Apple Computer here We Go Again

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Case 12
Apple Computer, Inc.(2000): Here We Go Again


July 9,2000: It was ten days before the July 19, 2000 Macworld trade show in New York, when Apple Computer, Inc. Chief Executive Steven P. Jobs once again wowed the masses with his P. T. Barnum–style product introductions. First came the small stuff: a see-through plastic keyboard and a sleek mouse. Then, off came the covers from new versions of Apple’s popular iMac computer, now in four rich new colors, including ruby and indigo. Finally the climax: an 8-inch cube-shaped Mac that packed Apple’s most powerful technology into a clear plastic case about the size of a toaster.

The reporter from Business Week sent to the trade show gushed, “Since returning three years ago to the company he founded, Jobs, 44, has worked the most unlikely comeback since the 1969 Amazin’ Mets.” Close to death in 1997 with mounting losses and shriveling market share, Apple was back to making the most stylish products. Revenues were up 17 percent to $1.8 billion, in the quarter reported on July 18. The stock was up eight-fold since Jobs returned. Stock analysts expected 25 percent plus revenue growth in the year that ends September 30, 2001.

Thanks to the coolness factor of Apple’s products, the company was charging up to 25 percent more than its competitors for a machine with similar capabilities. That helped Apple gain a gross profit margin of 29.8 percent in the quarter ending June 30. More amazing is that in a company known for its free-spirited, free-spending ways, Apple had become a master of operating efficiencies. Jobs slashed expenses from $8.1 billion in 1997 to $5.7 billion in 1999. This was accomplished by outsourcing manufacturing and trimming inventories, shifting 25 percent of sales to an online store, and slicing the number of distributors from double digits to two.

October 20,2000: Under the headline “Apple Computer Plunges 52 percent, Drags Down Rest of Market” the Wall Street Journal noted that on Friday, September 30, 2000 the value of a share of Apple Computer, Inc. dropped from $53.00 to $27.75 a share in heavy trading on the NASDAQ Stock Market. The loss came after the Cupertino, California, personal-computer maker issued a warning late Thursday that its fiscal fourth quarter profits were expected to be far less that expected. Apple Computer’s fiscal year 2000 ended September 30. By contrast, when embattled, Apple released a far direr news release prompting one analyst at the time to question “the viability of the whole turnaround plan.” Apple’s shares fell just 18 percent that day. What is it about Apple that now had the market spooked?

Decision Date: October 2000 2000 Sales: $7,983,000,000

2000 Net Loss:

Copyright 2001 and 2003 by Thomas L. Wheelen and J. David Hunger. Reprinted by our permission for the Eighth and Ninth Editions of Strategic Management and Business Policy and Cases in Strategic Management.

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