APPLE INC.

SWOT
ANALYSIS 2017
ABOUT APPLE
Name Apple Inc.

Logo

• Computer hardware (Mac, iMac, Mac Pro, MacBook, MacBook Air)

• Computer software (iOS, OS X, Safari, iLife, iWork, iMovie, iPhoto)
Industries served
• Consumer electronics (iPod, iPhone, iPad, Apple TV and Mac products)
• Internet (iTunes store, iCloud, App Store, Mac App Store)

Geographic areas served Worldwide (retail stores in 20 countries and online stores in 38 countries)

Headquarters Cupertino, California, United States

Current CEO Timothy Donald "Tim" Cook

Revenue (US$) 215.639 billion (2016) 7.7% 233.715 billion (2015)

Profit (US$) 45.687 billion (2016) 14.4% 53.394 billion (2015)

Employees 116,000 (2016)

Samsung Electronics Co., Ltd., Amazon.com, Inc., International Business

Machines Corporation, Cisco Systems, Inc., Google Inc., Microsoft Corporation,
Main Competitors Dell Inc., LG Electronics, Lenovo Group Limited, Hewlett-Packard Company, Sony
Corporation and many other computer hardware, computer software, consumer
electronics and Internet companies.
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BUSINESS DESCRIPTION (1/3)
“”
Apple, Inc. business overview from the company’s financial report:

“The Company designs, manufactures, and markets mobile communication

and media devices, personal computers, and portable digital music players,
and sells a variety of related software, services, peripherals, networking
solutions, and third-party digital content and applications. The Company’s
products and services include iPhone®, iPad®, Mac®, iPod®, Apple TV®, a
portfolio of consumer and professional software applications, the iOS and
OS X® operating systems, iCloud®, and a variety of accessory, service and
support offerings. The Company also sells and delivers digital content and
applications through the iTunes Store®, App Store™, iBooks Store™, and
Mac App Store .

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 BUSINESS DESCRIPTION (2/3)
“”
• retail stores
• online stores
• direct sales force
• third-party cellular network carriers
• wholesalers
• retailers
• value-added resellers

Our sales
channels
include • consumers
• businesses Our
• enterprises customers
• education are
institutions
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BUSINESS DESCRIPTION (3/3)
“”
The Company is committed to bringing the best user experience to its
customers through its innovative hardware, software and services. The
Company’s business strategy leverages its unique ability to design and
develop its own operating systems, hardware, application software and
services to provide its customers products and solutions with innovative
design, superior ease-of-use and seamless integration. The Company
believes a high-quality buying experience with knowledgeable salespersons
who can convey the value of the Company’s products and services greatly
enhances its ability to attract and retain customers. Therefore, the
Company’s strategy also includes building and expanding its own retail and
online stores and its third-party distribution network to effectively reach
more customers and provide them with a high-quality sales and post-sales
support experience. The Company believes ongoing investment in research
and development (“R&D”), marketing and advertising is critical to the
development and sale of innovative products and technologies.”[1]

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 STRENGTHS WEAKNESSES
1. Unique ability to design and develop proprietary 1. Overreliance on iPhone sales as a major revenue source
hardware, software, applications and services
2. Declining market share in the second largest smartphone
2. Powerful brand supported by strong advertising and market (China)
marketing capabilities
3. Few successful innovations introduced over the past few
3. The most loyal customer base in every major product years
market where the company competes
4. High degree of vertical integration
5. Efficient research and development (R&D) spending

Apple
SWOT 2017
OPPORTUNITIES THREATS
1. Augmented and virtual reality markets will be worth over 1. Smartphones and tablets are becoming a commodity,
US$140 billion by 2022 which could impact the company’s gross margins
2. Increasing demand for voice-controlled virtual assistants 2. The rising U.S. dollar exchange rate could negatively affect
in devices the company’s revenue and profits
3. Wearable medical device market will be worth US$12.14 3. Growing number of attacks on the company’s information
billion by 2021 technology systems
4. Repatriation tax holiday for U.S. companies

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S W
O T
STRENGTHS

1. Unique ability to design and develop proprietary hardware, software,

applications and services
Figure 1. Apple’s product ecosystem

• iPhone • iOS
• iPad • macOS
Many of Apple’s competitors • Apple Watch • watchOS
have tried and still try to imitate • Mac
• Apple TV
• tvOS

the success of Apple’s product Hardwar

e Software
ecosystem, but fail due to not
having strong capabilities in
designing, manufacturing and Applicatio
n
developing both hardware and Services
Software
software, applications and • iTunes Store • iLife
services. • App Store • iWork
• iBooks Store • iMovie
• Apple Music • Final Cut
Pro
Source: Strategic Management Insight

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S W
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STRENGTHS

2. Powerful brand supported by strong advertising US$178.1 billion

and marketing capabilities valued by
Interbrand

• Apple’s brand is the most recognizable in the world.

• Interbrand[2] and Forbes[3] have both listed Apple’s

brand as No.1 brand in the world.

US$154.1 billion
valued by Forbes

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S W
O T
STRENGTHS

3. The most loyal customer base in every major product market where the
company operates competes

Apple’s brand enjoys the most

Figure 2. 2017 Brand Keys’ Customer Loyalty Engagement Index (Apple’s market leader positions)

loyal customer base in the

following industries:

• Laptop computers;
• Online music;
• Smartphones;
• Tablets. Source: Brand Keys[4]

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S W
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STRENGTHS
Figure 3. Retention Rates in The Smartphone industry

Apple retains 75% of its

customers, compared to
Samsung’s retention rate of
63% and Google Android’s
71%.

Source: Business Insider [5]

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S W
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STRENGTHS Figure 4. Smartphone Industry Value Chain and Apple’s Role within it

4. High degree of vertical integration

• Apple is a vertically integrated company.

• Instead of growing by acquiring its

competition (horizontal integration), the
company chose to grow by venturing into
other activities along the industry value
chain.

• No rival is able to replicate this strategy so

well.
Source: Vision Mobile[7] SLIDE | 11
S W
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STRENGTHS

5. Efficient research and development (R&D) spending

Figure 5. R&D spending by Apple and its largest competitors in 2016 (in US$ billions and percentages)

Even with the lowest Company R&D spending Revenue As a % of revenues

R&D budget, Apple is Apple Inc. 10.045 215.639 4.7

still able to generate Samsung Electronics 14.1 177.365 7.2

more revenue than Alphabet Inc. 13.948 66.001 21.1
any of its rivals.
Microsoft Corporation 11.988 85.320 14.1

Source: The respective companies’ financial reports[1][8][9][10]

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S W
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WEAKNESSES

1. Overreliance on iPhone sales

Figure 6. Apple revenue breakdown by product 2016 (% share of total revenue)
as a major revenue source
5%

11%
The iPhone generated iPhone
55.8% of the company’s iPad
total revenue in 2014. 11%
Mac
Services
This number grew to Other Products
63.4% in 2016. 10% 63%

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Source: Apple financial report [1]
S W
O T
WEAKNESSES

2. Declining market share in the largest smartphone market (China)

Figure 7. Apple revenue growth in China 2009-2016 (revenue in US$ billions, share in percentages)

 
2009 2010 2011 2012 2013 2014 2015 2016

Revenue from China 0.769 2.764 12.472 22.533 25.417 31.853 58.715 48.492

% of total Apple revenue 1.79 4.2 11.5 14.4 14.9 17.4 25.1 22.5

Source: Apple’s financial reports [1][12][13][14]

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S W
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WEAKNESSES
Figure 8. Apple’s revenue growth in China 2010-2016

500%

400%

300%

200%

100%

0%
2010 2011 2012 2013 2014 2015 2016

-100%

Source: Apple’s financial reports [1][12][13][14]

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WEAKNESSES

3. Few successful innovations introduced over the past few years

World’s Most Innovative Companies 2017

ranks ranks

4th most innovative company Doesn’t even include to the list of the
most innovative companies
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S W
O T
OPPORTUNITIES

1. Augmented and virtual reality markets will be worth over US$140 billion by
2022

In 2016, the AR market was worth US$1.2 billion while the VR market generated US$2.7 billion,
making the combined market worth US$3.9 billion.[19]

Both markets are expected to be worth over US$140 billion combined by 2022.[20]

AR and VR will become very profitable growth markets and

Apple should take advantage of this opportunity.

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S W
O T
OPPORTUNITIES

2. Increasing demand for voice-controlled virtual assistants in home devices

• Apple was the first company to launch its own voice- Apple’s Siri
activated virtual assistant (called Siri) back in 2011.

• Siri is only available on the Apple’s products such as

the iPad, iPhone and Apple Watch.

• The current trend is to let the virtual assistants into

homes and third-party hardware.

• Research from Grand View Research reveals that the

market for intelligent virtual assistants will be worth
over US$12 billion by 2024.[24]

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S W
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OPPORTUNITIES

3. Wearable medical device market will be worth US$12.14 billion by 2021

• Over 100 million wearable devices were sold in 2016 alone,

representing almost 30% market growth over 2015.[25]

• IDC forecasts that the market for wearables will grow on average
by 20.3% during 2017-2020.

• One of the main factors contributing to this forecast wearable

market increase will be the demand for health-related
wearables.

• A report from Markets and Markets predicts that the global

wearable medical devices market will reach US$12.14 billion by
2021, up from US$5.31 billion in 2016.[26]
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S W
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OPPORTUNITIES

Figure 9. Health tops the list of information that U.S. consumers want from wearable gadgets

Source: Health Research Institute (HRI)/Consumer Intelligence Series (CIS) Wearables consumer survey 2014 [27]

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S W
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OPPORTUNITIES

4. Repatriation tax holiday for U.S. companies

• Apple currently holds 90.9% of its cash abroad, which equates to US$216 billion.[29]

• A repatriation tax holiday is a special tax holiday which allows companies or

individuals to repatriate the income earned in other countries back to their home
country.

• The companies that would wish to do so could pay only 10%-15% repatriation tax
rate (the rate is not decided yet) instead of the current 35% rate.[28]

• There’s a high possibility that this repatriation tax holiday will be issued by the U.S.
government in 2017 or 2018 as both the U.S. President and the Republican party
agree on it. [28]

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S W
O T
THREATS

1. Smartphones and tablets are becoming a commodity, which could impact

the company’s gross margins

Smartphone Differentiation Points

Additional
Hardware Design Software
services

No longer offers enough differentiation for Main iPhone Offers some

iPhone differentiator differentiation

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S W
O T
THREATS

2. The rising U.S. dollar exchange rate could negatively affect

the company’s revenue and profits

• Apple earned 65% of its revenue outside U.S.

• Rising exchange rates decrease revenue and profits.

• Even Apple identifies rising U.S. dollar exchange rate as a threat US$140
to the company.
billion
earned
outside U.S.
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S W
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THREATS

3. Growing number of attacks on the company’s information technology

systems

• Apple collects payment information from every Apple Pay, Apps Store or
iTunes store customer.

In 2016, an all-time record high of 1,093

identity thefts were reported.

• The company identifies the threat of data breach as a key event that may happen and damage
company’s reputation in 2017.

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SOURCES (1/3)
1. Apple, Inc. (2017). Form 10-K for the Fiscal Year Ended September 24, 2016. Available at:
http://files.shareholder.com/downloads/AAPL/2456063358x8143945x913905/66363059-7FB6-4710-B4A5-7ABFA14CF5E6/10-
K_2016_9.24.2016_-_as_filed.pdf Accessed March 9th, 2017
2. Interbrand (2017). Best Global Brands 2016. Available at: http://interbrand.com/best-brands/best-global-brands/2016/ranking/
Accessed March 9th, 2017
3. Forbes (2017). The World’s Most Valuable Brands. Available at: http://www.forbes.com/powerful-brands/list/ Accessed March 9th, 2017
4. Brand Keys (2017). 2017 Brand Keys Customer Loyalty Engagement Index. Available at:
http://info.brandkeys.com/acton/attachment/943/f-0071/1/-/-/-/-/2017%20CLEI%20-%20Table%20of%20Categories%20and
%20Winners.pdf Accessed March 9th, 2017
5. Edwards, J. (2016). iPhone users are abandoning their loyalty to Apple. Available at: http://www.businessinsider.com/iphone-users-
abandon-loyalty-to-apple-2016-11 Accessed March 9th, 2017
6. Epstein, Z. (2015). Apple Continues to Crush Samsung Where It Matters Most. Available at: http://bgr.com/2015/06/29/apple-vs-
samsung-brand-loyalty-survey-rbc/ Accessed March 9th, 2017
7. Singh, S. and Vakulenko, M. (2013). The Evolution of Handset Business Models: from Source of Profits to Distribution Channel. Available
at: https://www.visionmobile.com/blog/2013/08/evolution-of-the-handset-business-from-source-of-profits-to-distribution-channel
Accessed March 9th, 2017
8. Samsung Electronics Co., Ltd. (2016). Consolidated Financial Statements of Samsung Electronics Co., Ltd. and Subsidiaries. Available at:
http://www.samsung.com/us/aboutsamsung/investor_relations/financial_information/downloads/2015/2015_con_quarter04_all.pdf
Accessed March 9th, 2017
9. Alphabet, Inc. (2017). Form 10-K for the Fiscal Year Ended December 31, 2016. Available at:
https://abc.xyz/investor/pdf/20161231_alphabet_10K.pdf Accessed March 9th, 2017
10.Microsoft Corporation (2017). Annual Report 2016. Available at: https://www.microsoft.com/investor/reports/ar16/index.html Accessed
March 9th, 2017
11.1Canalys (2017). Media alert: China smartphone market hits its highest shipment total ever. Available at:
https://www.canalys.com/newsroom/media-alert-china-smartphone-market-hits-its-highest-shipment-total-ever Accessed March 9th,
2017

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SOURCES (2/3)
12.Apple, Inc. (2011). Form 10-K for the Fiscal Year Ended September 24, 2011. Available at:
http://files.shareholder.com/downloads/AAPL/3883149972x0xS1193125-11-282113/320193/filing.pdf Accessed March 9th, 2017
13.Apple, Inc. (2012). Form 10-K for the Fiscal Year Ended September 29, 2012. Available at:
http://files.shareholder.com/downloads/AAPL/3883149972x0xS1193125-12-444068/320193/filing.pdf Accessed March 9th, 2017
14.Apple, Inc. (2014). Form 10-K for the Fiscal Year Ended September 27, 2014. Available at:
http://files.shareholder.com/downloads/AAPL/3883149972x0x789040/ED3853DA-2E3F-448D-ADB4-
34816C375F5D/2014_Form_10_K_As_Filed.PDF Accessed March 9th, 2017
15.Market Watch (2016). This is why Apple iPhone sales are tanking in China. Available at: http://www.marketwatch.com/story/apple-is-
performing-terribly-in-china-but-its-not-because-of-the-economy-2016-04-27 Accessed March 9th, 2017
16.Fast Company (2017). The Most Innovative Companies of 2017. Available at: https://www.fastcompany.com/most-innovative-
companies/2017 Accessed March 9th, 2017
17.Fast Company (2012). The Most Innovative Companies of 2012.Available at: https://www.fastcompany.com/most-innovative-
companies/2012 Accessed March 9th, 2017
18.Haan, C. (2017). The World’s Most Innovative Companies. Available at: https://www.forbes.com/innovative-companies/#153fecad1d65
Accessed March 9th, 2017
19.Merel, T. (2017). The reality of VR/AR growth. Available at: https://techcrunch.com/2017/01/11/the-reality-of-vrar-growth/ Accessed
March 9th, 2017
20.Markets and Markets (2016). Augmented Reality and Virtual Reality Market by Device Type. Available at:
http://www.marketsandmarkets.com/Market-Reports/augmented-reality-virtual-reality-market-1185.html Accessed March 9th, 2017
21.Roberts, H. (2017). UBS: Apple already has 1,000 engineers working on AR in Israel and a new product may appear on this year's iPhone.
Available at: http://www.businessinsider.com/ubs-apple-1000-engineers-ar-2017-2 Accessed March 9th, 2017
22.Morris, D. Z. (2017). Tim Cook Thinks Augmented Reality Could Be as Big as the iPhone. Available at: http://fortune.com/2017/02/11/tim-
cook-augmented-reality/ Accessed March 9th, 2017
23.Webb, A. (2016). Hey, Siri, How Will Apple Keep Up with Google and Amazon? Available at:
https://www.bloomberg.com/news/articles/2016-06-10/hey-siri-how-is-apple-going-to-keep-up-with-google-and-amazon Accessed
March 9th, 2017
SLIDE | 26
SOURCES (3/3)
24.Grand View Research (2016). IVA Market Size Projected to Reach $12.28 Billion By 2024. Available at: http://www.grandviewresearch.com/press-
release/global-intelligent-virtual-assistant-industry Accessed March 9th, 2017
25.IDC (2016). Fitness Trackers in the Lead as Wearables Market Grows 3.1% in the Third Quarter, According to IDC. Available at:
https://www.idc.com/getdoc.jsp?containerId=prUS41996116 Accessed March 9th, 2017
26.Markets and Markets (2016). Wearable Medical Devices Market by Application. Available at: http://www.marketsandmarkets.com/Market-
Reports/wearable-medical-device-market-81753973.html Accessed March 9th, 2017
27.PwC (2014). Health Wearables: Early Days. Available at: PwC Health Research Institute (2014). Health wearables: Early days. Available at:
http://www.pwc.com/en_US/us/health-industries/top-health-industry-issues/assets/pwc-hri-wearable-devices.pdf Accessed March 9th, 2017
28.Morgan, D. (2016). U.S. multinationals eye foreign profits tax break with Trump win. Available at: http://www.reuters.com/article/us-usa-election-
tax-companies-idUSKBN1352UK Accessed March 9th, 2017
29.Niu, E. (2017). The Most Cash That Apple, Inc. Has Ever Had. Available at: https://www.fool.com/investing/2017/02/07/the-most-cash-that-apple-inc-
has-ever-had.aspx Accessed March 9th, 2017
30.Specout (2017). Compare Smartphones. Available at: http://smartphones.specout.com/ Accessed March 9th, 2017
31.Barrett, B. (2016). It’s Fine If the iPhone Looks the Same. In Fact, It’s Better. Available at: https://www.wired.com/2016/09/fine-iphone-looks-fact-
better/ Accessed March 9th, 2017
32.IDC (2016). Smartphone OS Market Share, 2016 Q3. Available at: http://www.idc.com/promo/smartphone-market-share/os Accessed March 9th,
2017
33.IDC (2017). Tablet Market Woes Continue as Growth in Detachable Tablets Takes Its First Vacation During the Holiday Season, According to IDC.
Available at: http://www.idc.com/getdoc.jsp?containerId=prUS42272117 Accessed March 9th, 2017
34.Identity Theft Resource Center (2017). Data Breaches Increase 40 Percent in 2016, Finds New Report from Identity Theft Resource Center and
CyberScout. Available at: http://www.idtheftcenter.org/2016databreaches.html Accessed March 9th, 2017
35.Mello, J. P. (2016). 2017: More Apple Security Flaws, Cyberattacks, Hacktivism. Available at: http://www.technewsworld.com/story/84192.html
Accessed March 9th, 2017

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 THANK YOU
MADE BY OVIDIJUS JUREVICIUS

ovidijus.jurevicius@strategicmanag
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