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Corporate Case Study: Apple Inc.

By aspoone1 Dec 03, 2013 1971 Words
Corporate Case Study: Apple Inc.
Article One: Apple’s Secret Plan for Its Cash Stash
In 2012, Forbes Magazine published an article that discusses what Apple Inc. plans to do with the large amounts of money it has acquired over the years. The sum reaches up to $100 billion, making the company one of the most profitable in history. However, the company has around $64 billion of their cash stuck oversees. If Apple were to choose to move the money back to the United States they would be hit with a gruesomely high tax rate of 35%. For this reason, the company chooses to use that money to improve offshore production. During a press meeting, Apple revealed that it had a plan to use $7.1 billion on capital spending in 2012, almost double what it spent the previous year which had people curious as to where all the cash was going to go. Apple has used some of the money to build new retail stores, a new employee campus, and more towers to support the iCloud service, but even with these new expansions the company still has a large amount of unexplained capital expenses. The author of the article suggests that Apple is looking into buying into its own supply chain and points out that while many manufacturers wish they controlled the cost and production of their parts, “Apple is one of very few firms with the financial wherewithal to make that come true, specifically by buying production equipment to outfit new and existing factories in Asia that other people will run”(Guglielmo, 2012). Quoted in the article, Katy Huberty, a Morgan Stanley analyst explains why this move would be beneficial to suppliers. She gives the example of suppliers for companies such as Nokia or Motorola having to produce large amounts of components for specific products and if that product ends up being unpopular then the supplier’s margins will decrease. However, if a company says, “I will take the equipment risk, and I will own it so you don’t have to depreciate it. I take the volatility out of your business” then it becomes unlikely that suppliers would say no to such a negotiation. Huberty estimates that by investing in its own supply chain, Apple will have a cost decline of 15% to 20% a year, which allows the company to have higher margins for existing products and be able to focus more on future projects (Guglielmo, 2012). The article goes on to explain that such high margins are one of the reasons so many analysts think that Apple’s shares will reach $1000 in the near future. Though there are still skeptics who think Apple will eventually reach a stand still, the company continues to have record-breaking consumer demands from all over the world. Article Two: Apple Inc. Annual Report 2013

The annual report of Apple Inc. gives a detailed synopsis of everything that makes up the structure of the company. This report is for the fiscal year that ended September 28, 2013. Apple’s headquarters are located in Cupertino, California, and has around 80,300 full time employees. The business strategy of the company is to give the best user experience to customers through the use of its innovative products and services. Apple believes that investments in marketing as well as research and development are critical for allowing the company to continue to be one of the most innovative leaders in the world market. Apple’s strategy also involves expanding its network to reach more consumers and provide them with top notch products. The business organization of the company is based primarily on the location of its customers. Apple houses operating buildings in the Americas, Europe, Japan, China, and Asia Pacific, all which manufacture comparable products. Apple also has retail stores in thirteen countries as of 2013. The company mainly makes its money by distributing to consumers, education, enterprise, and government markets. Retail and online stores are how most sales are made, but different third-party retailers are also a part of the equation. Apple is one of the largest companies in the world, including the most profitable. Continued success will rely heavily on the innovation of organization leaders, and the overall efficiency of the company’s business plan. Article Three: Steve Jobs Warns Apple Don’t Be Greedy

Rich Karlgaard wrote an article at the beginning of 2013 about how Apple Inc. may be doomed to repeat its own history. He begins the article by using a quote from Steve Jobs back in 1990 in which the not yet appointed CEO points out that Apple was struggling because of its greedy motives rather than the fast growth of the company. Jobs pointed out that Apple was vulnerable to a market downfall because the company was more interested in making as many profits as possible instead of also focusing on market shares for the company; He ended up being correct. Fast forward to today and one can see that Apple is in danger of once again being too greedy. The iPhone profits make up 65% of the company’s total profits, and in the previous year its gross profit margins are around 55%. While these numbers seem excellent for the company, it can also leave Apple open to disaster if and when consumers grow bored with the iPhone. When the phone was first released in 2007 there was very little competition in the smartphone industry. Nowadays other companies, such as Google and Samsung, have been manufacturing smartphones that are now in direct competition with Apple’s notorious cash cow. “Apple’s dilemma in a nutshell: Nearly two-thirds of its profits come from a single product with 55% gross margins. Such a formula is not built to last. Shareholders are waking up to this fact” (Karlgaard, 2013). This predicament is one explanation for why Apple is down 22% in the past 11 weeks. Investors are no longer reacting to the hype of the iPhone, so perhaps Apple should follow Steve Jobs long-ago advice to stop exploiting profits, and work more towards global market share. Article Four: How Tim Cook is Changing Apple

Fortune magazine published an article that discusses how the new CEO of Apple Inc. differs from Steve Jobs and how is leadership skills may be a breath of fresh air for the company. The author recounts an investor meeting held earlier this year where Tim Cook surprised many by actually being present and attentive. “It’s a subtle but significant change—investors now have the CEO’s ear for the first time in years” (Lashinsky, 2012). Cook is still adhering to most of the company’s original organizational structure but he is also putting his own policies into play. “Apple has become slightly more open and considerably more corporate. In some cases Cook is taking action that Apple sorely needed and employees badly wanted. It’s almost as if he is working his way through a to-do list of long-overdue repairs the previous occupant (Jobs) refused to address for no reason other than obstinacy” (Lashinsky, 2012). Despite the doubt of investors, Apple has continued grow as a company and break records with their high profit margins under the new CEO. Tim Cook may not be as creative as Steve Jobs, but his strengths in operational efficiency have proven to be just as beneficial as innovation to the expanding company. While some Apple devotees may find some of the new moves to be upsettingly divergent from the trusted ideology of Jobs, it is clear that Tim Cook has nothing but what is best overall for the company in mind. Article Five: Fortress Apple

Daniel Lyons wrote an article for Newsweek in 2010 arguing the point that Apple Inc. needs to be more open. Since the beginning of the internet it has been known to be largely a free enterprise. Most online companies do not force people to pay for their services, but Apple plays the game by a different set of rules. “Not only does it produce the iPad’s processor, its operating system, and the device itself, but Apple sells its content, via iTunes, and keeps 30 percent of the money. It also operates the App Store, the only place selling applications to run on the iPad, and it keeps a 30 percent slice there, too. This summer it will start selling ads that run inside the apps and will keep a 40 percent slice of that revenue” (Lyons, 2010). Apple realizes that the best way to make money is by creating something that is highly desirable and only available if you are willing to pay for it. The company has been highly successful with its ‘member’s only’ approach to sales, but many consumers feel like it is a bit extreme. With Apple pitching the iPad as a replacement for personal computers it is going to have a hard time selling consumers if the company continues to have such tight control. Not allowing other developers to have a piece of the pie by being able to create applications that work with Apple’s products may leave the company vulnerable to other competitors. While the closed approach is working for the computing giant today, investors are worried that the company may find itself in trouble if it continues to be so greedy. Analysis:

Apple Inc. is one of the most profitable companies in the world, which gives it a lot of options for what to do with all the money. One of the company’s plans for the money is using it to make deals with suppliers. Being able to control production by guaranteeing supplies is an important factor to maintaining such high profits. Apple is implementing vertical integration by doing this. The company has evaluated the transaction cost between suppliers, and has decided that it would be more beneficial for the company to have control over its suppliers instead of taking the risk of slow production. Examples of transaction cost economics can also be found in the company’s extreme control it houses within its products. Apple uses contracts with its partners to keep a tight-knit community with its products. The power-dependency theory can also be seen within Apple. Apple exhibits power over its consumers by controlling which applications work with its products. By only allowing certain developers to make applications for Apple, the company keeps control over the market which takes away the consumer’s freedom and makes them dependent on the company.

The new CEO of Apple has proven to be a refreshing change for the company. Before Tim Cook took over, Apple was primarily a closed system that did not leave much room for employee input. The dominant coalition in Apple seemed to be made up of only one man, Steve Jobs. He was in control of all parts of the company and made sure that nothing was approved without his consent. Tim Cook has changed this approach to leadership. He allows other people to have key responsibilities in the company, and depends more on teamwork than his predecessor. With the success of the iPhone, Apple now has to deal with a lot of reproducer organizations that are trying to create competing products. Apple was one of the first companies to bring such inventive products to consumers, but now with the growth of technology the demand for innovation is higher than ever. Tim Cook has a difficult job ahead of him. He must be able to keep such a large company on track, but also allow the company to continue to expand outside the reach of its competitors. Hopefully the large amounts of wealth the company has acquired will help Apple do just that.

References

Apple Inc. (2013). Annual report 2013.  Retrieved from http://investor.apple.com/financials.cfm

Guglielmo, C. (2012). Apple's secret plan for its cash stash. Forbes, (8). 116.

Karlgaard, R. (2013). Steve Jobs Warns Apple Don't Be Greedy. Forbes, 191(1), 34.

LASHINSKY, A. (2012). HOW TIM COOK IS CHANGING APPLE. Fortune, 165(8), 110-118.

Lyons, D. (2010). Fortress Apple.(The Take)(Apple Inc.). Newsweek, (18).

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