Apple Case Study

1.0 Executive Summary

Through five focused chapters, this report assesses Apple's MP3 player and Personal Computer (PC) to achieve 2 main objectives; (i) sustain leadership in global MP3 player industry, and (ii) increase revenue and market share in USA PC industry. The report starts with an analysis on Apple's financial and strategic performance under Jobs' leadership (Chapter 2). Under the macro-environment analysis in Chapter 3, key success factors, industry attractiveness and industry driving forces are discussed. In the same chapter, Porter's Five Forces was used as a tool to analyze the different forces MP3 player and PC industry. Moving into Chapter 4, micro-environment analysis was explored using SWOT analysis and value chain investigation approach. Pulling together the major themes of this report, a comprehensive improvement plan was formulated to meet the objectives. The recommendations are supported with justification and outlined with a timeline.

2.0 Company Performance

2.1 Apple under Steve Jobs' Leadership

Steve Jobs was hired by Apple board in September 1997 as a desperate attempt to survive through its financial loses. There is no question that his leadership fosters environments conducive for innovation. Combining Jobs' emphasis on customer orientation and his vision of user experience, Apple allows engineers to design a perfect product. To encourage innovation, Jobs encourage his employees to dress informally. Figure 1.0 shows Jobs and his crew in shirt and jeans.

Jobs is also a charismatic leader who takes the soft Human Resource Management approach and avoid redeployment. After his painful experience being fired by Apple, Jobs believe that "No matter how much he screwed up, you need to remember that he's going to have to go home and tell his wife and kids that he's been fired and no longer has a job" (Steve Jobs, 2003).

2.2 Financial Performance

Apple's sales, financial performance and stock price have consistently surpassed most analyst forecasts. With reference to Figure 2.2.1, Apple recorded an all-time-high of USD13.8 billion revenue in 2005. Apple's revenue contribution between PC and MP3 player product line are 41% and 59% respectively (Figure 2.2.2). Another interesting financial achievement is Apple's ability to retire outstanding debts; achieving zero long-term debt.

2.3 Strategic Performance

Apple is MP3 player market leader, recording 30% market segment worldwide in year 2004 (Figure 2.3.1 and Figure 2.3.2). With its market leader position, Apple has first mover advantage and unlimited strategic options in the digital audio market space.

Zooming into PC industry in USA, Apple was strategically lagging in 2004, with 6% market share compared to competitors Dell and HP, enjoying 30% and 19% market share respectively (Figure 2.3.3). Based on Apple's market position, Apple has last mover advantage and limited options to compete against industry leader Dell.

3.0 Macro-environment Analysis

3.1 Key success factors

To be a market leader in both computer and MP3 player industry, it is important to identify the consumer trend setters. Understanding customer requirements and translating it into product specification is critical in PC and consumer electronics. Apple who had worked hard to catch up with digital music trend, also suggests that short time-to-market plays a role to success.

3.2 Industry Attractiveness

The digital music market exploded in 2004 to $250 million dollar revenue and expected to reach over $3,800 million dollar revenue in 2009 (Figure 3.2.1). With the availability of legitimate subscription of online download and falling flash prices, MP3 player market is booming. Contrary to digital music, PC industry in USA has matured with a negative year-to-year growth of -1% in September 2006, resulting industry unattractiveness to PC vendors (Figure 3.2.2).

3.3 Industry Driving Forces

After six years on the market, MP3 player is only widely known to consumers. Napster introduced MP3 music in 1999-2001 but it was Apple who refined the MP3 player features and gave iPod a fashionable design in 2002. To fuel MP3 player market growth, consumer awareness is critical. Thanks to Apple's major advertisements and word-of-mouth, the MP3 player total-available-market expanded. In the computer industry, consumer awareness about the latest processor technology, applications and Operating System also plays an critical role for the industry to pick up its momentum.

3.4 Porter's Five Forces

The Porter's Five Forces for global MP3 player and USA PC industry are illustrated in Figure 3.4.1 and Figure 3.4.2 respectively. Details are elaborated as following.

Rivalry: Competition in MP3 player and PC industry is fairly intense. Figure 3.4.3 summarizes the positioning of each key MP3 player vendor, their respective market position, product feature and their target consumer market. The product features are relatively the same but consumer penetration differs. Apple targets USA and Western Europe. Meanwhile, iRiver and Aigo dominates Korean and China market respectively. As the competition heats up in the portable audio player market, vendors will strive to differentiate products by offering a wide range of price points, memory capacities, and features.

With a mixed consumer outlook and a subdued initial reception to Microsoft Vista, the rivalry between competitions Dell, HP and Lenovo heightens in the USA. With Dell's direct business model, PCs can be sold at a lower price, resulting Apple iMac desktop and iBook notebook less attractive. Besides value chain and business model differentiation, Dell and HP have been reported to perform aggressive restructuring and cost cutting plans to address declining operating margin. PC industry rivalry is challenging and continues to boil. Refer to Figure 3.4.4 for more details.

Potential Entrants: The MP3 Player and PC industries are overcrowded with players. The trajectory growth enjoyed by both industries in the past is unlikely to repeat thus prompt potential market consolidation in the near future. Based on supply-and-demand economics concept, the potential entrant threats remain low for PC industry.