhones, people can use digital cameras to take pictures, and landline telephones to make
calls. In Porter’s Five Forces analysis model, this external factor exerts a moderate force in the
industry environment. However, these substitutes have low performance because they have
limited features. Many customers would rather use Apple product

Supplier Power

 The global size of its supply chain allows Apple Inc. to access many suppliers around the
world. In Porter’s Five Forces analysis context, the resulting high number of suppliers is
an external factor that presents only a weak to moderate force against the company. In
relation, the moderate to high overall supply of inputs, such as semiconductors, makes
individual suppliers weak in imposing their demands on firms like Apple. Also, the ratio of
firm concentration to supplier concentration further limits suppliers’ power and influence in
the industry. This external factor reflects the presence of a small number of big
companies like Apple and Samsung, in contrast to a larger number of medium-sized and
big suppliers. Thus, this part of the Five Forces analysis 
Buyer Power
  It is easy for customers to change brands, thereby making them powerful in compelling
companies like Apple to ensure customer satisfaction. On the other hand, each buyer’s
purchase is small compared to the company’s total revenues. Porter’s Five Forces
framework indicates that this condition makes customers weak at the individual level.
However, the availability of detailed comparative information about competing products’
features empowers buyers to shift from one provider to another. This external factor
enables buyers to exert a strong force on Apple and other brands. Thus, this part of the
Five Forces analysis shows that Apple must include the bargaining power of buyers or
customers as one of the most significant strategic variables in the business.

Key Risk Assessment

Identify key risks and implications Economic uncertainties
Economic conditions could materially adversely affect Apple (Form 10k, 2009)

The uncertainty of current global economic environment poses a huge risk to company through
consumers and business aspects. Firstly, the bad global economic conditions could decrease the
demand of company`s products and services, because of the decreased income and lack of
confidence, such as tighter credit policy, increase of unemployment, negative financial news and
depreciation of asset values. Secondly, demand could be expected to be materially different from
Apple, as a result of the generally prices raise of goods and services sold outside the U.S. market to
offset the strengthening effect of U.S. dollars. Finally, other factors probably affect company`s
performance by increase of fuel costs, negative conditions in the real estate and mortgage markets,
increase of labor and healthcare costs, tighter access to credit, and other macroeconomic factors that
might affect consumer spending behavior.

1.1.2 Political & regulatory uncertainties

Unfavorable results of legal proceedings could materially adversely affect Apple. (Form 10k, 2009)

Laws and regulations in many countries related to mobile communications and software security
requirement usually change including the restrictions on production, manufacture, network carriers
rights, distribution, software functions and usage, which pose negative effect on company`s
productions design and application experience. Moreover, these changes also create extra cost on the
productions promotion because it increases the related adjustment cost to satisfy the requirement of
local regulations that is not included in the original cost. Furthermore, a big problem about regulatory
uncertainties is the limitation and barriers to enter into some markets. Although, this condition is
improving nowadays, it is still negative for company`s productions and services promotion in these
countries, such as the inefficient audit system of China decreases the promotion rate of company`s
products and services. Finally, it is obvious that the tax policy could directly affect Apple`s
performance. Different countries have different tax rates, and even change in certain time, which
increase the tax risk for Apple.

The industry level

In the industry level, there are three major risks for Apple, including raw material risk, market risk and
competing risk.

Raw material risk.

As an original design company, Apple must focus on the raw material choice. Such as property,
dimension, longevity, price of every components. Although most components are generally available
from multiple sources, certain key components rely on the upstream manufacturers. Therefore, the
industry wide shortages and significant commodity pricing fluctuations pose material negative effect on
company`s performance. On the other hand, because of the components are purchased from
upstream manufacturers, the products will be restricted by the raw material supply. For instance, a key
component of a certain product delays 3 months to be provided, the whole product plan will be
negatively affected which is depended on company itself.

Market risk
Although, the market share of Apple is gratifying, especially in mobile communication devices, and
portable digital music and video players markets, Apple still needs to confront two major risks in
market. Following the development global expansion of Apple, the activities related to interest rate and
foreign currency increase at an amazing rate. Therefore, the uncertainty of interest rate and foreign
poses a material negative effect on company`s performance.

Firstly, interest rate risk. Because Apple is exposed to interest rate fluctuations in many advanced
developed countries, Apple`s interest income and expense is most sensitive to fluctuation in interest
rates of these countries. Therefore, these changes directly affect the interest earned on Apple`s cash,
securities and costs related to foreign current hedges.

Secondly, foreign currency exchanges rate risk. Generally, Apple is a net receiver of currencies, since
then, because of the changes in exchange rates, the net sales and gross margins of Apple as
expressed in U.S. dollars would be negatively affected by these changes. Moreover, Apple should
adjust its products prices to local market when the exchange rate has changed, usually U.S. dollar is
strengthen, which causes the negative effect on sales from local competition with lower prices.
Meanwhile, Apple`s contracts with financial institutes to protect Apple against exchange rate risk lead
to increase the prohibitive economic cost of hedging particular exposures.

Competition risk
Apple is confronted by aggressive competition in all areas of its business (Form 10k, 2009).

The major business including personal computer, music player, video player, mobile communication
devices and related services are highly competitive. All these markets exist powerful competitors and
numerous SMEs. From products property to products exterior, and from market share to after sale
service, all competitors have aimed Apple. Therefore, in order to keep and expand the advantages
from other competitors, Apple spares no effort to spend heavily on R&D. Apple spent totaled $1.3
billion, $1.1 billion and $782 million in 2009, 2008 and 2007, respectively, on research and
development which illustrates the huge competitive pressure to Apple. In other words, Apple`s future
financial condition and operating results are substantially dependent on its ability to continue to
develop and offer new innovative products and services in each of the markets it competes in (Form
10k, 2009).

Global markets for personal computers, mobile communication devices, digital music and video
devices, and related peripherals and services are highly competitive and subject to rapid technological
change. If Apple is unable to compete effectively in these markets, its financial condition and operating
results could be materially adversely affected (Form 10k, 2009).

The firm level

To Apple itself, there are three major risks mentioned in the form 10k of Apple, which are

International operation, credit risk, and inventory risk respectively.

1.3.1 International operations risk

Apple derives a large and increasing portion of its revenue and earnings from its international
operations (Form 10k, 2009). The different regulation and culture might raises the operate cost.
Meanwhile, anyone of these operations has possibility to violate local regulations and laws, which
increase the risk of international operations management. Moreover, Apple`s financial condition and
operating results also could be affected by risks related to international activities. Such as changes in
local economic, labor, political and exchanges rate situation. All these macro changes could affect
Apple through its international operations.

1.3.2 Credit risk

Credit risk for Apple, focuses on the detention and even invalidation on credit purchase for Apple
services. Online store is one of the most important income approaches of Apple. Apple spent a lot of
effort to sustain the online store`s advantages, and gain a great income from that. However, the main
payment approach, credit pay, usually fails because of random or artificial reasons. Such as Bank
problems and individual, co-operate fraud. These credit risks create significantly negative effect on
Apple`s finance performance.

1.3.3 Inventory risk

Due to the huge sales across the world, the inventory risk has become more significant for Apple.

The phenomenon of products shortage has been usual, not only because of the demand forecasting,
capacity of manufacturing, but also the inventory ability and effectiveness. The huge demand for a
certain product of Apple always could be offset during several months which pose materially negative
impacts on Apple`s sales.

Charts & Data

Relevant information used to form your view
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1. have never pursued maximum market share or survival; their objective is maximising
current profit along with product-quality leadership
2. Determine the demand and estimate price elasticity. Apple competes at the high end
of the market, so Apple’s customers should not be price sensitive. The customers are
prepared to pay premium for the product where they perceive the value – design,
reliability, simplicity and style