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Apple: SWOT analysis Essay

Apple: SWOT analysis

Apple Inc. is an American multinational corporation which focuses on designing and manufacturing technology products such as consumer electronics, personal computers and software. Apple Computer, Inc. was established in Cupertino, California on April 1, 1976 and incorporated on January 3, 1977 by Steve Jobs and Steve Wozniak. The company used this name for the first 30 years until it removed the word “Computer” on January 9, 2007 to reflect its expansion into the consumer electronics market in addition to its original computer market.

Apple designs, manufactures and markets personal computers, servers, network solutions, peripherals, mobile communication devices, portable digital music players, and related accessories, software and services. The company’s product portfolio comprises Mac computer systems, iPod portable digital music and video players, iPhone mobile phones, iPad portable multimedia, and Xsan and Mac OS servers.

The company’s applications include Mac OS, iTunes, iLife, iWork, iClould, Safari, QuickTime, MobileMe and others. Apple mainly operates in the United State and manages its business primarily on geographic structure. It develops global market through five operating segments: the Americas, Europe, Japan, Asia-Pacific and retails. The company sells its products through online stores, retail stores, direct sale forces, and third-party resellers. It is headquartered in Cupertino, California and

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currently employs 49,400 employees globally.

Read about Apple differentiation strategy

Apple Inc. became the largest company in the tech universe on May 26, 2010 (Manjoo & Caplan, 2010). The company recorded revenues of $65,225 million during the financial year ending September 2010, an increase of 52% over 2009. The revenues derived from strong sales of iPhone, iPad and laptops. Its net income reached $14,013 million in 2010, making a huge increase of 70.2% over 2009. This exceptional growth is supported by its competitive advantages of its brand, management, technology and strategy.

SWOT Analysis

Strengths -Strong brand image -R&D driving innovation -Robust financial performance -Loyal customer Weaknesses -Product recalls -Patent infringement

Opportunities -Strong growth in smartphones market -Continuing growth in PCs market -Potential growth for music and applications Threats -Intense competition -Dependence on specific suppliers -Bargaining power of music suppliers

Strengths Strong brand image Apple has successfully built its phenomenal brand recognition all over the world. Apple’s brand awareness is very strong and covers entire its market segments. The company’s brand ranking has significantly improved during the last few years. According to Interbrand, Apple’s brand ranking improved from a thirty-fifth position in 2007 to a seventeenth position in 2010. Moreover, a new survey conducted by Brandz showed that Apple bypassed Google and IBM to become the world leading brand in May 2011.

Apple’s brand awareness is one of its sustainable competitive advantages. The company’s brand awareness strengthens Apple’s differentiated strategy and creates its market power. Therefore, the company not only maintains its premium pricing strategy but also creates significant demands for its products over years. For example, more than 108 million iPhones have been sold worldwide as of March 2011. The company spectacularly sold 300,000 iPads on the first day of its launch in the United State.

Research and Development Apple’s core strategy is the product differentiation. Therefore, it has set a high standard for premium quality products in order to meet its customers’ expectation and generate new demand. It continuously invests in R&D to invent new products, provide new solutions and improve unique designs. Macbook, iPod, iPhone, iTunes and iPad are some of Apple’s innovative products which are famous with their superior ease-of-use, seamless integration and refining industrial design. Apple has a strong focus on research and development. It is currently in the list of “Top 50 Technology R&D Spenders”. The company’s R&D expenditure was $1,782 million in 2010 and $1,333 million in 2009, an average of 24% of its operating expenditure. This strong focus over the past few years has led to the successful launch of innovative products such as iPod, iPhone and iPad. These successful launches, in turn, enhance Apple’s brand image and affirm its market position.

Robust financial performance Apple has grown sustainably from the day it was established, supported by its competitive advantages of its brand, management and technology. Apple was recorded on the “Fortune 500 list” after five years of its existence. This fact remarks its milestone of becoming the fastest growing company in history. Some researchers believe that after the giant Microsoft invested $150 million in Apple now it has to get inline with Google, Nokia, HTC and HP as the companies that Apple seems bent on side-lining (Manjoo, 2010).

Apple had to face a strong competition during this time but it could manage to lead the Fortune list of the Most Admired Companies in 2008. It is currently in the thirty-fifth rank of the Fortune 500 list with its $62,225 million revenue and a $272 billion enterprise value. Apple reported a robust financial performance in the past few years. The company’s total revenue increased to $65,225 million in FY2010 from $42,905 million in FY2009 and $13,931 million in FY2005. The company’s revenue increased 52% over 2009 and its compounded annual growth rate has been over 32% up to date. Beside, its net profit also increased spectacularly to $14,013 million in FY2010 from $1,328 million in FY2005.

Apple’s current quarterly growth rate is 82%; therefore, it leaves other competitors far behind. For instance, Google’s quarterly growth rate is 26.6%, HP’s quarterly growth rate is 2.5% and total industry’s growth rate is just 24.3%. Strong operating performance has resulted high cash flow consequently. “We are extremely pleased with our performance which drove quarterly cash flow from operations of $11.1 billion, an increase of 131 percent year-over-year,” said Peter Oppenheimer, Apple’s CFO (Apple’s third quarter report FY2011). Strong growth in revenues and cash flows makes Apple an exceptional company of a convincing investment and a high return potential case. Therefore, it definitely strengthens investors’ confidence which allows potential investment for future avenues.

Loyal customer Beside advantages Apple generates from its internal factors, Apple also benefits from its strong loyal customer base. According to a recent study from Strategy Analytics, iPhone owners not only are most satisfied with their phones but also most likely purchase their next phones from Apple. Similarly, another survey shows that 90% of iPad buyers will be existing Apple owners. This fact allows the company to market its additional products to current customers.

Weaknesses Product Recall Product quality problems are unavoidable for technological pioneers. Apple, with its ambition to provide latest innovative products, is not excluded from this fact. Its complex hardware and software products are likely to contain defects in design and manufacture. Moreover, the company also uses some components and services from third parties. Therefore, there may be no assurance that the company will be able to detect and fix all possible defects. Even though Apple has delivered its commitment to provide the most premium products, the company met some product quality problems from time to time.

For example, in 2005, Apple recalled iBook and PowerBook computer batteries which might pose fire hazards to consumers. Another recall happened in 2008 when Apple announced the Ultracompact USB Adapter Exchange Program. Most recently, Apple has recalled a number of Verizon-carried iPad 2 tablets because of connectivity issues related to its mobile equipment identifier codes. These recalls inevitably harm Apple’s reputation and add significant amount to its operating cost.

Patent infringement Along with Apple’s growth, legal complaints related to its patent infringement increases over time. At the end of 2009, the company was defending more than 47 patent infringement cases, of which 27 cases were filled in 2009. Nokia filed an action against Apple in 2009, alleging the infringement of the GSM, UMT and wireless communication standards. Beside that, Motorola alone filed three separate lawsuits against Apple in 2010. It is obvious that unfavorable verdict impacts the company’s performance. For instance, Apple was sentenced to pay $625.5 million to Mirror Worlds LLC, a firm claiming ownership of the sleek visual file view. These patent infringement-related lawsuits not only affect the company’s financial condition but also harm the company’s prestige. Besides, these unfavorable lawsuits also offered its competitors advantages on stock market. For example, Nokia’s stock rose over four percent right after Nokia announced a lawsuit against Apple for patent infringement on June 2011.

Opportunities Strong growth in smartphones market The worldwide smartphones market is growing strongly in coming years. DataMonitor reported that worldwide smartphones shipments accounted for 15% worldwide mobile phones shipment in 2010. Following this trend, analysts forecast that smartphones market will reach 27% in 2011 and 53% in 2015. This growing trend will definitely offer a great opportunity for iPhone sales.

Apple became the third largest player in smartphone market segment after it launched its first smartphone device iPhone in 2007. iPhone is now available in 80 countries through various distribution channels. The company has experienced a strong growth in its iPhone business recently. Apple has just revealed an impressive figure on its quarterly financial report: the company sold 20.34 million iPhones in this quarter, resenting 124% unit growth. Besides that, iPhones sales also improve carriers’ revenue and profit. For example, Verizon won a net addition of 906,000 subscribers during the first quarter it carried iPhones. This win-win cooperation model will empower iPhones’ penetration into smartphones market.

Continuing growth in PCs market Together with smartphones market, the worldwide mobile PCs market is also forecast to record a strong growth in coming years. In 2009, the mobile PCs sales grew more than 15% over 2008. Moreover, Reportlinker forecasts that, in 2014, the global computer market will reach a value of $263.8 billion, an increase of 36.5% since 2009. This outlook ensures a great demand for Apple’s products in future.

Beside a strong growth due to the increase of demand, Apple is also continuously taking market share from it competitors. In 2007, Apple’s market share was only 2.6% while those of HP and Dell were 18.8% and 14.9% respectively. However, by July 2011, Apple soars to a third place in the United State PC market with its 10.7% market share. Currently, Apple’s market share increases 8.5% while the other leading players HP and Dell lose 1.2% and 9.8% respectively. The company’s enhancements of existing products such as Mac and the launch of new iPad in 2010 are accounted for this strong growth.

Potential growth for music and applications Another good news for Apple and music industry is that digital downloads is growing strongly. During the first half of this year, digital track sales are up 8.7% to 817.7 million units versus 752.4 million units in the first half of 2010 (Nielson, 2011). Last year, Apple’s iTunes music services sold its 10 billionth song and last week, it hit 15 billion song download. iTunes is undeniably leading the way in the digital music download market and helping the industry post these healthier numbers.

Threats Intense competition High technology industry would be an attractive industry because firms operated in this field can earn high returns. Therefore, this is an intense competitive industry with many competitors. Apple operates in this highly competitive and rapidly evolving technology industry. Apple apparently faces intense competition in all its products markets. Microsoft is Apple’s historic rival. It once nearly buried Apple during years of 1990. However, Apple has managed to maintain its competitive status recently.

In the computer hardware market, HP and Dell are the two leading competitors. Even though Apple is gaining some market shares from these two giants, it is still behind them, standing in the third position. Further, responding to the launch of iPhone, some competitors such as Nokia, Samsung, HTC and LG immediately launched theirs respective products in the market creating significant competition. This intense competition could result in the price erosion and the decreasing economies of scale. In the long run, the company’s revenues and profitability will be affected.

Dependence on specific suppliers Apple depends on third party suppliers for many components used in its products. There are not many qualified suppliers who can meet the high demand of this high technological firm. Therefore, in case of PCs, Apple has to source most of it general components from single or limited suppliers. Moreover, Apple also demands specific customized components, which are not generally used by other PC manufacturers. Concentration to different customers’ demands will increase the cost and reduce the quantity of suppliers. Apple’s operations will adversely be affected due to this lack of suppliers.

Bargaining power of music suppliers Despite the success of iTunes, Apple still has a tense relationship with music companies, which harms its dominance position in digital music market. For example, in 2007, Apple refused to renegotiate its flat price per song at 99 cent. Universal Music Group then declined to renew its annual contract with iTunes and instead opted to license content to Apple on an at-will basis. Right after that, Napster, Wal-Mart and Zune each had distribution deals with all four major labels namely EMI, Sony, Universal and Warner Brothers. Meanwhile AT&T and Verizon pushed their sales of digital music, mainly through subscription services. Intense competition partially creates bargaining power of music suppliers on iTunes and Apple. Consequently, input cost will increase, affecting to both retail price and iTunes’ profit.

Conclusion Let me conclude the case in an untraditional way. Last month, a Chinese teenager sold his own kidney to buy an iPad 2. This news reveals the truth that somebody can live without his kidney but can’t live without an iPad. Of course, Apple doesn’t expect this fact would happen. Now, if we look at this regretted issue at different angle, we can see that Apple’s products are not only normal gadgets but also parts of our lives. Apple’s brand name, innovative products and loyal customer base has mainly contributed to its current success. If Apple continues with its current strategy, it will definitely grow stronger, despite of some threats and weaknesses it is facing.

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