Company Description:Apple Inc. (Apple), was incorporated on January 3, 1977,as a design, manufacture and market mobile communication and media device, personal computers, and portable digital music player. The company also sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. Apple is famous for its iconic cellular products. Some of these products and services include iPhone, iPad, Mac, iPod, and Apple TV. It also produces a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The company sells its products worldwide through retail stores, online stores, direct sales force, third party wholesalers and resellers. Apple has also taken up conventional way of selling and it delivers digital content and applications through its iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. Other Famous Products:Apple Laptops:Apple Business Products:Apple Software Products:Apple Accessories:A brief history:ThenApple Computers Inc. was founded on April 1, 1976,in a garage by Steve Jobs andSteve Wozniak who were college drop-outs. At that time the computer industrywas in the nascent stages and the two founders had a vision to change the waypeople interacted with computers. At that time, computers were huge bulkymachines and Jobs-Wozniak wanted to make computers as a mass commodity so thatgeneral consumers could use it readily. Applethen revolutionized the industry through its color graphical interface. Thecompany clocked in sales of US$7.8 million in 1978, which later swelled to US$117million in 1980, the year Apple went public (Brashares, p. 21) In 1983, John Sculley joined in as the president,after Wozniak left Apple in 1983. However, this move backfired and after muchcontroversy with Sculley, Jobs resigned in 1985. He founded another company ofhis called NeXT Software. He also bought Pixar which is also a huge name incomputer animation. Jobs deal with adobe, resulted in smooth sailingfor Apple throughout the 1980s. The two companies together created Adobe PortableDocument Format (PDF), which led to another iconic computer product, desktoppublishing (Brashares, p. 59).Industry Analysis:Thecomputers and peripherals industry includes PC equipment, handheld devices,complex information technology systems and network equipment. Technologicalfactors such as interoperability of hardware products and compatibility withthe web have brought about industry consolidation. Also, intense competitionand the importance of intellectual property rights have been instrumental togrowth of the industry. Thecomputers and peripherals industry in the USA is considered to be one of thelargest global markets. It includes giants like Apple (AAPL), EMC (EMC), Canon(CAJ), Western Digital (WDC), and HP (HPQ). The computers industry is highlydependent on technology thus it is very capital-intensive and has high degreeof automated operations compared to other industries. Within this space, giantssuch as Apple take advantage of economies of scale and are profitable due tomass production and large share od customer purchasing power. On the otherhand, smaller firms look for niche and produce specialty product with superiortechnology.Stages of Industry Maturity: From this matrix we can see that majority ofthe factors lie in the growth stage except for ease and entry and technology.That too because high capital investments are required in order to enter thisindustry and due to the innovation within telecommunication sector. Therefore,the smart phone industry is in growth stage of the industry life cycle.Relatively, the industry is is 7-8 years old, which is why after its initial years it has reached its growth stage.At this point if manufacturers continue to invest in innovation and too muchforeign competition does not hinder the industry, there is no doubt that itsgrowth will increase. Summaryof industry outlook is presented in the table below:Level of industry concentrationlevelof industry concentration tells us about the distribution of power amongst thefirms operating in the industry. High level of concentration means that firmsface low intensity of competition. Aspower will be vested or concentrated in few firms, the larger firms would beable to determine quantity supplied to the market at the price of theirchoosing. They can also lobby against suppliers or force policies on anyreluctant customers. Inmy opinion, Smart Phone industry is Oligopolistic in characteristics, with few dominantfirms in the market. The bulk of market share is vested between Apple andSamsung, with Hawaii and Lenovo as close but niche competitors. In this regard,the level of market concentration is high. Relative Size of firms in the IndustryWhilewe have already discussed that the smart phone industry is more oligopolisticin nature the industry is structured in a way that Samsung and Apple are themajor players with the rest as small and less impactful players. itis also imperative to mention here that while conducting my research, thatlatest report by CNBC highlighted that as per the 3Q 2016 review of StrategyAnalytics Apples market share of operating income in smart phone was 91%(CNBC2016). This means that Apple enjoys a monopoly status. Havingsaid this, the strategy analytics report does not mention about samsung, whichin my opinion is a major player with a degree of industry power. Thus we havepresented market share data that is complete and comparable.Source: IDCImportance of Technology and ResearchIna similar fashion, research and development spending for bigger companiesranges between 5% and 15% of product revenue, while it is much larger forsmaller companies and number falls for pure assemblers such as Dell. Anotherdistinguishing feature within the industry and its players is of patentlicensing and disputes arising from patents. The industry is highly technology dependent,thus technological advancement makes product life-cycle short and products arequickly out-dated with many products which have a lifespan of just 12-18months. Firms that have superior process technology, coupled withcapital-intensive component production and display flexibility in high-volumeassembly usually tend to dominate the hardware value chain. on the other hand,firms that have patent capital, tend to have close ties with component andequipment producers and developers. They tend to invest heavily in research anddevelopment and have high capital investment expenditures. These firms tend tohave superior economic profits in the future. InUSA, the industrys competitive advantage lies in its excellent design skills, however,the industry is very fragmented, does not have adequate capital and lacks along-term vision. Despite these impediments, US companies have put in placecorporate structures, strategies and operational techniques that have been keydriving factors of their success globally. Goingforward, the computers and peripherals industry is forecasted to dominate anyother industry as firms invest heavily towards automation, process efficiencyand engineering in order to improve their competitive positions in theindustry. Competition Local, Regional, National or InternationalMajorplayers in the sector, including apple, tend to obtain a great chunk of their revenuesfrom foreign markets adding geographic diversity to their product sales base. previously,a weaker US dollar made American products more competitive and gave them a pricingedge over other international players. In such competitive environmentcompanies do not have any margin for error or for any inefficiencies that maydeem their products uncompetitive. Oligopolistic structure:Asdiscussed above, Apple Inc. operates in multiple market segment. In desktopcomputing Apples competitors are Microsoft, Dell, Asus, Hewlett-Packard andAcer. In smart phone market, major players include Samsung, google, Nokia,Lenovo and other small fragmented players. In the iOS market Apple competes withGoogle Android and Apples in-house services such as Apple Pay competes with PayPaland Google (Dudovskiy, 2016).Thus,in my opinion the markets in which Apple operates are more However, the marketsappear to have an oligopolistic structure, with few dominant players thatderive the market quantity and work together to protect profitability. Somekey features of the industry are:Being an oligopoly themarket has high barriers to entry, with respect to patents, control over rawmaterial, along with brand loyalty adds up to strong barriers to entry. Companies have jointcontrol over the price and therefore it is in their interest to collude or havea mutual interdependence. As consumers are price conscious an increase in price leads tofall in demand and thus fall in profitability. Porters Five Forces Model:MichaelPorters model of five forces is basically centers on the approach that acorporate strategy should be robust enough to deal with and capitalize on theopportunities and threats that are present in the organizations both internaland specifically external environment. He emphasis the importance of thecompetitive strategy and its foundation to be laid on the understanding of theindustry structure and the dynamics involved, in way the industry changes. Ithelps the marketer to contrast a spirited competitive environment. It has similaritieswith other tools for environmental audit, such as PEST analysis, but tends tofocus on the single, standalone, business or SBU (Strategic Business Unit)rather than a single product or range of products. (Porters Five ForcesModel). Five forces analysis looks at five key areas namely the 1) threat ofentry, 2) the power of buyers, 3) the power of suppliers, 4) the threat ofsubstitutes, and 5) competitive rivalryThreat of New Entrants:Themarkets in which Apple competes in are highly competitive and threat of newentrants is also high. This can be guaged from the number of new companiesentering in the market from China. Some big names include Lenovo, Huawei,Xiaomi. These new entrants have managed to acquire decent amont of market sharedespite their relatively small size facing intense business competition (Chen,Chen & Wu, 2011; Einhorn, 2013; Larson & Stone, 2014). AlthoughApple has carved a niche for itself through brand loyalty. It has side-lineditself from cheaper markets where price is the main criterion. Apple productsnever go on sale!. Despite this, I believe that new entrants pose significantthreats to big players due to cost advantages. Xiaomi was able to take over asizeable market shares of Samsung over a very short period of time, impliesthat threats of new entrants can be very high. Power of Buyers:Giventhe plethora of options available to buyers in both, laptop and Smartphoneindustries as well as iOS services market, the buyers have many choices andthus the power of buyers is high (Wu, 2011, Nair & Leng, 2012). AlthoughApple and Samsung invest heavily in brand equity in order to ensure customerloyalty, however, such consumers constitute a small pool compared to thebroader market. This is especially true for emerging market economies whereconsumers want good value for money. They tend to choose electronic devices whichare of good quality at cheaper prices (He & Chen, 2005). Thus throughbranding and product differentiation companies such as Apple & Samsungcompete to build customer loyalty towards their brands. Power of Suppliers:Inthe markets in which Apple operates is very large and broad in scope &scale. While supplier power is relatively Low, it is imperative to mention thatthe industry is characterized by short product cycle and constant innovation.Some suppliers who hold patents have advantage over smaller suppliers butoverall suppliers are fragmented and companies such as Apple and Samsung havein-house expertise as well (Nair & Leng, 2012). Threat of substitutes:Aswe have already mentioned, the industry of consumer electronics is constantly changingdue to technological innovation. Creative disruption is a huge phenomenon amongtech-giants. Therefore, the threat of substitute is high, as it is hard to saywhen a substitute may emerge and out-dates the existing product and technology (Nair& Leng, 2012). Rivalry in the Industry:Rivalryamong members in the industry is high. Previously, Apple was able to ward offcompetitive pressure through patents & intellectual properties,top-of-the-line capability in innovative technology and Apples visionaryleadership under Steve Jobs. However, with increasing competitive pressurewithin the industry has led to legalbattles (Apple & Samsung), shorter product cycle, increase marketing tobuild brand equity and shorter time to commoditization.The Company:AppleInc. has been a leader in the computers & peripheral devices digital mediarevolution. The company was historically known for its consumer friendly Macproduct family and carved out a decent high-end niche within the PC industry.The companys profile began to change in late 2001, when it launched the nowiconic iPod. Today Apples iTunes website and market dominating iPod are theclear market leaders in the music space, in terms of both mind share andrevenue, and the company has extended its reach into the digital video andgaming spaces. In 2007, the companyfurther expanded its product reach with the launch of the revolutionary iPhone,which has rapidly gained market share while ushering in the new era of thesmartphone. Soon after that Apple launched its tablet device in 2010, which hasushered the era of portable laptops and mini desktops. FromApples company report, in 2014 only 38%of revenue came from the traditional Mac business. Apples next largest revenuecategory, was the iPod, at 22% of sales, but revenue growth there has sloweddramatically, and may even decline going forward. The iPhone, less than 3 yearsafter launch, already accounted for 18% of revenue, and if one counted just thecash revenue received from iPhone, that business would have been nearly as bigas the Mac business. The iTunes download store is the other major source ofrevenue, at 11% of revenue in F09. The other revenue buckets include Applesoftware and services, at about 7% of revenue, and third party hardware andperipherals, at 4% of revenue. Competitive advantageTechnologyexperts and several stakeholders have long being of the opinion that Applesexceptionalism is based not just in superior products, but in a superior userexperience, enabled by Apples control of the broader content ecosystem. Theterm ecosystem is anything but precise, but does adequately describe howApple integrates proprietary semiconductor, hardware, and firmware design withoperating systems, applications, and web services to create a unique offering.This ecosystem approach not only adds significantly to the user experience, butalso creates barriers to competitors as consumers become invested in thatecosystem.Somekey factors for Apple are as follows:Manufacturing/Supply Chain Advantage: It is well known that Apples estimated $80billion annualized supply chain, coupled with a $117.2 billion cash andinvestment balance, is a huge competitive advantage. Apple uses these balancesto build its purchasing power on important strategic supply of its devices. Anexamples of Apples supply chain prowess include Apples capability to navigatethrough Thailand flooding impact on HDD availability without any impact,compared to that HP took a $1 billion bump on its books due to the floodingimpact. Also Apple has strategic ties to get any supply of components such asNAND, DRAM (e.g., Elpida), etc very quickly while Samsung has to have a waittime. Strong R&D investmentsOneof the key success factors for this industry is to innovate and disrupt themarket through its technology forward products. Apple understands this better,as its R&D investments has grown at an estimated 30% CAGR over the pastseven years with little inorganic investment, which compares to HPs 2% CAGRdecline despite some noted acquisitions for external growth, while Dell clockedin 7% and Microsoft 11% CAGR growth over the same timeframe. As can be seen inthe graph below that Apple will actually lose profitability in the long run ifit does not innovateSource: Alessandro, PaperApplesability to centralize its focus on key categories by creating innovative products has beenunbeatable so far by any other technology. Through its R&D Apple was ableto capturethe market at a time when other major players such as Nokia, Dell /7Blackberry were more focusing on streamlining their product SKUs or focused on customizationor restructuring their business models. The industry was commoditizing ratherthan innovating. Apple not only developed iPad taking away business from Dell& other Desktop providers. through its innovation it introduced iPhone, iTouch,iWatch and provided services through iTunes, taking away business from manyindustries through its focus on constant innovation. Withmore focus on data storage and iCloud, Apples focus on R&D will prove tobe its key competitive advantage. Ecosystem: Oneof the biggest competitive advantage of Apple has been its ability to developand thrive its operational ecosystem. The ecosystem Apple has built, cultivatedit and grew it is focused mainly towards proliferation and use of digitalcontent. In this day and age of data mining and cloud computing Apple hascaptured and mastered the capture and proliferation of digital content, whichis as important as the end devices the company sells. Given this ecosystem, Appleshas also exhibited its ability to leverage its iOS & MacOS, iTunes & AppStore, and iCloud services as the underpinning of the companys innovativeproduct portfolio. These services provide a wealth of consumption data toApple. Currently Apple has an iTunes/AppStore ecosystem with over 650,000 total Apps, of which 225,000 are specific tothe iPad. On an estimate Apple hascumulatively paid out over $50 billion to App developers (Fortune, 2016). Bydeveloping this ecosystem Apple has outdated the previous technologies, such asCDplayers etc. This puts pressure even on the most reluctant end user to switchto Apple products. The development of its ecosystem has led to interdependencyof many other apps like whatsapp, iBook, facebook messenger to use Apple iOS,which is as fundamentally important as the companys supply-chain advantageswhen it comes to content distribution. Smartphone propagation Accordingto Qualcomms most recent results, 3G/4G mobile subscriptions currently standat approximately 1.8 billion, or approximately 29% of total mobilesubscriptions(Qualcomm 10-K). This is up from 19%, 22%, and 24% of total mobilesubscribers ending the same period for 2009, 2010, and 2011, respectively(Qualcomm 10-K). This data shows how quickly smartphones are being adopted. Ithas become a way of life for most people, as dependencies on Google Maps,weather apps, and various social media websites continue. At the very heart ofthis dynamic growth stands Apple with its iPhone and strong ecosystem ofinformation. Apple, with its strong and innovative product and exceptional supply chain, stands to take advantage of the growing demand from the emerging markets. To get an idea of this, Apple has also launched prepaid iPhones through Leap Wireless and Virgin Mobile. Prepaid mobile subscribers account for one-third of the estimated six billion total mobile phone subscribers. According to Google/Ipsos research exiting 2011, smartphone penetration stood at around 35% in the U.S. (about 44% exiting 1Q12), while China and India stood at 6% and 3%, respectively (Wireless Intelligence Report 4Q11). Therefore, China and India, which account for over 35% of the global population, have over 1.8 billion people still using feature phones. Thus with Apple strategic focus turning towards emerging market the company has a clear advantage with its 3G/4G technology to capture the Chinese and Indian markets. Although emerging market users are also very price conscious, Apple in order to cater to this has introduced cheaper priced options of its iPhone along with the premium iPhone over the recent years. Source: Wireless IntelligenceAll-in-all,we can conclude that Apple has a clear competitive advantage with its iPhonetechnology to take advantage of these key trends as global smartphonepenetration rates remains well below 50% of the total 5.98 billion mobile phonesubscriber base. Elasticity:Elasticityare a key matrix through which firms can guage whether their products can standany shock through external pressures. More importantly it helps firms tostrategize. Price elasticity ofdemand:Itis the measure of how sensitive the demand of a product or good is relative to its price.While Apple has many product we focus on itsflagship product the iPhone. The reason is Apple iPhone encompass many of themarket Apple is in: iOS, smartphone, iPad and MacOS. The price elasticity ofiPhone shows the resilience of Apple products, compared to other phones. Source: Alessandro, Paper Ascan be seen, the price inelasticity of iPhone is relatively inelastic as opposeto other providers. This ties well with our own research above. We believe keyfactors are responsible for this:Apples Ecosystem whereincremental products of Apple adds more value to customerApples in-houseoperating system and various apps that run only on the OSState-of-the-arttechnology and innovative featuresIncome elasticityTheincome elasticity measures the sensitivity of the product or good to change inthe income level. Apple appears to have a positive Income elasticity asconsumers are price sensitive in the smartphone industry. Apple has alwayspositioned itself as a premium product, being aware of its positive incomeelasticity Apple has also introduced cheaper smartphone to cater to emergingmarket consumers in China and India. Source: Alessandro, PaperCross-price elasticity:TheCross price elasticity is a measure of how change in good A has an impact on arelated good B.Inthis regard, Apple appears to have a positive cross-price elasticity. This isbecause from our analysis above we know that, Apple has developed a strategicnetwork of interdependent companies. If a consumer is buying iPhone 5 it willalso buy a protect-ant cover to protect the iPhone from damages, it will alsopurchase an insurance from damage, and/or it will also buy various apps/servicessuch as a good headphone or Bluetooth device or apple watch etc.SWOT AnalysisSWOTstands for strengths, weaknesses, opportunities and threats. It is a tool toanalysize the internal and external strensths and weakness of the company andenvironment it operates in. The SWOT for Apple is presented below. (S)trengths:String Brand EquityInnovative ProductsFocus on R&D andinnovationStrong balance sheet andfinancial positionsophisticatedsupply-chain Leadership position inthe marketstrategic ties withvendorshigh profit margins(W)eaknessesPremium price productsthus competition takes away a chunck of market share by low pricing (Samsung)Apple products areincompatible with other systems and products, as iOS is in-house builtLatest iPhone did nothave any major technology improvementsDeath of Steve Jobs hastaken away the visionary leadership(O)pportunities:Cloud computing isincreasing and Apples R&D towards data management is key to successProduct diversificationStrategic relationshipbuilding in the industryProducts to be more compatible.This is because the industry has a very short product cycle, so to stay inbusiness for a long time, one needs to not stand-alone but have products withcompatibility with others(T)hreats:Apple seems to have lostits innovative spark. Tim Cooks maangement is more focused towardsconsolidating the business rather than focusing on new product innovationCompetition in emergingmarkets is increasing, as Samsung has now the bulk of market shareLaw suits with Samsungand tax scandals have led many consumers to view Apple as an unethical companyIncreasing R&D andcheaper iPhone introduction has led to increasing manufacturing costsSummary of Competitive PositionThischart shows the automobile industrys competitive position in the economy inaccordance to different variants. Due to the ever-increasing demand fueled byhigher incomes and auto financing, profitability and relative market share arestrong. The key success factors of this industry contribute quietly strongly toits success which can be seen by this chart. Currently, we would rate itscompetitive position as being favorable as it is not being able to meet thecurrent demands which is why government had to allow imports of cars givinglocal auto industrys competitive position a slight set back.References:Alessandro, iPhone Economic Analysis. Retrieved from http://www.academia.edu/6543906/Iphone_economic_analysisBrashares, Ann. Steve Jobs Thinks Different. Brookfield, CT: Twenty-First Century Books, 2001. LC Call Number: HD9696.2.U62 J633 2001 Catalog Record: 00057706Dudovskiy, John. Retrieved from 2016, http://research-methodology.net/apple-porters-five-forces-analysis-3/Kharpal, Arjun. Apple captures record 91 percent of global smartphone profits: Research. CNBC 2016. Retrived from http://www.cnbc.com/2016/11/23/apple-captures-record-91-percent-of-global-smartphone-profits-research.htmlOligopoly Structure: http://www.oocities.org/znuniverse/micro_economics/Price_Determination_under_Oligopoly.htmKing, Rachel. Fortune Magazine, June 2016. Reterived from http://fortune.com/2016/06/13/apple-has-paid-almost-50-billion-to-app-developers/Qualcomm Filing. Retrieved from https://www.sec.gov/Archives/edgar/data/804328/000123445212000371/qcom10-k2012.htmWireless Intelligence Report: http://change-corp.com/wp-content/uploads/2012/03/MWC12_WirelessIntelligence_Report.pdfNair, P. B., & Leng, Q. A. (2012). The sweet and sour Apple: The case of CEO strategies at Apple Inc. Vidwat, 5(1), 21-24.Wu, K. (2011). Customer loyalty explained by electronic recovery service quality: Implications of the customer relationship re-establishment for consumer electronics E-tailers. Contemporary Management Research, 7(1), 21-43He, Z., & Chen, X. (2005). Understanding the structure of Chinas consumer electronics market: An empirical investigation of its consumer segments. Multinational Business Review, 13(2), 43-61Chen, Y., Chen, C., & Wu, W. C. (2011). Is Chinas independent director system working? The case of the electronics industry. Journal of Economic Studies, 38(4), 360-383.Einhorn, B. (2013). Surging Lenovo takes aim at Apple and Samsung. Business Week, 1.Larson, C., & Stone, B. (2014). Xiaomi aims at Apple, Samsung with a low-cost tablet and TV. Business Week, 1.Get Help With Your EssayIf you need assistance with writing your essay, our professional essay writing service is here to help!Find out more
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