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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.

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.
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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.
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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 Rating Weighted Comments

Score
(out of1) (1 - 5)

Strengths

(i) Produce innovative 0.10 3.5 0.35 Good R&D efforts

products

Stable products to control

shocks in different product

(ii) They make 0.10 4 0.40
markets
diversified products

(iii) Brand loyal 0.15 4 0.6 High end customer

customers satisfaction level

(vi) Virus free systems 0.05 2 0.10 High level of security

(v) Produce aesthetic Cutting edge, high end

products stylish products

0.10 3 0.30

(vi) Introduce USB and Enabling portable

firewire ports peripherals

0.05 2 0.10

Weakness More focus on

development and R&D

(i) High manufacturing 0.05 3 0.15

and inventory cost

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(ii) Has low market

share in software
0.15 4 0.6 Less awareness
industry

(iii) No compatibility

options in soft wares

0.10 3 0.30 Extremely high end

products

(iv) Decline in sales of

iMac
0.05 2 0.10

(v) Less emphasis on

marketing issues to
0.10 4.5 0.45 Low investment in
create awareness
marketing

TOTAL 1.00 3.45

b) EFAS

Internal Factors Weight Rating Weighted Comments

Score
(out of1) (1 - 5)

Opportunities Emphasize on the sales

of innovative products
(i) Should expand on 0.10 2 0.20

the basis of sales

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(ii) Should target Find a propitious niche

government and
0.15 3 0.45
educational institutions

(iii) Should capitalize Give advanced security

on the basis of virus

0.15 4 0.60
free systems

(iv) Should introduce Give new meaning to

speech recognition technology

0.10 3 0.30
program

(v) Should focus on Cater the segment in a

customized products better way

0.05 3 0.15

Threats Rival companies become

giants and good name

(i) Mergers & 0.15 3.5 0.7

acquisitions of

competitors

(ii) High cost can be a 0.15 4.5 0.67 It is a question for Apple

limitation in future

(iii) High market share 0.10 3.0 0.30 Well positioned rival

of Microsoft

(iv) Competition

increases in music
0.05 2 0.10
downloading sites
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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 Disadvantages

(i) Produce innovative products (i)Low market share

(ii) Virus free systems (ii) high operation and marketing cost

(iii) Brand loyal customers. (iii) less emphasis on marketing

(iv)producing diversified products (iv) Competing against giants of the

industry

b) Should capitalize on the basis of virus free systems

Advantages Disadvantages
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(i) Increase in sales of computers

(ii) Market share will increase (i) R&D cost will become higher

(iii) Start competing microsoft on the (ii) High marketing efforts are needed

basis of virus free softwares. to create awareness.

(iv)New segments will be attracted. (iii) Low compatibility with other

systems .

c) Should introduce speech recognition program

Advantages Disadvantages

(i) More user friendly system (i) Cost will increase which affects the

price of product
(ii) Open new market horizons

(ii) Has to maintain big data dictionary

(iii) Increase diversity of products
for different words of different
(iv) Capture new consumers
languages.

(v) Helps in improving brand name

d) Go for strategic alliance for producing specific products

(microprocessors)

Advantages Disadvantages
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(i) Reduction in cost (i) Contradiction between cultures of

organizations
(ii) Reduction in product development

process (ii) Privacy of developing innovative

products will be slightly affected

(iii) No compatibility issues

(iv) Sharing of resources

(v) Increased profit margin

e) Go for customized products

Advantages Disadvantages

(i) Targeted niche will be highly (i) Cost will extensively increase

satisfied
(ii) Difficult to cater all requirements of

(ii) Understand the changing customers along with innovation

environment easily
(iii) Chance of ambiguity will increase

(iii) No new channel needs to be which affects the brand name

introduced for sales

(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 Strengths (S) Weaknesses (W)

(i) Produce (i) High manufacturing

innovative products cost

(ii) Brand loyal (ii) No compatibility

customers issues

(iii) Virus free (iii) Less emphasis on

External Factor
systems marketing issues

Opportunities (O) SO Strategies WO Strategies

(i) Capitalize on virus Apple should Apple should

free system emphasize more on emphasize on making

expansion in order new and focus on

(ii) Introduce speech
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recognition system to increase market creating awareness

share by developing among the customers.

(iii) Target govt. and
new innovative
educational institutions
products and

provide better after

sale services to

make customers

more brand loyal.

Threats (T) ST Strategies WT Strategies

(i) Merger & Apple should have Apple should have to

acquisitions of to keep its cost focus on producing new

competitors optimize by compatible products

strategic alliance and focus on marketing

(ii) High cost cab be a
and make high cost its products.
limitation in future
products cheaper.
(iii) High market share

of Microsoft
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Raio Analysis
2002 2003 2004 2005 2006 2007 208 2009
1. Liquidity Ratios

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% 7% 7% 7%

3. Activity Ratios

Inventory turnover 127.60 110.84 81.97 81.97 81.97 81.97 81.97 81.97

day of Invetory 3.97 4.54 6.12 6.12 6.12 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 0.58

X2 0.37 0.35 0.33 0.34 0.34 0.35 0.35 0.36
X3 0.01 0.01 0.05 0.05 0.05 0.05 0.05 0.05
X4 1.86 1.63 1.71 1.59 1.49 1.40 1.33 1.26
X5 0.91 0.91 1.03 1.05 1.07 1.08 1.09 1.10

3.30 3.05 3.33 3.30 3.28 3.26 3.24 3.22

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Apple,s Consolidated Statements Of Financial Positions

Projected 2005-2009
(In $ millions)

Period Ending 2002 2003 2004 2005 2006 2007 2008 2009
Assets
Current Assets
Cash and Cash Equivalents 2,252 3,396 2,969 3,592 4,347 5,260 6,364 7,701
Short-term Investments 2,085 1,170 2,495 3,019 3,653 4,420 5,348 6,471
Net Receivables 731 956 1,005 1,216 1,471 1,780 2,154 2,607
Inventory 45 56 101 122 148 179 217 262
Other Current Assets 275 309 485 587 710 859 1,040 1,258
Total Current Assets 5,388 5,887 7,055 8,537 10,329 12,498 15,123 18,299
Long -term Investments 39 - - - - - - -
Property, Plant and Equipment 621 669 707 707 707 707 707 707
Goodwill 85 85 80 80 80 80 80 80
intagible Assets 34 24 42 42 42 42 42 42
Accumulated Amortization - - - - - - - -
Other Assets 131 150 80 97 117 142 171 207
Deffered Long-term Asset Charges - - 86 86 101 120 141 167
Fixed Assets 910 928 995 1,012 1,048 1,090 1,142 1,203
Total assets 6,298 6,815 8,050 9,548 11,377 13,589 16,265 19,502
Liabilities
Current Liabilities
Accounts Payable 1,658 2,053 2,680 3,243 3,924 4,748 5,745 6,951
Short/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 6,951
Long term Debt 316 - - - - - - -
Other Liabilities - - - - - - - -
Deffered Long-term Liability Charges 229 235 294 294 294 294 294 294
Minority Interest - - - - - - - -
Negative Goodwill - - - - - - - -
Total Non Curerent Liabilities 545 235 294 294 294 294 294 294
Total Liabilities 2,203 2,592 2,974 3,537 4,218 5,042 6,039 7,245
Stockholders Equity
Misc.Stocks,Options ,Warrants - - - - - - - -
Redeemable Preferred Stock - - - - - - - -
Prefrred Stock - - - - - - - -
Common Stock 1,826 1,926 2,514 2,514 2,514 2,514 2,514 2,514
Retained Earinings 2,325 2,394 2,670 3,231 3,909 4,730 5,723 6,925
Treasury 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 9,159
EFN 397 894 1,494 2,220 3,098
Total Liabilities And Stockholders,equity 6,298 6,815 8,050 9,548 11,377 13,589 16,265 19,502

EFN
2005 2006 2007 2008 2009
Total Assets 9,548 11,377 13,589 16,265 19,502
Total Libilites 3,537 4,218 5,042 6,039 7,245
Total Equity 5,614 6,265 7,053 8,006 9,159
EFN 398 894 1,494 2,220 3,098
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Apple's Income Statement

Projected 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 21,474
Cost Of Revenue 4,139 4,499 6,020 7,284 8,814 10,665 12,904 15,614
Gross Profit 1,603 1,708 2,259 2,733 3,307 4,002 4,842 5,859
Operating Expenses

Research Development 446 471 489 592 716 866 1,048 1,268
Selling General And Administrative 1,111 1,212 1,421 1,719 2,080 2,517 3,046 3,686
Non-recurring Expenses 29 26 23 28 34 41 49 60
Other - - - - - - - -
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 88 106 129 156

Earning Before Interest and Taxes 87 92 386 467 565 684 827 1,001
Interest Expense - - 3 4 4 5 6 8
Income Before Tax 87 92 383 463 561 679 821 993
Income Tax Expense 22 24 107 120 146 176 213 258
Minnority 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

Assumption
Growth rate
2004 = 33.38%
2003 = 8.098%
Average = 21%