Introduction
Apple is the largest company of USA in terms of market capitalization. It is one of the most respected brands across the world. Apple started its operation in Cupertino, California in 1974. In the first few decades of its operation it mainly concentrated on selling high end computing systems. During 1990s, Apple started selling Mac PCs which became very popular in the market. Since then Apple has launched one product after another in the market and almost all of them have gone on to become very successful in the market place. Even a company as high as the stature of Apple faces competition every day and in every market segment. The electronics market changes so fast that the company leading the market today can go out of business tomorrow if it fails to keep pace with the changing demands. This essay will discuss the external and internal factors of Apple that set it apart from others and the areas in need of improvement for Apple to maintain its dominant position in the future market.
Company Background
Apple Inc. is a multinational company that excels in the creation of consumer electronics goods like personal computers, laptops, commercial servers, smart phones, portable music system and computer software. The core product lines of Apple include iPhone tablet, iPhone smart phone, Macintosh computer line and iPod media players.
Steve Jobs, a fresh college dropout together with his friends Steve Wozniak and Ronald Wayne launched Apple I Computer on 1st April in 1976 and thus was founded Apple Computers Inc. which is now known as Apple Inc. Apple Macintosh was launched in 1984, the first personal computer to come with a graphical user interface (GUI). The product saw a big spurt of sales after the introduction of Aldus PageMaker and LaserWriter Printer in 1985. It was the same year when Jobs and Wozniak both left the company (Bellis). Jobs joined back in 1996 and stayed with the company till his death.
After Jobs came back into the company in 1996, there was an array of successful products launched by Apple one after another. iPod music player was launched in 2001 followed by the introduction of iTunes Music Store in 2003, iPod mini in 2004, iPhone in 2007 and iPad in 2010. In terms of market capitalization, Apple has become one of the most valuable companies in the stock market history with its estimated value touching an imposing figure of US$626 billion in 2012 (Kim 2012).
SWOT Analysis
The biggest strength of Apple is its brand. There are millions of loyal customers of Apple across the world. It is also the leading innovator in electronics business. Apple is the strongest company in terms of financial position.
The main weakness at this moment for Apple is the high price of its products and decreasing market share. Apple also may lose the profit margin it enjoys currently due to more competition.
High growth rate in smartphone and tablet market gives Apple a huge opportunity to grow at a fast rate using its expertise in those segments. iTV also has opened a new door of opportunities for the company. Apple has a huge cash reserve which it can use to grow inorganically as well.
Android OS which has almost 75% of the market share is one of the main threats for Apple OS and smartphones. Apple works in a segment in which technology changes rapidly and so it needs to come up with innovations in a rapid manner.
Step Analysis of Apple
The four elements of a STEP analysis are Sociocultural, Technological, Economic/Environmental and Political (Flores 2013). The main market share of Apple comes from iPhone and iPad. Potential demographics of smartphones include almost the entire population of developed countries and upper middle class and rich segment of population in developing countries. Smartphone craze is more among the age group of 18 to 40 than the upper age group. The smartphone product is such that it has an average life span of less than 1.5 years. This makes smartphone market an extremely volatile market. Apple does not have a substantial presence in the developing market which has huge potential for the growth of smartphones. In fact the market share of Apple in China and India are moderately very low and if Apple does not adopt a cost-effective strategy, its market share in the developing countries may not go up in coming future. Apple iPhone 5C may be considered as a step towards the right direction but the cost of that phone too is high for the developing country consumers who prefer cost-effective smartphones than costly ones.
The technological change in the electronics market is very fast paced. Every year all the companies operating in the electronics market come up with new product features, state-of-the-art accessories and advanced technological innovations. For example, Apple came up with three improvements in its iPhone line of smartphones in 3 years in a row. Apple has a strong R&D department, dedicated to the innovation of new technologies, which brings in advancements in technologies for the existing products efficiently. Apple has enjoyed a superior market share and superior technology due to its smartphones and tablets for a long period of time. However, the technological gap between Apple and its competitors have been shrinking constantly. Currently in terms of technological advancements, there is almost no gap between the products of Apple and that of its competitor and so Apple can no longer charge the premium price which it enjoyed for years. To create that cushion over its competitors again Apple needs to come up with some technologically advanced products which are superior to the products being launched by its competitors. The superior production and supply chain process of Apple also gives the company a better profitability than others. No other company is slightly close to the huge profit Apple makes from its operation.
The main areas of business operation for Apple are US and Europe. However, the economies of both the countries are sluggish and this has slowed down the growth in the electronics market. Besides, the value of dollar vs. Euro is continuously depreciating thereby decreasing the profitability for Apple. The smartphone market bandwidth distribution, wireless technology patents approval etc. are approved by the governments and Apple enjoys better rapport with the US government than its competitors. It helps Apple get better deals in USA when it comes to government intervention. However, Apple may not enjoy the same privileges in the developing countries.
Apple enjoys better political connections in USA which is the biggest smartphone market in the world. It helps Apple protect its patents, enjoy favorable allocation of bandwidths and the creation of industry specific laws in support of its operation.
Strategic Analysis Using 5 Forces Model
Porter’s five forces model is used to analyze how a firm can maintain its competitive advantage over others by evaluating the five forces which include 1) threat of entry, 2) threat of substitutes, 3) threat of powerful suppliers, 4) threat of rivalry, and 5) threat of powerful buyers (Riley 2012).
Let’s first look at the threat of entry. The smartphone market is growing at a very first rate. It is possible for new competitors to enter the market. In developed market, it is difficult for any new player to enter but new entrants can enter and grow big in the developing market easily and then make an entry in the developed market and challenge Apple. For example, companies like Micromax, Karbonn operating only in India and Chinese markets are growing at a rate superior than any other companies. They already enjoy superior market share than Apple in those two markets. There is a chance for these companies to extend their product line into the developed market in future. The only way Apple can create a barrier is to differentiate its product line from others. If Apple can continue to come up with latest technologies and innovative product line like it has done in the past then it may become successful in creating barrier for new entry.
Until very recently, Apple dominated almost the whole of electronics industry. Apple enjoyed almost a monopoly in smartphone and tablet market in its early days but now it is facing some competition from Samsung, the biggest rival of Apple at the moment. However, the smartphone market is so big that it can easily accommodate two players. If Apple wishes to continue its dominance in the market, then it should come up with newest of technological features and products that its rivals cannot imitate.
Apple products are copied in various forms and shapes and sold at a much cheaper price. The technology of smartphone is now available to all the competitors and smartphones of all prices are available in the market. Apple currently enjoys economies of scale over its competitors and also a superior operating margin. Even if Apple sells its products at the same price like others, then also Apple will make more money than its competitors.
Among all the parameters, threat of suppliers is the most potent one for Apple. Apple’s main supplier of components is Samsung which is ironically the main rival of Apple in the electronics market. If Samsung creates a supply barrier for Apple, then Apple may face difficulty in its manufacturing and supply chain. However, the possibility of that is very remote as Apple is also the biggest buyer of parts from Samsung who will not like to see its business revenue earned from Apple gone.
Finally, the threat to buyer is not at all a threat for Apple because it is at the moment the largest company of the world in terms of market capitalization. No other company has the money or capability to even offer a bid for Apple. Apple due to its uniquely differentiated products and superior features continues to charge premium for most of its product line. However, the market is getting saturated now and hence Apple should be cautious of not to increase the price of its products too much or else consumers may shift to more cost effective options.
Internal Analysis
Every company has its own value chain and its own special way to reach its customers. Apple does not have a formally designed mission statement. However, actual mission for the company was quoted nicely by its iconic CEO Steve Jobs, “Man is the creator of change in this world. As such he should be above systems and structures, and not subordinate to them” (Blodget 2013). Apple continues to live its vision. It continues to bring in new innovative products in the market. For example, iPod created a new segment of products. iPhone did the same in the smartphone market. Apple is the one company which does not follow any market trend; rather it creates market trend. In last 15 years it has done that successfully and now the whole world is waiting for the next big product from Apple.
Apple has yearly revenue of $169.4 billion and net income of $37.75 billion. The net margin for the company is one of the highest in any industry segment and is superior to any of its close competitors. The total profit of its closest rival, Samsung is only $12 billion. The company does not have any long term debt in the market which makes it a risk free company for investors. Apple has a cash reserve of almost $150 billion (MSN Money). Financially it is one of the healthiest companies in the world and continues to grow at a phenomenal rate. Apple has a huge financial strength and it can grow organically as well as inorganically in the coming future.
Conclusion
Apple is one of the largest companies of all time. It is the market leader in smartphone market and continues to come up with products superior to its competitors. Even with such stellar portfolio Apple business is not without threat. The sluggish macroeconomic condition of US and EU are slowing down the smartphone market and also other competitors of Apple are catching up in terms of technology and features. To grow at the rate of its past performance Apple needs to come up with innovative product line. If it continues to sit on its current iPhone and iPad series without much technological innovation or creativity, it may start to lose its market leadership as many of its competitors have the ability to sell similar products at a much cheaper rate. Apple has the necessary research and development department to innovate new products. It has superior supply chain which delivers products at a competitive rate while maintaining a healthy profit for Apple. There is a bright future lying ahead of Apple which can be ruined if Apple sits complacently without making any innovation in its product line.
Work Cited
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Kim, Susanna. Apple (AAPL) Becomes History’s Most Valuable Firm on iPhone 5 Rumors. ABC News. 20 Aug 2012. Web. 7 Oct 2013. <http://abcnews.go.com/blogs/business/2012/08/apple-aapl-becomes-historys-most-valuable-firm-on-iphone-5-rumors/>
Apple Financial Information. MSN money. Web. 7 Oct 2013. <http://investing.money.msn.com/investments/financial-results/?symbol=AAPL>
Ogg, Erica. The coming shift in Apple’s iPhone retail strategy. GIGAOM. 3 Jul. 2013. Web. 7 Oct 2013. <http://gigaom.com/2013/07/03/the-coming-shift-in-apples-iphone-retail-strategy/>
Flores, Jorge. Apple Incorporated (Strategic Analysis). Prezi.com. 20 May, 2013. Web. 7 Oct 2013. < http://prezi.com/kam4_51yrq7z/apple-inc-strategic-analysis/>
Riley, Jim. Porter's Five Forces Model: analyzing industry structure. Business Strategy. 23 September, 2012. Web. 7 Oct 2013. < http://www.tutor2u.net/business/strategy/porter_five_forces.htm>
Blodget, Henry. Apple's 'Mission Statement' Is Making People Worry That The Company Has Gone To Hell. Business Insider. 3 Aug 2013. Web. 7 Oct 2013. <http://www.businessinsider.com/apples-new-mission-statement-2013-8>
