Apple Inc. ( AAPL )
Company and Industry Analysis and Forecast
Before 2007. when its name was still Apple Computer. Macintosh Business remained a polar concern for Apple. Even in 2008. this portion of concern still accounted for 43 % of Apple’s entire gross. but gross from Portable merchandises increased dramatically. As a seller of the Macintosh personal computing machine. Apple gained immense success in last 30 old ages by concentrating on Research and Development ( R & A ; D ) and making better user experience. But during late 80s to 90s. Apple Computer was besides confronting highly intense competition from other Personal computer manufacturers. Steve Job turned around the tough state of affairs of Apple. Reducing merchandise lines. emphasizing on invention. and cultivating great trade name trueness helped Apple regain energy. Then in 2007. casting “Computer” from its original name was a mark that Apple was switching off from a Personal computer seller to a multimedia participant.
Business Model and Structure
Apple Inc. ’s chief concerns are consumer electronics and retailing. as showed in Exhibit 1. Right now. Apple really is concentrating on supplying media devices and besides connects all its merchandises with its retailing services. This perpendicular integrating helps Apple Inc. creates competitory advantage and paves route to success. Exhibit 2 shows that how Apple makes its money from this vertically incorporate value concatenation. From this exhibit we can happen that a clear concern theoretical account of Apple:
1. Heavy R & A ; D investing and first-class hardware/Media devices
Some people said that Apple doesn’t ask people what they need but gives them merchandises they decide they want. Based on really strong invention and R & A ; D ability. Apple is maintaining presenting high quality merchandises which generate a cultural force among consumers. From iPod. iTouch. iPhone to iPad. Apple ever runs in front of all other rivals. even customers’ demand. to supply fresh and exciting user experience to consumers. The slim. ergonomic and user-friendly merchandises give Apple the ability to bear down a monetary value premium.
Emerging of iPod was the first measure taking to immense success of Apple in 21st century. In 2002. gross revenues from iPod was merely 143 million. and so this figure skyrocketed to 8. 305 million in 2007. The portfolio of iPod merchandises includes iPod authoritative. iPod shuffling. iPod Nano and iPod touch. After singing the iPod passion. iPhone had an unbelievable successful introduction in 2007. In financial twelvemonth 2011. 43 % of entire gross. 46. 6 billion dollars. comes from iPhones gross revenues. Then iPad becomes the following phenomenal merchandise in portable devices market. conveying 20. 6 billion for Apple in 2011.
We besides need to detect that although Apple Inc. could be called a maker. it really outsources all fabricating operations to 3rd parties in low labour cost states. Samsung. Foxconn. and Quanta Computer Inc. are chief providers of Apple. But because of the judicial proceeding over patent violation with Samsung. the frequent employee self-destruction calamity in Foxconn and demand of minimising currency hazard. Apple now is sing enlarging its supplier’s base.
One hazard of outsourcing oversea is that Apple is unable to straight command the fabrication procedure ; another one is that the regulative hazards like duties. punishments imposed for dumping.
Apple is in charge of portion of assembly work but besides outsources some of the work to 3rd parties across the universe.
2. Content-driven epoch: Software and App shops
Merely attractive hardware/Media devices can’t explain the immense success of Apple. Uniting these merchandises with the strong package and tremendous interesting and functional content sold in App shop. which is a trade name new and radical construct. is a critical factor for Apple’s yesteryear. current and future growing.
At the really get downing. Apple’s iTunes package successfully established the connexion among different Apple’s merchandise: Sharing images. films. and so on. Most significantly. iTunes is playing a cardinal function of Apple’s distribution operation – Consumers purchase music. films. shows. podcasts. and other multimedia content in iTunes ; this iPod + iTunes manner works really good to retain clients.
Subsequently on. iPhone + App shop manner starts a content-driven epoch for Apple’s merchandise. As a platform for plan developers and consumers. App shops besides become the bosom of Apple’s distribution operation. Apple besides can derive gross watercourse from App shops: First. package developers need to pay $ 99 per twelvemonth to derive entree to iOS development tools ; Second. Apple can gain 30 % of gross generated by App shop ; Last. Apple will roll up money from its nomadic advertisement platform iAD.
Both iTunes and iOS App shop are built-in parts of Apple’s value concatenation. or say ecosystem of devices and services. Although gross from these two parts is non every bit high as media devices. the content distribution is an indispensable merchandising point or accelerator for Apple.
Recently. iCloud. which is result of cloud calculating tendency. makes consumers able to portion their content among all their Apple merchandises. fastening the connexion of different devices and consumer’s trust on Apple’s merchandises.
3. Retail web
Apple has started to set up its ain flagship shops around the universe and harvest juicy consequence for now. Get downing from on-line gross revenues. Apple now pays more attending on opening store-based gross revenues. The astonishing portion of store-based gross revenues is that consumer can hold a much better buying experience in the illusion Apple retail shop. Apple’s merchandises are welcomed chiefly because of the fantastic user experience and designs. and the store-based gross revenues can function as the span between consumers and merchandise. supplying chances for consumer to see Apple merchandises and falling love with them.
China is a truly good illustration for this. Apple now merely has four shops in China. far off from run intoing the strong demand of Chinese consumers. The consequence is that you can see that every flagship shop in China is full of people – the consumer traffic is highly high.
Furthermore. because Apple has rigorous pricing policies forestalling deep discounting in 3rd party retail merchants. consumers have really small fiscal inducement to purchase Apple merchandises in other retail merchants which is without the shopping environment created by Apple shops.
Besides merchandises. package and content-driven distribution and retail web. heavy investing in selling and stigmatization and first-class logistic direction besides really of import for Apple. Generally talking. we can sum up Apple’s value as following: Design
– Heavy R & A ; D investing
– Acquisition of advanced company
Outsourcing in lower labour cost states
Trying to broaden provider base
– Responsible for some of assembly
– Advanced logistic and supply direction
– Distribution centre around universe
– Spending a batch on selling and stigmatization
– Generating cultural force
– Online gross revenues
– Opening flagship shops to supply better shopping experience – Online gross revenues
Opening flagship shops to supply better shopping experience iTunes and App shops
The vertically incorporate concern theoretical account dwelling of “Must-buy” merchandises. outsourced fabrication. first-class content distribution by iTunes and iOS App shops. efficient logistic direction. concentration on selling and cultivating trade name trueness. and extended retail web which provides astonishing shopping experience is the key for Apple to open the door of success. .
Current Market Position
From 2007 to 2011. Apple has a really high growing in both gross and net income ( Exhibit 3 ) with CAGR 44 % and 68. 5 % severally. iPhone and iPad are the engine of this phenomenal addition. particularly in 2010 and 2011 when Apple introduced iPhone 4/4s and iPad 2.
Apple now dominates in portable consumer electronics including MP3. Smartphone and Tablets. iPod right now is no longer the most welcomed merchandise of Apple because there are more and more lower-priced trade names and another Apple’s merchandise – iPhone. which really includes all map iPod has and besides adds telephone in it. looks like more attractive to consumers. Contented distribution through App shops is besides a driver of iPhone’s success.
Then iPad one time once more sets a new industry criterion for Apple’s rivals. In 2010. Apple’s gross revenues increase 48 % to iPad’s recognition.
On computing machine side. Apple’s public presentation is non every bit good as consumer electronics. It remains far behind its rivals like Acer. HP. Lenovo in both desktops and laptops. The ground is chiefly that the monetary value of Apple’s PC is non really competitory particularly in some underdeveloped states. On the other manus. Apple’s Personal computer is difficult to vie with Windows OS PCs in that Windows based Personal computers more prevail for official or concern usage.
In exhibit 4. we can see the market portion of Apple. By retail volume. Apple is merely graded No. 4 in portable consumer electronics market. Nokia. Samsung and LG are taking by volume. but both Nokia and LG’s gross in 2011 is less than Apple’s. By gross. Apple is no. 2 on this ranking. merely behind
As an electronics and contraption retail merchant. Apple’s is bettering recent old ages. In 2008 and 2009. Apple’s ranking among all electronics and contraption retail merchants by value was non in the top 10. But Apple has opened 113 new retail shops during 2008 to 2011. doing Apple the no. 6 on the chart in 2011 ( Exhibit 5 ) . Although Apple’s retail shops are really successful. in Asia-Pacific it is besides confronting terrible competition force per unit area from immense electronics and contraption concatenation shops like Suning. K’s retentions and Gome.
Fiscal status and funding determinations
Apple may be the most celebrated company in the universe because of the immense sum of hard currency on its balance sheet.
In 2011’s one-year study. Apple reported 9. 8 billion hard currency in manus and 16 billion short term investings. Entire 45 billion current assets account 38. 6 % of entire assets – Liquidity seems ne’er be a job for Apple. If we consider the 55. 6 billion long-run investings. the entire cash-reserve of Apple is 81. 6 billion in financial twelvemonth 2011 and 97. 6 billion at the terminal of 2011. Furthermore. its history receivable turnover ratio and stock list turnover ratio are 17. 1x and 69. 4x severally. intending that Apple merely needs 21 yearss to have its gross revenues back and 5. 3 yearss to sell out all its stock lists: Both these two figure are first-class.
Apple’s borders are besides really attractive for investors: 40. 5 % for gross border and 23. 9 % for net income border. Most of import. investors can’t happen a dime of debt on Apple’s balance sheet: All the long term solvency informations is unavailable for Apple.
Apple’s fiscal statement is unquestionable healthy. but does this mean there is no hazard for Apple? When there is 100 billion hard currency lying on the balance sheet. how to utilize them expeditiously and avoiding to do aggressive and stupid determination is really indispensable for the company. Some direction would utilize a clump of money to get some companies at an unreasonable monetary value. In past ten old ages. Apple would wish to utilize its hard currency cache to get some little 1/2 billion companies to maintain its invention and creativeness by absorbing both the good design of hardware and package in these little companies. This graduated table of acquisition won’t affect Apple’s financials dramatically. On the other manus. one of the grounds for this historic high hard currency modesty is because Steve Jobs. laminitis of Apple. did non believe that apportioning money back to investors is an efficient manner to utilize it. But in 2012. Apple has changed its attitude toward dividend and redemption of stocks: It announced that it plans to purchase back 10 billion stocks over following 3 old ages. This program besides includes a quarterly dividend of $ 2. 65 per portion. bing 45 billion wholly. Besides redemption program. Tim Cook. CEO of Apple. stressed that Apple will utilize hard currency to do good investings in R & A ; D. retail shops enlargement. acquisitions. CAPEX on supply concatenation and so on.
Historical public presentation and future chances
In past 5 old ages. Apple has achieved immense success. In 2007. its gross was merely 24 billion with 33. 17 % gross border and 3. 5 billion net incomes. But in 2011. Apple realizes 108 billion gross and 26 billion net income with 40. 5 % gross border and 23. 9 % net income border. iPhone and iPad are chief drivers for this considerable addition. And mature App shops and opening new retail shops in emerging states besides contribute to Apple’s swelling financials.
Apple’s profitableness is besides bettering since 2007. Both ROA and ROE have a noteworthy addition: ROE addition to 41. 67 % in 2011 from 28. 51 % in 2007 and ROA climbs to 22. 05 % from 12. 95 % in 2007. Because of efficient supply concatenation direction. high-premium merchandises. assorted of gross watercourse. and strong trade name trueness of consumers. Apple non merely additions a strong top-line addition and besides converts this addition into higher profitableness and return rate.
We besides collect some fiscal information of Apple’s rivals to do comparing ( Exhibit ) . Among all these rivals. HP and Samsung have bigger gross than Apple from 5 old ages ago. But both of them are sing decelerating down growing rate and lower than 20 % ROA and ROE. Very thin net income border makes Apple catch their net income really easy in 2009. HP besides faces a comparatively high debt-equity ratio: compared with the clean balance sheet of Apple. 78. 54 % debt-equity ratio is non good intelligence for HP.
On Mobile Phone market. peculiarly Smartphone market. RIM and Nokia are viing with Apple. RIM’s borders seem good. return rates are besides satisfactory. but its graduated table is excessively little to endanger Apple. More significantly. RIM is in problem to convey following coevals of Blackberry runing system to vie with Apple. doing RIM’s prospect grey. Nokia. one time the most successful nomadic phone maker. now is dragged down to drench because fail to better or contrive new OS alternatively of Symbian to vie with Apple Io and Google Android. Negative growing rate squeezes out Nokia’s net income ; a 9. 5 billion net income taking company in 2007 now is a hapless 1. 5 billion loss corporation. About -10 % return on equity makes investors defeated and dump Nokia’s stocks into market. losing 94 % market cap in half a twelvemonth.
Google is an interesting rival for Apple. Actually they do non hold much overlap on concern: Google does non bring forth Mobile phone ( This state of affairs may alter after Motorola acquisition ) and it chiefly concentrate on supplying seeking services. But one great Operation System developed by Google makes the narrative different. Android. one of hottest OS in Smartphone universe. is an unfastened beginning for every plan developer and Smartphone maker. Samsung is taking iPhone’s market portion because it combines its first-class fabrication accomplishment and advanced Android OS. Android OS besides has an App shop which have more Apps for consumer in that coders do non necessitate to pay for utilizing Android beginning codification to develop new Apps.
Although Google has strong growing impulse. high borders. and low debt-equity ratio. its return rates are behind Apple and its chief concern is still different from Apple’s.
In capital market. Apple’s market capital is 534 billion. tracking by Microsoft which market capital is merely half of Apple. 272 billion. We besides compare recent one twelvemonth stock public presentation of Apple with those of its rivals. In exhibit. we can see that Apple’s stock addition 66. 29 % comparatively compared with others. holding the best public presentation ; RIM and HP have a tough clip in past twelvemonth and dropped 75. 43 % and 40. 18 % severally.
In future. we believe that there are tonss of chances for Apple to increase. because: 1. Emerging states chances: China. a typical rising state. is still dominated by characteristic phones. but there is already a tendency that immature coevals and emerging middle-class would wish to take Smartphone. Latin-America is besides an increasing market ; Brazil and Argentina are two chief markets in this country. 2. Exploiting the advantage of Apple’s store-based retail: Apple already prove in China that the store-based retail is really successful. Merely 4 shops in China is far off to carry through the demand of consumers. Apple should retroflex this success to other emerging states like Brazil and Russia. 3. Entering in new battleground: If Apple could present its telecasting to market in following few old ages. it may heighten its place in this market. Based on its cloud calculating engineering. Apple can use its bing devices portfolio to assist the gross revenues of iTV.
But Apple is besides confronting many challenges in forepart of it. including: 1. Its rivals are trailing it and shortening the distance: Android OS Smartphone from HTC. Samsung and Motorola performs really good in developing states. and Tablets from Samsung and Amazon besides seek difficult to take topographic point the iPad’s taking place. 2. But if Apple plans to vie in developing market. heavy monetary value may be a critical factor. In exhibit. we find that in BRIC states Symbian is still the dominant participant because there is still a clump of low income population. In China. Android does already take tonss of market portions in that many Smartphone makers ( Especially HTC. Samsung and Motorola ) equip their phones with this OS. intending that they can supply consumers different sorts of Smartphones in broader monetary value scope. 3. Will at that place be following “Must-buy” merchandise: Apple must pass on invention to maintain its in front place such as what it did in yesteryear. This is still a myth for Apple without Steve Jobs.