CASE STUDY APPLE INC Steve Jobs 1955- 2011

Mission Statement Apple Inc. is committed to protecting the environment, health and safety of our employees, customers and the global communities where we operate. We recognize that by integrating sound environmental, health and safety management practices into all aspects of our business, we can offer technologically innovative products and services while conserving and enhancing resources for future generations.

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February 2011 Doctor cleared his throat and said Mr. Jobs you do not have much time to live. At best I think may be six months. We have tried our best but the resurgence of cancer is too strong it is taken over your entire body. I understand the sensitivity of the issue if you want we will keep it secret from the media.CEO of Apple Inc. Steve Jobs got up from his chair and slowly moved out of the cancer treatment facility thinking about his family and the company Apple Inc. where he has been the major force and in just 13 years transformed Apple from bankruptcy to number 1 company of the world. Apple Inc. in 2011 On Wednesday March 2, 2011 Apple Inc. launched iPad 2 amid great attention from the media and customers. CEO Steve Jobs who had taken medical leave from his work took the central stage by officially launching iPad 2 despite his extremely weak health condition he gave stunning presentation on this product and shocked the digital world. He was given standing ovation by the audience, during his presentation he stated, it is just not technology his company innovations are combination of business, humanities, art and engineering. I work on new product development with passion and love, we do not give attention to marketing research, I have never hired any consultants, I just work on making the products better and try provide more value to the customers. Even the The Economist displayed the release of iPad on its magazine cover page and declared Steve Jobs as the entrepreneur of the century. According to the top 100 global brands report released in May 2011 by the most respected brand researchers MillwardBrown, Apple Inc was declared number 1 global brand of the entire world. On the occasion of launching iPad 2 in China April 2011, price of iPad 2 was fixed 20% higher than USA, long queues of customers were witnessed outside Apple sales centers and several people landed in jails because of fighting which erupted because of jumping lines. One man is reported to sell his kidney to finance the purchase of iPad 2 Case Study- Apple Inc Page 1

Apples History Steve Jobs and Steve Wozniak , a pair of 20 something college dropouts founded Apple Computer on April Fools Day , 1976. Working out of the Jobs familys garage in Los Altos, California, they built a computer circuit board that they named the Apple 1. Within several months they had made 200 units and taken on a new partner A.C. Mike Markkula, Jr., who was instrumental in attracting venture capital as the experienced businessman on the team. Jobs mission was to bring an easy to use computer to market, which led to the release of Apple 2 in April 1978. It sparked a computing revolution that drove the PC industry to $ 1 billion in annual sales in less than 3 years . Apple quickly became the industry leader, selling more than 100,000 Apple -2 by the end of 1980. In December 1980, Apple launched a successful issuance of common stocks for public . Apples competitive position changed fundamentally in 1981 when IBM entered the PC market. The IBM PC , which used Microsofts operating system and CPU from Intel was a relatively open system that other producers could copy. Apple on the hand practiced horizontal and vertical integration. It relied on own proprietary designs and refused to license its hardware to third parties. IBM PCs not only gained more market share, but they also emerged as the new standard for the industry. Apple responded by introducing Macintosh in 1984. The Mac marked a breakthrough in ease of use, industrial design and technical elegance. However the Macs slow processor speed and lack of compatible software limited sales. Apples net income fell by 62% between 1981 and 1984 sending the company into crises. Steve Jobs recruited the Chief Executive of Pepsi Cola John Scully to turn around the company by using his marketing and management skills. John Scully was appointed Chief Executive and Steve Jobs became the head of research and product development. After spending some time in the company John Scully concluded that there is nothing wrong with the company it is Steve Jobs who is ruining and destroying the company by his rash and centralized style of management. John Scully convinced the Board members and Steve Jobs was fired. Jobs was asked to sell his shares and leave the company immediately. In 1985 Steve Jobs left the company with tears in his eyes, he was forced out of the company which he created and the man he hired John Scully to change the culture of the Apple conspired for his exit. In June 1993 Scully was replaced by the President of the Board as the companys margin was continuously falling. In 1996 a board member Amelio was made the Chief executive who was fan and admirer of Steve Jobs. He was also aware that Steve Jobs new company Pixar ( 3D animation company) was making huge profit with Toy Story and he had long term plans with Disney world. Apple lost $ 1.6 billion under Amelio and the world wide market share tumbled to around 3% . Amelio told the Board that the only hope of reviving the company is to get the man who created it. In September 1997 Steve Jobs became the companys interim CEO Case Study- Apple Inc Page 2

Steve Jobs and the Apple Turnaround Steve Jobs moved quickly to reshape Apple. He hired Taiwanese contract assemblers to manufacture Mac products and revamped Apples distribution system from smaller outlets to national chains. Apple 15 product lines were slashed to just four categories- desk tops and portables for consumers and professionals. Apple launched a website to set up direct sales for the first time. Internally, Jobs focused on reinvigorate innovation. Apple slashed its inventory and increased its spending on R & D. Jobs first real coup came with iMac in August 1998. This was a window based machine with eggshell design. Following Jobs return , Apple posted a $ 309 million in 1998 fiscal year, reversing the previous year s $ 1 billion loss. Jobs wanted to change the image of the company and Apple to be a cultural force. Apple promoted itself as a high end alternative to other computer brands. Apple ads were placed in popular and fashion magazines. PC Manufacturers The four top PC vendors Hewlett-Packard(HP), Dell, Acer and Lenovo accounted for 55% of world wide shipments . Industry leader HP had staged an impressive comeback following a rough period with the acquisition of Compaq computers in 2002. HP was also the world largest technology company diversifying into services, servers and storage. Around two thirds of HPs PCs were sold outside the US. HP also had a strong retail presence through 110,000 world wide outlets. Dell on the other hand stumbled, its distinct combination of direct sales and build to order manufacturing was a hit in the corporate market. Yet Dell was late to catch the consumer boom. Founder Michael Dell returned as CEO in January 2007 and emphasized computer friendly products, reentered retail distribution and pushed for international expansion. Still Dell struggled with cost controls and poor margins. In 2009 Dell was the only top PC manufacturer to loose its world wide market share. Acer and Lenovo, active in emerging markets both benefitted from acquisitions of high profile US PC brands . In 2007 Taiwan based Acer bought Gateway a leading US PC brand and became the third largest PC vendor in the world. Acer also acquired Packard Bell a PC maker with strong presence in Europe. China based Lenovo came into front ranks of PC vendors in 2005 when it acquired IBM money loosing PC business for $ 1.75 billion. Lenovos greatest strength was its dominant position in China where it commanded 33% of the market. Suppliers to the PC industry fell into two categories. Those that made products such as( memory chips, disk drives, and key boards) come from many sources and those that made products notably microprocessor and operating systems that had just few sources. Products in the second category are supplied by two firms Intel and Microsoft.

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From Apple Computers to Apple Inc. Apples shift towards digital hub strategy was initiated by the debut of the iPod in 2001, followed by the iPhone in 2007, then the iPad in 2010. These product lines set Apple on a path toward becoming a full fledge digital convergence company. The change in the name from Apple Computer to Apple Inc. In 2007 marked the official repositioning of the company. The iPod Sensation While the prospects of for the PC Macintosh improved, it was the iPod that set Apple on the explosive growth path. The iPod was initially one of the many portable digital music players based on the MP3 standard. Thanks to the sleek design , simple user interface and large storage it soon became the icon of the digital age. The first iPod stored up to 1000 songs the other MP3 players could only store one hour of music. The iPod nano for example had gross margins of 40%. The biggest cost component for the nano was flash memory. Apple agreed to pay $ 500 million up front in 2005 to intel, Samsung and Toshiba to ensure uninterrupted supplies of flash memory. Released in 2007 the Touch was the first iPod that built in wifi, 3.5 inch screen and a multi touch graphical interface. Some 50 million iPod Touch devices have been sold in 2010. Apple has been charging of $ 75 to $100 higher than the competition. Competitors like Creative, SanDisk, Samsung all were struggling in front of iPod even Microsofts Zune line of music player could not create any impact in the market. Competitors found themselves facing a major disadvantage with the emergence of iTunes store. iTunes : Two features which dramatically differentiated Apple iPods were its iTunes desktop software which synchronized iPods with computers and its iTune Music store. The iTune was the first legal site that allowed music down loads on pay as per song basis. By February 2010, iTune has sold 10 billion songs and featured the world largest catalog. Over 8000 movies titles could be rented or downloaded by iPod Touch owners. The launch of iTunes store had a tremendous impact on the sales of iPod. Before the launch of iTune store Apple sold on average 113,000 iPods per quarter. After iTunes launch, iPod sales shot up to 733,000 units per quarter and exploded thereafter. An Apple exclusive digital protection software ensured copy rights by limiting down load of one song to five computers by one user.

The iPhone Hailed as Time Magazines Invention of the Year the iPhone represented Apple bid to reinvent the phone. Two and half years of development efforts had been devoted to the phone , guarded under

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intense secrecy even within the company s own employees . The estimated development cost was around $ 150 million. Entry into mobile phones was considered risky by market analyst. The industry was dominated by Nokia, Motorola and Samsung with 60% market share. In addition the products were characterized by short life cycles, including radio technology where Apple had little experience. In the US market a handset manufacturer is usually dependent on the operator to provide a subsidy which could lower the price of new handset by as much as $ 150 or more. Nokia was dominating the market with attractive hard ware designs and user friendly interfaces, multimedia functions. Then smart phones rose to prominence with internet browsing , emails and media players. The iPhone , however changed the rules in the industry. A revolutionary 3.5 inch touch screen interface placed commands at the touch of users fingertips without a physical keyboard. The first model was priced at $ 499 for an 8GB model. At that time other mobiles from competitors were costing $ 300. The first generation iPhone sold about six million units over five quarters. With the 3G model, iPhone revenues exploded to $ 25 billion by the end of 2010. Within three years, the iPhone went from zero to 38% of Apples total revenue. In terms of global smart phones sales ,the iPhone was the biggest growth story capturing more than 26% of the market Competitors: Apple has two main competitors in smart phone category . RIMs black berry smart phones delivered one of the best e-mail experiences and was a popular chance among corporate consumers. The leader in smart phones was Nokia . The company strength lied in Europe and emerging markets such as India, China and Pakistan. Googles free Android OS is an open platform that allowed mobile users to use it for free Android had gained 4% market share. This OS can be a potential threat to iPhone. Limitations of the iPhone: Complaints included customers wanted a physical key board, especially people handling high volume of e-mails. The battery life was weak . The iPhone did not support flash technology which meant that the device video could not be played on some platforms. The iPad The launch of the iPad in 2010 was yet another bold move by Jobs to redefine an industry positioned between smart phone and laptop, the iPad was priced at $ 499 to & 829. The computer tablet featured a 9.7 inch screen for reading books, watching movies and some business productivity applications. Between 2008 and 2010 Jobs bought two microprocessor designs for about $ 400 million. The iPad became the first product of Apple to run on its microprocessor. Battery life of iPad is 10 hours. More than 450,000 iPads were sold during its first week on the market. Computer tablets prior to iPads launch accounted for less than 1% of the market. According to Job the iPad would kill the note book. The hype over iPad had produced an immediate competitive response. At least dozen companies have started producing these computer tablets, HP, Samsung , LG , Panasonic, Toshiba have already launched tablets in the market. Chinese companies have also launched computer tablets at half the cost. Case Study- Apple Inc Page 5

Indian IT minister announced that we will be launching a computer tablet copy of iPad in 2012 at $ 35 so all students can afford it. One Failure : Apple TV was announced in 2007, it was an attempt by Apple to bring digital video content directly into the living rooms. Customers were supposed to download contents from iTunes store and view on Apple TV. Sales were extremely slow and probably the only failure product approved by Steve Jobs. Apple Inc. and the Challenges Apples evolution from a PC manufacturer company to a mobile communication company has been a spectacular success. Most of the credit goes to one man Steve Jobs. Market understands this fact and without Jobs at the top, company may struggle to maintain its number 1 position in the world. Fully aware of this fact Steve Jobs came to his home and called Timothy D. Cook , his heir apparent, and Chief Operating officer of Apple Inc. Jobs told him to conduct the share holders meeting in 2011 as he will not be attending the annual meeting with the shareholders this time because of his deteriorating health condition and asked him to put his name for election in the Board so the market should not get wrong signals. He also stated that just a rumor of his heart attack pulled down the share value by 10% last week and any negative report about his health may bring the share value down dramatically. Steve Jobs continued and started discussing the challenges faced by Apple Inc. He sated that iPod sales are stagnant in 2010 & 2011 on the other hand Microsoft has introduced Window 7, which led to resurgence in PC sales. Job stated I am not satisfied with our PC market share which is only 5% Timothy D. Cook sitting in his office next morning thought about the risks and challenges which he faces in case of Steve Jobs permanent disappearance from the company. Influence of Steve Job in product development and innovation was huge. Steve Job style of management has been centralized he would communicate with 100 people and would personally approve and supervise all the innovations. No one use to complain because most of the time Job was right, he was always the smartest man in the room. Cook realized it would be difficult to bridge the gap which Steve Jobs absence will create. Cook was worried due to the highly volatile and competitive nature of the industries in which the Apple Inc. competes, he must continually introduce new products, services and technologies, enhance existing products and services, and effectively stimulate customer demand for new and upgraded products just like Steve Jobs. Cook was also worried that Steve Jobs had the ability to hire talented people and retain them on long term basis. Experienced personnel in the technology industry are in high demand and competition for their talents is intense, especially in the Silicon Valley, where most of the Companys key personnel are located. Because of Jobs absence it would be difficult to retain key personnel. Although most components essential to the Apples business are generally available from multiple sources, certain key components including but not limited to microprocessors, enclosures, certain liquid crystal displays (LCDs), certain optical drives, and application-specific integrated circuits (ASICs) are Case Study- Apple Inc Page 6

currently obtained by the Company from single or limited sources, which subjects the Company to significant supply and pricing risks. Cook thought that he would like to reduce the risk in this area Suddenly his phone started ringing there was somebody from the stock market who wanted to know about the health condition of Steve Jobs , Cook replied No Comments. The man responded without Steve Jobs Apple Inc. can become bad apple "Cook is a star, just a different kind of star from Steve," said New York-based business analyst, who recommends buying Apple shares and doesn't own any himself. "He's arguably one of the best supply chain managers in the world, if you look at working capital management, cash-flow management, cash conversion cycles -- all those great metrics." He has done tremendous work in Apple and the gap left by Steve Jobs can be filled by Cook. He handled the company in a professional manner during the absence of Steve jobs for six months in 2007 for liver transplant operation. Apple Board has been criticized many times by the press for lacking in corporate governance as Steve Jobs was always reluctant in asking independent non executive directors to sit in the Board. Board of Directors of Apple Inc. announced that Timothy D. Cook will replace the legendry chief executive of Apple Inc. Steve Jobs died on October 5, 2011 Selected Financial Data of Apple Inc

US Dollars in Millions 2011 Net sales . . . . . . . . . $108,249 Net income . . . . . . . $ 25,922 Earnings per common share: Basic . . . . . . . . . . $ 28.05 $ 15.41 $ 9.22 $ 6.94 $ 4.04 2010 $ 65,225 $ 14,013 2009 $ 42,905 $ 8,235 2008 $ 37,491 $ 6,119 2007 $ 24,578 $ 3,495

Total assets . . . . . . $116,371 7 Total liabilities . . . . . $ 39,756 Total shareholders equity . . . . . . . . . . . . . $ 76,615 Case Study- Apple Inc

$ 75,183

$ 47,501

$ 36,171

$ 24,878

$ 27,392

$ 15,861

$ 13,874

$ 10,347

$ 47,791

$ 31,640

$ 22,297

$ 14,531 Page 7