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Operations Strategy of Apple Inc
Operations Strategy of Apple Inc
Already, we can see Tim Cook is changing Apple. In contrast to Jobs rare
appearance before the press and analysts, Cook took the opportunity to discuss
Apples business strategy at the recent Goldman Sachs Technology Conference.
When questioned about the future of the iPhone, Apples largest revenue stream,
Cook underscored that smartphones only represent 9% of the global handset market
and even within smartphones, 3 out of 4 customers bought something other than
Apple.
Apple manufacturing partners and practices have also come into the spotlight
following the unprecedented disclosure of their supply chain partner audit combined
with the hiring of a third party employment practices review agency. Most recently,
Apple invited ABC Nightline into their primary supplier Foxconn. In
increasing increments, Cook is making Apple more accessible.
In the past, his operational expertise has been a perfect counter to Jobs legendary
product instincts and will serve Apple this year. What we wont learn in 2012 is
whether Cook can plant the seeds for a new platform in the years beyond. Its a nobrainer to assume Apple Labs is cooking away. There just wont be much evidence
in 2012.
What we can expect is that Apple will continue to get paid for the integrated
value they deliver. Apple products initially cost more than most competitors. They
win by tightly integrating hardware and software for a superior user experience.
Many would argue Apples integration provides a lower aggregate cost as well.
Apple 2012
2012 will be dominated by the following four themes, all targeted at cementing
users and developers into Apples lush, walled garden of peerless user experience:
1.
2.
3.
4.
Weve
become so accustomed to high tech products that its easy to forget what a shortage
of a single component can do. When floods struck Thailand last fall, it disrupted disk
drive supplies for nearly six months.
Last year, Apple sold 156 million IOS-based devices (iPhone, iPad and iTouch) which
is more than the 122 million Macs sold since its 1984 introduction. In Tim Cooks
own words, the trajectory is off the charts.
Geometric growth plays to Cooks strengths. In fact, if theres a hallmark to Apples
business strategy in 2012, it begins with leveraging his unique competencies.
2. Chinaand other developing countries
Any conversation about scaling quickly turns to Apples China opportunity. Focusing
just on iPhone, Apple currently sells it exclusively through China Unicom (196 million
subscribers). This is slightly less than the combined subscriber base of Verizon
Wireless and AT&T. But in a country of billions, it doesnt compare to China Mobiles
616 million subscribers. Its no surprise that Cook visited China Mobile this past
June.
As important as Apples innovation machine has been for the developed world, 2012
success in China and emerging economies will be fed by incremental product
improvements. They may be combined with creative cost and/or pricing strategies
that subsidize purchasing much like Verizon and AT&T has for U.S. iPhone
customers. With rapidly growing middle classes, one might consider market access
more important in the developing world than ground-breaking innovation.
And the above doesnt account for iPad or iTouch. Apples Asia Pacific sales (minus
Japan) grew approximately 200% last year and account for 20% of Apples total
revenue. Add in an expanded global retail presence and theres not much that
stands in the way of superior revenue growth in 2012.
3. Next Platform Form Factor: Apple TV
The speculation regarding an Apple next generation television has evolved
significantly. According to Cook, the current Apple TV hockey puck has been a
hobby product. Shortly before his death, Steve Jobs told biographer Walter
Isaacson that he had finally figured out TV. True or false, there are several reasons
why flat screen TVs make sense for Apple:
1.
Market size & headroom for premium pricing: The global market for flat
screen displays is over 77 million units and grew 15% last year. Apple needs
large markets like this to move the needle even if they only appeal to the high
end of the market.
2.
Platform expansion via form factor: Just as the iPad is essentially a larger
iPhone, an Apple flat screen will enlarge the form factor again. It will leverage
technologies such as Siri for a new control interface. Facetime will evolve into
home video conferencing, likely enhanced by motion sensing technology that
automatically follows action. As connection speeds improve, iCloud based
recording (currently limited by upload speeds) and playback (available today) will
be incorporated.
3.
4.
5.
But Apple TV will face challenges. First are the flat screen incumbents. LG,
Samsung and Visio have not been sleeping and will quickly counter Apples moves at
lower price points. They will most likely scale Googles Android interface; perhaps a
long shot might be Microsoft. Assuming Apple pushes Facetime as a family video
conferencing play, you can bet that competitors will counter with a similar feature
based on Google Voice or Microsofts Skype and Kinect technology.
The second and more troublesome foe will be current content producers and
distributors. After watching Apple iTunes disrupt music distribution, pricing and
margins, movie and TV studios as well as cable, satellite and phone companies will
be very wary. If you need evidence of their strength, just look at Neflixs recent
struggles (see Netflix at a Crossroad).
Can Apple drive the same disruption through television that they did in mobile
phones? Without question, Apple will make good money but we wont know if its
only a good business or a more serious disruption in 2012.
4. Apples iCash Mountain Problem
Do you recall the mountain of cash Donald Ducks rich uncle Scrooge McDuck
possessed?
Tim Cook has a $100B mountain and its rapidly growing. Far beyond
whats needed for a rainy day, Cook cannot continue to ignore it.
2.
Cultural fit: Strong cultures exclude rather than include. Add in Apples
penchant for secrecy and try to name an asset of scale that would naturally fit in
the Apple world. I cant.
3.
directly address the cultural fit and assimilation issues but neither does it require
much in the near term. Mastercard is a well-run, growing firm.
Please take above for what it is: an example to illustrate a strategic choice versus a
fully vetted alternative.
Summary
Apples business strategy 2012 has three elements:
1.
2.
3.
If we were playing poker, the first two elements are cards that are face up. The
third is not. And thats the bet were waiting to see.
Srikant Patra
B309051
EEE(8th Sem)