Apple Inc.
Company Analysis Report
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Apple Inc.
Company Analysis Report
Table of Contents
Introduction .................................................................................................................................................. 3
Initial Review ................................................................................................................................................. 4
Current Financial State.................................................................................................................................. 5
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Apple Inc.
Company Analysis Report
Introduction
The organization chosen for this company analysis report is Apple Inc. and its wholly-
owned subsidiaries (collectively “Apple” or the “Company”). Apple designs, manufactures, and
markets personal computers, mobile communication devices, and portable digital music and
video players and sells a variety of related software, services, peripherals, and networking
solutions. The Company sells its products worldwide through its online stores, its retail stores,
its direct sales force, and third-party wholesalers and resellers. In addition, the Company sells a
variety of third-party Macintosh® (“Mac”), iPhone® and iPod® compatible products, including
application software, printers, storage devices, speakers, headphones, and various other
accessories and peripherals through its online and retail stores, and digital content and
applications through the iTunes Store®. The Company sells its products to consumer, small and
mid-sized business (“SMB”), education, enterprise, government and creative customers.
(Source: Apple.com)
This analysis will evaluate the current financial state of Apple including trends in its
financial health over the past years and its potential growth in the future. This analysis will also
compare Apple’s performance with its competitors and with the industry. This report will also
analyze Apple’s overall industry and assess Apple’s position within its industry. Lastly,
conclusion and recommendations would be given as to whether an investment in Apple’s bonds
or stocks is viable or not.
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Apple Inc.
Company Analysis Report
Initial Review
Initial review of Apple’s published financial statements reveal that the auditor’s of
Apple (Ernst & Young LLP) have expressed an unqualified opinion on the financial statements
which means that the financial statements give a true and fair view and depict the true picture
of the company’s financial performance. Furthermore, it appears that the company is
enhancing its product sale through the expansion and improvement of its distribution
capabilities by opening its own retail stores in the U.S. and in international markets (Source:
Annual Report, 2010).
The company has also invested in programs to enhance reseller sales, including the
Apple Sales Consultant Program, which places Apple employees and contractors at selected
third-party reseller locations, and the Apple Premium Reseller Program, through which
independently run businesses focus on the Apple platform and provide a high level of customer
service and product expertise. (Source: Annual Report, 2010)
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Apple Inc.
Company Analysis Report
Current Financial State
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Apple Inc.
Company Analysis Report
Industry Analysis
In order to analyze Apple’s industry and its position within the industry, we will use SWOT
analysis. SWOT stands for Strengths, Weaknesses, Opportunities and Threats, and is very useful in
analyzing where a business currently is and where it would be in the future in terms of strategy. In order
to find out Apple’s position, both the internal (strengths and weaknesses) and external factors
(opportunities and threats) will be analyzed.
Strengths:
iTunes is a sound source of revenue for Apple, since it also sells its own tool, the iPod;
and is accessible on Microsoft Windows as well.
For every hardware product, Apple Inc. produces its own software as well, and it has
expertise for both.
Apple’s price area level provides it with enough room to avoid price competition.
Apple’s products have appealing and elegant design, and are also easy to use.
The strong brand loyalty of Apple Computers.
Mergers with Intel Computers since 2006.
High developed Research & Development department.
Weaknesses:
Weaknesses of a business are the negative elements that can be improved because they
are under the control of that business. Weaknesses also express the disadvantages to
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Apple Inc.
Company Analysis Report
competition that might not let the business meet its objectives. Following weaknesses of Apple
were analyzed:
Weak relationship with market titan Microsoft.
Technological products such as Apple’s have extremely short lifecycles; this implies that
the development and production of new products and services has to be constant.
Low presence in advertising other than products placement in publishing and
educational areas.
Very little market share compared to main competitor Microsoft
Opportunities:
Opportunities are external factors that influence the company’s current and future
position; they are usually needs that promise beneficial outcomes for the company. The
opportunities for Apple are analyzed below:
The production of computer anti-viruses, which are increasing on PC’s
Large and increasing population resulting in more potential customers and in turn more
demand in the future.
Increasing bonds and partnerships with other companies, such as IBM.
Increasing online sales.
Most demanded and sold Apple products are the Mac books, therefore producing
different types to meet the demand.
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Apple Inc.
Company Analysis Report
Threats:
Threats are negative external factors which are not under the control of the company.
In case of threats, the best a company can do is to identify them and look for ways in which the
threats can be converted into opportunities or at least do no harm to the company. The threats
faced by Apple are analyzed below:
In the Laptop market, Apple has very strong competition from Dell, HP, Sony and
Toshiba.
Media piracy: iPod users illegally downloading music for free instead buying at iTunes.
The long lasting economic recession, this might influence Apple’s sales in the near
future.
Window’s 7 (software), which after the flop of vista is gaining more and more market
share.
The very high speed of technology development.
In order to further analyze Apple’s industry and how Apple is affected economically,
technologically and legally, we will use PEST analysis. PEST analysis will help to determine the
current position of Apple Inc., and will also give a glimpse into the future of Apple Inc.
Political Influences:
Majority of the sales of Apple are from outside the US. Bad international relations, wars
and terrorism might influence Apple in a huge manner; moreover these are all factors over
which Apple has no control. Apple Inc. also produces majority of its products outside the U.S.,
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Apple Inc.
Company Analysis Report
e.g. Ireland, Czech Republic, Korea and China. Political Conflicts between the U.S. and any of
these states may have dramatic outcomes for Apple Inc.
Economic Influences:
The global economic depression might also have immense impact on Apple Inc. The
inflation rate is high, while consumer’s incomes didn’t have significant changes, moreover the
unemployment rate has increased, leading consumers to spend less, especially on ‘luxury
products’, as Apple products might be viewed. Even though the U.S. dollar has lost value, Apple
Inc. is not as endangered economically. The corporation has purchased foreign currency for
itself, to minimize the economic effects of inflation.
Social Influences:
Globalization is interaction of people worldwide, for which technology plays the main
role. Today’s World cannot be imagined without technological devices such as PCs, mobile
phones etc. Apple is the globally seen as the King of technology, not because of mainly usage,
but also quality and design. Another big social influence is the music industry, which has
become virtual over the last decade. Apple having developed the biggest virtual media store,
iTunes, is well ahead any other competition of this direction. Google has recently launched
‘Google Music’, but Apple currently has no threat as because of its strong loyalty and
innovation. All in all, Apple’s image also portrays the modern individual’s lifestyle, combining
functionality with design, leading to brand identification and loyalty. Therefore social influences
have positive effects on Apple Inc.
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Apple Inc.
Company Analysis Report
Technological Influences:
The market for computers and mobile phones has become huge, adding more
competition in the market. Also technology innovations and changes are almost as fast as light,
therefore the product lifecycles have become very short. By investing largely in Research and
Development, Apple is on top of the market, regarding innovative products. This also means
making the work for the competition to imitate, but it’s still better because innovation is a big
part of the brand and has shown to pay out.
Competitive Analysis:
The Computer market in the technology industry is an Oligopoly market, ruled by five
great corporations, Apple Inc. being one of them. Therefore for the sake of evaluating
comparable factors, we will only take the market leaders into consideration; those who can
influence the market. The most influential competitors of Apple Inc. are:
Dell Inc.
HEWLETT PACKARD CO
Microsoft Corp
IBM
Detailed analysis of the competition and profitability within Apple’s industry will be
done with the use of Porter’s Five Forces. Named after Michael E. Porter, this model identifies
and analyzes 5 competitive forces that shape every industry, and helps determine an industry's
weaknesses and strengths. The forces are analyzed below:
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Apple Inc.
Company Analysis Report
Threat of New Entrants:
New entrants to an industry can raise the level of competition, thereby reducing its
attractiveness. Apple’s industry faces the following threats:
Streaming audio and video with v-cast (Verizon)
On demand online services (similar to i-tunes)
New entrants with disruptive technology (The “next Google”)
Bargaining Power of Suppliers:
The cost of items bought from suppliers (e.g. raw materials, components) can have a
significant impact on a company's profitability. If suppliers have high bargaining power over a
company, then in theory the company's industry is less attractive. The supplier’s in Apple’s
industry can be analyzed in this respect as follows:
Suppliers of processors and computer memory (Motorola, IBM, Intel)
Strategic alliance/supplier of Mac (Microsoft)
Supplier of tv and movies (Disney, ABC, Fox, Sony)
Sources of music (BMG, Sony, Warner, Universal)
Bargaining Power of Customers:
Buyers are the people / organizations who create demand in an industry. The
bargaining power of buyers is greater when, for example, there are few dominant buyers and
many sellers in the industry or when the products are standardized. Apple’s industry in this
respect can be analyzed as follows:
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Apple Inc.
Company Analysis Report
Customers share music using peer-to-peer networks without paying for music (Ares,
Limewire)
Retailers may pressure for lower prices or better terms (Distributors)
Consumers/Businesses may reduce spending on computers if they fear economic
downturns (Consumer Attitudes & Behaviors)
Threat from Substitutes:
The presence of substitute products can lower industry attractiveness and profitability
because they limit price levels. The threat of substitute products depends on buyers' willingness
to substitutes, the relative price and performance of substitutes, the costs of switching to
substitutes. Apple’s industry can be analyzed follows:
Satellite radio for music (XM, Sirius)
Entertainment media, media and music (XBOX, PS2)
Alternative means to acquire music (Music CDs, DVDs)
Alternative sources for videos (Cable, Broadcast, Theatres)
Existing Rivalry:
The intensity of rivalry between competitors in an industry will depend on factors such as the
structure of competition, for example, rivalry is more intense where there are many small or
equally sized competitors; rivalry is less when an industry has a clear market leader. Also, the
structure of industry costs, for example, industries with high fixed costs encourage competitors
to fill unused capacity by price cutting. Apple’s industry can be analyzed as follows:
Windows OS and media player for playing music and video ( Microsoft)
Competition to Mac OS X (Linux)
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Apple Inc.
Company Analysis Report
Alternate sources of computer hardware (Dell, HP, Lenovo)
Online music stores similar to itunesstores (Napster)
Market Analysis:
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