Apple Computers

Jessica Bourgoin Amy Kakuk Beth Theriault 04/25/2005

Outline
‡ ‡ ‡ ‡ Brief History of HD Where we are now Vision and Mission External Analysis ± CPM ± EFE ± Summary
± ± ± ± IFE Financial ratio analysis Net Worth Analysis Summary

‡ Internal Analysis

‡ Strategic Analysis ± SWOT Matrix ± SPACE ± Grand Strategy Matrix ± IE matrix ± BCG ± Summary ‡ Possible strategies ± QSPM ‡ Recommendations ± Strategic implementation and desired results ± Objectives & Goals

History 1976-1978
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Wozniak and Jobs form the Apple Computer Company on April Fool's Day. Wozniak and Jobs finish work on a preassembled computer circuit board. It has no keyboard, case, sound or graphics. They call it the Apple® I. The Apple I board is released for sale to hobbyists and electronics enthusiasts at the price of $666.66. Apple's first formal business plan sets a goal for sales to grow to $500 million in ten years. As it turns out, the company will pass that mark in half the time. Apple I computer boards are sold through 10 retail stores in the U.S. Apple moves from Jobs' garage to a building on Stevens Creek Boulevard in Cupertino, California. The new Apple® II is unveiled at the first West Coast Computer Fair. It is the first personal computer able to generate color graphics and includes a keyboard, power supply and attractive case. The Apple logo as seen today is designed by Rob Janoff, art director for Regis McKenna Advertising. Regis McKenna Advertising launches its first ad campaign for Apple. Although advertising is initially aimed at electronics enthusiasts, Apple will soon become the first company to advertise personal computers in consumer magazines. Monthly orders reach a $1 million annual sales rate. http://www.apple-history.com/frames/?

‡

History 1978
‡ Apple introduces various interface cards for connecting to most printers. ‡ Apple's Disk II® is introduced at the Consumer Electronics Show. It is the easiest to use, lowest priced, and fastest mini-floppy disk drive ever offered by a computer manufacturer. It will make possible the development of serious software. Production at first is handled by just two employees, turning out 30 drives a day. ‡ In only its second year, Apple is one of the fastest growing companies in America. Sales have increased, and its dealer network has grown to over 300.

priced at $3.000. and Hambrecht & Quist underwrite an initial public offering of 4.499. and Canada. ‡ Apple's employee count breaks 1.History 1979-1981 ‡ Apple's first printer. . ‡ Apple's distribution network is the largest in the industry-800 independent retailers in the U.6 million shares of Apple common stock at a price of $22 per share. making this the largest public offering since Ford went public in 1956. and Europe. ‡ Apple goes public. ‡ Apple's first mass storage system. is introduced. the 5MB ProFile(tm) hard disk is introduced. Surveys show that public awareness rose from 10 percent to 80 percent in 1981. ‡ Apple opens a manufacturing plant in Carrollton. TX.S. Apple facilities now occupy more than half a million square feet of floor space in the U. ‡ Apple becomes a household name. plus 1. Morgan Stanley and Co.S. Every share is bought within minutes of the offering.000 outlets abroad. the Silentype®.

‡ Apple announces a computer training scholarship program for elementary and secondary school educators. ‡ EVA (Employee Volunteer Action) is created to match the skills of Apple employees with community needs. . ‡ Apple becomes the first personal computer company to reach $1 billion annual sales rate. ‡ Apple University founded to provide employee training programs. ‡ Apple enters the Fortune 500 at number 411 in under five years.History 1982-1985 ‡ Apple Dot Matrix printer introduced for $2. It throws a "Billion Dollar Party" for employees.195. ‡ Apple is elected to the Consumers Digest Hall of Fame for responsiveness to consumer needs. ‡ Apple II receives the 1984 Industrial Design Excellence Award (IDEA) sponsored by the Product Industrial Designers Society of America.

. Apple donates $2 million in computers to 23 schools to help at-risk students. images and visualizations with exceptional color clarity.History 1986-1990 ‡ ‡ ‡ Apple announces plans to create an independent software company. For the first time. The lawsuit is seen as having industry wide implications regarding copyright laws. Apple uses its HyperCard technology to distribute a 1987 HyperCard supplement on diskette for Macintosh personal computers. Apple introduces 32-Bit QuickDraw(tm) that allows Macintosh personal computers to process and display photo-quality documents. to be known later as Claris.3 million for fiscal year 1988. Fiscal 1990 revenues surpass $5.. Apple acquires Coral Software Corp. which markets programming languages and artificial intelligence tools for Macintosh computers. ‡ Apple reports first billion dollar quarter in its history as net income rises 108 percent.5 billion.07 billion and net income of $400. ‡ ‡ ‡ ‡ ‡ Apple reports net sales of $4. Apple files suit against Microsoft and Hewlett-Packard to protect its Macintosh audio visual display.

Apple has more than 20 products that meet the EPA's the technical requirements. IBM. Apple's workforce is reduced approximately 10 percent. and Motorola finalize milestone technology alliance. ‡ The U.S. ‡ Apple announces a new Token Ring 4/16 NB Card. ‡ Apple and IBM sign a letter of intent to cooperate on major technology initiatives for the 1990s. for the Macintosh product line. Environmental Protection Agency officially releases the Energy Star emblem for display with energy-efficient computers and peripherals. It is the first product to emerge from Apple and IBM alliance.History 1991-1995 ‡ Apple announces it will restructure the company over the next 12 months to reduce operating expenses. ‡ Apple. ‡ Apple and Kodak announce that they are working together to integrate support for Photo CD images into future versions of QuickTime. ‡ Apple's Macintosh celebrates 10th birthday! .

.Apple in 2005 As of January 2005 Apple has introduced the Mini Mac and the iPod Shuffle.

Mini Mac ‡ The Apple Mini Mac is a compact desktop computer. and a DVD Player.apple. QuickTime®. The Mini Mac starts at $499 and comes standard with iChat AV desktop video conferencing.9lbs.apple.html .com/pr/library/2005/jan/index.com/macmini/ http://www. iSync. Address Book. Mail. Graphics from: http://www. It is 2 inches tall and weights 2.

http://www.html Graphics from: http://www.iPod Shuffle ‡ The iPod shuffle is a smaller version of the original iPod. It is much smaller and lighter and can double as a portable USB flash drive with up to 1GB of storage space to back up personal files and exchange them between computers.apple.apple. For $99 you can purchase the 512MB holding up to 120 songs or the 1GB holding up to 240 songs for just $149.com/ipodshuffle/ .com/pr/library/2005/jan/index.

256MB of RAM. G4 or G5 processor.html . Built-in FireWire. It cost $129 for a single user and $199 for a 5 license family pack http://www. 2005. and 3GB of available hard disk space. This is an advanced operating system that requires a Macintosh computer with a PowerPC G3. the Mac OS X Tiger will be released.com/macosx/newfeatures/over200.Mac OS X Tiger ‡ On April 29.apple.

75 52 Week High: 45.44 Last Trade: 35.50 .Apple in the Market (as of 4/22/05) Apple had a 2:1 Stock split on 02/28/05 52 Week Low: 12.

Vision Statement (proposed) To become the world wide leader in computer and mp3 player sales. .

software and Internet offerings. .Mission Statement (actual) Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. educators. creative professionals and consumers around the world through its innovative hardware. Apple is committed to bringing the best personal computing experience to students.

We also apply innovative technology to our core business (4) to differentiate ourselves and make our products irresistible to our customers. Apple provides the highest level of quality and value for our customers. beneficial to society. We support activities that help to build common understanding. enhance excellence. . and profitable to our company (5). We are committed to being a good corporate citizen.Mission Statement (Proposed) The Apple commitment to excellence is its mission to provide computers and service (2) for people (1) that meet the highest standards of value and reliability. and being openly honest with all of our stakeholders (6). We strive to provide additional opportunities for growth and enrichment of company personnel while maintaining a work environment for all employees (9) that encourages personal commitment and participation in support of achieving excellence. Those are timeless fundamentals. and enable people to improve their lives and reinforce their commitment to society (8). Apple is one of leaders in the computer industry and makes the best-selling computers in the world (7) (3).

Dell does not invent but provides computers at a more cost effective rate for customers. Increasing competition with music downloads. Threats ‡ ‡ ‡ ‡ Companies not seeing Apple as compatible with their software. Increase sales of computers online by 25 percent.External Audit Opportunities ‡ ‡ Increase in worms and viruses on PCs. Downloadable music and MP3 players are highly marketable. ‡ ‡ ‡ ‡ ‡ ‡ . Increase sales of laptops by 20 percent. Large population (Gen X&Y) which are extremely individualistic and name brand conscious. Intel¶s future Pentium release. Recession²price of Apple computers are higher. Dell and HP are major competitors. Weak ties with Microsoft products.

15 0.12 0.04 0.95 2.30 3.45 0.06 0.12 0.45 0.10 0.18 0.15 Total 1.60 0.45 0.15 Computer Market Rating 3 3 2 2 2 3 3 2 2 2 Weighted Score 0.10 Rating 4 4 3 4 3 3 3 3 2 3 Dell Weighted Score 0.24 0.14 0.05 Rating 1 2 3 3 4 2 4 2 4 3 Weighted Score 0.18 0.30 0.CPM ± Competitive Profile Matrix Apple Critical Success Factors Market Share Price Financial Position Product Quality Consumer Loyalty Advertising Management Global Expansion Innovation Web Development Weight 0.40 0.00 2.30 0.28 0.20 0.15 0.10 0.45 0.12 0.28 0.30 0.12 0.08 0.21 .30 0.60 0.30 0.10 0.40 0.06 0.15 0.18 0.56 0.

08 0.06 0.15 0.04 0.24 0.15 0.14 0.30 3. Creating more ties with Microsoft products. Threats Increasing competition with music downloads.00 2 3 4 3 2 2 0. Recession²price of Apple computers are higher.6 0.60 0. Intel¶s future Pentium release. Large population (Gen X & Y) which are extremely individualistic and name brand conscious. Increasing sales of computers online by 25 percent.07 0. Increase in sales of laptops by 20 percent. Downloadable music and MP3 players are highly marketable.10 4 3 4 3 3 4 0.10 0.18 0.15 1.External Factor Evaluation (EFE) Matrix Key External Factors Opportunities Increase in worms and virus on PCs.05 0. TOTAL 0.04 0.09 0. Dell does not invent but provides computers at a more cost effective rate for customers.03 0.40 0.60 0.12 0. Companies not seeing Apple as compatible with their software.15 0.40 Weight Rating Weighted Score . Dell and HP are major competitors.18 0.

Large population (Gen X & Y) which are extremely individualistic and name brand conscious.External Summary ‡ Apple has rated the Increase in worms and virus on PCs. ‡ Apple has rated that the fact of Dell and HP being such huge competitors as their top threat. . and the Creating more ties with Microsoft products as their three highest opportunities.

Apple¶s niche audience provides the company with some insulation from the direct price competition. Weak presence in business arena. Web technology can be used to improve product awareness and sales. Revamping desktop and notebook lines. Developing own software and hardware. ‡ ‡ ‡ ‡ ‡ ‡ . Good brand loyalty. Weaknesses ‡ ‡ ‡ ‡ ‡ Weak relationship with Intel and Microsoft. Low debt²more maneuverable. Weak presence in markets other than education and publishing. especially with the iPod and the availability on Windows platform.Internal Audit Strengths ‡ iTunes Music Store is a good source of revenue. Slow turn around on high demand products. Dependency on new product launches.

15 0.15 0.60 0.10 0. Slow turn around on high demand products.06 0.30 0. Weak presence in business arena.07 0.Internal Factor Evaluation (IFE) Matrix Key Internal Factors Strengths iTunes Music Store is a good source of revenue.04 1. Web technology can be used to improve product awareness and sales.03 0.40 Weight Rating Weighted Score .42 0. especially with the iPod and the availability on Windows platform. Total 0.30 0. Developing own software and hardware.00 1 1 2 1 2 0. Good brand loyalty.10 0. Apple¶s niche audience provides the company with some insulation from the direct price competition.06 0.06 0.10 0. Weak presence in markets other than education and publishing.05 0.14 0.08 2.78 0.24 0.10 0. Revamping desktop and notebook lines.06 0.10 4 3 3 4 3 3 4 0. Weak relationship with Intel and Microsoft. Weaknesses Dependency on new product launches. Low debt²more maneuverable.07 0.

94 7.20 2.Financial Ratio Analysis (March 2004) Company Valuation Ratios P/E Ratio (TTM) P/E High .Last 5 Yrs Beta Price to Sales (TTM) Price to Book (MRQ) Price to Tangible Book (MRQ) Price to Cash Flow (TTM) Price to Free Cash Flow (TTM) % Owned Institutions Dividends Dividend Yield Dividend Yield .41 16.00 3.08 4.00 0.27 1.26 48.04 1.97 64.33 4.70 0.99 0.77 50.stockpoint.96 6.48 26.41 2.55 1.Last 5 Yrs P/E Low .5 Yr Avg Dividend 5 Yr Growth Rate Payout Ratio (TTM) N/A 0.26 1.26 37.48 28.53 25.29 7.14 19.75 0.com .77 19.64 45.34 1.60 1.21 26.56 17.58 17.00 NM 0.50 9.13 63.75 1.32 28.69 23.87 54.14 24.78 6.investor.01 45.78 69.91 5.19 Industry Sector S&P 500 www.48 6.52 64.34 2.31 33.70 277.56 8.84 1.84 7.34 7.

68 0.09 34.40 11.38 0.08 12.02 1.Financial Ratios (cont) Growth Rates % Sales (MRQ) vs Qtr 1 Yr Ago Sales (TTM) vs TTM 1 Yr Ago Sales .74 13.34 30.85 2.32 47.99 S&P 500 13.02 0.45 0.41 47.54 10.04 -29.97 7.27 26.43 51.53 0.52 35.85 11.76 0.55 6.88 N/A 587.81 1.07 41.65 Sector 18.90 9.15 4.01 20.26 1.78 14.18 1.23 0.13 18.5 Yr Growth Rate EPS (MRQ) vs Qtr 1 Yr Ago EPS (TTM) vs TTM 1 Yr Ago EPS .92 12.5 Yr Growth Rate Financial Strength Quick Ratio (MRQ) Current Ratio (MRQ) LT Debt to Equity (MRQ) Total Debt to Equity (MRQ) Interest Coverage (TTM) Profitability Ratios % Gross Margin (TTM) Gross Margin .52 11.28 15.79 2.86 Company 36.34 2.16 28.00 0.26 2.25 0.5 Yr Avg EBITD Margin (TTM) 27.29 9.30 28.06 .95 Industry 12.69 21.71 51.00 35.65 3.5 Yr Growth Rate Capital Spending .54 3.07 13.89 11.60 31.75 1.

64 0.760 12.34 2.64 9.18 8.47 1.09 5.92 2.67 27.40 6.57 30.55 29.47 9.33 18.77 622.54 17.07 5.87 1.62 15.59 91.63 1.Financial Ratios (cont) EBITD .76 6.5 Yr Avg Pre-Tax Margin (TTM) Pre-Tax Margin .93 18.787 65.82 20.90 3.5 Yr Avg Return on Investment (TTM) Return on Investment .5 Yr Avg Return on Equity (TTM) Return on Equity .03 4.97 10.18 13.71 19.25 16.59 31.37 8.10 31.45 401.5 Yr Avg Net Profit Margin (TTM) Net Profit Margin .22 2.03 568.24 26.474 7.25 2.26 10.5 Yr Avg Operating Margin (TTM) Operating Margin .624 37.90 8.02 6.93 1.46 0.54 13.11 6.57 30.5 Yr Avg Efficiency Revenue/Employee (TTM) Net Income/Employee (TTM) Receivable Turnover (TTM) Inventory Turnover (TTM) Asset Turnover (TTM 617.707 9.57 32.39 20.47 3.77 5.5 Yr Avg Management Effectiveness % Return on Assets (TTM) Return on Assets .75 9.05 7.28 9.78 6.5 Yr Avg Effective Tax Rate (TTM) Effective Tax Rate .63 11.35 17.77 9.20 .44 9.30 12.27 17.25 20.76 10.79 8.31 34.12 11.96 14.722 7.17 13.555 11.866 81.74 22.62 12.59 16.70 8.79 9.

Net Worth Analysis SE + Additional paid in capital + retained earnings 4. net income (3years) [22.989 x 22.958.095M + 119M +2.75 = 6.1B Method average = 6.75/ 0.325= 9/28/02 Net income x 565M x 5 = Share price (10/17/03)/ EPS (10/17/03) x avg.9B .7B 8.49] x 275M = Number of shares outstanding x share price 358.5B 325M 12.

especially with the iPod and the availability on Windows platform. and their Web technology being used to improve product awareness and sales as their 3 highest strengths.Internal Summary Apple has rated their iTunes Music Store being a good source of revenue. their low debt²more maneuverable. Apple did not rate any of their weaknesses higher than a 2. . they should work on being able to direct more attention to those areas and especially concentrate on the two areas of dependency on new product launches and the weak presence in business arena.

O5. O5. S5. T5) ‡ S-T Strategies ‡ ‡ W-O Strategies ‡ Increase ties with Microsoft and Intel and their products. (W2. O2.(W1. W4 O2. stability and speed. O2. O6) Using movies and music groups that are geared towards Gen X and Y to promote computers and laptops. (S2.T1) Promote the originality of Apple computers and the different style and stable system that is slightly more but worth the price difference in style. (S3. W2 T1) ‡ Increase productivity and turn around of high demand products to compete with Dell and HP (W5. S5.SWOT Matrix S-O Strategies ‡ ‡ Increase awareness through the web of the immunity of Mac products to worms and viruses. (S5. T2) . O1. T4. O6) W-T Strategies ‡ Improve relationship with Microsoft and Intel so that companies will see them as compatible. O3) ‡ Promote to business the safety of having a worm and virus free computer by using Mac. (S1. O1) Advertise using individuals that will link Generation X & Y to the iTunes and other related products. O4. T2. (W1. O6) Increase and promote the compatibility to Window operating system. (S5. W4. W2. O5.

Space Matrix SPACE Matrix Conservative FS Aggressive CA IS Forward Integration Backward Integration Horizontal Integration Market Penetration Market Development Product Development Joint Venture Defensive ES Competitive .

Grand Strategy Matrix RAPID MARKET GROWTH Quadrant II Quadrant I WEAK COMPETITIVE POSITION STRONG COMPETITIVE POSITION Apple Concentric Diversification Computer Conglomerate Diversification Horizontal Diversification Retrenchment Divestiture Liquidation Quadrant III Quadrant IV SLOW MARKET GROWTH .

0 .99 IV V VI Medium 2.99 VII VIII IX Grow and Build Low 1.0 to 4.0 to 3.6 3.5 3.99 III High 3.0 to 2.0 I Average 2.99 Segments Domestic International Revenue 54% 46% Profit 52% 48% EFE 3.0 to 2.0 to 1.0 to 1.The Internal-External (IE) Matrix Strong 3.99 II Weak 1.0 IFE 2.

Boston Consulting Group (BCG) Matrix High 1. cash flow low Market Penetration International Medium 0 Cash Cows Dogs Market Development Product Development Sell Low -20 Segments Domestic International Revenue 54% 46% Profit 52% 48% EFE 3.6 3.2 .0 Question Marks Domestic Cash need High vs.0 High +20 Stars Medium .50 Low 0.0 IFE 2.3 0.5 3.0 Growth Rate 17 5 Relative Market Share 0.

Matrix Analysis Summary Alternative Strategies Forward Integration Backward Integration Horizontal Integration Market Penetration Market Development Product Development Concentric Diversification Conglomerate Diversification Horizontal Diversification Joint Venture Retrenchment Divestiture Liquidation * * * * IE * * * * * * SPACE * * * * * * * * * GRAND COUNT 2 2 2 2 2 2 1 1 1 1 1 1 1 .

00 4.15 0.45 . Good brand loyalty.00 4.25 1.00 0.60 0.20 0. Web technology can be used to improve product awareness and sales.15 Expand production into Asia AS 3. Weak presence in markets other than education and publishing. Weaknesses Weak relationship with Intel and Microsoft.60 3.20 4.00 0.60 2.15 4.80 0.00 TAS 0. SUBTOTAL 0.00 4.85 0. Apple¶s niche audience provides the company with some insulation from the direct price competition.15 1.15 0.00 0.QSPM Key Internal Factors Weight Start producing Wintel compatible AS 0.00 3.00 2.30 3.80 3.00 0. especially with the iPod and the availability on Windows platform.00 TAS 0.00 0.60 0.60 0.15 1.00 0.45 Strengths iTunes Music Store is a good source of revenue.

40 0.08 .00 1.00 2. Dell does not invent but provides computers at a more cost effective rate for customers.06 0. Creating more ties with Microsoft products.08 0.93 4.00 4.48 0. Downloadable music and MP3 players are highly marketable.06 0.00 TAS .18 3. Threats Intel¶s future Pentium release.36 5.00 0.18 0.10 Start producing Wintel AS 2 1. Increase in sales of laptops by 20 percent.05 0.10 0.00 0.10 0.15 2.15 0.00 4.21 0.06 0.00 3.00 1. SUBTOTAL SUM TOTAL ATTRACTIVENESS SCORE 0.00 1.08 0.12 Expand production into Asia AS 3 4.15 0. Large population (Gen X & Y) which are extremely individualistic and name brand conscious.00 4.10 0.00 3.00 1.00 TAS .15 1.32 0.30 0.12 0. Companies not seeing Apple as compatible with their software.QSPM Key External Factors Weight Opportunities Increase in worms and virus on PCs.30 0.00 1.45 0.

Strategy 2 ‡Contract music spokesperson to attract the upcoming generation who are attending high school and college.Recommendations Strategy 1 ‡Open six computer retail stores (not just peripheral and accessories). . Features such as iTune software compatible with windows based computers. ‡It will increase the United States market share at least 30 percent for the next 2-3 years. Strategy 3 ‡Add more features to current products for greater Wintel compatibility. Apple currently has stores opened throughout the United States with only peripheral and accessories for their computers. In late October 2003 Apple released an iTune software package that is PC ready. ‡This will increase product accessibility for those who wish to view items other than just accessories and increase awareness of the originality of Apple¶s products. ‡$50 million is the estimated cost for Research and Development. Adding the hardware should generate more hands-on awareness and use already established locations. This will stay in the customer¶s awareness and influence future purchase decisions. ‡2 percent increase over the next 2 years in sales representatives for the computer hardware. ‡Contracting one music spokesperson estimated $6 million. Office programs loadable from PC installation disk (This would require a software agreement with Microsoft). This will invoke a sense of style and linking apple with a distinctive and memorable top 10 hit.

Cost of Recommendations ‡ Open 6 computer retail stores (not just peripheral and accessories) ‡ Contract music spokes person (Sarah McLachlan | 50 cent) for a cost of ‡ Start production of Wintel compatible software for a cost of 100M 6M 50M 156M Total expected cost = .

653.000.37 Low 6.747.00 1.00 18.74 Debt Financing High 20.00 6.00 4.80 50/50 Combination Financing High 20.215.900.830.00 2.835.200.00 1.00 1.000.00 3.00 1.00 6.950.00 16.100.00 0.00 1.00 1.00 4.00 2.050.76 EBIT Interest (6%) EBT Taxes (30%) EAT # Shares EPS 20.48 .000.000.950.000.00 0.00 3.470.00 20.635.00 5.14 Low 6.000.000.00 1.653.00 6.00 2.800.00 14.000.00 3.EPS/EBIT Analysis Common Stock Financing High Low 6.00 12.00 5.050.837.00 5.00 4.00 3.00 0.00 11.100.747.837.415.270.000.00 0.000.00 3.900.00 630.00 0.

‡ Increase their market share by 30% ‡ Eliminate the need for new products in order to raise sales.Objectives and Goals ‡ Over the next 3-4 years Apple would like to increase their product accessibility (new stores). .

2005 Apple Announces Mac OS X Server ³Tiger´ ‡ February 23. 2005Apple Announces Two-for-One Stock Split . 2005Apple Honors GRAMMY Award Winning Artists ‡ February 11. 2005Apple Unveils New iPod mini Starting at Just $199 ‡ February 14.Apple in the News ‡ April 12.

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