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Apple Inc in 2012

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Apple Inc. in 2012
On October 5, 2011, Steve Jobs tragically died of cancer. The recently retired CEO of Apple Inc. was a legend: he had changed Apple from a company on the verge of bankruptcy to one of the largest and most profitable companies in the world. Moreover, he had revolutionized several industries in the process. Few companies’ successes were so closely identified with its CEO. Jobs’s passing promised to usher in a new era at Apple. The new CEO, Tim Cook, had an extraordinary challenge: how to sustain Apple’s current successes in computers, MP3 players, phones, and tablets, while taking Apple to the next level. The company began as “Apple Computer,” best known for its Macintosh personal computers (PCs) in the 1980s and 1990s. Despite a strong brand, rapid growth, and high profits in the late 1980s, Apple almost went bankrupt in 1996. Then Jobs went to work, transforming Apple Computer into “Apple Inc.” with innovative non-PC products, starting in the early 2000s. In fact, Apple viewed itself as a “mobile device company.”1 By 2011, Macintosh revenues were less than 20% of Apple’s $108 billion in sales2 (see Exhibits 1a through 1c for financial information and net and unit sales). Meanwhile, Apple’s stock was making history of its own. Apple became the most valuable company in the world in 2012 (see Exhibit 2 for Apple’s share price over time). By almost any measure, Apple’s accomplishments in the prior decade had been spectacular. Yet Cook knew that no company in the technology industry could relax. Challenges abounded. iPod sales, for example, had been falling for four straight years by 2012. At the same time, Microsoft was set to introduce Windows 8, which the company promised would challenge Apple’s vaunted leadership in user interface. Even though Macintosh sales had grown faster than the industry in recent years, Apple’s share of the worldwide PC market had remained below 5% since 1997 (see Exhibit 3a for Apple’s PC market share, worldwide). Many also wondered if the company could thrive without Jobs. Cook, Jobs’s former chief operating officer, had built Apple’s formidable global supply chain, but he came to the CEO job with a very different skill set. Finally, would the iPhone continue its march to dominate smartphones in the face of growing competition from companies such as Google and Samsung? And would Apple’s newest creation, the iPad, continue to dominate the tablet market, or would new competitors, ranging from Amazon to Samsung, steal share and drive down profits? ________________________________________________________________________________________________________________ Professor David B. Yoffie and Research Associate Penelope Rossano prepared this case. This case derives from earlier cases, including “Apple Inc., 2008,” HBS No. 708-480, by Professor David B. Yoffie and Research Associate Michael Slind, “Apple Computer, 2006,” HBS No. 706-496 by Professor David B. Yoffie and Research Associate Michael Slind, and “Apple Inc., 2010,” HBS No. 710-467 by Professor David B. Yoffie and Research Associate Renee Kim. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

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Apple Inc. in 2012

Apple’s History
Steve Jobs and Steve Wozniak, a pair of 20-something college dropouts, founded Apple Computer on April Fool’s Day, 1976.3 Working out of the Jobs family garage in Los Altos, California, they built a computer circuit board that they named the Apple I. Within several months, they had made 200 units and had taken on a new partner—A.C. “Mike” Markkula Jr., who was instrumental in attracting venture capital as the experienced businessman on the team. Jobs’s mission was to bring an easy-touse computer to market, which led to the release of the Apple II in April 1978. It sparked a computing revolution that drove the PC industry to $1 billion in annual sales in less than three years. 4 Apple quickly became the industry leader, selling more than 100,000 Apple IIs by the end of 1980. In December 1980, Apple launched a successful IPO. Apple’s competitive position changed fundamentally in 1981 when IBM entered the PC market. The IBM PC, which used Microsoft’s DOS operating system (OS) and a microprocessor (also called a CPU) from Intel, was a relatively “open” system that other producers could clone. Apple, on the other hand, practiced horizontal and vertical integration. It relied on its own proprietary designs and refused to license its hardware to third parties. IBM PCs not only gained more market share, but also emerged as the new standard for the industry. Apple responded by introducing the Macintosh in 1984. The Mac marked a breakthrough in ease of use, industrial design, and technical elegance. However, the Mac’s slow processor speed and lack of compatible software limited sales. Apple’s net income fell 62% between 1981 and 1984, sending the company into a crisis. Jobs, who was often referred to as the “soul” of the company, was forced out in 1985.5 The boardroom coup left John Sculley, the executive whom Jobs had actively recruited from Pepsi-Cola for his marketing skills, alone at the helm.

The Sculley Years, 1985–1993
Sculley pushed the Mac into new markets, most notably in desktop publishing and education. Apple’s desktop market was driven by its superior software, such as Aldus (later Adobe) PageMaker, and peripherals, such as laser printers. In education, Apple grabbed more than half the market. Apple’s worldwide market share recovered and stabilized at around 8% (see Exhibit 3a). By 1990, Apple had $1 billion in cash and was the most profitable PC company in the world. Apple offered its customers a complete desktop solution, including hardware, software, and peripherals that allowed them to simply “plug and play.” Apple also stood out for typically designing its products from scratch, using unique chips, disk drives, and monitors. IBM-compatibles narrowed the gap in ease of use in 1990 when Microsoft released Windows 3.0. Still, as one analyst noted, “the majority of IBM and compatible users ‘put up’ with their machines, but Apple’s customers ‘love’ their Macs.”6 Macintosh’s loyal customers allowed Apple to sell its products at a premium price. Top-of-the-line Macs went for as much as $10,000, and gross profit hovered around an enviable 50%. However, as IBM-compatible prices dropped, Macs appeared overpriced by comparison. As the volume leader, IBM compatibles were also attracting the vast majority of new applications. Moreover, Apple’s cost structure was high: Apple devoted 9% of sales to research and development (R&D), compared with 5% at Compaq, and only 1% at many other IBM-clone manufacturers. After taking on the chief technology officer title in 1990, Sculley tried to move Apple into the mainstream by becoming a lowcost producer of computers with mass-market appeal. For instance, the Mac Classic, a $999 computer, was designed to compete head-to-head with low-priced IBM clones.

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Apple Inc. in 2012


Sculley also chose to forge an alliance with Apple’s foremost rival, IBM. They worked on two joint ventures; one to create a new PC OS and one aimed at multimedia applications. Apple undertook another cooperative project involving Novell and Intel to rework the Mac OS to run on Intel chips that boasted faster processing speed. These projects, coupled with an ambition to bring out new “hit” products every 6 to 12 months, led to a full-scale assault on the PC industry. Yet Apple’s gross margin dropped to 34%, 14 points below the company’s 10-year average. In June 1993, Sculley was replaced by Michael Spindler, the company’s president.

The Spindler and Amelio Years, 1993–1997
Spindler killed the plan to put the Mac OS on Intel chips and announced that Apple would license a handful of companies to make Mac clones. He tried to slash costs, which included cutting 16% of Apple’s workforce, and pushed for international growth. In 1992, 45% of Apple’s sales came from outside the United States. Yet despite these efforts, Apple lost momentum: a 1995 Computerworld survey found that none of the Windows users would consider buying a Mac, while more than half the Apple users expected to buy an Intel-based PC7 (see Exhibit 4 for shipments and installed base of PC microprocessors). Spindler, like his predecessor, had high hopes for a revolutionary OS that would turn around the company’s fate. But at the end of 1995, Apple and IBM parted ways on their joint ventures. After spending more than $500 million, neither side wanted to switch to a new technology.8 Following a $69 million loss in Apple’s first fiscal quarter of 1996, the company appointed another new CEO, Gilbert Amelio, an Apple board member.9 Amelio proclaimed that Apple would return to its premium-price differentiation strategy. Yet Macintosh sales fell amid Apple’s failure to produce a new OS that would keep it ahead of Microsoft’s Windows 95. In December 1996, Amelio announced the acquisition of NeXT Software (founded by Jobs after he left Apple) and plans to develop a new OS based on NeXT. Jobs also returned to Apple as a part-time adviser. Despite more job cuts and restructuring efforts, Apple lost $1.6 billion under Amelio and its worldwide market share tumbled to around 3% (see Exhibit 3a). At one point, insiders believed that Apple was within 90 days of bankruptcy. To save the company, Jobs became the company’s interim CEO in September 1997.

Steve Jobs and the Apple Turnaround
Jobs moved quickly to reshape Apple. In August 1997, Apple announced that Microsoft would invest $150 million in Apple and make a five-year commitment to develop core products, such as Microsoft Office, for the Mac. Jobs abruptly halted the Macintosh licensing program. Almost 99% of customers who had bought clones were existing Mac users, cannibalizing Apple’s profits. 10 Jobs also refused to license the latest Mac OS. Apple’s 15 product lines were slashed to just four categories— desktop and portable Macintoshes, for consumers and professionals. Other restructuring efforts involved hiring Taiwanese contract assemblers to manufacture Mac products and revamping Apple’s distribution system from smaller outlets to national chains. Tim Cook, hired by Jobs in 1998 after a career in operations at Compaq, IBM, and Intelligent Electronics, was credited with closing Apple’s factories and streamlining the supply chain. In addition, Apple launched a website to set up direct sales for the first time. Internally, Jobs focused on reinvigorating innovation. Apple pared down its inventory significantly and increased its spending on R&D (see Exhibit 5 for PC manufacturers’ key operating measures). Jobs sought to bring a new culture to Apple. While previous CEOs sought to broaden Apple’s products, Jobs believed deeply in focus. Apple had one of the narrowest product lines of any company of comparable size. Jobs also believed in extreme practices of secrecy, including a “closed 3

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Apple Inc. in 2012

door policy” in which key cards accessed only certain areas and dummy positions for new hires until they could be trusted. Everyone knew that violation of Apple’s culture of confidentiality was immediate grounds for termination. 11 Employees reported that working with Jobs was rewarding, but often difficult. Jobs noted that “I don’t think I run roughshod over people, but if something sucks, I tell people to their face.”12 “My passion,” noted Jobs, “has been to build an enduring company where people were motivated to make great products. Everything else was secondary.” 13 Jobs was especially fanatic about industrial design, simplicity, and product elegance. This approach led to Jobs’s first real coup—the iMac—introduced in August 1998. The $1,299 allin-one computer featured colorful translucent cases with a distinctive eggshell design. The iMac also supported “plug-and-play” peripherals, such as printers, that were designed for Windows-based machines for the first time. Thanks to the iMac, Apple’s sales outpaced the industry’s average for the first time in years. Following Jobs’s return, Apple posted a $309 million profit in its 1998 fiscal year, reversing the previous year’s $1 billion loss. Another priority for Jobs was to break away from Apple’s tired, tarnished image. Jobs wanted Apple to be a cultural force. Not coincidentally, perhaps, Jobs retained his position as CEO of Pixar, an animation studio that he had bought in 1986. (Jobs later sold Pixar to Walt Disney for $7.4 billion in 2006.) Through multimillion-dollar marketing campaigns such as the successful “Think Different” ads and catchy slogans (“The ultimate all-in-one design,” “It just works”), Apple promoted itself as a hip alternative to other computer brands. Apple ads were placed in popular and fashion magazines as well, venturing out from general computer publications. Later on, Apple highlighted its computers as the world’s “greenest lineup of notebooks” that were energy efficient and used recyclable materials.14 The goal was to differentiate the Macintosh amid intense competition in the PC industry.

The Personal Computer Industry
While Apple pioneered the first usable “personal” computing devices, it was IBM that brought PCs into the mainstream in the 1980s. But by the early 1990s, a new standard known as “Wintel” (the Windows OS combined with an Intel processor) dominated the industry. Thousands of manufacturers—ranging from Dell Computer to no-name clone makers—built PCs around standard building blocks from Microsoft and Intel. Growth was driven by lower prices and expanding capabilities. The overall industry continued to boom through the early 2000s, propelled by Internet demand and emerging markets such as China. Although volume growth slowed over the next decade, analysts predicted that more than 2 billion PCs would be used worldwide by 2015.15 Slowing revenue growth followed the slowdown in volume. Despite PCs that were faster, with more memory and storage, average selling prices (ASPs) declined by a compound annual rate of 8%– 10% per year from the early 1990s through 2005.16 The rate of decline in ASP lessened between 2006 and 2011 to a compound annual rate of 2%.17 By 2011, the average PC manufacturers’ net profit margin, excluding Apple, was 5%.18 The standardization of components led PC makers to cut spending on R&D to between 1% and 3% of revenue19 (see Exhibit 5). As contract manufacturing in Taiwan and China became popular, Asian firms took over responsibility for more innovations, such as industrial designs. New PC products emerged as well. Laptop computers started to gain traction in the late 1980s. Three decades later, portable PCs represented about 60% of worldwide PC shipments.20 The growth in demand for laptops was linked to lower prices: the ASP for a portable PC was $746 in 2011,21 down 25% in only three years.22 A new subproduct category of netbooks took off during the global economic downturn in 2009. These lightweight mini notebooks had limited storage and were optimized for the Web. Price4 Purchased by Rosario Faraci ( on October 05, 2012

Apple Inc. in 2012


sensitive consumers loved the roughly $400 average price.23 Initial interest in the category was huge: more than 40 million netbooks sold in 2009. But the emergence of the iPad in 2010 led to a rapid decline. Yet another category of laptops called Ultrabooks came to the market in 2011. These ultrathin, lightweight, Windows-based notebooks were high-performance PCs, which manufacturers hoped would ignite new demand and accelerate replacement cycles as prices came down.24

Buyers and Distribution
PC buyers fell into five categories: home, small and medium-sized business (SMB), corporate, education, and government. Home consumers represented the biggest segment, accounting for nearly half of worldwide PC shipments.25 While all buyers cared deeply about price, home consumers also valued design, mobility, and wireless connectivity, business consumers balanced price with service and support, and education buyers depended on software availability. In distribution, a significant shift occurred in the early 1990s when more knowledgeable PC customers moved away from full-service dealers that primarily sold established brands to business managers. Instead, larger enterprises bought directly from the manufacturer, while home and SMB customers started to buy PCs through superstores (Walmart, Costco), electronics retailers (Best Buy), and Web-based retailers. At the same time, the so-called “white box” channel—which featured generic machines assembled by local entrepreneurs—represented a large channel for PC sales, especially in emerging markets. White-box PCs reportedly represented about 30% of the overall market in 2011, and were most frequently sold to small offices and home offices.26

PC Manufacturers
The four top PC vendors—Hewlett-Packard, Dell, Lenovo, and Acer—accounted for 53.6% of worldwide shipments in 2011 (see Exhibit 3b for PC manufacturers’ market shares). Industry leadership had shifted numerous times in the prior three decades, with Hewlett-Packard (HP) emerging as the most recent leader. Following a rough period after the acquisition of Compaq Computer in 2002, HP outsourced most of its production to Asia and dramatically lowered its costs. But HP’s PC leadership came with a high price: since 2005, HP market share eroded, margins declined, and the board fired three CEOs.27 HP proposed selling or spinning off PCs in 2011, then recanted. Nonetheless, HP held on to the number-one position in worldwide shipment market share at 17.7%.28 Dell held the second-largest market share with 12.6% of worldwide PC shipments for 2011.29 Its distinct combination of direct sales and build-to-order manufacturing was popular in the corporate market for a decade. Yet when a boom in retail consumer PCs outpaced corporate sales, Dell was late to catch on. Founder Michael Dell returned as CEO in January 2007 and emphasized consumerfriendly products, reentered retail distribution, and pushed for international expansion. Still, Dell struggled with cost controls and poor margins. China-based Lenovo vaulted into the front ranks of PC vendors in 2005 when it acquired IBM’s money-losing PC business for $1.75 billion. The upward trend continued through 2011 when Lenovo’s worldwide share grew to 12.5%.30 Lenovo’s greatest strength was its dominant position in China, the fastest-growing PC market in the world, where it commanded 35% share.31 In 2007, Taiwan-based Acer bought Gateway, a leading U.S. PC brand, and became the third-largest PC vendor in the world. Acer also acquired Packard-Bell, a PC maker with a strong presence in Europe (where Acer also was a leading brand). Acer’s success was partly a function of its leadership in netbooks,32 but the company lost its third-place ranking largely due to declining netbook sales.

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Apple Inc. in 2012

Suppliers, Complements, and Substitutes
Suppliers to the PC industry fell into two categories: those that made products (such as memory chips, disk drives, and keyboards) with many sources; and those that made products—notably microprocessors and operating systems—that had just a few sources. Products in the first category were widely available at highly competitive prices. Products in the second category were supplied chiefly by two firms: Intel and Microsoft.

Microprocessors Microprocessors, or CPUs, were the hardware “brains” of a PC. Intel commanded roughly 80% of the PC CPU market. Competition emerged in the 1990s from companies like Advanced Micro Devices (19.6% in the fourth quarter of 2011) and VIA Technologies (0.1% in the fourth quarter of 2011).33 Still, Intel remained the market leader with leading-edge technology, manufacturing scale, and a powerful brand. Since 1970, CPU prices (adjusted for changes in computing power) had dropped by an average of 30% per year.34 Performance of CPUs continued to double roughly every 18 to 24 months, but prices for microprocessors had stabilized in recent years. However, ARM, a low-power, lower-performance, and lower-priced CPU that was used in smartphones, was expected to enter the PC market in 2012. Operating system An OS was the software that managed a PC’s resources and supported its applications. Microsoft had dominated this market since the IBM PC in the 1980s. More than 90% of all PCs in the world ran on some version of Windows. Microsoft’s big hit in the new millennium was Windows XP. Introduced in October 2001, 17 million copies of XP were sold in its first eight weeks of sales. Developed at a cost of $1 billion, XP initially garnered for Microsoft between $45 and $60 in revenue per copy.35 Vista, the next version introduced in 2007, did not fare as well. Consumers complained about its sluggish performance and were reluctant to upgrade to Vista. Two years later, Windows 7 was released to strong reviews. Analysts estimated that Microsoft spent $1.5 billion to develop Windows 7 and another $1 billion in marketing. Microsoft shipped over 100 million units of the new OS in the first six months, making it the fastest-selling OS in history.36 In 2012, Microsoft was betting heavily on its next-generation product, Windows 8. Expected in fall 2012, the OS included a new user interface that would incorporate touch and would be available for PCs as well as tablets. Microsoft was also making Windows 8 available on an Intel and a non-Intel (ARM) CPU for the first time. Windows 8 on ARM would not be compatible with most existing Windows software. Application software, content, and complementary products The value of a computer corresponded directly to the complementary software, content, and hardware that were available on that platform. Key application software included word processing, presentation graphics, desktop publishing, and Internet browsing. Since the early 1990s, the number of applications available on PCs exploded, while ASPs for PC software collapsed. Microsoft was the largest vendor of software for Wintel PCs and, aside from Apple itself, for Macs as well.37 Firms such as Google even offered productivity software (Google Apps) for free. PCs also benefited from a wide selection of content, and a vast array of complementary hardware, ranging from printers to multimedia devices. The number of new, exciting PC applications had slowed considerably in recent years, as software developers increasingly focused on new devices, such as phones and tablets. Alternative technologies Since the early 2000s, consumer electronics (CE) products, ranging from cellphones to TV set-top boxes to game consoles, started to encroach on functionality that was once the sole purview of the PC. For example, advanced game devices like Sony PlayStation 3 allowed consumers to watch DVDs, surf the Web, and play games directly online in addition to playing traditional video games. At the same time, smartphones increasingly functioned as handheld computers, allowing users to do e-mail, visit websites, and manage their online lives. Despite being in 6

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Apple Inc. in 2012


the market since the 1980s, tablet computers failed to gain significant ground until the introduction of the iPad in 2010.38 Sales of tablets exploded to more than 60 million units in 2011. While several industry insiders worried about the impact of digital devices on the PC industry, Jobs viewed all of these devices as part of an integrated strategy to deliver breakthrough user experiences.

The Macintosh and Apple’s “Digital Hub” Strategy
In 2001, marking Apple’s 25th anniversary, Jobs presented his vision for the Macintosh in what he called the “digital hub.” He believed that the Macintosh had a real advantage for consumers who were becoming entrenched in a digital lifestyle, using digital cameras, portable music players, and digital camcorders, not to mention mobile phones. The Mac could be the preferred “hub” to control, integrate, and add value to these devices. Jobs viewed Apple’s control of both hardware and software, one of the few remaining in the PC industry, as a unique strength. Apple subsequently revamped its product line to offer machines that could deliver a cutting-edge, tightly integrated user experience. Although the company remained committed to the education market, new PC products focused on home consumers’ lifestyles. Apple’s computer sales were growing faster than the industry. Thanks to creative marketing and several innovative computer products, such as the ultra-thin Mac Air, Apple became the third-largest PC vendor in the U.S. with an 11.0% unit share in Q4 2011.39 The company’s greatest strength lay in the premium-priced PC category; 91% of PCs priced above $1,000 in the U.S. market were sold by Apple.40 Globally, Apple’s market share had risen steadily since 2004, but remained below 5% at the end of 2011.41

Changing the Macintosh To accomplish his vision, Jobs made four important changes in the Macintosh: he delivered a new OS; he switched to a new chip architecture; he invested in a new suite of proprietary applications; and he bet on the Apple Store. First, and perhaps most important, Apple introduced a new OS in 2001, the first fully overhauled platform released since 1984. The Mac OS X was based on UNIX, a more stable, industrial-strength OS favored by computer professionals. Analysts estimated that OS X cost Apple roughly $1 billion to develop. Apple issued upgrades every 12 to 18 months, in greater frequency than Microsoft. Over time, Apple was slowly converging its computer OS with the OS on its iPhone and other digital devices. Second, since the early 1990s, Apple had built Macs with an IBM CPU, called PowerPC. In 2006, Jobs made a large investment to shift Apple to Intel chips. By the next year, the entire Macintosh line ran on Intel.42 Critical to the Mac’s resurgence, Intel’s chips enabled Apple to build laptops that were both faster and less power-hungry.43 By 2011, notebooks accounted for 72%44 of all Macintosh sales compared to 38% nine years earlier. With “Intel Inside,” the Mac could also natively run Microsoft Windows along with Windows applications. This capability potentially offset a long-standing disadvantage to choosing a Mac—the relative lack of Macintosh software. The third element of the new Mac strategy was developing a proprietary set of applications. Building programs such as the iLife suite (iPhoto, iTunes, iWeb) required Apple to assume significant development costs.45 At the same time, the company continued to depend on the cooperation of key independent software vendors—especially Microsoft. In 2003, after Apple developed its Web browser Safari, Microsoft said it would no longer develop Internet Explorer for the Mac. However, Microsoft did continue to develop its Office suite for Macintosh. Full interoperability with Office products was critical to Macintosh’s viability. Jobs still hedged his bets by developing iWork productivity applications, including Pages, Keynote, and Numbers. 46

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Apple Inc. in 2012

The final piece of Jobs’s puzzle was a new distribution strategy. The first Apple retail store opened in McLean, Virginia, in 2001. Apple not only wanted consumers to look at the eye-catching Macintosh designs, but also wanted people to directly use and experience Apple’s software. The Apple retail experience gave many consumers their first exposure to the Macintosh product line. By 2011, the company estimated that more than half of all retail Mac sales were to new Mac customers.47 The retail division—with more than 300 stores in 13 countries—accounted for 13% of Apple’s total revenue.48 Observers viewed Apple’s retail strategy as a huge success: one analyst said that the company had become “the Nordstrom of technology.” 49 Most analysts believed that the popularity of media products, such as the iPod, iPhone, and iPad, were critical to bringing consumers into the stores and exposing them to the Mac.

Moving Beyond the Macintosh
Apple’s shift toward a digital hub strategy was initiated by the debut of the iPod in 2001, followed by the iPhone in 2007, then the iPad in 2010. While the prospects for the Macintosh business had improved, it was the iPod that set Apple on its explosive growth path. Jobs’s focus for the iPod was simplicity: he said that “to make the iPod really easy to use—and this took a lot of arguing on my part—we needed to limit what the device itself would do. Instead we put functionality in iTunes on the computer. . . . So by owning the iTunes software and the iPod device, that allowed us to make the computer and the device work together, and it allowed us to put the complexity in the right place.”50 The iPod was initially one of many portable digital music players based on the MP3 standard. Thanks to its sleek design, simple user interface, and large storage, it soon became “an icon of the Digital Age.”51 While early MP3 players only stored an hour of music, the first iPod stored up to 1,000 songs and retailed for $399. Over the next several years, Apple delivered one new innovative design after another. In 2012, Apple continued to hold more than 70% of the U.S. MP3 market.52 The historical economics of the iPod were stellar by CE industry standards. The iPod nano, for example, had gross margins of around 40% in 2007.53 The biggest cost component for the nano was flash memory, which could account for more than half of the bill of materials. Recognizing the importance of flash memory, Apple invested in several memory producers in order to secure output at the best prices. By 2012, Apple was one of the largest purchasers of flash memory in the world. Apple’s approach to developing and marketing the iPod was more open than its strategy for the Macintosh. The iPod could sync with Windows as well as a Mac. Apple also built an ecosystem with the iPod accessory market that ranged from fashionable cases to docking stations. For every $3 spent on an iPod, consumers spent another $1 on iPod add-on products.54 While iPods were available in all price segments, iPod ASPs generally ran $50 to $100 higher than the competition.55 At the hardware level, most players were roughly comparable to iPod models. Yet competitors found themselves at a major disadvantage with the emergence of Apple’s iTunes store. Two features that differentiated Apple’s iPods were its iTunes desktop software, which synchronized iPods with computers, and its iTunes Music Store, which opened in April 2003. The two, in combination, completed Apple’s vision of an entertainment hub. 56 The iTunes store was the first legal site that allowed music downloads on a pay-per-song basis. Visitors could pay $0.99 per song for a title offered by all five major record labels and by thousands of independent music labels. The downloaded songs could be played on the user’s computer, burned onto a CD, or transferred to an iPod. Within three days of launching the service, PC owners had downloaded 1 million copies of free iTunes software and had paid for 1 million songs.57 Customers loved the vast music selections and ease of use, transforming the iTunes store into the number-one music store in the world. 58 By 8

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Apple Inc. in 2012


October 2011, it had sold 16 billion songs and featured the world’s largest music catalog.59 Offerings expanded to include audiobooks, podcasts, books, movies, and TV shows. The launch of the iTunes store had a galvanic impact on iPod sales. In the quarter before the release of iTunes, Apple sold only 78,000 iPods. After the iTunes launch, iPod sales shot up to 304,000 units in one quarter and exploded thereafter.60 The direct impact of iTunes on Apple’s profitability was far less impressive. Songs were priced at $0.69, $0.99, or $1.29 per download. Some content and many apps were free. On average, roughly 70% of the money Apple collected per download went to the music label that owned it, and about 20% went toward the cost of credit card processing. That left Apple with only about 10% of revenue per download, from which Apple had to pay for its website, along with other direct and indirect costs. 61 In essence, Jobs had created a razor-and-blade business, only in reverse: the variable element (songs) served as a loss leader for a profit-driving durable good.62 Despite the success of iTunes, Apple had a tense relationship with content companies. They balked at its dominance of the digital music market. Music labels also saw their higher-priced CD sales pushed aside in favor of low-priced à la carte downloads. While Apple made high margins on hardware, content companies saw their margins erode in the digital world.

Competition Online music stores such as, Napster, and offered individual song downloads at competitive or discounted prices to iTunes. Some had subscription plans that allowed unlimited listening, starting at $5 per month. Most competitors offered songs to play on various devices, including the iPod. In addition to music streaming services, the iPod faced other challenges as well. Internet radio sites, such as Pandora, offered free streaming music. Spotify allowed users to create their own playlists, share them, and stream free music like a virtual MP3 player. In some markets, music labels made more money from Spotify than iTunes. 63 By April 2012, most streaming music operators offered unlimited music streaming for $9.99 per month. Beyond competition, Apple also worried about future demand for iPods. Jobs had two responses to these threats: In 2009, he bought, a music streaming service. The deal raised speculations that Apple could be exploring an alternative model to store and play digital music, bypassing downloads on a media player altogether. And, of course, in June 2007, he introduced the iPhone. Jobs later noted, “If you don’t cannibalize yourself, someone else will.” 64

The iPhone
At the January 2007 Macworld, Jobs introduced the iPhone, saying, “Every once in a while a revolutionary product comes along that changes everything. Today, we’re introducing three revolutionary products of this class. The first one is a widescreen iPod with touch controls. The second is a revolutionary mobile phone. And the third is a breakthrough Internet communications device. . . . These are not three separate devices, this is one device, and we are calling it iPhone.” 65 Hailed as Time magazine’s “Invention of the Year,” the iPhone represented Apple’s bid to “reinvent the phone.”66 Two and a half years of development efforts had been devoted to the phone, guarded under intense secrecy, even among the company’s own employees. The estimated development cost was around $150 million. Entry into mobile phones might have been a risky move for Apple. At the time, the industry was dominated by Nokia, Motorola, and Samsung, with roughly 60% market share. In addition, products were characterized by short product life cycles (averaging six to nine months) and sophisticated technology, including radio technology, where Apple had little experience. In distribution, Apple faced powerful cellular carriers such as T-Mobile and Vodafone, which controlled the networks and 9

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Apple Inc. in 2012

often the phones used on those networks. In the U.S., the top two carriers—Verizon Wireless and AT&T—collectively controlled more than 60% of the market and their networks were “locked”: an AT&T phone would only work on AT&T’s network. Especially in the U.S., a handset manufacturer was usually dependent on the operator to provide a subsidy, which could lower the consumer’s purchase price of a new handset by $250 or more. In return, most consumers signed a two-year service contract with the carrier. Operators also maintained “walled gardens,” which required consumers to access content only from their own networks. Price competition was especially intense in emerging markets like China and India, where consumers bought phones for well under $100. In the early days when a mobile phone’s foremost purpose was to make calls, consumers selected a handset based on its appearance and service provider. Starting in the mid-1990s, the industry’s preference shifted toward feature phones that offered more attractive hardware designs and userfriendly interfaces, pioneered by Nokia. Multimedia functions, such as a camera, were added as well. Then smartphones rose to prominence in the next decade. These high-end phones brought multiple functions together in the palm of one’s hand, serving as a mobile phone, Internet browser, e-mail, and work device as well as a media player. The iPhone, however, changed the rules in the industry. A revolutionary 3.5-inch touch-screen interface placed commands at the touch of users’ fingertips without a physical keyboard. The iPhone’s entire system ran on a specially adapted version of Apple’s OS X platform called iOS. Above all, users found it intuitive to use. The first model was priced at $499 for an 8GB model. At that time, handsets that cost more than $300 accounted for only 5% of sales.67 Apple initially gave the iPhone to only one network operator in most markets. AT&T, the exclusive U.S. operator for the iPhone when it launched, did not provide a subsidy. Instead, AT&T agreed to an unprecedented revenue-sharing agreement with Apple, which gave Apple control over distribution, pricing, and branding. The first-generation iPhone sold about 6 million units over five quarters. However, more than a million had been sold in the “grey market,” in which consumers bought iPhones from unauthorized resellers and used them on unsanctioned mobile networks. Apple’s demand for a share of service revenue had led to only a few markets in the world with legal iPhone distribution. One estimate suggested that Apple could lose $1 billion over three years from the loss of service-share revenue.68 The second iPhone model was released in 2008. This version ran on a faster 3G network. More importantly, Apple revamped its pricing model. Carriers provided a subsidy on the phone in exchange for dropping the revenue-sharing agreement, and some subsidies were $400 per phone or higher. Over the next few years, Apple released an upgraded iPhone every 12 to 15 months and greatly expanded distribution. With the release of the 4s in October 2011, Apple introduced Siri, a voice-activated technology that Apple bought in 2010. With Siri, the user could dictate texts, schedule appointments, ask questions, and send e-mails using voice commands.69 Apple’s relationship with carriers changed, too. In most markets in the world, Apple moved from a single carrier to multiple carriers selling iPhones. When Apple added new carriers, it had a reputation as a very tough negotiator: Sprint, for example, signed a four-year, $15 billion deal with Apple that committed the carrier to sell at least 24 million iPhones. 70 With each new generation of product, Apple also dropped the price of prior generations. The combination of big subsidies, low prices on older models, and expanded distribution caused revenues and unit volumes to explode (see Exhibit 1b). As a result, Apple vied with Samsung for the largest market share in smartphones. 71 Analysts also estimated that Apple generated more than 50% of the cellphone industry’s total profits, with less than 4% unit market share.72

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Apple Inc. in 2012


Dating back to the early days of Apple, Jobs always preferred to control the critical technologies that would drive Apple’s differentiation. To grab greater control of mobile devices, Jobs bought two ARM microprocessor design companies for about $400 million between 2008 and 2010.73 The iPhone 4 series was Apple’s first phone powered by its own processor, dubbed the A4. Later, the iPhone 4s used the next-generation A5 processor, which was manufactured by Samsung and optimized to deliver Apple’s demanding specifications on battery life and performance. Analysts estimated that Apple commanded a wholesale ASP of $659 from its iPhones,74 while competitors’ ASPs on roughly similar hardware ranged between $250 and $350. Falling component costs and design improvements helped to reduce the iPhone’s cost structure. One study showed that the bill of materials for the latest 16GB model was just under $188. 75 The first iPhone with half the storage capacity cost around $220 to build.76 Apple’s drive to keep its costs down was often controversial. Apple had become one of the largest customers of Foxconn in China. After several suicides of Foxconn workers, Apple commissioned a study by the Fair Labor Association,77 which discovered “serious and pressing” violations of the FLA’s code of conduct as well as Chinese labor law. Cook promised quick action to bring Apple subcontractors into compliance. Four years after its launch, the iPhone accounted for 44% of Apple’s total revenue. 78 In countries such as China, the iPhone was just taking off in 2012: even without subsidies, Chinese consumers were willing to buy iPhones for prices approaching $1,000 USD. As countries such as China and India moved their faster 3G and ultimately 4G networks, demand for smartphones was expected to continue growing rapidly.

App Store One key driver behind the iPhone sensation was the launch of the Apple App Store in 2008. Software applications for PDAs and smartphones had been around for years. But Apple’s App Store was the first outlet that made it easy to distribute, access, and download applications directly onto the mobile phone. Many apps were free; even paid apps usually started at $0.99. The App Store was introduced as part of iTunes, which already had a huge following. Software developers also welcomed the App Store because Apple made it easier to reach consumers. Apple reserved the right to approve all applications and kept a 30% cut of the developer’s app sales. The popularity of the App Store was stunning. In the first 18 months, 4 billion applications had been downloaded worldwide.79 By May 2012, more than 585,000 applications were available in categories ranging from games to business productivity programs (see Exhibit 7 for an overview of smartphone operating systems and app stores). Walt Mossberg of the Wall Street Journal claimed that, “the App Store is what makes your device worth the price.” 80 Mobile apps had turned into a nice side business for Apple as well. In FY 2011, Apple generated $6.3 billion in revenues from the sale of music, books, and applications.81 Over time, Apple also paid out more than $4 billion to developers for the 25 billion apps downloaded to iPhones, iPods, and iPads.82 Similar to what happened with PCs, Apple’s competitors fell into two large categories: horizontal and vertical. Manufacturers such as Samsung Electronics, HTC, LG Electronics, and Motorola followed a horizontal approach, where they licensed their OS and built their own hardware.83 iPhone’s greatest competition in 2012 came from Android, an open and free platform developed by Google. A consortium of 84 handset makers, chips makers, and operators, known as the Open Handset Alliance, backed the platform. As more manufacturers entered the market, innovation on the Android platform exploded. Leading-edge phones from Samsung, HTC, and others had larger, brighter screens than the iPhone, some with better cameras, improved audio, and so on. Some firms also added their own user interface and applications on top of Android. Not surprisingly, developers saw a potentially large market that might rival Apple. The combination of


Purchased by Rosario Faraci ( on October 05, 2012


Apple Inc. in 2012

such factors powered the platform to become the most popular smartphone OS in 2011 (see Exhibit 8 for smartphone sales). Among handset manufacturers, Samsung was Apple’s most direct competitor. Samsung was relatively late to enter the smartphone segment, but it became the volume leader in 2011 with the introduction of its Android-based Galaxy S2 handset. The Galaxy S2 used Samsung’s internally developed Super Amoled screen, considered the brightest in the industry. 84 Analysts estimated that smartphones were generating as much as 80% of the operating profits in Samsung’s mobile division.85 While Android represented the majority of Samsung’s OS strategy, the company also worked with Windows Phone, Tizen, and Bada, a platform created by Samsung itself. Samsung was a huge company that made chips, PCs, TVs, and appliances as well as phones (see Exhibit 6 for financials of Apple competitors). HTC, based in Taiwan, had pioneered several smartphone innovations, including being first to market with Android, 3G, and 4G phones. As iPhone and Samsung sales outpaced the industry in late 2011, HTC remained large and profitable, but lost market share.86 LG Electronics, a leader in feature phones, struggled to reverse its operating losses and change its image as a laggard. 87 Motorola Mobility, which had suffered from a lack of scale and poor operating margins, was bought by Google for $12.5 billion, in a deal expected to close in mid-2012. Analysts speculated that Google needed Motorola’s intellectual property. All of these Android-based firms had aggressive plans to launch new handsets to compete with Apple in 2012. Research In Motion (RIM) and, to a lesser extent, Nokia took a vertical approach by controlling both hardware and software. RIM’s BlackBerry smartphones historically delivered one of the best mobile e-mail experiences and was a popular choice among corporate consumers. But the popularity of iPhone and Android smartphones pressured RIM’s business. 88 In 2012, RIM was rapidly losing market share.89 Nokia suffered the greatest decline. The biggest cellphone company in the world for more than a decade, the company’s strength had been in Europe and emerging markets. However, aggressive price competition from Chinese companies in feature phones, and virtually no presence in the key U.S. market for smartphones, was taking a toll. By 2012, Nokia had abandoned its own OS, Symbian, and shifted to Microsoft’s new Windows phone. Despite some good reviews for its Windows phones, Nokia announced large operating losses in early 2012, as it lost share in both traditional phones and smartphones. Google’s competitor to Apple’s App Store, called Play Store, surged in 2010–2011. The number of Android applications was rapidly approaching iPhone apps (see Exhibit 7). A survey of developers in 2010 suggested that 87% were very interested in developing iPhone apps; 81% for Android apps; BlackBerry and Microsoft were far behind.90 While Google had fewer restrictions than Apple, 91 developers found it more challenging to write applications for Android. Most Android phones varied slightly, which required software developers to write numerous versions of their apps. An Apple developer only worried about one iPhone. Intense competition in the smartphone industries led to numerous lawsuits on design and intellectual property.92 Literally, everyone in the industry sued everyone. Jobs, though, was the most aggressive CEO in pursuing legal redress. “From the earliest days at Apple, I realized that we thrived when we created intellectual property. . . . If protection of intellectual property begins to disappear, creative companies will disappear or never get started. But there’s a simpler reason: It’s wrong to steal. It hurts other people. And it hurts your own character.” 93 In 2010, Apple initiated litigations against Android devices, first against HTC and then Samsung. Jobs explained, “I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy

The patent wars

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Apple Inc. in 2012


Android, because it’s a stolen product. I’m willing to go to thermonuclear war on this. They are scared to death, because they know they are guilty.”94 While reviews of the iPhone were generally glowing, some people complained about its inability to run on the faster 4G LTE networks in 2012, its limited battery life, as well as its lack of support for Adobe Flash, which made some websites unusable for iPhone users. Although many Siri users in the U.S. were big fans, international users found that Siri did not work well in other languages or with non-American accents. At the same time, some carriers complained about the volume demands and huge subsidies required by Apple. For example, Verizon’s chief financial officer publicly announced that his company would aggressively support Microsoft in 2012 to create a “third ecosystem,” in a thinly veiled attack on Apple. 95 Yet despite these criticisms, the iPhone exceeded all expectations. With the iPhone on a roll, Jobs saw another opportunity to make a bold move to redefine computing with the launch of the iPad. “Some people say, ‘Give the customers what they want,’” said Jobs, “but that’s not my approach. Our job is to figure out what they’re going to want before they do.” 96 That was what he did with the iPad.

iPhone critiques

The iPad
Apple’s release of the iPad on March 2, 2010, defined a new device category that was described by Jobs as “even more intuitive and easier to use than a PC, and where the software and the hardware and the applications need to be intertwined in an even more seamless way than they are on a PC.” 97 Prior to the iPad, tablet sales accounted for a trivial share of the PC market. When the iPad launched, market demand was uncertain, at best. But doubters were quickly silenced, as sales of the new device took off. More than 450,000 iPads were sold during its first week on the market. Jobs commented, “It feels great to have the iPad launched into the world—it’s going to be a game changer.”98 In February 2012, Cook announced that 55 million iPads had been sold, surpassing even the most bullish analyst estimates.99 In less than two years, Apple had built another $35 billion business. The iPad was originally priced from $499 to $829 and was sold in the U.S. by Apple retail stores, carriers, and other retail stores (Best Buy, Target, Staples). The tablet featured a 9.7-inch LED screen with a 10-hour battery life for reading books, watching movies, and some business productivity applications. Operators did not subsidize iPads, as they did smartphones. Consumers could choose to connect to the Internet by paying for access to a carrier’s network or rely exclusively on Wi-Fi networks. Most tablet owners opted for a Wi-Fi-only connection.100 Perhaps the biggest debate about the iPad was its usage model. Market research indicated that tablet owners viewed it primarily as a device to consume content rather than produce it.101 The most popular activities included checking e-mail, playing games, watching full-length videos, and shopping online. The iPad could run, with some limitations, almost all iPhone apps. To offset those limitations, software developers released over 1,000 applications specifically developed for the iPad at the time of its launch. By March 2012, the App Store had more than 200,000 native iPad apps. 102 Over time, iPad consumers became more creative in finding uses for the iPad for everything from writing music to restaurant menus, sales tools, and even car owner manuals. An early controversy over the iPad erupted when Apple sought to offer its own bookstore. Historically, Jobs had insisted on low prices for content on the iPod and iPhone ($0.99 for songs, and free or low-priced apps). But in trying to woo book and magazine publishers to the iPad, Jobs faced Amazon, which distributed 90% of the digital books on the market through its Kindle e-reader. To stimulate demand, Amazon priced many of its books at $9.99, often below Amazon’s costs. Publishers were unhappy with the pricing: they feared low prices would devalue the content as well 13

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Apple Inc. in 2012

as cause rapid cannibalization of physical books. Apple made an offer to publishers that they set their own prices, usually ranging from $12 to $15 for an e-book. Apple then took a 30% commission. After initially resisting, Amazon was forced by publishers to follow suit. By April 2012, Amazon’s market share in e-books had fallen to 60%.103 The Department of Justice, however, investigated Apple’s strategy in early 2012, accusing the company and five publishers of price fixing. Three companies settled, while Apple and two publishers chose to fight. Since the settlement gave digital retailers flexibility again in setting prices, Amazon almost immediately lowered prices back to $9.99 on some books. Apple’s pricing and manufacturing for the iPad were also slightly different from earlier products. The entry retail price of $499 for an iPad was lower than the wholesale price of an iPhone. Despite the low price, Apple earned an estimated 25% gross margin on the entry model. By using its own CPU, giving the channel a lower margin, and leveraging its scale in purchasing, Apple had lower cost than most competitors, which could only make 15% gross margin at the same retail price.104 Apple also had at least a one-year lead. While some competitors, such as Microsoft, had not even gotten started in 2012, Apple was on its third-generation product. This provided Apple with opportunities to build its intellectual property position. For example, Apple had filed patents for its creative magnetic cover for the second- and third-generation iPads. Yet despite Apple’s formidable lead, at least 20 major manufacturers of mobile devices, PCs, and eReaders launched tablets by 2011 (see Exhibit 9 for worldwide tablet shipments).

Competition Android-based tablets were rushed to the market in late 2010, and by the end of 2011, Android held a 38% share.105 Apple had at least three potential serious competitors for tablets: (1) manufacturers using Google’s version of Android; (2) Amazon, which used an open source version of Android; and (3) forthcoming Microsoft-based tablets. In the first category, the leader was Samsung, which sold an estimated 5 million tablets in 2011.106 Samsung 9-inch tablets were very similar to the iPad in design and price, but Android lacked the applications and ease of use of an iPad. In 2012, Samsung bet heavily on the Samsung Note, a 5-inch combination tablet and phone. Amazon, by contrast, had a different model: it developed a distinctive user interface and sold its 7-inch tablet, the Kindle Fire, for $199. Amazon’s product costs were estimated to be slightly more than $200.107 While Apple sought to make money on hardware, Amazon hoped to make money on software, applications, and content. Despite mixed reviews, analysts believed that Amazon grabbed 14% market share in Q4 2011.108 The greatest uncertainty for competition in tablets was Microsoft’s entry with Windows 8. Expected in the second half of 2012, some Windows 8 tablets would offer a new user interface and backward compatibility for Windows applications. Microsoft also hedged its bets by taking a $300 million, 17% stake in Barnes & Noble’s eReader, the Nook.

iCloud One of Jobs’s last acts as CEO was to prepare Apple for the launch of iCloud in October 2011. Jobs’s vision was that Apple was “the first to have the insight about your computer becoming a digital hub . . . [which] worked brilliantly. But over the next few years, the hub is going to move from your computer into the cloud. So it’s the same digital hub strategy, but the hub’s in a different place.”109 iCloud allowed users to synchronize seamlessly across multiple Apple devices by storing data, pictures, music, and so on, in one location on the Internet. Five GB of free cloud storage on iCloud was free for Mac, iPhone, iPad, and iPod Touch users. Consumers could also pay for additional storage.110 To support iCloud, Apple invested in a huge data center in North Carolina at an estimated cost of $500 million.111 Notably, iCloud worked only with Apple products. Following Apple’s lead, OS competitors such as Google and Microsoft offered their own cloud storage services, while product competitors such as HTC and Samsung struck deals with Dropbox. Although less

Purchased by Rosario Faraci ( on October 05, 2012

Apple Inc. in 2012


elegant than iCloud, Dropbox was a cross-platform cloud storage solution that offered HTC and Samsung customers much more storage for free.

The Occasional Disappointments
While almost everything that Jobs touched in the first decade of the twenty-first century turned to gold, his record was not unblemished. Apple had two notable products that failed to live up to expectations. One was the Mac Mini. As Apple’s entry-level desktop, the $599 price tag did not come with a keyboard or a mouse. Consumers could buy a Windows desktop with more functions and faster performance at a lower price. The other disappointment was Apple TV. Introduced in 2007, the set-top box was Apple’s attempt to bring digital video content directly into consumers’ living rooms. Users could stream movies and TV shows over the Internet to a TV set and/or connect other Apple devices to the TV over a Wi-Fi connection. However Apple TV sales were paltry compared to Apple’s other products. Before he died, Jobs claimed to have cracked the code for a next-generation television, which Apple watchers expected to ship sometime in 2013 or 2014.

The Legacy of Steve Jobs
Few, if any, could disagree that Apple’s evolution from a failing PC manufacturer to a mobile device company had been a spectacular success. Most of the credit went to Jobs, the man who had “changed the rules” for the company and the industry, again and again. Of course, Jobs did not work alone. Steve Wozniak, with whom Jobs founded Apple Computer, was a key influence in his life and business even when no longer formally employed. The flawless ramping of Apple’s volume growth was orchestrated by the new CEO, Tim Cook. Jonathan Ives was the lead designer behind Apple’s products, including the iMac, MacBook Air, iPod, iPod Touch, iPhone, and the iPad. Jobs demonstrated his confidence in Ives and the importance of his role with Apple by giving him full control over the design process. Many more employees contributed to the unique culture behind Apple’s success. In the six months following Jobs’s death, only a small number of key employees left the company. The most notable was Ron Johnson, the architect behind Apple’s retail store strategy, who departed to become CEO of JCPenney.

Apple Inc. in the Next Decade?
Inevitably, many wondered about what would happen to Apple with Jobs gone. The history of technology companies was littered with speeding rockets headed to the sky, only to fall back to earth with a crash. In six short months, Cook had already shown that he would run Apple somewhat differently. Jobs, for example, had strongly opposed paying dividends and buying back stock, but Cook announced that he would do both in March 2012.112 And while Jobs was aggressive legally, Cook hinted at a more flexible approach: “I would highly prefer to settle versus battle [on intellectual property], but the key thing is that it’s very important that Apple not become the developer for the world.”113 Even with these differences, Apple had performed significantly above expectations in Cook’s first half-year. For a few weeks during the spring of 2012, Apple’s market capitalization surpassed $600 billion, making it the most valuable company in the history of the world. Moreover, after Jobs’s death, Apple’s board demonstrated its confidence in Cook by awarding him one of the largest compensation packages ever—almost $400 million in stock. With his board behind him and the business performing well, Cook was in a great position to make his own distinctive mark on Apple. The only question was how?

Purchased by Rosario Faraci ( on October 05, 2012



Exhibit 1a

Apple Inc., Selected Financial Information, 1991–2012 (in millions of dollars, except for number of employees and stock-related data)a

1991 6,309 3,314 583 1,740 671 310 893 907 672 448 3,494 1,727 1,767 57 14,432 45% 47% 9% 28% 5% 13% 19% $10.28 $18.19 21.9 6,649.9 598 5,364 3,306 2,058 14 10,896 52% 10% 6% 16% NA NA NA $4.22 $8.75 NA 2,598.5 348 4,289 2,647 1,642 -9,663 45% 25% 5% 15% 5% 4% 22% $3.28 $10.75 19.5 5,539.7 419 6,803 2,696 4,107 -8,568 46% 27% 5% 16% 10% 6% 22% $7.00 $36.05 6.8 4,996.2 621 6,298 2,203 4,095 -10,211 43% 28% 8% 19% 1% 1% 2% $6.80 $13.06 78.2 5,146.4 707 8,050 2,974 5,076 -11,695 41% 27% 6% 17% 3% 3% 6% $10.64 $34.22 58.5. 25,892.5 1,281 17,205 7,221 9,984 -17,787 41% 29% 4% 13% 10% 11% 23% $50.57 $91.63 25.6 72,900.8 1,745 1,496 662 2,300 955 78 4,027 953 33 4,337 707 45 5,464 1,050 101 10,110 2,845 270 22,111 4,704 509 2,455 36,171 13,874 22,297 -32,000 44% 35% 3% 10% 16% 17% 33% $82.58 $188.75 8.2 75,870.6 25,620 9,924 1,051 9,833 8,865 604 1,568 -1,204 -816 5,941 4,462 303 908 268 309 7,983 5,817 380 1,256 530 786 5,742 4,139 446 1,109 48 65 8,279 6,022 491 1,430 336 266 19,315 13,717 712 2,433 2,453 1,989 37,491 24,292 1,109 3,761 8,327 6,119 65,225 39,541 1,782 7,299 18,385 14,013









2011 108,249 64,431 2,429 10,028 33,790 25,922 25,952 11,717 776

March 2011– March 2012 142,360 79,791 2,872 11,756 50,813 38,617 28,538 13,769 1,102

Net sales Cost of sales Research and development Selling, general, and administrative Operating income (loss) Net income (loss)

Purchased by Rosario Faraci ( on October 05, 2012

Total cash and short-term investments Accounts receivable, net Inventories

Net property, plant, and equipment Total assets Total liabilities Total shareholders’ equity Cash dividends paid Number of employees International sales/sales Gross margin R&D/sales SG&A/sales Return on sales Return on assets Return on equity Stock price low Stock price high P/E ratio at period-end Market value at period-end

4,768 7,777 75,183 116,371 27,392 39,756 47,791 76,615 --46,600 60,400 56% 61% 39% 41% 3% 2% 9% 7% 22% 24% 19% 22% 35% 42% $190.25 $315.32 $325.10 $422.24 14.7 10.4 295,455.3 376,357.2

8,847 150,934 48,436 102,498 -63,300 61% 44% 2% 6% 27% 26% 47% $363.57 $617.62 14.4 558,939.5


Compiled from Capital IQ data and Thomson Reuters Datastream, accessed May 2012.

a Data for 1991 through 2011 based on Apple’s fiscal year that ends in September, except for share price data that reflect calendar-year results. Data for 2012 reflect the latest 12 months ended March 31,

2102. Share price data for 2012 reflect the six months from October 1, 2011, and March 31, 2012.

Apple Inc. in 2012


Exhibit 1b

Apple’s Net Sales by Product Category, 2002–2012 (in millions of dollars) March 2011– March 2012 NA NA 6,766 NA NA 16,282 23,048 28,657 6,163 7,427 71,398 2,556 NA NA 3,101 142,360

2002 Power Macintosha iMacb Desktopsc PowerBook iBook Portablesd Total Macintosh net sales iPad iPod Other music productse iPhone, related products and servicesf Peripherals and other hardwareg Software Service and other net sales Software, service, and other salesh Total net sales 1,380 1,448 NA 831 875 NA 4,534 NA 143 4 NA 527 307 227 NA 5,742

2004 1,419 954 NA 1,589 961 NA 4,923 NA 1,306 278 NA 951 502 319 NA 8,279

2006 NA NA 3,319 NA NA 4,056 7,375 NA 7,676 1,885 NA 1,100 NA NA 1,279 19,315

2008 NA NA 5,622 NA NA 8,732 14,354 NA 9,153 3,340 6,742 1,694 NA NA 2,208 37,491

2009 NA NA 4,324 NA NA 9,535 13,859 NA 8,091 4,036 13,033 1,475 NA NA 2,411 42,905

2010 NA NA 6,201 NA NA 11,278 17,479 4,958 8,274 4,948 25,179 1,814 NA NA 2,573 65,225

2011 NA NA 6,439 NA NA 15,344 21,783 20,358 7,453 6,314 47,057 2,330 NA NA 2,954 108,249

Source: Note:

Apple’s financial statements; casewriter calculations. Data for 2002–2011 based on fiscal-year results ending September. Data for 2012 reflect the latest 12 months ending March 31, 2012. NA = Not Available or Not Applicable.

a Includes Xserve product line. b Includes eMac product line. c Includes iMac, Mac Mini, Mac Pro, and Xserve product lines. d Includes MacBook, MacBook Air, and MacBook Pro product lines. e Represents iTunes Store sales, iPod services, and Apple-branded and third-party iPod accessories. f Represents handset sales, carrier agreements, and Apple-branded and third-party iPhone accessories. g Includes sales of displays, wireless connectivity and networking solutions, and other hardware accessories. h Includes sales of Apple-branded operating system, application software, third-party software, AppleCare Services,

and Internet services.

Purchased by Rosario Faraci ( on October 05, 2012


Apple Inc. in 2012

Exhibit 1c

Apple’s Unit Sales by Product Category, 2004–2012 (in thousands of units) March 2011– March 2012 5,111 12,945 18,056 $1,276 47,601 $602 37,227 $166 109,519 $652

2004 Desktopsa Portablesb Total Macintosh unit sales Net sales per unit sold iPads Net sales per unit sold iPods Net sales per unit sold iPhone units sold Net sales per unit soldc 1,625 1,665 3,290 $1,496 NA NA 4,416 $296 NA NA

2005 2,520 2,014 4,534 $1,384 NA NA 22,497 $202 NA NA

2006 2,434 2,869 5,303 $1,391 NA NA 39,409 $195 NA NA

2008 3,712 6,003 9,715 $1,478 NA NA 54,828 $167 11,627 $580

2009 3,182 7,214 10,396 $1,333 NA NA 54,132 $149 20,731 $629

2010 4,627 9,035 13,662 $1,279 7,458 $665 50,312 $164 39,989 $630

2011 4,669 12,066 16,735 $1,302 32,394 $628 42,620 $175 72,293 $651

Source: Apple’s financial statements; casewriter calculations. Note: Data for 2004–2011 based on fiscal-year results ending September. Data for 2012 reflect the latest 12 months ending March 31, 2012. NA = Not Available or Not Applicable.

a Includes iMac, Mac Mini, Mac Pro, and Xserve product lines. b Includes MacBook, MacBook Air, and MacBook Pro product lines. c Sales/unit includes accessories and related service revenue

Exhibit 2

Apple’s Share Price vs. S&P 500 Index (December 31, 1980 = 100)




12-31-1980 = 100









Created by casewriter using data from Thomson Reuters Datastream, accessed May 2012.

Purchased by Rosario Faraci ( on October 05, 2012

Apple Inc. in 2012


Exhibit 3a

Apple’s Worldwide PC Market Share, 1980–2009

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Source: Adapted from InfoCorp., International Data Corp., Gartner Dataquest, and Merrill Lynch Data.

Exhibit 3b

PC Manufacturers: Worldwide Market Shares, 2000–2011
2000 2002 16.0% 15.1% --3.2% 4.2% 5.9% -3.3% 2.3% 136.9 2004 15.8% 17.9% 2.3% 3.6% 3.6% 4.0% 5.9% --1.9% 177.5 2006 16.5% 16.6% 7.1% 5.8% 3.9% ----2.3% 235.4 2007 18.8% 14.9% 7.5% 7.9% 4.1% ----2.6% 269.1 2008 18.9% 14.7% 7.6% 10.9% 4.8% ----3.4% 287.6 2009 19.7% 12.6% 8.2% 12.6% 5.2% ----3.4% 304.8 2010 18.5% 12.5% 9.8% 12.4% -----3.9% 346.8 2011 17.7% 12.6% 12.5% 10.6% -----4.7% 352.4

Hewlett-Packarda Dell Lenovob Acer Toshiba Fujitsu Siemens IBMb Compaqa Packard Bell NEC Apple Total shipments (in millions)

7.8% 11.4% --3.0% 5.1% 7.1% 13.0% 4.5% 3.5% 128.5


“PC Market Stumbles on HDD Shortage While U.S. Market Sees Worst Annual Growth Since 2001, According to IDC,” IDC press release, January 11, 2012; “PC Market Records Modest Gains During Fourth Quarter of 2010, According to IDC,” IDC press release, January 12, 2011; Apple Inc. annual financial reports; and casewriter estimates. Data for 2011 based on preliminary figures reported in “PC Market Stumbles on HDD Shortage While U.S. Market Sees Worst Annual Growth Since 2001, According to IDC,” IDC press release, January 11, 2012. Market share data for Apple are derived from Macintosh unit sales, as reported in the company’s annual reports. The sampling of market shares for other companies comes mainly from annual listings of the top five PC makers, as measured by IDC. Absence of a figure indicates that a company placed below the top five in a given year.


a Hewlett-Packard acquired Compaq in mid-2002. The 2002 market share figure for HP incorporates Compaq sales for the first

part of that year.
b Lenovo acquired IBM’s PC business in mid-2005. The 2005 market share figure for Lenovo incorporates IBM sales for the first

part of that year.

Purchased by Rosario Faraci ( on October 05, 2012


Apple Inc. in 2012

Exhibit 4

Shipments and Installed Base of PC Microprocessor (in millions of units) 1994 1996 1998 2000 2002 2004 2006 2008 2009 2010 2011

Total Shipments Intel Technologies PC units shipped PC installed base Mac units shipped Intel-Mac installed base Motorola (680X0) Units shipped Installed base PowerPC Units shipped Installed base

47.8 211.4 NA NA

76 347.5 NA NA

105 542.5 NA NA

156 839 NA NA

126 1,111 NA NA

170 1,433 NA NA

230 1,863 5.7 5.7

287 2,411 9.9 23.3

294 2,705 11.2 34.5

329 3,034 14.4 48.9

380 3,414 17.8 66.7

3.9 24.9

0.8 26.8

0.2 27.5









0.8 0.8

4 7.8

3.5 14.1

4.7 22.2

3.1 29.4

3.5 36.2






Source: Notes:

Adapted from Gartner Dataquest, InfoCorp., IDC, Merrill Lynch, Credit Suisse data, and company data. Between 5% and 10% of total microprocessor shipments go into non-PC end products. In any given year, as much as 60% of microprocessors in the total installed base involve older technologies that were probably no longer in use. The figures for PowerPC shipments included microprocessors destined for Sony PlayStation and Xbox 360 machines. Figures for “Mac units shipped” over Macintosh calendar year sales. NA = Not Available or Not Applicable.

Exhibit 5

PC Manufacturers’ Key Operating Measures, 1997–2011
1997 2000 2003 2006 2008 2009 2010 2011

Gross margins (%) Apple Dell Hewlett-Packard R&D/Sales (%) Apple Dell Hewlett-Packard

21% 23% 38%

27% 21% 31%

29% 19% 29%

29% 17% 24%





39% 19% 23%

41% 22% 23%

12% 1% 7%

5% 2% 5%

8% 1% 5%

4% 1% 4%

3% 1% 3%

3% 1% 3%

3% 1% 2%

2% 1% 3%

Source: Note:

Compiled from Capital IQ, accessed April 2012. All information is on a fiscal-year basis. Apple’s fiscal year ends in September, HP in October, and Dell in January.

Purchased by Rosario Faraci ( on October 05, 2012

Apple Inc. in 2012


Exhibit 6

Apple’s Competitors: Selected Financial Information, 2004–2011 (in millions of dollars) 2004 2006 2008 2009 2010 2011

Microsoft Total revenues Cost of sales R&D SG&A Net income Total assets Total liabilities Total shareholders’ equity Gross margin R&D/sales SG&A/sales Return on sales Market capitalizationa Intel Total revenues Cost of sales R&D SG&A Net income Total assets Total liabilities Total shareholders’ equity Gross margin R&D/sales SG&A/sales Return on sales Market capitalization Hewlett-Packard Total revenues Cost of sales R&D SG&A Net income Total assets Total liabilities Total shareholders’ equity Gross margin R&D/sales SG&A/sales Return on sales Market capitalization

36,835 6,596 7,735 10,640 8,168 94,368 19,543 74,825 82.1% 21.0% 28.9% 22.2% 313,046

44,282 7,650 6,584 12,276 12,599 69,597 29,493 40,104 82.7% 14.9% 27.7% 28.5% 233,097

60,420 11,598 8,164 16,687 17,681 72,793 36,507 36,286 80.8% 13.5% 27.6% 29.3% 256,302

58,437 12,155 9,010 16,296 14,569 77,888 38,330 39,558 79.2% 15.4% 27.9% 24.9% 227,477

62,484 12,395 8,714 16,685 18,760 86,113 39,938 46,175 80.2% 13.9% 26.7% 30.0% 223,608

69,943 15,577 9,043 17,830 23,150 108,704 51,621 57,083 77.7% 12.9% 25.5% 33.1% 227,009

34,209 14,301 4,778 4,659 7,516 48,143 9,564 38,579 58.2% 14.0% 13.6% 22.0% 142,520

35,382 17,164 5,873 6,138 5,044 48,368 11,616 36,752 51.5% 16.6% 17.3% 14.3% 128,582

37,586 16,742 5,722 5,452 5,292 50,472 10,926 39,546 55.5% 15.2% 14.5% 14.1% 73,919

35,127 15,566 5,653 5,234 4,369 53,095 11,391 41,704 55.7% 16.1% 14.9% 12.4% 118,613

43,623 15,132 6,576 6,309 11,464 63,186 13,756 49,430 65.3% 15.1% 14.5% 26.3% 118,756

53,999 20,242 8,350 7,670 12,942 71,119 25,208 45,911 62.5% 15.5% 14.2% 24.0% 130,508

79,905 60,621 3,563 10,496 3,497 76,138 38,574 37,564 23.9% 4.5% 13.1% 4.4% 60,011

91,658 69,178 3,591 11,266 6,198 81,981 43,837 38,144 24.3% 3.9% 12.3% 6.8% 109,914

118,364 89,370 3,543 13,326 8,332 113,331 74,389 38,942 24.2% 3.0% 11.3% 7.0% 87,433

114,552 87,163 2,819 11,648 7,660 114,799 74,035 40,517 23.6% 2.5% 10.2% 6.7% 120,972

126,033 95,654 2,959 12,718 8,761 124,503 83,722 40,781 22.9% 2.4% 10.1% 7.0% 98,080

127,245 96,675 3,231 13,424 7,074 129,517 90,513 38,625 22.8% 2.5% 10.5% 5.6% 53,370

Purchased by Rosario Faraci ( on October 05, 2012


Apple Inc. in 2012

Exhibit 6 (continued)
2004 Dell Total revenues Cost of sales R&D SG&A Net income Total assets Total liabilities Total shareholders’ equity Gross margin R&D/sales SG&A/sales Return on sales Market capitalizationb Nokia Total revenues Cost of sales R&D SG&A Net income Total assets Total liabilities Total shareholders’ equity Gross margin R&D/sales SG&A/sales Return on sales Market capitalization Samsung Total revenues Cost of sales R&D SG&A Net income Total assets Total liabilities Total shareholders’ equity Gross margin R&D/sales SG&A/sales Return on sales Market capitalization Source: Note:






49,121 40,103 460 4,352 3,018 23,215 16,717 6,498 18.4% 0.9% 8.9% 6.1% 103,272

57,420 47,904 498 5,948 2,583 25,635 21,307 4,328 16.6% 0.9% 10.4% 4.5% 52,270

61,101 49,998 665 6,966 2,478 26,500 22,229 4,271 18.2% 1.1% 11.4% 4.1% 15,964

52,902 43,404 624 6,465 1,433 33,652 28,011 5,641 18.0% 1.2% 12.2% 2.7% 28,233

61,494 50,041 661 7,302 2,635 38,599 30,833 7,766 18.6% 1.1% 11.9% 4.3% 26,850

62,071 48,211 856 8,524 3,492 44,533 35,616 8,917 22.3% 1.4% 13.7% 5.6% 32,714

36,362 22,506 4,532 3,931 3,952 28,064 10,238 17,826 38.1% 12.5% 10.8% 9.1% 67,188

50,908 34,356 4,825 4,927 5,331 28,000 13,070 14,930 32.5% 9.5% 9.7% 8.9% 80,665

62,779 40,774 7,332 6,828 4,937 49,003 28,563 20,440 35.1% 11.7% 10.9% 7.6% 33,559

50.739 34,318 7,278 6,144 1,103 44,244 25,985 18,259 32.4% 14.3% 12.1% 3.3% 49,588

52,584 36,467 7,235 6,060 2,290 48,435 28,341 20,094 30.6% 13.8% 11.5% 3.5% 27,926

47,860 33,798 6,913 6,064 -1,441 44,822 27,594 17,228 29.4% 14.4% 12.7% 1.1% 17,513

69,496 44,898 -14,626 9,148 58,508 27,645 30,863 35.4% -21.0% 13.6% 54,468

72,778 50,921 -14,117 6,720 68,990 28,342 40,648 30.0% -19.4% 8.1% 61,792

102,844 76,109 -21,621 4,685 89,283 35,931 53,353 26.0% -21.0% 4.4% 49,763

115,587 80,206 6,263 19,809 8,116 95,116 33,182 61,934 30.6% 5.4% 17.1% 7.5% 86,355

131,109 87,050 7,715 22,251 13,396 113,862 38,104 75,758 33.6% 5.9% 17.0% 10.6% 101,065

139,903 95,087 8,462 23,251 11,327 131,958 45,605 86,354 32.0% 6.0% 16.6% 9.0% 143,707

Created by casewriter using data from Capital IQ and Thomson Reuters Datastream, May 2012. All information is on a fiscal-year basis, unless noted otherwise. HP’s fiscal year ends in October, Dell in January, Intel and Nokia in December, Microsoft in June, and RIM in February.

a Market capitalization figures for each company are based on the date the earnings were filed with the SEC. b Dell’s market capitalization figure for 2009 is from March 18, 2010, rather than the filing date.

Purchased by Rosario Faraci ( on October 05, 2012

Apple Inc. in 2012


Exhibit 7

Overview of Smartphone Operating Systems and App Stores (as of May 2012) Approximate Number of Available Apps 70,000 585,000 70,000 80,000

Operating System Symbian iOS BlackBerry Windows Mobile Android

Owner Nokia Apple RIM Microsoft

Major Handset Vendors Nokia, Sony Ericsson, and Samsung Apple RIM HTC, Samsung, LG, Sony Ericsson HTC, Motorola, Samsung

Licensing Fee No Proprietary Proprietary Yes

App Store Ovi Store App Store BlackBerry App World Windows Marketplace for Mobile Android Marketplace




Sources: Created by casewriter based on company websites and sources including: Andreas Rothe, “App numbers: Windows Phone passes BlackBerry and Symbian,”, May 4, 2012; Andrew Williams, “iOS app store hits 858,000; 200,000 for iPad,”, March 7, 2012; Daniel Cooper, “Google: 450,000 Android Apps now available to 300 million devices,” 2012/02/27/google-450-000-android-apps-now-available-to-300-million-device/, February 27, 2012.

Exhibit 8 Worldwide Smartphone Sales to End User by Operating System, 2006–2011 (% of Total Market Share) 2006 Symbian RIM Microsoft iOS X Linux Androida Othersb

2007 63.5% 9.6% 12.0% 2.7% 9.6% NA 2.6%

2008 52.4% 16.6% 11.8% 8.2% 7.6% 0.5% 2.9%

2009 46.9% 19.9% 8.7% 14.4% 4.7% 3.9% 1.5%

2010 37.6% 16.0% 4.2% 15.7% NA 22.7% 3.8%

2011 18.7% 10.9% 2.1% 18.9% NA 46.4% 3.0%

62.4% 6.9% 9.8% NA 17.6% NA 3.3%

Adapted from Gartner Smartphone Sales quarterly press releases between 2007 and 2012; “Gartner Says Worldwide Mobile Phone Sales Soared in Fourth Quarter of 2011 with 47 Percent Growth,” Gartner press release (Egham, UK, February 15, 2012); “Says Sales of Mobile Devices Grew 5.6 Percent in Third Quarter of 2011; Smartphone Sales Increased 42 Percent,” Gartner press release (Egham, UK, November 15, 2011); “Gartner Says Sales of Mobile Devices in Second Quarter of 2011 Grew 16.5 Percent Year-on-Year; Smartphone Sales Grew 74 Percent” (Egham, UK, August 11, 2011); “Gartner Says 428 Million Mobile Communication Devices Sold Worldwide in First Quarter 2011, a 19 Percent Increase Year-on-Year,” (Egham, UK, May 19, 2011); “Gartner Says Worldwide Mobile Device Sales to End Users Reached 1.6 Billion Units in 2010; Smartphone Sales Grew 72 Percent in 2010” (Egham, UK, February 9, 2011).

aAndroid was introduced in 2008; data prior to that year were not applicable. b Includes Bada in 2010 and 2011.

Purchased by Rosario Faraci ( on October 05, 2012


Apple Inc. in 2012

Exhibit 9 Worldwide Tablet Shipments by Operating System, 2010–2012 (estimated) OS iOS Sales (millions of units) Market share (percent) Android Sales (millions of units) Market share (percent) Research In Motion (RIM) Sales (millions of units) Market share (percent) Others Sales (millions of units) Market share (percent) Source:




14.8 76.1

40.5 58.9

58.0 54.7

4.6 23.6

26.4 38.4

46.9 44.2


0.9 1.3

1.2 1.1

0.1 0.3

0.9 1.4


Tom Mainelli, “Worldwide and U.S. Media Tablet 2012–2016 Forecast,” IDC Research, April 2012., accessed May 2012.

Purchased by Rosario Faraci ( on October 05, 2012

Apple Inc. in 2012


Kevin McLaughlin, “Apple COO: We’re a Mobile Device Company,” ChannelWeb, February 23, 2010,;jsessionid=WIF2WELKTJAT5QE1GHRSKH4ATMY32JVN, accessed March 15, 2010. Sales included music and iPhone-related products and services, such as: the iTunes Store sales, carrier agreements, and Apple-branded and third-party accessories for both products. 3 This discussion of Apple’s history is based largely on Jim Carlton, Apple: The Inside Story of Intrigue, Egomania, and Business Blunders (New York: Times Business/Random House, 1997); David B. Yoffie, “Apple Computer 1992,” HBS No. 792-081 (Boston: Harvard Business School Publishing, 1992); and David B. Yoffie and Yusi Wang, “Apple Computer 2002,” HBS No. 702-469 (Boston: Harvard Business School Publishing, 2002). Unless otherwise attributed, all quotations and all data cited in this section are drawn from those two cases. 4 5 6 7 2 1

Carlton, Apple, p. 10. “Steve Jobs Takes Another Bite at Apple,” The Independent, January 6, 1997. Yoffie, “Apple Computer 1992.”

David B. Yoffie, “Apple Computer 1996,” HBS No. 796-126 (Boston: Harvard Business School Publishing, 1996). 8 9

Charles McCoy, “Apple, IBM Kill Kaleida Labs Venture,” Wall Street Journal, November 20, 1995. Louise Kehoe, “Apple Shares Drop Sharply,” Financial Times, January 19, 1996. David Kirkpatrick, “The Second Coming of Apple,” Fortune, November 9, 1998.

10 11

David Gebler, “Illuminating Apple’s Culture of Secrecy,”, April 17, 2012, http://www. ixzz1u5HXYOz7, accessed May 2012. 12 13 14 15

Walter Isaacson, Steve Jobs (New York: Simon and Schuster, 2011), p. 569. Isaacson, Steve Jobs, p. 567., accessed March 2010.

“Computers sold in the world—sources and methods,” September 8, 2011, http://www.worldometers. info/computers/, accessed April 2012. 16 IDC (International Data Corp.) data, as cited in Graham-Hackett, “Computers: Hardware,” Standard & Poor’s Industry Surveys, December 8, 2005, p. 7. 17 18 19

Dylan Cathers, “Computers: Hardware,” Standard & Poor’s Industry Surveys, October 27, 2011, p. 15. FY 2011 financial results for Acer, Dell, HP, IBM, Lenovo, Thomson One, accessed April 2012.

Peter Misek, Jason North, and Billy Kim, “Computer Hardware—Cutting HP and Dell Estimates: Checks Indicate PC Sales Slowing Materially,” Jefferies, March 15, 2012, p. 9; James Chiu and Kevin YH Chen, “Lenovo: Premium Valuation Justified; Initiate with OW,” Piper Jaffray, March 9, 2012, p. 13. Gartner Personal Computer Quarterly Statistics Worldwide Database, 2/12, cited in Mark Moskowitz, Anthony Luscri, Mike Kim, Gokul Hariharan, Alvin Kwock, John DiFucci, Sterling Auty, Tien-tsin Huang, and Harlan Sur, “Global Technology: IT Spending Pulse: 2012 Off to a Good Start in Most Tech Segments; Lifting PC and Tablet Forecasts,” JP Morgan, March 13, 2012, p. 29. Rajani Singh and Linn Huang, “Worldwide and U.S. PC Client Sub Form Factor 2012–2015 Forecast,” IDC, March 2012, p. 4. 25 Purchased by Rosario Faraci ( on October 05, 2012 21 20


Apple Inc. in 2012

Rajani Singh and David Daoud, “Worldwide PC 2011–2015 Forecast Update: December 2011,” IDC, December 2011, p. 7. 23 24


Thomas W. Smith, “Computers: Hardware,” Standard & Poor’s Industry Surveys, October 22, 2009, p. 3.

Mike Moskowitz, Anthony Luscri, and Mike Kim, “IT Hardware—Quick Thoughts: Ultrabooks Are Just More of the Same in PCs but Expect a Lot of Noise in 2H 2012,” JP Morgan, February 14, 2012, p. 1. 25 26

Thomas W. Smith, “Computers: Hardware,” Standard & Poor’s Industry Surveys, October 22, 2009, p. 18.

“Why Buy a Generic PC?” PC Generic, April 30, 2009,, accessed March 2010. 27 Kulbinder Garcha, Deepak Sitaraman, Vlad Rom, Alban Gashi, Talal Khan, and Matthew Cabral, “Hewlett-Packard: Still in Transition,” Credit Suisse, February 23, 2012, p. 1, accessed April 2012; Kulbinder Garcha, Deepak Sitaraman, Vlad Rom, Alban Gashi, Talal Khan, and Matthew Cabral, “Hewlett-Packard: Transition continues with reorganization,” Credit Suisse, March 21, 2012, p. 1, accessed April 2012. 28 “PC Market Stumbles on HDD Shortage While U.S. Market Sees World Annual Growth Since 2011,” IDC press release, January 11, 2012,, accessed April 2012. 29 30 31 32

“PC Market Stumbles on HDD Shortage,” IDC press release. “PC Market Stumbles on HDD Shortage,” IDC press release. James Chiu and Kevin YH Chen, “Lenovo,” Piper Jaffray, March 9, 2012, p. 1.

“Global PC market Leaps Back to Double-Digit Growth in the Fourth Quarter, Led by a Record Quarter in the U.S., According to IDC,” IDC press release (Framingham, MA, January 13, 2010). 33 34

Shane Rao, “Worldwide PC Microprocessor 4Q11 Vendor Shares,” IDC, February 2012.

Clyde Montevirgen and Karan Kawaguchi, “Semiconductors,” Standard & Poor’s Industry Surveys, May 31, 2007, p. 25. 35 David B. Yoffie, Dharmesh M. Mehta, and Rudina I. Suseri, “Microsoft in 2005,” HBS Case No. 705-505 (Boston: Harvard Business School Publishing, 2006).

Mandeep Singh writing about comments by Microsoft VP and CFO Tami Reller at the Bank of America Merrill Lynch US Technology Conference, June 8, 2010,, accessed April 2012. Arik Hesseldahl, “What’s Behind Apple’s iWork?” BusinessWeek Online, August 10, 2007, via Factiva, accessed April 2010. 38 “Tablet PCs: Touch and go,” Next Gen Publishing, distributed by, February 17, 2012, via Factiva, accessed April 2012. 39 37


Rajani Singh and David Daoud, “Worldwide PC Market: 4Q11 Review,” IDC, April 2012, p. 11.

40 “Windows 7 Release May Test Apple’s Winning Streak,” Reuters News, October 14, 2009, via Factiva, accessed March 2010. 41 Dylan Cathers, “Computer Hardware Industry Reports,” Standard & Poor’s NetAdvantage Database, April 19, 2012, p. 6, accessed April 2012.

Nick Turner and Patrick Seitz, “Apple’s Intel Machines Ahead of Schedule,” Investor’s Business Daily, January 11, 2006, p. A4; Thomas Clayburn and Darrell Dunn, “Apple Bets Its Chips,” InformationWeek,


Purchased by Rosario Faraci ( on October 05, 2012

Apple Inc. in 2012


“January 16, 2006, p. 26; Daniel Drew Turner, “Apple Shows New Intel Notebooks, Software,” eWeek, January 10, 2006; “Apple, Inc.,” Hoover’s, Inc.,, accessed January 2008. Stephen Fenech, “Apple’s New Core: New Macs with Intel Dual Processors Revealed,” Daily Telegraph (London), January 18, 2006. 44 45 46 43

Ittai Kidron and George Iwanyc, “Apple Inc.: The Bear and Bull Case,” Oppenheimer, March 23, 2012, p. 18. Brent Schlender, “How Big Can Apple Get?” Fortune, February 21, 2005, p. 66.

Hesseldahl, “What’s Behind Apple’s iWork?”; Walter S. Mossberg, “New Office for Mac Speeds Up Programs, Integrates Formats,” Wall Street Journal, January 3, 2008, p. B1, via Factiva, accessed January 2008. “The Stores,”, accessed April 2012,, accessed April 2010. 48 49 47

Apple Inc., Form 10-K, October 14, 2011 (Cupertino, CA, 2011), p. 30.

Katie Hafner, “Inside Apple Stores, a Certain Aura Enchants the Faithful,” New York Times, December 27, 2007, p. C1, via Factiva, accessed December 2007. 50 51

Isaacson, Steve Jobs, p. 389.

Peter Burrows and Ronald Glover, with Heather Green, “Steve Jobs’ Magic Kingdom,” BusinessWeek, February 6, 2006, p. 62. 52 Jordan Golson, “Apple Report Best Quarter Ever in Q1 2012: $13.06 Billion Profit on $46.33 Billion in Revenue,” cited NDP in,, January 24, 2012, accessed April 2012. 53 Thomas Ricker, “iSuppli: New iPod Nano Costs Apple Less than $83 in Components,” September 19, 2007,, accessed March 2010. 54 55

Damon Darlin, “The iPod Ecosystem,” New York Times, February 3, 2006. Robert Semple, Stephanie Sun, and Thompson Wu, “Apple Computer Inc.,” Credit Suisse, June 5, 2007, iTunes was available from 2001 with the original iPod, but the functionality as a store did not come until Chris Taylor, “The 99¢ Solution,” Time, November 17, 2003, p. 66, via Factiva, accessed November 2007. Store Tops 10 Billion Songs Sold,” Apple Inc. press release (Cupertino, CA, February 25, 2010).

p. 6.


58 “iTunes 59

Donald Melanson, “Apple: 16 billion iTunes songs downloaded, 300 million iPods sold,” October 4, 2011,, accessed April 2012. Apple, Inc., December 21, 2001 Form 10-K405 (filed December 21, 2001); Apple, Inc., December 19, 2002 Form 10-K (filed December 19, 2002); Apple, Inc., May 13, 2003 Form 10-Q (filed May 13, 2003); “Number of iPods sold through 2002: 600,000,” Apple press release, July 2002, ipodhistory/, accessed May 2012. Bill Shope, Elizabeth Borbolla, and Mark Moskowitz, “Apple Computer: iPod Economics II,” JP Morgan, May 26, 2005, p. 26; Ronald Grover and Peter Burrows, “Universal Music Takes on iTunes,” BusinessWeek, October 22, 2007, p. 30, via Factiva, accessed October 2007. 61 60

Purchased by Rosario Faraci ( on October 05, 2012


Apple Inc. in 2012

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Donna Fuscaldo and Mark Boslet, “Jobs Says Apple to Rename Itself Apple Inc,” Dow Jones News Service, January 9, 2007, via Factiva, accessed March 2010. 67 68

Nick Wingfield and Li Yuan, “Apple’s iPhone: Is It Worth It?” Wall Street Journal, January 10, 2007.

Olga Kharif and Peter Burrows, “On the Trail of the Missing iPhones,” BusinessWeek, February 11, 2008; Peter Burrows, “Inside the iPhone Gray Market,”, February 13, 2008, accessed via Factiva; David Barboza, “iphone on Gray Market Merry-Go-Round,” International Herald Tribune, February 19, 2008, p. 11, accessed via Factiva; Arik Hesseldahl and Jennifer L. Schenker, “iPhone 2.0 Takes on the World,”, June 9, 2008, accessed via Factiva; Jeremiah Marquez, “Asia Underground Market Awaits iPhone,” Associated Press, July 11, 2008, accessed via Factiva; Maria Kiselyova and Sophie Taylor, “Apple in No Rush to Bring iPhone to Russia, China,” Reuters News, July 17, 2008, accessed via Factiva; Paul Sonne, “iPhones Hot Even in Places Apple Has Yet to Reach,” Associated Press, July 18, 2008, accessed via Factiva. Darrell Etherington, “iPhone 4S: Siri’s international limitations,” October 14, 2011, apple/iphone-4s-siris-international-limitations/, accessed April 2012. “Sprint’s commitment to Apple might be less than expected,” February 28, 2012, index.php?/topic/339-sprints-committment-to-apple-might-be-less-than-expected/, accessed May 2012. 71 Ramon T. Llamas and William Stofega, “Worldwide Smartphone 2012–2016 Forecast and Analysis,” IDC, March 2012, p. 8. 70 69

Zach Epstein, “With just 4% of mobile market, Apple owns 52% of profits,” November 4, 2011,, accessed May 2012. 73 Erika Brown, Elizabeth Corcoran, and Brian Caulfield, “Apple Buys Chip Designer,”, April 23, 2008, via Factiva, accessed April 2010; and Ashlee Vance and Brad Stone, “Apple Buys Intrinsity, a Maker of Fast Chips,” New York Times, April 27, 2010. 74 Apple Inc., “Q2 2012 Unaudited Summary Data,” April 24, 2012, q2fy12datasum.pdf, accessed May 2012.


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