Apple Inc. (AAPL)
Company and Industry Analysis and Forecast
Before 2007, when its name was still Apple Computer, Macintosh Business remained a pivotal business for Apple. Even in 2008, this part of business still accounted for 43% of Apple’s total revenue, but revenue from Portable products increased dramatically. As a vendor of the Macintosh personal computer, Apple gained huge success in last 30 years by focusing on Research and Development (R&D) and creating better user experience. But during late 80s to 90s, Apple Computer was also facing extremely intense competition from other PC producers. Steve Job turned around the tough situation of Apple. Reducing product lines, stressing on innovation, and cultivating great brand loyalty helped Apple regain vigor. Then in 2007, shedding “Computer” from its original name was a sign that Apple was shifting away from a PC vendor to a multimedia player.
Business Model and Structure
Apple Inc.’s main businesses are consumer electronics and retailing, as showed in Exhibit 1. Right now, Apple actually is focusing on providing media devices and also connects all its products with its retailing services. This vertical integration helps Apple Inc. creates competitive advantage and paves road to success. Exhibit 2 shows that how Apple makes its money from this vertically integrated value chain. From this exhibit we can find that a clear business model of Apple:
1. Heavy R&D investment and excellent hardware/Media devices
Some people said that Apple doesn’t ask people what they need but gives them products they decide they want. Based on very strong innovation and R&D ability, Apple is keeping introducing high quality products which generate a cultural force among consumers. From iPod, iTouch, iPhone to iPad, Apple always runs ahead of all other competitors, even customers’ need, to provide fresh and exciting user experience to consumers. The slim, ergonomic and user-friendly products give Apple the ability to charge a price premium.
Emerging of iPod was the first step leading to huge success of Apple in 21st century. In 2002, sales from iPod was only 143 million, and then this number skyrocketed to 8,305 million in 2007. The portfolio of iPod products includes iPod classic, iPod shuffle, iPod Nano and iPod touch. After swinging the iPod mania, iPhone had an incredible successful debut in 2007. In fiscal year 2011, 43% of total revenue, 46.6 billion dollars, comes from iPhones sales. Then iPad becomes the next phenomenal product in portable devices market, bringing 20.6 billion for Apple in 2011.
We also need to notice that although Apple Inc. could be called a manufacturer, it actually outsources all manufacturing operations to third parties in low labor cost countries. Samsung, Foxconn, and Quanta Computer Inc. are main suppliers of Apple. But because of the litigation over patent infringement with Samsung, the frequent employee suicide tragedy in Foxconn and need of minimizing currency risk, Apple now is considering enlarging its supplier’s base.
One risk of outsourcing oversea is that Apple is unable to directly control the manufacturing process; another one is that the regulatory risks like tariffs, penalties imposed for dumping.
Apple is in charge of part of assembly work but also outsources some of the work to third parties across the world.
2. Content-driven era: Software and App stores
Only attractive hardware/Media devices can’t explain the huge success of Apple. Combining these products with the strong software and enormous interesting and functional content sold in App store, which is a brand new and revolutionary concept, is a critical factor for Apple’s past, current and future growth.
At the very beginning, Apple’s iTunes software successfully established the connection among different Apple’s product: Sharing pictures, movies, and so on. Most importantly, iTunes is playing a key role of Apple’s distribution...
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