Strategic Analysis of Apple

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A Strategic Analysis
of
Apple Corporation

Timothy Pivovarnik
Jeff Shaver
Adam Siler
Richard Sterling
Dave Strubbe


EXECUTIVE SUMMARY3
HISTORY OF APPLE4
THE PC INDUSTRY10
THE ONLINE MUSIC INDUSTRY12
THE FUTURE OF APPLE12
PERSONAL COMPUTERS – A SHIFT IN STRATEGY12
APPLE IN THE LIVING ROOM14
STRATEGIC ALLIANCES AND ENTERTAINMENT15
EXTERNAL ANALYSIS17
TECHNOLOGICAL ENVIRONMENT17
Brand Awareness – Style at a Premium17
Interoperability18
Technology and the Digital Lifestyle18
REGULATORY ENVIRONMENT20
INDUSTRY ANALYSIS USING PORTER'S FIVE FORCES MODEL21
WHICH EXTERNAL THREATS ARE MOST SIGNIFICANT23
ADDITIONAL EXTERNAL THREATS25
SECURITY25
VERTICAL INTEGRATION OF COMPETITORS25
VALUE CHAIN ANALYSIS26
TECHNOLOGY AND PRODUCT DESIGN27
PRODUCTION27
SALES AND MARKETING27
CUSTOMER SERVICE28
LEGAL SERVICES28
SWOT ANALYSIS29
STRENGTHS29
WEAKNESSES30
OPPORTUNITIES31
THREATS31
FINANCIAL ANALYSIS32
2ND QUARTER 200632
HISTORICAL PERFORMANCE33
STOCK PRICE PERFORMANCE34
PROFITABILITY MEASURES35
LIQUIDITY AND LEVERAGE MEASURES35
PRODUCT UNIT SALES36
OPERATING SEGMENTS36
MARKET VALUE ANALYSIS37
PRO-FORMA INCOME STATEMENT38
PROJECTED FREE CASH FLOW AND EQUITY VALUATION39
STRATEGY40
PRODUCT DIFFERENTIATION40
STRATEGIC ALLIANCES44
CONCLUSIONS48
REFERENCES49

Executive Summary

Apple Computer's 30-year history is full of highs and lows, which is what we would expect in a highly innovative company. They evolved throughout the years into an organization that is very much a representation of its leader, Steven Jobs. Apple made several hugely successful product introductions over the years. They have also completely fallen on their face on several occasions. They struggled mightily while Jobs was not a part of the organization. Apple reached a point where many thought they would not survive. When asked in late 1997 what Jobs should do as head of Apple, Dell Inc.'s (DELL) then-CEO Michael S. Dell said at an investor conference: "I'd shut it down and give the money back to the shareholders." (Burrows, Grover, and Green) Well, times changed. Less than 10 years later, BusinessWeek ranked Apple as the top performer in its 2006 BusinessWeek 50. Apple attributes their recent success to robust sales of iPod music players (32 million in 2005). They are optimistic about the economies of scope with media giants, such as Disney and Pixar. (BusinessWeek) Apple rarely introduces a new type of product. Thus, instead of being the pioneer, they are an expert "second mover" by refining existing products. Portable music players and notebook computers are examples. Apple increases the appeal of these products by making them stylish and more functional. They now appear poised to make significant strides in the home computer market and to creating a total digital lifestyle whereby the home is a multimedia hub.

History of Apple

Steve Jobs and Steve Wozniak founded Apple on April 1, 1976. The two Steves, Jobs and Woz (as he is commonly referred to – see woz.org), have personalities that persist throughout Apple's products, even today. Jobs was the consummate salesperson and visionary while Woz was the inquisitive technical genius. Woz developed his own homemade computer and Jobs saw its commercial potential. After selling 50 Apple I computer kits to Paul Terrell's Byte Shop in Mountain View, CA, Jobs and Woz sought financing to sell their improved version, the Apple II. (Linzmayer, 7-9)

They found their financier in Mike Markkula, who in turn hired Michael Scott to be CEO. The company introduced the Apple II on April 17, 1977, at the same time Commodore released their PET computer. Once the Apple II came with Visicalc, the progenitor of the modern spreadsheet program, sales increased dramatically. In 1979, Apple initiated three projects in order to stay ahead of the competition: 1) the Apple III – their business...
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