NOVA Student BUS 200-XXA December 14, 2010 Apple Internet Research Project Statement of Purpose The purpose of this internet research project is to investigate how Apple was able to grow through a recession and to attempt to predict how Apple’s strategies for 2010 will impact their future success. Introduction The first part of this project will present information on Apple’s actions during the recession, and how these had a positive effect on the company, even during this financially hard time. The second part will present information about what strategies Apple was using during 2010 and present some of the products that they introduced to the market during this year. After each part of the project, there will be an analysis, and at the end of the project you will be presented to a summary and conclusion. Apple and the recession There are many things that contributed to Apple doing as well as they did during the recession and I’m going to present some of these things here. Nobody can say for sure what made Apple grow during this time, but by studying their actions, and looking at how the customers responded to them, you can get a good idea of how they managed to pull through. One of Apple’s best moves was to set up stores in wealthy shopping areas of cities all around the world. Apple had 174 stores in March of 2007 (money.cnn.com), when the recession 1 began, and they had 317 stores in August 2010 (topics.nytimes.com). Out of these 317 stores, 84 of them were located internationally. Another thing that Apple was able to do, even during the recession, was to keep their margins very high. They were able to do this because they pay a lot of attention to the design of their products and they have a unique program that nobody else is able to offer. This gave them the opportunity to get the largest part of the industry’s profits, since their products are more expensive, compared to companies like Dell and Acer. Instead of selling cheaper computers, like other companies, Apple’s cheapest computer costs $999, which is $400-$500, more than Dell’s cheapest computer. Apple could have entered the low-price market, and have made a big profit, but this would have decreased their profit margins. It would also have affected the quality of their products, which is something that Steve Jobs, the CEO and one of the co-founders of Apple, says that they’re not willing to sacrifice. Some people might think that they should give it a try, but considering how well they’re doing, there isn’t a need for it. When the recession started and customers became more price-sensitive, many of the companies in the business made price-cuts, which gave the companies very small profits, and even smaller profit margins. What Apple did differently, was that they didn’t lower their prices, which allowed them to keep their high profits, and therefore also their higher profit margins. Another thing that made a difference between Apple and some of the other technology companies was the fact that Apple has a very strong presence in the consumer market, and this is where most of the growth came from, according to Mikako Kitagawa, who is a principal analyst at Gartner, which is a technology research company. Most of the negative force came from the professional market, where the expansion is slower, and Apple doesn’t have as much existence there. 2 Turley Muller, who is an analyst for Financial Alchemist and who was one of many who made an analysis of Apple and their Mac computers during the recession, said that he didn’t believe that the recession would cause cheaper Windows PCs to steal Apple’s customers; instead, it would slow down the process of Apple’s Mac computers taking share from the PCs. According to Muller, the reason for this is that Macs and Windows PCs aren’t comparable. Muller, and other analysts before him, say that once you’ve tried a Mac, it’s hard to go back to a PC. Analysis of Apple’s growth through the recession If you look at the four functions of management, planning, organizing, leading and controlling, I believe that leading was the key for Apple’s success during the recession. The reason for this is that it’s in the leading part that motivation truly comes into the picture, and that’s the key. I think that when Apple’s employees realized that they were doing something that nobody else was doing, they were increasing their profits, even though very few other companies were, they got a motivation boost. They realized that their work actually still made a difference for the company, which functioned as an intrinsic reward. They actually got to see, in numbers and figures, how their work influenced the company, and for most people that is more rewarding than any extrinsic reward can ever be. The employees got a feeling of accomplishment, and a chance to learn something new by taking on a challenging task, and that was probably a real motivation booster. The fact that Apple opened stores in different parts of the world was probably very helpful during the recession. By keeping up business internationally they could avoid some of what was going on in the U.S. The whole world was, of course, affected by the recession, but it gave Apple an advantage to be global, since they didn’t only have to rely on the American market. 3 This also worked as a growth strategy for the company. Instead of staying the way they were and keeping the stores that they had, they continued to invest in new stores all around the world. I believe that this was a good strategic move, considering that they had the resources to do it. Instead of coming to a stand-still, as so many other companies did during this time, they continued their work and continued to open new stores. This gave them an opportunity to continue to grow, and also to come out even stronger after the recession. I believe that the quality of Apple’s products is what made them go through the recession as well as they did. As was stated earlier in the project, Macs and PCs aren’t comparable, and that is one of Apple’s strengths. Nobody else has what they have, which is a great competitive advantage. They didn’t have to cut their prices, like many other companies, since they were already making good profits. Instead of meeting the other companies’ price-cuts they simply continued to release new products, which gave Apple a great deal of attention, and customers. By keeping their prices they got to keep their great profit margins, something that many other companies had to cut back on. This is a great example of how a company can manage, even if the general environment, which in this case is the economy, changes drastically. In this case, Apple managed very well, due to the fact that factors in their specific environment, such as the competition, didn’t grow stronger. It stayed the same, or even weakened, which Apple managed to turn to their advantage, even though financial times were tough. Another example of how the quality, and the fact that they are the only ones providing it, was of great importance for Apple during the recession is that they provide an everyday product. This means that if the product breaks down, or if there is a demand, people will need to find a way to buy it, or fix it. And since most people who start using Apple’s products stays with the company, there is a demand. This was clearly shown during the recession, since the company was able to keep their prices, while most competitors were not. Strategies and Products that were presented in 2010 4 2010 was the year when Apple presented their tablet, the iPad, which got a great deal of attention. It is a device that brings laptops and smart phones together. For the announcement of the new product, Apple reserved a stage in San Francisco, at the Yerba Buena Center for the Arts. This, in itself, created a lot of anticipation and excitement. According to Tim Bajarin, who is the president of technology consultancy Creative Strategies, Apple believes that digital technology should be presented in different types of devices, which was presented with the iPad. What he means by this is that they should not only be products that are tied to a desktop, for example All through 2010 Apple has kept presenting new applications and new systems for their iPad. Even though the company just released the iPad this year, they are already working on a second-generation of the product. This renewal is supposed to be presented to the market in Febuary 2011. The sales of the iPad were amazing. Apple even decided to hold off on its introduction of the iPad to the European market, so that they could be sure that they had enough products in stock for the American market. Shortly after Apple introduced the iPad to the market, they began to present more and more apps, software and enhanced systems for their new product. One example is the iTunes system, which they began to work even more on after the iPad was released. Tim Bajarin said that Apple is trying to look for, and thereby stay ahead of, the future. One of the things that Apple has worked on, and one of the many things that make them unique, is the chipset that the company presented for the iPad. This is a new invention which is custom made for Apple’s devices, and it gives their products better performance and longer-lasting battery life. This also means that Apple has gone from buying a complete, finished product, to buying pieces to build their own product, which, in the longer run, means that they are less dependent on external providers. It also makes it easier for the user, since the 5 same system can be used on both the iPod Touch, iPhone and the iPad. This is particularly interesting for developers, since they can use one system for all their products, according to Michael Gartenberg, who is an analyst for the market-research firm Interpret. Other things that Apple has rethought during the year, and which has given them a great advantage in the industry is the new iPhone, which they introduced to the market in June of 2010. They also made the former versions of the phone cheaper, which improved their sales. Apple is also working on taking their iPhone 4 to Verizon at the beginning of 2011. The iPhone was first introduced to the market in 2007, and has been locked to AT&T ever since. The introduction to Verizon might be an attempt to take some shares from Google’s Android, and might lead to a sales acceleration of the iPhone. This is one of the biggest strategy changes they made this year, considering that it introduces them to a completely different market. It gives them the opportunity to enter a competition with Google, Microsoft and other companies in that same genre. During the first quarter of 2010, the iPhone was also introduced to 8 mobile networks in different countries, one of them the U.K. Because of the iPhone, Apple’s profits increased from $1.6 billion to $3 billion during the first three months of 2010. According to Steve Jobs, that made it the best non-holiday quarter the company has ever experienced. During 2010 Apple also introduced the iPod Touch 4 to the market, which is an improved version of the last iPod Touch. The iPod Touch 4 has a built-in camera, which offers an opportunity for the customers to hold video calls, straight from their iPod. Apple has also been working on improving their existing products. One example of this is the introduction of Snow Leopard, which is their newest operating system. The introduction of this improved the sales of computers. They’ve also recently introduced 13 of The Beatles’ studio albums to iTunes, which has created a lot of attention. 6 Sale Quantity To further show what’s happening at Apple, and how they’re changing coming out from the recession, I pulled the numbers showing the unit sales for the first fiscal quarter of 2009, which ended on the 27th of December 2008, when the recession was still going on, and for the first fiscal quarter of 2010, which ended on 26th of December 2009. » During the first fiscal quarter of 2010, Apple sold 3 360 000 Macintosh ® computers, which is a 33% unit growth compared to the 2 524 000 Macintosh ® computers they sold in 2009 » Apple also sold 8 700 000 iPhones during the first fiscal quarter of 2010, which is a 100% unit growth, compared to the 4 363 000 iPhones they sold during 2009. » When it comes to iPods, Apple managed to sell 21 000 000 iPods during the first fiscal quarter of 2010, which actually is an 8% unit decline, compared to the year before, when they sold 22 727 000 iPods. This project also includes a lot of information on how Apple is constantly introducing renewed and improved products. Therefore I’m presenting information about the iPhone, to show how the unit sales changed when Apple introduced their 2nd generation iPhone, the iPhone 3G. » In 5 quarters Apple sold 6.1 Million units of the 1st generation iPhone 7 » The 2nd generation iPhone, the iPhone 3G was introduced to the market in July 2008 and sold, solely during the first quarter, 6.9 Million units, and another 4.4. Million units during the second quarter. Analysis of Apple’s strategies and the future The fact that Apple reserved a big stage for the release of the iPad, created a lot of anticipation, which made people talk, and we all know that the word-of-the-mouth is one of the best ways to market your product. This got Apple and their tablet a lot of attention, before the product was even introduced to the market. One of many questions that were asked surrounding the iPad was: “Why has it taken them so long?” I believe that one of the reasons is that they want to make sure that it’s a really good product, and that they have every aspect of it covered. It might also be a smart move strategically, since other companies have released their tablets, and Apple could now see the response they got and see what people’s reactions were and they could then have that in consideration when they create their own tablet. They simply created an opportunity for themselves to learn by other people’s mistakes. Apple also had the opportunity of waiting with releasing their product, because the trust their customers. They know that the consumers who buy Apple’s products like the high quality and will either wait until they release their product, or they will, most likely, switch over to Apple’s tablet, after it’s released. It was also a good move to release the new chip system around the same time as the iPad, since this gave Apple customer’s another reason to stay with Apple. It makes it a lot easier if you can use the same system on multiple devices, which you could with the new iTunes system, for example. 8 It’s interesting to see how Apple is always working on new improvements to their products. Even though they have recently released the iPad, and they’re already working on a second generation, and they’ve already presented ways for the customers to improve the product. This is probably one of the reasons for why they manage to keep their customers. They always have something going on, and they’re always presenting new opportunities for the customers to improve their products, which avoids boredom. By always thinking ahead, Apple also manages to stay ahead of the future, which gives them a great advantage compared to most other technology companies. They are working for constant innovation and change. Another thing to consider, when you talk about the iPad, is the fact that they had to hold off on the iPad introduction to the international market. This is one of the largest problems with global business – culture. Apple had to be aware of the culture differences and make sure that it wouldn’t hurt their reputation in other countries, to not present their product on time. In our culture we might be used to delays, but some might find it unacceptable. It is then up to Apple’s management to do a good job and explain to their international customers what the problem is and why they aren’t able to present the product to them on time. The technology industry is very hard to predict, and the managers are going to have to continue to work hard, to keep up with everything that is going on in the business, but considering the fact that they were doing as well as they were during the recession, I think that they’ll do good. When the economy is unstable, it’s very hard to predict what’s going to happen, but obviously Apple managed to work its way around that and still present success sales numbers. This, in combination with all the new products that have been introduced, and all the new improvements, makes me feel pretty comfortable to say that I have faith in Apple, and I believe that they will be able to have future success in the industry. The biggest problem Apple has run into during 2010, or while deciding their strategies for 2010, was probably to figure out how to adapt to the changes that has happened lately. The 9 U.S. is on its way back from recession and that’s something that makes the market unpredictable. It’s the managers’ job to study the customers, the competitors and the suppliers to try to figure out how to adapt their business to all the changes that are taking place. Even though Apple managed to do really well, better than a lot of other companies, during the recession, we’re about to enter a new era. I believe that they are going to continue to stay strong, and probably grow even more than they’ve done earlier, but it all depends on the managers. They have to continue to do a good job when it comes to: » Motivating their employees » Be innovative and open to changes » Studying the market and its constant changes » Trying to stay one step ahead with their work and ideas What it all comes down to in the end is the fact that Apple has had great success because they managed to always stay ahead of the future. They are always one step ahead of their customers, and they’re constantly presenting and introducing new and/or improved products to the market. Summary and Conclusion Apple is one of few companies, who managed to grow through the recession, and the reason for it is that they had the right people at the right place, doing the right job. More importantly, though, it’s good management. Apple’s managers have managed to keep their employees motivated through the process, and that has given them great results. They’ve also managed to keep up a good global business, which has helped them a lot, and the fact that they’re always renewing and improving their products is the one thing that probably has the largest effect on the outcome. They manage to avoid boredom for their customers, by always introducing 10 something new to the market, which is a unique quality, and it gives the company a great advantage compared to its competitors. Internet Sources Nine Big Companies That Grew Through The Recession http://247wallst.com/2010/08/02/nine-big-companies-that-grew-through-the-recession/2/ Apple tablet in 2010 Starting? http://www.latestngadgets.com/apple-tablet-in-2010-starting/1305.html Why Apple Leaves Low-End Computers to the Competition http://www.businessweek.com/magazine/content/09_47/b4156000345421.htm While PC market rebounds, Apple slips into 5th place in US http://arstechnica.com/hardware/news/2010/01/while-pc-market-rebounds-apple-slips-into5th-place-in-us.ars What the recession means for the Mac http://tech.fortune.cnn.com/2008/12/21/what-the-recession-means-for-the-mac/ 11 Apple’s strategy for the future — mobile devices http://www.timesherald.com/articles/2010/02/13/business/doc4b762fa3745d9432809982.txt Apple Incorporated http://topics.nytimes.com/top/news/business/companies/apple_computer_inc/index.html THE APPLE INVESTOR: Only 10 Companies In The World Are Worth More Than The iPhone http://www.businessinsider.com/the-apple-investor-nov-19-2010-11 Hot News http://www.apple.com/hotnews/ Apple’s Strategy for 2010 http://www.latestngadgets.com/apple%E2%80%99s-strategy-for-2010/1481.html Apple profits up on iPhone sales http://news.bbc.co.uk/2/hi/business/8315534.stm Apple: What Recession? http://www.forbes.com/2010/04/20/apple-technology-iphone-markets-equities-consumer.html 12 Apple: America’s Best Retailer http://money.cnn.com/magazines/fortune/fortune_archive/2007/03/19/8402321/index.htm Apple records 90% rise in profits http://www.guardian.co.uk/technology/2010/apr/21/apple-iphone-company-profits Apple Reports First Quarter Results Best Quarterly Revenue and Earnings in Apple History iPod Sales Set New Record http://www.apple.com/pr/library/2009/01/21results.html Apple Reports First Quarter Results All-Time Highest Revenue and Profit New Accounting Standards Adopted http://www.apple.com/pr/library/2010/01/25results.html 13 Internet Research Project Proposal BUS 200-XXA Statement of Purpose The purpose of this internet research project is to investigate how Apple Computers was able to grow through a recession and to investigate how their 2010 strategies might impact the company’s future success. Highlights of this project will include An overview of how Apple managed to grow through the recession A short analysis of why Apple was able to grow through the recession A presentation of Apple’s strategies for 2010 and what products were/are part of it An analysis of Apple’s strategies for 2010 and how these might affect the company’s success in the future Summary and Conclusion Recommendations Internet Sources The following preliminary sources will be used in investigating how Apple Computers managed to grow through a recession and to analyze their new strategies for 2010. Nine Big Companies That Grew Through The Recession http://247wallst.com/2010/08/02/nine-big-companies-that-grew-through-the-recession/2/ Apple tablet in 2010 Starting? 1 http://www.latestngadgets.com/apple-tablet-in-2010-starting/1305.html Why Apple Leaves Low-End Computers to the Competition http://www.businessweek.com/magazine/content/09_47/b4156000345421.htm While PC market rebounds, Apple slips into 5th place in US http://arstechnica.com/hardware/news/2010/01/while-pc-market-rebounds-apple-slips-into5th-place-in-us.ars What the recession means for the Mac http://tech.fortune.cnn.com/2008/12/21/what-the-recession-means-for-the-mac/ Apple’s strategy for the future — mobile devices http://www.timesherald.com/articles/2010/02/13/business/doc4b762fa3745d9432809982.txt Apple Incorporated http://topics.nytimes.com/top/news/business/companies/apple_computer_inc/index.html THE APPLE INVESTOR: Only 10 Companies In The World Are Worth More Than The iPhone http://www.businessinsider.com/the-apple-investor-nov-19-2010-11 Hot News http://www.apple.com/hotnews/ Apple’s Strategy for 2010 http://www.latestngadgets.com/apple%E2%80%99s-strategy-for-2010/1481.html Apple profits up on iPhone sales http://news.bbc.co.uk/2/hi/business/8315534.stm Apple proves recession-resistant, for now http://news.cnet.com/8301-13579_3-10147621-37.html 2 Apple: What Recession? http://www.forbes.com/2010/04/20/apple-technology-iphone-markets-equities-consumer.html 3
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