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A- Case Summary Apple was by two college drop out students: Steve Wozniak and Steve Jobs with the motto of Think Differently. In the early 1980s, Steve Wozniak left the company and Steve Jobs hired John Sculley as the President of the company. After facing many failures, Apple launched its Macintosh computers for house hold users. In mid 1980s, Steve Jobs had to leave the company because of his controversial relations with the president. At that time John Sculley rejected the offer of Microsofts CEO, Bill Gates to license the Macintosh operating system to Microsoft. After this refusal, Gates developed DOS operating system and in late 1980s, the competition between DOS and Macintosh decreased Apples sale, workforce and resignation of John Sculley. So, Apples current CEO planned to purchase NextStep operating system of Jobs in order to improve the Macintosh operating system. In late 90s Jobs again became the CEO of the company and be started surprising relations with Microsoft by developing a Macintosh version of office software. Apple also took cost saving measures like streamlining the product line, production of printers. Steve Jobs brought Apples focus on two concepts of consumer series with the prefix I for internet like iMac, iBook laptop and professional with prefix power such as PowerMac desktop and PowerBook laptop series. Under Jobs, Apple again becomes the innovator of computer market. His leadership leads the company to USB and Firewire ports, introduction of iPod and iTunes website put Apple in the digital computing age.

Apple manages its business on geographic locations having offices in Americas, Europe, Japan and Asia Pacific. Apples sale is continuously growing. In the era of 2000, Apple opens 86 retail stores in USA and two international stores in Tokyo and Osaka which increases its sales. It introduces eMac line of cathode ray screen, but its most impressive and fastest growing market is of iPod line of digital music players and iTunes music store website. The three major competitors of Apple are Dell, Hewlett-Packard and IBM, however Apple also competes with Microsoft in software industry. Dell is the largest computer manufacturer with extremely low cost production strategy. Dell has entered the in the line of music against Apple by its Jukebox. Hewlett Packard is a big brand name and leading provider of technology. Apple combined with IBM enjoyed profit jointly but now Lenovo took over IBM and become a competitor of Apple. Apples new products like speech recognition program will help take industry into a new age of computers and is according to the companys motto and it is hoped that it will double the profit margin in the near future. Overall, Apple is continuously growing and its future seems bright. With the slight change in their strategies, they can become giants in technology industry.

B) SWOT ANALYSIS a) Strengths:


(i) Produce innovative products by using innovative technology

(ii) Produce aesthetic / stylish products


(iii) They make diversified products

(iv) Customers of Apple computers are brand loyal (v) Have technology of interacting with computer using human senses (vii)They have virus free systems (vii) First company which adapt calligraphic font style (viii) Introduce USB and firewire ports for digital connection (ix) Make music website b) Weaknesses
(i) Apple has high manufacturing and inventory cost

(ii) Management is not stable


(iii) Has low market share in software industry

(iv) Majority of retail stores located in U.S.A.


(v) No compatibility options in their soft wares

4 (vi)Decline in sales of iMac

(vii)Less emphasis on marketing issues to create awareness for their innovative products c) Opportunities (i) Should expand on the basis of sales (ii) Should open retail stores in different countries
(iii) Should target government and educational institutions

(iv) Should make compatible soft wares (v) Should capitalize on the basis of virus free systems (vi) Should introduce the speech recognition program (vii)They should focus on customized products for customers (viii)Should start making their own microprocessor chips d) Threats (i) Merger & acquisitions of competitors (ii) High cost can be a limitation in future (iii) High market share of Microsoft Windows (iv) Competition increases in music downloading sites C) Internal / External Factor Evaluation

a) IFAS Internal Factors Weight Rating


(out of1) (1 - 5)

Weighted Score

Comments

Strengths (i) Produce innovative products Stable products to control (ii) They make diversified products (iii) Brand loyal customers (vi) Virus free systems (v) Produce aesthetic products (vi) Introduce USB and firewire ports Weakness (i) High manufacturing and inventory cost 0.05 3 0.15 0.05 2 0.10 0.10 3 0.30 0.05 2 0.10 0.15 4 0.6 0.10 4 0.40 shocks in different product markets High end customer 0.10 3.5 0.35 Good R&D efforts

satisfaction level High level of security Cutting edge, high end stylish products Enabling peripherals More focus on portable

development and R&D

(ii) Has low market share industry (iii) No compatibility options in soft wares 0.10 3 0.30 Extremely products (iv) Decline in sales of iMac (v) Less emphasis on marketing issues to create awareness 0.10 4.5 0.45 Low investment in 0.05 2 0.10 high end in software 0.15 4 0.6 Less awareness

marketing

TOTAL

1.00

3.45

b) EFAS Internal Factors Weight


(out of1)

Rating
(1 - 5)

Weighted Score

Comments

Opportunities (i) Should expand on the basis of sales 0.10 2 0.20

Emphasize on the sales of innovative products

(ii) Should target government and educational institutions (iii) Should capitalize on the basis of virus free systems (iv) Should introduce speech recognition program (v) Should focus on customized products 0.05 3 0.15 0.10 3 0.30 0.15 4 0.60 0.15 3 0.45

Find a propitious niche

Give advanced security

Give

new meaning to

technology

Cater the segment in a better way

Threats (i) Mergers & acquisitions of competitors (ii) High cost can be a limitation in future (iii) High market share of Microsoft (iv) Competition increases in music downloading sites 0.05 2 0.10 0.10 3.0 0.30 0.15 4.5 0.67 0.15 3.5 0.7

Rival companies become giants and good name

It is a question for Apple

Well positioned rival

TOTAL

1.00

3.47

D) Problem Statement How Apple can provide differentiated products with low cost in order to maximize its market share?

E) Alternatives (a) Continue without any change Advantages (i) Produce innovative products (ii) Virus free systems (iii) Brand loyal customers. (iv)producing diversified products Disadvantages (i)Low market share (ii) high operation and marketing cost (iii) less emphasis on marketing (iv) Competing against giants of the industry

b) Should capitalize on the basis of virus free systems Advantages Disadvantages

(i) Increase in sales of computers (ii) Market share will increase


(iii) Start competing microsoft on the (i) R&D cost will become higher

(ii) High marketing efforts are needed to create awareness.


(iii) Low compatibility with other

basis of virus free softwares.


(iv)New segments will be attracted.

systems .

c) Should introduce speech recognition program Advantages (i) More user friendly system (ii) Open new market horizons (iii) Increase diversity of products (iv) Capture new consumers (v) Helps in improving brand name Disadvantages (i) Cost will increase which affects the price of product (ii) Has to maintain big data dictionary for different words of different languages.

d) Go for strategic alliance for producing specific products (microprocessors)

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(i) Reduction in cost (ii) Reduction in product development process (iii) No compatibility issues (iv) Sharing of resources (v) Increased profit margin

(i) Contradiction between cultures of organizations (ii) Privacy of developing innovative products will be slightly affected

e) Go for customized products Advantages (i) Targeted niche will be highly satisfied
(ii) Understand the changing

Disadvantages (i) Cost will extensively increase (ii) Difficult to cater all requirements of customers along with innovation (iii) Chance of ambiguity will increase which affects the brand name (iv) Chances of failure will increse

environment easily (iii) No new channel needs to be introduced for sales

F- Best Alternative According to the current situation, the best strategy or alternative for Apple is: Go for strategic alliance

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G- Reason Its reason is that no doubt Apple is going fine now but for future growth it is must to create something new and stylish while keeping the cost optimized. This does not mean that Apple start making whole product with the collaboration, instead they have to go for alliance in making high cost products. This will help Apple in optimizing cost and development process with innovation. Somehow, a problem of organizational culture conflict will occur but it is manageable. Now a days, to sustain and compete in the market companies go for strategic alliances just to reduce the cost and gain high profit margins. So, Apple should go for this strategy. H- TOWS Analysis Internal Factors Strengths (S) (i) Produce innovative products (ii) Brand loyal customers (iii) Virus free External Factor Opportunities (O) (i) Capitalize on virus free system (ii) Introduce speech systems SO Strategies Apple should emphasize more on expansion in order Weaknesses (W) (i) High manufacturing cost (ii) No compatibility issues (iii) Less emphasis on marketing issues WO Strategies Apple should emphasize on making new and focus on

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recognition system (iii) Target govt. and educational institutions

to increase market share by developing new innovative products and provide better after sale services to make customers more brand loyal.

creating awareness among the customers.

Threats (T) (i) Merger & acquisitions of competitors (ii) High cost cab be a limitation in future (iii) High market share of Microsoft

ST Strategies Apple should have to keep its cost optimize by strategic alliance and make high cost products cheaper.

WT Strategies Apple should have to focus on producing new compatible products and focus on marketing its products.

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Raio Analysis 2002 1. Liquidity Ratios 2003 2004 2005 2006 2007 208 2009

Current Ratio Quick Ratio Invetory to net working capital Cash Ratio 2. Profitability Ratios Net Profit margin Gross Profit margin Return On Investment Return On Equity 3. Activity Ratios Inventory turnover day of Invetory Asset turnover Net working Capital turnover fixed Assets turnover Average Collection period Days of Cash 4. Leverage Ratios Debt to asset ratio debt to equity ratio Long term debt to capital current liabilities to equity

3.25 3.22 0.01 3.08

2.50 2.47 0.02 2.37

2.63 2.59 0.02 2.45

2.63 2.59 0.02 2.45

2.63 2.59 0.02 2.45

2.63 2.59 0.02 2.45

2.63 2.59 0.02 2.45

2.63 2.59 0.02 2.45

1.03% 27.92% 1.13% 2%

1.01%

3.43%

3.50%

3.46% 27.3% 3.25% 6%

3.42%

3.37%

3.32%

27.52% 27.29% 27.29% 1.11% 2% 3.33% 5% 3.33% 6%

27.286% 27.29% 27.29% 3.17% 7% 3.09% 7% 3.02% 7%

127.60 3.97 0.91 1.54 6.31 46.47 143.15

110.84 4.54 0.91 1.76 6.69 56.22 199.70

81.97 6.12 1.03 1.89 8.32 44.31 130.90

81.97 6.12 1.05 1.89 9.90 44.31 130.90

81.97 6.12 1.07 1.89 11.57 44.31 130.90

81.97 6.12 1.08 1.89 13.45 44.31 130.90

81.97 6.12 1.09 1.89 15.54 44.31 130.90

81.97 6.12 1.101 1.89 17.85 44.31 130.90

35% 54% 87.13 40%

38% 61% 92.06 56%

37% 59% 383.06 53%

37% 63% 463.48 58%

37% 67% 560.80 63%

37% 71% 678.55 67%

37% 75% 821.03 72%

37% 79% 993.44 76%

Z-Value ,Index of Sustainable Growth ,And Free Cash Flow Z=1.2X+1.4X+3.3X+0.6X+1.0X X1 X2 X3 X4 X5 0.59 0.37 0.01 1.86 0.91 0.52 0.35 0.01 1.63 0.91 0.54 0.33 0.05 1.71 1.03 0.55 0.34 0.05 1.59 1.05 0.56 0.34 0.05 1.49 1.07 0.57 0.35 0.05 1.40 1.08 0.58 0.35 0.05 1.33 1.09 0.58 0.36 0.05 1.26 1.10

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3.30

3.05

3.33

3.30

3.28

3.26

3.24

3.22

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Apple,s Consolidated Statements Of Financial Positions Projected 2005-2009 (In $ millions) Period Ending Assets Current Assets Cash and Cash Equivalents Short-term Investments Net Receivables Inventory Other Current Assets Total Current Assets Long -term Investments Property, Plant and Equipment Goodwill intagible Assets Accumulated Amortization Other Assets Deffered Long-term Asset Charges Fixed Assets Total assets Liabilities Current Liabilities Accounts Payable Short/Current Long-term Dbt Other Current Liabilities Total Current Liabilities Long term Debt Other Liabilities Deffered Long-term Liability Charges Minority Interest Negative Goodwill Total Non Curerent Liabilities Total Liabilities Stockholders Equity Misc.Stocks,Options ,Warrants Redeemable Preferred Stock Prefrred Stock Common Stock Retained Earinings Treasury Stock Capital Surplus Other Stockholders,equity Total Stockholders Equity EFN Total Liabilities And Stockholders,equity EFN Total Assets Total Libilites Total Equity EFN 2002 2003 2004 2005 2006 2007 2008 2009

2,252 2,085 731 45 275 5,388 39 621 85 34 131 910 6,298

3,396 1,170 956 56 309 5,887 669 85 24 150 928 6,815

2,969 2,495 1,005 101 485 7,055 707 80 42 80 86 995 8,050

3,592 3,019 1,216 122 587 8,537 707 80 42 97 86 1,012 9,548

4,347 3,653 1,471 148 710 10,329 707 80 42 117 101 1,048 11,377

5,260 4,420 1,780 179 859 12,498 707 80 42 142 120 1,090 13,589

6,364 5,348 2,154 217 1,040 15,123 707 80 42 171 141 1,142 16,265

7,701 6,471 2,607 262 1,258 18,299 707 80 42 207 167 1,203 19,502

1,658 1,658 316 229 545 2,203

2,053 304 2,357 235 235 2,592

2,680 2,680 294 294 2,974

3,243 3,243 294 294 3,537

3,924 3,924 294 294 4,218

4,748 4,748 294 294 5,042

5,745 5,745 294 294 6,039

6,951 6,951 294 294 7,245

1,826 1,926 2,514 2,325 2,394 2,670 (56) (97) (108) 4,095 4,223 5,076 6,298 6,815 8,050

2,514 2,514 2,514 2,514 2,514 3,231 3,909 4,730 5,723 6,925 (131) (158) (191) (232) (280) 5,614 6,265 7,053 8,006 9,159 397 894 1,494 2,220 3,098 9,548 11,377 13,589 16,265 19,502 2009 19,502 7,245 9,159 3,098

2005 2006 2007 2008 9,548 11,377 13,589 16,265 3,537 4,218 5,042 6,039 5,614 6,265 7,053 8,006 398 894 1,494 2,220

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Apple's Income Statement Projected 2005-2009

Period Ending Total Revenue Cost Of Revenue Gross Profit Operati g Expenses n Research Development Selling Gener l And Administrative a Non-recurring Expenses Other Total Operating Expenses Operati g Income or Loss n Income from Consulting Operations Total Other Income/Expens Net es Earning Before Interestand Taxes Interest Expense Income Before Tax Income Tax Expense Minnority Interest Net Income from Continuing Operations Non-recurring Events Discontinued Operations Extraordinary Items Effect of Accountng Changes i Other Items

2002

2003

2004

2005

2006

2007

2008

2009

5,742 6,207 8,279 10,018 12,121 14,667 17,747 21,474 4,139 4,499 6,020 7,284 8,814 10,665 12,904 15,614 1,603 1,708 2,259 2,733 3,307 4,002 4,842 5,859

446 471 489 1,111 1,212 1,421 29 26 23 17 (1) 326

592 1,719 28 394

716 2,080 34 477

866 2,517 41 578

1,048 3,046 49 699

1,268 3,686 60 846

70 87 87 22 65

93 92 92 24 68

60 386 3 383 107 276

73 467 4 463 120 343

88 565 4 561 146 415

106 684 5 679 176 502

129 827 6 821 213 608

156 1,001 8 993 258 735

1 -

Net Incom e P referredStock and other adjustments Net Incom e applicable to Comm on S har s e Assumption Grow th rate 2004= 33. 8% 3 2003= 8.098% Average = 2 1%

65 65

69 69

276 276

334 334

394 394

465 465

549 549

647 647