A SWOT and competitive analysis of Apple Inc

History

Apple Computer Inc. was founded by Steve Jobs and Steve Wozniak in April 1976. It began as a computer software and hardware manufacturers. Apple Computer Inc. has one of the biggest and most loyal customer bases, who supported the continued growth of the company. In 2007 Apple Computer Inc. changed the company name to Apple Inc., which reflects the expansion in the market for consumer electronics while maintaining its traditional focus on the personal computer. Apple Inc. has evolved from strictly a computer company to a diversified technology company, renowned for its art, software and design. CEO Steve Jobs is not only the company leader he is one of its principal visionaries. Jobs latest creations are the iPhone and the IPad. He refers to it as a “magical device that will change the world.”

Introduction

“To make a contribution to the world by making tools for the mind that advance humankind.”

Steven P. Jobs is Chief Executive Officer and Director of Apple Inc. right now. Apple has established a unique reputation in the consumer electronics industry. Apple is one of the largest companies in the world and the most valuable technology company in the world, having surpassed Microsoft. Apple Inc’s products and services include iTunes, Macintosh (“Mac”) computers, iPhone, iPad, iPod, Apple TV, Xserve, a portfolio of consumer and professional software applications, the Mac OS X and iOS operating systems, third-party digital content and applications through the iTunes Store, and a variety of accessory, service and support offerings. Apple wants to bring the best user experience to its customers through its innovative hardware, software, peripherals, services, and internet offerings. In September 2010, the Company had a total of 317 retail stores, including 233 stores in the U.S. and 84 international stores.

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Apple utilizes a variety of direct and indirect distribution channels, for example, the company sells its products through its retail stores, online stores, direct sales force and third-party cellular network carriers, wholesalers, retailers, and value added resellers. Teamwork is essential for Apple’s success strategy. In order to recognize the best of its employees, Apple created the Apple Fellows program, awarding individuals who made extraordinary technical or leadership contributions to personal computing while at the company. Apple Values are the qualities, customs, standards and principles that the company believes and they help Apple Inc. and its employees succeed. “They are the basis for what we do and how we do it.” Taken together, they identify Apple as a unique company.

SWOT-Analysis

Strength

Global presence

Apple derives more than 50% of its revenues from outside U.S., its domestic market. A balanced presence in mature as well as emerging markets has enabled the company to record a steady revenue growth.

Brand Image

Apple is one of the most established and healthy IT brands in the World, and has a very loyal set of enthusiastic customers that advocate the brand. The company’s strong brand recognition helps to create barriers to entry within the market, and also enables it command a premium pricing for the products. It gives a competitive edge over regional and other global competitors.

Strong Media Content

With iTunes they created a success story in recent times. Because of the store where you can get music, videos, short films, TV shows, podcasts, audiobooks and ebooks they established a unique position on the digital market exclusive for Apple products.

Weaknesses

Dependency for key components

Substantially all of the Company’s components and products are manufactured in whole or in part by a few third-party manufacturers. It is uncertain what effect such diminished control will have on the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions. It could also create significant supply and pricing risks.

Recent success correlated to Leadership

Because of the associated relationship between Steve Jobs and their successful products, they will have a hard time to hold their current image as innovative design and Business Company without Steve Jobs.

Opportunities

New digital platform

Apple is focusing on transforming its Mac platform into a digital hub that combines iTunes video content to customers’ television screens and portable devices. This new platform would enhance Apple’s rapidly growing digital content business. In addition, it would also integrate the digital content business with Apple’s Mac business. This is expected to provide stability to the company’s long-term growth.

Launch of iPad 2 and iPhone 5

These products especially the iPhone 5 are important developments to show, that Apple Inc. is still innovative and to consolidate the position in these product segments. It is also beneficial that Apple provides with every new product launch software updates for older generation products to keep customers.

Threats

Strong Competition

Apple is confronted by strong competition in all areas of its business. The market for the design, manufacture, and sale of personal computers, portable devices, related software and peripheral products is highly competitive. This market continues to be characterized by rapid technological advances in both hardware and software development, which have substantially increased the capabilities and applications of these products, and have resulted in the frequent introduction of new products and significant price, feature, and performance competition.

Dependence on third party producers

Decisions by customers to purchase its hardware products are often based to a certain extent on the availability of third-party software applications and services. There is no assurance that third-party developers will continue to develop and maintain applications and services for Apple’s products on a timely basis or at all, and discontinuance or delay of these applications and services could materially adversely affect the Company’s financial condition and operating results.

Competitive Advantages

If one uses one Apple product it is most likely that there will follow another product soon. The link between Apple products is extraordinary, they fit together and one is able to get all out of the Apple network. Apple created also exit barriers for their customers, because many software solutions are only available with Apple products. On the other hand software solutions from competitors are available for Apple products, which create an even bigger competitive advantage.

The Company continues to develop new products and technologies and to enhance existing products that expand the range of its product offerings and intellectual property through licensing and acquisition of third-party business and technology, which is reflected in their research and development spending.

Porter’s Five Forces Analysis

The threat of the entry of new competitors

There are a few possibilities of new competitors in certain areas, Verizon for example with V-Cast. It is a technology to stream audio and video.

On demand online services similar to iTunes are also possible and web apps are compatible to every device (Android or iOS).

The intensity of competitive rivalry

Although Apple currently has an advantage with its innovative products it must always be aware of the ease that a competitor can copy its products, especially in the extremely competitive high-tech field. In the market for personal computers and peripherals, the Company faces a significant number of competitors, many of which have broader product lines, lower priced products, and larger installed customer bases. Consolidation in this market has resulted in larger and potentially stronger competitors. Price competition has been particularly intense as competitors selling Windows-based personal computers have aggressively cut prices and lowered product margins. Only Apple is authorized of using Mac OS.

The threat of substitute products or services

“The original iPhone, it combines three products in one – a revolutionary phone, a widescreen iPod, and a breakthrough Internet device with rich HTML email and a desktop-class web browser” (Steve Jobs 2008). That means a substitute product could be any high tech product with one of these features. Also the threats about products that combine all features of an Apple product are acute.

The bargaining power of customers (buyers)

There are huge numbers of buyers. Customers share music without paying for it. Consumers may reduce their spending on computers in economic down streams. Apple is a premium Manufacturer of high tech products, so there is a variety of cheaper substitutes, which may have not all the features and the design but it is an alternative for every customer. The lost of buyer is not a key threat at this point of time.

The bargaining power of suppliers

Most of Apple’s components and products are manufactured by a few third-party manufacturers. Many of these manufacturers are located outside of the U.S., and are concentrated in several general locations. The Company has also outsourced much of its transportation and logistics management. While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution.

Financial Analysis

Net sales during 2010 increased $22.3 billion or 52% compared to 2009. The long-term obligations are very low; no long term debt during the last five years (ended 2010) is the reason. The biggest growth is currently in the Asia-Pacific region with 160% (2010 to 2009)

All dollar numbers are in million

The Net Sales split into product shows where the actual net sales are. One can see that the iPhone shows continuous 93% growth since 2008 that’s more than 350% from 2008 to 2010.

All dollar numbers are in million

Apple expects its gross margin percentage to decrease in future periods compared to levels achieved during 2010 and anticipates gross margin levels of about 36% in the first quarter of 2011. This decline in gross margin is primarily attributable to new products with higher cost structures like the iPad. The iPhone on the other hand has a higher gross margin than company average.

All dollar numbers are in million

One can see the efforts, which Apple puts into research and development. The research and development spending are 34% higher (2010 to 2009). It was also the result of an increase in headcount and related expenses.

All dollar numbers are in million

Most of the possible liquidity issues who could occur during the next year are more than covert, because of Apple’s liquidity structure.

All dollar numbers are in million

One can see on this graph a five-year comparison of cumulative total shareholder return. It shows in addition the S&P 500 Composite Index, the S&P Computer Hardware Index and the Dow Jones U.S. Technology Index. So one can conclude a extraordinary stock performance.

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$100 invested on 2005 in stock, including reinvestment of dividends

Summary

With the growth of Apple in the past decade comes a new era of technological giants. The battle between Microsoft and Apple has been a long and grueling rollercoaster, and it seems now Apple has the upper hand. With the iPad 2 flying off store shelves (roughly 600,000 sold on the first day) and rumors of the next iPhone coming out this summer, they have shown how working through hard times and exploring risky ventures have paid off. But where does Apple and the mastermind Steve Jobs have its hands dipped in now?

The next step forward in Apple’s corporate strategy will be competing against Adobe and their Flash based applications and open server networks. This may not go far, but it will stir up some conversations when talking about the benefits of accessibility into Flash based programs on the Droid OS products. The biggest down side to all of this, as a consumer, is the closed network that keeps an Apple customer an Apple customer. The ability that Apple has to block third party apps is a great way for them to stay in control and to collect profits.

If we try to imagine what Apple will be like as a company in ten years, it would be very difficult to give a concise and directed answer given all the factors. Steve Jobs has left, due from medical problems, and came back over the past several years in order to assist Apple in making profitable executive decisions, as well as be a renowned face for the public and its shareholders. Jobs has a quite rare pancreatic cancer and with fears of Jobs not being there leading them through the next decade, shareholders are preparing for a decline. The flipside to this is that Apple had announced a 6 billion dollar profit in the last quarter of 2010, providing the momentum that they need to thrive for years to come. As far as products go, Apple has most likely researched and developed prototypes for software and advances in their hardware that are just too costly to mass produce for the current consumer market. Laptops, tablets, and smart phones are their major products each capturing a great deal of market share. There is, however, a market that they lack support in, television. Although Apple has produced Apple TV, it has yet to really push the products capabilities to the market, let alone get a real significant market share. It’s surprising that even though they have been selling Apple TV for a couple of years that they really haven’t improved on the concept, especially with TV’s now applying common applications like YouTube.com and Facebook and Google’s new product Google TV.

Apple has been serving its new buyers an existing fan base well by coming out with above average quality products that call on the most trendy and particular buyers. For now, Apple has a good outlook but their reign can’t last forever. In a monetary aspect, they can last; holding market share and being the on brink of technology is a cyclical process when discussing technology and technologies successors.