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Apples Business Plan

TABLE OF CONTENTS

EXECUTIVE SUMMARY
INTRODUCTION

THE COMPANY

PRODUCTS & SERVICES


THE MARKET6

1.0

MARKET ANALYSIS 6

1.1

COMPETITOR ANALYSIS

1.2

CONSUMER ANALYSIS AND TARGET MARKETS 9

1.3

TREND ANALYSIS OF THE MARKET

1.4

PORTERS INDUSTRY ANALYSIS ON APPLE

2.0

THE MARKETING PLAN

2.1

PEST ANALYSIS

2.2

PRODUCTS AND SERVICES

2.3

PRODUCTS LIFE CYCLE

2.4

CUSTOMER DEMOGRAPHICS

2.5

COMPETITION AND COMPETITIVE ADVANTAGE21

2.6

PRICE STRATEGY

2.7

ADVERTISING AND PROMOTIONAL STRATEGY 24

2.8

S.W.O.T ANALYSIS 26

THE OPERATIONS PLAN

28

3.4

BUSINESS STRUCTURE

28

3.5

REGULATORY ISSUES

28

3.6

MANUFACTURING

3.7

LOCATION

3.8

RESEARCH AND DEVELOPMENT 30

3.9

DISTRIBUTION (PLACE) ARRANGEMENT 31

3.10

PRODUCT QUALITY 32

THE MANAGEMENT PLAN 33

4.4

ORGANIZATION STRUCTURE

4.5

SKILLS REQUIRED 33

4.6

SALARY COMPENSATION FOR TOP MANAGEMENT

10
12

15

15
17

18
19

22

29

30

33

34

THE FINANCIAL PLAN

35

5.1

FINANCIAL STRATEGY

35

5.2

IMPORTANT ASSUMPTIONS

5.3

LIQUIDITY & CAPITAL RESOURCES

5.4

FINANCIAL INDICATORS

5.6

PROJECTED PROFIT & LOSS

37

5.7

PROJECTED BALANCE SHEET

39

5.8

BUSINESS RATIOS

41

OVERALL CONCLUSION

42

LIST OF REFERENCES

43

35
35

36

APPENDICES 44
A GREENER APPLE DOCUMENT (BY STEVEN JOBS CEO)

45

EVIDENCE OF SHAREHOLDERS EQUITY 2007 46


FINANCIAL STATEMENTS 47
Executive Summary

Introduction
Apples Business plan serves to outline all aspects of the business prospects of the
companys diversified product line & their viability. It also aims to analyze the
industrial prospects & how Apple can strategize to give itself a competitive
advantage and descend into the mass market in addition to serving its niche
market.
The Company
Apple Inc. designs, manufactures, & market personal computers, operating
systems , portable digital music players, and mobile communication. Based in
Cupertino, California, Apple Inc. (AAPL) is a leading producer of consumer
electronics; manufacturing, engineering, & selling its own line of computers, variety
of related software, services, peripherals, and networking solutions, portable digital
music players, and mobile communication devices as well.

Products & Services


The Company sells its products worldwide through its online stores, its retail stores,
its direct sales force, and third-party wholesalers, resellers, and value-added
resellers. In addition, the Company sells a variety of third-party Macintosh (Mac),
iPod and iPhone compatible products, including application software, printers,
storage devices, speakers, headphones, and various other accessories and
peripherals through its online and retail stores. The Company sells to education,
consumer, creative professional, business, and government customers.

The Market
Apples market share is clearly too defined, it serves a niche market. It clearly gets
its premium from product differentiating, revolutionizing the market first by its
Macintosh computers, their operating systems, then introducing the IPOD &
subsequently the IPhone. It must attempt to acquire a bigger share of the pc market
(by making low-end pcs ), & maintain its dominance in the portable music player
business.

Appendices
The Companys documents are attached in the Appendices.

1.0

Market Analysis

1.1

Competitor Analysis

This section will present data and information that are imperative to a
thorough understanding of the I.T market and the performance of our competitors
(in comparison to us), in particular. http://lowendmac.com/ed/fox/08ff/mac-pro-vsdell-hp.html
http://www.marketingteacher.com/Lessons/lesson_pricing.htm

To start with, we have the Market Capitalization of Hardware products. The graph
below lists nine of our competitors, and their individual share of the market in
billions of U.S Dollars. Companies like International Business Machines Corp, Cisco
Systems, Hewlett-Packard and our selves, cumulatively control the lions share of
the market.

The next figure represents how the same group of competitors fared in terms of P/E
ratio. Technology based companies have a tendency of experiencing high growth in
their P/E ratio, and this is not surprising as all of the companies mentioned have
done well, with the exception of Apple of course!

The rule of thumb for the Price to Earnings Ratio is that when the ratio for a
company is high it usually implies that their investors anticipate a growth in future
earnings, as opposed to other companies with relatively low ratios.
http://www.investopedia.com/terms/p/price-earningsratio.asp

To compete in an industry which is entirely dependant on knowledge, expertise, skill


and precision, it is a grueling task to hire and retain the best human capital
available. The following figure represents the number of employees that three of our
competitors which are Dell, HP and Microsoft, currently have. Its quite obvious that
HP leads the way, with Dell and Microsoft in close pursuit, leaving us in last place.
The main reason for this is that we are not exerting enough effort in retaining our
staff unlike our competitors.

The amount of revenue and Net Income speaks volumes about the health and
success of an industry, and is a critical factor in our market research. This is
because, if the industry as a whole is faring well, it acts as a signal for new entrants

who may interpret the industry as a gold mine and decided to penetrate it and if
successful, pose a threat to existing members.

The figure below presents the Revenue and Net Income in billions of US Dollars. HP
has raked in the greatest revenue but fell behind Microsoft in terms of Net Income.
Even though Dell performed better than us, we still managed to do a little better
than them in terms of Net Income. Overall it seems that the four of us have made
brilliant sales, however as mentioned earlier this can promote an influx of new
unwanted competition.

The following figure represents the quarterly revenue growth and the Gross margin
of the same four companies. To start with, we have Gross margin which tells us how
well we are clearing off our costs and other general expenses, using our gross
earnings. It should come as no surprise that technology based companies
experience the highest levels of gross margin in comparison to other companies.
Even though Microsoft appeared to out do the rest of us their quarterly revenue
growth seems minuscule. On the other hand, we have surpassed our competitors in
terms of revenue growth and Gross Margin, which is a very good thing.

1.2

Consumer Analysis and Target Markets

The figure below illustrates who are customers are, what they buy and their reasons
for purchasing our products.

As for our Target Markets, they include the following:

Creative Pro

Education

Science

Small Business

IT Pro

Games

1.3

Trend Analysis of the Market

Apples most brilliant invention and contribution to modern technology is the


iPhone, and although Apple is fairly new addition to the cell phone market, it has
paved the way for mobile manufactures worldwide. Companies like Samsung, LG
and Nokia have followed in Apples footsteps, after its unprecedented success.

Another trend that is making news is the initiative that we are taking towards
conserving our natural environment through our A Greener Apple campaign. Its
not only us, but our biggest competitors are following suit, like Dell and HP. We are
investing in energy efficient products, which are designed to reduce the worlds
carbon footprint.

We are also involved in recycling our used products. The graph below presents that
amount of weight that we have recycled since 2002and what we anticipate to
recycle by the end of 2008, 2009 and 2010. This is something that our competitors
have yet to disclose. So far they are recycling approximately 10% each per year, as
seen from that figure below we are planning on surpassing them later in the future.

Three other points of interest to us and our competitors is that when we recycle ewaste that we collect in the continent of North America, we do not dump it is
another countries backyard. The second is that the materials that are incorporated
in our products are of recyclable quality. Finally, and most importantly, the company
is willing to discuss other environmental concerns as well and continue to produce
energy efficient designs.

Software companies like IBM and Intel have currently invested in a new technology
that utilizes solar cells in its designs. The market although new is set to attract
software producers in the masses, and it is projected to grow by 40 % in the near
future. Apparently it will cost a fortune, however after a few years; it is expected to
reach its optimum point. If the software industry is successful then it will have a
positive spill over affect onto the hardware producers, such as Apple, and it will be
an impetus for us to produce energy efficient products and stay committed to our
environment conservation program. The reason we anticipate their success, is
because after we integrated Intel into our Mac systems our sales grew to a
remarkable 37% in 2007, which out did the industrys rate of 15%.
http://www.siliconvalley.com

1.4

Porters Industry Analysis on Apple

The Porters industry analysis provides us the structural determinants of the five
forces of competition that include 1) Threat of Entry 2) Threat of Substitutes, 3)
Industry Rivalry 4) Buyer Power 5) Supplier Power

Threat of Entry

Capital Requirements & Product Differentiation A new company would need a large amount of capital to effectively compete with
the well-established market leaders, let alone break even. Apart from the PC
hardware markets, even the Mp3 markets have large component costs relative to
the total product. Apples product differentiation and higher pricing they are able to
counteract the price wars that usually ensue under such conditions.

Economies of Scale There are large economies of scale in the PC market limiting
new entrants, but Apple does not rely on Economies of scale as Macintosh is like a
niche market. The big market share is consumed by Dell, Hp & Compaq which rely
on economies of scale.

Product Differentiation -While numerous portable music players have been


released within the last few years, Apple has been the first to combine style,
usability, & large capacity into a single unit, & because of this they are enjoying the
first mover advantage with the introduction of the iPod. (despite numerous Chinese
& Taiwanese companies making identical capacity but cheaper players. ) Customers
are pleased with the quality of Apple products thus far and they continue to look to
Apple for future innovations (iPod mini, Shuffler, and accessories).

Industry Rivalry

Concentration between Existing Competitors

The PC market is a saturated market with low growth rates with a high degree of
concentration. Only a few large competitors with a great deal of capital invested are
present such as HP, Compaq, Dell & Gateway ( mostly sold in US ), apart from
Apple.

Apple is the most dominant company in the portable music market. The market is
relatively new, & as a result there are a fairly large amount of competitors. main
competitors in the MP3 sector are: Apple, Sony, Creative, Napster, & Dell. While
portable music hardware still requires significant capital investment to develop and

produce the hardware units, the portable music websites (i.e. Napster, iTunes) have
relatively small startup costs. This leaves Apple susceptible to new entrants who
could possible steal away a portion of its iTunes market share.

Decreased Profit Margins due to the highly competitive nature of the PC industry.
Dell through its distribution & price system is the only competitor to have a
reasonably high profit margin.

Niche & Declining Market Share - Apple has a PC market share of 5%. Although
MacBook sales have increased, Apple has not been a market taker despite being in
the Industry for about 20 years.

Diversity of Competitors When it comes to diversity Apple is the best. By


controlling Itunes with the Ipod there is something termed as the Halo effect which
correlates & credits the rise in Mac sales to the sales of the iPod. The idea is that
customers who purchase an iPod will become as fixated on Apple products as its
most ardent fans and then rush back to the Apple Store and drop thousands of
dollars on a new Mac.

Product Differentiation of PCs

Although Apple has differentiated its PCs, ( consumer perception is that Apple has
differentiated more in terms of visuals & not so much in technology ). Profitability
has greatly reduced as computers are becoming a commodities market due to
virtually identical products.

Product Differentiation of MP3 Players-- the IPOD

Capitalizing on its product differentiation, Apple on an average is charging two to


three times the market price of conventional mp3 players for its iPod (A price that
consumers are more willing to pay). Competitors are struggling to offer up a product
that is Technological / innovative equivalent to the iPod, & until they can produce
one that surpasses it, they will not be able to dethrone the portable music
juggernaut. Switching costs for the consumer are low allowing customers to flow

from product to product based on price, but Apple will continue to rely on brand
identification, differentiation, and innovation to maintain a firm grip on market
share.

Excess Capacity & Exit Barriers

Cost Conditions: Scale Economies & the Ratio of Fixed to Variable Costs
.
There are little exit barriers in the online music market & the mp3 player market
so competitors can leave easily. But the pc market has high exit barriers & thus are
more competitive.

Bargaining Power of Buyers

Buyers Price Sensitivity to buying personal Computers


Competitive Pricing drives the industry more than any other factor that determines
a Purchase as buyer sensitivity is extremely high.

High Switching Costs for the Customer This has been a deterrent in Apples
quest to attain a more sizeable market share, due to their higher prices & perceived
incompatibility of their OS with other software.

Bargaining Power of Buyers of IPOD

Additionally, buyers of the iPod & Macintosh computers have low


relative bargaining power . There is as such no Wal-Mart of electronic stores, so
there is no way for individual resellers such as Best Buy, Circuit City, to bully or
bargain Apple into lower prices. Apple also has around 200 international retail stores
(including America ), in addition to its own online store. The internet has become a
huge selling point for Ipod & Macintosh products via Amazon.com & Buy.com with
the popularity due to the tax-free or less taxed online shopping & its convenience.

Bargaining Power of Suppliers

Apple uses a large variety of suppliers for manufacture of its computers


& portable music players. In most cases, Apple is not limited to a single
supplier for the various components used in the process of assembly for its
products. This leaves Apples suppliers with less bargaining power concerning price
in most cases. Apple uses both graphic cards, NVIDIA &ATI for video cards &
Macintosh & the other pcs use completely different processors so the bargaining
power using economies of scale is not done as Macintosh has very exclusive
processors.

2.0

The Marketing Plan

2.1

Pest Analysis

The following diagram presents the four factors that cumulatively


up the PEST analysis, which directly affects the company.

make

To further elaborate, we have Political Factors which touches upon the political and
legal issues that the company can face. The first point talks about government
policies and its repercussions on the company and example for instance is that in
many jurisdictions in the U.S as well as telecommunication networks have strict
control over the sale of communication devices such has our iPhone. It has to meet
their requirements before it is launched into the market. This requires a lot of time,
effort and money to re-test and revise the end product. In regard to the second
point, the possible change in labor laws and spread of disease would spell a
reduction in production and hence supply of our products and a reduction in
revenue. The impact of strikes and terrorist attacks can be seen in the ultimate
decline in the value of out stocks and equity funding. As for the environment,
natural killers like hurricanes and floods can pose a very dangerous threat to our
factories, warehouses, premises, and our employees, especially since we lack
necessary insurance incase of such conditions.

Economic factors certainly do have an indirect influence on the company. The global
community at the movement is under a cloud of recession and rising inflation, food
shortages, which are influencing a negative change in the standard of living. In
regard to our Accounts Receivable baring the brunt of unfavorable economic
conditions, it is mainly due to a lack of insurance over these items incase of such an
event, which ultimately leads to losses. Because of the unpredictability of the
taxation system, the company is forced to keep a watchful eye on its income tax
returns. This of course increases the company's expenses.

Socio Economic factors include population and in the case of North America, even
though growth in the baby-boomer generation is very impressive, there has been a
less than impressive rise in the working population. This means that in the future
our target market could reduce our revenue a little bit. Probably this change may
divert our attention to the Far East like Indian and Chinese markets, whose
economies are expected to surpass that of U.S later in the future. In regard to Pop
culture, by strategically positioning the image of one infamous personality or 'brand'
to another famous brand will ignite frenzy and will improve brand recognition and
revenue. We ourselves employ the celebrity status of a well known actor by the
name of Justin Long in TV commercials. It is true that we tend to generate good
revenue during certain seasons, however it should not be considered as a predictor
for future sales revenue, due to unforeseeable circumstances like natural disasters
and other events.

With the increase in production of new technology, a subsequent rise in intellectual


protection is expected. This in turn may lead to infringement of anther firms'
property rights. Currently the company relies on just four network service to
promote its product. If these networks fail to do their job and lose our customers,
we will surely face quite a hurdle, in terms of generating revenue.

2.2

Products and Services

The Company offers a range of personal computing products including desktop &
portable personal computers, related devices and peripherals, & various third-party
hardware and software products. In addition, the Company offers software products
including Mac OS_ X,; server software and related solutions; professional application
software; & consumer, education & business oriented application software.

Macintosh Operating System Software


Macintosh Desktop
Macintosh Monitor
Macintosh Desktop Accessories
MacBook Laptop Series

IPOD
Ipod music player 4 types Nano, Mini, Giga
Ipod shuffle extension
Ipod accessories speakerphones

The IPhone
3G Mobile PDA mobile phone

Itunes Software & Itunes Online Music Store

The iTunes Store is a software-based online digital media store operated by Apple
Inc. Opening as the iTunes Music Store on April 28, 2003, proving the viability of
online music sales and is now the number-one music vendor in the United States. As
of the end of the second week of January 2008, the store has sold 4 billion songs,
accounting for more than 70% of worldwide online digital music sales

2.3

Products Life Cycle

Apples Product Life Cycle

The Product life cycle for Apple is not based on the chronological launching of each
products as Apple TV was launched before the IPhone. The cycles is also structured
based on the invention. The IPhone is comes under the smart phone or a high-end
mobile which is a growing industry ( for the masses ) while Apple TV is a new
invention that allows one to upload TV programs by buying them. It shows the
decline of the Apples desktop mirroring the poor sales of the general desktop
industry but MacBook defies its declining industry by having an increased sales.
IPOD retains 70% of the mp3 market share & has a matured market. ( Sales &
industry forecast are generally too high to place it in the saturated market.

2.4

Customer Demographics

Apple design, develop & market numerous product, & service lines. Apple sells their
products to education, consumer creative professional, business and government
customers. Research shows that Apple draws its customer base from a higherincome demographic than the mainstream PC market. Higher income theoretically
correlates with well-educated social behaviors, which may explain the platforms
visibility within certain youthful, avant-garde subcultures.

The IPOD (mp3 player ) has a lot of variants that target all demographics. The IPOD
Video caters to people who would pay a high price to have complete portable
entertainment for movies & songs, the Nano is midrange while the Shuffle is very
inexpensive. The profiling of the different Ipods have been on a psychographic
profile.

Macs for the Masses ( The middle to low-end buyers ) Changing Demographics

Until 2005, Apple did not focus on the mass market, instead having a 20gb Ipod &
Macintosh computers that were too expensive for the average person. With the
launch of Ipod Nano & Ipod shuffle the inexpensive music player. Established as a
high quality company with innovative designs the company launched a Mac Mini
that combined years of Apples research of computes with cost-efficiency to produce
a simply but highly functional desktop. Thus Apple could carve a bigger share in the
pc industry without compromising on its high & middle-end desktop line.

2.5

Competition and Competitive Advantage

Apple serves a niche market but it must


Beat cost-efficient Dell & HP.
Innovative design can attract a few
But the Industry is price-sensitive.

Ipods Unique Selling Proposition


Ipod has around 76% of the US Market
Due to its innovativeness to combine
Capacity, style & combination with the
Itunes music store.

While Iphone has superior qualities of a Smartphone it does not meet all the
advanced capabilities other business professionals use, including adding 3rd party
software. The Iphones competitive advantage is also the Halo effect, due to the
Ipods loyal fan base & good interface.
2.6

Price Strategy

At Apple one of our primary goals is to keep our customers satisfied with the quality
and durability of our products. Our products are unique in nature like the iPhone and
iPod, compared to the products of our competitors like Dell, and HP.

To ensure that the quality of our products are justified, we use premium pricing as
our pricing strategy, which enables us to charge equivalent prices for our products
while simultaneously maintaining the reputation and integrity of these products. By
using this method we believe that we can achieve competitive advantage over our
counterparts.

The following table lists the prices between Apple & its competitors products.
Clearly, Apple exceeds Dell, HP and Lenovo in price terms. However the price
difference for Desktop computers and notebook computers is only 16% and 9%
respectively, again stressing on the fact that our products are not as expensive as
they appear to be. However there is a good 70% chunk of the world market that we
have overlooked, and we have to start planning next move.
The price strategy of Apple is a fairly simple one, which includes premium pricing,
which has only improved the companys market share, and kept the integrity of the
brand intact.
http://apple20.blogs.fortune.cnn.com/2008/04/01/analyst-apples-us-consumermarket-share-now-21-percent/

The Price Slash


Apple always does a price slash after launching the initial product, to meet its
competitors prices while cashing on its initial product hype. Apples IPOD & IPhone
are relatively higher priced than the competitors but the differentiating advertising
always justifies it. However, the high price for Desktops & laptops does not fare
better in the price sensitive computer industry where Apple only has a n average of
6.1% of the market share.
New mp3 Player
The new 1 GB iPod nano music player is released at a discount price. The computer
maker also said it would cut the price of its popular shuffle player. The new 1 GB
iPod nano now sells for US$149, while the 512 MB and 1 GB iPod shuffles now sell
for $69 and $99 respectively. Apples current iPod nano offerings -- including the 2
GB and the 4 GB players -- cost between $180 and $250. The iPod is the world's
most popular digital music player with over 40 million sold, & now even more music
lovers can experience the unrivaled combination of iPod & iTunes.
Pricing Strategies for the iTunes Online Music Store

The market dominance of iPod + iTunes permits Apple to call some of the shots, &
that is making some music executives uncomfortable. Music labels want to see the
iPod become interoperable with music services other than iTunes. Apples current
pricing for downloading Itunes for the Ipod has been consistent. Making the iPod
interoperable with other music services requires Apple to make concessions to
competitors. If iPods could be used with other music services, the iTunes store might
lose business. Apple's advantage is its total control of The Whole Widget (iPod +
iTunes + iTunes music store).

The real threat


The key to beating Apple is not lower prices or Windows Media compatibility. As long
as Apple continues to offer consumers the most attractive, convenient & affordable
approach to digital music, competitors don't stand a chance. For Itunes, Apple does
not have Discount Pricing. Each track in the iTunes store costs the same. There's no
reason to expect that prices will drop next week. Consistent pricing makes it
possible to craft a short, simple marketing message, which is pretty important when
you're trying to popularize a new product (in this case, a new concept: digital
downloads. A significant disadvantage for Discount pricing ( which Apple has
applies for Ipod & Iphone) is that the consumers who buy at full price are annoyed
when prices drop later. Worse, it trains consumers to buy when prices are low, which
reduces profits.

2.7

Advertising and Promotional Strategy

Advertising

In the past two decades, Apple Inc. has become appreciated for the "artistic" and
free-thinking messages of its advertisements, which reflect a business plan of
marketing their products to creative individuals.

The company simply seems to understand what will get people excited about its
products, and then it executes on that vision. The company launches do not at first
talk about features or technology, but about how the computer will make your life
better. The iPod ads actually won an award from AdWeek. Apple also has not been
afraid of in-your-face campaigns. The company

Apple has rarely succeeded because of an appreciable first-to-market advantage.


Instead, Apple has lead markets because it has been able to initiate several newmarket disruptions in music and computing. Apple reaches consumers unavailable
to its predecessors though good design ease of use, clever marketing, and smart
distribution. All these efforts were aimed at making sure potential customers
understood the substantial differences between the first-to-market technologies
that preceded their products and the appealing, thoughtful technologies that
Apple's product offers to attract inexperienced consumers. Apples consumer
strategy is to get the equipment you want at the best price.

Apples oft-used successful Marketing Strategy

1) Focus on what people do with the product, & not what the people do with the
product. Create a Buzz around a new product- .Apples IPOD commercials have
colourful campaigns. The white headphones have almost become synonymous with
the IPOD, which is hailed as one of the most successful advertising ideas. Inviting
everyone to the Apple lifestyle & becoming part of the IPOD community is focused
on.

2) Apple is never first to the Market- Apple creates something better later. All of
Apples products are products that have been invented previously & apple has
introduced their version much later into the established market.
This way, Apple gauges the sensitivity of consume needs, places in technology to
create a new product & is backed up with great advertising.

Regional Advertising ( Europe )

Apple Stores are a great marketing tool and a key product showcase for Apple, to
show the products, test them, try them. A great tool to build costumer relationship.
Apple has hardly built Apple stores in Europe. And not only Apple did not open Apple
Stores. Apple has done little or nothing also in advertising of the iPod, the iMac in
Europe. Few television ads - or even none in some important European markets.
Apple lacks management and strategy in Europe. And Western Europe makes 350
million inhabitants, more than in the whole US.

Marketing Strategies for IPOD & Itunes Music Stores

Apples strategy is to release cool new products frequently accepting as well as


capitalizing on the fact that computer or electronic products have a short life cycle.
(Despite being fault-free). Apple has popularized technology especially by the
release of the Ipod & its constant innovations the Ipod Nano, Ipod Video, Ipod Mini &
the Ipod shuffler.

This segment of Apple does not need any strict strategic planning as the Ipod & its
variants have an approximate 70% of the music market share ( in the US, regional
figures not known.) Due to their Mp3 player combined with a big capacity & the
relation of inexpensive music downloads ( the Itunes is secure )

2.8

S.W.O.T Analysis

Details of SWOT

Strength
1)

The Brand Name

2)
OS).

Differentiated Advanced Operating System produced In-house (Macintosh

3)
Full control of the Hardware & Software design it sells as a package as
compared to other computers which have to use Microsofts OS in its packaging.
4)

Unique Physical Appearances, different specifications yet high usability.

5)

Constant Innovation in software applications due to high investment in R&D.

6)

IPOD has a unique selling proposition as well as the new MAC MINI

7)
Consumer Perception is that Apple is one of the biggest innovator in the
portable music industries as well as laptops bringing creativity to the market. Apple
hold an approximate 85% of the portable ( Mp3 player ) music market.
8)
Combined I tunes ( purchasing music online ) & portable mp3 player IPod has
synchronized organized sales.

Weaknesses

1)
Due to their research intensive nature, Apple has high R&D costs, which
means that Apple is far less cost effective in a very saturated market ( numerous
competitors such as Dell, Gateway, HP ).
2)

Constant reliance on innovative products to sell

3)
Sales of Macintosh desktop & laptops are in a niche market so their overall
market share is not increasing.
4)

Average Price of computer relative to the market are quite high.

5)
Perception that Macintosh hardware is incompatible with Windows, which is
not true.
6)

Unfamiliar Operating system to the masses.

Opportunities

1)

Increased Market Share & Growth within the computer Industry.

2)

Launching the Iphone would tap the mobile/ PDA market.

3)
Increase their enormous share in the portable music player & online music
market.
4)
Halo effect of the IPOD, should have an expected increase in Macintosh
computers.

Threats

1)
Rapid increase in technology. Processor speed through research is constantly
increasing.
2)
Apple has to stay up to date and on the cutting edge of advancements &
innovations.
3)

Threat for the MP3 & MP4 player is mainly Sony.

4)
Online Music Market Competitor to the ITunes is Napster.com Napster has
begun aggressively marketing its new service which allows unlimited music
downloads which are rented to the mp3 unit while the subscription is active. This
service, costing only $14.95 a month, is the first serious challenge to iTunes 99 cent
per song download business strategy.

The Operations Plan

3.4

Business Structure

The Company manages its business primarily on a geographic basis. The U.S.
represents the Companys largest geographic marketplace. Approximately 60% of

the Companys net sales in 2007 came from sales to customers inside the U.S. Final
assembly of products sold by the Company is currently performed in the Companys
manufacturing facility in Cork, Ireland, and by external vendors in Fremont,
California; Fullerton, California; Taiwan; the Republic of Korea (Korea); the Peoples
Republic of China (China); and the Czech Republic. Currently, the supply and
manufacture of many critical components used in the Companys products is
performed by sole-sourced third-party vendors in the U.S., China, Japan, Korea, and
Singapore. Final assembly of substantially all of the Companys portable products,
including MacBook Pro, MacBook, iPod, and iPhone, is performed by sole-sourced
third-party vendors in China. Margins on sales of the Companys products in foreign
countries, and on sales of products that include components obtained from foreign
suppliers, can be adversely affected by foreign currency exchange rate fluctuations
and by international trade regulations, including tariffs and antidumping penalties.
The Companys reportable operating segments consist of the Americas, Europe,
Japan, and Retail. The Americas, Europe, and Japan reportable segments do not
include activities related to the Retail segment. The Americas segment includes
both North and South America. The Europe segment includes European countries as
well as the Middle East and Africa. The Retail segment operates Apple-owned retail
stores in the U.S., Canada, Japan, the U.K. and Italy. Each reportable geographic
operating segment and the Retail operating segment provide similar hardware and
software products and similar services.
3.5

Regulatory Issues

The Company currently holds rights to patents and copyrights relating to certain
aspects of its computer systems, iPods, iPhone, peripherals, software, and services.
In addition, the Company has registered, and/or has applied to register, trademarks
and service marks in the U.S. and a number of foreign countries for Apple, the
Apple logo, Macintosh, Mac, iPod, iTunes, iTunes Store, iPhone, and
numerous other trademarks and service marks. Although the Company believes the
ownership of such patents, copyrights, trademarks and service marks is an
important factor in its business and that its success does depend in part on the
ownership thereof, the Company relies primarily on the innovative skills, technical
competence, and marketing abilities of its personnel. Many of the Companys
products are designed to include intellectual property obtained from third-parties.

While it may be necessary in the future to seek or renew licenses relating to various
aspects of its products and business methods, the Company believes, based upon
past experience and industry practice, such licenses generally could be obtained on
commercially reasonable terms; however, there is no guarantee that such licenses
could be obtained at all. Because of technological changes in the computer

industry, current extensive patent coverage, and the rapid rate of issuance of new
patents, it is possible certain components of the Companys products and business
methods may unknowingly infringe existing patents or intellectual property rights of
others. From time to time, the Company has been notified that it may be infringing
certain patents or other intellectual property rights of third-parties.

3.6

Manufacturing

Building world-class products includes considering the materials that go into their
creation. Apples continued goal is to reduce or eliminate environmentally harmful
substances from their products and processes.

Apple recognizes the need for environmentally responsible production, including the
use of recyclable materials (as mentioned before) and the restriction of chemical
compounds or materials that can harm the environment. Apples record of
restricting harmful substances goes back well over a decade. Apple takes a
precautionary approach toward substances, taking into account customer feedback,
new legislation, and guidance from non-governmental organizations, recyclers, and
their own internal assessments. This rigorous review process ensures that they
meet the requirements of consumers and regulators in all countries where their
products are sold, with no regional variances. Apple products are compliant with the
European Directive on the Restriction of the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment, also known as the RoHS directive. Examples of
materials restricted by RoHS include lead, mercury, cadmium, hexavalent
chromium, and PBB and PBDE flame retardants.

3.7

Location

The Company believes a high-quality buying experience with knowledgeable


salespersons who can convey the value of the Companys products and services
greatly enhances its ability to attract and retain customers. The Companys
customers are primarily in the education, creative professional, consumer, and
business markets. The Company distributes its products through wholesalers,
resellers, national and regional retailers and cataloguers. The Company sells many
of its products and resells certain third-party products in most of its major markets
directly to consumers, education customers, and businesses through its retail and
online stores. At the end of fiscal 2007, the Company had opened a total of 197 of

its own retail stores, including 174 stores in the U.S. and a total of 23 stores in
Canada, Japan, U.K. and Italy. The Company has typically located its stores at hightraffic locations in quality shopping malls and urban shopping districts. The stores
are designed to simplify and enhance the presentation and marketing of the
Companys products and related solutions. To that end, retail store configurations
have evolved into various sizes in order to accommodate market-specific demands.
The stores employ experienced and knowledgeable personnel who provide product
advice and certain support services. The stores offer a wide selection of third-party
hardware, software, and various other accessory products and peripherals selected
to complement the Companys own products.

Year

Avg. # Stores

2007 178

$ 23.1 m

2006 142

$ 22.9 m

2005 106

$ 21.7 m

3.8

Revenue per store

Research and Development

Apple spends approximately 4% of net sales on R&D expenditures. While this takes
away from profits, it allows Apple to remain innovative and helps drive sales which
is extremely important to the company as well as our model. It also allows for a
higher margin for its products.
As the personal computer, consumer electronics, and mobile communication
industries are characterized by rapid technological advances, the Companys ability
to compete successfully is heavily dependent upon its ability to ensure a continual
and timely flow of competitive products, services, and technologies to the
marketplace. The Company continues to develop new products and technologies
and to enhance existing products in the areas of computer hardware and
peripherals, consumer electronics products, mobile communication devices, system
software, applications software, networking and communications software and
solutions, and Internet services and solutions. The Company may expand the range
of its product offerings and intellectual property through licensing and/or acquisition
of third-party business and technology. The Companys research and development
expenditures totalled $782 million, $712 million, and $535 million in 2007, 2006,
and 2005, respectively.

3.9

Distribution (Place) Arrangement

The Company uses some components uncommon to the rest of the personal
computer, consumer electronics and mobile communication industries, and new
products introduced by the Company often initially utilize custom components
obtained from only one source until the Company has evaluated whether there is a
need for, and subsequently qualifies, additional suppliers. If the supply of a key or
single-sourced component to the Company were to be delayed or curtailed or in the
event a key manufacturing vendor delayed shipment of completed products to the
Company, the Companys ability to ship related products in desired quantities and
in a timely manner could be adversely affected. The Companys business and
financial performance could also be adversely affected depending on the time
required to obtain sufficient quantities from the original source, or to identify and
obtain sufficient quantities from an alternative source. Continued availability of
these components may be affected if suppliers were to decide to concentrate on the
production of common components instead of components customized to meet the
Companys requirements. The Company attempts to mitigate these potential risks
by working closely with these and other key suppliers on product introduction plans,
strategic inventories, coordinated product introductions, and internal and external
manufacturing schedules and levels. Consistent with industry practice, the
Company acquires components through a combination of formal purchase orders,
supplier contracts, and open orders based on projected demand information. The
Companys purchase commitments typically cover its requirements for periods
ranging from 30 to 150 days.

3.10

Product Quality

The main goal is to obtain stellar products and services within tight timeframes, at a
cost that represents the best possible value to our customers and shareholders. For
guaranteed quality of their products Apple makes sure each of its suppliers meet
the highest standards for all goods and services. Their requirements include a

commitment to rigorous quality assurance. In addition, suppliers must be


committed, to ensuring the highest standards of social responsibility.

Apple designs its products with recycling in mind, making them easy to dismantle
and using high-quality materials that are valuable to recyclers. These factors also
promote a healthy electronics recycling market. Innovative and efficient Apple
strongly believes that reducing the environmental impact of the business starts with
the design of their products. They set high standards based on their own
requirements and those set by programs such as ENERGY STAR in an effort to
create products that offer excellent environmental performance throughout their life
cycle. The iMac and Mac mini are great examples of ultra-efficient design, and
illustrate the ways in which Apple continually refines products to further improve
environmental performance. Their designs also help to reduce energy consumption,
minimize the use of environmentally damaging substances, and optimize the useful
life of their products, all of which lead to a smaller environmental footprint. Lower
energy consumption reduces electricity demand and alleviates the detrimental
effects of power generation. Using recyclable materials cuts the amount of waste
going into landfill. And restricting environmentally damaging substances makes
products safer for consumers and businesses during their useful life and beyond.

The Management Plan

4.4

Organization Structure

The diagram below represents the organization structure of senior


management and their core responsibilities. The individuals
mentioned
below are the key drivers of the corporation and Steve
Jobs in particular is the
founding member of Apple and CEO who
has in recent years revamped the
organization to its former glory.

4.5

Skills Required

The following diagram lists out the skills required for Marketing, Information
Technology, Finance and Operations. The information was extracted from
http://www.apple.com/jobs/us/pro/.

4.6

Salary Compensation for Top Management

The following two tables are a composition of the salary compensation and Stock
Rewards of top management.

The Financial Plan

5.1

Financial Strategy

The financial plan for Apple Inc is based on maintaining continuous growth in Market
Share & Profits through considerable investment in Research and Development. Our
estimates are conservative and take into regard certain General Assumptions
mentioned below.

5.2

Important Assumptions

We have assumed that we are in the beginning of the fiscal year 2005 & the
forecasts have been made for the years 2005, 2006 and 2007. A break even
analysis is not available for Apple Incorporated since it is an established firm
experiencing continuous growth. In order to calculate the projections in the income
statement and balance sheet, there are different growth rates that the company has
estimated, which change from year to year. To calculate the cash flows for the
stated years, Apple. Inc, have not provided a suitable growth rate with which we
could use to project the future cash flows.

5.3

Liquidity & Capital Resources

Apple has been able to pay off all its debts in 2004 and is completely equity
financed. Thus the sources of funds for our next fiscal year are expected to be as
follows:
Sept 29, 2005 (millions $) Sept 30, 2004 (millions $)
Cash, cash equivalents and short term investments 8261 5464
Accounts receivable, net 895
Inventory

165

Working capital

774

101
6816 4404

Annual operating cash flow

2535 934

As of September 24, 2005, the Company has $8,261 billion in cash, cash
equivalents, and short term investments. The Companys short term investment
portfolio is primarily invested in high credit quality, liquid investments. As of
September 24, 2005, approximately $4.3 billion of the companys cash, cash
equivalents, and short term investments were held by foreign subsidiaries and are
generally based in US dollar denominated holdings.
The firm believes its existing balances of cash, cash equivalents and short term
investments will be sufficient to satisfy its working capital need, capital
expenditures, outstanding commitments, and other liquidity requirements
associated with its existing operations over the next 12 months.

5.4

Financial

Indicators

The following benchmark chart indicates our key financial indicators for the three
years. We foresee major growth in sales and operating expenses as we spread the
business during expansion.

5.6

Projected Profit & Loss

The annual estimates of the Pro forma for the years 2005, 2006 and 2007 are
presented below. A column showing actual figures for 2004 is also given, as a
reference for the projected amounts.

Table: Profit and Loss

As the table demonstrates, Apple has predicted a steady increase in its Net Sales
over the 3 years. Beginning with the actual figure of $ 8,279, to an estimate of $
14,902.20, an increase of 80%. Cost of sales are estimated to fall initially in 2005,
and then to rise as the demand for Apple products increases. The initial fall in Cost
of Sales may be attributed to a purchase of new machinery which will reduce cost of
production. Gross Margin is predicted to rise by an average of 19% every year.
Apple is famous for its significant investment into Research & Development and
thus it is not surprising to see a predicted rise in R & D costs. Projected Operating
income rises by a significant margin of 259 % from 2004 to 2007.
Taxes can be seen to remain relatively stable, not increasing by large margins. Net
income is estimated to rise by roughly 200% in 2007. Overall Apple has predicted

optimistic figures, which may not be unrealistic either as market research shows
that the Apple iPod is showing a steady rise in popularity.

5.7

Projected Balance Sheet

The balance sheet shows healthy growth of net worth, and strong financial position.
The annual estimates of the Pro forma for the years 2005, 2006 and 2007 are
presented below.

Table: Balance sheet

Total Current Assets are projected to increase by roughly 16% from $ 7055 to an
estimate of $ 8242.50. Total Non Current Assets are predicted to rise as well, by a
significant 46%, as new machinery is likely to be purchased. Total assets only rise by
20%.
Total Current Liabilities are projected to rise by an almost negligible amount of 5%.
Total Share Holders Equity is predicted to increase by a tiny fraction, demonstrating
that the firm does not plan to increase dividends in the near future.

5.8

Business Ratios

The following table shows the projected business ratios. We expect to maintain
healthy ratios for profitability, risk and return.
2005

2006

2007

25%

20%

20%

Current ratio

2.92

2.92

2.92

Quick asset ratio

2.66

2.66

2.66

Inventory turnover

77.31

77.31

77.31

Accounts receivable turnover

9.77

9.77

9.77

Working capital turnover

1.79

1.79

1.79

Gross profit margin

26.58%

26.58%

26.58%

Operating expense ratio

25.71%

25.71%

25.71%

Net profit margin

1.86%

1.86%

1.86%

Asset turnover

0.95

0.95

0.95

Return on assets

1.82%

1.82%

1.82%

Return on equity

24.89%

2.89%

2.89%

Sales growth
Liquidity analysis

Profitability analysis

Capital structure analysis


Debt to equity ratio
R&D turnover

Total assets

0.60

0.60

5.35%

5.35%

6.40%

Operating cash flow as % op.inc

130%

Total current assets

85%

6.40%
70%
85%

0.60
5.35%

6.40%
70%
85%

CONCLUSION:
The overall trend in Apple. Incs financial planning demonstrates a healthy growth
and a rising popularity of their products.

Overall Conclusion

Conclusion of the market analysis

Market analysis tells us that our biggest competitor haves been Hewlett-Packard,
Dell and Cisco Systems. And even though on many levels HP has out done us, we
control a slightly larger chunk of the overall market share. Our target markets
include: Creative Professionals, Educational field, Science community, Businesses
(small and large), IT professionals and avid Gamers. Trend analysis tells us that the
iPhone has paved the way for mobile manufactures worldwide. Another trend
includes the environment and Apples, dedication to reduce their carbon footprint.

Conclusion of the PEST analysis and Pricing strategy

The Pest analysis illustrates the various factors that can very well dramatically
affect the companys operation like political, legal and natural changes.
The price strategy of Apple is a fairly simple one, which includes premium pricing,
which has only improved the companys market share, and kept the integrity of the
brand intact.
Conclusion of the Organization Plan

The Organizational Plan listed out the top management headed by its captain Mr.
Steven Jobs, and their monetary and stock compensation. It also listed out the
numerous skills required for jobs like Marketing and Finance.

List of References
http://lowendmac.com/ed/fox/08ff/mac-pro-vs-dell-hp.html
http://www.marketingteacher.com/Lessons/lesson_pricing.htm

http://www.investopedia.com/terms/p/price-earningsratio.asp

http://www.siliconvalley.com
http://apple20.blogs.fortune.cnn.com/2008/04/01/analyst-apples-us-consumermarket-share-now-21-percent/
http://www.apple.com/jobs/us/pro/

http://www.mobilewhack.com/top-ten-list-of-iphone-competitors/

http://www.apple.com/hotnews/agreenerapple/

http://finance.yahoo.com/

http://media.corporate-ir.net/media_files/irol/10/107357/reports/AAPL_10K_FY07.pdf

mmoore.ba.ttu.edu/ValuationReports/Apple.pdf - Similar pages

APPENDICES
PRODUCTS AND THEIR PRICES

A Greener Apple Document (by Steven Jobs CEO)

Evidence of Shareholders equity 2007

Financial Statements