External Analysis ================= General environment analysis

Companies engaged in manufacturing electronic computers are listed under SIC code 3571 and/or NAICS code 334111. Electronic computers are machines that 1) store processing programs and data necessary for program execution, 2) can be freely programmed to user requirements, 3) perform arithmetic computations, and 4) execute processing programsthat requires modification of execution by logical decision without human intervention. Personal computers fall into this category (OSHA, 2004). The electronic computer industry has been struggling since early 2000 when the economy weakened. The US Census Bureau reported a decrease in computer shipments from 1999 $64.7 billion to 62.9 billion in 2000 and continued downward to $49.3 billion in 2001. Unit shipments also declined from 27.2 million (2000) to 22.7 million in 2001.

Rising unemployment and anticipated war with Iraq assisted in reducing the number of computer purchases. The terrorist attack on the Pentagon and the Twin Towers in New York City also added to the decrease. Much equipment was available at reduced costs due to the bankruptcy of many Internet companies in the early 2000s. IDC also reported in 2001 that Dell, Compaq, Hewlett-Packard, and IBM controlled over 40 percent of the world PC shipments. HewlettPackard purchased Compaq and became a formidable power competitor for Dell. The control of this large a portion of market share is something Apple would have to contend with each step of the way (Electronic Computer Industry, 2004). Economic segment Computer requirements are increasing across the globe. Data collected and shown on Table 04 has all but 4 countries increasing the number of computers being used per 1000 individuals

within each respective country. The data was not restricted to PC type computers but listed computer use in general so Apple computers were included within the data gathered even though it is undergoing a market share loss of computer sales. Table 05 further supports the increased use. Political/legal segment

======================= Apple faces political/legal segment issues both domestically and abroad. Domestically the Federal and State government continues to tighten up on the environmental issues that constrain manufacturing and disposal of the units. Environmental concerns are issues that directly affect each computer manufacturer. The Environmental Protection Agency updated EPA/310-R-95-002 "Profile of the Electronics and Computer Industry Code in the September 1995. This document provides directives that must be adhered to by companies manufacturing computer components (EPA site, 2004). Apple has willfully promoted the buyback and proper disposal of computer parts in effort to promote product stewardship (Table 06) from the environmental perspective (Apple website, 2004).

Socio-cultural segment

Cultures are restrictive and the restrictions have effects on company profitability. China Internet traffic increased by 71% from 1997 to 1998 and continues to do so as we approach 2005. Some technological changes are more readily accepted than others. Chinese people still have trouble accepting credit card transactions since the initial cost of computerization is high. Internet sales in many overseas countries are not as successful as in the United States and Europe because many of the customers prefer to view the products they are purchasing. The same applies to other parts of the world so the computer companies have to adjust according to the cultural differences

being encountered within the different countries in which they chose to market and sell. Adapting to the differences in culture is not very easy and some manufacturers are trying to build value into their company name. This is being done in hopes that branding will eventually equate with honesty, integrity, quality, and good service so that storefronts will not be as necessary as they presenting are. Apple computer began opening storefronts in the United States in effort to compete against the PC based companies. Their thought is that by having it available for the customers some will eventually make the switch away from the PC-based systems. The largest socio-cultural hurdle for companies such as Apple is the lower educational standards of many countries. While many are making great progress, they are limited in number. Those that are progressing can take advantage of the outsourcing that is being done by American companies.

Technological segment (Electronic computer industry, 2004) The governmental has always favored the computer industry's research and development and it has shown favor by the amount of funding that is made available. This trend has held true since the Cold War. It was just recently that any significant cutbacks occurred and the industry has been unable to make up the difference. Most computer companies began to cut back the amounts of R&D funding in the early to mid-1990s and also began to focus on the short term. Product life cycles have been shortened and the computer has become an everyday commodity. Many of today's technology driven innovations that are being developed affect the microprocessors, semiconductor, memory storage, and speed capabilities of the computer units. Miniaturization is definitely on top of the required changes for the future. Everything seems to be getting smaller and with the decrease in size comes integration of multiple technologies. Phone, PDA, and Internet modules are being combined into one piece of equipment. Telephones, video players, answering machines, and televisions sets are being intermeshed. The future of technology seems endless. Five Forces Model of Competition ================================ Every market including the financial industry can be evaluated through the use of Porter's five-

This situation places the buyer power in a strong position that can only be countered by companies with strong product differentiation that would increase the switching costs. Bargaining Power of Buyers: All of Apple's customers have a variety of computer companies from which to chose when it comes to purchasing hardware. as tools that help analyze a company's position against its competitors (QuickMBA site. and the degree of rivalry. Switching costs are low. service or price offered elsewhere is better or cheaper. software. Suppliers adjust pricing and quality to make their products more attractive so competition is high leaving them in a low supplier power position. Porter's uses the five forces. The existing companies have capitalized on the distribution channels and have created strong branding awareness that makes it difficult for new comers to compete. Apple positioned itself years before so it has created its space in the computer industry just as IBM. The buyer has the ability to switch when quality. threat of substitutes. Gateway and Dell.force theory. barriers to entry. The probability of success is so low that competitors pursue niche markets rather than trying to compete with the bigger companies. Threat of New Entrants: Startup costs are extremely high so the probability of new entrants is low. Hewlett-Packard. Bargaining Power of Suppliers: The suppliers are plentiful and must compete with others to ensure that they will be able to retain the business of the computer companies. The same . or peripherals. 2003). supplier power. buyer power. The position is low especially since the larger companies can readily switch to another supplier without any major repercussions. The computer operating systems differentiation makes it difficult for companies to switch but individuals will find it rather easy to change from one computer system to another.

Opportunities Apple's different operating system Apple can take advantage of its operating system differences by turning it into an opportunity to develop improvements to the Macintosh platform in order to achiever greater perceived functional and design advantages over competing platforms. Apple is also reliant on promoting its own operating system. Threat of Substitute Products: Substitute products are readily available so this threat is very high. The market is favorable for the companies that have locked a business or educational facility since substitution will require a change of each computer within the facility and in some cases more than one location. The digital hub being pursued by Apple has already been copied by Gateway. Internet connectivity has increased the ability of switching individual units while the others remain the same. Hewlett-Packard. Apple is faced to compete against companies like IBM. Rivalry among competing Firms: Apple has many competitors that have the advantage of possessing the larger portion of market share. . Competitors work to convince their customers that their product is superior to its competitors. Competition is fierce in the computer hardware industry and switching costs are low. and Dell. If prices are higher then the company with the higher price has to provide justification for the increase. Apple's operating system differentiation can command higher pricing when it is presented to the creative designer community but not to the individual computer buyer unless they are specifically looking for such enhanced graphic capabilities. Even a smaller company like Gateway poses a threat.difficulties and cost apply to the education facilities that have committed to a single operating system. The more differentiation of product the less likely the switch to a substitute will occur.

and sales are all extremely competitively aggressive in Apple's business. With such a widespread system the vulnerability increases and fixes are not easy to make in short time periods. The rapid technological advances made by competitors in the hardware and software segments has increased the number products offered in shorter time spans. The launching of the iTunes Music Store resulted in over 2 million downloads in only 16 days. The last few Microsoft upgrades have been plagued with glitches that provide another grand opportunity that Apple can use to its advantage so long as it doesn't make the same mistake with its issues of upgrades. Price competition. Micro-soft bashers love to point out that Linux or Apple's OS X are not vulnerable to whatever the exploit du jour is on the Microsoft platform (Bradley. 2004). reliable. Apple's pursuit of music industry Apple's pursuit of the music industry through its iTunes also provides a good opportunity to increase Apple's bottom line and also increase brand awareness. has been very . and secure system that is also very easy to use (Brainyencyclopedia. All of the downloads were all done on Macintosh computers. 2004). Apple's opening of its music store worldwide will be a great opportunity (Brainyencyclopedia.Various computer worms and other hacker anomalies that provide a grand opportunity for Apple to take advantage and garnish some small sectors of this frustrated market. 2004). including sellers with computers with other operating systems. Threats Very competitive industry The market for design. manufacturing. Microsoft upgrade costs versus benefit Microsoft users are finding it less feasible to continually upgrade software packages unless they can truly see a benefit for the money being spent.The Apple Mac OS X is seen as a stable. The customer will continue to look for value when money is spent.

Apple's operating system has lost . Entry into these markets is costly but unfortunately for Apple the competitors have an abundant supply of funding to address marketing.intense as the battles for increased market share rise. 1999). These copycat computers can even be considered as substitutes for an iMac. Competitors are quickly mimicking the unique presentations of digital music products. More than 90% of the world's computers use the Microsoft operating system. These copies pose a major threat to Apple sales. 2004). This pattern does not seem any brighter in the near future so these practices are very likely to continue. Competitor's copying programs Companies such as Future Power USA copied Apples Imac and have been selling it. Consolidation of major players has made for larger and potentially stronger competitors. and miniaturization of parts. Microsoft dominance Microsoft Windows continues to dominate the market. The copies look identical to the iMac even to the point of making the colors the same but under different names. manufacturing. Website www. Windows based PCs have cut prices and lowered product margins to maintain market share since demand has been declining during the past few years. Competitors are even promoting free peer-to-peer services. This dominance and need to overcome the world's mental state of thought about Windows operating systems is a major threat to Apple (ProComp.lowendmac. together with a more reliant Internet movement make the competition for market share even hotter. All of these affect gross margin. PC technological advances in software and hardware. Apple needs to work on convincing the world that its system is better than Microsoft. and technical resource requirements that may arise. especially when combined with increased reliance on the Internet and the miniaturization of components that decrease prices since they are smaller and simpler.com states that many other companies are copying the iMac either because they are too lazy to come up with a different design or because the iMac is such a great idea everyone wants to copy it (LowendMac.

Failure to compete effectively could cause a negative affect on Apple's financial and operating results. Global competition increases Competition continues to increase worldwide. These are just a few examples of how the governmental regulatory requirements continue to pose a threat to the computer and electronic industry. As the technology advances the more susceptible the companies become to additional piracy. In 1991. Tetrabisphenol A (TBBA) was voluntarily phased-out of all plastic enclosure parts in quantities greater than 25 grams. The introduction of the G5 has helped with sales. This difference must be managed with continued improvements that allow the public to perceive design and functional advantages over the competitors' operating system platforms. Governmental regulatory increases Governmental regulations and potential litigation from non-compliance has persisted as a threat from the early years. Other countries are getting into the manufacturing . as have the Powerbook portables. Apple's operating system has provided graphics and creative designers with a useful tool that is not comparable to Windows operating system applications. Apple phased out the lead in the batteries and in 1992 dealt with the chloroflurocarbons (CFCs) in manufacturing.some of its market share during the past few years but is working to regain its losses. Apple has initiated a lot of environmental safe programs voluntarily but each is costly to implement even though compliance far outweighs the cost of non-compliance. Software Piracy Software piracy has been a problem for software and operating systems producing companies. The years 1996 brought about implementation of ISO 14000 quality standards and by 2000 all Apple manufacturing sites were ISO 14001 certified as having a structured environmental management system (EMS). The piracy issue has grown to global proportions and stopping unlawful copying and distribution of copyrighted software does not seem to have a remedy for prevention in the future.

This need for judging demand is critical and must be determined as accurately as possible because over supply will lead to dead inventory and not enough supply will lead to unhappy customers. consumer price sensitivity and abundance of competitors. Aggressive pricing practices Competition in this highly competitive market faces overcoming aggressive pricing practices. instill governmental restrictions in product movement. frequent new product introductions. If the product is well received then the company must be in a position to ramp up production in short order but not enough to be overwhelmed by large inventories when the sales regress. continuous product improvements. Companies must hope that the product introductions will be well received by the consumers. rapid technological changes. China. shortened product life cycles. Innovations within the operating systems must continue to support the existing systems at the risk of losing customers should this not occur. Some reached proportions that even affected travel into and out of the country. Hong Kong and other Asian countries were subjected to quarantines implemented by the World Health Organization and Centers for Disease Control and Prevention when severe acute respiratory syndrome (SARS) advanced to epedemic proportions.as the expansions of existing companies occur. The amount of product introductions hitting the market requires that each company continue pursuing more innovative products in a shorter period of time. Lack of newly enhanced product will reduce customer demand even more than what is being affected by the weakened economy. limit freight services. Apple utilizes these countries for manufacture and production of its iPod so diseases such as this affected employee travel. Each section is intense and staying on top of each is difficult for any . World epidemics affecting distribution and manufacturing The world has been riddled by a few major epidemics that have disrupted the normal distribution and manufacturing channels of much industry. and can delay production and operations. new industry standards. Pursuit of savings drives them into the other countries and with labor and parts costing less they utilize that as a means for cutting costs making them more competitive. Year ago this type of epidemic would not have created the effects that it presently does in this global system. Cheap labor and parts manufacturing in less privileged countries provide opportunities for larger companies with extra capital to spare for expansion. Finding the balance is very difficult.

telephone .S. 32 bit and 64 bit chips. households. 2004). A few examples of those not previously used are cable TV firms. The competitive rivalry is another dominant feature. It has increased to a range between $890 million to $2 billion. the local and regional markets a completely saturated. networking expansions. A third dominant economic feature is the technological innovations that continually surface from the many competitors. Those with considerable market share continue to battle to prevent relinquishing any while those with little push with the items above to take any amount of market share they can get. Industries' dominant economic features The versatility of the computer industry allows a few dominant economic features to stand out. Many of the expansions involve channels that already carry PCs or other sources not previously used. Price declines have contributed to the robust growth (Fuji-keizai.9%) this year. This follows an 11% increase in 2003. A survey conducted by the Gartner Group predicts that global PC sales will increase to 187. and improved design technologies. Industry Structure Market Size The PC market has spread into nearly 80% of U. Each has a direct link to the economic structures of the company and its competitors.company to manage. Innovations such as software advancements. which is nice considering that. The market size mentioned above is one of these dominant features. The national and global levels are in the early maturity stage. Distribution channels The distribution channels for PCs have been changing considerably in the past couple of years. The changes are being driven by price declines and the 'mature product' phase of the computer life cycle.000 units (13.000.

The move has been seen as being gutsy. The difference in expense between Apple and Microsoft is the systems put into place. Its rivalry has created an air of 'bad blood' between itself and digital rival RealNetworks.com.0 have teamed up to release a new service/hardware combination that is intended to compete directly with iTunes Music Store and iPod. Microsoft's control of the PC market speaks for itself so they can easily been seen as the strongest competitor. Another side of competition is the music side that Apple is presently doing well in. The move was a very well planned strategic move for Apple. The scheduled release is to offer unlimited downloads and services that the iTunes Music Stores offer. Apple teamed up with AOL on the messaging offsetting the battled strategic moves that Microsoft intended. which they purchased in 1998. Competitors: strongest . 2002). AOL is tight-lipped on how it intends to use ICQ." The move has prompted Apple to consider restricting iPod software updates so that Real's Harmony technology would no longer be supported (Naraine. Speculation has surfaced that video conferencing functionality may be added to iChat (Geek.weakest The focus on the strongest competitor extends beyond Microsoft but that will become clearer in a few sentences. 2004). Apple will eventually have to tackle trying to take away market share but a head-on battle may not be the best approach (Machanick. Apple chose to go with a closed system that not have any . 2003). ICQ instant messaging users number to 235 million and Microsoft and AOL were warring over whether Microsoft messenger can access AOL messenger's user base. Rivals anticipated strategic moves Apple's strategy has not gone unnoticed. Economies of scale Expense of software creation was be extremely expensive and but once it has been refined the cost of producing copies for sale is minimized. Apple management was quoted as stating: "We are stunned that RealNetworks has adopted the tactics and ethics of a hacker to break into the iPod. 1998). The combined powerhouses present a formidable foe for Apple (SpyMac. and we are investigating the implications of their actions under the DMCA and other laws. Samsung and Napster 2. and bookstores.companies.

Each Mac also had a unique machine identification number (Apple museum. 2004). and Ethernet into one small package call AirPort Express. Apple has put audio. The iMac release divided ROM into boot ROM and Mac OS ROM. The startup and higher-level code routines were separated. The first Macintosh computers were equipped with a physical chip on the logic board because RAM and HD space were costly and ROM contained routines required for computer startup and other higher-level Mac OS code. print spooler. Apple also offers a better-integrated computer operating system than its competitors. Key success factors Technology related The iMac release in 1998 introduced the Unified hardware architecture which featured the new ROM. The GUI (graphic user interface) system design is better than anything that has been placed onto any Windows platform so Apple has continued to appeal to the creative and professional graphics sector.com. It is also not easily copied so Apple could offer a superior computing solution free of any troubled operating system. The Mac OS ROM no longer needed to be in a chip form but instead is now an image file inside of the MacOS system folder. and bugging as did Microsoft. bridging. (2004). The introduction of AirPort Express raises the bar on these combined features (Technology updates. The system works with any Wi-Fi device and supports streaming music through analog and digital audio jacks and USB printer spooling through USB ports on Mac OS X and Windows XP and 2000. This reduced some of Microsoft up front costs and multiplied the progress. Microsoft gobbled other companies that had made sustainable improvements to their operating system up. testing. This change updates with the use of firmware feasible for both ROMs. Manufacturing related Apple subcontracts it's manufacturing to third parties so it can focus on its core competencies of .others assist with programming.

Apple not only contends with the physical distribution of its computers but it must also address distribution of its music and iTunes software products. Michael Hillmeyer.testing and developing software." He followed that with comments about the weak state of IT demand and the staleness of Apple product together with the higher costs were affecting financial forecasts (Wilcox. Distribution related Apple has always been a leader in the use of automated systems and the distribution phase is not any different. It can also concentrate on ensuring that what is manufactured meets required specifications so quality remains a top focus. 2003). Apple had survived rather well through the use of its aesthetics and user-friendly systems but the computer's position changing to a commodity eliminates much of the differentiation. Its opening of the retail stores has also assisted with marketing of product since more people can readily see . Apple's use of this system minimizes the intervention and monitoring time cycles. with Merrill Lynch. The AirPort Express system is one of Apple's new methods of staying on top of the distribution of its innovations. Apple operates some of its facilities round the clock and after manufacturing they are automatically feed to a system though a case taper where it is prioritized and sorted prior to being palletized. The company has also produced many great products but it continues to lose market share. The FloStor system can divert the product for shipment or audit before it is released from the warehouse. 2004). Texas Instruments and Nortel) have begun to follow this lead more than before since they are finding that savings can be high. Marketing related Apple has created computers that are aesthetically pleasing when compared to PC and their clones. Management can ensure that the computers meet customer's requirements by concentrating on their needs instead of fighting line production problems. It even has the capability of paging a maintenance mechanic when problems occur within the system (Flostor. Other companies (eg. commented about Apple by stating that "A product differentiation strategy is difficult in a business increasingly commoditizing.

They can be done because the Macintosh and the Mac operating system is better integrated than other computer operating systems.com. simple product line with a single controlling company dedicated to the production of quality products (Miller. 2000). Apple has chosen to follow other companies in employing engineers as business managers and they have seen the fall out from having done so just as other companies have also seen. The differentiation is not easily copied by competitors and can provide Apple user with a superior computing solution. 2004). As Apple transitioned into team building in the late 1990s they soon found that they management staff was lacking in managerial skills . The three levels include the store manager. Branding and logo help keep the name fresh in people's minds and Apple has designed some very creative commercials that help this (Yahoo finance. and a direct link to customer concerns. and 'keyholder'. engineers. programmers. rapid response to technological change. The company pays the store manager well but lacks in providing a reasonable pay for the 'genius' and 'keyholder' leading to high levels of turnover. Apple's product differentiation in the iPod and iTunes sector will be shortlived since it has a dependency on third parties and also because competitors can easily enter the market. 'Keyholders' stay when they are presented with the opportunity of moving up to the 'genius' level but leave soon after since they can command more money working for someone else after gaining experience. The storefronts use three key employee levels for selling product and providing expert support for customers. Apple differentiation offers a clean. computer technologists and specialists.the name on company storefronts. 'genius' position. They have gain a reasonable understanding of the skills required to sustain a competitive advantage in their areas of expertise. 2004). Skills related Apple has spent much of its hiring practices dealing with upper level managers. It can offer a trouble free operation. including Windows.000 annually after leaving the Apple store (dePlume. Some have even switch to work for other companies earning $50. Apple must position itself as the only competitor in the market with stem-tostern computing solutions. and R&D scientists. Apple's expansion into the retail store business has been a change to what they are accustomed to hiring.

. document noted that Apple lacked the capability of developing effective teamwork between its talented engineers in R&D and the sales and marketing people who understood needs for lower cost products. Managers did not want to lose control of their power and moving into cross-functional business teams meant just that plus not having an effective leadership retarded any efforts in that direction. This put Apple in a position of not being able to fulfill its requirements for: 1) Defining its environment and understanding its strategy. As before many of them were engineers with little to no business management experience or academic background. Apple also lacked a work system of cross-functional product development teams and needed business-oriented managers with leadership skills to lead teams that could agree on new businesses. and 4) Lacked leadership teams to provide direction. Apple was missing four out of the seven segments from Michael Beer's Organizational Fit Model. human resources system.required to lead cross-functional teams. Organizational capabilities (Beer. Employees were not sure of the company's strategic directions and were receiving different priorities from R&D and marketing. 3) Needed a management process for specifying workable goals and objectives. 2) Lacked a work system. work system. principles and values. and the leadership team. in his Harvard Business Review. This again came from lack of functional leadership team cohesiveness in setting one direction for the company. Michael Beer. management process. 1991) Evaluating Apple's organizational capabilities requires reviewing environmental/strategy.

The work system and management process require that communications lines be effective and Apple's was not. iPods serve as THE digital music play and provide an avenue where Apple can market the Reflective level with messages and images designed within the Apple culture (800ceoread. Driving forces Companies are often faced with the affects of the driving forces.entering. Teams within Apple have been able to coordinate the work so that they are able to go to market ads and provide packaging that is not only aesthetic but also functional. exiting or mergers Increased globalization of industry . John Scully came in and gathered the top 70 managers for an off-site. 2004).different concerns. Driving forces are part of the external analysis and provide the company with insight on opportunity and threats that it must contend with. Lack of lower management involvement made it more difficult to solve problems. In 1991. Some of the examples of driving forces are: Industry growth rate (short or long-term) Changes in who buys the product and how it is used Changes in society . attitudes. Trust and communication were extremely low in the Apple world. and lifestyles Product innovation and technological change Firms . Apple's work on the iPod has shown the improvements of its organizational fit.

they are just more affordable. Many are not knowledgeable of the Apple operating system and have only heard of Macintosh computers. This is bringing a younger generation into Apple's marketing world but Apple has yet to . Upgrades have not been technologically advanced enough to warrant constant change so many consumers wait until a few upgrades are offered before purchasing one. Apple has to face another hurdle when viewing this because big business is more Wintel operating system driven and with the cost of cloned PCs. and iPods.Changes in cost and efficiency Regulatory influence and policy changes Changes in degree of risk and uncertainty Apple does have to contend with a few of those listed. attitudes.different concerns. and lifestyles The people purchasing computer have been become accustom to using Windows operating systems. The industry has usually been supported by big business and since the slow down big business has not been expanding so need for additional computer and software is not required. iSync. It is affected by a weak economy and less disposable income within the households due to lay offs and outsourcing of jobs outside of the United States. The population growth has increased and all of those individuals that come into computer using modes are being subjected to the Windows environment. Changes in who buys the product and how it is used Changes in society . Industry growth rate (short or long-term) The computer industry has been slow for the past number of years. The younger generations are coming to know of Apple with the onset of iTunes.

Much of the computer hardware industry has defined players and market share percentages allotted with a few shuffles taking place among them. The products and how they are presented change continuously. The changes also are affected by the different concerns. Customers have a desire to possess the latest and greatest so the combination of the companies trying to create the new and the customers desire to be first 'on the block' with the new certainly creates a major driving force. The economic outfall affected the spending habits of many people. New software developers can infiltrate the industry and music related equipment providers can easily provider newer systems or a different avenue for accessing the music clips. The same applies to the software developers. Many product innovations are being driven in the areas of miniaturization. Companies are spending millions of dollars to provide themselves a position in being the one to make the next innovative improvement. and lifestyle adjustments that continuously occur. exiting. The losses incurred by those directly involved has affected the immediate families and in many cases changed their lifestyles and attitudes. The need to remain competitive on both fronts keeps everyone moving forward. attitudes. or mergers Entry into the microprocessor and semiconductor world would be rather difficult especially since the main players have already staked their territories. Firms . and speeds of computers is ever changing and as the technology improves so must Apple.entering. memory storage. The differentiation in the Apple operating system can hinder the amount of software being created . Niche companies are being mergered or bought out by the larger companies so the larger ones make some small gains from time to time. The music industry is different since it does not require the capital outlay that would be incurred if entering a hardware market. semiconductors.convince them that the computer systems provide the quality and ease of use just as the music materials that Apple is able to supply for them. The economic changes that have resulted from the 9/11 incidents have created change in attitudes and lifestyles. Product innovations and technological changes Microprocessors.

Apple moved into the retail world by opening 65 stores so costs increased considerably but it will take time to learn if the efficiency of their sales increased proportionately.but this works against the company because few products are available to use on their computers. Regulatory influence and policy changes Government regulations will continue to change domestically and abroad. The mode forces increases in need for being innovative. especially when the governments impose tariffs against the foreign entrants. Matters worsen as competitors cut costs when providing their products to market. Environmental issues have been part of Apple's proactive approach to being environmental stewards. Competitors that can affect the direction of the company can easily copy the iPod and iTunes sectors. Many companies in other countries are driven by their desire to capture a large market share on their side of the world or by governments pushing them to enter into the global systems. This cost must be absorbed into the products being manufactured. The choice of not being a good environmental steward could backfire and . Changes in cost and efficiency The product life cycles have become shorter as technology advances and consumer whimsical purchasing changes. Increased globalization of industry Companies are surfacing in the global markets. Innovation and competitiveness cost the companies a considerable amount of money that has a direct affect on the profits. China is a country that is pushing their companies to compete in the global world. An American company selling in China cannot promote product differentiation when the consumers know that the same Chinese company is making the parts for both computers but the parts just receive different labels as they exit the facility. Apple's different operating system also incurs addition costs in the selling and administrative costing realms. Apple must provide consumers with superior or value added equivalents to justify the higher prices for their products. Money spent on cleaning up or providing cleaner operations does not add to the value of the product production so it is a negative affecting cost that must be incurred. These operations affect the direction of the companies that have been trying to infiltrate these foreign places.

be far more costly than the amount being spent to do it up front. . Material restriction or higher cost of licensing materials could adversely affect the company. Entry into the global markets will encounter regulations imposed by the different governments. If the sales do not occur then the orders may have been more plentiful than required and excess inventory could adversely affect the company. Apple components may not be as plentiful when ordered from third parties because their systems control only 2% of the world market share so many suppliers would want to focus on the Wintel operating system that controls 90% of market share. Apple's control of those that do produce components for them is limited and subject to much risk and uncertainty. Their ability to sell products would be much easier even with the additional competition. New innovative product may be presented to the consumer and make the present inventory obsolete so the company again stands to incur all the risk and face uncertainty of the future. Forecasting availability of product or music clips could be risky since these third party members hold control. Changes in degree of risk and uncertainty Apple components and products are ordered before manufacturing begins so forecasted sales dictate how much should be ordered. Third parties also provide the music and manufacturing of iPods for Apple.

513. Heinen Senior Vice President. Worldwide Sales and Operations Nancy R. Cook Executive Vice President. The company is located at: 1 Infinite Loop Cupertino.Internal Analysis ================= Organizational description -------------------------Apple's employee count in October 2004 was approximately 10.912 with sales per employee documented at $770. CA 95014 United States Telephone: (408) 996-1010 Facsimile: (408) 996-0275 The officers and their positions to date are listed as: Steven P. General Counsel and Secretary . Jobs Chief Executive Officer and Director Peter Oppenheimer Chief Financial Officer Timothy D.

5% of the 387. 2004). Ph. educators. and higher than the average of the S&P 500 as a whole which is 65..063 institutions own 67. Applications Avadis Tevanian. This is higher than the average institutional ownership of the Computer Hardware Industry at 50. Hardware Engineering Bertrand Serlet. Chief Software Technology Officer Its stock is divided as follows 1.Philip W. creative professionals and consumers around the world through its innovative hardware. Corporate Vision/Mission -----------------------A computer for every man. Worldwide Product Marketing Ronald B. Johnson Senior Vice President.D Senior Vice President of Software Engineering Sina Tamaddon Senior Vice President. .93 million common shares outstanding. Jr.2%. Schiller Senior Vice President.7%.D Senior Vice President. Retail Jonathan Rubinstein Senior Vice President. software and Internet offerings (Apple website. Ph. woman. Apple is committed to bringing the best personal computing experience to students. and child on the planet.

The introduction of the iPod mini is expected to reduce sales of the iPOd. . This is an increase of $170 million compared to $27 million from previous year. Technological spending levels might continue to deteriorate and additional challengers to Apple's iPod are expected. Continued store opening may accelerate increases in revenue. Apple's introduction of its iBook has been favorable but Power Mac sales have been disappointing. Revenue for fiscal year end 2004 is expected to be 27% and an additional 13% is forecasted for 2005 end year. reducing gross margins slightly. new product introductions and additional retail store openings. The computer hardware environment continues to be weak but Apple has fared well during the downturn and is anticipated to improve as the economic sectors trend upward.93 billion during its last 3 quarters of operation. New products and retail store strategy have been paying off in terms of earnings. Apple projected 88 stores by end of fiscal year 2004.Long and short range objectives (S&P Apple financial report. The change is attributed to increased sales of iPod and Macintosh units and decreases in restructuring costs. 2004) -----------------------------------------------------------------Financial objectives Apple's revenues have risen 32% to $5. Market share losses in the PC segment might continue. This is contingent to a continued economic recovery.

including . peripherals and Internet offerings. educators. This restructuring will save about $6 million in quarterly operating expenses. 2004) Digital Hub Apple provides personal computing experiences to students. PowerSchool product elimination also helped with the recovery. Apple continues to fare well against the industry (as illustrated in Table 07 below). software. Business Strategy (2003 Apple Annual report. Focus might be directed to improvements in the graphic and creative design segments of the Macintosh platform. creative professionals. The termination of manufacturing operating in Singapore and associated headcount reduction was favorable.Mac and the iTunes Music Store. It believes that . The PC sector must develop an innovative technological breakthrough that will surpass Wintel operating system performance so as to enhance product sales. The company continues it restructuring. [IMAGE] Strategic performance Continued store opening may accelerate increases in revenue and while the introduction of the iPod mini is expected to reduce sales of the iPOd it is an innovative introduction that stays ahead of competitors. The introduction of the mini-iPod and future developments can counter competitor entry.Apple must continue to watch competitor's entry into the music sector in effort to protect its iPod market share. businesses and consumers around the world through its innovative hardware.

The retail stores provide a medium for presenting entire computing solutions to users in areas such as digital photography. It offers digital hub products and solutions and provides interoperability with peripherals and devices from other companies. music. It opened and additional 9 stores during the first quarter of 2004. and built-in networking. Education The company has spent 25 years focused on the use of technology in . Retail The Company has opened 65 U. The stores are opened in high traffic locations in quality shopping malls and urban shopping districts. S.the attributes of the personal computer. Apple designs and manufactures the entire personal computer . possess a high quality user interface. graphics. It can do this by controlling the customer experience. children's software. intuitive ease-of-use. and easily connect to the Internet in multiple ways and at varying speeds. and multimedia capabilities. digital video. Store employees are experienced and knowledgeable. including its first international store in Japan.from the hardware and operating system to sophisticated applications and provides innovative industrial design. retail stores by end of fiscal year 2003. including its ability to run complex applications. contain large and relatively inexpensive storage. and home and small business computing. The company's main goal is to bring new customers to the Company and expand its installed base through sales to both first time personal computer buyers and those switching to the Macintosh platform from competing operating system platforms. can individually add value to these devices and interconnect them as well.

digital video and film special effects. music performance and production. Mac OS X. Creative Professionals The creative professional makes up the most important market for Apple and third party developer products. saying. and high-quality curriculum and professional development solutions. and administration. and web design. Products such as eMac and iBook that are designed to meet the needs of education customers. video-editing solutions. one-to-one learning solutions. Apple believes that integrating technology into the classroom will result in higher levels of student achievement. audio production and sound design. Steve Jobs predicted it well. publishing. compositing. "Going out of the .education. wireless networking capabilities. and print production. Apple's greatest contribution to the computer industry was its talented engineers. These customers use the Company's products for a variety of creative activities including digital video and film production and editing. just before Macintosh's introduction. graphic design. development. incorporates powerful graphics and audio technologies and features developer tools to optimize system and application performance when running powerful creative solutions provided by the Company or by third-party developers. Employee relations -----------------It has been said that apart from Macintosh. and titling. who carried the torch to other firms. digital still photography. student information systems. The Company's operating system.

" (Macintosh. you know there won't be a Mac group. In addition to its own hardware and software products. Apple operated 65 retail stores. third-party wholesalers and resellers and its own retail stores. 2004). and honest to date. consumer and business customers. Andy will be writing the next great American novel. Its products include the Macintosh line of desktop and notebook computers. Apple maintains a a stable employee relationship environment. creative. Inc. Products and services --------------------Apple Computer. peripherals and personal computing and communicating solutions. manufactures and markets personal computers (PCs) and related software. Apple employees are still dedicated. Who knows what? But we'll be scattered all over the globe doing other amazing stuff. Partnership is firmly embedded in Apple but resources are continually needed to sustain it as the existence of viable partnership arrangements and processes remain long-term goals (Apple case study. Burrell will be off in Oregon playing his guitar. the Company's retail stores carry a variety of third-party hardware and software products. The bosses have changed a few times but the main leader is back and he works hard on taking care of those that work with him. Hardware Products . the iPod digital music player and a portfolio of software and peripheral products for education. 2004). 2004). the Mac OS X operating system. The Company sells its products through its online stores. designs. (Reuters. direct sales force.eighties. loyal. As of September 2003.

Power Mac® Xserve® and Xserve RAID Storage System PowerBook® iMac® eMac iBook® Peripheral Products iPod™ Displays Software Products and Computer Technologies Operating System Software Server Software and Server Solutions Professional Application Software Consumer. Education and Business Oriented Application Software iPhoto™ .

Apple's culture is innovation.think different (Macintosh. They inscribed their names on the inside of the machines much like an artist would his/her painting. #10. Who would have considered an apple after it had a bite taken out of it. What does this have to do with computers? The people involved in the development of the Macintosh were artists rather than engineers. proud and loyal.iChat AV iSight Corporate culture. They continuous push to work outside of their standard paradigm. His return has rejuvenated the Company. The entire company is passionate about its desires to succeed and return to what it once was technologically. Employees were loyal and devoted computer fans. Her comment follows: . values. Corporate culture The company logo is a rather odd thing. Apple began its 'Think different' campaign and it signified what Apple people were about. sometimes bordering on the fanatic. Clicking on the poster below will provide a greater insight on Apple's culture . 2004). Gina Caamano expressed her thoughts of what Apple was in 2000. While he believes in strong leadership he operates in a laid back fashion but still gets the job done. and morals ------------------------------------Steve Jobs is Apple. In 1988. The company began with him as leader and then lost him during the middle years as the company fell on its face.

When things became too comfortable I knew they would change soon enough. there were many lessons I learned. to grow with it's rapidly changing environment. 2000). Apple will always hold a special place in my heart. pushing me to the limit. Throughout the years. It taught me to be adaptable. as I close this last chapter And prepare to move onto a new path I look back at all the gifts Apple has given me And I give thanks for all of them -the incredible people I met whom some are now cherished friends. With Apple. at times. It was a company that valued it's people and offered an abundance of opportunities I knew it was unique and special and I wanted to be a part of it. Core Competencies ----------------Apple's core competencies are focused in the markets of education and the creative professional worlds. Since so much of my heart went into Apple (Caamano. Fifteen years later. There was never a dull moment. I've seen Apple at it's best and I've seen it at it's worst I've grieved for Apple's failures and I've cheered it's successes. -And others who have shared the "Apple" experience with me. It has begun to expand its retail outlets to bring the computers to the people and is making great strides in the iPod and iTunes music world. nothing was ever secure nor predictable. Apple has proved its superiority in both of these areas and continues to focus on them. I always felt proud to be a part of such a special and innovative company.When I began my journey at Apple I was young and passionate about what "Apple" stood for. The innovations have been retaining customer's focus and have . Apple has built an unquestionable strategic position in the K-12 grade educational programs.

Apple's focus on its key factors of success is driven to improving and retaining the iPod segment. Financial Performance (Morningstar. Apple knows that it has a superior product and it hoping to bring this superior product to the people through its retail outlets.. 2004) and (Moneycental. i.returned healthy profits. It is a measure of basic efficiency. It is also determined to continue improvements in the creative professional software and hardware realms.com.com. It must find a way to convince others to join in the promotion of hardware and software components for this reliable operating system. ================================================= Liquidity Inventory Turnover measures how quickly a company sells the products it produces. 2004). Apple controls the hardware and software production so it can determine its own future especially since it is not stuck in the Wintel operating system world and battling all of the competitors for a share of that particular market.msn.e.3 times annually to a high of 219. Operations are in tune with the company and with third party suppliers and designers. Inventory Turnover went from a weak 17.5 times in 2000 but has since . how efficient its marketing efforts are. It can proceed to corner its own niche while pursing increased growth in its own operating system.

In 1998.8 73 Information taken from Fidelity. In 2000 they were able to get money into their hands at a very quick turn of 9. Efficiency Ratios (TTM) AAPL Industry Sector S&P 500 Rank in Industry Inventory Turnover 87.5 days. The market slowdown has lengthened the inventory to cash turnaround to 22.3 93 Current Ratio 2. The shorter the time the better the company is able to turn inventory into cash in hand for continued operations.9 1. sector at 14.25. It is in much better position when compared to industry and S&P 500 companies. Apple use to take up to 115.0 14.com A company operating cycle indicates the time between the acquisition of inventory and the realization of cash from sales of inventory.regressed to about 89.4 12.49 days to turn the inventory into cash.11 days. The higher the number the more liquid the company is.1 times annually mainly due to the slow economy and other outlying factors since the computer industry began heading 'south' in 2001. Apple ranks in the 73rd percentile in current ratio documentation. Apple continues to rank extremely well when compared to industry at 48 times. The higher number indicates that the company would be more than able to meet short-term obligations.5 48. The current ratio (current assets / current liabilities) has increased gradually since 1998 to its 2003 number of 3. . Industry standards for the computer sector are at 3.1 1.3 3. It ranks at the 93rd percentile in its industry.3 times.1 so Apple is better in comparison.4 times and S&P 500 companies at 12.

which was widely credited as saving Apple and the Macintosh (Kawasaki. Turning over inventory in 4. At present it does control the market but without pursuit of a core competency that cannot be easily imitated by others it will fall off . The small market share controlled by Apple can be increased every time Microsoft encounters problems. Apple cannot not continue to make the mistakes it has made in the past when it could have countered the Windows upgrades as they occurred.Inventory turnover in days took a very long time in 1998 but showed drastic improvements into its best year (2000 with 1. 1990) The iPod and iTunes markets are strengths but they can be easily copied by competitors and are subject to the control of third parties.1 days is still great. The Macintosh's high-resolution graphics and ease of advantage over MS-DOS had made it a natural for software developers who created the "desktop publishing" segment.7). Apple's system for graphic and architectural production and design is far superior to any Windows application and this strength should receive considerable advertising to capture more of that niche market. The system continues to be strength for the company since its closed operating system is not subject to the computer viruses and hacking that affects the Microsoft Windows operating system. Strengths Product differentiation When Apple first hit the market in the early 1980s it had a product that differentiated it from all other computer products on the market but it failed to capitalize on what it had.

Manufacturing both hardware and software Steve Jobs is pursuing the combination of hardware and software manufacturing and does not intend to lay off any of his employees since they are what make Apple successful. He has run three months late in filing for a name for his company and threatened his colleagues that he would call the company Apple Computers if they were unable to come up with something better by 5:00 pm that day. Brand name and image Branding of products help in keeping consumers abreast of the company products. 2003). The brand has some to be known for its superior quality and aesthetics.of the strength category. Whenever a company established a popular brand name or image it can reap some benefits. Apple computers got its name from Steve Job's favorite fruit. It is valued in the graphic world for having an operating system superior to any Windel platform. His friends didn't so the name stuck. Some of Apple's . Some of the benefits associated with the name recognition is the ability to reduce advertising from the recognition perspective. The innovations in the music industry have been linked with Apple's brand name and its quality products and services. Apple does manufacture both hardware and software for its computers so it has the ability of controlling design so that it appeals to the functional uses and aesthetics required by consumers. Apple will continue to run lean while management pursues the business of making machines and applications that even their most stringent critics regard as some of the best in the business (Barker.

Failure to improve could continue to affect the company and its suppliers negatively. Apple's launch of iSync software in 2003 allows synchronizing of personal information management applications and devices such as mobile phones and hand-held computers (PDAs) (Barker. War. terrorism and public health issues The wars in Iraq and Afghanistan have caused economic unrest that has . Diversified markets Apple has built an alliance with Sony and Ericsson with aims at capitalizing on the broadband wireless market in the future. Education entities have postponed purchases due to budget cutbacks and shortfalls. Apple is providing the most affordable 64-bit technology and a new operating system OS X in effort to position itself in the scientific and academic high performance computing tasks (Robe & Circlaeys. Businesses are not expanding and employment reductions in force have provided less disposable income reducing sales. The entire tech market has been weakened by the economic and political uncertainty as well as other constraints.clients are web designers and its computers provide the specific hardware and software needs to accommodate them. 2003). 2004). Weaknesses Economic and political uncertainty Apple's operating performance is affected by the economic and political uncertainty that shadows the United States. Output is found to be impressive both for customers and their clients.

Apple has to focus on creating more awareness not only of its products but also of its operating system. Apple has been working extremely hard to accomplish this and in doing so is spending more money for research and development that its competitors. The best example is the attack on the New York Twin Towers. Selling.melded into the computer and electronic sector and slowed sales. in Windows users case. that controls a considerable amount of market share so they do not have to spend anywhere near as much to promote their operating system. Competitors are able to enjoy the luxury of utilizing operating systems. This increased spending negatively affects its profit margin and with competitors cutting prices on their products it makes it difficult to compete on the same playing field. and administrative costs are higher than competitors Expansion into the retail 'bricks and click' world has increased Apple's costs. These aggressive acts cause a negative impact the economy that directly affects Apple and its competitor's sales and distribution channels. even though they are necessary expenditures. and Spain's railway station. general. Marketing fees for advertising its unique operating system and new equipment again affects the bottom line. Research and development costs higher than competitors The market requires that participants continually provide innovations and competitive products and technologies. the Pentagon. It must continue to develop innovative products that offset the expenditures of these group costs. The warring factions have gone beyond the borders and disrupted commerce through terrorist actions such as bombings. .

This can affect the costs being relayed to the consumer. This puts the companies with the Windows operating systems at an advantage since Apple could run into a problem procuring a sufficient supply of components. The risk is in making incorrect forecasts. The fees for having access to these materials can be extremely . This occurs because pricing competition is ever going so to purchases of components and products at present day cost would usually be lower than prices paid for what is presently in inventory. The worst-case scenario is having inventory become obsolete and then having to be written off of the financials.Component order placement places company at risk Components and products are ordered before the computers are manufactured so if something occurs that represses sales the company is vulnerable because of the high priced inventory that it retains. Cancellations of orders usually result in cancellation fees that still affect the companies' financial position. Apple components may not be as plentiful from vendors since their market share is smaller and the operating systems are different. Apple relies on third parties Apple relies on third parties for music and for manufacturing. The process of production requires that a company forecast possible sales so that they can order the products and components necessary for being able to manufacture a desired output. The music sales have been profitable for Apple but they have to contend with the fact that the material is in the control of third party representatives. If they are not ordered then the competitor will have the upper hand in getting product to the consumer first.

Apple is faced with multiple weaknesses that it cannot control. The music coming from third parties is not the only thing that Apple should be concerned with. This is another risk that Apple must contend with. especially when defects or other liabilities surface.expensive. Apple is also reliant on Motorola and IBM for processor chips so if these companies run short or increase the price on the chips Apple must either absorb the cost or pass it along to consumers. Outsourcing does lower the fixed operating costs but this is at risk of not having any or at most restricted control. Quantity output and quality of manufacturing are in the control of the third party supplier/manufacturer. A move such as this would restrict availability of material for Apple's iTunes Music Store and drive costs upward so that they might not be as attractive as they are now. Most of the licensing agreements are short-term and do not come with a guarantee that the materials will be licensed in the future. Management must look at how these weaknesses . Some music industry parties have announced that consolidation of their distribution might occur in the future. iPod sales could decrease rapidly if material restrictions occurred and Apple would remain at the mercy of these third-party controllers. It also has third parties manufacture it products. The company also out sources much of its transportation and logistics management. Each of them or a group of them could affect its operations in a negative direction and Apple will be faced with more hardships than what it encountered in the past. The company is ultimately held responsible in the end. Either of the two scenarios is highly likely especially when the tech market is recessed. Another concern is being outbid or restricted from being able to provide the contents previously provided.

.can either be bridged in effort to minimize risk or turned into strengths.

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