10 Apple, Inc. — 2011 Mernoush Banton Adjurict Professor/Consultant AAPL. ‘wevorapple.com Based in Cupertino, California, Apple sold 4.69 million iPads the fitst quarter of 2011, to reach 20.millioiiPads since the prociuet’s April 2010 debut. At7.3-inches wide, with a color screen and many popular downloadable games like “Angry Birds/" applications for watching movies and reading magazines, and software for word processing and spreadsheets, the iPad is siphoning off more PC sales than anyone ever predicted. For example, HP’s PC sales. plunged 23 percent that quarter and the company cut billion off its annual sales forecast Dell's sales to consumers declined 7.5 percent for the quarter. ‘More than 70 million tablets like the Apple iPad will be sold in 2011, a total that is expected {o balloon to 246 million in three years, Global shipments of PCs fell 3.2 percent that first quar- ter‘of 2017, hurtin part because minty consumeis bought tablets instead. Microsoft Windows sales fell 4. percent to $4.45 billion that fist quarter of 2011, Microsoft's net income of $5.23 billion’in 2010 was eclipsed by Apple's $5.99 billion, the first ime that had happened. in 20 ‘yeas. Success of Apple's iPad, iPhone and sigw’ versions of the Mac helped Apple replace Microsoft as the world’s most valuable technology company in 2010. Apple designs, manufactures, and markets a range of personal computers, mobile corn- munication and media devices, and portable digital musi players and sells a range of related software, Services, peripherals, networking solutions, and third-party digital content and appii- cations. Apple products and services include Macintosh (Mae) computers, iPhone, iPad, iPod, Apple TV, Xserve, a portfolio of consumer and professional softwace applications, the Mac OS X and 108 operating systems, third-paity digital content and applications through the iTunes Store, and @ range of accessory, servi, and support offerings. Apple sels its products globally through its retail stores, online stores, and direct sales force and third-party celhilar network cariers, wholesalers, retailers, and value-added resellers, As Apple's fiscal 2010 ended on Sepiember 25, 2010, the company operated 317 retail stores, including 233 in the United States and 84 internationally, Apple opened is two newest stores on August 13, 2011—in Anchorage, Alaska and Murrary, Utah, Also on that day, Apple became the must valuable company in the world, ‘wrpassing ExxonMobil, Some analysts are asking whither Apple has more cash than the USA. History Steve Wozniak and Steve Jobs established Apple after they dropped out of college in April 1976. Their coworker relationship started when Wozniak successfully created building boxes to make free long-distance phone calls, which was a huge invention at that time, Wozniak extended his invention again when he made anther box that was éalled the Apple I com- puter. Contrary to today’s comiputers, this Apple computer had no keyboard or power supply. Woznialt and Jobs were able to sell 50 units of computers in the San Francisco Bay area for $$666 total In 1978, Apple became one of the most rapid-growing companies in the United States. It ‘was spread across the nation through 100 dealers. Soom came the Apple 2e and the Apple 2c In the miid-1980s, Apple launched Macintosh, which initially sold very weil but soon deciined due torts high price and limited range’of software titles. In the carly 1990s, Apple introduced90. MERNOUSH BANTON Poco, 7p chn With 12-howe Daeg i, Ding hs aly em, Apr onhinued ing products such as digital cameras, portable CD audio players, speakers, “ideo consoles, and eas t 16, John Sculley was Apple's CEO, but in 19536, ‘Apple brought back Steve Jobs as in . : “Apple's iPhone spurred a reyolution in cell phones and mobile computing, Apple conn Lines o Innovate its core Mac desktop and laptop computers—all of whieh feature its OS “X operating system—inclding the iMac all-in-one. desktop and MacBook portable for the consumer and education markets, and the high-end Mac Pro and MacBook Pro for comn- sumers and professionals involved in design and publishing. Apple's digital music players Pod) and ontine music store (Tunes) make millions for the company. Apple's iPad tablet computer is a blockbuster suceess. Apple gets more than half of its sales from outside the United States, ‘In 2010, for the first time, the company's market capitalization surpassed Microsoft. In January 2011, Steve Jobs announced that he would once again take a medical leave of absentce ‘and Timothy. Cook, the edmpany's COO, would be managing day-to-day operations of Apple. When Steve-Jobs ultimately resigned due to health reasons in August 2011, Tim Cook was : afinouriced as CEO. ~ Vision’ Mission ‘Apple does not have @ formal vision staterhent, but some publi the company’s viston statement: tions provide the following as “Apple ignited the personal computer revolution in the 1970s with the Apple I and rein- ‘yented the personal computer in the 1980s with the Macintosh, Apple is committed to bringing the best personal computing experience to students, educators, creative profes- sionals, and consumers around the Word through its innovative hardware, software, and Internet offerings, eR UIE as Apple does ot have a formal mission statement, but the comnion theme seems to be the following statement; with nominal variations: susbadianpeeeaahe feet icc ‘Apple Computer is committed to protecting the environment, health, and safety of our ‘emplovees, customers, and the global comtnunities where we operate, We recognize that by integrating sound enviroomental, health, and safety management practices into all aspects of our business, we can offer technologically innovative produets and ser Vices while conserving and enhancing recourses for future generations. Apple strives for continuous impravement in our environmental, health, and safety management sys- teins and in the environmental quality of our products, processes, and services. (Source: Internal Issues, e Organizational Structure Apple has no presidents of divisions and.no SBUs. The company is organized functionally with ‘i financially reportable segments being the Americas (North and South), Europe (including the Middle Bast and"Afiica), Japan, Asis-Pacific, and Retail (U.S, and international markets). Tim Cook is the company's CEO. Apple's organizational structure is given in Exhibit 1. Products "Apple offers a wide range of products as indicated in Exhibit 2. These include iPads, iPods, ‘Phones, iTunes, PCs, and more, Apple is perhaps the best-known “first mover” company ever, as the firm has a 35-year history of being the first to introduce blockbuster, successful new products,CASE 10 + APPLE, INC. 2011". S91 EXHIBIT 1_Apple’s Organizational Chart - 2011 Fa Oppenbetinets 6 Chet cil Oscer em |: Source: Compa documents EXHIBIT 2_ Apple Products ~ 2011 Mac Hardivare Products 1, Personal computing product including desktop and portable computers, Xserve servers, related devices and peripherals, andl varous third-pacy hardware products. 2, Desktop computers include iMac, Mac ro, and Mac mini. 3, Portable computers include MacBook, MacBook Pro, and MacBook Ait. MacBook isa portable computer Aesigued for consume aid education users, MacBook Pro isa potable computer designed for profession Als and consumers. ‘Tunes ‘Tunes digital music management software ("Tunes") is an application fr playing, dowatoading, and ‘organizing digital audio and video ies and is available for both Mac and Windows-based computers. Manes 10 features Ping, a inusic-orienied socal network, AgPlay wireless music playback, Genius Mixes, Home Shing, and jmproyed syncing functionality With the company’s mobile egmfuinication and medi devices. ‘Phone, __ Phone combines mobile phone, a widescreen iPod with touch contos, anda Internet communications - sevice in single handheld produ. ‘Pad iPad, a multi-purpose mobile device for browsing the web, reading and sending e-mail, viewing photos watching videos listening to mos, playing games, reading e-books, aud mire, iPod ‘ “Line of portable digital music aud medi players comprised of iPod toc, iPod nane, iPod shui, an . ‘Pod classic. Displgs Pevioheral ‘Apple Cinema High Definition Display and a varity of Apple-branded and third-party Mac-compatible Products peripheral products, ieliing printers, storage devices, computer memory, digital videoand sl cameras, : and various other computing products pd supplies Apple TW Apple TY isa device that allows customers to rent and watch movies and television shows on their televi- sion, Content from Neti, YouTube, 2 Flickr and MobileMe, as well as iusiss phot, videos fromm a Mae or Windows-based computer an be ® ieleslytreamed oa television through Apple TV. Operating System Software’ 5° 1. Mac OS X is built on an open-source; UNIX-hased foundation. Mae OS X Spov Leopard isthe seventh : majo elease of Mac OS X aad became availabe in August 2009. 2.408 is the company's mobile operating system that serves as the foundation for iPhone, iPad, and iPod touch, Application Software 1. iLife *11 is the latest version of the company’s consumer-oriented digital lifestyle application suite in cluded with all Mac computers. 2. {Work 109 isthe atest version ofthe company's integrated productivity suite designed to help users create, present and publish documents, presentations, and sprealsheets,92 MERNOUSH'BANTON nance: “Apple's consolidated income statenieiits and balance shécté are provided in Exhibits 3 amd 4 respectively. Note that Apple's revenues increased a whopping 52 percent in 2010, whitle its net income increased 70 percent. Also notice that Apple has zero long-term debt on its balance sheet. EXHIBIT 3 Apple’s Statement of Operations—2010 (in millions except EPS) EXBIBI 3s. RbRles-S{a\SS0t Olona et 2008 $37,491 Three years ended Sep: 25, 2010 Netanles Cost of sales (Gross margin pean expenses Research nd development Selling, general, & adniisative “Total operating expenses Operating income Other income and expense Taome tere provision forincoie taxes Provision for income taxes Net income: $14,013 $98,235 Earnings per common share : Basie sisay $022 $6.94 ‘ Diluied $15.5 $9.08 36.78 ‘Sources Rpple Vs Fv 10K 20105 p46 EXHIBIT 4 Apple's Consolidated Balance Sheet—2010 (in millions, except : share amounts) Sep. 25,2010 Sep. 26, 2009 ASSETS Currentaseis . CCashandeath cauivalens s11261 $5,263 Sor-erm mretabe secures 18201 ‘Account recite allovanced of $55 and $53, 3510 336t - s respectively Inventories 455 = Deferred tax sets 135 ; ‘Vendor nontredsreeivables, 1.696 - Other current assets 1444 ‘Total euentassets a 31585 Longeterm marietble securities 10528 Propet lan ad epment, net 2954 Goodwill 206 ‘Agi Ingle sts, et : wi Otberarseis aot me : $47,501 ‘Total assetsCASE 10» APRLEING. 2011 83 Sep;25,2019 Sep. 26, 2009 s12015 $5,601 578 3,852 2,984 2,053 20,722 11,506 E 4139 853 net 5531 3,502 77,392 15,861 10,668 8210 s7169 23353 46) n B 47791 31,640 fe $75,183 $47,501 personne! who provide product. rat in /-party hardware, software, it. Note that the come /"""" « a Git the Americas but géderates felis from its own stores increased 47$16,592 $7,590 $6,658 $4901 $12 $12 $10: $2,809 $1,896 $1693, $18,692 SULg10 $9,233 $7,524. $4,296, $3,023, 9 sa "SoCASE 10 + APPLE, INC 2011 EXHIBIT 7 Percentage Sales of Products (2010) Product Percentage Sales (ome 030% _ (10 Competitors Apple's Anaual Répore indicates that is business industry is Computer Hardware and its sector is Technology. Yet, many analysts consider Apple as being a direct competitor with other hard- ‘ware manufacturers such as Hewlel(-Packard (another hardivare manufacturer) and even Google ‘(with no hardware manofacturing capacity), yet there is no comparison between Apple and other phone-related niaufictuters or devices, through 38 percent ofits business is driven by iPhone aand related products, in Exhibit 8, This is always a challenge when companies have wide product Jines with different marketing mix in each line. For hardware product lines, direct competitors to/Apple include Hewlett-Packard, Dell, ‘Xerox, NCR, and LBM, as dicated in Exhibit, EXHIBIT 8 Apple Competitors ata Glance eT APPLE. GOOGLE HP RIMM Industry “wadetGp~*~*~*«CRORTSCaAB GOD 308 ao0san ‘#Employces: 46,600 26,316 324,600 17,500 100,30K {20)y Rev Gow 270% 266 360% 36208 ——-2430% sRevenve man um arn oon erase Gros Margin 300% ASTRA ste 9.07% SEBTTDA 26738 1216818258. 5573 26.738 ‘eOering Marin. DO 34.35% | Tod 230% 192% sietncome 19598 AD Bai NA ‘SEPS. " 20.99 2729 392 634 20.99 ‘Soiree: Based on information wt france yahoo soa (pol 2011) Idasey= Persona Compoters 35)” ware (U.S.) Company Comparisons ride Pre “SS1I0A2 14.28 4150. 10.59 211636 rat 17,86 BSI compete with Apple, HP's ganized into seven busi- i 10H ee group, which competes ‘broad: rang 8 ps ise Solutions, JT transactional, outsourcing, and. rojesebased commun for Fife: ucture, applications, ond business processes) that compete with Apple products. In the United fes,'as ait of its services, Dell offers customers financial service solutions through Dell LL, The company’s consolidated total revenue for 2011 was $61.4 billion, tof ts total revenue, as indicated in Exhibit 11. cofts through its direct sales appnoadi ib OFdEr has be ae song Tivenitory aia Sdue 18651," 1535919400 doz 1.518 684 7,246 Wags "7032. * 1,661 29614. 44124310 2698 206 (6. ae Plant , fom the dae of aeqison, July 2010;:-CASE 10 + APPLE, INC. 2011, "8% ssolldated Results of Operations 5 genes, and supports a.raige software products and ser- wide: Cher than. lat Windows operating sys- consulting service’for business and computing 3145 Microsoft D | ERP and ‘CRM, as well. Entertainment ind Devices Division segment PC software games; online gaines and gare; Windows Phone-and Widows: it at platform; and application. s;. whereas: Apple's comput: $Séulley’s decision not.tg sat misc: tic ns in busi f"i serious conipetitor:toApple, The. Windows Media rating system that is sold on almost every com- fS Glun music site; and sales at