Apple Business Plan Sean
Apple’s Business Plan
TABLE OF CONTENTS
EXECUTIVE SUMMARY INTRODUCTION
PRODUCTS & SERVICES THE MARKET6
MARKET ANALYSIS 6
CONSUMER ANALYSIS AND TARGET MARKETS 9
TREND ANALYSIS OF THE MARKET
PORTER’S INDUSTRY ANALYSIS ON APPLE
THE MARKETING PLAN
PRODUCTS AND SERVICES
PRODUCTS’ LIFE CYCLE
COMPETITION AND COMPETITIVE ADVANTAGE21
ADVERTISING AND PROMOTIONAL STRATEGY 24
S.W.O.T ANALYSIS 26
THE OPERATIONS PLAN
RESEARCH AND DEVELOPMENT 30
DISTRIBUTION (PLACE) ARRANGEMENT 31
PRODUCT QUALITY 32
THE MANAGEMENT PLAN 33
SKILLS REQUIRED 33
SALARY COMPENSATION FOR TOP MANAGEMENT
THE FINANCIAL PLAN
LIQUIDITY & CAPITAL RESOURCES
PROJECTED PROFIT & LOSS
PROJECTED BALANCE SHEET
LIST OF REFERENCES
APPENDICES 44 A GREENER APPLE DOCUMENT (BY STEVEN JOBS CEO)
EVIDENCE OF SHAREHOLDERS EQUITY 2007 46 FINANCIAL STATEMENTS 47 Executive Summary
Introduction Apple’s Business plan serves to outline all aspects of the business prospects of the company’s diversified product line & their viability. It also aims to analyze the industrial prospects & how Apple can strategize to give itself a competitive advantage and descend into the mass market in addition to serving its niche market. The Company Apple Inc. designs, manufactures, & market personal computers, operating systems , portable digital music players, and mobile communication. Based in Cupertino, California, Apple Inc. (AAPL) is a leading producer of consumer electronics; manufacturing, engineering, & selling its own line of computers, variety of related software, services, peripherals, and networking solutions, portable digital music players, and mobile communication devices as well.
Products & Services The Company sells its products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, resellers, and value-added resellers. In addition, the Company sells a variety of third-party Macintosh (‘‘Mac’’), iPod and iPhone compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores. The Company sells to education, consumer, creative professional, business, and government customers.
The Market Apple’s market share is clearly too defined, it serves a niche market. It clearly gets its premium from product differentiating, revolutionizing the market first by its Macintosh computers, their operating systems, then introducing the IPOD & subsequently the IPhone. It must attempt to acquire a bigger share of the pc market (by making low-end pc’s ), & maintain its dominance in the portable music player business.
Appendices The Company’s documents are attached in the Appendices.
This section will present data and information that are imperative to a thorough understanding of the I.T market and the performance of our competitors (in comparison to us), in particular. http://lowendmac.com/ed/fox/08ff/mac-pro-vsdell-hp.html http://www.marketingteacher.com/Lessons/lesson_pricing.htm
To start with, we have the Market Capitalization of Hardware products. The graph below lists nine of our competitors, and their individual share of the market in billions of U.S Dollars. Companies like International Business Machines Corp, Cisco Systems, Hewlett-Packard and our selves, cumulatively control the ‘lion’s share’ of the market.
The next figure represents how the same group of competitors fared in terms of P/E ratio. Technology based companies have a tendency of experiencing high growth in their P/E ratio, and this is not surprising as all of the companies mentioned have done well, with the exception of Apple of course!
The rule of thumb for the Price to Earnings Ratio is that when the ratio for a company is high it usually implies that their investors anticipate a growth in future earnings, as opposed to other companies with relatively low ratios. http://www.investopedia.com/terms/p/price-earningsratio.asp
To compete in an industry which is entirely dependant on knowledge, expertise, skill and precision, it is a grueling task to hire and retain the best human capital available. The following figure represents the number of employees that three of our competitors which are Dell, HP and Microsoft, currently have. It’s quite obvious that HP leads the way, with Dell and Microsoft in close pursuit, leaving us in last place. The main reason for this is that we are not exerting enough effort in retaining our staff unlike our competitors.
The amount of revenue and Net Income speaks volumes about the health and success of an industry, and is a critical factor in our market research. This is because, if the industry as a whole is faring well, it acts as a signal for new entrants
who may interpret the industry as a gold mine and decided to penetrate it and if successful, pose a threat to existing members.
The figure below presents the Revenue and Net Income in billions of US Dollars. HP has raked in the greatest revenue but fell behind Microsoft in terms of Net Income. Even though Dell performed better than us, we still managed to do a little better than them in terms of Net Income. Overall it seems that the four of us have made brilliant sales, however as mentioned earlier this can promote an influx of new ‘unwanted’ competition.
The following figure represents the quarterly revenue growth and the Gross margin of the same four companies. To start with, we have Gross margin which tells us how well we are clearing off our costs and other general expenses, using our gross earnings. It should come as no surprise that technology based companies experience the highest levels of gross margin in comparison to other companies. Even though Microsoft appeared to out do the rest of us their quarterly revenue growth seems minuscule. On the other hand, we have surpassed our competitors in terms of revenue growth and Gross Margin, which is a very good thing.
Consumer Analysis and Target Markets
The figure below illustrates who are customers are, what they buy and their reasons for purchasing our products.
As for our Target Markets, they include the following: •
Trend Analysis of the Market
Apple’s most brilliant invention and contribution to modern technology is the iPhone, and although Apple is fairly new addition to the cell phone market, it has paved the way for mobile manufactures worldwide. Companies like Samsung, LG and Nokia have followed in Apple’s footsteps, after its unprecedented success.
Another trend that is making news is the initiative that we are taking towards conserving our natural environment through our ‘A Greener Apple’ campaign. It’s not only us, but our biggest competitors are following suit, like Dell and HP. We are investing in energy efficient products, which are designed to reduce the world’s ‘carbon footprint’.
We are also involved in recycling our used products. The graph below presents that amount of weight that we have recycled since 2002…and what we anticipate to recycle by the end of 2008, 2009 and 2010. This is something that our competitors have yet to disclose. So far they are recycling approximately 10% each per year, as seen from that figure below we are planning on surpassing them later in the future.
Three other points of interest to us and our competitors is that when we recycle ewaste that we collect in the continent of North America, we do not ‘dump’ it is another countries backyard. The second is that the materials that are incorporated in our products are of recyclable quality. Finally, and most importantly, the company is willing to discuss other environmental concerns as well and continue to produce energy efficient designs.
Software companies like IBM and Intel have currently invested in a new technology that utilizes solar cells in its designs. The market although new is set to attract software producers in the masses, and it is projected to grow by 40 % in the near future. Apparently it will cost a fortune, however after a few years; it is expected to reach its optimum point. If the software industry is successful then it will have a positive spill over affect onto the hardware producers, such as Apple, and it will be an impetus for us to produce energy efficient products and stay committed to our environment conservation program. The reason we anticipate their success, is because after we integrated Intel into our Mac systems our sales grew to a remarkable 37% in 2007, which out did the industry’s rate of 15%. http://www.siliconvalley.com
Porter’s Industry Analysis on Apple
The Porter’s industry analysis provides us the structural determinants of the five forces of competition that include 1) Threat of Entry 2) Threat of Substitutes, 3) Industry Rivalry 4) Buyer Power 5) Supplier Power
Threat of Entry
Capital Requirements & Product Differentiation A new company would need a large amount of capital to effectively compete with the well-established market leaders, let alone break even. Apart from the PC hardware markets, even the Mp3 markets have large component costs relative to the total product. Apple’s product differentiation and higher pricing they are able to counteract the price wars that usually ensue under such conditions.
Economies of Scale – There are large economies of scale in the PC market limiting new entrants, but Apple does not rely on Economies of scale as Macintosh is like a niche market. The big market share is consumed by Dell, Hp & Compaq which rely on economies of scale.
Product Differentiation -While numerous portable music players have been released within the last few years, Apple has been the first to combine style, usability, & large capacity into a single unit, & because of this they are enjoying the first mover advantage with the introduction of the iPod. (despite numerous Chinese & Taiwanese companies making identical capacity but cheaper players. ) Customers are pleased with the quality of Apple products thus far and they continue to look to Apple for future innovations (iPod mini, Shuffler, and accessories).
Concentration between Existing Competitors
The PC market is a saturated market with low growth rates with a high degree of concentration. Only a few large competitors with a great deal of capital invested are present such as HP, Compaq, Dell & Gateway ( mostly sold in US ), apart from Apple.
Apple is the most dominant company in the portable music market. The market is relatively new, & as a result there are a fairly large amount of competitors. main competitors in the MP3 sector are: Apple, Sony, Creative, Napster, & Dell. While portable music hardware still requires significant capital investment to develop and
produce the hardware units, the portable music websites (i.e. Napster, iTunes) have relatively small startup costs. This leaves Apple susceptible to new entrants who could possible steal away a portion of its iTunes market share.
Decreased Profit Margins – due to the highly competitive nature of the PC industry. Dell through its distribution & price system is the only competitor to have a reasonably high profit margin.
Niche & Declining Market Share - Apple has a PC market share of 5%. Although MacBook sales have increased, Apple has not been a market taker despite being in the Industry for about 20 years.
Diversity of Competitors – When it comes to diversity Apple is the best. By controlling Itunes with the Ipod there is something termed as the Halo effect which correlates & credits the rise in Mac sales to the sales of the iPod. The idea is that customers who purchase an iPod will become as fixated on Apple products as its most ardent fans and then rush back to the Apple Store and drop thousands of dollars on a new Mac.
Product Differentiation of PC’s
Although Apple has differentiated its PC’s, ( consumer perception is that Apple has differentiated more in terms of visuals & not so much in technology ). Profitability has greatly reduced as computers are becoming a commodities market due to virtually identical products.
Product Differentiation of MP3 Players-- the IPOD
Capitalizing on its product differentiation, Apple on an average is charging two to three times the market price of conventional mp3 players for its iPod (A price that consumers are more willing to pay). Competitors are struggling to offer up a product that is Technological / innovative equivalent to the iPod, & until they can produce one that surpasses it, they will not be able to dethrone the portable music juggernaut. Switching costs for the consumer are low allowing customers to flow
from product to product based on price, but Apple will continue to rely on brand identification, differentiation, and innovation to maintain a firm grip on market share.
Excess Capacity & Exit Barriers
Cost Conditions: Scale Economies & the Ratio of Fixed to Variable Costs . There are little exit barriers in the online music market & the mp3 player market so competitors can leave easily. But the pc market has high exit barriers & thus are more competitive.
Bargaining Power of Buyers
Buyer’s Price Sensitivity to buying personal Computers Competitive Pricing drives the industry more than any other factor that determines a Purchase as buyer sensitivity is extremely high.
High Switching Costs for the Customer – This has been a deterrent in Apple’s quest to attain a more sizeable market share, due to their higher prices & perceived incompatibility of their OS with other software.
Bargaining Power of Buyers of IPOD
Additionally, buyers of the iPod & Macintosh computers have low relative bargaining power . There is as such no “Wal-Mart” of electronic stores, so there is no way for individual resellers such as Best Buy, Circuit City, to bully or bargain Apple into lower prices. Apple also has around 200 international retail stores (including America ), in addition to its own online store. The internet has become a huge selling point for Ipod & Macintosh products via Amazon.com & Buy.com with the popularity due to the tax-free or less taxed online shopping & its convenience.
Bargaining Power of Suppliers
Apple uses a large variety of suppliers for manufacture of its computers & portable music players. In most cases, Apple is not limited to a single supplier for the various components used in the process of assembly for its products. This leaves Apple’s suppliers with less bargaining power concerning price in most cases. Apple uses both graphic cards, NVIDIA &ATI for video cards & Macintosh & the other pc’s use completely different processors so the bargaining power using economies of scale is not done as Macintosh has very exclusive processors.
The Marketing Plan
The following diagram presents the four factors that cumulatively up the PEST analysis, which directly affects the company.
To further elaborate, we have Political Factors which touches upon the political and legal issues that the company can face. The first point talks about government policies and its repercussions on the company and example for instance is that in many jurisdictions in the U.S as well as telecommunication networks have strict control over the sale of communication devices such has our iPhone. It has to meet their requirements before it is launched into the market. This requires a lot of time, effort and money to re-test and revise the end product. In regard to the second point, the possible change in labor laws and spread of disease would spell a reduction in production and hence supply of our products and a reduction in revenue. The impact of strikes and terrorist attacks can be seen in the ultimate decline in the value of out stocks and equity funding. As for the environment, natural killers like hurricanes and floods can pose a very dangerous threat to our factories, warehouses, premises, and our employees, especially since we lack necessary insurance incase of such conditions.
Economic factors certainly do have an indirect influence on the company. The global community at the movement is under a cloud of recession and rising inflation, food shortages, which are influencing a negative change in the standard of living. In regard to our Accounts Receivable baring the brunt of unfavorable economic conditions, it is mainly due to a lack of insurance over these items incase of such an event, which ultimately leads to losses. Because of the unpredictability of the taxation system, the company is forced to keep a watchful eye on its income tax returns. This of course increases the company's expenses.
Socio Economic factors include population and in the case of North America, even though growth in the baby-boomer generation is very impressive, there has been a less than impressive rise in the working population. This means that in the future our target market could reduce our revenue a little bit. Probably this change may divert our attention to the Far East like Indian and Chinese markets, whose economies are expected to surpass that of U.S later in the future. In regard to Pop culture, by strategically positioning the image of one infamous personality or 'brand' to another famous brand will ignite frenzy and will improve brand recognition and revenue. We ourselves employ the celebrity status of a well known actor by the name of Justin Long in TV commercials. It is true that we tend to generate good revenue during certain seasons, however it should not be considered as a predictor for future sales revenue, due to unforeseeable circumstances like natural disasters and other events.
With the increase in production of new technology, a subsequent rise in intellectual protection is expected. This in turn may lead to infringement of anther firms' property rights. Currently the company relies on just four network service to promote its product. If these networks fail to do their job and lose our customers, we will surely face quite a hurdle, in terms of generating revenue.
Products and Services
The Company offers a range of personal computing products including desktop & portable personal computers, related devices and peripherals, & various third-party hardware and software products. In addition, the Company offers software products including Mac OS_ X,; server software and related solutions; professional application software; & consumer, education & business oriented application software.
Macintosh Operating System Software Macintosh Desktop Macintosh Monitor Macintosh Desktop Accessories MacBook Laptop Series
IPOD Ipod music player – 4 types Nano, Mini, Giga Ipod shuffle extension Ipod accessories – speakerphones
The IPhone 3G Mobile PDA mobile phone
Itunes Software & Itunes Online Music Store
The iTunes Store is a software-based online digital media store operated by Apple Inc. Opening as the iTunes Music Store on April 28, 2003, proving the viability of online music sales and is now the number-one music vendor in the United States. As of the end of the second week of January 2008, the store has sold 4 billion songs, accounting for more than 70% of worldwide online digital music sales
Products’ Life Cycle
Apple’s Product Life Cycle
The Product life cycle for Apple is not based on the chronological launching of each products as Apple TV was launched before the IPhone. The cycles is also structured based on the invention. The IPhone is comes under the smart phone or a high-end mobile which is a growing industry ( for the masses ) while Apple TV is a new invention that allows one to upload TV programs by buying them. It shows the decline of the Apple’s desktop mirroring the poor sales of the general desktop industry but MacBook defies its declining industry by having an increased sales. IPOD retains 70% of the mp3 market share & has a matured market. ( Sales & industry forecast are generally too high to place it in the saturated market.
Apple design, develop & market numerous product, & service lines. Apple sells their products to education, consumer creative professional, business and government customers. Research shows that Apple draws its customer base from a higherincome demographic than the mainstream PC market. Higher income theoretically correlates with well-educated social behaviors, which may explain the platform’s visibility within certain youthful, avant-garde subcultures.
The IPOD (mp3 player ) has a lot of variants that target all demographics. The IPOD Video caters to people who would pay a high price to have complete portable entertainment for movies & songs, the Nano is midrange while the Shuffle is very inexpensive. The profiling of the different Ipods have been on a psychographic profile.
Macs for the Masses ( The middle to low-end buyers ) – Changing Demographics
Until 2005, Apple did not focus on the mass market, instead having a 20gb Ipod & Macintosh computers that were too expensive for the average person. With the launch of Ipod Nano & Ipod shuffle the inexpensive music player. Established as a high quality company with innovative designs the company launched a Mac Mini that combined years of Apple’s research of computes with cost-efficiency to produce a simply but highly functional desktop. Thus Apple could carve a bigger share in the pc industry without compromising on its high & middle-end desktop line.
Competition and Competitive Advantage
Apple serves a niche market but it must Beat cost-efficient Dell & HP. Innovative design can attract a few But the Industry is price-sensitive.
Ipod’s Unique Selling Proposition Ipod has around 76% of the US Market Due to its innovativeness to combine Capacity, style & combination with the Itunes music store.
While Iphone has superior qualities of a Smartphone it does not meet all the advanced capabilities other business professionals use, including adding 3rd party software. The Iphone’s competitive advantage is also the Halo effect, due to the Ipod’s loyal fan base & good interface. 2.6
At Apple one of our primary goals is to keep our customers satisfied with the quality and durability of our products. Our products are unique in nature like the iPhone and iPod, compared to the products of our competitors like Dell, and HP.
To ensure that the quality of our products are justified, we use premium pricing as our pricing strategy, which enables us to charge equivalent prices for our products while simultaneously maintaining the reputation and integrity of these products. By using this method we believe that we can achieve competitive advantage over our counterparts.
The following table lists the prices between Apple & its competitor’s products. Clearly, Apple exceeds Dell, HP and Lenovo in price terms. However the price difference for Desktop computers and notebook computers is only 16% and 9% respectively, again stressing on the fact that our products are not as expensive as they appear to be. However there is a good 70% chunk of the world market that we have overlooked, and we have to start planning next move. The price strategy of Apple is a fairly simple one, which includes premium pricing, which has only improved the company’s market share, and kept the integrity of the brand intact. http://apple20.blogs.fortune.cnn.com/2008/04/01/analyst-apples-us-consumermarket-share-now-21-percent/
The Price Slash Apple always does a price slash after launching the initial product, to meet its competitors prices while cashing on its initial product hype. Apple’s IPOD & IPhone are relatively higher priced than the competitors but the differentiating advertising always justifies it. However, the high price for Desktops & laptops does not fare better in the price sensitive computer industry where Apple only has a n average of 6.1% of the market share. New mp3 Player The new 1 GB iPod nano music player is released at a discount price. The computer maker also said it would cut the price of its popular shuffle player. The new 1 GB iPod nano now sells for US$149, while the 512 MB and 1 GB iPod shuffles now sell for $69 and $99 respectively. Apple’s current iPod nano offerings -- including the 2 GB and the 4 GB players -- cost between $180 and $250. The iPod is the world's most popular digital music player with over 40 million sold, & now even more music lovers can experience the unrivaled combination of iPod & iTunes. Pricing Strategies for the iTunes Online Music Store
The market dominance of iPod + iTunes permits Apple to call some of the shots, & that is making some music executives uncomfortable. Music labels want to see the iPod become interoperable with music services other than iTunes. Apple’s current pricing for downloading Itunes for the Ipod has been consistent. Making the iPod interoperable with other music services requires Apple to make concessions to competitors. If iPods could be used with other music services, the iTunes store might lose business. Apple's advantage is its total control of The Whole Widget (iPod + iTunes + iTunes music store).
The real threat The key to beating Apple is not lower prices or Windows Media compatibility. As long as Apple continues to offer consumers the most attractive, convenient & affordable approach to digital music, competitors don't stand a chance. For Itunes, Apple does not have Discount Pricing. Each track in the iTunes store costs the same. There's no reason to expect that prices will drop next week. Consistent pricing makes it possible to craft a short, simple marketing message, which is pretty important when you're trying to popularize a new product (in this case, a new concept: digital downloads. A significant disadvantage for Discount pricing ( which Apple has applies for Ipod & Iphone) is that the consumers who buy at full price are annoyed when prices drop later. Worse, it trains consumers to buy when prices are low, which reduces profits.
Advertising and Promotional Strategy
In the past two decades, Apple Inc. has become appreciated for the "artistic" and free-thinking messages of its advertisements, which reflect a business plan of marketing their products to creative individuals.
The company simply seems to understand what will get people excited about its products, and then it executes on that vision. The company launches do not at first talk about features or technology, but about how the computer will make your life better. The iPod ads actually won an award from AdWeek. Apple also has not been afraid of in-your-face campaigns. The company
Apple has rarely succeeded because of an appreciable first-to-market advantage. Instead, Apple has lead markets because it has been able to initiate several newmarket disruptions in music and computing. Apple reaches consumers unavailable to its predecessors though good design ease of use, clever marketing, and smart distribution. All these efforts were aimed at making sure potential customers understood the substantial differences between the first-to-market technologies that preceded their products and the appealing, thoughtful technologies that Apple's product offers to attract inexperienced consumers. Apple’s consumer strategy is to get the equipment you want at the best price.
Apple’s oft-used successful Marketing Strategy
1) Focus on what people do with the product, & not what the people do with the product. Create a Buzz around a new product- .Apple’s IPOD commercials have colourful campaigns. The white headphones have almost become synonymous with the IPOD, which is hailed as one of the most successful advertising ideas. Inviting everyone to the Apple lifestyle & becoming part of the IPOD community is focused on.
2) Apple is never first to the Market- Apple creates something better later. All of Apple’s products are products that have been invented previously & apple has introduced their version much later into the established market. This way, Apple gauges the sensitivity of consume needs, places in technology to create a new product & is backed up with great advertising.
Regional Advertising ( Europe )
Apple Stores are a great marketing tool and a key product showcase for Apple, to show the products, test them, try them. A great tool to build costumer relationship. Apple has hardly built Apple stores in Europe. And not only Apple did not open Apple Stores. Apple has done little or nothing also in advertising of the iPod, the iMac in Europe. Few television ads - or even none in some important European markets. Apple lacks management and strategy in Europe. And Western Europe makes 350 million inhabitants, more than in the whole US.
Marketing Strategies for IPOD & Itunes Music Stores
Apple’s strategy is to release “cool” new products frequently accepting as well as capitalizing on the fact that computer or electronic products have a short life cycle. (Despite being fault-free). Apple has popularized technology especially by the release of the Ipod & its constant innovations the Ipod Nano, Ipod Video, Ipod Mini & the Ipod shuffler.
This segment of Apple does not need any strict strategic planning as the Ipod & its variants have an approximate 70% of the music market share ( in the US, regional figures not known.) Due to their Mp3 player combined with a big capacity & the relation of inexpensive music downloads ( the Itunes is secure )
Details of SWOT
The Brand Name
Differentiated Advanced Operating System produced In-house (Macintosh
3) Full control of the Hardware & Software design it sells as a package as compared to other computers which have to use Microsoft’s OS in its packaging. 4)
Unique Physical Appearances, different specifications yet high usability.
Constant Innovation in software applications due to high investment in R&D.
IPOD has a unique selling proposition as well as the new MAC MINI
7) Consumer Perception is that Apple is one of the biggest innovator in the portable music industries as well as laptops bringing creativity to the market. Apple hold an approximate 85% of the portable ( Mp3 player ) music market. 8) Combined I tunes ( purchasing music online ) & portable mp3 player IPod has synchronized organized sales.
1) Due to their research intensive nature, Apple has high R&D costs, which means that Apple is far less cost effective in a very saturated market ( numerous competitors such as Dell, Gateway, HP ). 2)
Constant reliance on innovative products to sell
3) Sales of Macintosh desktop & laptops are in a niche market so their overall market share is not increasing. 4)
Average Price of computer relative to the market are quite high.
5) Perception that Macintosh hardware is incompatible with Windows, which is not true. 6)
Unfamiliar Operating system to the masses.
Increased Market Share & Growth within the computer Industry.
Launching the Iphone would tap the mobile/ PDA market.
3) Increase their enormous share in the portable music player & online music market. 4) Halo effect of the IPOD, should have an expected increase in Macintosh computers.
1) Rapid increase in technology. Processor speed through research is constantly increasing. 2) Apple has to stay up to date and on the cutting edge of advancements & innovations. 3)
Threat for the MP3 & MP4 player is mainly Sony.
4) Online Music Market Competitor to the ITunes is Napster.com Napster has begun aggressively marketing its new service which allows unlimited music downloads which are “rented” to the mp3 unit while the subscription is active. This service, costing only $14.95 a month, is the first serious challenge to iTunes 99 cent per song download business strategy.
The Operations Plan
The Company manages its business primarily on a geographic basis. The U.S. represents the Company’s largest geographic marketplace. Approximately 60% of
the Company’s net sales in 2007 came from sales to customers inside the U.S. Final assembly of products sold by the Company is currently performed in the Company’s manufacturing facility in Cork, Ireland, and by external vendors in Fremont, California; Fullerton, California; Taiwan; the Republic of Korea (‘‘Korea’’); the People’s Republic of China (‘‘China’’); and the Czech Republic. Currently, the supply and manufacture of many critical components used in the Company’s products is performed by sole-sourced third-party vendors in the U.S., China, Japan, Korea, and Singapore. Final assembly of substantially all of the Company’s portable products, including MacBook Pro, MacBook, iPod, and iPhone, is performed by sole-sourced third-party vendors in China. Margins on sales of the Company’s products in foreign countries, and on sales of products that include components obtained from foreign suppliers, can be adversely affected by foreign currency exchange rate fluctuations and by international trade regulations, including tariffs and antidumping penalties. The Company’s reportable operating segments consist of the Americas, Europe, Japan, and Retail. The Americas, Europe, and Japan reportable segments do not include activities related to the Retail segment. The Americas segment includes both North and South America. The Europe segment includes European countries as well as the Middle East and Africa. The Retail segment operates Apple-owned retail stores in the U.S., Canada, Japan, the U.K. and Italy. Each reportable geographic operating segment and the Retail operating segment provide similar hardware and software products and similar services. 3.5
The Company currently holds rights to patents and copyrights relating to certain aspects of its computer systems, iPods, iPhone, peripherals, software, and services. In addition, the Company has registered, and/or has applied to register, trademarks and service marks in the U.S. and a number of foreign countries for ‘‘Apple,’’ the Apple logo, ‘‘Macintosh,’’ ‘‘Mac,’’ ‘‘iPod,’’ ‘‘iTunes,’’ ‘‘iTunes Store,’’ ‘‘iPhone,’’ and numerous other trademarks and service marks. Although the Company believes the ownership of such patents, copyrights, trademarks and service marks is an important factor in its business and that its success does depend in part on the ownership thereof, the Company relies primarily on the innovative skills, technical competence, and marketing abilities of its personnel. Many of the Company’s products are designed to include intellectual property obtained from third-parties.
While it may be necessary in the future to seek or renew licenses relating to various aspects of its products and business methods, the Company believes, based upon past experience and industry practice, such licenses generally could be obtained on commercially reasonable terms; however, there is no guarantee that such licenses could be obtained at all. Because of technological changes in the computer
industry, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible certain components of the Company’s products and business methods may unknowingly infringe existing patents or intellectual property rights of others. From time to time, the Company has been notified that it may be infringing certain patents or other intellectual property rights of third-parties.
Building world-class products includes considering the materials that go into their creation. Apple’s continued goal is to reduce or eliminate environmentally harmful substances from their products and processes.
Apple recognizes the need for environmentally responsible production, including the use of recyclable materials (as mentioned before) and the restriction of chemical compounds or materials that can harm the environment. Apple’s record of restricting harmful substances goes back well over a decade. Apple takes a precautionary approach toward substances, taking into account customer feedback, new legislation, and guidance from non-governmental organizations, recyclers, and their own internal assessments. This rigorous review process ensures that they meet the requirements of consumers and regulators in all countries where their products are sold, with no regional variances. Apple products are compliant with the European Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, also known as the RoHS directive. Examples of materials restricted by RoHS include lead, mercury, cadmium, hexavalent chromium, and PBB and PBDE flame retardants.
The Company believes a high-quality buying experience with knowledgeable salespersons who can convey the value of the Company’s products and services greatly enhances its ability to attract and retain customers. The Company’s customers are primarily in the education, creative professional, consumer, and business markets. The Company distributes its products through wholesalers, resellers, national and regional retailers and cataloguers. The Company sells many of its products and resells certain third-party products in most of its major markets directly to consumers, education customers, and businesses through its retail and online stores. At the end of fiscal 2007, the Company had opened a total of 197 of
its own retail stores, including 174 stores in the U.S. and a total of 23 stores in Canada, Japan, U.K. and Italy. The Company has typically located its stores at hightraffic locations in quality shopping malls and urban shopping districts. The stores are designed to simplify and enhance the presentation and marketing of the Company’s products and related solutions. To that end, retail store configurations have evolved into various sizes in order to accommodate market-specific demands. The stores employ experienced and knowledgeable personnel who provide product advice and certain support services. The stores offer a wide selection of third-party hardware, software, and various other accessory products and peripherals selected to complement the Company’s own products.
Avg. # Stores
$ 23.1 m
$ 22.9 m
$ 21.7 m
Revenue per store
Research and Development
Apple spends approximately 4% of net sales on R&D expenditures. While this takes away from profits, it allows Apple to remain innovative and helps drive sales – which is extremely important to the company as well as our model. It also allows for a higher margin for its products. As the personal computer, consumer electronics, and mobile communication industries are characterized by rapid technological advances, the Company’s ability to compete successfully is heavily dependent upon its ability to ensure a continual and timely flow of competitive products, services, and technologies to the marketplace. The Company continues to develop new products and technologies and to enhance existing products in the areas of computer hardware and peripherals, consumer electronics products, mobile communication devices, system software, applications software, networking and communications software and solutions, and Internet services and solutions. The Company may expand the range of its product offerings and intellectual property through licensing and/or acquisition of third-party business and technology. The Company’s research and development expenditures totalled $782 million, $712 million, and $535 million in 2007, 2006, and 2005, respectively.
Distribution (Place) Arrangement
The Company uses some components uncommon to the rest of the personal computer, consumer electronics and mobile communication industries, and new products introduced by the Company often initially utilize custom components obtained from only one source until the Company has evaluated whether there is a need for, and subsequently qualifies, additional suppliers. If the supply of a key or single-sourced component to the Company were to be delayed or curtailed or in the event a key manufacturing vendor delayed shipment of completed products to the Company, the Company’s ability to ship related products in desired quantities and in a timely manner could be adversely affected. The Company’s business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components may be affected if suppliers were to decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements. The Company attempts to mitigate these potential risks by working closely with these and other key suppliers on product introduction plans, strategic inventories, coordinated product introductions, and internal and external manufacturing schedules and levels. Consistent with industry practice, the Company acquires components through a combination of formal purchase orders, supplier contracts, and open orders based on projected demand information. The Company’s purchase commitments typically cover its requirements for periods ranging from 30 to 150 days.
The main goal is to obtain stellar products and services within tight timeframes, at a cost that represents the best possible value to our customers and shareholders. For guaranteed quality of their products Apple makes sure each of its suppliers meet the highest standards for all goods and services. Their requirements include a
commitment to rigorous quality assurance. In addition, suppliers must be committed, to ensuring the highest standards of social responsibility.
Apple designs its products with recycling in mind, making them easy to dismantle and using high-quality materials that are valuable to recyclers. These factors also promote a healthy electronics recycling market. Innovative and efficient Apple strongly believes that reducing the environmental impact of the business starts with the design of their products. They set high standards — based on their own requirements and those set by programs such as ENERGY STAR® — in an effort to create products that offer excellent environmental performance throughout their life cycle. The iMac and Mac mini are great examples of ultra-efficient design, and illustrate the ways in which Apple continually refines products to further improve environmental performance. Their designs also help to reduce energy consumption, minimize the use of environmentally damaging substances, and optimize the useful life of their products, all of which lead to a smaller environmental footprint. Lower energy consumption reduces electricity demand and alleviates the detrimental effects of power generation. Using recyclable materials cuts the amount of waste going into landfill. And restricting environmentally damaging substances makes products safer for consumers and businesses during their useful life and beyond.
The Management Plan
The diagram below represents the organization structure of senior management and their core responsibilities. The individuals mentioned below are the key drivers of the corporation and Steve Jobs in particular is the founding member of Apple and CEO who has in recent years revamped the organization to its former glory.
The following diagram lists out the skills required for Marketing, Information Technology, Finance and Operations. The information was extracted from http://www.apple.com/jobs/us/pro/.
Salary Compensation for Top Management
The following two tables are a composition of the salary compensation and Stock Rewards of top management.
The Financial Plan
The financial plan for Apple Inc is based on maintaining continuous growth in Market Share & Profits through considerable investment in Research and Development. Our estimates are conservative and take into regard certain General Assumptions mentioned below.
We have assumed that we are in the beginning of the fiscal year 2005 & the forecasts have been made for the years 2005, 2006 and 2007. A break even analysis is not available for Apple Incorporated since it is an established firm experiencing continuous growth. In order to calculate the projections in the income statement and balance sheet, there are different growth rates that the company has estimated, which change from year to year. To calculate the cash flows for the stated years, Apple. Inc, have not provided a suitable growth rate with which we could use to project the future cash flows.
Liquidity & Capital Resources
Apple has been able to pay off all its debts in 2004 and is completely equity financed. Thus the sources of funds for our next fiscal year are expected to be as follows: Sept 29, 2005 (millions $) Sept 30, 2004 (millions $) Cash, cash equivalents and short term investments 8261 5464 Accounts receivable, net 895 Inventory
101 6816 4404
Annual operating cash flow
As of September 24, 2005, the Company has $8,261 billion in cash, cash equivalents, and short term investments. The Company’s short term investment portfolio is primarily invested in high credit quality, liquid investments. As of September 24, 2005, approximately $4.3 billion of the company’s cash, cash equivalents, and short term investments were held by foreign subsidiaries and are generally based in US dollar denominated holdings. The firm believes its existing balances of cash, cash equivalents and short term investments will be sufficient to satisfy its working capital need, capital expenditures, outstanding commitments, and other liquidity requirements associated with its existing operations over the next 12 months.
The following benchmark chart indicates our key financial indicators for the three years. We foresee major growth in sales and operating expenses as we spread the business during expansion.
Projected Profit & Loss
The annual estimates of the Pro forma for the years 2005, 2006 and 2007 are presented below. A column showing actual figures for 2004 is also given, as a reference for the projected amounts.
Table: Profit and Loss
As the table demonstrates, Apple has predicted a steady increase in its Net Sales over the 3 years. Beginning with the actual figure of $ 8,279, to an estimate of $ 14,902.20, an increase of 80%. Cost of sales are estimated to fall initially in 2005, and then to rise as the demand for Apple products increases. The initial fall in Cost of Sales may be attributed to a purchase of new machinery which will reduce cost of production. Gross Margin is predicted to rise by an average of 19% every year. Apple is famous for its significant investment into Research & Development and thus it is not surprising to see a predicted rise in R & D costs. Projected Operating income rises by a significant margin of 259 % from 2004 to 2007. Taxes can be seen to remain relatively stable, not increasing by large margins. Net income is estimated to rise by roughly 200% in 2007. Overall Apple has predicted
optimistic figures, which may not be unrealistic either as market research shows that the Apple iPod is showing a steady rise in popularity.
Projected Balance Sheet
The balance sheet shows healthy growth of net worth, and strong financial position. The annual estimates of the Pro forma for the years 2005, 2006 and 2007 are presented below.
Table: Balance sheet
Total Current Assets are projected to increase by roughly 16% from $ 7055 to an estimate of $ 8242.50. Total Non Current Assets are predicted to rise as well, by a significant 46%, as new machinery is likely to be purchased. Total assets only rise by 20%. Total Current Liabilities are projected to rise by an almost negligible amount of 5%. Total Share Holders Equity is predicted to increase by a tiny fraction, demonstrating that the firm does not plan to increase dividends in the near future.
The following table shows the projected business ratios. We expect to maintain healthy ratios for profitability, risk and return. 2005
Quick asset ratio
Accounts receivable turnover
Working capital turnover
Gross profit margin
Operating expense ratio
Net profit margin
Return on assets
Return on equity
Sales growth Liquidity analysis
Capital structure analysis Debt to equity ratio R&D turnover
Operating cash flow as % op.inc
Total current assets
6.40% 70% 85%
6.40% 70% 85%
CONCLUSION: The overall trend in Apple. Inc’s financial planning demonstrates a healthy growth and a rising popularity of their products.
Conclusion of the market analysis
Market analysis tells us that our biggest competitor haves been Hewlett-Packard, Dell and Cisco Systems. And even though on many levels HP has out done us, we control a slightly larger chunk of the overall market share. Our target markets include: Creative Professionals, Educational field, Science community, Businesses (small and large), IT professionals and avid Gamers. Trend analysis tells us that the iPhone has paved the way for mobile manufactures worldwide. Another trend includes the environment and Apples, dedication to reduce their carbon footprint.
Conclusion of the PEST analysis and Pricing strategy
The Pest analysis illustrates the various factors that can very well dramatically affect the company’s operation like political, legal and natural changes. The price strategy of Apple is a fairly simple one, which includes premium pricing, which has only improved the company’s market share, and kept the integrity of the brand intact. Conclusion of the Organization Plan
The Organizational Plan listed out the top management headed by its ‘captain’ Mr. Steven Jobs, and their monetary and stock compensation. It also listed out the numerous skills required for jobs like Marketing and Finance.
List of References http://lowendmac.com/ed/fox/08ff/mac-pro-vs-dell-hp.html http://www.marketingteacher.com/Lessons/lesson_pricing.htm
http://www.siliconvalley.com http://apple20.blogs.fortune.cnn.com/2008/04/01/analyst-apples-us-consumermarket-share-now-21-percent/ http://www.apple.com/jobs/us/pro/
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