Apple Inc Case Study

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Apple Inc.

Team 2

Industry analysis

1970-1990s

PC industry was just being born with introduction of Apple’s personal computers. In 80s, IBM dominated the market with their quality product. PCs hardware and software were produced by the manufacturers and directly sold by them.

1990-2000s

By the early 90s, Intel and Windows started dominating as a set of microprocessor and software for personal computers. As Intel and Windows entered the industry, there were new areas in profit-pool, where companies like Compaq and Dell, and other no name companies started producing their own PC using building blocks of Intel and Microsoft.

2000-2010s

In this period PC shipments grew worldwide, in 2007 269 million units were shipped. However, revenue did not show same growth. This was due to the strong pricing downward. Although sales were high, in 2007 the average profit margin for sold PC was less than 5%.After 2008, PCs became cheap and widespread like consumer electronics.

There are several major sources of profit pool in PC industry. One of the main components of PC and deep profit segment are microprocessors. Although in early days, Intel was the dominant player in this segment, however, in late 90s competitors like AMD came to arena. Other components like memory chips, hard drives and peripherals like mouse, monitors and keyboards were produced by many companies and had high competition. Personal computers, produced and sold by manufacturers are another element in value chain of PC industry. Although it may seem, that it is the most sold, and hence, most revenue generating element, it is not most profit generating element, as the margins for the personal computer were only 5%. Software and services are other elements of PC industry profit pool, software including operating systems and applications for computer and service including all kinds of repair and support services.

Today, PC industry is removing boundaries with other industries, mobile industry, gaming, television industries. So the profit pool is not limited to PC elements only, but also include smartphones, digital, tablets, digital content and more.

Competitors’ analysis

In 2008, there were more than 1 billion PCs in the world.  Only in 2007, 269 million units were sold. However, revenue growth rate did not increase with volume growth. Average selling price was dropping at rate of 8% per year. Also, key components prices dropped by an average annual rate of 30%. As result, average profit margin on PC was less than 5% in 2007.

Most of companies started to change their strategy and focus on different profit pools with higher margin. For example, after share loss in PC IBM decided to exit PC business and enter high-margin software and services pool. HP implemented same approach by expensive acquisitions in 2007. Later they divided company in two independent divisions, HP Inc. and Hewlett Packard Enterprise. Dell founder Michael Dell returned as CEO in 2007 and announced far-reaching transformation plan. They doubled investments in design and began releasing customer-friendly products. Also they adopted new distribution channels.

Environmental Analysis.

Demographic trends. PC buyers fell into five categories: home, small and medium sized businesses, corporate, education and government.

Socio-cultural influences.  Customers become more sophisticated and value more elegant and stylish product designs. Also, customers are willing to buy user-friendly products with distinguishing capabilities. There is a high demand for products of well-known and trusted brands. All these factors influence the trends of Apple PC industry.

Macroeconomic impacts. Purchasing power of buyers might be reduced due to world economic conditions.

Political-legal pressures. Some countries like China and Russia has no legal distribution. Therefore, purchasing from unauthorized resellers and usage of unsanctioned mobile networks are practiced. Also, the political instability in some countries might reflect the sales.

Technological developments. Apple introduced a variety of new developments in technology such as iTunes Music Store, a fully overhauled OS (Mac OS X), high-quality bundled software, security system (no viruses), video rental offerings, third-party applications for iPhones.

Global trade issues. Broken down negotiations with the country’s mobile network carriers.

Company Analysis

The profit pool and the market competition resulted in expand of Apple Inc. from PC industry company to a full-fledged digital convergence company. Apple’s main strategy of surviving in the PC industry is to create and innovate. Apple managed to change the rules by expanding the profit pool segments.  

Apple started to defend itself on a PC industry market by, first of all, switching the use of PowerPC chips to Intel chips. Second of all by issuing upgrades of Mac operating system every following year, so it increased the interest as well as the loyalty of the existing Mac users. Therefore it could help to maintain the existing market share. Also, Apple’s strategy of recognizing the variability of profit led to the development of its own software’s rather than relying on independent software vendors. They developed applications that made up growing segment of the company’s effort to support the Macintosh line. Later in 2001 Apple introduced its own Apple stores. That expanded the company to the service segment of the share of industry revenue which resulted in increase of sales of Mac.