Strategic and SWOT Analysis Report on Apple Inc
COMPANY OVERVIEW
Apple Inc.
(Apple or "the company") is engaged in design, development and
marketing of personal computers (PCs), media devices, and portable digital
music players. The company also sells a variety of related software, services,
peripherals, networking solutions, and third-party digital content and
applications. The company primarily operates in the US. It is headquartered in
Cupertino, California and employed 76,100 people as of September 29, 2012,
including 72,800 full-time equivalent employees and 3,300 full-time equivalent
temporary employees and contractors. The company recorded revenues of $156,508
million during the fiscal year ended September 2012 (FY2012), an increase of
44.6% over FY2011. The operating profit of the company was $55,241 million
during FY2012, an increase of 63.5% over FY2011. The net profit was $41,733
million in FY2012, an increase of 61% over FY2011.
SWOT ANALYSIS
Apple Inc.
(Apple or "the company") is engaged in design, development and
marketing of personal computers, media
devices, and portable digital music players. Through the integration model,
both horizontally and vertically, the company was able to build non replicable
and sustainable competitive advantages. However, as the market growth shifts to
emerging markets, Apple's price positioning will impact competitiveness.
Strengths
A
combination of horizontal and vertical integration created formidable
competitive advantage
Apple has over
the years followed integration both horizontally and vertically and as a result
emerged as a formidable competitor. The company's multiple devices provide
horizontal integration. Apple has presence across main digital media devices of
computing and mobile communications. Through PCs, tablets, smartphones and
other devices, Apple aimed at offering a whole range of associate products and
devices. Apple through vertical integration connected the user experience
across the devices. The company offers hardware, software, content, services
and also retails its products creating vertical integration. Manufacturing
hardware gives complete control over design aspects and quality of products in
the market. In addition to the hardware, the company also built strong software
and content business which is equipping Apple with several competitive
advantages. The company's operating system spans across multiple devices and
includes content and application. Consequently, switching to a competitor
becomes difficult due to the dependence on iOS. Another key integration aspect
that has enabled Apple to gain competitive advantage is the content offering. The
company's content base is large and is shared across all devices through
iTunes. iTunes is a storefront offering all kinds of media. In addition to the
above, the company also engages in retailing. This helps Apple to have control
over successfully positioning its products to the end user. Apple has followed
a vertical integration strategy to build a formidable competitive advantage.
The company's business strategy leverages its unique ability to design and
develop its own operating systems, hardware, application software, and
services.The vertical integration provides control over the entire user
experience or process from hardware to software which facilitates higher
customer loyalty and provides lock-in. Apple enjoys a favorable competitive
environment provided by the user dependence on iOS which enables it to earn
incremental earnings by offering all associated devices.
In the era of
convergence this is a huge competitive advantage. Apple's sustainability of
market share stems from the fact that it was able to successfully connect its
devices with each other and one generation of devices with the next. Through
these integration models, Apple built Sustainable
competitive advantages that are hard to replicate.
Successful
product lines driving the growth
Apple has a
string of successful product launches which created a halo effect and the
company was able to drive its market share. According to industry estimates,
sales of portable compact disc (CD) players were still more than double those
of Moving Picture Experts Group-2 Audio Layer III,(mp3) players during the
holiday season of 2004, when the iPod was launched. But between the third quarters
of 2004 and 2005, sales of the iPod increased over six folds indicating the
massive success of iPod. The customers kept purchasing new versions of the same
products and by 2008 it had captured 48% of the mp3 player market share.
SanDisk's Sansa mp3 player was the iPod's closest competitor with 8% market
share. In 2012, the estimates indicate that about 350 million iPods were sold
since its launch.
Following iPod
was the iPhone which saw Apple's success build in the smartphone market. Since
its launch,
iPhone captured increasing market share and displaced the then mobile phone
market
leader, Nokia.
By the end of third quarter of 2007, iPhones accounted for 3.4% share in the
mobile phones market after its launch in the beginning of 2007. The product
gained traction and the market share was three times higher by the end of third
quarter of 2008. The success resonated with each launch of iPhone. Apple sold
one million of its new 3G iPhones in the first three days of its debut while it
took the first iPhone 74 days to sell a million. The success continued and with
its most recent releases, Apple again commanded record selling of its iPhone.
With intermittent bumps when Android and Samsung gained market share at a
faster pace, the company's iPhones emerged as the fastest growing smartphones.
According to the industry estimates, Apple’s iPhone 5, which was launched in
2012, became the world's best-selling smartphone worldwide during the fourth
quarter of FY2012, with shipments of over 27 million during that quarter.
During 2012, the company sold 125 million iPhone units an increase of 52.8
million units over 2011. The estimates further indicate that Apple was also the
top smartphone vendor in 2012, with over 20% market share. The success of the product
was also reflected in the fact that Apple captured over 70% of the mobile phone
industry's total profits in the fourth quarter of 2012. This indicates that the
company enjoys pricing power and despite premium pricing it is able to enhance
growth. Apple's foray into tablets market also witnessed unprecedented success.
Apple released the first iPad in 2010 and sold 300,000 units on the first day
and sold three million in 80 days. During 2010, Apple sold 14.8 million iPads
worldwide, representing 75% of tablet PC sales at the end of 2010. After the
release of the iPad 2 in 2011, more than 15 million iPads had been sold which
was more than all other tablet PCs combined since the iPad's release. In
October 2012, the company launched iPad mini, which accounted for over 60% of
Apple’s tablet sales in the second quarter of FY2013. The halo effect has
helped the company boost its PC sales, which despite being one the oldest products
at Apple, lost to competition. Apple's strong product line up has been
responsible for the company's industry leading growth rates. The product
success also commanded premium pricing which enabled the company to enjoy
strong margins as well. With each successful product launch the company
enhanced its brand positioning which propelled the success of its other
products. Apple's unprecedented history of successful launches is difficult to
replicate and the company's competitors are yet to launch products with such
compelling success.
Robust
growth rates
The revenue
growth rates achieved by the company are a play of both increased unit sales
and pricing power. While the unit growth has been derived from the appeal of
its products gained in the market place, the offshoot of successful product
lines has resulted in Apple gaining a dominant position, which has helped it
command high pricing power. The price that Apple charges for its iPhone is
higher than the average selling price of a PC. On the back of its product
success, Apple charged the carriers high rates for its phones and the industry
estimates indicate that the company collects about 40% more for its phones from
carriers compared with top-end phones by competitors. The combination of these
factors enabled Apple to attain industry leading growth rates. For instance, Apple's
revenues grew 44.6% in FY2012 and the company grew at a compound annual growth
rate (CAGR) of 55% during FY2010¬–12. In comparison, Microsoft's revenues
increased by 5.4% in FY2012 while it grew its revenues at a CAGR of 9% during
FY2010–12. Similarly, Google's revenues increased by 32.4% in FY2012 and it
grew its revenues at a CAGR of 31% during FY2010–12. Moreover, Apple also
witnessed a robust growth in its profits and margins.The company’s operating and
net profits grew by 63.5% and 61%, respectively, in FY2012. Comparatively,
Google’s operating and net profits grew by 8.7% and 10.2%, respectively. During
the same period, Microsoft’s operating and net profits declined by 19.9% and
26.7%, respectively. Furthermore, the company’s cash position grew strongly in
the recent times. Apple’s cash from operations grew at a CAGR of 65% during FY2010–12
to reach $50,856 million by the end of FY2012. In contrast, the cash from
operations of Microsoft and Google grew at respective CAGR’s of 15% and 22%
during the same period.
Apple's growth
rates, much higher than the peers, highlight the company's inherent ability to
drive growth.
Weaknesses
Lack of products at different price points limits
the addressable market
Apple positions
its products in the premium category and offers them at a single price point.
The
average selling
price of an iPhone has remained above $600, putting Apple's gadgets out of
reach
for most buyers.
Comparatively, the company's competitors like Samsung have products at varied price points. As a result, the
competitors have access to a large market base and are better positioned to
capture varied customer interests. Furthermore, lack of products at lower price
points is proving to be a challenge while addressing price sensitive customer
base. Price is the only effective competitive disadvantage that Apple's
competitors have been leveraging. The company furthermore has presence only in
the smartphone segment, while its competitors have presence in both smartphones
and feature phones. Therefore, despite being a leading player in the smartphone
segment, Apple commands less than 10% of the global mobile phone market, as compared
to about 30% share by Samsung. These factors limit the company's addressable
market compared to competitors.
High
dependence on iPhone and iPad product lines
The company's
revenues and growth rates are largely dependent on iPhone and iPad product
lines. The iPhone, iPad and related products and services together accounted
for 72.1% of the total revenues in FY2012. Although, these product lines have
been the growth drivers for the company, any decline in the growth rates could
impact the company’s performance. Dependence on few product lines increases the
business risk, especially in an industry characterized by fast paced technological
changes.
Opportunities
Growth
opportunity in the enterprise market
Apple has
significant opportunities to tap in the enterprise, government and education
markets, which are largely untapped so
far. As 'bring your own device' (BYOD) trend starts making inroads in the
corporate sector, Apple will be able to effectively sell into this space. The
popularity of the iPhone and iPad with consumers is spilling over into the
business world, as mobile users increasingly use their personal devices for
business purposes. In the recent times, companies are opening up their mobility
strategies to allow for more choice, which has benefitted Apple.The company
effectively tapped into this market. A recent survey indicated that iPad usage
in business has doubled in the recent times. Further, reports released by
certain enterprise file sharing and hybrid cloud storage companies suggest that
they have been experiencing increased enrollment of the iOS devices in their
environments. For instance, Citrix Zencloud reported that iOS mobile device
enrolment dominated at 56% of the devices enrolled. Further, Egnyte also
reported that 78% of its enterprise user base used iOS supported devices in the
first quarter of 2013. Several other such instances indicate Apple has been
capturing the enterprise market from Research In Motion (RIM), which is a
leading player in the segment. Apple is evidently becoming a trusted enterprise
solution provider, and recent deals show that several companies switched from
the BlackBerry platform to Apple's iOS platform.This list includes Home Depot
(HD) that replaced 10,000 of its BlackBerry devices with iOS devices. Further,
in March 2013, Pentagon announced its intent to order 650,000 iOS devices to
replace BlackBerry.The company is focusing on the growth potential of its
products for enterprise purposes, and is positioned well to grow this segment.
This is evident by the company’s recent announcement to launch 128 GB 4G iPad
with increased storage capability. Moreover, providing an integrated service
system of tablets, mobile phones, and computers, running on the same operating
platform offers the company a competitive edge in the enterprise market. In contrast,
Google and Samsung do not offer an integrated software and hardware system to
compete
in the
enterprise market for smartphones and tablets. In addition, growing popularity
of mobile
payments in the
enterprise market will provide a significant growth opportunity to the company.
Apple has already transformed the point of sale experience, as iPads and
iPhones are integrated with apps and hardware, such as Pay with Square, to
facilitate m-commerce transactions. Additionally, Apple iTunes accounts and the
Passbook mobile wallet are expected to gain momentum as m-commerce grows.
Furthermore,
market estimates indicate robust growth in enterprise tablet adoption. The
industry
estimates
indicate that the shipment of tablets to enterprises is estimated to reach 97
million units
in 2016.
Furthermore, enterprise sales of media tablets will account for over 30% of
total tablet sales sold in 2015. The enterprise smartphone market is also
estimated to witness strong growth. This indicates that enterprises will emerge
as key customer group for the company's products and
addressing the
customer group will enable it to drive growth.
Emerging nations provide strong growth opportunities
Apple although
has gained significant traction in the emerging markets is yet to tap the full
growth potential offered by these markets. Unlike in developed markets the lack
of carrier subsidies and price sensitive customer base are some of the
challenges that the company is facing in case of emerging markets.This to a
certain extent impacted the pace of expansion in these markets. However, the
popularity of its products enabled the company to gain traction and Apple is
set to capture huge potential offered by these economies. According to the most
recent industry estimates, China is projected to surpass the US as the largest
market in the world for smartphone sales. India and other similar emerging
markets have smartphone penetration of less than 10% which when compared to over
60% in developed countries like the US, indicates the potential for smartphone
manufacturers. Furthermore, according to industry estimates, the smartphones
and tablet PC volume in emerging markets grew by 41% in 2012 with the tablet
volume growing by more than 100% and smartphone volume by 70% year-over-year.
The tablet and smartphone markets are expected to have a huge growth potential
in the emerging markets by 2017. During this time, tablet unit shipments are
expected to increase by a factor of three with a shipment value of more than
$120 billion dollars while smartphone unit shipments are expected to double and
reach a shipment value of $460 billion dollars. The company’s strong product
offerings and the strong growth potential in the emerging market will dive the
demand for Apple’s smartphones and tablets in these markets.
Apple
TV to benefit from the growing smart TV market
The launch of
Apple TV is anticipated to capture a largely untapped potential of connected
TVs.
Growing demand
for convergent devices is likely to drive up the demand for Apple TV. According
to industry estimates, smart TV shipments increased by approximately 30% in
2012 to reach 70 million units. The market is forecasted to double by 2015 with
shipments reaching 140 million. Apple TV is expected to be launched in 2013 and
the initial surveys indicate a massive take up especially in the high end TV
market. Apple has to its credit several successful products that changed
industry dynamics. Apple TV is estimated to effectively tap into the pay TV
market and is expected to drive up the top line and bottom line for Apple. The
company's revenue growth has been driven by new product launches and the Apple
TV could trigger strong growth in the near term.
Threats
Intense
price competition in the emerging nations
Price can be one
of the key competitive disadvantages of Apple that the competitors can
effectively use to gain market share. This will prove to be a challenge while
addressing the emerging markets, which become important as the advanced
economies' smartphone markets attain maturity. The emerging markets lack carrier
subsidies and the customer base in these markets is highly price sensitive.
competing with lower priced Android products could be a challenge. The revenues
from emerging market for Apple products will come from higher mix of older
models. This indicates that as the smartphone markets move towards emerging
countries, the average prices will start to fall, impacting the margins.The
company has been facing marginal declines in average price per product. According
to the industry estimates, the average selling price of iPhone declined by $28
in the second quarter of FY2013. Apple has not been able to effectively gain
market share in emerging markets where historically, lower priced phones like
Nokia have been popular. In 2012, Samsung with smartphones at varied price
points emerged as the market leader in emerging nations. Apple's premium
pricing strategy will prove to be challenging and could have a negative impact
on the average prices that the company is able to command.
Operating
in complex and challenging environment could impact market position
The markets for
the company’s products and services are highly competitive and complex, and the
company is confronted by aggressive competition and challenges in all areas of
its business. These markets are characterized by frequent product introductions
and rapid technological advances that have substantially increased the
capabilities and use of mobile communication and media devices, PCs, and other
digital electronic devices. Apple faces intense competition from well-funded
and experienced peers like Microsoft, Google and Samsung, among others.
Google's Android platform emerged as the largest mobile operating system and
the Windows is also estimated to capture increased market shares. For instance,
industry estimates suggest that Windows phone market share grew at faster rate
than iOS’ in the US in the first quarter of 2013. In the operating system space,
Android is expected to be the market leading platform while Microsoft is
estimated to grow its share steadily and will be next to Android by 2015.
Microsoft’s Surface tablets and Google’s Project Glass also threaten Apple’s
smart devices sales.
In addition to
Microsoft and Google, the company competes intensively with Samsung, which has approximately
three times the market share of Apple. The company’s other competitors include Amazon
which offers Kindle Fire 2 tablet and has reportedly hired two Windows Phone
managers and a former hardware developer from Apple for its smartphone segment.
The company’s another competitor includes Lenovo that offers a strong line of
ThinkPad tablets and IdeaPad Yoga. Lenovo is well positioned to dent the market
share of Apple in China. Moreover, the company has limited focus on integrating
social networks, unlike its competitors. Furthermore, freely available music
and videos and easier-to-use subscription service like Spotify or Netflix could
also dent the company’s market share, as Apple sells this content through
iTunes.
Also, Apple is
facing challenges in its overseas markets. In China, the government has
announced plans to build its own Linux-based processor to reduce reliance on
Apple's computers. In India, which is one of the largest addressable consumer
markets in the world, Apple has also been facing trouble to establish its
stores because of stringent local market laws. Further, the company is shrouded
by legal battles across the world. Operating in such complex and challenging
environment could have a negative impact on the market shares and growth rates
at Apple.
If you want SWOT Analysis on Apple Inc, contact Mahasagar Publications.
