Apple, Inc. Formulation Presentation

March, 7 2008Mathew Lugo, Brooks Johnston, Jessica-Anne

Stoudemire, Kerri Barringer, & Ben Ponds

Executive Summary

Presented by: Kerri Barringer

Apple Profile

Products: Desktop computers, laptops, digital music players, software

Markets: High-end, technology-savvy users

Size: $8.3 billion in sales in 2004

Industry: Key Players:

Dell Hewlett-Packard Microsoft

Keys to success: Innovation Quality support services

Apple’s Mission & Vision

Mission: Apple is in the business of innovating, manufacturing, and marketing/selling computer hardware and software solutions, related peripherals, and communications equipment.

Vision: To be a leading

innovator of new technologies that change the way people go about their daily

General Sector of the External Environment

Presented by: Ben Ponds

Operating EnvironmentEconomic Factors

Intense growth – dependent on machines Demand for product services & support

Social Factors Wireless communication Powerful & portable devices

Political Factors Copyrights protection

Technological Factors Strong rivalries among top competitors Continuously changing products

Ecological Factors Pollution Corporate Social Responsibility

Summary Product support services Powerful & portable devices

Industry Analysis

Presented by: Matt Lugo

Porter’s Five Force’s Model

1. Rivalry Among Existing Competitors Innovation; First to enter the market

2. Substitute Products Competitors with similar products

3. Powerful Suppliers Forward Integration

4. Powerful Buyers Backward Integration

5. Threat of Entry Advanced Knowledge Capital Requirement

Competitor Profile: Hewlett Packard

Hewlett-Packard Company provides various products, technologies, software, solutions, and services worldwide.

Sector: Technology

Industry:Diversified Computer Systems

Products: Servers, Business Critical Systems & Software

Competitor Profile: Dell

Engage in the design, development, manufacture, marketing, sale, and support of various computer systems and services worldwide.

Sector: Technology

Industry: Personal Computers

Products: Desktops, Mobility Products, Software & peripherals

Competitor Profile: Microsoft

The world's #1 software company provides a variety of products and services, including its Windows operating systems and Office software suite.

Sector: Technology

Industry: Application Software

Products: Video game consoles, servers and storage software, and digital music players.

Apple’s Position within the Industry

Personal Computers Lack customer &

product service Competitors dominate

market

Multi-Media Peripherals Innovative; first to

enter the market

Apple needs to focus on product differentiation to avoid becoming a low-margin commodity, especially in terms of digital music and communications.

Value Chain Analysis

Presented by: Brooks Johnston

Value Chain Analysis

Supporting Activities: General Administration:

Identify new-product market opportunities & environmental threats, public image & corporate citizenship

Human Resource Management Recruit, train, motivate, challenge, and promote the

most talented employees Procurement

Good relationship with suppliers,

Value Chain Analysis

Primary Activities: Technology Development

Research & development leading to product and process innovations, timeliness of technology developments, encourage creativity

Operations Product design, productivity of equipment, effective quality

control systems Marketing and Sales

Identify customer segments, innovate sales & advertising, image of quality, favorable reputation, brand loyalty

Service Ability to provide replacement parts or tech support,

warranty/guarantee, quality of customer education & training

Core Competencies & Competitive Advantage

Procurement First computer software company to negotiate with

RIAA to allow consumers to legally download music online

Technology & Development Main objective is to be the leading innovator of new

technologies that change the way people live their daily lives

Marketing & Sales Identify specific customer segments and needs, develop

an image and reputation of quality, innovative advertising

Strengths Relative to Rivals

iPod & iTunes software revolutionized the music industry, worked with RIAA to develop deal

Considered the BMW or “cool” computer system to own

PC is a mature industry/product—Apple found new ways to spark demand

Successfully differentiate products

Brand Image and Recognition

Weaknesses Relative to Rivals

Apple’s market share is low as prices for windows-based machines fallApple has limited number of suppliers to obtain raw materialsApple uses third-party music content—potential to limit music or limit availability in the futurePromotional activities focus on core groups—misses the larger audience of PC’s for non-graphics based business and home usersCell phone vs. iPod

Industry Specific Competitive Advantages

Development of innovative new technologies

Dell grew successfully by eliminating the middle-man and selling direct

Microsoft is #1 software company

HP is currently the #1 PC manufacturer

Financial Analysis of Apple

Presented by: Kerri Barringer

Operating Income and Net Income

-600,000

-400,000

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

2000 2001 2002 2003 2004

Years

Do

llar

s (i

n t

ho

usa

nd

s)

Operating Income

Net Income

Assets, Liabilities, Stockholder's Equity

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

2000 2001 2002 2003 2004

Years

Do

lla

rs (

in t

ho

us

an

ds

)

Total Assets

Total Liabilities

Total Stockholder's Equity

Net Profit Margin

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

2000 2001 2002 2003 2004

Years

Per

cen

t Apple

Dell

HP

Industry

Current Ratio

0

0.5

1

1.5

2

2.5

3

3.5

4

2000 2001 2002 2003 2004

Yea

rs

Apple

Dell

HP

Industry

Total Debt to Equity

-1.5

-1

-0.5

0

0.5

1

1.5

2

2000 2001 2002 2003 2004

Apple

Dell

HP

Industry

Revenues/Total Assets

0

0.5

1

1.5

2

2.5

2000 2001 2002 2003 2004

Yea

r

Apple

Dell

HP

Industry

SWOT Summary & Core Issue

Presented by: Matt Lugo

SWOT Summary

Strengths: Innovation; first to enter the market Product & Market Development

Weakness: Customer and Product Services

Opportunities: Strategic Alliances with leading communication firms

Threats: Forward integration Becoming a low- end commodity

Core Issue of Apple

Apple needs to focus on product differentiation to avoid becoming a low-margin commodity, especially in terms of digital music and communications.

Long Term Objective & Strategic Scenarios

Presented by: Ben Ponds

Long Term Objective

Technological Leadership Product Development Quality Support Services

5-year Expectations

By 2010 most cell phones will have mp3 capability.

High quality customer support services will be in great demand.

Future Scenarios for Apple

Best Case Leader in music capable cell phones Unsurpassed customer support

Worst Case Become a low-scale commodity Fail to integrate quality support services

Most Likely Continue to successfully differentiate out products Retain strong support and service operations

Possible Objective Shifts

Worst Case Scenario Competitive position

Best Case Scenario Productivity Public responsibility

Corporate Level Business Alternatives

Presented by: Brooks Johnston

Corporate Level Strategic Alternatives

Enter communications industry Establish relationship with cell-phone carrier

Expand customer service capabilities Add brick & mortar locations that focus on

training clinics to use Apple products, service their product problems, Apple “Geek Squad”, etc…

International Corporate-Level Alternatives

Global brick & mortar locations

Nearly 2.4 billion people living in China and India alone, accounts for 37% of the global population

Major areas of economic growth are in new-markets (China & India), and in product & service expansion

Strategic Alliances as Corporate-Level Alternatives

Establish relationship with cell phone carrier Entrenched in professional media creation

markets, provide fundamental intellectual property to be used in consumer oriented software

Acquisition & Restructuring Corporate-Level Alternatives

Apple is limited to the number of suppliers it can use to obtain raw materialsSome key components are subject to industry-wide availability constraints and pricing pressuresApple needs to find multiple component suppliersPossibly acquire suppliers

Keys to Success

International Country specific economic, social, political,

technological, and ecological factors

Strategic Alliances Challenge in negotiating contract terms &

copyright agreements

Acquisition and Restructuring Finding multiple component suppliers

Long-Term Objective: Technology Leadership

Enter communications industry: Focus on product development and

differentiation in areas of digital music and communication

Expand customer service capabilities: Global brick & mortar locations that focus on

quality support services (training and tech support)

Business Level Strategic Alternatives

Presented by: Jessica-Anne Stoudemire

Business Level Strategic Alternatives

Strategic Business Units Multimedia Devices and Software

iPod, iTunes, etc. Computers

iMac, iBook, etc. Computer Hardware Computer Software

Safari, iMovie, etc.

Generic Competitive Options

Differentiation

Focus Differentiation

Differentiation: Pros and Cons

Pros: Larger market than focus

differentiation

High customer loyalty

Reputation for innovative products

Cons: No cost advantage

Hard to sustain due to imitation

Could achieve greater differentiation with focused marketing

• Relevant Rival: Microsoft

Focus Differentiation: Pros and Cons

Pros: Ability to meet

targeted segment’s needs

Ability to adapt to segment’s changing needs or demands

High customer loyalty within segment

Cons: Less opportunities for

growth Targeted segment’s

demand has large impact on revenue

Non-focus oriented competitors can better compete in pricing

• Relevant Rival: Dell

Generic Competitive Option: Differentiation

Grand Strategies Market Development Product Development Innovation Strategic Alliances

Generic Competitive Option: Focus Differentiation

Grand Strategies: Concentrated Growth Concentric Diversification Strategic Alliances Product Development Innovation

Strategic Choice

In order to achieve the long term objective of technological leadership it is recommended that Apple establishes a strategic alliance with a leading communication provider