Apple Case Analysis Essay

Submitted By Marellapudi1
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Executive Summary

The company started as Apple Computer by Steve Jobs and Steve Wozniak in 1976. Despite a strong brand, rapid growth and high profit in the late 1980s, Apple almost went bankrupt in 1996. Jobs then went to work and transformed Apple Computers into Apple Inc. with innovative and technologically sophisticated non-PC products during the 2000s. By 2010, the company also viewed itself as a “mobile device company”. Apple became the fourth largest PC vendor in the US market with an 8% share by the end of 2009. Its market capitalization went to $220 billion in spring of 2010. Through multi-million dollar marketing campaigns such as the successful “Think Different” ads, Apple promoted itself as a hip alternative to other computer brands. Apple’s retail stores allow consumers to experience, first hand, their eye-catching products.

Apple’s success is largely due to vertical integration of design, product differentiation and creating blue oceans in existing markets. From the operating system to the packaging of its products, Apple has been fanatical in controlling the design of its products. Apple computers and I-devices run a proprietary operating system developed by Apple. Apple took integration a step further by designing the microprocessor for the IPad when a “suitable” substitute was un-available. In one particular case, involving Corning’s Gorilla Glass, Apple pressured a supplier to retool a factory to meet their specifications. Apple’s fanatical control of product design has created product differentiation that allows Apple to mitigate the five forces of competition.

The “Think Different” ad campaign is a great example of Apple differentiating itself from the PC market. This differentiation helps protect Apple from Porter’s five forces of industry competition. The bargaining power of buyers is almost non-existent as demonstrated by the long lines outside Apple stores following the release of a new product. The bargaining power of suppliers is partially diminished through the use of proprietary technologies, but recent legal disputes with Samsung have somewhat challenged this.

Examination of Quantitative and Qualitative Data

Apple’s financial data, standing alone, provides only a partial evidence of the company’s success. Traditional measures such as the DuPont return-on-equity ratio prove Apple to be a close third to RIM and front runner Microsoft. Removing debt from the equation does nothing to improve Apple’s ranking. While the income statement indicates an enviable gross margin and return-on-sales, Apple trails RIM and Microsoft in these key metrics as well. However, Apple has managed to decrease costs (SG&A), while increasing both revenues and profits. Apple trails only Microsoft in return-on-sales ranking.

Financial analysts primarily consider the numbers behind a company’s financial performance, but intangibles matter as well. In Apple’s case these include competitive advantage, management attitudes, and innovation. These factors better predict Apple’s stock performance than its valuation metrics. Apple’s performance over the past several years is an example of the impact of immeasurable characteristics in today’s market.

Diagnosis of Underlying Causes

• Apple highly effective at creating and maintaining “Blue Oceans” through differentiation in product design brand, and innovation • Commitment of resources to making a few products and making them well (Addition by Subtraction) • Control of both hardware and software integral part of delivering unique user experience • Willingness to adapt to quickly evolving markets as consumer interests shift to a more
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