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Apple Computer Comprehensive Case Analysis

Industry Summary

Apple Computers standard industrial classification (SIC) is 3571. SIC 3571 is used for companies that

manufacture computer hardware. The top computer hardware manufacturers by sales are IBM, Hewlett-Packard

Compaq, Dell Computer, Cisco Systems, Sun Microsystems, Xerox, EMC, Seagate, and Gateway. Growth in thcomputer hardware industry in the United States is predicted to be slow because of the recession and market

saturation. Consumers are holding on to their computers because they are adequate for now. According to

International Data Corp, the industry was supposed to grow 16.6% in 2001. 16.6% growth is good for someindustries, but not computer hardware manufacturers. The computer hardware industry will not see a lot of

growth in the United States until the current recession ends

Hewlett-Packard and Compaq are attempting to merge to make the worlds largest computer hardware

manufacturer. Hewlett-Packard and Compaq together would have 87 billion dollars in earnings a year, operationin more than 160 countries, and over 145,000 employees. Although Hewlett Packard and Compaq claim the

merger will benefit customers, some critics believe a monopoly will be created and consumers will pay higher

prices.

Company Summary

Steve Jobs and Stephen Wozniak founded Apple Computer in 1976. Their first computer was called the Apple I

Apple was incorporated in 1977. After incorporating, Jobs and Wozniak introduced the Apple II computer.

Apple went public in 1980. Investors were eager to buy stock in a company on the cutting edge of technology. A

of Apples shares were sold in a few minutes.In 1983 Apple introduced the Lisa computer, which was the underpinning for the Macintosh computer. The Lisa

and the Macintosh had graphical user interfaces that were easy to use.

Jobs tried to take over Apple in 1985, but President and CEO, Sculley, stopped him with the support of the boardJobs resigned and Wozniak left to start his own company soon after.

Apple faced some hard times over the years competing with Microsoft, IBM compatible computers, and PC clonmanufacturers. Apple takes pride in being different, but its downfall seems to be that it is too different. Applecomputers are not IBM compatible and over 90% of computers on the market are IBM compatible. Apple has

manage to find a niche in the education and creative markets.

Specific Information

A distinct competency of Apple is the ability to design innovative computers

Apple found its niche in the education (27.7% desktop and 34.7% portable), technical, and business sectors

Apple has an overall market share of 4.5% Apples culture promotes creativity. Casual dress is allowed, workers are given considerable vacation time, and

generous benefits

Apple employs approximately 8,568 people in the United States Apple is headquartered in Cupertino, California.

Mission Statement Analysis and Revised Mission StatementApples Mission Statement

Apple Computer is committed to protecting the environment, health, and safety of our employees, customers and

the global communities where we work and live. We recognize that by integrating sound environmental, health,

and safety management practices into all aspects of our business, we can offer technologically innovative

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products and services while conserving and enhancing resources for future generations. Apple strives for

continual improvement in our environmental, health and safety management systems and in the environmental

quality of our products, processes and services.

Mission Statement Analysis

Apples mission statement is pretty good. It expresses concern for the environment, employees, safety, andcustomers. It tells us that Apples customers are worldwide but it does not tell us exactly who they are. Apples

mission statement expresses concern for being technologically current. It does not say precisely what its product

and services consist of. It does not address concern for survival, profits, and growth. It does address philosophy,concern for public image, and self-concept be expressing a sincere concern for preserving the environment.

Apples mission statement expresses its concern for employees by stating a concern for safety.

Mission Rewrite-Apple Computers mission is to make the most technologically current personal computer and related products o

the market for customers worldwide. Apple strives to give shareholders the best return on their investment in the

industry while maintaining respect for communities, employees, and the environment.

External Analysis Summary

Apple is below average in taking advantage of opportunities. 40-50% of homes in the United States do not havePCs. These consumers need to be targeted and convinced that they cannot live without a computer. Internet use

has grown worldwide. If Apple can get consumers to use an Internet service it is affiliated with, it may be able to

persuade consumers to buy its computers. 40% of worldwide spending on IT is on computer hardware. Apple

computers are not attractive to a lot of consumers because it is not IBM compatible like the majority of PC usersThere is an increasing demand for faster/advanced technology. Although Apple is very good at creating

faster/advanced technology, IBM compatibility is a bigger issue with customers than advanced technology. App

has done a superb job capturing the education market (See EFE matrix).Apples is below average in avoiding threats (See EFE matrix). HP and Compaq are talking of merging and App

stands alone. The economic downturn has hurt all companies in the computer hardware industry. Apple is being

hurt by the recession like other computer hardware companies.Apples EFE score was 1.48 (See EFE matrix). 2.5 is an average score. Apples 1.48 score is well below average

and tells us that Apple is below average in capitalizing on opportunities and avoiding threats. The EFE matrix w

constructed by listing opportunities and threats, assigning a weight to each opportunity and threat, assigning arating to each opportunity and threat, and multiplying weights by ratings. Finally, the weights are added and

compared to the 2.5 average.

Internal Analysis Summary

Apple is below average in utilizing internal strengths to overcome internal weaknesses. Many of Apples

customers are loyal and would never consider purchasing anything else. This loyalty is great but Apple needs toincrease the amount of loyal customers that buy its products. Apple manufacturers and designs computers and

operating systems. Apple is the only company that manufactures operating systems and computers. Apples

online sales are a perfect compliment to its 27 new stores. Apple is targeting customers that will buy on line andthose that like to see what they are buying in person. Apples new stores will most likely increase sales and

improve customer service. The IFE matrix was created by listing Apples strengths and weaknesses, assigning

weights to each one, and ratings to each one, and multiplying the weights by the ratings. Finally, the weighted

scores are added and compared to the 2.5 average.

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Apple is competitively lagging behind the competition with a CPM score of 2.20 versus Compaq (3.52), and De

(3.82). Apple needs to improve its marketing, management, market share, and global expansion to be morecompetitive in its industry. IBM compatibility would be a good start for Apple to improve competitiveness.

Financial Analysis SummaryAccording to our textbook, a current ratio is the extent to which a firm can meet its short-term obligations.

Apples 2001 current ratio is 3.39 (See 3 year financial trend paper). Apples current ratio is better than the

industries and is an improvement from 2000.According to our textbook, a quick ratio is the extent to which a firm can meet its short-term obligations without

relying upon the sales of its inventories. Apples quick ratio is 3.08 for 2001, which is an improvement from

2000, and it better than the industry (See 3 year financial trend paper).

According to our textbook the debt to equity ratio is the percentage of total funds provided by creditors versusowners. Apples debt to equity ratio is .35 for 2001, which is an improvement from 2000, and is better than the

industry (See 3 year financial trend paper).

According to our textbook the long-term debt to equity ratio is the balance between and equity in a firms long-

term capital structure. Apples long-term debt to equity ratio for 2001 is .081, which is an improvement from2000, and is better than the industry (See 3 year financial trend paper).

The Inventory turnover ratio determines helps determine if a company is holds excessive stocks of inventory.Apples inventory turnover for 2001 is 488 compared to 26.02 for the industry. It is an improvement from 2000.

Our textbook says, Total assets turnover is whether a firm holds excessive stocks of inventories and whether a

firm is selling inventories slowly compared to the industry average. Apples total asset turnover for 2001 is .

0891. It was 1.17 in 2000 and is lower than the industry average.Our textbook says, Gross profit margin is the total margin available to cover operating expenses and yield a

profit. Apples gross profit margin for 2001 was 23 (In millions) compared to 27 for 2000, and 30.83 for the

industry in 2001.Our textbook says, Operating profit margin is profitability without concern for taxes and interest. Apples

operating profit margin for 2001 was .9 down from 13.7 in 2001 and compared to 5.61 for the industry in 2001.

Our textbook says, Net profit margin is after tax profit per dollar of sales. Apples net profit margin was .098 2000, .005 in 2001, and 4.77 in the industry in 2001. Apple is got worse from 2000 to 2001 and is not doing as

good as the industry.

Our textbook says, Return on total assets is after-tax profits per dollar of assets. Apples return on total assetswas .116 in 2000, .004 in 2001, and 5.75 for the industry. Apple is getting worse and not doing as well as the

industry.

Return on stockholders equity is profits after taxes for every dollar of shareholder investment. Apples return on

stockholder equity was .191 for 2000, .006 for 2001 and 21.93 for the industry. Apple is getting worse and notdoing as well as the industry.

Earnings per share is earnings that shareholders get to keep. Apples earnings per share was 2.18 for 2000, -.07 fo

2001 and 2.36 for the industry. Apple is getting worse and not doing as well as the industry.Price earnings ratio is how much investors are willing to pay for a firms earnings. Apples PE ratio was 37.2 in

2000, 42.8 in 2001, and 35.6 for the industry. Apple is getting better and doing better than the industry.

Apples sales have increased 18.1 in 2000, and decreased 13.78 in 2001. The industries sales growth ratiodecreased 6.78 in 2001. Apple is doing worse than it did in 2000 and not as well as the industry in 2001.

Apples earnings per share growth ratio increased 26.15 in 2000, decreased 44.2 in 2001, and is worse than the

2001 industry average of a negative 22.78. Earnings per share have decreased for Apples and the industry.

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Alternative strategies Summary

My first SO strategy in the TOWS matrix was offer free computer classes for seniors in the new Apple computestores. This would introduce apple computers to new customers and be good for the community. My second SO

strategy in the TOWS matrix was to offer interest free financing to parents that have children in school that use

Apple computers. The children are already familiar with Apple computers and the parents would be enticed bythe interest free financing. My third strategy in the TOWS matrix is to market computers to consumers globally.

There is a large untapped market that Apple could pursue more aggressively.

My first ST strategy is to advertise on popular web sites. This would increase Internet sales. My second ST

strategy is to offer free computer classes to displaced workers. The workers may purchase Apple computers whe

the get back to work and they will be more employable after completing the computer classes. My third ST

strategy is to make computers that are harder to illegally clone. This would protect Apple from losing profits.

My first WO strategy is to offer discounts to past customers that recommend new customers. They say word of

mouth is the best advertising and who would know better than someone who already owns an Apple product. M

second WO strategy is to offer discounts to AARP members. Older people usually have more disposable incometo purchase discretionary items. My Third WO strategy is to develop a computer that is IBM compatible. IBM

compatibility would make it more competitive because customers would be compatible with the majority of pcusers.

My first WT strategy is to implement a just in time system. A just in time system would cut down on excess

inventory and help the bottom line. My second WT strategy would be to merge with IBM and produce computerthat are IBM compatible. Apple could produce IBM compatible computers or just work in its education and

technical niche if it merged with IBM.

The Grand matrix shows us that Apple is in a slow growth industry and has a weak competitive position. Apple

should consider retrenchment, cocentric diversification, horizontal diversification, conglomerate diversification,

divestiture, and liquidation as strategies. The space matrix confirms that Apple is has a weak competitive positioand is in an industry that is technologically stable but decreasing in sales.

Strategy Recommendation

The two strategies I evaluate in the QSPM are to develop an IBM compatible PC and develop and Apple that is

more competitive with the IBM compatible PCs. After completing the QSPM, developing an IBM compatible

computer was the obvious choice. Developing an IBM compatible PC scored 5.60 on the QSPM and Improvingthe Apple PCs scored 4.46 on the QSPM. Apple is alienating itself from a large part of the market by not being

IBM compatible. Apple would sell a lot more computers if it got rid of its operating system and used Microsoft

operating system. I recommend developing an Apple computer that keeps the Apple operating system and itcompatible.

ImplementationI recommend that Apple approach IBM, Microsoft, Compaq, or another company in the hardware or software

industry and propose a merger. A company like IBM could supply Apple with the investment dollars, expertise,

and licensing rights to make an IBM compatible computer. Although some die hard Apple fans may not like the

idea of a merger, Apple would be more competitive in the end.