Apple Computer Inc. 2005

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Apple Computer Inc.2005

• A Strategic Management
• Case Study

Graphics are the property of Apple Computer
2
Overview

• A brief history of Apple Computer
• EOY 2004
• Mission, Vision, Objectives, Strategies
• 2005
• New Vision and Mission
• External Analysis
• Opportunities Threats
• CPM
• EFE
• Internal Analysis
• Financial Data
• Strengths and weaknesses
• IFE
• Financial ratios
• Strategic Analysis
• SWOT Matrix
• SPACE
• BCG
• IE matrix

• Possible alternative strategies
• Our Recommendation
• Strategies
• Long range objectives
• EPS/EBIT
• Implementation Issues
• Proposed annual objectives (goal) and polices
• Proposed procedures for evaluation
• Epilogue
• Current Performance
• Questions
• Resources Utilized

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History of Apple

• 1976
• Apple started in a garage in Santa Clara, CA by
  Steve Wozniak and Steve Jobs
• A easy to use PC for small computer users
• 1980
• 117,000,000 in sales
• IPO
• 1983
• Wozniak quits
• Jobs hires John Sculley From Pepsi Co. to become
  President of Apple
• 1984
• Macintosh PC

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History of Apple

• 1985
• Jobs and Sculley have a falling out
• Jobs fired
• Sculley becomes CEO
• Bill Gates wants to buy Mac O/S, Sculley says No,
  Gates buys DOS from IBM, Microsoft kicks Apple's
  butt (90 market share)
• 1993
• Apple release Newton, the first PDA
• Earnings Plunge, Apple restructures, Sculley
  Resigns
• 1997
• Apple CEO Gilbert Amelio buys NextStep from Steve
  Jobs
• Earnings Plunge, Apple restructures, Amelio
  Resigns
• 1998
• Steve Jobs returns as iCEO

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History of Apple

• 1998
• Jobs restructures Apple along two products lines
• Consumer iMac
• i for internet
• Professional PowerMac
• power for power user
• Sales return, Brand emerges, Innovation rules
• USB, Firewire, Airport
• iPod and iTunes
• Stock price takes off like a rocket!

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Lesson learned



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2004 Vision Statement
Apple ignited the personal computer revolution in
the 1970s with the Apple II and reinvented the
personal computer in the 1980s with the
Macintosh. Apple is committed to bringing the
beast personal computing experience to students,
educators, creative professional, and consumers
around the world through its innovative hardware,
software, and Internet offerings
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2004 Mission

• Apple Computer is committed to protecting the
  environment, health and safety of our employees,
  customers and the global communities where we
  operate. We recognize that by integrating sound
  environmental, health and safety management
  practices into all aspects of our business, we
  can offer technologically innovative products and
  services while conserving and enhancing resources
  for future generations. Apple strives for
  continuous improvement in our environmental,
  health and safety management systems and in the
  environmental quality of our products, processes
  and services.

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2004 Strategies

• Market Penetration
• Branding
• Niche player
• New Product Development
• Speech recognition
• Virtual reality

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2004 objectives

• Double market Share from 5 to 10
• Remain as the most profitable computer company in
  the industry

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2004 Issues

• How can apple best capitalize on the needs of the
  business world for a safer, virus-free, worm-free
  system?
• Should Apple enter the consumer electronics
  business like Dell and Gateway did?
• Should Apple remain a lone wolf in Operating
  Systems or adopt a cross-platform format
  compatible with Windows and Intel
• How much emphasis should Apple place on
  developing the next generation of voice
  recognition computers?

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A new vision

• To become the global leader in computer and
  digital music products.

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A New Mission

• The Apple commitment to excellence is its mission
  to provide computers and service (2) for people
  (1) that meet the highest standards of value and
  reliability. Apple is one of the leaders in the
  computer industry and produces some of the
  best-selling computers and digital music products
  in the world (3). Apple provides the highest
  level of quality and value for our customers (7).
  Those are timeless fundamentals. We also apply
  innovative technology to our core business (4) to
  make our products irresistible to customers,
  beneficial to society, and profitable to our
  company (5). We strive to provide additional
  opportunities for growth and enrichment of
  company personnel while maintaining a work
  environment for all employees (9) that encourages
  personal commitment and participation in support
  of achieving excellence. We are committed to
  being a good corporate citizen, and being openly
  honest with all of our stakeholders (6). We
  support activities that enable people to improve
  their lives and reinforce their commitment to
  society (8).

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Apples New Mission

• The new mission answers the following questions
• Customers Who are the firms customers?
• Products or services What are the firms major
  products?
• Markets Geographically, where does the firm
  compete?
• Technology Is the firm technologically current?
• Concern for survival, growth, and profitability
  Is the firm committed to growth and financial
  soundness?
• Philosophy What are the basic beliefs, values,
  aspirations, and ethical priorities of the firm?
• Self-concept What is the firms distinctive
  competence or major competitive advantage?
• Concern for public image Is the firm responsive
  to social, community, and environmental concerns?
• Concern for employees Are employees a valuable
  asset of the firm?

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External Audit (Opportunities)

• Increase in worms and viruses on PCs.
• Large population (Gen X Y) which are extremely
  individualistic and name brand conscious.
• Government crackdown on pirating music off the
  Internet.
• Much of the world is still without computers.
• People enjoy small electronic gadgets.

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External Audit (Threats)

• Companies not seeing Apple as compatible with
  their software.
• Dell and HP are major competitors.
• Increasing competition with music downloads.
• Competition produces similar products at often
  half the price.
• The population at large unwilling to use
  Macintosh.

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Apple CPM
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Apple EFE
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Consolidated Balance Sheet
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Consolidated statement of operations
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Internal Audit (Strengths)

• iTunes Music Store is a good source of revenue,
  especially with the iPod and its availability on
  Windows platform.
• Developing own software and hardware.
• Apples niche audience provides the company with
  some insulation from the direct price
  competition.
• Revamping desktop and notebook lines.
• Web technology can be used to improve product
  awareness and sales.
• Low debtmore maneuverable.

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Internal Audit (weaknesses)

• Weak relationship with Intel and Microsoft.
• Weak presence globally.
• Dependency on new product launches.
• Weak presence in markets other than education and
  publishing.
• Slow turnaround on high demand products.

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Apple IFE
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Financial Ratio Analysis (January 2006)
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Financial Ratio Analysis (January 2006)
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Financial Trends
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Apple Stock Performance
http//moneycentral.msn.com/investor/charts/charti
ng.asp?symbolAAPL
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Apple Net Worth (January 2006 in millions)
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Strategic Analysis Swot Matrix
F. SWOT Matrix
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Strategic Analysis Space Matrix
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Strategic Analysis Space Matrix
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Strategic Analysis Grand Strategy Matrix
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Apple IE Matrix
Grow and Build
IFE Scores Strong Average Weak 3-4 2-2.99 1-
1.99
Hold and Maintain
Harvest or Divest
High 3-4
Medium
2-2.99 Low
1-1.99
Domestic
International
EFE Scores
Segments Revenue Profit EFE IFE Domestic
54 52 3.5 2.6 International 46 48 3.0 3.0
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Apple BCG Matrix
Medium .50
High 1.0
Low 0.0
High 20
Domestic
International
Medium 0
Low -20
Segments Revenue Profit Growth Rate Relative
Market Share Domestic 54 52
17 0.3 International 46 48 5 0.2
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Matrix Analysis
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Apple QSPM
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Apple QSPM
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Possible alternative Strategies

• Market Penetration
• Go after Dell, HP and Microsoft (the Wintel
  alliance) markets Shares
• Market Development
• Asia Europe
• New Product development
• New consumer electronics products
• Related Diversification
• Peripherals
• Retrenchment
• Reengineer to lower cost of goods sold in
  reaction to commoditization pricing of PC market

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Recommendations

• Strategy 1
• Open twenty computer retail stores (not just
  peripherals and accessories). Apple currently
  operates stores throughout the United States with
  only peripherals and accessories for their
  computers. Adding the hardware should generate
  more hands-on awareness and use already
  established locations.
• This will increase product accessibility for
  those who wish to view items other than just
  accessories and increase awareness of the
  originality of Apples products.
• Two percent increase in sales representatives for
  the computer hardware.
• Estimated cost of 5 million per store 100
  Million Total.

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Recommendations

• Strategy 2
• Expand into the Asian market over a five-year
  period by building a manufacturing facility and
  headquarters in Hong Kong and expanding sales
  throughout Asia. Estimated cost 5 billion.
• Strategy 3
• Add more features to current products including
  new iPod, Shuffle, and Macintosh enhancements and
  power.
• 50 million is the estimated cost for Research
  and Development.
• While it is usually prudent to embark on just one
  strategy at a time, Apple cash reserves (8
  billion) and managerial talents (Steve Jobs)
  makes embarking on 3 strategies at one time is
  not only possible but recommended.

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EPS/EBIT

• Amount Needed 5,100 M
• Strategy 1 2
• Stock Price 75
• Tax Rate 26
• Interest Rate 5 (2006)
• Shares Outstanding 842M

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EPS/EBIT
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Implementation Issues

• Moving production overseas
• Unsettling for current workforce
• MIS Integration problems
• Change in culture
• May damage brand (Made in USA)
• Environmental outlook
• New marketing strategies
• Paradox of marketing to deficiencies of Wintel
  platform while becoming cross platform capable
• Forward integration issues
• Do we have the talent to become direct sellers
• Cross selling competitors peripherals gtgt Brand
  Dilution?

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Proposed annual objectives (goal) and polices

• Double sales revenue in 3 years
• 1st year 50, 2 year 25, 3 year 25
• Write division polices stating exact gains and
  marketing approaches to achieve gains
• Reduce unit cost of goods sold by 10 annually
  for next 3 years
• Leverage low cost labor overseas
• Introduce one new consumer product each year
• Provide adequate funding to RD
• Provide funding for market research
• Insure strong communication ties between
  marketing and RD
• Either provide functional enhancements to
  existing products each year or obsolesce product
• Assign RD project teams to each existing product
• Have market research produce product maturity
  curves for existing products
• Create Chief scientist position on Corporate
  Board to reflect the importance of RD to Apple
  Computer

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Proposed procedures for evaluation

• Qtr Yearly financial reports
• Track Industry market Reponses to new product
  development
• Balanced Scorecard
• Yearly strategic meeting of division management
  and corporate management

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Epilogue

• 2006
• iPods add Video
• Content from Disney, ABC, ESPN, SOAPnet
• Stock soars by 120
• iPod morphs to
• Shuffle
• Nano
• Goes to Intel Architecture
• Sales increase by 45
• Gross margin increase by 8
• 2007
• iPhone
• Sales predicted to increase by 35
• Gross profit margin predicted to increase by 8

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Current Stock Performance
http//moneycentral.msn.com/investor/charts/charti
ng.asp?symbolAAPL
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Resources

• Case Notes
• Forest David Francis Marion University
• Form 10-K SEC Filing, Sept. 25, 2005
• Datamonitor
• SWOT Apple 2004 2005
• PCs in the United States 2005
• Consumer Electronics in the United States 2005
• Market Watch
• Apple Unix for the people, Unix for the masses
  2005
• Value line Investment survey
• Apple 2007
• Computer Peripherals 2007

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Questions
http//seriouslygood.kdweeks.com/images/apple-ques
tion.gif