Case Study 2 – Apple Inc. Overview By almost any measure, Apple, Inc. is one of the world’s most successful and respected companies. Despite the effects of sluggish post-recession economic conditions in the United States, Apple managed to sustain its impressive record of 275% growth in net sales between 2010 and 2014. Apple Inc. celebrated record quarterly revenues and profits during its second quarter of 2012, which resulted i


Strategic Management

Case Study 2 – Apple Inc.

Overview

By almost any measure, Apple, Inc. is one of the world’s most successful and respected companies. Despite the effects of sluggish post-recession economic conditions in the United States, Apple managed to sustain its impressive record of 275% growth in net sales between 2010 and 2014. Apple Inc. celebrated record quarterly revenues and profits during its second quarter of 2012, which resulted in its stock price catapulting to a level that made it the world’s most valuable company as measured by market capitalization.

Apple continued to hold this title in early 2015 with a market capitalization of nearly $760 billion. Some analysts speculated that Apple might eventually become the world’s first trillion-dollar company. Apple’s future had been questioned by Steve Jobs’ illness-forced resignation and eventual death on October 5, 2011.

Steve Jobs had battled pancreatic cancer, and several times during his illness, Time Cook, Apple’s Chief Operating Officer was asked to serve as the company’s chief executive. Upon Jobs’s resignation just prior to his death, Cook was appointed successor to Jobs as CEO of Apple Inc., however, critics questioned Cooks’ ability to lead the company.

Many challenges faced Cook and his top management team as he took the helm of Apple. As the company approached fiscal 2015, although iPhone sales had increased, iPad sales had decreased by 5 % from 2013 to 2014, and disappointing sales continued for the iPod, with a 48% year-over-year decline in sales in 2014. Continuing growth in iPhone sales was critical to the company’s financial performance since iPhone sales accounted for over half of the company’s net revenue in 2014 and 2013. Competition in the smartphone market was growing stronger.

Google’s entry into the market with its Android operating system had allowed vendors such as LG, Motorola, and Samsung to offer models that matched many of the features of the iPhone. In fact, Android’s strong capabilities had made it the number-one smartphone platform worldwide, with 76.6 % of shipments running on Android in the fourth quarter of 2014.

Countries such as China, South Korea, and regions such as the Middle East and Africa offered the greatest growth opportunities but also presented challenges to smartphone producers. For example, in 2014 there were over 1 billion mobile phone users in China, approximately 700 million of which were smartphone users.

However, intellectual property protection and counterfeit products, including counterfeit Apple Stores, posed significant problems. Much of the growth in the Middle East and Africa was in less expensive smartphones ($100.00 or less) which was a challenge to Apple with their premium pricing strategy.

There was similar pressure on the iPad as an increasing number of competitors entered the market, and Apple’s chief rival in the smartphone market – Samsung – was increasing market share while Apple lost share. With a maturing product line, competitive rivalry heating up, and technological change accelerating, Tim Cook and Apple’s managers would be forced to work creatively and expeditiously to sustain the company’s success achieved under Steve Jobs.

Assignment Questions

1. What are the chief elements of Apple’s overall competitive strategy? How well do the pieces fit together? Is the strategy evolving?

2. What are the key elements of Apple’s strategy in computers, personal media players, tablet computers, and smartphones? Are those strategies successful? Explain.

3. What does a competitive strength assessment reveal about Apple’s domestic computer business, as compared to the leaders in the domestic computer industry? Use the methodology in Table 4.3 to support your answer.

4. Does it appear that the company’s competitive positions in personal media players, tablet computers, and smartphones are stronger or weaker than its position in computers? What steps should it take to ensure that the iPad becomes a major contributor to the company’s overall performance?

5. Does it make good strategic sense for Apple to be a competitor in the computer, personal media player, smartphone, watches, and tablet computer industries? Which of the five products lines—computers, tablet computers, personal media players, watches, or smartphones—do you think is most important to Apple’s future growth and profitability? Why? Should any of the product lines be discontinued?

6. What is your assessment of Apple Computer’s financial performance the past three years? (Use the financial ratios in the Appendix of the text as a guide in doing your financial analysis.)

7. What strategic issues confront Apple in 2015? What market or internal circumstances should most concern Tim Cook and the company’s senior leadership team?

8. What recommendations would you make to Apple to address the strategic issues confronting it in 2015 and sustain its impressive growth in revenues and earnings

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