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TABLE OF CONTENT

Section No. Contents Page No.

Table of Content 2-3

EXECUTIVE SUMMARY 4

INTRODUCTION 5

1.1 Introduction to the Applecomputer 5

1.2 Apple Market Share 5

1.3 Competitors as Hewllet Packard 6

Dell 7

1.4. Competitive and economic position 7

7

2.0 FINANCIAL ANLAYSIS & TREND ANALYSIS 8

2.1 Cash Flows/ Unique accounting practices 8

2.2 Operating profit 9

2.3 Gross operating profit 10

TREND ANALYSIS:

PORFITABILITY RATIO:

2.4 Total Net Income 11

2.5 Earnings Per Share 12

2.6 Assets and Liabilities 13

2.7 Income per employee 14

LIQUIDITY RATIO:

3.1 Current Ratio 15

3.2 Quick Ratio 16

PROFITABILITY RATIOS

3.3 Gross profit margin % 17

3.4 Net profit margin % 18

3.5 Return on Assets 19

3.6 Return On Equity 19

3.7 Debt Equity Ratio 20

3.8 Total debt to total asset 20

ACTIVITY RATIOS 21

3.9 Asset turnover 21

3.10 Inventory ratio 26

3.11 Price to equity ratio 27

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4.0 PORTERS FIVE FORCES ANALYSIS 28

4.1 Barriers to entry/ threat of entrants 28

4.2 Intensity of rivalry among firms 29

4.3 The bargaining power of buyers 294.4 The bargaining power of suppliers 29

4.5 Threat of Substitute products 29

5.0 Strategic choice of Apple 30

5.1 Corporate Strategy 30

5.2 Business Strategy 31

5.3 Functional strategy 32

5.4 Product differentiation Strategy 33

5.5 Financials & Pricing strategy 34

6.0 PESTEL ANALYSIS 32

6.1 Political/ Legal Factor 32

6.2 Economic Factor 32

6.3 Social Factor 32

6.4 Technological Factor 32

6.5 Environmental Factor 33

7.1 KPI 337.2 Issues 34

8.0 Balance Score Card 34

8.1 BSC Approach 35

8.2 Strategic issues and future challenges 35

8.3 Limitations of the Models 35

8.4 Limitation of the BSC Approach 35

35

9.0 Conclusion

9.1 Recommendation 36

37

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EXECUTIVE SUMMARY

Apples mission statement is, Apple designs Macs, the best personal computers in the world,

along with OS X, I Life, iWork, and professional software. .Which shows that apple cares

for their customers and their commitment to innovate what todays technology can make

possible. Apples success can be seen through their annual revenue of $65.2 billion dollars for

the fiscal year of 2010. Apple has tried to make it their purpose to provide the leading

technology in electronics for customers worldwide. The corporate structure is headed by

company CEO and President Steve Jobs and headquartered in Cupertino, California. Apple.

has established a unique reputation for its customers. People count on Apple because of its

uniqueness and ever-changing electronic ideas. The international business strategy the parent

company uses is to maximize the value of a firm by high prices and high value. Apples basic

business model is to sell at high prices because customers are willing to pay to obtain the

products of high value and high quality. Due to the large size of the venture in India, an

international business strategy will be used, because the products of apple are universal

meaning the product can be easily used worldwide with change of language. In the marketing

planning for the next two years the main concern for apple is to become environmentally safe

and become ego friendly.

Apple plans to decrease or eliminate several of the dangerous chemicals from electronic

products. Apple also wants to increase revenue with new products and update products to 65

billion dollars., apple wants to transition demand to a Greenfield investment in India and have

a wholly owned subsidiary where apple can remain in control of the technical specs to allow

for an easy transition. Apple is going to need to meet the location and experience priorities of

India, which can be very costly. By evaluating and measuring market share, overhead costs,

inventory turnover, profit margin, liquidity, and employee retention,

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1.1 INTRODUCTION

Apple is an American multinational corporation which sells consumer electronics. It was

founded on April 1, 1976. It has its headquarters in California, USA. As of july2011, Apple

has 357 retail stores and also an online store. As of sep2011, company has 60400 employees

and annual revenue of $108 Billion. Apple obtains a unique distinction of being a single

survivor from the early days in the industry. It has made inventions such as First graphic

based user interface, mouse, CDROM, inexpensive speedy disk etc. Steve Jobs (CEO)

changed the perceptions of the customers by introducing several new colourful computers.

The company has established its loyal customer base through series of innovations in its

products.

Apple fiscal year is the 52 or 53-week period which ends on the last Saturday of September.

The California based company's U.S. Mac shipments rose 37.2% year-over-year - more than

twofold as fast as any other firm ranked in Gartner's top 5 PC vendors for the three-month

period ending September 2007 - helping it snag a spot as the No. 3 U.S. PC vendor overall

(Gartner, 2007). Apple's US-based Mac shipments during the quarter equals 1,338,000,

compared just 975,000 during the same time last year. Hewlett-Packard also posted

somewhat healthy growth of 16.5 percent.

1.2 Market share

The Company's business strategy leverages its exclusive ability to design and develop its own

OS, hardware, software, and services to provide the customers new products with superior

ease-of-use, and innovative industrial design. The Company believes continual investment in

R&D is critical to the enhancement of innovative products and technologies. Also, evolving

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its PC and related solutions, the Company continues to capitalize on the convergence of the

PC, digital electronics and mobile phones by creating and refining innovations, such as the

iPod, iTunes digital music library, iPhone and Apple TV. The Company's strategy also

includes growing its distribution network to efficiently reach more of its targeted customers

and offer them with a high-quality sales and post-sales support experience. Apples

customers are mainly in the education, professional, consumer, and business markets. The

Company distributes its products through wholesalers, retailers and cataloguers. No

individual customer accounted for more than 10% of net sales in FY07, FY08,FY09. It also

sells several products and resells certain third-party products in most of its major markets

directly to consumers, through its own sales force and retail and online stores.

IBook, iMac PC, Power mac PC, Mac OS X, QuickTime software are the other

products.

Table1: Apple products

Figure1: Apple products

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Apples product range includes Macintosh line of desktop and notebook and Mac OS and

iPod. Additionally it contains software solutions and peripherals and networking and various

third party hardware products for education creative consumer and business customers.

1.3 Competitors as Hewlett Packard and Dell

The Company has aggressive competition in all areas of its business. These markets have

rapid technological advances in both hardware and software which resulted in frequent

introduction of new products with competitive price, feature, and performance. Over last few

years, price competition in these markets has been severe. The competitors who sell PC based

on other OS have cut prices and decreased their product margins to maintain market share

which affects the Company's financial condition. The competitive factors in this sector

include price, product features, relative price/performance, product quality, innovation and

design, availability of software, marketing and distribution capability, service and support,

and corporate reputation, customers reliance on internet. Apples music products and services

have faced significant competition so to retain a competitive advantage it offers superior

innovation in the hardware (personal computer and iPod), software (iTunes), and distribution

of content (iTunes Store and iTunes Wi-Fi Music Store). The mobile industry is highly

competitive with several experienced competitors. The Company's future financial condition

is dependent on the its ability to improve the Mac platform and to the Company's hardware,

software and services related to consumer electronic devices, including iPods, IPhone.

David Packard only reluctantly agreed to focus on PCs in the early 1990s. And Walter

Hewlett, a board member and son of co-founder Bill Hewlett, mounted an unsuccessful

campaign to block the 2002 acquisition of Compaq Computer Corp., a deal that vaulted

Hewlett-Packard to the top of the PC industry. The US maker also has a wide range of

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offerings for almost every market segment (it absorbed Compaq in 2002 and used this brand

for its value line) and has managed to score several firsts in the laptop industry..

However, in the coming year it will face stiff competition from Dell which has been steadily

increasing its product lines with new Inspiron, However, with such a wide range of laptops,

choosing the right model for your needs can be a tough task. We've condensed the key

features for each line-up to simplify your buying decision.

Dell Computer

Dell Computer Company was founded by Michael Dell in 1984 and now it is one of the

leader in the personal computer industry through aggressive risk taking and cost lowering

strategies. Michael Dell, the founder of Dell Computer, began his venture in 1980. Michael

Dell's first computer purchased was Apple II.A year after, in 1981, IBM introduced the

personal computer (PC). Michael Dell, saw this new product as a business option and he

switched from Apple to IBM PC and began to learn all components.

In 1983, Michael Dell, 18 years old college student at University of Texas, spent his evening

pre-formatting hard disks for IBM compatible PC upgrades. In 1984, Michael Dell started a

new computer company with $1000. Michael Dell's mission was to be the most successful

computer company at delivering the best customer experience in markets. So he would meet

some customer expectations such as highest quality, leading technology, competitive prices,

flexible customization capability, best service and support, individual and company

accountability, financial stability and superior corporate citizenship.

His cool new idea was to sell personal computers (PCs) directly to consumers from lower

prices but offering limited customer support

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1.4 Competitive and economic position

The rising prices and stagnant wages leave the customers to spend less on luxury goods. So

Apples premium portable computers may be out of consumer price ranges. Apples broad line

of devices may become obsolete with the advent of multi-use portable devices. The

concentration of the firm on innovation may result in missed opportunities and inventory

losses. The developing Chinese economy needs higher wages for factory workers which

poses a threat for the Apple manufacturing. Emissions regulation will impose huge burdens

on Apples production costs

Price Design

Design Quality

Functional Elegant

Low High

Figure2: Competitive positionThese both figures portray the competitive position of Apple.

Apple

Dell

HP

Apple

DELL

HP

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2. FINANCIAL AND TREND ANALYSIS

2008 vs. 2009

Total net income increased from 4834$ million in FY2008 to 8235$ million in FY2009.

Various factors that contributed to the hike are: Mac net sales increased. The 33% Mac unit

sales growth rate is significantly higher than the estimated growth rate of the overall PC

industry during that timeframe. The total assets also increased from 39572$ million to

47501$ million showing a 20.037% increase.

2009 vs. 2010

The Total net income during 2010 increased 70% from 2009. The factors contributed to

these increases are the Net sales of iPods and Unit sales of iPods. The total assets

significantly improved with a % increase of 58.2 % from FY09 to FY10.

2010 vs. 2011

The total net income during the FY10 increased 84.9 % from FY11. The total assets growth

showed a 54.7 % increase for FY11.

Table3: Financial trend over years

2.1 Cash Flows/ Unique accounting practices

Apple Inc. increased its net cash for operating activities by 5.86% from FY08 to FY09. This

was among the highest increases by any company in the PC industry. For FY09 to FY10

Apple showed a considerable growth percentage of 83 %. By looking at the Cash Flow

Statement, it can be seen that cash is easily generated throughout the year. In 2009, company

spent 0.03% of its revenues in attempting to stimulate growth in its operating business lines.

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That was among the smallest in the industry and shows that Apple either does not feel it is

necessary to or is not capable to put in as much as others in the group.

In the year 2007, Apple adopted a subscription accounting model for its iPhone. Sales will

be amortized over a 24-month period. Instead of recording iPhone sales against earnings

every quarter, sales will show up as monthly revenue. Because of general accounting

practices, Apple can't add significant new features unless it charges for them (Kahney,

2007). Apple does the same for their Apple TV. The Sales of more than 2 million iPhones

and the cash will be spread out over the next two years.

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2.2 Operating profit

It is defined as the profit earned from a companys normal business operations. Itcan be calculated as the difference between operating revenue and operating expenses.

Operating profit= operating revenue- operating expenses

All the values in the respective graphs are in U.S Dollars ($) in millions.

Figure3: operating profit

For Apple there has been a significant increase over the span of four financial years i.e, from

FY2008 to FY2011 it showed a continuous growth of operating profit i.e, from 6275$m to

33790$m. The percentage increase of Apple is 87% from FY08 to FY 09, where as for H.P it

was a decrease of 2.39% and for Dell a percentage decrease of 9.39%. It indicates that Apple

has effective control over costs and that the sales are increasing faster than the operating costs.

Whereas for HP, there has a been an improvement from FY08 to FY10 showing a decline in

2011 which shows that its costs increased in FY11.Dell showing the least performance

having profits of 3523 in 2008 to 3433 in 2011 showing a poor performance. In a comparison,

Apple performance in controlling costs and generating revenue is the best among all.

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2.3 Gross operating profit

It can be defined as the difference between the gross operating revenue and gross operatingexpenses.

Fig4: Gross operating profit

The above illustration indicates that Over the span of four years Apple has raised it gross

operating profit from 11618$m to 45632$m with a maximum percentage increase shown for

the years 2009 to 2010 with 70.8%. Also HP showed a continuous growth with a 8.84%

increase growth from FY09 to Fy10. And Dell management of its operating expenses is much

better than its peer group companies and it showed a substantial improvement of its gross

operating profit during from 12278$m to 12336$m over years with a percentage increase of

21.9% during the years 2010 to 2011. Dell improved its gross operating profit value over

years. Apple needs to reduce its costs and improve to compete with Del

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2.4 Total Net Income

Its found in the firms income statement where the earnings are calculated.

It can be calculated using: Net sales-net expenses(after income taxes). As evident in the

figure, the net income for Apple corporation has been rapid growth from the FY2008 4832$m

to FY2011, 25922$m indicating the overall good financial health of the organisation. The

maximum percentage increase was seen during 2010 and 2011 of 84.9%.

Fig5: Total net income

While for HP the value declined over years which show the reduction in its profits. For Dell

the graph clearly shows an almost constant rate so it is maintaining its level of profits but

should strive to improve to keep up in the competition. Dell showed 83.8%increase during

years 2010 to2011. To conclude we can say that profit attributed to shareholders is much

higher in case of Apple than the other two companies.

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2.5 Earning Per Share

Its where the part of the companys profit is allocated to each outstanding share of the

common stock. EPS indicates the company profitability. It can be calculated using :

For Apple as shown below there has been a considerable growth from 5.48 for FY2008 to

28.05 for FY2011 indicating the high growth of profitability of the firm.

Fig6: Earning Per Share

EPS is the single most important variable in determining the share price. The above graph

denotes that Apple could generate higher income by using its capital more efficiently. While

HP didnt show any improvement and Dell showed marginal improvement over years.

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2.6 Assets and Liabilities

Assets are the value owned by the firm.

The total assets of an organisation include the current assets and fixed assets and other assets.

Whereas the liabilities are the debts and payables within a period of time. They include tax

payable,longterm liabilities, current liabilities.

Fig7: Assets and liabilities

In a comparison , the assets of Hp are the highest and have been the same over years. Apple

lacks behind and Dell also needs to develop its assets.

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2.7 Income per employee

This indicates the companys productivity. Higher the income earned per employee higher is

the productivity and higher is the benefit to the firm. Its calculated using:

Revenue earned / no. of employees.

Fig 8: Income per employee

For Apple there was seen a maximum percentage increase in the years 2008 to 2009 of 58.9%.

While for HP, it was during 2009 to 2010 of 7.11%. And for dell it has been 72.8% for 2010

to 2011 years. The per employee business in the initial years was higher in respect of Dell

and HP. Over the years Apple has shown substantial improvement and almost reached the

performance level of Dell. Dell however continued to show highest per employee business

over the other two companies.

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3. RATIO ANALYSIS

Financial ratios are the indicators of company performance and financial situation. They arecalculated from financial statements.

Ratios are classified into four typesLiquidity

They provide information about companys ability to meet short-term financial

obligations.

Profitability

Profit ratios help us to evaluate a companys ability to generate profits and to control

its expenses. They offer different measures of success of the firm at generating

profits.

Financial leverage ratios

It provides an indication of long term solvency of the firm. Unlike liquidity ratios

these ratio measure the extent to which the firm is using long term debt.

Activity ratios

They indicate how much a company has invested in a particular type of asset relative

to the revenue the asset is producing.

Table 4: Classification of ratios

LIQUIDITY RATIOS

3.1Current ratio

Current ratio shows a firms ability to cover its liabilities with its current assets.

Current ratio may be defined as the relationship between current assets and current

liabilities. Current assets includes-stock, debtors, cash in hand, cash at bank,bills receivable and current liabilities- creditors, bills payable etc.

Current ratio= current assets/current liabilities

On X-Axis is the time span in years from 2008 to 2011 and on the Y- axis is the

current ratio spread. So, lesser the current ratio less will be the firms able to meet the

current obligations. So as seen in the graph the current ratio was around 2 to 2.5

which shows a good financial performance of Apple as the ideal current ratio is 2:1.

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So compared to the other two competitors HP and DELL, we can say that Apple

performs the best while Dell come second and Hp at its least

Fig 9: Current ratio

3.2 Quick ratio

Quickratio shows a firms ability to meet current liabilities with its most liquid assets

The current assets used in quick ratio are cash, accounts receivable, notes receivable.

These are less inventory. Quick ratio is also referred to as acid test.

Quick ratio= quick assets/quick liabilities.

On the X-axis is the time span over four years. And on Y-axis is the quick ratio values.

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Fig10: Quick ratio

Ideal 1:1 its satisfactory to meet all current claims. For Apple value of 3.2 in 2008 reduced to

1.3 in 2011. And for HP maintained almost constant rate from 0.7 to 0.6. Dell showed an

improvement from 0.8 to 1.1. The current ratio of less than one indicates that current

liabilities exceed the current assets. So it shows that Apple has better liquidity to improve its

business. From the fig we can say that Dell has more liquid assets compared to Apple and HP.

PROFITABILITY RATIOS

These include gross profit margin which looks at cost of goods sold as a percentage of sales.

Operating profit margin which is EBIT found from the income

Statement.Net profit margin whish shows how much of each sales after all expenses are paid.

Gross profit margin indicates the efficiency of operations and firm pricing policies

GP Margin=Gross profit/Net sales

Future: Gross margins could also be affected by the Company's ability to effectively

manage product quality and warranty costs and to stimulate demand for certain of its products

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3.3 Gross profit margin %

Fig11: Gross profit margin %

From the above line graph we can say that Apple has the maximum gross profit margin

percentage. It has showed improvements from the FY2008 to FY2011 ranging from 35.8 to

42.2 which is a tremendous outcome for the firm. It implicates high grossprofits and

improved efficiency for the firm. While HP maintains almost constant margin and DELL

slightly improves over years.

3.4 Net profit margin%

Net profit margin indicates the firms profitability after taking account of all expenses and

income taxes. Net profit margin percentage tells a company how much out of every sales

dollar it gets to keep after deducting income-tax and, generally, non-operating expenses and

incomes.

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Formula

Net profit after taxes/ net sales

Fig12: Net profit margin %

Apple graph increased showing a constant growth from 14.9 to 23.9 showing high profits

indicating high demand for its products. While HP has shown reducing performance of its

company. And Dell has managed to grow its profit rate upto 5.6 over years. From the above

illustration we can say that Apple has highest range of net profit margin compared to the

other two companies. Dell ranks the least while HP managing to be average

3.5 Return on Assets

It is the measure of how effectively the firm assets are being used to generate profits.

ROA= net income / total assets

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Fig13: Return On Assets

From the figure we can say that Apple has been getting greater returns on equity improving

from 12.2 to 22.3. Also Dell has a decline in roe over years and as well HP. We can conclude

from the above chart that Apple has had higher returns compared to both HP and Dell. While

Dell ranks second and HP last. So it implies that Apple has no high competition.

3.6 Return On Equity

A measure of how well a company used reinvested earnings to generate additional earnings,

equal to a fiscal year's after-tax income (after preferred stock dividends but before common

stock dividends) divided by book value, expressed as a percentage. It is used as a general

indication of the company's efficiency; in other words, how much profit it is able to generate

given the resources provided by its stockholders. Investors usually look for companies with

returns on equity that are high and growing.

RETURN ON EQUITY= NET PROFIT AFTER TAXES

SHAREHOLDERS EQUITY

Table5: ROE description

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Fig14: Return On Equity

For Apple the graph shows an increase from 23 to 33.8 over four years. It indicates that the

net profits have been improving over years which show an increase in the efficiency of the

company. For Hp it decreased from 21.4 to 18.3 showing reducing net profit rate. For Dell it

was as high as 78.9 in 2008 by which we can say that it has highest sales in that year which

reduced drastically over years to 39.2 in 2011 which is a poor performance of the company.

So to conclude we can say that the three companies have varying values over years indicating

that they are struggling hard to survive in the market to improve its net profits and increase

their sale.

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LEVERAGE RATIOS

Ratios used to calculate financial leverage of the company.

3.7 Debt Equity Ratio

Fig15: Debt Equity Ratio

Debt equity ratio indicates possible difficulty in paying interest and principal while obtaining

more funding. If the ratio is high then the company is in a risky position- especially if interest

rates are on rise. This measures the among of assets being provided by creditors for each

dollar of assets being provided by the stockholders. Apple shows least D/E ratio showing low

risk. For HP the value increased from 0.46 to 0.79 which shows that company has been

aggressive in financing its growth with debt which resulted in volatile earnings as a result of

the additional interest expense. For dell the value raised from 0.16 to 5 over four years which

shows its in High risk and Lot of debts and low growth. In a comparison Apple has constant

increments inviting the shareholders to invest more. Whereas, HP and Dell shows bankruptcy

and High risk rate

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3.8 Total debt to total asset

A broad ratio that is used in measuring the percentage of a Companys assets that are

financed by debt in order to determine the Companys overall financial risk. Both short and

long term debt are factored into the calculation.

DEBT TO TOTAL ASSETS = TOTAL DEBT

TOTAL ASSETS

Fig16:Total debt to total asset

The above illustration indicates that the debt to total assets declined for Apple over the years

since 2008, though there was a marginal increase in 2010 over 2009. It denotes that while

Apple built up sufficient cash reserves and was less dependent on borrowings, HP and Dell

continued their dependence on borrowings over the years, indicating lower generation of cash

surpluses. Hence Apple ranks first among the three with higher cash surpluses, lower debt

indicating a healthy balance sheet.

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ACTIVITY RATIOS

3.9 Asset turnover

It indicates the overall effectiveness of the firm in utilising its assets to generate sales

This is a measure of how well assets are being used to produce revenue also called assetturnover.

Formula: Net sales\total assets

Fig17: Asset turnover ratio

As clearly seen in the diagram Apple had constant ratio of 1 for both FY08 and FY09 and 1.1

for FY10 and FY11. This indicates that Apple is utilising its assets to generate more sales. HP

maintained its asset and sales well. Dell value is higher showing that its profit margin is

declining. So in a comparison Apple and Hp are doing well and Dell needs to improve.

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3.10 Inventory ratio

Fig18: Inventory turnover ratio

The ratio of a company's annual sales to its inventory; or equivalently, the fraction of a year

that an average item remains in inventory

INVENTORY TURNOVER = COST OF GOODS SOLD/INVENTORY

A higher inventory turnover ratio indicates that inventory does not decay in warehouses. Also

too little inventory in stock could lead to lost sales. However, high inventory levels are also

unhealthy, as they represent an investment with a rate of return of zero.

For Apple the inventory ratio increased from 48.8 of 2008 to 51.8 in 2009 and decreased to

51.1 in 2010 and with a hike of 68.5 in 2011. This shows the High sales of Apple and

growing demand. When compared with HP and Dell, Hp ranks last showing low inventory

turnover ratio indicating low demand and increased inventory stock at warehouse. On the

other hand Dell the demand for its products decreased from 2008 to 2011. So in a comparison

Apple has stronger Inventory ratio compared to competitors indicating low threat.

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3.11 Price to equity ratio

Fig19: Price to equity ratio

Apples P/E ratio was constantly showing growth from 2008 of 4.8 to 5.27 in 2009 and then

rose to 5.44 in 2010 but declined to 4.62 in 2011.Whereas Dell had a high PE of 11.07 in

2008 falling drastically to 4.32 in 2009 and finally to 4.62 in 2011. When HP is considered it

maintained almost a constant level of PE in all four years from 2.37 in FY08 decreasing to

1.37 in 2011. The high PE ratio for Apple was mainly because the market had many

expectations from the company to be able to deliver growth by more innovations. However,

the higher PE ratio for Dell can be explained by the stock buybacks for the past two year and

thus resulting in reducing number of share outstanding (which was due to Dells

compensation plan couple years ago) and indirectly increased its earnings per share to further

manipulate its PE ratio.

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4.0 ENVIRONMENTAL ANALYSIS

4.0 Michael Porters Five Forces Industry Analysis

Porters five forces framework was developed to assess the attractiveness of differentindustries. It can provide a useful starting point for strategic analysis .If the five forces arehigh then industries are not attractive to compete in.

(Corporate strategy, G. Johnson, K. Scholes, R. Willington, eighth edition, Pearson

education limited,1998)

Apple operates in two main industries:

Entertainment & media, Hardware & software.

For an effective evaluation, the industry is examined using Porters five forces analysis

Fig: Porter five forces

4.1 Risk of entry by potential competitors

PC industry has a low market entry riskas it involves a large amount of money in it. The

PC market doesnt have a high brand loyalty. But for Apple brand loyalty is an important

asset which is achieved through profound R&D and an emphasis on product innovation. The

superior cost advantages make it very hard and even unbeneficial to enter. Economies of scale

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provide the small number of dominating PC companies with another threat to entry against the

outside rivals. The marketing and advertising costs and fixed costs over large fabrication

volumes proves to be an advantage for existing PC manufacturers. Thus, the entrants should

be prepared for financial risks in a large scale or explore the market in small size. For the issue

ofcustomer switching costs barriers to entry proves to be a mixed one. For Apple as it workson a global basis governments interference and rules and regulations plays an important

role but didnt have much effect in the last years.

4.2 Rivalry among established companies

A very small number of large companies exist in PC market having a goal to achieve high

profitability. So, there exists high rivalry among the competitors and to retain the market

stand they follow methods like pricing policies, product design and innovation (e.g. Apple),

marketing, online direct selling (e.g. Dell and Apple), support and services. Also there are few

Interdependent companies whose strategies have effects on market share and profitability of

the other industry participants often end up in finding themselves in so called competitive

spirals. For Apple a downward spiral came into existence. But as visualised by the industry

life cycle its a favourable phase for all the market participants as large number of spending

buyers exist in the market. The PC industrys exit barriers can be intense. An economic

dependence on one specific industry involves huge risk if the entire sector goes out bust.

Emotional factors that prevent executives to leave can also be considered. (eg: Apple CEO

Steve Jobs sentiments as being one of the co-founders). Also, Computer Manufacturing

involves high capital which creates an obstruction for exit strategies.

4.3 The bargaining power of buyers

When large concentration of buyer volume exists then the demand for the product increases

resulting in large bargaining power.But in the current PC market is the opposite case. For

Apple in the software products high switching costs for consumers exist and for hardware the

fluctuation is low and LOW bargaining power of buyers.

4.4 The bargaining power of suppliers

Porters fourth force states that the bargaining power of suppliers is a severe one which

imposes a threat. Companies like Intel, Motorola or IBM (microprocessor producers) possess

the ability to affect the PC industry at the industrys current stage. These enterprises exercise

dominance in PC industry by fulfilling all necessary criteria for the bargain power by selling

products without real substitutes. Apple would often face high switching costs when

changing to another supplier. Apples production will be adversely affected if supplier changes

(e.g.: if Apple switches to INTEL by quitting deals with Motorola).

4.5 Threat of Substitute products

A large amount of substitutes exist in the market so threat is high. Apple maintains a balance

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in the price to performance to stand out in the market. Apple persists to differentiate itself

with their Mac computer series from the common PC market so it isnt affected much by

consumer switching to other products.

Table: Porters five forces

Conclusion to the above analysis

According to the analysis, the threat of rivalry is the highest external force (PC and mobilephone industry) and the power of suppliers is the highest external force (MP3 and musicindustry). The market is changing its trends and Apple has been a pioneer in analyzingmarket and adopting innovative strategies for making profits. Also, the most recent step to themobile phone industry was their best competitive advantage by integrating PC, MP3 player,and online music service.

5.0 Strategic choice of Apple

Figure 3, forStrategy framework.Exploring corporate Strategy 8e pearson education 2008

5.1 Corporate Strategy

Apple has earned the reputation as one of the most admired brands and envied companies in

the world. For the third year in a row Apple ranked as the worlds most admired company, by

the highest margin ever. But this didnt happen overnight, and its not just because Steve Jobs

is one of the worlds most admired CEOs. There are several factors that account for Apples

continuing success as a market innovator. A key element of Apples strategic playbook is its

relentless pursuit ofconsumer-delighting innovation:

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5.2 Business Strategy

Apple release and how will the company's business model change without Jobs to direct the

company into new sectors? How long can Jobs's vision last?

It still have time to see if Apple's offerings change significantly. The iPod, iPod, and iPhone

will remain important consumer devices even without a new product to wow consumers, and

if recent rumours about an Apple television prove true, this will extend Jobs vision into a

new product market for a while. Additionally, we have no way of knowing how many other

ideas cooked up by Jobs are standing by, waiting to be released in the next few years.

5.3 Functional strategy

Functional strategies are targeted at improving the functions of a companys value chain and

therefore reaching a competitive advantage through superior efficiency, quality, innovation,

and responsiveness to customers. As a consequence, there are different strategies, policies,

and methods for all value creation activities that were examined as company

resources in the analysis of Apples internal environment, namely Marketing, Finance,

Research & Development (R&D), Operations & Logistics (O&L), Human Resource

Management, and Information Systems. The following matrix gives an overview

containing several exemplary strategies and methods a company can use to succeed in

improving the four building blocks of competitive advantage.

5.4 Product differentiation Strategy

Among the different choices Apple has on the business level, it chose the so called

Differentiation strategy. Key element of this approach is that it lets Apple compete in

different niche market segments by means of differentiation. By doing this, Apple focuses on

superior quality and innovation. Apples PCs are the most beautiful among all, therefore

successfully getting rid of the image of being only a commodity type good. Additionally, the

strong performance in graphic and other media applications has persuaded one of the target

segments, namely the creative people employed in the media and advertising industry, to

mainly operate on Apple computers. Competitors based on Wintel standards underperform

Apple by far in this particular category. 201 In the education segment Apples superior

quality is demonstrated by its ease of use, which is a key success factor in the education

market. In the consumer sector Apple is the innovation leader, as it was able to build state of

the art computers, Apple tries now to copy cost savings innovations from competitors such as

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Dell by substantially reducing inventory cost by partially outsourcing manufacturing

(inventory is down to less than two days worth of sales) and boosting direct sales channels

(43% of sales are already through its online store). 202 Apple has realized that in order

differentiation to provide a competitive advantage it has to lead to superior profitability,

which is also, depends on the cost structure of Apple.

5.5 Financials & Pricing strategy: The pricing strategy of business can ultimately determine

your fate. Business owners can ensure profitability and longevity by paying close attention to

their pricing strategy.

Commonly, in business plans I've reviewed, the pricing strategy has been to be the lowest

price provider in the market. This approach comes from taking a quick view of competitors

and assuming you can win business by having the lowest price.

Having the lowest price is not a strong position for small business. Larger competitors with

deep pockets and the ability to have lower operating costs will destroy any business trying to

compete on price alone. Avoiding the low price strategy starts with looking at the demand in

the market by examining three factors

6.0 Figure 1, PESTEL FRAMEWORK

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6.1 Political Factors

These forces are outcomes of changes in law and regulation. The environment Apple operates

in can be shaped by political judgments and legal decisions.185 Bodies such as the Copyright

Arbitration Royalty Panel (CARP) or the Recording Industry Association of America (RIAA)

can have a crucial impact through imposing new laws limiting the digital music industry in its

efforts to grow and expand. For example, in 2002 the CARP determined that webcasters

(companies that produce audio or radio for the world wide web) should pay a per song, per

stream royalty. The rate being 0.07 cent would force many companies out of business, which

would lead to anticompetitive structures.. Such fees imposed on downloadable music content

could ruin the business as the narrow profit margins of Apple and consorts could totally

disappear. Also government was active on regulating the industry through means of the

Music online Competition act in order to tweak various aspects of the US Copyright Act with

updates very.

6.2 Economic Factors

Apple market environment is becoming highly competitive especially in the Western Europe

& USA. Macroeconomic environment is highly uncertain which has affected micro economic

environment as well by creating a fear among ordinary consumers. Consumers would not

want to buy expensive product or brands due to current economic tide. Competition in EU

has grown so strong that Unilever is facing difficulties in places like France, Netherlands.

Economic Decline in business during an economic downturn has resulted in customer and

supplier default. Apple business is dependent on continuing consumer demand for its brands.

Reduced consumer wealth driven by adverse economic conditions has resulted in consumers

becoming unwilling or unable to purchase Apple products, which has adversely affected cash

flow, turnover, profits and profit margins.

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6.3 Technological Forces

In recent times technological advancement has rapidly increased its speed and has unshackled

a process that has been called perennial gale of creative destruction. Changes in technology

can affect the height of barriers to entry and therefore have a huge impact on industry

structure.180 In the case of the digital music industry music labels are working on a common

format to make their content available on equal terms, so that Apple then will maybe lose the

advantage of being the only player having access to the five big music labels. This can further

eliminate barriers to entry, because opportunities in regards to content would be equal.

Logical consequence would then be a price war among existing competitors driving profit

margins from an already low to an even lower level.

. The impact of limiting the downloaded content to its own software (iTunes juke box to play

music on the PC) can have a detrimental impact on users acceptance of Apples product.

6.4 Demographic forces

Demographic forces underlie all market and economic trends. The external environment

within which the enterprise operates depends partially also on how population is made up.

The disproportionate decrease in the population aged between 18 and 35 can adversely affect

the online music industry, as this group is believed to be the main users of online content

including downloadable music. Although Apples efforts to make the easiest software to use,

the lack of technological awareness of the older generation can inhibit sales in the iTunes

music store.

Social Forces

Peoples attitudes as well as consumer behavior together shape what is called social forces.

Trends and changes in attitudes towards work and leisure or changes in expectations can all

affect the day to day operations of an organization. A major issue and key determinant of the

success of the digital music industry are peoples conscience and ethical values.182 At the

moment Apple has created the picture that downloading music from the internet is cool and

therefore was able to spur sales. But the line between music piracy and legal industry is thin

and only the smallest change in perception from customers point of view can change their

consumer pattern and the anyway increasingly disloyal consumer could turn to piracy again.

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6.5 Environmental Factors

The immediate rivals come from electronics makers (Samsung) and from fellow computer

makers (Dell, Gateway), as well as from veteran music-player makers (Rio, Creative Labs, I

River). Most have the familiar iPod ingredients. The other notable feature of these

competitors is a marketing message that's either just like the iPod, only cheaper or just

like the iPod, only better. Another fact to take into consideration is that most of these rivals

are cheaper - usually $100 less. 190But better is another story. The iPod is still smaller,

more attractive, and more thoughtfully designed than any of the upstarts. Pc &Mobile.

6.6 Legal Factors

Political and legal factors have huge impact on the business for develop new strategies. These

factors can affect, how company operates, its costs, and the demand for its products. It

includes Political stability, TAX Regulation. Trade Regulation. Employment Laws.

Environment, Laws, Health and safety laws Employment laws, Consumer laws The US, UK

government support the fair trading commitment for both the local consumers and foreign

producers. (News BBC, 2005).Legislative changes which required different methods of

disposal for non-hazardous waste, under capacity in effluent treatment and the planned

disposal of accumulated and inherited hazardous waste.

7.1 KPI

The method by which the progress of an organisation is measured is through KPIs.

According to Kent Bauer, MD at GRT Corporation, KPIs are quantifiable metrics which

reflect the performance of an organisation in achieving its goals and objectives. It allows the

organisation to align all levels so that everyone works under the same strategic plan.

KPI For Apple

Overhead costs

Apple bears the overhead costs as its a business of making electronics. It should be carefully

maintained for having healthy profits.

Profit margin

In verge of expanding global markets lot of costs incurred. It adds up to the profits as well as

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losses to the company. To keep up the performance Apple should maintain its profit growth.

Inventory turnover

Its one of the main KPI to evaluate performance. Apple should take measures not to

overload inventory and create more newer products.

Liquidity

Apple should have required amount of cash for expenses and investments as well. It should

watch the liquidity ratios.

Employee retention

Its an important factor for the management and the business. Good training and hiring right

employees have been the factor for employee retention. Apple should check on the

employees time to time and create procedures for high employee turnover rate.

Table: KPI for Apple

7.2 Issues

According to the above financial analysis with the main competitors it can be seen that Applelacked in few areas such as the gross operating profit, maintaining its Roe, business peremployee. The ratio analysis revealed that Apple failed to keep up its assets and turnoverfrom it and also its inventory maintenance.

8.0 Balance Score Card

Apple uses the BSC approach to measure performance and set strategy. Apple developed a

balanced score card to focus senior management on strategy that would expand discussions

beyond gross margin, ROE, market share. A small committee concentrated on the four

perspectives of the BSC.

Financial perspective (shareholder value) Innovation and improvement ( employee attitudes) Customer perspective(market share and customer satisfaction) Internal perspective( core competencies)

Apple decided to develop its own surveys on customer satisfaction in the key market

segments. However, firm has always been product focused but these metrics were introduced

to orient employees towards customer satisfaction. Company is also taking quantitative

measures to find performance among the core competencies. Apple also conducted a survey

on employees knowledge on the company strategy. The majority of Apple business is

organised on functional basis and worldwide operations. The measure however helps the

senior managers in each organisational unit to assess the impact of their activities and

evaluate new business ventures.

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The metrics at Apple with the exception of Shareholder value can be driven both horizontally

and vertically into each functional organisation. Apple has found the BSC approach helpful to

develop a language of measurable outputs for how to launch and leverage programs. The five

performance indicators at Apple are benchmarked against best in class organisations. Today

they are used to build business plans and are incorporated into senior executivescompensation plans.

8.1 BSC Approach

The purpose of developing the balanced score card is to determine what is important for the

company. It is about identifying, analysing, and monitoring the performance and strategy

8.2 Strategic issues and future challenges

The digital hub strategy is regarded as quite visionary for the future. Apple future success

will not only depend on this strategy but also other factors such as successful execution of the

idea. The success of the iPod is an example of the success. Its important for the company to

focus on strengths and commit to the technological inventions. While considering the SM

issues its the task of Apple R&D resources to develop a distinctive competency in innovation

and technology that fit customers needs. Further, it should lead to short product-market

cycles and innovative products. Apple focuses on personal creativity, thought, freedom of the

employees. Its a decentralised hierarchical structure which is a positive tool for efficient

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corporate culture . Few of the strategic issues are that Apple could only use JIT inventory

systems . Huge amount of Apples manufacturing processes are outsourced to third-party

companies. Apple operates in high technology industry which tells us that the Technological

changes affect its performance. For future, Apple will gain market share in music player

market. The main challenge in future is to maintain the charm of the iPod and iTunes among

the customers. Competition and the pace of technological change are the most critical issues

currently facing Apple Computer. Its strategic moves into mobile communication devices and

portable entertainment downloading places the company in stiff competitive conditions from

every angle. New competitors, low-priced rivals, and potential substitute products all threaten

to reduce the perceived value of Apple products and the success of its strategy. Apple is also

challenged to maintain its core competencies - marketing, innovation, relationship building,

and brand management - as it manages a broader range of products and navigates more

markets. Its customer base is now more diverse, and new sets of competitors have a wider

variety of strengths and strategies. The technology and entertainment industries are constantly

and rapidly changing. It is uncertain whether Apple will be able to sustain its brand's

reputation for innovative design, continually release technological breakthroughs, and launch

new products that will "hit the consumer mark". In addition, the company's suite of products

is no longer based on its internally developed hardware and software, but depends upon the

ability to secure media content, which has its own competitive forces, dimensions of

entertainment value, and proprietary issues.

With Apple's success and growth, balancing stakeholder demands has become increasingly

difficult. Managing the sometimes-conflicting expectations of customers, investors, suppliers,

partners, legal/governmental entities, and other stakeholders puts an increasing amount of

pressure on Apple's management team. And the company's dependence on Jobs' charisma,

vision, and public communication and relationship-building skills puts Apple at risk without

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a reliable succession plan and a pool of equally-talented brand champions.

Apple's continued success lies in careful and thoughtful strategic management of these

complex issues and challenges.

8.3 Limitations of the Models

LIMITATIONS FOR PORTERS APPROACH

The model assumes a classic perfect market which is less meaningful in todays markets. The

model is applicable for analysis of simple market structures. Apples Complicated product

groups or market segments could not be applied effectively.The model assumes relatively static market structures which is not relevant to Apple existing

market. Technological changes and market entrants into the Pc industry from start-ups or

other industries may completely change business models, entry barriers and relationships

along the supply chain within short times. The model assumes that companies try to achieve

competitive advantages over market players. It doesnt take into focus of strategic alliances,

electronic linking of information systems of all companies along a value chain, virtual

enterprise-networks or other.

8.4 LIMITATIONS FOR BSC APPROACH

Measures

It should be equally applied over all organisations. Both the financial and non-financial

segments should be kept into account. It should be distinguished effectively so that it can lead

to long term economic performance of the firm.

9.0 Conclusion

Apple obtains a exceptional distinction of being a single survivor from the early days in the

industry. Apples customers are mostly in the education, professional, consumer,

and business markets. The company has a reputable loyal customer base through series of

innovations in its products. The Company distributes its products through wholesalers,

retailers and cataloguers. From the financial and trend analysis done with the main

competitors, we can say that Apple has a better performance over Dell and HP. Although it

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leads the firm also faced issues in being the pioneer. Apple company needs to establish

strategies to overcome the issues and maintain its global competitiveness. The key issues

identified financial analyses are the lowering gross operating profit, difficulty of the company

to maintain its Roe, and recover the business per employee. The ratio analysis revealed that

Apple failed to keep up its assets and turnover from it and also its inventory maintenance. In

the strategic analysis at the business level, Apple strategy should aim at improving weakness

and getting rid of the threat. Apple faced problems in maintaining its cost structure and the

company spent a lot on marketing expenses. The main strategic challenge for Apple is

maintaining its charm of the products and developing more innovative ones.

Thus as the competition rises, Apple will have to be careful to maintain their pace of

growth and pace of market share then the company will continue to move confidently as an

innovative, and strong company to invest in.

9.1 Recommendations

Apple should build up joint ventures to maintain quality and make products in low cost which

could be available to all customer groups. It should develop its retailing and can make social-media integration to educate the customers regarding its products. The company can make

partnerships with other hardware firms and differentiate its products. It should also focus on

operational efficiency. It should open its mobile phones to all carriers not restricting itself to

few. Apple high cost structure must be reduced for minimising its competitors. Apple has to

continue the outsourced production to avoid bottlenecks in supply chain management.

As our strategic analysis and the resulting strategic alternatives as well as strategic

recommendation actually summaries the main facts of this strategic audit and provide a

ventured but definitely interesting (and on a broad strategic foundation based) suggestion for

the company, we would like to conclude this paper with some personal thoughts

In fact, it was certainly a challenging, interesting, and beneficial task for us to pursue this

strategic audit that was not only a personal milestone in our academic history but above all

improved our overall knowledge concerning the company and the strategic management tools,

processes, and methods. Moreover, this paper can be regarded as a beneficial work as it gave

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us the unique opportunity to visit the companys office in Vienna (Austria) or engage in

written communication with its branch in Cork (Ireland).

In addition, this all meant a great chance for us to put our theoretical knowledge in terms of

strategic management and other areas into practice and to get a deeper insight into a company

which fascinates us due to its exceptional history, its amazing capabilities, and the unique

strategy it is pursuing in dealing with present and future challenges in a rapid-moving

industry environment.

Finally, we hope that weve been able to provide the reader with a comprehensive and

consistent strategic picture of Apple Computer Inc. and that our creativity and design can

contribute to superior innovation as well as the content does to superior quality. Of course,

we are thankful for any comments, advice, and recommendations and will value your

thoughts as a useful input to reach superior customer responsiveness.

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Elson, Brad. Personal Interview. 04 February 2005.Personal Interview on Campus. Brad Nelson is an Apple Representative.

Mintzberg, Henry (1994). The Rise and Fall of Strategic Planning. Basic Books.

Porter, Michael (1986). Competitive Strategy. Harvard Business School Press.

Steiner, George (1979). Strategic Planning. Free Press.

The balanced scorecard, Robert S Kaplan, David P Norton, Harvard businesss review, 1992.

Tregoe, Benjamin and John Zimmerman (1980). Top Management Strategy. Simon and

Schuster

The strategy focused organisation: How to balanced score card companies to thrive in newBusiness environment, Robert S Kaplan and David P Norton, Harvard business review, 2000.

Apples 10-K Report for 2007www.Apple.com/investors

Yahoo! Financehttp://finance.yahoo.com/q?s=AAPL

Advfn.com