Apple Case Study
Apple Inc: Into the Fifth Decade -2018
On November 1, 2018, Tim Cook, Apple Inc’s CEO, announced the fourth quarter results for fiscal 2018 and remarked that the results were the best in terms of delivering double digit growth in every geographical segment the company was operating in. According to him the performance of the company was the strongest ever in the history of the company. The total revenue of the company at the end of fiscal 2018 had increased from $229 billion in 2017 to $265 billion. The gross margin had increased from $88 million to $102 million while the net income had increased from $48.4 billion to $59.5 billion during the period against the shareholders equity of $134 billion and $128 billion in 2018 and 2017 respectively. He also mentioned that the company had shipped the 2 billionth iOS device and celebrated the tenth anniversary of the App Store. The prospects for the future were governed by the market response to a series of new product launches announced by the company two months earlier.
Between January and October 2018, the company had introduced HomePod — home speaker system to compete with Amazon’s Alexa and Google’s home speaker. On October 30, 2018, the company had launched the all screen version of iPad Pro with features like Liquid Retina Display, A12 bionic chip, meant for supporting powerful, creative and mobile computing. The company promised that it would will push what users could do on a computer further than ever before. Two months prior to the end of the fourth quarter of 2018, the company had announced new versions of iPhone, Apple Watch, iPad and Mac to gain and sustain competitive superiority. For example, three versions of iPhone X — iPhone X(s), iPhone XsMax and iPhone X(r) not only augmented the screen size but also provided for dual SIM. The additional features in MacBook Air were Retina display, built-in FaceTime HD camera and a three-microphone array and improved voice recognition for Siri. Apple watch series 4 aimed primarily at fitness and sports seekers, offered benefits like fall detection and ECG monitor. Apple powered all its launches with its own operating system iOS. With each additional feature, Apple attempted to scale new positions in pricing its products. The new iPhone X versions of X(s) and XsMax and X(r) were priced at $999, $1099. iPhone X(R) was promoted as an affordable iPhone X. The basis model with 64GB storage capacity was priced at $749. MacBook Air was priced at $1199. See Table 1 for the variations in the price of iPhone over the years.
Apple was ranked as the world’s most valuable brand in the world with market capitalisation exceeding US$1trillion. The company employed 123,000 full-time employees and maintained 504 retail stores in 24 countries. It also sold its hardware products through resellers and third-party retailers. Apple had sold more than one billion iPhones worldwide between 2007 and 2018. In 2017 it had sold 216 million units worldwide against 231 million units sold in the previous year. In 2012 the global sales were 125 million units. By the end of fiscal 2018 the estimated sales were 217.9 million units.
Despite new launches and technological advances, the sustainability of superior performance was not assured as the competitors in each of Apple businesses had introduced similar features and were preparing to catch up. They offered similar features at lower price points. The other concern in sustaining performance was the trend towards internal cannibalisation. The desk top computer was being cannibalised by lap top, which in turn was the target of attack by iPad. The iPad itself was losing its share as the smartphones had begun to support similar capabilities. Internal cannibalisation was aided by the operating system that was the same across devices. See table 2 for a perspective of the sales trend in iPad that was launched in 2010.
The new launches caught on with competition by providing dual SIM feature. Samsung and all the Chinese manufacturers had introduced this feature earlier than Apple. There were noticeable price differences between iOS phones and Android phones. See table 3 for a comparison of the prices over the years. Samsung had continued to maintain its Number 1 position. Samsung had launched Galaxy Note 9 with 128 GB in August at a price of $999.99. On October 16, Huawei, a Chinese telecom equipment manufacturer had launched Mate 20 in 5.8 inches and 6.5 inches versions with three cameras at the back. Its 64 GB version was priced at $915. In August 2018, Huawei had become the second biggest seller of Smartphones in the world. The other Chinese mobile phone manufacturers with brand names like Mi, Oppo, Xiomi were expected to follow suit with more competitive price offerings. All of them had developed their product on Android operating system developed by Google Inc. The competitors in the early businesses of Apple like HP, Dell, Lenovo and Acer were also matching the features of Apple note books. All the players had established distribution network across the globe. They developed their computers on intel and windows platforms.
Apple Over the Years
Beginning as a hobby computer manufacturer in 1976, Apple had achieved a leading position as an end to end manufacturer of innovative computation, communication and entertainment products and provider of core and complementing software and internet service to use them effectively. It offered products and services ranging from desk top computers, smart watches, application software and compatible accessories through its online and retail stores to end consumers, large enterprises, small and mid-sized businesses, educational institutions and government. It was recognised as a pioneer in introducing distinctly featured smart phones, tablets, lap tops and music players. According to the management of Apple, the focus of its innovations in hardware and software were in enhancing its user and use experiences. It attempted to leverage its abilities to design and develop its own operating systems, hardware, application software and services. It continued to expand its platform for the discovery and delivery of digital content and applications through multiple modes — own investment, joint ventures and franchises.
Previously called Apple Computer Company, Apple was set up by Steve Jobs, a college dropout, Steve Wozniak, an electrical engineer with experiences in HP, an electrical engineering company at that time, and Ronald Wayne, 42, a consultant, on April 1,1976. It was incorporated as Apple Computer Inc in January 1977. The computer technologies in the main frame business had developed sufficiently well by that time to enable them to build the concept of a desk top computer. As the concept materialised and users responded favourably to it, the company took off and raised funds through an Initial Public Offer (IPO) in 1980. Its success triggered IBM, a main frame computer manufacturer, to offer a standardised desk top computer in alliance with Intel Corporation, an electronic chip manufacturer and Microsoft, a software developer. IBM’s entry was followed by new companies like Compaq that offered similar products at a lower price. In response, Apple offered a new line of computers called Macintosh in January 1984 that built on the technology of Graphic User Interface (GUI) developed in the Palo Alto Research Centre of Xerox Corporation in 1970s. The new line was offered at a price of $2500 as a distinct alternative to the competing models. Despite this, the sales of Apple did not improve and the company suffered a loss. Steve Jobs was asked to quit the company as the leader. Subsequent leaders who took charge of the company attempted to defeature the company’s products, internationalise or enter into collaboration with competitors to win. Despite these initiatives, the company struggled and suffered a loss of $1.05 billion in 1997. Steve Jobs was called back to lead the company in 1997. On taking over, Steve Jobs, galvanised the company to become a ‘cult force’ by introducing new innovative products like iMac, iPod, iPhone and iPad. They were supported by the company’s online and brick and mortar stores. He also accelerated the globalisation drive of the company. All through, Steve Jobs tried to build and sustain a strategy of premium differentiation. He attempted to enable Apple to develop and offer products and services that differentiated themselves in terms of design, user friendliness, functionalities, quality and an overall sense of style and fashion. He expected the customers to pay a premium price for the same. Steve Jobs died in 2011 and Tim Cook took charge as the CEO. He leveraged the technologies of Apple and introduced upgradations in operating systems, iPhone, iPad, MacBook and MacAir.
Future
On November 3, 2017, Apple Inc (Apple) had launched iPhone X, pronounced as iPhone Ten, with a tag line ‘Say hello to the future’ and marked the tenth anniversary of the launch of iPhone. Analysts opined that the high price of iPhone X shifted the iPhone series to an ultra-luxury orbit. Tim Cook, CEO of Apple Inc, defended the high price of iPhone X by stating that the customers obtained an advantage by trading their earlier versions of iPhone and getting the promotional offers of carriers. According to him buying an iPhone X was equivalent to buying high quality coffee.
Competitors of Apple, had anticipated the features of the new phone from Apple and launched their own variants or were preparing to follow Apple. Samsung, a consumer electronics company from South Korea, had introduced Samsung Galaxy S8 and S8 plus before iPhone X launch and Google, an American search engine company, had introduced Pixel 2 as a sequel to Pixel 1. Chinese producers like Xiomi were expected to introduce their versions of lower priced smart phone.
When new versions of iPhone X were announced, the initial response of customers to the new features was as expected. The pre-order book, built online through e-commerce channels and offline through Apple’s own stores and the stores of partners across the globe, was as anticipated. Though there were queues opposite the Apple stores across the world on the day of the launch, the analysts noted that the ‘frenzy’ over the new launches was not that high. There were anticipations about the next moves of the competitors. Google, the search engine major, had earlier introduced Pixel 2 with the promise of the best camera ever under low lighting conditions and long battery life. Samsung, a diversified electronic appliances and entertainment company, had introduced Note 9. Nokia, a pioneer in the mobile telephone space who had suffered a setback in the recent past, had returned to the market with Nokia 8 with similar features. The new Chinese players with brands like Vivo, Oppo, RedMI, Gionee and Note Plus were expected to announce their latest versions in the less than $400 price category. The competitors from China offered similar features and nearly half to one third the price of Apple phones. They sold their phones through both e — commerce and brick and mortar channels. While Apple functioned on the strength of its operating system iOS 12, the other players relied on various versions of Android, developed by Google. All the key players had developed their own eco system of component suppliers, application developers and channel partners. In addition. they also relied on generic eco systems.
Apple faced competition not only in the smart phone market but also in each of its offerings — operating systems, productivity tools, end use devices, internet services like cloud storage, e-commerce and education. The competitors were from across the worked. It appeared that innovations occurring in various aspects of information technology could pose competitive threats from known and unknown players and also provide opportunities for growth. They also tended to shorten the life cycle of a new launch, be it features or products. Increasingly processing power was transferred to the tablet and the smart phone. Software players like Microsoft and Google had launched their own hardware. Microsoft had launched the fourth version of ‘Surface’ that competed with both tablets and laptops. The responses of other computer manufacturers like HP, Dell, Lenovo and Acer were still awaited.
The developments faced by the company in a way mirrored the first two decades of Apple’s existence when Apple faced competition from incumbents and new entrants. Apple could not respond effectively to the developments and incurred a loss of $1.05 billion in 1997. With the current and impending developments in the smartphone and related industries, analysts and investment advisors were debating whether Apple would be able to sustain its superior performance in the next five years and beyond. Much depended on the nature of competitive dynamics that would unfold after the launch of new versions of Apple products.
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