Financial Research Report

Financial Research Report

Apple Inc. is a manufacturer of personal and tablet computers, music players, phones, and software. It is one of the pioneers in the field of personal computers and modern multitasking operating systems with graphical user interface. Its headquarters is located in Cupertino, California. Apple Inc. is a public company; its shares are traded on the NASDAQ and the London Stock Exchange.

Due esthetical design and application of innovative technologies Apple has created a unique reputation in the industry of consumer electronics and has a great popularity worldwide, and especially in the U.S.

The corporation was founded on April 1, 1976 in California by Steve Jobs, Stephen Wozniak and Ronald Wayne, who produced in mid-1970s there first personal computer - Apple I. The name Apple means that computers made by the company are environmentally friendly. Apple is the first company in the computer industry, which has decided to recycle the old parts. Until January, 9, 2007, the official name of the corporation for over 30 years was Apple Computer. Refusing from the word Computer in the title shows the change of the main focus of the corporation from its traditional market of computer technology to the market of consumer electronics (O'Grady, 2008).

Traditionally Apple has had a strong position in the segments of government and educational organizations, as well as in the publishing business and design, and later in the music industry.

After the success in 1998 Apple bought several companies and software Macromedia Final Cut, which testified its expansion into the market of digital technologies. Next year, Apple released two video editing products: iMovie for ordinary users and Final Cut Pro for professionals. In 2002, Apple acquired Nothing Real (O'Grady, 2008).

At the International Developers Conference on June 6, 2005, Steve Jobs announced that in 2006 Apple Macintosh computers would produce processors with Intel. August 7, 2006 Apple completely transferred the entire line of Macintosh computer to Intel chips. Power Mac, iBook and PowerBook were removed from production, and replaced by Mac Pro, MacBook and MacBook Pro. Apple also introduced a program of Boot Camp, to help users install Windows on a Mac with Mac OS X.

Apple's success during this period was apparent in the course of its shares. Between 2003 and 2006 the price increased by more than 10 times - from $6 per share to $80, and in May 2007 the price was over $100. But even though Apple market share grows, the company remains far behind its main competitor – Microsoft (O'Grady, 2008).

Today, Apple's senior management includes: Steve Jobs - the founder of the company and a CEO since 1997; Tim Cook - Chief Operating Officer (since 1998); Al Gore - member of the Board of Directors, Arthur D. Levinson, Millard Drexler, Jerom York - (since 1997), Bill Campbell, Andrea Jung - a member of the Board of Directors since 2008.

Throughout its history the company has had six CEOs: Michael Scott - the first CEO (1977-1981), Mike Markkala (1981-1983), John Sculley (1983-1993), Michael Spindler (1993-1996), Gil Amelio (1996-1997), and Steve Jobs (1997 - present) (O'Grady, 2008).
The total staff of the company in 2009counted over 35 thousand people.

At the moment, Apple manufactures the following products: iPod shuffle, iPod nano, iPod classic, iPod Touch, iPhone, iPad, MacBook, MacBook Pro, MacBook Air, Mac mini, iMac, Mac Pro, Apple Cinema HD Display, Apple LED Cinema Display. In addition, it manufactures accessories for these products. The company sells part of its products in retail through a network of shops belonging to it (only 286 in the U.S., Canada, Japan, Britain and other countries). Apple annually holds the exhibition Macworld, which presents new products and updates.

Apple's marketing policy is quite aggressive. For example, users of Apple products on the Microsoft Windows platform receive notes about updates of the products that they did not install; the options to install these products are enabled by default. In particular, Safari users are invited to install the software iTunes and QuickTime; to refuse, they should remove the tick in the appropriate update dialogue.

Thus, in March 2008, Apple started offering iTunes for Windows users to install its Web browser Safari. The option to install the browser was enabled by default, and its description consisted solely of advertising and links to their site

However, this policy brings good results which reflect in companies financial data that annually show a stable and rapid growth as may be seen from the table below (Apple Inc. Financials, Apple Inc: Financial Statement).

Financial Research Report

Earnings per share in 2009 made $6.29, which is a 17.4% growth if compared to the number in 2008. The annual growth rate from 1999 to 2009 thus makes 21.4% (Fortune 500). Although experts forecast a significant increase in the rate of development of the company, even if such growth rates continue, in 6 years, the company's profits will reach at least 110 billion dollars.

Today, Apple Inc. holds 56th position in the Fortune 500. It has 2 main competitors: Hewlett-Packard, which occupies 10th position in Fortune magazine's rating with a revenue of $114.5 billion, and Dell (38th position) with a profit of $52.9 billion. Less successful competitors include Xerox (152nd position), the profit – $15.2 billion; Sun Microsystems (204th position), the profit - $11.4 billion; Pitney Bowes (375th position), the profit - $5.5 billion, and NCR (451st position), the profit - $4.6 billion (Fortune 500).

Every company has strengths and weaknesses. What is the power of Apple today? Everyone, whether they like Apple or not, agree in one thing: the design of Apple products is very concise, complete, each of them represents a kind work of art. So, it is the first strength of the company (O'Grady, 2008).

Steve Jobs calls one of the conditions of success the software of Apple devices. Reliance on software allows minimizing costs, avoiding the costs of production and thereby ensuring greater - sometimes much greater - rate of return. Thus, Apple software is the second advantage.

The third advantage of the company is Steve Jobs. Hadn’t he become engaged in business, perhaps we would not see such a high-level strategist. Business and war have no conceptual differences, and those who understand this often win (O'Grady, 2008).

What is the weakest point of the company arising from its direction of development? This is the technical part, components, and their integration into a coherent whole. Apple retains leadership in this field to other companies, and focuses on its traditional strengths. Of course, this is the right decision (O'Grady, 2008).
The company uses a blue ocean strategy, the essence of which is not in direct competition with existing leaders in a certain niche of the market, but in creating new users needs and their satisfaction. This strategy worked in the case of iPod (Gownder & McQuivey, 2008).

The current situation in the market is characterized by a paradigm shift, both in the field of software (client-server, the main model of service) and hardware solutions (post PC world). Not everyone needs desktop computers in the form in which they exist today: in many cases such machines are transformed into play ones, because the functionality of business applications requires significantly less computing power. Of course, talks about the imminent death of the PC market are greatly exaggerated, but the emergence of alternatives in the form of other devices is inevitable. The moment can be compared with what was when IBM engineers predicted the popularity of computers in the future. The world is ready for change - so they will certainly occur (Gownder & McQuivey, 2008).

But how Apple plans to use its advantage in software? After all, Steve Jobs promised not only to create a development environment for the iPhone, but make it safe, that the device was stable in contrast to current models. The main root of the problem is in those applications that the user sets; sometimes they are not compatible, sometimes - just badly written. What is the solution?

At the moment, the strategy of software development for the iPhone is not declared, but some researchers provide a possible scenario.
First, the company will expand the core functionality only independently, it will provide the device safety at the "low" level, making it low vulnerable. Secondly, the developers will provide an opportunity to create applications for later download through a network - in fact it is the main challenge for Apple. Otherwise, network applications do not work out - it is essential to collect a critical mass of users, providing a sort of self-excited fusion. Such applications will not need hardware access to a device - system utilities will remain the prerogative of Apple (Gownder & McQuivey, 2008).

Secondly, the company plans to integrate this terminal with such products as MAC OS Leopard. Accordingly, the software update on the phone will give a number of new, not previously available functions. We cannot expect their huge number, or some supernatural flexibility, but it will be enough to extend the functionality of the device and add new tools for both data synchronization, and for their catalogization (not to be confused with the usual file manager!) in the device. At the same time, restrictions on downloading music and video through the air or on the wire will remain: it is a principal position of the company, otherwise iTunes will no longer perform its function, and turning it into something Apple is trying to create will be impossible (Gownder & McQuivey, 2008).

Many people are wondering: what will be the sixth generation of iPod? The answer is obvious: it is, first of all, the emergence of a number of functions realized until now only in the iPhone. The company will strive to create different solutions, and they may overlap functionally. The difference will be based on design, value, positioning, disconnecting or adding certain features. Integration of Wi-Fi in line iPod is also a matter of time.

As one can see, currently Apple is experiencing a sound development and growth – its products are being sold with the constant quarter growth of 30-40%. They sell computers, software, music, movies, games, peripherals, MP3 players and now - mobile phones. What can be their next steps?

Some experts foresee two ways of further development: either to expand their share on market of digital media, or to create a new type of product, like Kindle (a bookreader produced by Amazon). In the first case, Apple might try to create a universal version of their store for iPhone applications. Their goal will be to control all the software purchased for the Mac: music, movies, applications, etc. As the second option Apple might create a competitor to Kindle and then introduce adding e-books to the iTMS. Experts believe that if Apple professionals analyses what Amazon is trying to do with the Kindle, they will understand that with the better performance the Kindle could become a revolutionary device. In addition, creation of AppleTV may mean that the company is trying to enter the market for home multimedia and might soon start producing TV-sets and other multi-media devices (Gownder & McQuivey, 2008). And, of course, the question of the expansion will never be closed for Apple until they have their representatives throughout the world.

References

“Apple Inc. Financials”. CNN Money.Com. .
“Apple Inc: Financial Statement”. MSN. Money. .
“Fortune 500”. CNN Money.Com. .
Gownder, J.P. & McQuivey, J.L. (2008). “The Future Of Apple Inc.” Forrester Research. .
O'Grady, J.D. (2008). Apple Inc. (Corporations That Changed the World). Greenwood.

Financial Research Report 8.3 of 10 on the basis of 2093 Review.