92212308 apple-inc-case-study
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A- Case Summary
Apple was by two college drop out students: Steve Wozniak and Steve Jobs with the
motto of “Think Differently”. In the early 1980s, Steve Wozniak left the company and
Steve Jobs hired John Sculley as the President of the company. After facing many
failures, Apple launched its Macintosh computers for house hold users. In mid 1980s,
Steve Jobs had to leave the company because of his controversial relations with the
president. At that time John Sculley rejected the offer of Microsoft‘s CEO, Bill Gates to
license the Macintosh operating system to Microsoft.
After this refusal, Gates developed DOS operating system and in late 1980s, the
competition between DOS and Macintosh decreased Apple’s sale, workforce and
resignation of John Sculley. So, Apple’s current CEO planned to purchase NextStep
operating system of Jobs in order to improve the Macintosh operating system. In late
90s Jobs again became the CEO of the company and be started surprising relations
with Microsoft by developing a Macintosh version of office software.
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Apple also took cost saving measures like streamlining the product line, production of
printers. Steve Jobs brought Apples’ focus on two concepts of consumer series with the
prefix “I” for internet like iMac, iBook laptop and professional with prefix “power” such
as PowerMac desktop and PowerBook laptop series. Under Jobs, Apple again
becomes the innovator of computer market. His leadership leads the company to USB
and Firewire ports, introduction of iPod and iTunes website put Apple in the digital
computing age.
3
Apple manages its business on geographic locations having offices in Americas,
Europe, Japan and Asia Pacific. Apple’s sale is continuously growing. In the era of
2000, Apple opens 86 retail stores in USA and two international stores in Tokyo and
Osaka which increases its sales. It introduces eMac line of cathode ray screen, but its
most impressive and fastest growing market is of iPod line of digital music players and
iTunes music store website.
The three major competitors of Apple are Dell, Hewlett-Packard and IBM, however
Apple also competes with Microsoft in software industry. Dell is the largest computer
manufacturer with extremely low cost production strategy. Dell has entered the in the
line of music against Apple by its Jukebox. Hewlett Packard is a big brand name and
leading provider of technology. Apple combined with IBM enjoyed profit jointly but now
Lenovo took over IBM and become a competitor of Apple.
Apple’s new products like speech recognition program will help take industry into a new
age of computers and is according to the company’s motto and it is hoped that it will
double the profit margin in the near future. Overall, Apple is continuously growing and its
future seems bright. With the slight change in their strategies, they can become giants
in technology industry.
4
B) SWOT ANALYSIS
a) Strengths:
(i) Produce innovative products by using innovative technology
(ii) Produce aesthetic / stylish products
(iii)They make diversified products
(iv) Customers of Apple computers are brand loyal
(v) Have technology of interacting with computer using human
senses
(vii)They have virus free systems
(vii) First company which adapt calligraphic font style
(viii) Introduce USB and firewire ports for digital connection
(ix) Make music website
b) Weaknesses
(i) Apple has high manufacturing and inventory cost
(ii) Management is not stable
(iii)Has low market share in software industry
(iv) Majority of retail stores located in U.S.A.
(v) No compatibility options in their soft wares
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(vi)Decline in sales of iMac
(vii)Less emphasis on marketing issues to create awareness for
their innovative products
c) Opportunities
(i) Should expand on the basis of sales
(ii) Should open retail stores in different countries
(iii)Should target government and educational institutions
(iv) Should make compatible soft wares
(v) Should capitalize on the basis of virus free systems (vi)
Should introduce the speech recognition program (vii)They
should focus on customized products for customers
(viii)Should start making their own microprocessor chips
d) Threats
(i) Merger & acquisitions of competitors
(ii) High cost can be a limitation in future
(iii) High market share of Microsoft Windows
(iv) Competition increases in music downloading sites
C) Internal / External Factor Evaluation
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a) IFAS
Internal Factors Weight
(out of1)
Rating
(1 - 5)
Weighted
Score
Comments
Strengths
(i) Produce innovative
products
0.10 3.5 0.35 Good R&D efforts
(ii) They make
diversified products
0.10 4 0.40
Stable products to control
shocks in different product
markets
(iii) Brand loyal
customers
0.15 4 0.6 High end customer
satisfaction level
(vi) Virus free systems 0.05 2 0.10 High level of security
(v) Produce aesthetic
products0.10 3 0.30
Cutting edge, high end
stylish products
(vi) Introduce USB and
firewire ports0.05 2 0.10
Enabling portable
peripherals
Weakness
(i) High manufacturing
and inventory cost
0.05 3 0.15
More focus on
development and R&D
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(ii) Has low market
share in software
industry0.15 4 0.6 Less awareness
(iii) No compatibility
options in soft wares0.10 3 0.30 Extremely high end
products
(iv) Decline in sales of
iMac0.05 2 0.10
(v) Less emphasis on
marketing issues to
create awareness0.10 4.5 0.45 Low investment in
marketing
TOTAL 1.00 3.45
b) EFAS
Internal Factors Weight
(out of1)
Rating
(1 - 5)
Weighted
Score
Comments
Opportunities
(i) Should expand on
the basis of sales
0.10 2 0.20
Emphasize on the sales
of innovative products
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(ii) Should target
government and
educational institutions0.15 3 0.45
Find a propitious niche
(iii) Should capitalize
on the basis of virus
free systems0.15 4 0.60
Give advanced security
(iv) Should introduce
speech recognition
program0.10 3 0.30
Give new meaning to
technology
(v) Should focus on
customized products0.05 3 0.15
Cater the segment in a
better way
Threats
(i) Mergers &
acquisitions of
competitors
0.15 3.5 0.7
Rival companies become
giants and good name
(ii) High cost can be a
limitation in future
0.15 4.5 0.67 It is a question for Apple
(iii) High market share
of Microsoft
0.10 3.0 0.30 Well positioned rival
(iv) Competition
increases in music
downloading sites0.05 2 0.10
Advantages Disadvantages
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TOTAL 1.00 3.47
D) Problem Statement
“How Apple can provide differentiated products with low cost in order to maximize its
market share?”
E) Alternatives
(a) Continue without any change
Advantages
(i) Produce innovative products
(ii) Virus free systems
(iii) Brand loyal customers.
(iv)producing diversified products
Disadvantages
(i)Low market share
(ii) high operation and marketing cost
(iii) less emphasis on marketing
(iv) Competing against giants of the
industry
b) Should capitalize on the basis of virus free systems
(i) Increase in sales of computers
(ii) Market share will increase
(iii)Start competing microsoft on the
basis of virus free softwares.
(iv)New segments will be attracted.
(i) R&D cost will become higher
(ii) High marketing efforts are needed
to create awareness.
(iii)Low compatibility with other
systems .
c) Should introduce speech recognition program
Advantages
(i) More user friendly system (ii)
Open new market horizons (iii)
Increase diversity of products (iv)
Capture new consumers
(v) Helps in improving brand name
Disadvantages
(i) Cost will increase which affects the
price of product
(ii) Has to maintain big data dictionary
for different words of different
languages.
d) Go for strategic alliance for producing specific products
(microprocessors)
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(i) Reduction in cost
(ii) Reduction in product development
process
(iii) No compatibility issues
(iv) Sharing of resources
(v) Increased profit margin
(i) Contradiction between cultures of
organizations
(ii) Privacy of developing innovative
products will be slightly affected
e) Go for customized products
Advantages
(i) Targeted niche will be highly
satisfied
(ii) Understand the changing
environment easily
(iii) No new channel needs to be
introduced for sales
Disadvantages
(i) Cost will extensively increase
(ii) Difficult to cater all requirements of
customers along with innovation
(iii) Chance of ambiguity will increase
which affects the brand name
(iv) Chances of failure will increse
F- Best Alternative
According to the current situation, the best strategy or alternative for Apple is:
“Go for strategic alliance”
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G- Reason
Its reason is that no doubt Apple is going fine now but for future growth it is must to create
something new and stylish while keeping the cost optimized. This does not mean that
Apple start making whole product with the collaboration, instead they have to go for
alliance in making high cost products. This will help Apple in optimizing cost and
development process with innovation. Somehow, a problem of organizational culture
conflict will occur but it is manageable. Now a days, to sustain and compete in the market
companies go for strategic alliances just to reduce the cost and gain high profit margins.
So, Apple should go for this strategy.
H- TOWS Analysis
Internal Factors
External Factor
Strengths (S)
(i) Produce
innovative products
(ii) Brand loyal
customers
(iii) Virus free
systems
Weaknesses (W)
(i) High manufacturing
cost
(ii) No compatibility
issues
(iii) Less emphasis on
marketing issues
Opportunities (O)
(i) Capitalize on virus
free system
(ii) Introduce speech
SO Strategies
Apple should
emphasize more on
expansion in order
WO Strategies
Apple should
emphasize on making
new and focus on
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recognition system
(iii) Target govt. and
educational institutions
to increase market
share by developing
new innovative
products and
provide better after
sale services to
make customers
more brand loyal.
creating awareness
among the customers.
Threats (T)
(i) Merger &
acquisitions of
competitors
(ii) High cost cab be a
limitation in future
(iii) High market share
of Microsoft
ST Strategies
Apple should have
to keep its cost
optimize by
strategic alliance
and make high cost
products cheaper.
WT Strategies
Apple should have to
focus on producing new
compatible products
and focus on marketing
its products.
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7% 7% 7%
81.97 81.97 81.97
6.12 6.12 6.12
Raio Analysis
1. Liquidity Ratios2002 2003 2004 2005 2006 2007 208 2009
Current Ratio 3.25 2.50 2.63 2.63 2.63 2.63 2.63 2.63
Quick Ratio 3.22 2.47 2.59 2.59 2.59 2.59 2.59 2.59
Invetory to net working capital 0.01 0.02 0.02 0.02 0.02 0.02 0.02 0.02
Cash Ratio 3.08 2.37 2.45 2.45 2.45 2.45 2.45 2.45
2. Profitability Ratios
Net Profit margin 1.03% 1.01% 3.43% 3.50% 3.46% 3.42% 3.37% 3.32%
Gross Profit margin 27.92% 27.52% 27.29% 27.29% 27.3% 27.286% 27.29% 27.29%
Return On Investment 1.13% 1.11% 3.33% 3.33% 3.25% 3.17% 3.09% 3.02%
Return On Equity 2% 2% 5% 6% 6%
3. Activity Ratios
Inventory turnover 127.60 110.84 81.97 81.97 81.97
day of Invetory 3.97 4.54 6.12 6.12 6.12
Asset turnover 0.91 0.91 1.03 1.05 1.07 1.08 1.09 1.101
Net working Capital turnover 1.54 1.76 1.89 1.89 1.89 1.89 1.89 1.89
fixed Assets turnover 6.31 6.69 8.32 9.90 11.57 13.45 15.54 17.85
Average Collection period 46.47 56.22 44.31 44.31 44.31 44.31 44.31 44.31
Days of Cash 143.15 199.70 130.90 130.90 130.90 130.90 130.90 130.90
4. Leverage Ratios
Debt to asset ratio 35% 38% 37% 37% 37% 37% 37% 37%
debt to equity ratio 54% 61% 59% 63% 67% 71% 75% 79%
Long term debt to capital 87.13 92.06 383.06 463.48 560.80 678.55 821.03 993.44
current liabilities to equity 40% 56% 53% 58% 63% 67% 72% 76%
Z-Value ,Index of Sustainable Growth ,And Free Cash Flow
Z=1.2X+1.4X+3.3X+0.6X+1.0X
X1 0.59 0.52 0.54 0.55 0.56 0.57 0.58 0.58X2 0.37 0.35 0.33 0.34 0.34 0.35 0.35 0.36X3 0.01 0.01 0.05 0.05 0.05 0.05 0.05 0.05X4 1.86 1.63 1.71 1.59 1.49 1.40 1.33 1.26X5 0.91 0.91 1.03 1.05 1.07 1.08 1.09 1.10
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3.30 3.05 3.33 3.30 3.28 3.26 3.24 3.22
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2005 2006 2007 2008 20099,548 11,377 13,589 16,265 19,5023,537 4,218 5,042 6,039 7,2455,614 6,265 7,053 8,006 9,159
398 894 1,494 2,220 3,098
EFN
Total AssetsTotal LibilitesTotal EquityEFN
Apple,s Consolidated Statements Of Financial PositionsProjected 2005-2009
(In $ millions)
Period Ending 2002 2003 2004 2005 2006 2007 2008 2009AssetsCurrent AssetsCash and Cash Equivalents 2,252 3,396 2,969 3,592 4,347 5,260 6,364 7,701Short-term Investments 2,085 1,170 2,495 3,019 3,653 4,420 5,348 6,471Net Receivables 731 956 1,005 1,216 1,471 1,780 2,154 2,607Inventory 45 56 101 122 148 179 217 262Other Current Assets 275 309 485 587 710 859 1,040 1,258Total Current Assets 5,388 5,887 7,055 8,537 10,329 12,498 15,123 18,299Long -term Investments 39 - - - - - - -Property, Plant and Equipment 621 669 707 707 707 707 707 707Goodwill 85 85 80 80 80 80 80 80intagible Assets 34 24 42 42 42 42 42 42Accumulated Amortization - - - - - - - -Other Assets 131 150 80 97 117 142 171 207Deffered Long-term Asset Charges - - 86 86 101 120 141 167Fixed Assets 910 928 995 1,012 1,048 1,090 1,142 1,203Total assets 6,298 6,815 8,050 9,548 11,377 13,589 16,265 19,502LiabilitiesCurrent LiabilitiesAccounts Payable 1,658 2,053 2,680 3,243 3,924 4,748 5,745 6,951Short/Current Long-term Dbt - 304 - - - - - -Other Current Liabilities - - - - - - - -Total Current Liabilities 1,658 2,357 2,680 3,243 3,924 4,748 5,745 6,951Long term Debt 316 - - - - - - -Other Liabilities - - - - - - - -Deffered Long-term Liability Charges 229 235 294 294 294 294 294 294Minority Interest - - - - - - - -Negative Goodwill - - - - - - - -Total Non Curerent Liabilities 545 235 294 294 294 294 294 294Total Liabilities 2,203 2,592 2,974 3,537 4,218 5,042 6,039 7,245Stockholders EquityMisc.Stocks,Options ,Warrants - - - - - - - -Redeemable Preferred Stock - - - - - - - -Prefrred Stock - - - - - - - -Common Stock 1,826 1,926 2,514 2,514 2,514 2,514 2,514 2,514Retained Earinings 2,325 2,394 2,670 3,231 3,909 4,730 5,723 6,925Treasury Stock - - - - - - - -Capital Surplus - - - - - - - -Other Stockholders,equity (56) (97) (108) (131) (158) (191) (232) (280)Total Stockholders Equity 4,095 4,223 5,076 5,614 6,265 7,053 8,006 9,159EFN 397 894 1,494 2,220 3,098Total Liabilities And Stockholders,equity 6,298 6,815 8,050 9,548 11,377 13,589 16,265 19,502
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Apple's Income StatementProjected 2005-2009
Period Ending 2002 2003 2004 2005 2006 2007 2008 2009
Total Revenue 5,742 6,207 8,279 10,018 12,121 14,667 17,747 21,474Cost Of Revenue 4,139 4,499 6,020 7,284 8,814 10,665 12,904 15,614Gross Profit 1,603 1,708 2,259 2,733 3,307 4,002 4,842 5,859Operating Expenses
Research Development 446 471 489 592 716 866 1,048 1,268Selling General And Administrative 1,111 1,212 1,421 1,719 2,080 2,517 3,046 3,686Non-recurring Expenses 29 26 23 28 34 41 49 60Other - - - - - - - -Total Operating Expenses - - - - - - - -Operating Income or Loss 17 (1) 326 394 477 578 699 846
Income from Consulting Operations
Total Other Income/Expenses Net 70 93 60 73 88 106 129 156Earning Before Interest and Taxes 87 92 386 467 565 684 827 1,001Interest Expense - - 3 4 4 5 6 8Income Before Tax 87 92 383 463 561 679 821 993Income Tax Expense 22 24 107 120 146 176 213 258Minnority Interest - - - - - - - -Net Income from Continuing Operations 65 68 276 343 415 502 608 735
Non-recurring Events
Discontinued Operations - - - - - - - -Extraordinary Items - - - - - - - -Effect of Accounting Changes - 1 - - - - - -Other Items - - - - - - - -
Net Income 65 69 276 334 394 465 549 647
Preferred Stock and other adjustments - - - - - - - -Net Income applicable to Common Shares 65 69 276 334 394 465 549 647
AssumptionGrowth rate2004 = 33.38%2003 = 8.098%Average = 21%
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