Apple Inc. in 2012: Can it Sustain Its Growth and Defend against New

Competitive Threats?

Group 3: Sai Kalva (Leader) Caleb Pettis Feng Ye BUS J401 9940

Presentation OutlineMission

Apple Incorporated (2012)

Stock Price of Apple and Competitors- 2007 to 2012

Key Financial Ratios (2012)

Problems Faced in Case Study

Strategies Used by Apple

SWOT Analysis

5 C’s Analysis

Apple’s Goals for FY 2012

Apple in China in 2012

Key Financial Ratios (2015)

Stock Price (2015)

Global expansion in 2015

Goals and Strategies in 2015 and Beyond

Recommendation

Discounted Cash Flow Model

Appendix

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Mission

• Apple designs Macs, the best personal computers in the world, along with OSX, iLife, iWork, and professional software. Apple leads the digital music revolution with its iPods and iTunes online store.

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Apple Incorporated (2012)• CEO: Tim Cook

• Headquarters: Cupertino, CA

• Founded: April 1, 2976 Cupertino, CA

• 16 Executive Officers

• 7 Board Members

• Exchange: NASDAQ

• Symbol: AAPL• Fiscal Year: 4th week of every September

• Share Price as of September 2012: $700• Shares Outstanding as of September 2012: 940.692 M• Market Cap as of September 2012: 658.48 B (Large Cap Company)

• Audit Firm: Ernst & Young 4

Stock Price of Apple and Competitors- 2007 to 2012

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Key Financials FY12

• P/E = 15.77• EPS = 44.36 • Debt/Equity ratio = .33 • ROE = .35 • Quick ratio = 1.48 • Current Ratio = 1.5

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Problems Faced in Case Study time period

• Leadership from (1985-1997)• IBM processor• Phones

• Samsung• Tablets

• Samsung• Dell• Hewlett Packard

• Personal Computer• Hewlett Packard• Dell

• Suicides in 2010• Steve Jobs

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Strategies Used by Apple

• Teaming up with IBM • Personal Computers• Smartphones• Tablets• Suicides• Steve Jobs• Exploited consumer loyalty and satisfaction with the iPod to enter that

market for smartphones with the 2007 launch of the iPhone.

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SWOT AnalysisStrengths

• Apple has developed a positive brand image internationally. • Apple is widely associated with quality products.• Apple has a diversified financial empire.• Estimates suggest that Apple has around $176 billion in revenues

(Yahoo Finance, 2015).• Apple is known for its innovation. According to Barba (2014) Apple

was rated the most innovative company in the world in 2014. • Apple operates in more than 43 countries internationally The

diversified market helps to safeguard Apple from an economic decline in one or more regions the company is operating in.

Weaknesses• Although Apple products are widely sought after, they are often

expensive. • Many have debated whether or not Apple can continue to grow

The market in which Apple operates is highly competitive. • There is a need to create and perfect new technologies in order to

remain competitive. • Apple is reliant on other companies to produce its parts. • In the past, Apple has been subjected to patent disputes. There is

no way to ensure that Apple will not be subjected to patent disputes in the future.

• Apple’s profits and sales are widely influenced by the economy. In times of economic disparities Apple’s sales may decline.

Opportunities• Apple could continue to expand internationally.• Apple can use its existing popularity to begin manufacturing new

products.• Apple can expand on its current use of technology to offer new

services. • If Apple begins operating in a new region, companies domestically

would be interested in forming a strategic relationship with Apple.

Threats• The market in which Apple operates is highly competitive, with a

high level of substitution. Apple will need to continue to evolve to remain competitive.

• It is becoming more common for large web-based companies (Google, Amazon, etc.) to develop their own forms of technology, which makes the market even more competitive.

• Another global economic crisis could drastically hurt Apple’s sales, profits, and ability to sustain its current level of growth.

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5 C’s Analysis

• Company• Competitors• Customers• Collaborators• Climate

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CompetitorsIn 2012, iPod unit sales were declining and there was more competition in the smartphone market, with the Samsung Galaxy taking a significant portion of the market from apple. Apple’s iPad tablet computers were the company’s second largest contributor to total revenue with sales of more than 20.4 billion during 2011.

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Competitors (Cont’d)

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Samsung Takes Over

Apple Leads Market

Customers

• Motivation to buy the Apple product: intrinsic motivation• For the PC market, they have different products for different customers.

• Mac Pro (aimed at professional and business users) • I Mac (target towards consumer, educational, and business use) • Mac Mini (made specifically for consumer use)• MacBook Pro (for professional and advanced consumer users) • MacBook Air (designed for educational users and consumers)

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CollaboratorsSuppliers(there are more than 200 suppliers): • 3M Co. • Foxconn• Intel Corp• LG Chem Ltd.• Samsung Electronics Co. Ltd.Distributor:• Everwish Trading Limited• Jardine onesolution Limited• Success World Limited

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Climate (PEST)Political Factors: More than half of sales of their products come from countries other than the United States. Economic Factors: The PC industry was expected to grow at a rate of 5-6 percent to reach 354 billion by 2012, but there was a dramatic decline in revenues and unit shipments in the US between 2007 and 2008. Social Factors: As of 2012, Apple was the second most recognizable brand in the world, behind Coca-Cola. Technological Factors: Apple invests largely in its R&D departments and their products are always high on new innovative product rankings.

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Apple’s goals for FY 2012

● Apple design chief: "We are really pleased with our revenues but our goal isn't to make money. Our goal and what makes us excited is to make great products. If we are successful people will like them and if we are operationally competent, we will make money."

● Increasing the iPad’s popularity● Making the iPhone the most popular smartphone on the market● Apple further planned on developing a smaller, less expensive iPad,

which called iPad mini

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Products sold for FY 2012

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• 58.31 million iPads (32 million in 2011)• 125 million iPhones (72 million in 2011)• 35.16 million iPods (42.6 million in 2011)• 18.15 Macs (17 million in 2011)• 5.3 million Apple TV set-top boxes • 33 retail stores opened (40 opened in 2011)

Revenue by Segment in 2012 and 2015

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Apple in China in 2012

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• Apple was consider as ‘The tale of an underdog.’• $108 billion in 2012 revenue, only 12% came from China• There are only 5 store in mainland China. They decide to deal with

China Mobile• There are 11,000 places in China to buy the iPhone, up 138% from last

year

Apple 2013

Apple becomes world’s most recognized brand in 2013 beating Coca-Cola

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Key Financials FY 2015 • Share Price: $127.17 (6/15/2015)• Market Cap: 731.19 B (6/15/2015)• Shares Outstanding: 5.76 B• P/E = 15.69• EPS = 8.09• Debt/Equity ratio = .34• ROE = .39• Quick ratio = 1.10• Current Ratio = 1.20

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Stock Price 2012- Present

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Global expansion in 2015

• Expand its industry-leading renewable energy projects to manufacturing facilities in China

• Expand Apple pay service international. • Expand more retail store in China from 19

stores to about 40 stores• Apple's second biggest market is now China,

not Europe

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Goals and Strategies in 2015 and Beyond

• More Innovative products • Global impact • Increase Market Cap • Future Competition • Diversity

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Recommendations

• Lobby against the government to reduce the time and effort it takes to bring workers from abroad

• Go into the east to get into more markets• Reduce prices• More R&D into wearables• Don’t get conceited!

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Discounted Cash Flow ModelProjection Assumptions:1. Revenue growth at 7% a year based on the average of the historical numbers, which was then used to calculate revenue for the projected period.2. Operating margin at 30% based on average of historical numbers which was used to calculate projected operating income by multiplying assumption by revenue.3. Depreciation & amortization growing constant every year so found the growth rate and then continued that growth rate to get % of revenue that D&A would be in projected years.4. Same procedure for share-based compensation expense5. Change in operating A&L at 4% of revenue based on average of historical percentages.6. Capital expenditures at 5% of revenue based on average of historical percentages.WACC Assumptions:1. Equity risk premium2. Beta taken directly from yahoo finance3. Cost of Equity is calculated based on these assumptions so therefore it is also an assumption4. WACC is also an assumption because it was calculated with assumptionsTerminal Value Assumptions:1. Terminal FCF growth rate at 2%2. Discount rate at 15%3. PV of Terminal FCF

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Multiplied by 1M

Multiplied by 1M

Multiplied by 1M

Share Price vs. WACC

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Share Price vs. Terminal Value Discount Rate

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Questions?

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Work Cited•Kahn, J., 2012. IDC: Samsung takes top smartphone marketshare in Q1, as Apple hits 8.8-percent high of total mobile phone market. [online] Available at: http://9to5mac.com/2012/05/01/idc-samsung-takes-top-smartphone-marketshare-in-q1-as-apple-hits-8-8-high-of-total-mobile-phone-market/

•Financial Analysis, 2012. Apple 2012 1Q financial analysis. [online] Available at: http://www.finanalys.com/apple-2012-1q-financial-analysis/

•Thompson, Arthur A., A. J. Strickland, and John Gamble. "Case 14." Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases. Boston: McGraw-Hill/Irwin, 2008. N. pag. Print.

•Bloomberg L.P. "Stock price graph for Apple Inc. 01/01/07 to 06/17/12.". Bloomberg database. Indiana University Indianapolis Business Information Services, Indiana, IN. 17 June, 2015. 

•Powell, Bill. "Can Apple Win Over China?" Fortune Can Apple Win OverChina Comments. Fortune, 11 Oct. 2012. Web. 18 June 2015.

•Apple Inc. (2012). 10-K Annual Report 2012. Retrieved September 01, 2012, from Online database.

•NerdWallet. "A Split Decision on Stock Splits, Such As Apple's (AAPL)." NASDAQ.com. Nasdaq, 13 June 2012. Web. 18 June 2015.

•Blodget, Henry. "Apple's 'Mission Statement' Is Making People Worry That The Company Has Gone To Hell." Business Insider. Business Insider, Inc, 03 Aug. 2013. Web. 18 June 2015.

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AppendixExecutive Officers:

• Tim Cook- CEO• Angela Ahrendts- Senior Vice President Retail and Online Stores• Eddy Cue- Senior Vice President Internet Software and Services• Craig Federighi- Senior Vice President Software Engineering • Jonathan Ive- Senior Vice President Design• Luca Maestri- Senior Vice President and CFO• Dan Riccio- Senior Vice President Hardware Engineering• Philip W. Schiller- Senior Vice President Worldwide Marketing• Bruce Sewell- Senior Vice President and General Counsel• Jeff Williams- Senior Vice President Operations• Paul Deneve- Vice President Special Projects• Steve Dowling- Vice President Communications• Lisa Jackson- Vice President Environmental Initiatives• Joel Podolny- Vice President Dean, Apple University• Johny Srouji- Vice President Hardware Technologies• Denise Young Smith- Worldwide Human Resources

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Board of Directors:• Arthur D. Levinson, Ph.D- Chairman of the Board, Apple Former Chairman and CEO Genentech• Tim Cook- CEO Apple• Albert Gore Jr.- Former Vice President of the United States• Robert A. Iger- Chairman and CEO The Walt Disney Company• Andrea Jung- President and CEO Grameen America, Inc.• Ronald D. Sugar, Ph.D.- Former Chairman and CEO Northrop Grumman• Susan L. Wagner- Co-founder and Director Blackrock

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Financial Ratios DefinitionsPrice-Earnings Ratio: A valuation ratio of a company's current share price compared to its per-share earnings. The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings.

Calculated as: Market Value per Share / Earnings per Share (EPS)

Earnings per Share: The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.Earnings per share is generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio.

Calculated as: Net Income / Shares Outstanding

Debt to Equity Ratio: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets.

Calculated as: Total Debt / Total Stockholder’s Equity

Return on Equity: The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage.

Calculated as: Net Income / Total Stockholder’s Equity

Quick Ratio: An indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets.

Calculated as: (Current assets – Inventories) / Current Liabilities

Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities with its short-term assets

Calculated as: Current Assets / Current Liabilities

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Financial Statements FY2012All numbers and what they are used for have red arrow beside them.

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ROE

ROE & EPS

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ROE

Quick Ratio & Current Ratio

Quick Ratio

Quick Ratio & Debt/Equity

Current Ratio

Debt/Equity

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