Apple Inc.

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  1. Apple Inc. is faced with the challenge of sustaining its premium-price differentiation strategy and ensuring that its current technological innovations such as the recently introduced iPad and iPhone can continue to successfully compete with its rivals and dominate its markets. Apple’s “evolution from a PC manufacturer to a mobile device company had been a spectacular success” with “Apple’s market capitalization approaching $220 billion in the spring of 2010, surpassing IBM, HP, Cisco, Intel and the rest of the tech world except Microsoft, one couldn’t help but wonder- could anything derail Apple’s momentum?”

    In terms of the economic climate, there is mention of the economic recession in 2009. “Even in the midst of a severe economic recession, revenues and net income both soared. Despite the threat of the economic recession, Apple Inc. still managed to succeed.

    With regards to the socio-cultural climate, Steve Jobs, Apple’s interim CEO, “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.” Although Apple “remained committed to the education market, new PC products focused on home consumers’ lifestyle.”

    In terms of the ecological- natural climate, “Apple highlighted its computers as the world’s “greenest lineup of notebooks” that were energy efficient and used recyclable materials.” By producing computers that were more eco-friendly it meant that Apple can further “differentiate the Macintosh amid intense competition in the PC industry.”

    Regarding the technological climate, there is vast opportunity; however, in some cases the introduction of new technology by other rivals such as Microsoft can be considered a threat to the Apple Company. “Microsoft introduced Windows 7, which led to a resurgence in PC sales.” “Microsoft’s big hit in the last decade was Windows XP.” “Vista the next version introduced in 2007 did not fare as well.”

    In terms of competition and strategic groups, it differs with the various products of Apple. “The iPhone continues its march to dominate smartphones in the face of growing competition from Google, RIM, and Nokia.”In addition, the mobile phone industry “was dominated by Nokia, Motorola, and Samsung, with roughly 60% market share.” “Apple’s competitors fell into two large categories, based on their business models. Research in Motion (RIM), Palm, and to a lesser extent, Nokia.” Other competitors in the smartphone industry included HTC, Samsung Electronics, LG Electronics, Motorola and Android.” Regarding the Macintosh, “the four top PC vendors- Hewlett-Packard, Dell, Acer, and Lenovo- accounted for 55% of worldwide shipments.”The suppliers of the PC industry- Intel and Microsoft had competitors “like Advanced Micro Devices and more recently, VIA Technologies.” Regarding the iPod, “rivals in the MP3 player market included Scan Disk, Creative, and Samsung,” “Microsoft also introduced its Zune line of music players in 2006.” In terms of iTunes, “online music stores such as Amazon.com, Napster, and Walmart.com offered individual song downloads at competitive or discounted prices to iTunes.” “MySpace formed a partnership with three major music labels to unveil its own music service in 2008. Most of these competitors offered songs to play on various devices, including the iPod.” With regards to Apple’s mobile phone carrier, AT&T, “Apple faced powerful cellular carriers such as NTT DoCoMo and Vodafone, which controlled the networks and often the phones used on those networks.” Another carrier that Apple faced competition with was Verizon Wireless. In terms of the App Store, Apple’s competition and strategic groups were “Palm Inc., the PDA market leader in the 1990’s, known for its wealth of third party-developed applications.” “Microsoft similarly had more than 20,000 apps written for its mobile OS.” The iPad’s competition was the “Kindle, Amazon.com’s hugely successful e-reader.”

    With regards to the power of buyers, “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.” This means the power of buyers is high, with the majority being home consumers.

    In terms of the power of suppliers, “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.” The power of suppliers for the first category for providing chips, disk drives and keyboards is low, whilst the power of suppliers in the second category for providing microprocessors and operating systems is high.

    Regarding the availability of substitutes, “consumer electronic (CE) products, ranging from cell phones and PDAs 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 PlayStaion3 allowed consumers to watch DVDs, surf the Web, and play games directly online.” Another substitute was smartphones that “functioned as handheld computers, allowing users to do email, visit websites, and manage their online lives.”

    In terms of corporate strategy, Apple’s is related-diversification. “Macintosh’s loyal customers allowed Apple to sell its products at a premium price.” “Amelio proclaimed that Apple would return to its premium-price differentiation strategy.” Top-of-the-line Macs went for as much as $10,000 and gross profit hovered around an enviable 50%.”With regards to integration, Apple “practiced horizontal and vertical integration.” “Apple’s shift towards 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. These product lines set Apple on a path toward becoming a full-fledges digital convergence company.” “The company’s greatest strength lied in the premium priced PC category.”

    Regarding acquisitions, “Industry leader Hewlett-Packard (HP) had staged an impressive comeback, following a rough period with the acquisition of Compaq Computer in 2001.” “Acer and Lenovo, active in emerging markets, both benefited from acquisitions of high-profile U.S. PC brands.” “Amelio announced the acquisition of NeXT Software and plans to develop a new OS based on work done by NeXT.”

    In terms of joint ventures and alliances, “Sculley also chose to forge an alliance with Apple’s foremost rival, IBM. They worked on two joint ventures; Taligent was set up to create a new OS and Kaleida aimed to write multimedia applications. Apple undertook another cooperative project involving Novell and Intel to rework the Mac OS to run on Intel chips.”

    Regarding price, “91% of PCs priced $1,000 and above in the U.S. market were sold by Apple.” In terms of the iPhone, “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 worldwide mobile phone sales.” “Consumers could buy an 8GB iPhone with a two-year contract for $199. An unsubsidized iPhone could cost $599 for the same version.”

    With regards to outsourcing, Apple’s “restructuring efforts involved hiring Taiwanese contract assemblers to manufacture Mac products.” “Contract manufacturing in Taiwan and China became popular and took over more complex areas, such as design and testing.”

    In terms of the decisions of the CEO, Apple has had a few CEOs. “CEO Steve Jobs had argued that the iPad was another revolutionary product that could emulate the smashing success of the iPod and the iPhone.” “Sculley pushed the Mac into new markets, most notably in desktop publishing and education.” “Sculley also chose to forge an alliance with Apple’s foremost rival, IBM.” “Sculley tried to move Apple into the mainstream by becoming a low-cost producer of computers with mass-market appeal.” “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.” “Amelio proclaimed that Apple would return to its premium-price differentiation strategy.” “Amelio announced the acquisition of NeXT Software and plans to develop a new OS based on work done by NeXT.” “Steve Jobs moved quickly to reshape Apple.”

    Regarding learning and change, Apple has endured much change and revamping of its strategies to perform better in its markets. “Spindler, like his predecessor, had high hopes for a revolutionary OS that would turn around the company’s fate.” “Despite more job cuts and restructuring efforts, Apple lost $1.6 billion under Amelio.” “Steve Jobs moved quickly to reshape Apple.” “Apple’s turnaround was a spectacular accomplishment.” Apple underwent many changes that lost them billions of dollars before the company found its ideal strategies that allowed the company to prosper. In addition, Apple spent a lot of money in the department of research and development to overcome its challenges in the market. “Apple devoted 9% of sales to research and development (R&D), compared with 5% at Compaq, ad only 1% at many other IBM-clone manufacturers.”

    In terms of competitive advantage, “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.”

    With regards to the business’ mission, Apple’s mission “was to bring an easy-to-use computer to the market, which led to the release of the Apple II.” In terms of marketing, “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.”

    In terms of finance, “in the 2009 fiscal year, sales related to the iPhone and the iPod represented nearly 60% of Apple’s total sales of $43 billion.”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.”

    With regards to profitability measures, “in education, Apple grabbed more than half the market. Apple’s worldwide market share recovered and stabilized around 8%. By 1990, Apple had $1 billion in cash and was the most profitable PC company in the world.” “Following Jobs return, Apple posted a $309 million profit in its 1998 fiscal year, reversing the previous year’s $1 billion loss.”

    In terms of the issue, Apple’s challenge is whether the iPhone will continue to dominate the smartphones industry “in the face of growing competition from Google, RIM, and Nokia.” In addition, whether its newest concept, the iPad would take the company to a new level and succeed with the immediate competitive response it has received.

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