Apple Future
Apple Essay on SWAT
INTRODUCTION
One of the most well know and respected companies in the world, Apple Computers has endured through many hardships and learning from its mistakes, risen to its current state of sustaining growth in a contracting market while at the same time posting profitable quarters. Driven by its loyal fan and devoted followers, Apple has the future to look forward to. Setting the standard in design and innovation, Apple Computers will remain a favorite among the industry, educational institutions, and present and future customers.
COMPETITION
The computer industry has become increasingly competitive. This is seen in price competition, which has resulted in lower gross margins. Apple has many competitors, and some of them have sizeable market shares. Software has seen rapid advance, just as has hardware. Increasingly, Apple is being targeted by firms that offer more advanced devices and who are specifically seeking the same market segments, which are consumers, education, and design and publishing (8-9). As the only firm in the industry that relies on the Mac OS, Apple is always in danger of pushed aside by the computer makers of equipment that uses Microsoft's Windows OS's.
COMPUTER AND PERIPHERALS INDUSTRY
After the recent period of stagnation, the computer industry is poised for growth, and there should be increased sales of PCs, mainframes, storage devices, printers, and Web servers. Two leading competitors, Compaq and Hewlett-Packard, have joined together under the Hewlett-Packard name. Compaq operates throughout the world. Its strength had been in professional services (52% of sales), desktops and portables accounting for 32%, and PC for consumers (16%). Hewlett-Packard's business in 1999 was about 44% imaging and printing systems, 43% computing systems, with the remainder in services. In addition, HP planned to add high-end servers (9, 11). The trend toward color printing in offices has boosted its color laser printer sales.
Dell Computers has moved aggressively to challenge Apple in its core business of serving education, capturing the largest share of the market in 1999 (6). It uses a low price strategy, which allowed it to become the world's largest direct computer systems company in 1999 with notebooks, desktops, network servers, storage, peripherals, and services. The company is shifting to products with higher margins (10).
Gateway, as with Apple's other competitors, sells 85% of its products in the U.S., which consist of desktops, notebooks and PCs. In the past it has been helped by limited business with corporations, but that might hinder it when the economy picks up and businesses place increasing orders (10).
IBM has been the largest computer company for a long time. In 1999 it was the largest supplier of information processing hardware, communication systems, and services. It has a good balance between domestic and global sales, as well as between hardware, software, and services (10-11).
SEMICONDUCTOR INDUSTRY
Sales of semiconductors have been slow in recent years, reflecting slower sales of consumer technology products, especially PCs. Intel has been the industry leader in making silicon chips. It also makes microprocessors, computer modules and boards and network products. Domestic sales represent just 43% of its business. Intel supplies the chips for many compatible PCs, and as that market picks up, it should regain some strength (11-12).
Motorola makes electronic equipment and components. Most of its business is in personal communications (39%), network systems (21%), and semiconductor products (19%). Domestic sales were only 37% of the total. Increased international sales should help it continue a positive momentum (12).
COMPUTER SOFTWARE AND SERVICES
While Apple does make much of the software for its products, it does not have extensive business in services. Software has been weak, reflecting the general weakness in technology. As demand picks up, there should be an increase in demand for both software and services.
Apple's major software competitor is Microsoft, which created and maintains Windows and many productivity applications. It is the largest software firm in the world, but it has entered into a licensing agreement with Apple under which the companies can write for each other's operating systems (14). Microsoft is moving to strengthen its presence on the Web and with Web applications.
STRENGTHS
Just as Apple Computer's early success came from marketing and technological innovation, its current strength in the computer industry is highly dependent on marketing and product innovation (5). While Apple seems able to continually reinvent itself, it successes have always come from superior technology and style. The coolness factor allows Apple to market its products with higher markups that can its competitors (1).
The strategy of trying to offer the most exciting products is suggested by the newest "killer applications" slogan (18). The introduction and marketing of iMac has been pivotal to Apple's profits in the first three quarters of fiscal 2000. That machine offers both strong computer design and also color options that grab consumers' attention in the showroom (15). In addition, the focus on providing computers for educational setting and designing software for those settings has helped Apple to grow, and many of its current users probably were introduced to Macs in the classroom (5).
WEAKNESSES
Over the past few years the technology industry has been weak, and that weakness has affected every technology business in various ways (2). Certainly, Apple's lessened profits at the end of fiscal 2000 and beginning of fiscal 2001 reflected the difficult environment (16-17). At the same time, Apple has failed to keep its dominance in the classroom as Window's operating systems (OS) spread. It was in 1999 that Dell became the largest computer supplier to the education market, displacing Apple (6-7). Since education accounted for 40% of Apple's U.S. sales in 2000, this shift away from Apple will hurt profits. In part, the losses in education were due to confusing changes to the apple education sales team (8). Also, Apple continues to suffer from its decision not to widely license the Mac operating system, which has resulted in limited software being available for their machines (5). Finally, sales of the G4 cube have been lower than expected (16).
OPPORTUNITIES
Apple has performed best under the leadership of Steve Jobs, who resumed leadership in 1997 (5). He seems able to find creative approaches to solving Apple's numerous challenges. Apple can do well by continuing to emphasize product differentiation, which attracts buyers and provides for higher markups (1). Also, the shakeout in the computer industry at all levels caused by the sluggish growth of the past few years creates opportunities for the survivors. Because jobs are so innovative, he should be able to take advantage of those opportunities. While currency exchange rate were hurting Apple a few years ago because of the strong dollar and 46% of Apple's business being overseas, today the dollar is weak, which should help sales in Europe and elsewhere (13). Finally, Apple's cross-licensing agreement with Microsoft, although limited in scope and duration, offers the opportunity to expand beyond the limits of the Mac OS (14) and attract former Windows users (18).
THREATS
The education sales team must be solidified so that there is no further erosion of that segment. Apple has adopted a risky strategy of depending on style and innovation to generate sales, because consumers will often seek lower-cost alternatives. This is even seen among Mac buyers, who are buying the lowest-prices iMac configurations (16). The prices of computers and computer peripherals continue to fall, which forces Apple to continue to reduce its prices (10). Also, if Apple enters a period in which it is unable to introduce successful new products, it would suffer greatly. Reliance on offering a constant supply of new products is risky because new products often have defects (14), and Apple's stumbles in the past have provided openings to its competitors (8). Finally, Apple often depends on a single supplier for critical supplies, making it very vulnerable (14).
FINANCIALS
Since the return of Steve Jobs as Chief Executive Officer in 1997, Apple Computers' financial status has improved tremendously. Even with the current state of the economy, Apple Computers was able to post solid gains in the second fiscal quarter of 2003 (ending March 29) with a net profit of $14 million, or $.04 per diluted share on revenues of $1.475 billion, which was down 1 percent from the year-ago quarter. Apple shipped 711,000 Macintosh units during the quarter with international sales accounting for 47 percent of the quarter's revenues. The company was able to achieve second quarter revenue targets by maintaining a 28.3 percent gross margin while controlling channel inventories at less than 4.5 weeks.
Apple Computers' source of revenue stems from a combination of products and services. These products and services are divided into segments that consist of home, education, and business sectors. For the home segment, products include Apple's popular iMac with the recently introduced spring line featuring two new models that have a suggested retail price of $1,299. The newly introduced eMac family of computers is targeted for both the home and education segments that provide an affordable computing solution at a suggested retail price starting at only $799. Other home consumer products include LCD monitors, AirPort wireless networking solutions based on the next generation Wi-Fi 802.11g protocol, and the popular third generation portable music player iPod that retails between $299 and $499.
Software suites that cater to all segments of the market include iCal (personal calendar), iLife (Suite of several software programs), iPhoto (photography), iDVD (DVD creation), iMovie (moviemaking), iTunes (music station), Keynote (presentation), QuickTime (streaming video player), and Safari (web browser). All software listed is developed by Apple Computers and operates exclusively on their Macintosh systems. Apple Computers also develops and distributes their exclusive operating system called OS X for the home and education segments as well as OS X Server for the business segment.
In the business segment, Apple provides a range of products that include workstations for creative content production and video editing to high performance storage system servers. In addition, Apple also has in its product line a range of notebook computers for mobile users. PowerBook models have a suggested retail price of $3,299 and incorporate many of the same features and benefits of their desktop counterparts.
Being listed under the NASDAQ exchange, Apple Computers' ticker symbol is AAPL. Its current stock price as of 6/02/03 (11:58 AM ET) is 18.11. Total number of shares outstanding is 365,545, 000. The company's 52-week high stands at 23.45 (6/03/02) and low at 12.72 (4/17/03). Indicated annual dividends are not issued as profits earned are reinvested in product development as well as other areas of interest. The beta coefficient is currently at 1.13, making the company a fairly low risk investment. Earning per share is at a disappointing negative $.02. The company's market cap is currently at 6.620 billion.The future outlook of the company is conservative with projected third quarter revenue to be relatively flat with the "March quarter and expect a slight profit for the quarter". The introduction of iTunes, an online music store, on April 28 has become an instant success with downloads of over 1 million songs in less than a week and 2 million in a little over two weeks. The online store continues to grow as Apple repositions itself in diversifying its offerings to customers. With the much needed stream of revenue, Apple Computers is headed in the right direction and setting the standard by which its competitors should take notice. Once again, Apple Computers has reinvented itself with the leadership of Steve Jobs and the financial backing to prove it.
