SWOT Analysis: Apple Inc.

Justin Hellman
John Dudivsky
 
Apple (AAPL – Free Apple Stock Report) has been in the headlines a lot lately, and not always
for the best reasons. Rather than stories touting its product innovation and legendary growth
trajectory, much of the recent news focused on the company’s iPhone encryption battle with the
U.S. government. That battle, closely watched by the Silicon Valley community and civil rights
advocates, has been resolved temporarily, with the FBI successfully retrieving data from the San
Bernardino terrorist’s iPhone without the help of Apple’s engineers. But the encryption issue
will most likely rear its head again in the not-too-distant future, given the push by law
---THREATS enforcement at the federal and state levels to access suspects’ digital information.
And further legal battles could well create an overhang in the stock, as this latest one seemed to
do, at least marginally. In the meantime, concerns about the iPhone franchise, the main driver of
the company’s results these days, persist during the early stages of fiscal 2016 (year ends
September 24th), which also seems to be weighing on AAPL shares. This may explain why the
new Dow component looks so inexpensive on a price-to-earnings basis, trading at roughly 12
times the consensus share-net view (of $9.07) for this year. So, are investors wise to remain on
the sidelines at this juncture? Or is now an opportune time for patient buy-and-holders to take the
plunge? In this brief article, we will attempt to address these questions by taking a look at
Apple’s business and performing a SWOT analysis of the tech heavyweight, evaluating its
Strengths, Weaknesses, Opportunities, and Threats.

The Business
Apple Inc., founded in 1976 and a member of the prestigious Dow 30 since March of 2015,
manufactures and markets personal computers, digital music players, mobile communications
devices, and a host of related services, peripheral goods, and software solutions WIDE RANGE
OF PRODUCTS . Products are sold online, through third-party resellers and wholesalers, and via
the company’s own network of over 460 retail outlets worldwide STRONG DISTRIBUTION
CHANNEL. In product terms, the iPhone remains Apple’s most important offering by far,
accounting for about two-thirds of total sales and three-quarters of gross profits. And,
geographically speaking, the company still generates most of its revenue at home, with sales in
the Americas making up 40% of the top line last year. That said, Greater China is Apple’s
fastest-growing market, registering a hefty sales gain of 84% in fiscal 2015.HIGH DEMAND OF
PRODUCT

Strength – Wide range of innovative products- write example of smart watch, itunes,..
International market orientation
Strong distrinution channel- write about amazon and online sale platform

Strengths
One of Apple’s biggest strengths is their brand identity-APPLE’S INTERNATIONAL
ORIENTATION. Their products reflect beautiful design aesthetic, wealth, simplicity, and
creativity. This concept was widely recognized during Apple’s simplistic but vibrant dance
commercials for iPod touch.
Product -The iPhone: Sales of the revolutionary smartphone have undoubtedly cooled off a bit
lately, inching just 0.4% higher in the December period. The franchise remains a cash cow for
the company, however, and the essential part of its rich ecosystem of products and services.
What’s more, the iPhone still looks to have plenty of room to grow, notwithstanding the recent
slowdown. In fact, we see unit sales increasing at (at least) a high-single-digit average annual
clip through late decade, despite THREAT heightened competition from Android-powered
devices and uneven business conditions in several emerging markets overseas. (Android is a
mobile operating system developed by Alphabet (GOOG).) Growth should be driven by a strong
replacement cycle, as the majority of iPhone users have yet to upgrade to the latest models, the
6S and 6S Plus (they debuted in September 2015). In addition, the introduction of the iPhone
7  (anticipated in time for the holiday shopping season) ought to be a big catalyst, especially with
the higher end of the smartphone space showing renewed signs of strength. And we look for
the iPhone to wrest share from Android, both in the premium category (where Samsung’s
Galaxy S series has had a fair amount of success) and in the low- to mid-range segment of the
market (where customers are likely to be attracted to the iPhone’s rich feature set).

Shareholder-Friendly Policies: While AAPL shares may be in the doldrums, easily lagging the
S&P 500 Index over the past year, the company continues to generate a lot of cash, to put it
mildly. In fact, Apple now has a cash hoard of about $215 billion on its books (including long-
term marketable securities). And we would expect this figure to continue to swell, even if
earnings take a slight dip this year before heading back up through the 2019-2021 time frame.
This should enable the company, having repurchased 15% of the outstanding share base over the
past three years, to remain fairly active on the stock-buyback front going forward. Moreover, we
envision steady increases to the cash dividend over time, with the quarterly payout likely to be
hiked in late April from $0.52 to $0.57 a share. This would bring the stock’s yield to over 2%.

The company permanently renews itself. In a constant willing of progress, STRENGTH their

next iPhone will have a new design that will improve quality control’s stability while enabling
cheaper costs for Apple (Digitimes). The next iPhone could skip the traditional “S” version that
follows each release of new phones by Apple and might be the iPhone 10 instead of 8 (Apple
Stock News: A Look into iPhone 8).

The company even started to anchor its business into Corporate Social Responsibility –
STRENGTH CSR and thus develop harmless solutions. They are also committed to
environmental issues, and more particularly in the recycle process.

Company has high high profit margin

The company has Sophisticated supply-chain infrastructure

Finally, Apple is particularly known for being at the cutting edge of technology. Added to a
specific design and a leadership position on the market, the strengths of Apple seems infinite.

Weaknesses
The iPad: The tablet line has probably been the biggest disappointment in recent years, failing to
find a place in the hearts of Apple enthusiasts that already have an iPhone and a Mac. Things
only seem to be getting worse for the in-between form factor, too, with iPad unit sales slumping
25% during the fiscal first quarter. Part of this erosion may well be due to the launch of larger-
display iPhone models. (The 6S Plus has a 5.5-inch screen.) Still, the company hopes that efforts
to penetrate the large enterprise market will help to reverse the fortunes of this struggling
franchise. To this end, Apple is currently developing new business applications in partnership
with International Business Machines (IBM – Free IBM Stock Report). It’s also unveiled a
new 9.7-inch iPad Pro that is being touted as a powerful PC replacement for the workplace. Just
how successful the new device will be displacing aging business-oriented PCs remains to be
seen. Yet, the latest iPad Pro seems to be priced right, more expensive than the iPad Air 2 but
roughly $200 cheaper than the original iPad Pro. And the product features greater storage
capacity, which may prompt businesses to take a closer look.
Premium Pricing: The high prices that Apple’s products command, long a blessing for the
bottom line, are a credit to the company’s innovative flair and brand-building skills. They can be
a hindrance when it comes to DIFFICULTIES penetrating emerging countries, however, where
GDP per capita is far less than it is in mature markets like the U.S. and Europe. This explains, in
large part, why cheaper Android devices, many of which are made by low-cost Asian OEMs,
have done so well in the developing world. And the price differential could be more of a problem
down the road, compelling Apple to rethink its premium-focused strategy.

Other weaknesses are :

Incompatibility of Apple products and services with other products and services for users,in which company has
not taken tangible initiatives
They have narrow product range with excessive dependence on certain products.
They lack competitiveness in Services segment

External Analysis
Porter’s Five Forces Analysis The analysis of Porters five forces enables more effective strategic
decision making (Porter 2008; Johnson, Scholes, and Whittington 2008).
Rivalry among competing sellers: (High) Apple Inc. had a well-diversified portfolio of tech
based products; it sells hardware and software which makes a tough situation for Apple to
compete globally (Apple 10-K). The impact of highly competitive market can be seen in lesser
sales growth 50% to 9% in America, 31% to 4% in Europe, 94% to 27% in Japan. Apple is also
losing it smart phone market share, 14% decline in recent company’s quarterly report, Apple
iPad growth also slowed to just 13% as compared to competitors 79%. Positive point of Apple is,
its product line is less, simple and user friendly, so they manage to make sales out of it as
compared to competitor’s one where enough choice is © Usman, Mohammd & Shabbir Licensed
under Creative Common Page 960 present to confuse consumers (Apple Form 10-K). Apple
products had high differentiation with competitor’s products. Moreover, Apple distribution
channel i.e. via Amazon and direct outlets is very strong, helps Apple to strategically position
their products. Looking into the intense competitive environment it should increase its
investment more in mobile, computer and software.
Potential entry of new competitors: The threat is considered low .As Apple is world’s dominant
IT having focus on niche market i.e. high income consumers, makes it difficult for new entrants
to grasp market share specially when just alone iPhone need $100million investment. Apple also
use contract manufacturing strategy saving unnecessary cost and expense, as no need to spend
money directly on social responsibilities helping them to be the world’s most profitable and
capitalized corporation. Other reasons for low threat is copyrights, patents and high switching
cost. But Apple is also in risk if the suppliers refuse to renew the contracts.
Competitive pressure from substitute products: (High-Moderate) Apple’s substitute product
pressure is high-moderate. For almost every product of Apple there is a substitute present. Ipod
Samsung mp3 player & Sony mp3 player Ipad Samsung tab Iphone Samsung galaxy, Samsung
note, HTC, Nokia, Sony Erickson But Apples OS still proves to be a strong area of Apple which
is not having any near substitute. Another positive area is the Apple own app store, iTunes and
iclouds.
Bargaining power of suppliers: (Low-Moderate) Suppliers bargaining power is moderate because
of their unique capability to manufacture product for Apple. But, Apple had a very well
diversified supplier numbers; they aren’t manufacturing everything from one supplier and one
place. Because Apple buys in large quantity, giving them higher buying power (Green Beagle
2012).
Bargaining power of customers: (Low) Apple enjoys its bold image of being innovator, quality
continuer and big investor in R&D helps it retains its current customers. Along with retention,
Apple is also successful in switching competitor’s customers towards itself many times (Tech
Crunch 2014).

Other Opportunities
Apple has shown the potential benefit of collaborating with different strong and existing brands
related to their marketplace. With their new AirPods, they’ve teamed up with Beats headphones,
to introduce the new wireless BeatsX alongside their iPhone 7 reveal [3].
Additionally, Nintendo is bringing a new game, Mario Run, to iPhone — combining the Apple
name with the well known and iconic game face of Nintendo. They’re another powerful brand,
which could bring in huge numbers from the many Nintendo fans around the world.

Apple’s current innovation can be mocked, ridiculed, or cheered. But the business opportunities
from collaborating with other large brands across the world will benefit the Apple brand
immensely, so long as they continue to develop these business relationships.
Macs: The traditional Mac computing line has been lost in shuffle over the past decade, as
the iPhone burst onto the scene and became a remarkable earnings catalyst for Apple. The Mac
franchise remains a slow-and-steady grower, however. And we would expect trends to stay
positive, notwithstanding the secular decline in the broader PC sector. Indeed, we envision the
company’s share of the global PC market moving up from the high single-digits (it’s close to 7%
at present), as efforts to enhance the ecosystem help the company lure customers from rivals
Lenovo, Hewlett-Packard (HPQ.D), and Dell. A paring of the product portfolio, which appears
to have expanded too much in recent years and lost some of its focus in consumers’ minds,
should also drive Mac sales to new heights.
The Apple Watch: This is still a new product for Apple, so the jury remains out, to some degree.
That said, we expect it to be a nice contributor to the top and bottom lines once retail distribution
improves and developers get on board with more applications (e.g., health and fitness tracking
programs) for the new-age timepiece. The wearable device market is certainly buoyant, as can be
seen in the strides made by newly public Fitbit (FIT). And the Apple Watch should only add to
consumers’ interest in the category.
Services: Beyond sales of digital music and apps, newer services businesses, including Apple
Pay, Apple Music,  and  Apple TV, all hold good promise. They ought to greatly enhance the
company’s ecosystem (yet another reason for Android users to switch to an iPhone) in the years
to come. Moreover, the new service lines will probably lift profit margins, offsetting any
pressures from declining product ASPs (average selling prices).
Threats
Price Erosion: One of the amazing things about Apple has been its ability to maintain high ASPs
for its products in the face of some pretty formidable competition from Samsung and others in
the electronics industry. The company’s pricing power may eventually wane, however,
particularly as the tech giant looks to grab a greater piece of the mass cellphone market. This
would likely put a dent in the gross margin and contribute to a longer-term deceleration in
earnings growth.
Hackers: The security of Apple’s products is critically important to its long-term success. In fact,
a reputation for being less vulnerable to hackers and viruses has always been a big selling point
for  Macs versus PCs. Thus, any security breaches to the company’s platforms could render the
demand backdrop more challenging. This is one reason, we think, why the company and CEO
Tim Cook put up such a fight in their encryption battle with the Justice Department. Had Apple
agreed to create a backdoor to its iPhone encryption process for law enforcement officials, as
many had called for, the security of all of its devices, and of its customers’ private data, may
have been put in jeopardy. And this almost assuredly would have been bad news for business
over time.
Imitation has always been a big threat to Apple products.
While Apple’s design is smooth and simplistic, that is exactly what makes it easy to replicate.
Global stores sell fake versions of iPhones and iPod touches which, on the outside, look nearly
identical. And many people fall for the scams of “super cheap Apple products” sold online.

Another thing is competition.

In the smartphone market, Apple competes with big names like samsung and the entire Android
market. And while the competition is harsh, they may have made it even more intense by
removing the headphone jack in the iPhone 7, in favor of developing their own proprietary
products as substitutes.
This is causing backlash across the digital world. While it may work out in Apple’s favor, it may
also cause a lower profit turnout this year. But only sales will tell.

Other Threats are as follows:

The company being found to have infringed on intellectual property rights, reputation is affected to some extent
There is further increase of manufacturing costs
The straining relation between US China will affect the cost because many components are outsourced to china
Conclusion
All in all, in spite of the recent iPhone deceleration and likelihood that earnings will take a
modest dip this fiscal year, we believe that Apple’s strengths and opportunities handily outweigh
its weaknesses and threats at this juncture. The rock-solid finances and attractive valuation make
this Dow member an even more compelling selection, too. As such, we encourage investors to
take a close look here. It’s not often that a company of this caliber goes on sale. 

Required

a. Prepare EFAS table,IFAS Table and finally SFAS table by identifying at least five most relevant SWOT
factors.

(Make your own assumptions about the company’s handling of the SWOT factors and give the score I
range of 1 to 5 )

b. Intrepret the score of each table

c.Prepare TOWS matrix by selecting and putting one most important strength,weakness ,threat and
opportunity. Identify the four strategic positions based on identified SWOT. Which position do you think
Apple is holding right now ?

DEADLINE FOR SUBMISSION: 2nd May 2021 11:00 PM by email