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Case Analysis of Apple Incorporation

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Case Analysis of Apple Incorporation


Executive Summary

Apple Computers started the movement into the personal computing arena
in 1977 but through changes in management and differences of opinion
together with missed opportunities it lost its competitive advantage
to companies like Microsoft, Dell, and Gateway. Apple operates in
various lines of the computer and music industry today and its
operations include not only the designing but also the manufacturing
of its computers and software. Apple continues to pursue the personal
computer market but not as intently as in the years before. It has
opted to change directions a little by venturing into the music world
through the marketing of iPod, a digital music player, and iTunes. The
opening of 65 new retail outlets, including one in Japan, has
precipitated its move into this new world.

Apple continues to work on providing innovative products for its
customers but marketing to such as small market has caused some
problems. Its market share has been reduced to below 5% and its
operating system differs considerably from the Wintel operating system
used my dominant Microsoft. Costs of maintaining this difference have
increased in comparison to those utilizing the competitive operating
system. Software designers are not as enthused about writing programs
to support Apple's operating system because of limited potential
sales. The advantages that seem to come into Apple's laps are quickly
removed because competitors are able to copy, steal, and share them.
The one advantage that Apple possesses is its operating system but it
has failed to convince the world of its superiority. The operating
system in possession has not encountered the problems that Microsoft
and its fellow operating systems have encountered. Microsoft upgrades
have been plagued with virus and other programming problems, including
the ability of hackers breaking into the system and accessing ones
computer from another remote spot.

Apple has not capitalized on these problems. It has gained a few
customers but nothing in the numbers required to turn the company
upwards in reclaiming considerable market share. Apple customers are a
devoted group that understand the superiority that they possess but
convincing the other 95% of the world because a rather large task.

This case study is to begin with a general environmental analysis that
will encompass the demographic, economic, political/legal,
socio-cultural, and technological segments. It will cover Porter's
five forces and provide insight of the opportunities and threats that
Apple faces. The industry structure will be dismantled so that market
size, distribution channels, strongest and weakest competitors, and
anticipated strategic moves of rivals is captured. Economies of scale
and key success factors will be listed along with financials so that a
direction can be logically surmised. An internal analysis will also be
included so that Apple's mission, vision, and financial objectives are
understood. Products and services will be dissected, as will its
corporate culture, values, and morals. The core competencies will be
noted together with value chain analysis so that Apple can better
define it true advantages for continued successful operation in the
future. Recommendations will be provided, listing the pros and cons of
each, so that Apple management can consider implementation for
strengthening their position within the computer and digital music
industries.



Company History History of Apple, (2004); History of Apple, Inc.
(2004)
================================================================

In April 1976, college dropouts, Steve Wozniak (26 years old) and
Steve Jobs (21 years old) founded Apple Computer. They actually
partnered up a few years before when Wozniak, was a self-taught
engineer, began building boxes that allowed people to make
long-distance phone calls for free. The sell of a few hundred of the
boxes led to a continuation that resulted in Wozniak working on the
Apple I computer box. The team had sold their van and two calculators
to raise the $1300 in start-up money prior to building them in Job's
garage. The team sold over 200 to computer hobbyists in the San
Francisco Bay area. Wozniak began working on the Apple II and Jobs
hired high school computer enthusiasts for building of circuit boards
and for designing software. Steve Jobs came up with the idea of
placing the circuitry into an attractive modular beige plastic
container. Both were trying to provide customers (computer
enthusiasts) with a smaller user-friendly computer.

Jobs sought the help of Regis McKenna, a successful advertising
relations firm owner, to develop an advertising strategy for the
company. McKenna designed the Apple logo and advertised it personal
computer magazines. By June 1977 sales reached $1 million and in 1978
they increased to over 35,000 computer sales. Growth continued at
miraculous rates that in 1980 the company went public and sales were
up to $117 million. Wozniak left three years later and Steve Jobs
hired Pepsi Company's John Scully as president. The company
experienced a few failures and in 1984 the unveiling of the Macintosh
set the stage for Apple's rise and recognition as a household name.
Jobs and Scully difference of opinion led to Jobs leaving in 1985.
This is about the time that Bill Gates and Microsoft were asking Apple
to license its products and make the Microsoft platform an industry
standard.

Apple had established itself as a player in the corporate world with
entry into the desktop publishing world, with the Mac Plus and Laser
Writer printers. Competition in the late 1980s from the Microsoft
Windows operating system combined with Apple's failure of the Newton
hand-held computers caused earnings to drop dramatically. John Scully
resignation and the workforce reductions took its toll as the company
tried to shift gears to licensing its operating system to Macintosh
clone producers. The strategy of marketing the licenses with intent of
building market share actually backfired and lost Apple considerable
amount of money and market share. Software was created to allow the
Macintosh to connect to IBM-based systems and Apple's sales soared to
over $4.07 billion.

In 1997, CEO Gilbert Amelio purchased Steve Job's company NeXT
software with hope of creating Apple's next generation operating
system. The move did not work and in 1998 CEO Amelio was thrown out
and Jobs was placed back into the CEO position. Jobs quickly moved
into a deal with Microsoft, cut cloning company licenses, stopped
production of Newton handheld devices and printer products, and
integrated its Claris software into its main offices. During this
timeframe, Apple successfully introduced the iMac and iBook product
lines and continues to push them in the consumers and education
markets. It also has G4 portable and desktop versions that are
marketed with focus on the designing and publish markets.



Company Strategy History of Apple, (2004); History of Apple, Inc.
(2004)
=================================================================

The transformations that occurred during the years from inception to
present day have included many strategic management variations that
drove the equipment and software changes. Wozniak and Jobs initial
strategy was to create a small desktop user-friendly computer for the
computer enthusiasts. Strategy shifted to manufacturing of the Apple
II for the consumer industry. As sales increased, management continued
to alter its strategy in order to capture as much market share as
possible. It decided to work on the Apple III so that it could break
into the office market dominated by IBM. This drive became so strong
that Apple prematurely released the Apple III without it undergoing
extensive line testing. The product was defective, production was
halted and problems repaired but Apple never sold as many of the Apple
IIIs as it did of the Apple II. Some management decisions in strategic
direction do prove to be wrong so Apple management regrouped and
increased R&D spending to the tune of $21 million. Jobs was determined
to create an un-intimidating computer that anyone could use and he
pushed this strategic concept by introducing the Lisa computer
complete with mouse, hand-controlled pointer, and displayed pictures
that substituted for keyboard commands.

The strategy shifts can easily be compared with the increase in the
customer focus. The move of the spotlight from the computer
enthusiasts to the office market consumer is a large increase in
directional focus. Jobs vision was to create a "people's computer"
designed for people with little technical knowledge. During this trek
it was suppose to take away some of IBM's business office market
share. The introduction of the Macintosh in 1989 did do that but it
was a short-lived core competency that could easily be duplicated. In
fact, in the same year, IBM marketed a new operating system that
mimicked the Macintosh's ease of use so Apple began to look at
multi-tasking functions. During his time as CEO, John Scully had moved
the company into the consumer and education computer industry. Apple
had also expanded into the global markets during its first few years.

The best of strategies cannot overcome the problems that result due to
management unrest or battle of strength amongst management. When
Scully was forced out, Michael Spindler licensed Apple's technology to
outside firms that eventually ate away at profits. Spindler was also
responsible for the introduction of the Power Macintosh in the mid 90s
that served as another example of Apple having the right products
needed by the market but not the right people to help promote them.
Management under Spindler grossly underestimated demand and the
resulting $1 billion of unfilled orders caught the eyes of Wall Street
and the stock plummeted 15 percent.

Gil Amelio replaced Scully and drastic directional change ensued but
even his best-cost cutting strategy took the company from a $70 per
share price to $14 and market share decreased from 16 percent to 4
percent. The strategy was good but management was not. Amelio did
accomplish the purchase of NeXT along with bring Steve Jobs back as
the advisor that eventually took his job. Strategy was realigned with
the intent of what had once been. Jobs cut out the licenses,
eliminated 15 of 19 products, and withdrew Apple from the printer,
scanner, and portable digital assistant business. Apple, under the
direction of Jobs, became focused on desktop and portable Macintoshes
for professional and consumer customers.

The move was a refocusing of Apple's strategy to supplying a computer
that was not only reasonably priced but also popular. Ten months of
hard work resulted in the introduction of the iMAC so as the 1990s
exited Apple had refocused its strategy as a pared-down version of its
previous self. Apple is presently concentrating its business strategy
on the digital hub, retail, and the educational sectors. Apple's 2003
annual reports noted that it is committed to bringing the best
possible personal computing experience to students, educators,
creative professionals, businesses and consumers around the world. It
will do this through it innovative hardware, software, peripherals and
Internet offerings, including Mac™ and the iTunes® Music Store™. Apple
believes that personal computing has entered a new era. It seeks to
provide a pathway for linking digital devices so that the consumer can
add value through the interconnectivity. Apple feels that its position
in being the only personal computer company that designs and
manufactures the entire computer provides it an advantage in
positioning to offer digital hub products and solutions.

Apple continues with its 2001 program of retailing. It opened 65
retail stores in 2003 and nine during the first quarter of 2004. One
of the stores in 2004 was Apple's first international store located in
Tokyo, Japan. Stores are strategically located in quality shopping
malls and in urban shopping districts. The retail outlets are intended
to expand its customer base by bringing in first time computer buyers
and attracting those wanting to switch to the Macintosh platform. It
can control the retail experience and enhance it by employing
knowledgeable personnel and by providing post-sale advice and support.
It also offers many third-party products that complement the Company's
own products.

Apple continues to provide technological products for the educational
sector. It feels that classroom instruction will be enhanced through
the integration of technology and that students will be able to attain
higher levels of achievement while schools maximize their investments.
The last important business strategy sector is the creative
profession. This sector is one of the most important markets for
Apple's hardware and software products. The company designs its
hardware solutions with the creative professional in mind. Specific
customer focus is part of Apple's strategy.



External Analysis
=================

General environment analysis

Companies engaged in manufacturing electronic computers are listed
under SIC code 3571 and/or NAICS code 334111. Electronic computers are
machines that 1) store processing programs and data necessary for
program execution, 2) can be freely programmed to user requirements,
3) perform arithmetic computations, and 4) execute processing programs
that requires modification of execution by logical decision without
human intervention. Personal computers fall into this category (OSHA,
2004).

The electronic computer industry has been struggling since early 2000
when the economy weakened. The US Census Bureau reported a decrease in
computer shipments from 1999 $64.7 billion to 62.9 billion in 2000 and
continued downward to $49.3 billion in 2001. Unit shipments also
declined from 27.2 million (2000) to 22.7 million in 2001.

Rising unemployment and anticipated war with Iraq assisted in reducing
the number of computer purchases. The terrorist attack on the Pentagon
and the Twin Towers in New York City also added to the decrease. Much
equipment was available at reduced costs due to the bankruptcy of many
Internet companies in the early 2000s. IDC also reported in 2001 that
Dell, Compaq, Hewlett-Packard, and IBM controlled over 40 percent of
the world PC shipments. Hewlett-Packard purchased Compaq and became a
formidable power competitor for Dell. The control of this large a
portion of market share is something Apple would have to contend with
each step of the way (Electronic Computer Industry, 2004).

Demographic segment

The United States population 2003 census data was estimated at
281,421,906 inhabitants and Oct. 05, 2004 is estimated at 294,444,408.
This is an increase of 13 million people in just a little over four
years. Increases in population combined with the advances in
technology will continue to drive increased sales in future computer
markets (Factfinder.census, 2004).

The same Census bureau report broke down the ages into the groups
listed in the Table01 below. Americans begin using computers in the
early years so the younger age data are listed on Table 02. Survey of
the numbers easily points out that a majority of the American
population is of age to readily use a computer in some form or
fashion. Even some of the older generations are experimenting with
computer use. USA Today back in September 1997 published an article
that claimed that 10% of seniors own a PC and that 25% of those have
Internet access (USA today, 1997 and www. census.gov, 2004).

Table 01

Median age (years)

36.0

35.8

36.2

18 years and over

210,275,463

210,248,306

210,302,620

21 years and over

199,698,589

199,625,188

199,771,990

62 years and over

40,626,693

40,553,362

40,700,024

65 years and over

33,896,172

33,867,171

33,925,173

Male

14,380,551

14,359,090

14,402,012

Female

19,515,621

19,494,235

19,537,007

Table 02

Under 5 years

19,679,781

19,653,996

19,705,566

5 to 9 years

19,741,730

19,636,901

19,846,559

10 to 14 years

21,144,669

21,038,575

21,250,763

15 to 19 years

18,856,479

18,810,858

18,902,100

Tables taken from U.S. Census data
http://www.census.gov/acs/www/Products/Profiles/Single/2003/ACS/Tabular/010/01000US1.htm

The domestic populace included 84 percent of people 25 years and over
who had at least graduated from high school and 27 percent had a
bachelor's degree or higher. The group also included approximately 8
percent dropout rate of the 16 to 19 year old group. Enrollment for
2003 was 75.1 million students. The median income was $43,564 of which
80 percent of the households received earnings and 17 percent received
retire income other than Social Security. Thirteen percent of the
population was considered to be living in poverty.

The group's occupational status was broken down into the following
categories by percentage.

34 % Management, professional, and related occupations,

36% Sales and office occupations,

16% Service occupations,

13% Production, transportation, and material moving occupations,

10% Construction, extraction, and maintenance occupations (Census.gov,
2004)

The world population estimation for 2005 is 6,449,000,000 people and
for 2010 it is 6,812,000,000. Increases for the future can be see in
Table 03. The computer industry will be required to support the
increases. The computer industry is growing rapidly in the Asian
market and number indicates that a majority of the population growth
will be concentrated into that area.

Table 03

[IMAGE]

Economic segment

Computer requirements are increasing across the globe. Data collected
and shown on Table 04 has all but 4 countries increasing the number of
computers being used per 1000 individuals within each respective
country. The data was not restricted to PC type computers but listed
computer use in general so Apple computers were included within the
data gathered even though it is undergoing a market share loss of
computer sales. Table 05 further supports the increased use.

Table 04

Computer by Country

Rates per 1,000 persons. See text of this section for general comments
about the data.

YEAR

2000

2001

YEAR

2000

2001

YEAR

2000

2001

Algeria

6

7

Guatemala

10

13

Panama

32

36

Argentina

51

91

Honduras

10

12

Peru

36

49

Australia

465

516

Hungary

85

100

Philippines

20

22

AustriA

276

335

India

5

6

Poland

69

85

Belgium

344

233

Indonesia

10

11

Portugal

105

117

Brazil

44

63

Iran

56

70

Puerto Rico

(NA)

(NA)

Bulgaria

27

(NA)

Iraq

(NA)

(NA)

Romania

27

36

Canada

390

460

Ireland

365

391

Russia

43

50

Chile

85

107

Israel

254

246

Saudi Arabia

57

63

China

16

19

Italy

209

195

Singapore

483

508

Colombia

34

42

Jamaica

43

50

South Africa

62

70

Cuba

10

20

Japan

315

349

Spain

143

158

Czech Republic

122

146

Korea, South

190

461

Sweden

507

561

Denmark

432

540

Kuwait

121

120

Switzerland

502

538

Dominican Republic

(NA)

(NA)

Lebanon

46

60

Syria

14

16

Ecuador

20

23

Malaysia

105

126

Taiwan

225

253

Egypt

12

16

Mexico

51

69

Thailand

24

28

Finland

396

424

Morocco

11

14

Turkey

38

41

France

305

337

Netherlands

395

429

United Kingdom

338

366

Germany

336

382

New Zealand

360

393

United States

585

625

Ghana

3

3

Norway

491

508

Uruguay

100

110

Greece

70

81

Pakistan

4

4

Venezuela

46

53

http://www.census.gov/acs/www/Products/Profiles/Single/2003/ACS/Tabular/010/01000US1.htm

Table 05

[IMAGE]

Exports felled from $9.6 billion in 2000 to $8.8 billion in 2001 with
Canada being the largest regional market for US computer sales (23% of
U.S. exports). Asia and Europe accounted for two-thirds of the total
exports. Imports of computers dropped from $13.6 billion in 2000 to
$12.2 billion, a 15 percent drop. Most of the imports are from Asian
sources with Latin America and Europe serving as secondary sources
(Electronic Computer Industry, 2004).



Political/legal segment
=======================

Apple faces political/legal segment issues both domestically and
abroad. Domestically the Federal and State government continues to
tighten up on the environmental issues that constrain manufacturing
and disposal of the units.

Environmental concerns are issues that directly affect each computer
manufacturer. The Environmental Protection Agency updated
EPA/310-R-95-002 "Profile of the Electronics and Computer Industry
Code in the September 1995. This document provides directives that
must be adhered to by companies manufacturing computer components (EPA
site, 2004). Apple has willfully promoted the buyback and proper
disposal of computer parts in effort to promote product stewardship
(Table 06) from the environmental perspective (Apple website, 2004).

Table 06

Apple Environmental Programs

1990

Apple's environmental policy released and implemented

1991

Phase-out of lead in batteries in advance of the 1996 European battery
directive

1992

Phase-out of chlorofluorocarbons (CFCs) in Apple manufacturing, as
stipulated in the Montreal Protocol on Substances That Deplete the
Ozone Layer

Founding member of the U.S EPA ENERGY STAR® product labeling program,
developed to identify and promote energy efficient computers and
monitors

1994

Phase-out of NiCad batteries in advance of the 1996 European battery
directive

1996

First voluntary Apple product take-back program initiated in Germany
(gradual expansion to other regions)

First Apple manufacturing site (Sacramento, CA) ISO 14001 certified

1997

First Apple products TCO (Swedish Confederation of Professional
Employees) certified

1999

Introduction of the Apple Product Environmental Specification (APES)
files

2000

All Apple manufacturing sites ISO 14001 certified worldwide,
signifying that Apple has a structured environmental management system
(EMS) in place to manage the environmental impact of our operations

2001

Apple's complete product portfolio meets applicable ENERGY STAR®
requirements (also in 2002/2003)

Started voluntary phase-out of tetrabisphenol A (TBBA) in all plastic
enclosure parts> 25 grams

2002

Product take-back solutions implemented in U.S. and Japan

Roll-out of Apple's global Regulated Substances Specification

Signatory of European Union Code of Conduct on Power Supplies, created
to encourage manufacturers to design power supplies that minimize
energy consumption in off mode

Founding member of U.S. Federal Energy Management Program (FEMP),
which introduced energy efficiency requirements for the off mode of
computer products

2003

Implementation of supplier survey initiative on substance use

http://www.apple.com/environment/policy/successes.html

The global market differs in its segmentation depending upon which
country is involved. Different countries impose varied restrictions on
the equipment components and its use once it is operational. China can
be used to simplify explanation of some issues. China began allowing
computers into its borders in the early 1990s but still places
restrictions on its use. It also controls whom, how, and what
negotiations take place between foreign companies and local Chinese
companies. It limits citizen Internet activity once machines are
operational. High tariffs combined with government regulations to
prohibit foreign companies from trading directly with the Chinese
companies (Kraemer, 2004).

Foreign companies often favor the local companies over the foreigners
trying to manufacture within their borders. In many cases additional
tariffs are imposed on foreign competitors. International trade
regulations also differ between countries with some being lucrative
initially but changing in favor of the local company as time
progresses. Apple faces the battle of overcoming the market dominance
of the PC based computers but does have tremendous opportunity present
in the iPod and music associated industry.

Apple and fellow computer companies have recognized that pirating and
copying is more easily done in some countries than in others. The laws
are in effect in both places but one is more apt to prosecute than the
other. This illegal activity directly affects the bottom line for
every company involved.

Socio-cultural segment

Cultures are restrictive and the restrictions have effects on company
profitability. China Internet traffic increased by 71% from 1997 to
1998 and continues to do so as we approach 2005. Some technological
changes are more readily accepted than others. Chinese people still
have trouble accepting credit card transactions since the initial cost
of computerization is high. Internet sales in many overseas countries
are not as successful as in the United States and Europe because many
of the customers prefer to view the products they are purchasing. The
same applies to other parts of the world so the computer companies
have to adjust according to the cultural differences being encountered
within the different countries in which they chose to market and sell.

Adapting to the differences in culture is not very easy and some
manufacturers are trying to build value into their company name. This
is being done in hopes that branding will eventually equate with
honesty, integrity, quality, and good service so that storefronts will
not be as necessary as they presenting are. Apple computer began
opening storefronts in the United States in effort to compete against
the PC based companies. Their thought is that by having it available
for the customers some will eventually make the switch away from the
PC-based systems.

The largest socio-cultural hurdle for companies such as Apple is the
lower educational standards of many countries. While many are making
great progress, they are limited in number. Those that are progressing
can take advantage of the outsourcing that is being done by American
companies.

Technological segment (Electronic computer industry, 2004)

The governmental has always favored the computer industry's research
and development and it has shown favor by the amount of funding that
is made available. This trend has held true since the Cold War. It was
just recently that any significant cutbacks occurred and the industry
has been unable to make up the difference. Most computer companies
began to cut back the amounts of R&D funding in the early to mid-1990s
and also began to focus on the short term. Product life cycles have
been shortened and the computer has become an everyday commodity.

Many of today's technology driven innovations that are being developed
affect the microprocessors, semiconductor, memory storage, and speed
capabilities of the computer units. Miniaturization is definitely on
top of the required changes for the future. Everything seems to be
getting smaller and with the decrease in size comes integration of
multiple technologies. Phone, PDA, and Internet modules are being
combined into one piece of equipment. Telephones, video players,
answering machines, and televisions sets are being intermeshed. The
future of technology seems endless.



Five Forces Model of Competition
================================

Every market including the financial industry can be evaluated through
the use of Porter's five-force theory. Porter's uses the five forces,
supplier power, barriers to entry, threat of substitutes, buyer power,
and the degree of rivalry, as tools that help analyze a company's
position against its competitors (QuickMBA site, 2003).

Threat of New Entrants:

Startup costs are extremely high so the probability of new entrants is
low. The existing companies have capitalized on the distribution
channels and have created strong branding awareness that makes it
difficult for new comers to compete. The probability of success is so
low that competitors pursue niche markets rather than trying to
compete with the bigger companies. Apple positioned itself years
before so it has created its space in the computer industry just as
IBM, Hewlett-Packard, Gateway and Dell.

Bargaining Power of Suppliers:

The suppliers are plentiful and must compete with others to ensure
that they will be able to retain the business of the computer
companies. The position is low especially since the larger companies
can readily switch to another supplier without any major
repercussions. Suppliers adjust pricing and quality to make their
products more attractive so competition is high leaving them in a low
supplier power position.

Bargaining Power of Buyers:

All of Apple's customers have a variety of computer companies from
which to chose when it comes to purchasing hardware, software, or
peripherals. Switching costs are low. The buyer has the ability to
switch when quality, service or price offered elsewhere is better or
cheaper. This situation places the buyer power in a strong position
that can only be countered by companies with strong product
differentiation that would increase the switching costs. The computer
operating systems differentiation makes it difficult for companies to
switch but individuals will find it rather easy to change from one
computer system to another. The same difficulties and cost apply to
the education facilities that have committed to a single operating
system.

Threat of Substitute Products:

Substitute products are readily available so this threat is very high.
Competitors work to convince their customers that their product is
superior to its competitors. The more differentiation of product the
less likely the switch to a substitute will occur. If prices are
higher then the company with the higher price has to provide
justification for the increase. Apple's operating system
differentiation can command higher pricing when it is presented to the
creative designer community but not to the individual computer buyer
unless they are specifically looking for such enhanced graphic
capabilities. The market is favorable for the companies that have
locked a business or educational facility since substitution will
require a change of each computer within the facility and in some
cases more than one location. Internet connectivity has increased the
ability of switching individual units while the others remain the
same.

Rivalry among competing Firms:

Apple has many competitors that have the advantage of possessing the
larger portion of market share. Apple is faced to compete against
companies like IBM, Hewlett-Packard, and Dell. Even a smaller company
like Gateway poses a threat. Competition is fierce in the computer
hardware industry and switching costs are low. Apple is also reliant
on promoting its own operating system. The digital hub being pursued
by Apple has already been copied by Gateway.

Opportunities

Apple's different operating system

Apple can take advantage of its operating system differences by
turning it into an opportunity to develop improvements to the
Macintosh platform in order to achiever greater perceived functional
and design advantages over competing platforms.

Various computer worms and other hacker anomalies that provide a grand
opportunity for Apple to take advantage and garnish some small sectors
of this frustrated market. With such a widespread system the
vulnerability increases and fixes are not easy to make in short time
periods. Micro-soft bashers love to point out that Linux or Apple's OS
X are not vulnerable to whatever the exploit du jour is on the
Microsoft platform (Bradley, 2004).The Apple Mac OS X is seen as a
stable, reliable, and secure system that is also very easy to use
(Brainyencyclopedia, 2004).

Apple's pursuit of music industry

Apple's pursuit of the music industry through its iTunes also provides
a good opportunity to increase Apple's bottom line and also increase
brand awareness. The launching of the iTunes Music Store resulted in
over 2 million downloads in only 16 days. All of the downloads were
all done on Macintosh computers. Apple's opening of its music store
worldwide will be a great opportunity (Brainyencyclopedia, 2004).

Microsoft upgrade costs versus benefit

Microsoft users are finding it less feasible to continually upgrade
software packages unless they can truly see a benefit for the money
being spent. The last few Microsoft upgrades have been plagued with
glitches that provide another grand opportunity that Apple can use to
its advantage so long as it doesn't make the same mistake with its
issues of upgrades. The customer will continue to look for value when
money is spent.

Threats

Very competitive industry

The market for design, manufacturing, and sales are all extremely
competitively aggressive in Apple's business. The rapid technological
advances made by competitors in the hardware and software segments has
increased the number products offered in shorter time spans. Price
competition, including sellers with computers with other operating
systems, has been very intense as the battles for increased market
share rise. All of these affect gross margin, especially when combined
with increased reliance on the Internet and the miniaturization of
components that decrease prices since they are smaller and simpler.

Competitor's copying programs

Companies such as Future Power USA copied Apples Imac and have been
selling it. These copies pose a major threat to Apple sales. The
copies look identical to the iMac even to the point of making the
colors the same but under different names. These copycat computers can
even be considered as substitutes for an iMac. Website
www.lowendmac.com states that many other companies are copying the
iMac either because they are too lazy to come up with a different
design or because the iMac is such a great idea everyone wants to copy
it (LowendMac, 1999).

Competitors are quickly mimicking the unique presentations of digital
music products. Entry into these markets is costly but unfortunately
for Apple the competitors have an abundant supply of funding to
address marketing, manufacturing, and technical resource requirements
that may arise. Consolidation of major players has made for larger and
potentially stronger competitors. Competitors are even promoting free
peer-to-peer services.

Microsoft dominance

Microsoft Windows continues to dominate the market. More than 90% of
the world's computers use the Microsoft operating system. Apple needs
to work on convincing the world that its system is better than
Microsoft. This dominance and need to overcome the world's mental
state of thought about Windows operating systems is a major threat to
Apple (ProComp, 2004).

Windows based PCs have cut prices and lowered product margins to
maintain market share since demand has been declining during the past
few years. This pattern does not seem any brighter in the near future
so these practices are very likely to continue. PC technological
advances in software and hardware, and miniaturization of parts,
together with a more reliant Internet movement make the competition
for market share even hotter.

Apple's operating system has lost some of its market share during the
past few years but is working to regain its losses. The introduction
of the G5 has helped with sales, as have the Powerbook portables.
Apple's operating system has provided graphics and creative designers
with a useful tool that is not comparable to Windows operating system
applications. This difference must be managed with continued
improvements that allow the public to perceive design and functional
advantages over the competitors' operating system platforms. Failure
to compete effectively could cause a negative affect on Apple's
financial and operating results.

Software Piracy

Software piracy has been a problem for software and operating systems
producing companies. As the technology advances the more susceptible
the companies become to additional piracy. The piracy issue has grown
to global proportions and stopping unlawful copying and distribution
of copyrighted software does not seem to have a remedy for prevention
in the future.

Governmental regulatory increases

Governmental regulations and potential litigation from non-compliance
has persisted as a threat from the early years. In 1991, Apple phased
out the lead in the batteries and in 1992 dealt with the
chloroflurocarbons (CFCs) in manufacturing. The years 1996 brought
about implementation of ISO 14000 quality standards and by 2000 all
Apple manufacturing sites were ISO 14001 certified as having a
structured environmental management system (EMS). Tetrabisphenol A
(TBBA) was voluntarily phased-out of all plastic enclosure parts in
quantities greater than 25 grams. These are just a few examples of how
the governmental regulatory requirements continue to pose a threat to
the computer and electronic industry. Apple has initiated a lot of
environmental safe programs voluntarily but each is costly to
implement even though compliance far outweighs the cost of
non-compliance.

Global competition increases

Competition continues to increase worldwide. Other countries are
getting into the manufacturing as the expansions of existing companies
occur. Cheap labor and parts manufacturing in less privileged
countries provide opportunities for larger companies with extra
capital to spare for expansion. Pursuit of savings drives them into
the other countries and with labor and parts costing less they utilize
that as a means for cutting costs making them more competitive.

The amount of product introductions hitting the market requires that
each company continue pursuing more innovative products in a shorter
period of time. Lack of newly enhanced product will reduce customer
demand even more than what is being affected by the weakened economy.
Companies must hope that the product introductions will be well
received by the consumers. If the product is well received then the
company must be in a position to ramp up production in short order but
not enough to be overwhelmed by large inventories when the sales
regress. This need for judging demand is critical and must be
determined as accurately as possible because over supply will lead to
dead inventory and not enough supply will lead to unhappy customers.
Finding the balance is very difficult. Innovations within the
operating systems must continue to support the existing systems at the
risk of losing customers should this not occur.

World epidemics affecting distribution and manufacturing

The world has been riddled by a few major epidemics that have
disrupted the normal distribution and manufacturing channels of much
industry. Some reached proportions that even affected travel into and
out of the country. Year ago this type of epidemic would not have
created the effects that it presently does in this global system.
China, Hong Kong and other Asian countries were subjected to
quarantines implemented by the World Health Organization and Centers
for Disease Control and Prevention when severe acute respiratory
syndrome (SARS) advanced to epedemic proportions. Apple utilizes these
countries for manufacture and production of its iPod so diseases such
as this affected employee travel, limit freight services, instill
governmental restrictions in product movement, and can delay
production and operations.

Aggressive pricing practices

Competition in this highly competitive market faces overcoming
aggressive pricing practices, frequent new product introductions,
shortened product life cycles, new industry standards, continuous
product improvements, rapid technological changes, consumer price
sensitivity and abundance of competitors. Each section is intense and
staying on top of each is difficult for any company to manage. Those
with considerable market share continue to battle to prevent
relinquishing any while those with little push with the items above to
take any amount of market share they can get.

Industry Structure

Market Size

The PC market has spread into nearly 80% of U.S. households. A survey
conducted by the Gartner Group predicts that global PC sales will
increase to 187,000,000 units (13.9%) this year. This follows an 11%
increase in 2003. Price declines have contributed to the robust growth
(Fuji-keizai, 2004).

Industries' dominant economic features

The versatility of the computer industry allows a few dominant
economic features to stand out. The market size mentioned above is one
of these dominant features. It has increased to a range between $890
million to $2 billion. The competitive rivalry is another dominant
feature. The national and global levels are in the early maturity
stage, which is nice considering that, the local and regional markets
a completely saturated. A third dominant economic feature is the
technological innovations that continually surface from the many
competitors. Innovations such as software advancements, 32 bit and 64
bit chips, networking expansions, and improved design technologies.
Each has a direct link to the economic structures of the company and
its competitors.

Distribution channels

The distribution channels for PCs have been changing considerably in
the past couple of years. The changes are being driven by price
declines and the 'mature product' phase of the computer life cycle.
Many of the expansions involve channels that already carry PCs or
other sources not previously used. A few examples of those not
previously used are cable TV firms, telephone companies, and
bookstores.

Competitors: strongest - weakest

The focus on the strongest competitor extends beyond Microsoft but
that will become clearer in a few sentences. Microsoft's control of
the PC market speaks for itself so they can easily been seen as the
strongest competitor. Apple will eventually have to tackle trying to
take away market share but a head-on battle may not be the best
approach (Machanick, 1998).

Another side of competition is the music side that Apple is presently
doing well in. Samsung and Napster 2.0 have teamed up to release a new
service/hardware combination that is intended to compete directly with
iTunes Music Store and iPod. The scheduled release is to offer
unlimited downloads and services that the iTunes Music Stores offer.
The combined powerhouses present a formidable foe for Apple (SpyMac,
2003).

Rivals anticipated strategic moves

Apple's strategy has not gone unnoticed. Its rivalry has created an
air of 'bad blood' between itself and digital rival RealNetworks.
Apple management was quoted as stating: "We are stunned that
RealNetworks has adopted the tactics and ethics of a hacker to break
into the iPod, and we are investigating the implications of their
actions under the DMCA and other laws."

The move has prompted Apple to consider restricting iPod software
updates so that Real's Harmony technology would no longer be supported
(Naraine, 2004).

AOL is tight-lipped on how it intends to use ICQ, which they purchased
in 1998. ICQ instant messaging users number to 235 million and
Microsoft and AOL were warring over whether Microsoft messenger can
access AOL messenger's user base. Apple teamed up with AOL on the
messaging offsetting the battled strategic moves that Microsoft
intended. The move was a very well planned strategic move for Apple.
Speculation has surfaced that video conferencing functionality may be
added to iChat (Geek.com, 2002). The move has been seen as being
gutsy.

Economies of scale

Expense of software creation was be extremely expensive and but once
it has been refined the cost of producing copies for sale is
minimized. The difference in expense between Apple and Microsoft is
the systems put into place. Apple chose to go with a closed system
that not have any others assist with programming, testing, and bugging
as did Microsoft. Microsoft gobbled other companies that had made
sustainable improvements to their operating system up. This reduced
some of Microsoft up front costs and multiplied the progress.

Key success factors

Technology related

The iMac release in 1998 introduced the Unified hardware architecture
which featured the new ROM. The first Macintosh computers were
equipped with a physical chip on the logic board because RAM and HD
space were costly and ROM contained routines required for computer
startup and other higher-level Mac OS code. The iMac release divided
ROM into boot ROM and Mac OS ROM. The startup and higher-level code
routines were separated. The Mac OS ROM no longer needed to be in a
chip form but instead is now an image file inside of the MacOS system
folder. This change updates with the use of firmware feasible for both
ROMs. Each Mac also had a unique machine identification number (Apple
museum, 2004).

Apple also offers a better-integrated computer operating system than
its competitors. It is also not easily copied so Apple could offer a
superior computing solution free of any troubled operating system. The
GUI (graphic user interface) system design is better than anything
that has been placed onto any Windows platform so Apple has continued
to appeal to the creative and professional graphics sector.

Apple has put audio, print spooler, bridging, and Ethernet into one
small package call AirPort Express. The system works with any Wi-Fi
device and supports streaming music through analog and digital audio
jacks and USB printer spooling through USB ports on Mac OS X and
Windows XP and 2000. The introduction of AirPort Express raises the
bar on these combined features (Technology updates.com, (2004).

Manufacturing related

Apple subcontracts it's manufacturing to third parties so it can focus
on its core competencies of testing and developing software. It can
also concentrate on ensuring that what is manufactured meets required
specifications so quality remains a top focus. Management can ensure
that the computers meet customer's requirements by concentrating on
their needs instead of fighting line production problems. Other
companies (eg. Texas Instruments and Nortel) have begun to follow this
lead more than before since they are finding that savings can be high.

Distribution related

Apple has always been a leader in the use of automated systems and the
distribution phase is not any different. Apple operates some of its
facilities round the clock and after manufacturing they are
automatically feed to a system though a case taper where it is
prioritized and sorted prior to being palletized. The FloStor system
can divert the product for shipment or audit before it is released
from the warehouse. Apple's use of this system minimizes the
intervention and monitoring time cycles. It even has the capability of
paging a maintenance mechanic when problems occur within the system
(Flostor, 2004).

Apple not only contends with the physical distribution of its
computers but it must also address distribution of its music and
iTunes software products. The AirPort Express system is one of Apple's
new methods of staying on top of the distribution of its innovations.

Marketing related

Apple has created computers that are aesthetically pleasing when
compared to PC and their clones. The company has also produced many
great products but it continues to lose market share. Michael
Hillmeyer, with Merrill Lynch, commented about Apple by stating that
"A product differentiation strategy is difficult in a business
increasingly commoditizing." He followed that with comments about the
weak state of IT demand and the staleness of Apple product together
with the higher costs were affecting financial forecasts (Wilcox,
2003).

Apple had survived rather well through the use of its aesthetics and
user-friendly systems but the computer's position changing to a
commodity eliminates much of the differentiation. Its opening of the
retail stores has also assisted with marketing of product since more
people can readily see the name on company storefronts. Branding and
logo help keep the name fresh in people's minds and Apple has designed
some very creative commercials that help this (Yahoo finance.com,
2004).

Apple's product differentiation in the iPod and iTunes sector will be
short-lived since it has a dependency on third parties and also
because competitors can easily enter the market. Apple must position
itself as the only competitor in the market with stem-to-stern
computing solutions. They can be done because the Macintosh and the
Mac operating system is better integrated than other computer
operating systems, including Windows.

The differentiation is not easily copied by competitors and can
provide Apple user with a superior computing solution. It can offer a
trouble free operation, rapid response to technological change, and a
direct link to customer concerns. Apple differentiation offers a
clean, simple product line with a single controlling company dedicated
to the production of quality products (Miller, 2000).

Skills related

Apple has spent much of its hiring practices dealing with upper level
managers, computer technologists and specialists, programmers,
engineers, and R&D scientists. They have gain a reasonable
understanding of the skills required to sustain a competitive
advantage in their areas of expertise. Apple has chosen to follow
other companies in employing engineers as business managers and they
have seen the fall out from having done so just as other companies
have also seen.

Apple's expansion into the retail store business has been a change to
what they are accustomed to hiring. The storefronts use three key
employee levels for selling product and providing expert support for
customers. The three levels include the store manager, 'genius'
position, and 'keyholder'. The company pays the store manager well but
lacks in providing a reasonable pay for the 'genius' and 'keyholder'
leading to high levels of turnover. 'Keyholders' stay when they are
presented with the opportunity of moving up to the 'genius' level but
leave soon after since they can command more money working for someone
else after gaining experience. Some have even switch to work for other
companies earning $50,000 annually after leaving the Apple store
(dePlume, 2004).

As Apple transitioned into team building in the late 1990s they soon
found that they management staff was lacking in managerial skills
required to lead cross-functional teams. As before many of them were
engineers with little to no business management experience or academic
background.

Organizational capabilities (Beer, 1991)

Evaluating Apple's organizational capabilities requires reviewing
environmental/strategy, work system, management process, principles
and values, human resources system, and the leadership team. Michael
Beer, in his Harvard Business Review, document noted that Apple lacked
the capability of developing effective teamwork between its talented
engineers in R&D and the sales and marketing people who understood
needs for lower cost products. Apple also lacked a work system of
cross-functional product development teams and needed
business-oriented managers with leadership skills to lead teams that
could agree on new businesses. This put Apple in a position of not
being able to fulfill its requirements for:

1) Defining its environment and understanding its strategy,

2) Lacked a work system,

3) Needed a management process for specifying workable goals and
objectives, and

4) Lacked leadership teams to provide direction.

Apple was missing four out of the seven segments from Michael Beer's
Organizational Fit Model.

Employees were not sure of the company's strategic directions and were
receiving different priorities from R&D and marketing. This again came
from lack of functional leadership team cohesiveness in setting one
direction for the company. Managers did not want to lose control of
their power and moving into cross-functional business teams meant just
that plus not having an effective leadership retarded any efforts in
that direction.

The work system and management process require that communications
lines be effective and Apple's was not. Trust and communication were
extremely low in the Apple world. In 1991, John Scully came in and
gathered the top 70 managers for an off-site. Lack of lower management
involvement made it more difficult to solve problems.

Apple's work on the iPod has shown the improvements of its
organizational fit. Teams within Apple have been able to coordinate
the work so that they are able to go to market ads and provide
packaging that is not only aesthetic but also functional. iPods serve
as THE digital music play and provide an avenue where Apple can market
the Reflective level with messages and images designed within the
Apple culture (800ceoread, 2004).

Driving forces

Companies are often faced with the affects of the driving forces.
Driving forces are part of the external analysis and provide the
company with insight on opportunity and threats that it must contend
with. Some of the examples of driving forces are:

Industry growth rate (short or long-term)

Changes in who buys the product and how it is used

Changes in society - different concerns, attitudes, and lifestyles

Product innovation and technological change

Firms - entering, exiting or mergers

Increased globalization of industry

Changes in cost and efficiency

Regulatory influence and policy changes

Changes in degree of risk and uncertainty

Apple does have to contend with a few of those listed.

Industry growth rate (short or long-term)

The computer industry has been slow for the past number of years. It
is affected by a weak economy and less disposable income within the
households due to lay offs and outsourcing of jobs outside of the
United States. Upgrades have not been technologically advanced enough
to warrant constant change so many consumers wait until a few upgrades
are offered before purchasing one.

The industry has usually been supported by big business and since the
slow down big business has not been expanding so need for additional
computer and software is not required. Apple has to face another
hurdle when viewing this because big business is more Wintel operating
system driven and with the cost of cloned PCs, they are just more
affordable.

Changes in who buys the product and how it is used

Changes in society - different concerns, attitudes, and lifestyles

The people purchasing computer have been become accustom to using
Windows operating systems. The population growth has increased and all
of those individuals that come into computer using modes are being
subjected to the Windows environment. Many are not knowledgeable of
the Apple operating system and have only heard of Macintosh computers.

The younger generations are coming to know of Apple with the onset of
iTunes, iSync, and iPods. This is bringing a younger generation into
Apple's marketing world but Apple has yet to convince them that the
computer systems provide the quality and ease of use just as the music
materials that Apple is able to supply for them.

The products and how they are presented change continuously. The
changes also are affected by the different concerns, attitudes, and
lifestyle adjustments that continuously occur. The economic changes
that have resulted from the 9/11 incidents have created change in
attitudes and lifestyles. The economic outfall affected the spending
habits of many people. The losses incurred by those directly involved
has affected the immediate families and in many cases changed their
lifestyles and attitudes.

Product innovations and technological changes

Microprocessors, semiconductors, memory storage, and speeds of
computers is ever changing and as the technology improves so must
Apple. Many product innovations are being driven in the areas of
miniaturization. Companies are spending millions of dollars to provide
themselves a position in being the one to make the next innovative
improvement. Customers have a desire to possess the latest and
greatest so the combination of the companies trying to create the new
and the customers desire to be first 'on the block' with the new
certainly creates a major driving force.

Firms - entering, exiting, or mergers

Entry into the microprocessor and semiconductor world would be rather
difficult especially since the main players have already staked their
territories. Much of the computer hardware industry has defined
players and market share percentages allotted with a few shuffles
taking place among them. Niche companies are being mergered or bought
out by the larger companies so the larger ones make some small gains
from time to time. The music industry is different since it does not
require the capital outlay that would be incurred if entering a
hardware market. The same applies to the software developers. New
software developers can infiltrate the industry and music related
equipment providers can easily provider newer systems or a different
avenue for accessing the music clips.

The need to remain competitive on both fronts keeps everyone moving
forward. The differentiation in the Apple operating system can hinder
the amount of software being created but this works against the
company because few products are available to use on their computers.
Competitors that can affect the direction of the company can easily
copy the iPod and iTunes sectors.

Increased globalization of industry

Companies are surfacing in the global markets. Many companies in other
countries are driven by their desire to capture a large market share
on their side of the world or by governments pushing them to enter
into the global systems. China is a country that is pushing their
companies to compete in the global world. These operations affect the
direction of the companies that have been trying to infiltrate these
foreign places, especially when the governments impose tariffs against
the foreign entrants. An American company selling in China cannot
promote product differentiation when the consumers know that the same
Chinese company is making the parts for both computers but the parts
just receive different labels as they exit the facility.

Changes in cost and efficiency

The product life cycles have become shorter as technology advances and
consumer whimsical purchasing changes. The mode forces increases in
need for being innovative. Innovation and competitiveness cost the
companies a considerable amount of money that has a direct affect on
the profits. Matters worsen as competitors cut costs when providing
their products to market. Apple moved into the retail world by opening
65 stores so costs increased considerably but it will take time to
learn if the efficiency of their sales increased proportionately.

Apple's different operating system also incurs addition costs in the
selling and administrative costing realms. Apple must provide
consumers with superior or value added equivalents to justify the
higher prices for their products.

Regulatory influence and policy changes

Government regulations will continue to change domestically and
abroad. Environmental issues have been part of Apple's proactive
approach to being environmental stewards. This cost must be absorbed
into the products being manufactured. Money spent on cleaning up or
providing cleaner operations does not add to the value of the product
production so it is a negative affecting cost that must be incurred.
The choice of not being a good environmental steward could backfire
and be far more costly than the amount being spent to do it up front.
Entry into the global markets will encounter regulations imposed by
the different governments.

Changes in degree of risk and uncertainty

Apple components and products are ordered before manufacturing begins
so forecasted sales dictate how much should be ordered. If the sales
do not occur then the orders may have been more plentiful than
required and excess inventory could adversely affect the company. New
innovative product may be presented to the consumer and make the
present inventory obsolete so the company again stands to incur all
the risk and face uncertainty of the future.

Apple components may not be as plentiful when ordered from third
parties because their systems control only 2% of the world market
share so many suppliers would want to focus on the Wintel operating
system that controls 90% of market share. Their ability to sell
products would be much easier even with the additional competition.
Apple's control of those that do produce components for them is
limited and subject to much risk and uncertainty.

Third parties also provide the music and manufacturing of iPods for
Apple. Material restriction or higher cost of licensing materials
could adversely affect the company. Forecasting availability of
product or music clips could be risky since these third party members
hold control.



Internal Analysis
=================


Organizational description
--------------------------

Apple's employee count in October 2004 was approximately 10,912 with
sales per employee documented at $770,513. The company is located at:

1 Infinite Loop

Cupertino, CA 95014

United States

Telephone: (408) 996-1010

Facsimile: (408) 996-0275

The officers and their positions to date are listed as:

Steven P. Jobs Chief Executive Officer and Director

Peter Oppenheimer Chief Financial Officer

Timothy D. Cook Executive Vice President, Worldwide Sales and
Operations

Nancy R. Heinen Senior Vice President, General Counsel and Secretary

Philip W. Schiller Senior Vice President, Worldwide Product Marketing

Ronald B. Johnson Senior Vice President, Retail

Jonathan Rubinstein Senior Vice President, Hardware Engineering

Bertrand Serlet, Ph.D Senior Vice President of Software Engineering

Sina Tamaddon Senior Vice President, Applications

Avadis Tevanian, Jr., Ph.D Senior Vice President, Chief Software
Technology Officer

Its stock is divided as follows

1,063 institutions own 67.5% of the 387.93 million common shares
outstanding. This is higher than the average institutional ownership
of the Computer Hardware Industry at 50.7%, and higher than the
average of the S&P 500 as a whole which is 65.2%.


Corporate Vision/Mission
------------------------

A computer for every man, woman, and child on the planet.

Apple is committed to bringing the best personal computing experience
to students, educators, creative professionals and consumers around
the world through its innovative hardware, software and Internet
offerings (Apple website, 2004).


Long and short range objectives (S&P Apple financial report, 2004)
------------------------------------------------------------------

Financial objectives

Apple's revenues have risen 32% to $5.93 billion during its last 3
quarters of operation. This is an increase of $170 million compared to
$27 million from previous year. The change is attributed to increased
sales of iPod and Macintosh units and decreases in restructuring
costs.

Revenue for fiscal year end 2004 is expected to be 27% and an
additional 13% is forecasted for 2005 end year. This is contingent to
a continued economic recovery, new product introductions and
additional retail store openings. Apple's introduction of its iBook
has been favorable but Power Mac sales have been disappointing.

Continued store opening may accelerate increases in revenue. Apple
projected 88 stores by end of fiscal year 2004. The introduction of
the iPod mini is expected to reduce sales of the iPOd, reducing gross
margins slightly.

The computer hardware environment continues to be weak but Apple has
fared well during the downturn and is anticipated to improve as the
economic sectors trend upward. New products and retail store strategy
have been paying off in terms of earnings. Technological spending
levels might continue to deteriorate and additional challengers to
Apple's iPod are expected. Market share losses in the PC segment might
continue.

Apple must continue to watch competitor's entry into the music sector
in effort to protect its iPod market share. The introduction of the
mini-iPod and future developments can counter competitor entry. The PC
sector must develop an innovative technological breakthrough that will
surpass Wintel operating system performance so as to enhance product
sales. Focus might be directed to improvements in the graphic and
creative design segments of the Macintosh platform. Apple continues to
fare well against the industry (as illustrated in Table 07 below).

[IMAGE]

Strategic performance

Continued store opening may accelerate increases in revenue and while
the introduction of the iPod mini is expected to reduce sales of the
iPOd it is an innovative introduction that stays ahead of competitors.
The company continues it restructuring. The termination of
manufacturing operating in Singapore and associated headcount
reduction was favorable. PowerSchool product elimination also helped
with the recovery. This restructuring will save about $6 million in
quarterly operating expenses.

Business Strategy (2003 Apple Annual report, 2004)

Digital Hub

Apple provides personal computing experiences to students, educators,
creative professionals, businesses and consumers around the world
through its innovative hardware, software, peripherals and Internet
offerings, including .Mac and the iTunes Music Store. It believes that
the attributes of the personal computer, including its ability to run
complex applications, possess a high quality user interface, contain
large and relatively inexpensive storage, and easily connect to the
Internet in multiple ways and at varying speeds, can individually add
value to these devices and interconnect them as well. Apple designs
and manufactures the entire personal computer - from the hardware and
operating system to sophisticated applications and provides innovative
industrial design, intuitive ease-of-use, and built-in networking,
graphics, and multimedia capabilities. It offers digital hub products
and solutions and provides interoperability with peripherals and
devices from other companies.

Retail

The Company has opened 65 U. S. retail stores by end of fiscal year
2003. It opened and additional 9 stores during the first quarter of
2004, including its first international store in Japan. The stores are
opened in high traffic locations in quality shopping malls and urban
shopping districts. The company's main goal is to bring new customers
to the Company and expand its installed base through sales to both
first time personal computer buyers and those switching to the
Macintosh platform from competing operating system platforms. It can
do this by controlling the customer experience. Store employees are
experienced and knowledgeable. The retail stores provide a medium for
presenting entire computing solutions to users in areas such as
digital photography, digital video, music, children's software, and
home and small business computing.

Education

The company has spent 25 years focused on the use of technology in
education. Apple believes that integrating technology into the
classroom will result in higher levels of student achievement.
Products such as eMac and iBook that are designed to meet the needs of
education customers, video-editing solutions, wireless networking
capabilities, student information systems, one-to-one learning
solutions, and high-quality curriculum and professional development
solutions.

Creative Professionals

The creative professional makes up the most important market for Apple
and third party developer products. These customers use the Company's
products for a variety of creative activities including digital video
and film production and editing; digital video and film special
effects, compositing, and titling; digital still photography; graphic
design, publishing, and print production; music performance and
production; audio production and sound design; and web design,
development, and administration. The Company's operating system, Mac
OS X, incorporates powerful graphics and audio technologies and
features developer tools to optimize system and application
performance when running powerful creative solutions provided by the
Company or by third-party developers.


Employee relations
------------------

It has been said that apart from Macintosh, Apple's greatest
contribution to the computer industry was its talented engineers, who
carried the torch to other firms. Steve Jobs predicted it well,
saying, just before Macintosh's introduction, "Going out of the
eighties, you know there won't be a Mac group. Burrell will be off in
Oregon playing his guitar. Andy will be writing the next great
American novel. Who knows what? But we'll be scattered all over the
globe doing other amazing stuff." (Macintosh, 2004).

Apple employees are still dedicated, loyal, and honest to date. The
bosses have changed a few times but the main leader is back and he
works hard on taking care of those that work with him. Apple maintains
a a stable employee relationship environment. Partnership is firmly
embedded in Apple but resources are continually needed to sustain it
as the existence of viable partnership arrangements and processes
remain long-term goals (Apple case study, 2004).


Products and services
---------------------

Apple Computer, Inc. designs, manufactures and markets personal
computers (PCs) and related software, peripherals and personal
computing and communicating solutions. Its products include the
Macintosh line of desktop and notebook computers, the Mac OS X
operating system, the iPod digital music player and a portfolio of
software and peripheral products for education, creative, consumer and
business customers. The Company sells its products through its online
stores; direct sales force, third-party wholesalers and resellers and
its own retail stores. As of September 2003, Apple operated 65 retail
stores. In addition to its own hardware and software products, the
Company's retail stores carry a variety of third-party hardware and
software products. (Reuters, 2004).

Hardware Products

Power Mac®

Xserve® and Xserve RAID Storage System

PowerBook®

iMac®

eMac

iBook®

Peripheral Products

iPodâ„¢

Displays

Software Products and Computer Technologies

Operating System Software

Server Software and Server Solutions

Professional Application Software

Consumer, Education and Business Oriented Application Software

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Corporate culture, values, and morals
-------------------------------------

Steve Jobs is Apple. The company began with him as leader and then
lost him during the middle years as the company fell on its face. His
return has rejuvenated the Company. While he believes in strong
leadership he operates in a laid back fashion but still gets the job
done. The entire company is passionate about its desires to succeed
and return to what it once was technologically. Clicking on the poster
below will provide a greater insight on Apple's culture - think
different (Macintosh, 2004).

#10. Corporate culture

The company logo is a rather odd thing. Who would have considered an
apple after it had a bite taken out of it. What does this have to do
with computers? The people involved in the development of the
Macintosh were artists rather than engineers. They inscribed their
names on the inside of the machines much like an artist would his/her
painting. In 1988, Apple began its 'Think different' campaign and it
signified what Apple people were about. Employees were loyal and
devoted computer fans, sometimes bordering on the fanatic. They
continuous push to work outside of their standard paradigm. Apple's
culture is innovation, proud and loyal. Gina Caamano expressed her
thoughts of what Apple was in 2000. Her comment follows:

When I began my journey at Apple I was young and passionate about what
"Apple" stood for. It was a company that valued it's people and
offered an abundance of opportunities I knew it was unique and special
and I wanted to be a part of it. Throughout the years, there were many
lessons I learned. It taught me to be adaptable, pushing me to the
limit, at times, to grow with it's rapidly changing environment. With
Apple, nothing was ever secure nor predictable. When things became too
comfortable I knew they would change soon enough. I've seen Apple at
it's best and I've seen it at it's worst I've grieved for Apple's
failures and I've cheered it's successes. I always felt proud to be a
part of such a special and innovative company. There was never a dull
moment. Fifteen years later, as I close this last chapter And prepare
to move onto a new path I look back at all the gifts Apple has given
me And I give thanks for all of them -the incredible people I met whom
some are now cherished friends, -And others who have shared the
"Apple" experience with me. Apple will always hold a special place in
my heart. Since so much of my heart went into Apple (Caamano, 2000).


Core Competencies
-----------------

Apple's core competencies are focused in the markets of education and
the creative professional worlds. Apple has proved its superiority in
both of these areas and continues to focus on them. Apple has built an
unquestionable strategic position in the K-12 grade educational
programs.

It has begun to expand its retail outlets to bring the computers to
the people and is making great strides in the iPod and iTunes music
world. The innovations have been retaining customer's focus and have
returned healthy profits.

Apple's focus on its key factors of success is driven to improving and
retaining the iPod segment. It is also determined to continue
improvements in the creative professional software and hardware
realms. Operations are in tune with the company and with third party
suppliers and designers. Apple knows that it has a superior product
and it hoping to bring this superior product to the people through its
retail outlets.

Apple controls the hardware and software production so it can
determine its own future especially since it is not stuck in the
Wintel operating system world and battling all of the competitors for
a share of that particular market. It can proceed to corner its own
niche while pursing increased growth in its own operating system. It
must find a way to convince others to join in the promotion of
hardware and software components for this reliable operating system.



Financial Performance (Morningstar.com, 2004) and
(Moneycental.msn.com, 2004).
=================================================

Liquidity

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Liquidity

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1998

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1999

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2000

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2001

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2002

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2003

Inventory Turnover (Merch Inv T/O)

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17.3

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90.6

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219.5

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187.6

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147.8

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89.1

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Current Ratio

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2.43

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2.77

2.81

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3.39

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3.25

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2.5

Days Inventory (Inv T/O in days)

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21.1

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4

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1.7

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2

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2.5

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4.1

Operating cycle = days sales outstanding / days inventory

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115.49

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22.06

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9.11

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10.67

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13.55

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22.48

Inventory Turnover measures how quickly a company sells the products
it produces, i.e., how efficient its marketing efforts are. It is a
measure of basic efficiency. Inventory Turnover went from a weak 17.3
times annually to a high of 219.5 times in 2000 but has since
regressed to about 89.1 times annually mainly due to the slow economy
and other outlying factors since the computer industry began heading
'south' in 2001. Apple continues to rank extremely well when compared
to industry at 48 times, sector at 14.4 times and S&P 500 companies at
12.3 times. It ranks at the 93rd percentile in its industry.

Efficiency Ratios (TTM) AAPL Industry Sector S&P 500 Rank in Industry

Inventory Turnover 87.5 48.0 14.4 12.3 93

Current Ratio 2.9 1.3 3.1 1.8 73

Information taken from Fidelity.com

A company operating cycle indicates the time between the acquisition
of inventory and the realization of cash from sales of inventory. The
shorter the time the better the company is able to turn inventory into
cash in hand for continued operations. In 1998, Apple use to take up
to 115.49 days to turn the inventory into cash. In 2000 they were able
to get money into their hands at a very quick turn of 9.11 days. The
market slowdown has lengthened the inventory to cash turnaround to
22.5 days.

The current ratio (current assets / current liabilities) has increased
gradually since 1998 to its 2003 number of 3.25. The higher number
indicates that the company would be more than able to meet short-term
obligations. The higher the number the more liquid the company is.
Industry standards for the computer sector are at 3.1 so Apple is
better in comparison. It is in much better position when compared to
industry and S&P 500 companies. Apple ranks in the 73rd percentile in
current ratio documentation.

Inventory turnover in days took a very long time in 1998 but showed
drastic improvements into its best year (2000 with 1.7). Turning over
inventory in 4.1 days is still great.

Profitability

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Profitability

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2000

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2001

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2002

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2003

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Return on Assets

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7.25%

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12.72%

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13.14%

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-0.39%

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1.06%

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1.05%

Return on Operating Assets = Operating Assets / Average Operating
Assets (TA)

6.09%

6.96%

7.67%

-5.71%

0.27%

-1.01%

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Return on Equity

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25.04%

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29.12%

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22.08%

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-0.62%

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1.62%

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1.66%

Net Margin

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5.20%

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9.80%

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9.85%

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-0.47%

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1.13%

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1.11%

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Gross Margin

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24.90%

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27.60%

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27.10%

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23.00%

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27.90%

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27.50%

A company always wants to know where it stands when it comes to
profitability and many different calculations are made available so
that managers can quantify them. A company's return on assets takes
the amount of net income received and divides it by the beginning and
ending total assets (otherwise termed average total assets). The
beginning and ending total assets are added together and divided by
two to get an average. The resulting number lets the manager know how
well he/she is utilizing the assets to generate profits. Apple
provided a generous return in 1999 and 2000 but fell off the cliff in
2001. It has made it into the positive side of the equation in 2002
and 2003 but the numbers are not anything worth bragging about.

Return on equity is the income earned on the shareholder's investment
in the company. Apple performed well from 1998 through 2000 but went
negative in 2001 with only a modest improvement in 2002 and 2003. The
pattern here is the same as with return on assets. Apple has been
under performing compared with industry, sector, and S&P 500
companies. While it has shown improvement in 2004 it is still behind
the numbers required to show that it is performing well.

Management's effectiveness AAPL Industry Sector S&P 500 Rank in
Industry

ROA for TTM 3.1 9.1 8.9 7.1 75

ROA Past 5 Years 5.5 9.1 5.8 6.6 84

ROI for TTM 4.5 17.9 12.3 10.9 71

ROI Past 5 Years 7.9 17.4 9.2 10.7 72

ROE for TTM 4.8 31.7 16.1 19.6 70

ROE for Past 5 Years 10.4 31.0 13.1 19.0 80

Information taken from Fidelity.com

Apple's net profit margin (or return on sales) is a measure of the net
income generated by each dollar of sales. The increase in net margin
to 9.8 and 9.85% in 1999 and 2000 was positive for the company but
again 2001 went negative. Returns in 2002 and 2003 are only modest.

Gross profit margin is the relationship between nets sales and costs
of goods sold (beginning inventory) plus purchases minus ending
inventory. A comparison of this number with industry data provides
information on whether the company had insufficient volume and
excessive purchasing or labor costs. Apple's gross margin has remained
stable during the ups and downs of all the other indicators. It has
fared below industry, sector, and S&P 500 companies and ranks in the
50th percentile so this is not good.

Profitability Ratio AAPL Industry Sector S&P 500 Rank in Industry

ROA for TTM 3.1 9.1 8.9 7.1 75

Gross Margin TTM 27.2 29.8 54.0 47.9 56

Gross Margin for Past 5 Years 26.6 30.4 52.5 46.6 57

Long
Term...................................................................................................................

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Long Term Debt

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2000

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2001

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2002

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2003

Debt ratio - Total liabilities / total assets

61.72%

39.86%

39.63%

34.89%

35.03%

38.03%

Debt / equity ratio - total liabilites / SH equity

161.21%

66.27%

65.64%

53.60%

53.80%

61.38%

Debt to tangible net worth = TL / (SHE - intangible assets)

161.21%

66.27%

65.64%

53.60%

55.41%

63.00%

Debt ratio is the total liabilities divided by the total assets. A
company tries to maintain a reasonable balance of the amount of debt
that is acceptable to management and investors. Apple was over
extended in 1998 but has since reduced it to a reasonable high 30%
level so it would not appear to uncomfortable from the investor's
perspective.

The opposite side of the debt picture is how the debt compares to
shareholder equity. Again, Apple was on the extreme high side in 1998
but it got better into 2002. It has worsened slightly in 2003 but not
to the point of being alarmed. The debt to tangible net worth just
removes any intangibles from the equation and is generated to provide
a better perspective on how the company stands when goodwill or
trademark values are taken out of the equation. Apple saw difference
only in 2002 and 2003 when goodwill was subtracted but the difference
was not high enough to create any concern for making change.

Efficiency Ratios (TTM) AAPL Industry Sector S&P 500 Rank in Industry

Total Debt to Equity 0.0 0.4 0.2 0.8 90

Long Term Debt to Equity 0.0 0.3 0.2 0.6 82

Information taken from Fidelity.com

Investor

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Investor

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1998

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1999

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2000

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2001

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2002

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2003

Diluted EPS, Cont Ops$

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1.05

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1.81

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2.18

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-0.11

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0.18

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0.1

Diluted EPS$

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1.05

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1.81

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2.18

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-0.07

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0.18

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0.19

Price / Earnings Ratio Apple

18.2

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17.5

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11.8

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80.6

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Price / Earnings Ratio S&P

32.9

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36.6

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32

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30.5

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24.2

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26.5

Dividend Payout

0

0

0

0

0

0

Dividend Yield

0

0

0

0

0

0

Apple has not paid dividends for a number of years, even during the
profitable times. That results in a zero dividend payout and dividend
yield. An earnings per share is a calculation of the total earning
divided by the number of outstanding shares. Diluted earning per share
takes into account all warrants and stock options if exercised and all
convertible bonds and preferred stock if converted. Apple does not
have a lot of outstanding warrants or stock options so the diluted EPS
and diluted EPS from continued operations do not differ significantly.

Apple's price earnings ratio was better in the 1998 to 2000 years but
has since gone sour in 2002. When compared to the S&P's ratios the
ratios were better for Apple in years mentioned above but were not
favorable in 2002.

Year end market price per share

Fiscal Year 2003 versus 2002 (2003 Apple annual report)

Net sales increased $465 million (8%) in 2003 compared to 2002. The
company's 3% loss in Macintosh units sales were carried by the
positive retail segment sales that increased by 119% ($621 million in
2003 versus $283 million in 2002). Peripheral and other hardware sales
rose 57% ($384 in 2003 compared to $287 million in 2002) of which $347
million were in iPod sales. Sales were prompted by iPod redesigns that
were compatible with both Macintosh and Windows operating systems
combined with iTunes introduction.

Portable systems sales were driven by the consumer purchases of
247,000 PowerBook units while iBooks unit sales were down slightly.
Software purchases increased $55 million compared to the prior year.
New software titles were introduced during the year and helped along
by the retail outlets.

Services and other sales were also positive to a tune of $69 million
from nets sales associated with AppleCare Protection Plan (APP)
extended maintenance and support services plus its Internet related
services. All of the positives were offset slightly with the decreased
desktop system movement. IMac systems sales declined 16% and Power
Macintosh systems fell 13% as consumers shifted to the portables and
the waiting for the Power Mac G5. The release of the G5 increased
sales by 26% during the fourth quarter. Professional and creative
customers patiently awaited certain software vendor transition their
professionally oriented Macintosh software applications to run
natively on Mac OS X.

The education channel sector was weak in the U.S. due to less sales of
K-12 grade product. Higher education products offset the lower
educational sectors slightly. The sale of lower priced eMac and iBook
systems compared with the pricier Power Mac and iMac also contributed
to the decline. Competition has been tough in the company's one-to-one
learning solutions systems. These declines are reflections of weaken
economic conditions within the U.S., large budget deficits, and
increased competition for desktop computers. The reverse trend is
difficult to forecast. Overall personal computer industry growth has
slowed due to high market penetration of PCs and longer of consumer,
creative, and business personal computer upgrade cycles.

Customize Chart

Next: 1-yr with Indexes Next

Chart Graphic

Information taken from Fidelity.com

Since 1994 Apple has under performed when compared to the S&P 500
index and the Nasdaq Composite. It has generally followed a trend
similar to the Nasdaq is following a weakened pattern. It seems to be
gaining on both of the indicators into the end of 2004 so the picture
seems much brighter but can Apple continue to grow in markets that are
easily copied by competitors.

Strengths

Product differentiation

When Apple first hit the market in the early 1980s it had a product
that differentiated it from all other computer products on the market
but it failed to capitalize on what it had. The system continues to be
strength for the company since its closed operating system is not
subject to the computer viruses and hacking that affects the Microsoft
Windows operating system. The small market share controlled by Apple
can be increased every time Microsoft encounters problems.

Apple's system for graphic and architectural production and design is
far superior to any Windows application and this strength should
receive considerable advertising to capture more of that niche market.
Apple cannot not continue to make the mistakes it has made in the past
when it could have countered the Windows upgrades as they occurred.
The Macintosh's high-resolution graphics and ease of advantage over
MS-DOS had made it a natural for software developers who created the
"desktop publishing" segment, which was widely credited as saving
Apple and the Macintosh (Kawasaki, 1990)

The iPod and iTunes markets are strengths but they can be easily
copied by competitors and are subject to the control of third parties.
At present it does control the market but without pursuit of a core
competency that cannot be easily imitated by others it will fall off
of the strength category.

Brand name and image

Branding of products help in keeping consumers abreast of the company
products. Whenever a company established a popular brand name or image
it can reap some benefits. Some of the benefits associated with the
name recognition is the ability to reduce advertising from the
recognition perspective. Apple computers got its name from Steve Job's
favorite fruit. He has run three months late in filing for a name for
his company and threatened his colleagues that he would call the
company Apple Computers if they were unable to come up with something
better by 5:00 pm that day. His friends didn't so the name stuck. The
brand has some to be known for its superior quality and aesthetics. It
is valued in the graphic world for having an operating system superior
to any Windel platform. The innovations in the music industry have
been linked with Apple's brand name and its quality products and
services.

Manufacturing both hardware and software

Steve Jobs is pursuing the combination of hardware and software
manufacturing and does not intend to lay off any of his employees
since they are what make Apple successful. Apple will continue to run
lean while management pursues the business of making machines and
applications that even their most stringent critics regard as some of
the best in the business (Barker, 2003).

Apple does manufacture both hardware and software for its computers so
it has the ability of controlling design so that it appeals to the
functional uses and aesthetics required by consumers. Some of Apple's
clients are web designers and its computers provide the specific
hardware and software needs to accommodate them. Output is found to be
impressive both for customers and their clients. Apple is providing
the most affordable 64-bit technology and a new operating system OS X
in effort to position itself in the scientific and academic high
performance computing tasks (Robe & Circlaeys, 2004).

Diversified markets

Apple has built an alliance with Sony and Ericsson with aims at
capitalizing on the broadband wireless market in the future. Apple's
launch of iSync software in 2003 allows synchronizing of personal
information management applications and devices such as mobile phones
and hand-held computers (PDAs) (Barker, 2003).

Weaknesses

Economic and political uncertainty

Apple's operating performance is affected by the economic and
political uncertainty that shadows the United States. Education
entities have postponed purchases due to budget cutbacks and
shortfalls. Businesses are not expanding and employment reductions in
force have provided less disposable income reducing sales. Failure to
improve could continue to affect the company and its suppliers
negatively. The entire tech market has been weakened by the economic
and political uncertainty as well as other constraints.

War, terrorism and public health issues

The wars in Iraq and Afghanistan have caused economic unrest that has
melded into the computer and electronic sector and slowed sales. The
warring factions have gone beyond the borders and disrupted commerce
through terrorist actions such as bombings. The best example is the
attack on the New York Twin Towers, the Pentagon, and Spain's railway
station. These aggressive acts cause a negative impact the economy
that directly affects Apple and its competitor's sales and
distribution channels.

Research and development costs higher than competitors

The market requires that participants continually provide innovations
and competitive products and technologies. Apple has been working
extremely hard to accomplish this and in doing so is spending more
money for research and development that its competitors. This
increased spending negatively affects its profit margin and with
competitors cutting prices on their products it makes it difficult to
compete on the same playing field.

Selling, general, and administrative costs are higher than competitors

Expansion into the retail 'bricks and click' world has increased
Apple's costs. Marketing fees for advertising its unique operating
system and new equipment again affects the bottom line, even though
they are necessary expenditures. Competitors are able to enjoy the
luxury of utilizing operating systems, in Windows users case, that
controls a considerable amount of market share so they do not have to
spend anywhere near as much to promote their operating system. Apple
has to focus on creating more awareness not only of its products but
also of its operating system. It must continue to develop innovative
products that offset the expenditures of these group costs.

Component order placement places company at risk

Components and products are ordered before the computers are
manufactured so if something occurs that represses sales the company
is vulnerable because of the high priced inventory that it retains.
This occurs because pricing competition is ever going so to purchases
of components and products at present day cost would usually be lower
than prices paid for what is presently in inventory. The worst-case
scenario is having inventory become obsolete and then having to be
written off of the financials. Cancellations of orders usually result
in cancellation fees that still affect the companies' financial
position.

The process of production requires that a company forecast possible
sales so that they can order the products and components necessary for
being able to manufacture a desired output. If they are not ordered
then the competitor will have the upper hand in getting product to the
consumer first. The risk is in making incorrect forecasts. Apple
components may not be as plentiful from vendors since their market
share is smaller and the operating systems are different. This puts
the companies with the Windows operating systems at an advantage since
Apple could run into a problem procuring a sufficient supply of
components.

Apple relies on third parties

Apple relies on third parties for music and for manufacturing. This
can affect the costs being relayed to the consumer. The music sales
have been profitable for Apple but they have to contend with the fact
that the material is in the control of third party representatives.
The fees for having access to these materials can be extremely
expensive. Another concern is being outbid or restricted from being
able to provide the contents previously provided. Most of the
licensing agreements are short-term and do not come with a guarantee
that the materials will be licensed in the future. Some music industry
parties have announced that consolidation of their distribution might
occur in the future. A move such as this would restrict availability
of material for Apple's iTunes Music Store and drive costs upward so
that they might not be as attractive as they are now. iPod sales could
decrease rapidly if material restrictions occurred and Apple would
remain at the mercy of these third-party controllers.

The music coming from third parties is not the only thing that Apple
should be concerned with. It also has third parties manufacture it
products. The company also out sources much of its transportation and
logistics management. Outsourcing does lower the fixed operating costs
but this is at risk of not having any or at most restricted control.
Quantity output and quality of manufacturing are in the control of the
third party supplier/manufacturer. The company is ultimately held
responsible in the end, especially when defects or other liabilities
surface. This is another risk that Apple must contend with.

Apple is also reliant on Motorola and IBM for processor chips so if
these companies run short or increase the price on the chips Apple
must either absorb the cost or pass it along to consumers. Either of
the two scenarios is highly likely especially when the tech market is
recessed.

Apple is faced with multiple weaknesses that it cannot control. Each
of them or a group of them could affect its operations in a negative
direction and Apple will be faced with more hardships than what it
encountered in the past. Management must look at how these weaknesses
can either be bridged in effort to minimize risk or turned into
strengths.



Recommendations
===============

Recommendation 01

Apple should continue to support the educational and creative
professional markets.

Pros:

Apple is the company with the best systems in place for each of these
markets so they should focus on continued support for each in a
restrictive manner. Cost of supporting such programs in a niche market
sense should be reviewed financially so that R&D costs do not pull the
company into an impossible position of making a profit.

Apple can better integrate its operating systems so that they operate
within the Wintel operating platform but are not subjected to the
Wintel operational problems. Apple has shown to be a better operating
system that is less vulnerable to problems encountered by Microsoft
and its fellow operating system packages. It should promote this while
melding its operating platform operation into a subunit of the Wintel
platform.

Apple should negotiate contracts with the government and the school
systems in each state for offering improved success rated teaching
software and hardware. Apple's products have been documented as
providing students with improved scores so Apple should flaunt these
successes with focused experimenting in regions of certain states.
Continued successes could create a widespread need for these products.
The systems can run independent of other Wintel operating platform
computers already being used. This integrating within the school
systems engrains the Apple name in all of the youngsters in the United
States and even abroad once successes are shown to be ever
sustainable. Younger generations will remember the systems they used
when in school and will be swayed to purchase such recognizable
products in the future.

Cons:

Apple's market share in the PC supported world has dropped to 2% and
could be costing the company more money than it is worth. It has
continued to lose market share from the 5% level down to the 2% level
and this drop might continue unless they are able to come up with some
miraculous innovation that revolutionizes the computer world.
Extensive R&D costs to maintain innovative product improvements may
get to the point of not being feasibly sound economic decisions.
Extensive review of financials should help determine the feasibility
of continuing with these two programs. If the review finds that the
future will only bring losses then the company should abandon
continued growth or spin-off this segment of operation so it does not
detract from profits in the iTunes or iPod sectors.

Recommendation 02

Apple should consider infiltration of the business sector with an
Enterprise Resource Planning (ERP) system merger.

Pros:

Apple can consider increased marketing to specific segments in the
business environment. Its ability to operate without major programming
issues makes it a lucrative system for accounting or financial type
businesses. Loss of data, either through a system crash or invasion by
hacker's programs, is detrimental to any business operation. Apple has
the ability of producing and controlling its hardware and software. A
merger of operations with Peoplesoft, Oracle, or SAP could provide a
positive financial influx that will provide continued life to Apple's
operating system platform.

The learning curve for many ERP supported programs is lengthy and when
combined with the need of learning an operating system subject to
problems it becomes even longer. Apple provides an easy to use
operating system and user friendly operations that can be taught to
even the smallest children so older computer-illiterate employees can
easily learn to operate quickly. This lessens the computer
intimidation and allows for focusing on learning the ERP program that
will be modified to fit the same easy to use formatting. This would be
a big plus for the employer and employee.

Cons:

· Apple's might lose control of some of its operation when merging
with an ERP company. Management might not be willing to share
operating platform information with this ERP company making it
difficult to perfect such a blending of operational systems.

Recommendation 03

Apple should consider all work related to its operations in the iPod,
iTunes, iSync, and iChat sectors.

Pros:

Apple must continue to spend R&D dollars in finding new innovative
ideas that will continue to lead the competitors. It can focus
marketing to the different age groups. Advertisement to the younger
crowds can utilize pop stars, business people can hear advertising
messages from influential people such as Donald Trump, and older folks
can be influenced with advertisement from movie stars such as Leonard
Nemoy or William Shatner, of Star Trek fame.

Apple should get the iPod and iTunes systems into the schools systems.
It should work with teachers and other academic driven management to
have these systems made available for students. Promote sales of these
products while returning specific sums back to the school for support
of other academic programs could benefit word of mouth advertising.
Apple could reward high academic achievers with new iTunes materials.
This would promote the product and educational achievement
simultaneously.

Consider linking up with Sirius or XM Satellite radio for promotion of
iPod and iTunes since their markets are increasing at rapid rates.
Both of these companies are infiltrating the automotive industry with
their product and a tie in with them might help promote Apple's line
of products in the music industry as well as store openings and
educational and creative profession products.

Cons:

Competitors can come up with ideas faster then Apple. A competitor
coming up with a new idea that steers sales in their direction could
be harmful to Apple's financial pocketbook. Apple relies on third
party suppliers so its inventory might remain high if such a
competitor surfaced. Price reductions would ensue as parts price
decreased making losses worse as time passes.

Recommendation 04

Apple should continue opening its retail outlets so long as they
remain financially successful.

Pros:

Apple has been successful with the opening of 88 retail stores,
including the one in Japan. It should continue to open these stores so
long as the profits continue. Real estate purchases for these stores
should be in prime locations only should the need for selling arise in
the future. The opening of these stores has brought the product to the
people so that they can easily see, touch, and play with the systems
with personnel available to provide assistance and information.

Franchising of stores should also be considered so that costs to Apple
are reduced. They could still control sales and system operation
without the excessive cost outlay. A franchisee will work harder at
promoting the product since their livelihood is tied to the success
more closely than an employee. Apple already has data accumulated that
shows employees obtain so much training and then 'abandon ship' for
better paying positions elsewhere. Franchisees would not just leave
since they have a vested interest in the success of the store.

Cons:

Being so wrapped up in opening stores that management does not want to
admit failure if profits start dropping off. Each store opening should
be viewed economically so that the law of diminishing returns is
applied overall. When the numbers show that the company is approaching
the even mark or goes negative then it must consider whether to
continue support of the existing stores or cutback of the less
profitable.

Apple has a number of avenues open for them and has made a strong
comeback. Profits look good in the future as the economic picture
expands and improves. It was able to make profits during the slow
times so it should be able to do much better as everything improves.
Its biggest challenge will be determining the best way to continue
supporting of its operating platform when it holds only 2% of the
market share. It seems rather costly with the continued losses.
Management evaluation is needed in this area for sure.

Apple's opening of retail shops has opened the doors for bring
products to the consumer. It should consider franchising to reduce it
overall costs of operations. All advertising should include blurbs
about store openings near customers. Apple should aggressively promote
hardware, software, and peripheral products through its retail
outlets. Market awareness might help increase market share beyond the
5% it once held a few years ago.

Apple should also take its profits and spend it wisely so that growth
and innovations continue. It must realize that not all of its ventures
will be profitable and must determine the best approaches that should
be taken when a sector begins to produce those needed profits. The
four recommendations above can help provide direction for Apple but
they must reevaluate continuously since the market is moving quicker
each day.


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