Business_Analysis_Ii__Apple,_Inc

Business Analysis II: Apple, Inc. Tiffany Lee University of Phoenix MGT/521 Business Analysis II: Apple, Inc. Brand identity, customer satisfaction and a successful track record has made Apple, Inc. who it is today. Its competitive advantage has helped maintain a standard with its rivals in such a competitive electronic industry. Based in California it has trailed its way to different areas of consumer electronics. Known for its Macintosh, PC the company has grown with its education consumers, graphic designers and government markets. Apple, with the help of its products, has become a billion dollar market and has been doing so for years. “The company’s products quickly developed a following, and in 1980 Apple went public. In 1982 Apple became the first maker of personal computers to exceed $1 billion in annual sales” (Lamiman, 2012). Sales are on a rise and yet each year apple reports for each fiscal year remain above average. This paper will discuss Apples financial health compared to its competitive companies like Dell and Microsoft. It will also discuss how management uses such financial information to make further future decisions for the company. It will display Apples technological advantages verses Dell and Microsoft, as well as, how globalization has impacted Apples business strategies. A Benchmarking analysis will be compared which will compare Apple, Dell and Microsofts best practices, operational procedures, products and services. Apple is most prosperous for its manufacturing of technology. Within the last year Apple, Inc. has been the leading manufacturing company in supply chain performance “Apple Inc. was the supply chain king in 2011, at least according to Gartner Inc.'s standards. The technology research firm ranked Apple No. 1 on its annual Top 25 Supply Chains list published in May” (Katz, 2012). Apple displays in the chart below that each service and product has increased in sales over the last three years. Apple is known for its IPhone, looking at the chart below the IPhone has the highest increase amount in net sales than all other Apple products. The chart also shows the net sales from 2009 to 2011 and also the percentage in change. Looking at the chart Apple percentages have significant increases each year. |    | 2011 |   |    | Change |   |    | 2010 |   |    | Change |   |    | 2009 |   | Net Sales by Operating Segment: |    | | | |    | | | |    | | | |    | | | |    | | | | Americas net sales |    | $ | 38,315 |    |    |   |       56% |    |    | $ | 24,498 |    |    |   |       29% |    |    | $ | 18,981 |    | Europe net sales |    |   | 27,778 |    |    |   | 49% |    |    |   |   18,692 |    |    |   | 58% |    |    |   |   11,810 |    | Japan net sales |    |   | 5,437 |    |    |   | 37% |    |    |   | 3,981 |    |    |   | 75% |    |    |   | 2,279 |    | Asia-Pacific net sales |    |   | 22,592 |    |    |   | 174% |    |    |   | 8,256 |    |    |   | 160% |    |    |   | 3,179 |    | Retail net sales |    |   | 14,127 |    |    |   | 44% |    |    |   | 9,798 |    |    |   | 47% |    |    |   | 6,656 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | Total net sales |    | $ | 108,249 |    |    |   | 66% |    |    | $ | 65,225 |    |    |   | 52% |    |    | $ | 42,905 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | Net Sales by Product: |    | | | |    | | | |    | | | |    | | | |    | | | | Desktops (a) |    | $ | 6,439 |    |    |   | 4% |    |    | $ | 6,201 |    |    |   | 43% |    |    | $ | 4,324 |    | Portables (b) |    |   | 15,344 |    |    |   | 36% |    |    |   | 11,278 |    |    |   | 18% |    |    |   | 9,535 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | Total Mac net sales |    |   | 21,783 |    |    |   | 25% |    |    |   | 17,479 |    |    |   | 26% |    |    |   | 13,859 |    | | | | | | | iPod |    |   | 7,453 |    |    |   | (10)% |    |    |   | 8,274 |    |    |   | 2% |    |    |   | 8,091 |    | Other music related products and services (c) |    |   | 6,314 |    |    |   | 28% |    |    |   | 4,948 |    |    |   | 23% |    |    |   | 4,036 |    | iPhone and related products and services (d) |    |   | 47,057 |    |    |   | 87% |    |    |   | 25,179 |    |    |   | 93% |    |    |   | 13,033 |    | iPad and related products and services (e) |    |   | 20,358 |    |    |   | 311% |    |    |   | 4,958 |    |    |   | NM |    |    |   | 0 |    | Peripherals and other hardware (f) |    |   | 2,330 |    |    |   | 28% |    |    |   | 1,814 |    |    |   | 23% |    |    |   | 1,475 |    | Software, service and other sales (g) |    |   | 2,954 |    |    |   | 15% |    |    |   | 2,573 |    |    |   | 7% |    |    |   | 2,411 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | Total net sales |    | $ | 108,249 |    |    |   | 66% |    |    | $ | 65,225 |    |    |   | 52% |    |    | $ | 42,905 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | Unit Sales by Product: |    | | | |    | | | |    | | | |    | | | |    | | | | Desktops (a) |    |   | 4,669 |    |    |   | 1% |    |    |   | 4,627 |    |    |   | 45% |    |    |   | 3,182 |    | Portables (b) |    |   | 12,066 |    |    |   | 34% |    |    |   | 9,035 |    |    |   | 25% |    |    |   | 7,214 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | Total Mac unit sales |    |   | 16,735 |    |    |   | 22% |    |    |   | 13,662 |    |    |   | 31% |    |    |   | 10,396 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | | | | | | | iPod unit sales |    |   | 42,620 |    |    |   | (15)% |    |    |   | 50,312 |    |    |   | (7)% |    |    |   | 54,132 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | iPhone units sold |    |   | 72,293 |    |    |   | 81% |    |    |   | 39,989 |    |    |   | 93% |    |    |   | 20,731 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | iPad units sold |    |   | 32,394 |    |    |   | 334% |    |    |   | 7,458 |    |    |   | NM |    |    |   | 0 |    | |    |   |   |   |    | | | |    |   |   |   |    | | | |    |   |   |   | -------------------------------------------------   (a) | Includes iMac, Mac mini, Mac Pro and Xserve product lines. | (b) | Includes MacBook, MacBook Air and MacBook Pro product lines. | (c) | Includes sales from the iTunes Store, App Store, and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories. | (d) | Includes revenue recognized from iPhone sales, carrier agreements, services, and Apple-branded and third-party iPhone accessories. | (e) | Includes revenue recognized from iPad sales, services and Apple-branded and third-party iPad accessories. | (f) | Includes sales of displays, wireless connectivity and networking solutions, and other hardware accessories. | (g) | Includes sales from the Mac App Store in addition to sales of other Apple-branded and third-party Mac software and Mac and Internet services. | NM | = Not Meaningful | http://investor.apple.com/secfiling.cfm'CIK=320193&filingid=1193125-11-282113& Apples annual reports are divided into three quarters. For the year 2012 Apple first quarter was in the billion for its net profit and it’s were shares less than $10.00 per share. “The Company posted record quarterly revenue of $46.33 billion and record quarterly net profit of $13.06 billion, or $13.87 per diluted share. These results compare to revenue of $26.74 billion and net quarterly profit of $6 billion, or $6.43 per diluted share, in the year-ago quarter” (Dowling, 2012). In the first quarter Apple is in a record breaking sales with it IPhones, IPads, and Mac PC’s. “The Company sold 37.04 million iPhones in the quarter, representing 128 percent unit growth over the year-ago quarter. Apple sold 15.43 million iPads during the quarter, a 111 percent unit increase over the year-ago quarter. The Company sold 5.2 million Macs during the quarter, a 26 percent unit increase over the year-ago quarter. Apple sold 15.4 million iPods, a 21 percent unit decline from the year-ago quarter” (Dowling, 2012). These numbers reflect apples ability to organize, compete, educate and distribute its product for such a competitive market. Closing in on Apple third Quarter, the numbers decrease but yet maintained its billion dollar mark. Third quarter sales are as follows: “The Company posted quarterly revenue of $35.0 billion and quarterly net profit of $8.8 billion, or $9.32 per diluted share. These results compare to revenue of $28.6 billion and net profit of $7.3 billion, or $7.79 per diluted share, in the year-ago quarter” (Dowling, 2012). Apples financial health compared to Dell and Google The markets for Apples products services are extremely competitive. One issue that Apple has financially is that its competitors have cheaper prices. “The Company’s competitors who sell mobile devices and personal computers based on other operating systems have aggressively cut prices and lowered their product margins to gain or maintain market share.” (annual statement) Two of Apples competitors include Dell, Inc. and Microsoft. Dell and Apple have been in rivals for a long time. Their completion stems from select products and prices. Dell has been able to maintain a universal market due to cheaper prices. Apples market shares have cut into Dell’s overall performance. “Dell should not be afraid of competition from Apple “Apple inroads into Dell’s market share. The gain of market share by the competitor Apple in PCs affected Dell’s performance” [ (Ramkey, 2011) ]. Dell services revenue grew according to its fourth quarter review for 2012. Also, Dell’s support services and outsourcing business increased. “Dell Services revenue grew 12 percent to $2.2 billion and represented 14 percent of Dell’s business. The transactional services business increased 14 percent with strong attach rates of Dell premium support services and the outsourcing business grew 8 percent” (Financial News, 2012). Dell’s GAAP per share was surprising low compared to the previous year “GAAP earnings per share in the quarter was 43 cents, down 10 percent from the previous year” (Financial News, 2012). Apple has superior growth in earnings from its products, such as its IPhone and IPads. Compared to its competitors like Dell, Apple will continue to rise in years to come. "Over the last seven years Apple has had a compound annual earnings growth rate of more than 85%." Over the next five years Turner projects that Apple's earnings will rise 25% a year. The competition isn't even close: Dell will be lucky to increase earnings 7% to 10% in the same period, Hewlett-Packard maybe 10% to 12%” (Copeland, 2010). (1/2 in margin) Microsoft is another company in the same industry as Apple. “Microsoft is a technology leader focused on helping people and businesses throughout the world realize their full potential. We create technology that transforms the way people work, play and communicate across a wide range of computing devices.” [ (Discussion and Analysis, 2011) ]. Within the last three years Microsoft’s numbers increased from its Revenue, Net income, and to Cash dividends per share. According to the chart below, Microsoft’s net income from 2009 to 2011 shows a steady increase. Displaying this chart shows the changes in which Microsoft Revenue Net income and Cash dividends progressively increased each year.  In millions, except per share amounts) |   |   |   | Year Ended June 30, | 2011 |   | 2010 |   | 2009 | Revenue | $      69,943 |   | $      62,484 |   | $      58,437 | Operating expenses: |   |   |   |   |   | Cost of revenue |         15,577 |   |         12,395 |   |         12,155 | Research and development |           9,043 |   |           8,714 |   |           9,010 | Sales and marketing |         13,940 |   |         13,214 |   |         12,879 | General and administrative |           4,222 |   |           4,063 |   |           4,030 | Total operating expenses |         42,782 |   |         38,386 |   |         38,074 | Operating income |         27,161 |   |         24,098 |   |         20,363 | Other income (expense) |              910 |   |              915 |   |             (542 ) | Income before income taxes |         28,071 |   |         25,013 |   |         19,821 | Provision for income taxes |           4,921 |   |           6,253 |   |           5,252 | Net income | $      23,150 |   | $      18,760 |   | $      14,569 | Earnings per share: |   |   |   |   |   | Basic | $          2.73 |   | $          2.13 |   | $          1.63 | Diluted | $          2.69 |   | $          2.10 |   | $          1.62 | Weighted average shares outstanding: |   |   |   |   |   | Basic |           8,490 |   |           8,813 |   |           8,945 | Diluted |           8,593 |   |           8,927 |   |           8,996 | Cash dividends declared per common share | $          0.64 |   | $          0.52 |   | $          0.52 | (Discussion and Analysis, 2011) One could look at the financial numbers and quickly assume that Apple is at the top of computing charts compared to Dell and Microsoft. According to the table below in 2011, Apple and Microsoft have increasing number and yet Apple still has a more competitive advantage. In 2011, each company’s profitability is compared from each company’s gross profit margin, pre-tax profit margin, net profit, return on equity, return on assets and return on investment cap. Looking at the chart below each company’s percentages are also rated according to the industry median and the market median. Just looking at the gross margin Microsoft percentage is much higher than Apple. 2011 Profitability   | Apple Inc. | Dell | Microsoft | Industry Median | Market Median1 | Gross Profit Margin | 44.11% | 21.66% | 76.22% | 35.57% | 34.54% | Pre-Tax Profit Margin | 36.06% | 5.99% | 30.20% | 18.67% | 10.60% | Net Profit Margin | 26.97% | 5.01% | 23.03% | 14.17% | 7.06% | Return on Equity | 44.32% | 33.45% | 27.51% | 38.65% | 11.87% | Return on Assets | 29.77% | 7.06% | 14.77% | 15.00% | 2.27% | Return on Invested Cap | 44.32% | 17.65% | 2 3.05% | 27.45% | 6.12% | | | | | | | | | | | | | | | | | | | | | | | | | (Hoover, 2012) | | | | | | | | | | | | | | | | | | Apples technological Advantage vs. Dell and Microsoft Apple and Dell both came out with a tablet but because Dell’s tablets lacked the latest technology. Apple on the rise with its new products, such as the IPad, forced Dell to downsize. “In July, PC sales decreased by 4.2% in USA. But Apple’s sale is growing by 15% as its Mac is supported by IPhone and IPad. Hewlett Packard is the largest seller of PCs. Dell will do well to develop its tablets with latest technology to increase its growth” (Ramkey, 2011). Dell has clout as an established company worldwide. Its services are and outsourcing techniques have put the company in competition range. “Dell’s lucrative services and outsourcing business in Europe and Latin America is creating a transformation in the company. Its $8 billion worth business is threatening established players like IBM and HP” (Ramkey, 2011). In beginning year Apple product were the minority. Few people had Apple computers which created room for PC sales to sky rocket. “When Windows 95 launched in 1995 it negated most of the advantages of the ease of use of the Macintosh and the PC market took off. The ratio reached 56 in 2004 when 182.5 million PCs were sold vs. 3.25 million Macs” [ (Worstall, 2012) ]. Microsoft has more competitive products than Dell and Apple have . Microsoft is doing its best to innovate new technology capabilities for its particular mobile services. “Just yesterday, it announced a new capability for Windows Azure called Windows Azure Mobile Services, which will allow developers to add a cloud backend to their Windows 8 application, with support for the Windows Phone, IOS, and Android in development” Management makes decisions Most organization have some type of financial system in place, for example an accounting system. Looking at the financial information provide Apple strategy it to remain competitive. Its goal is to stimulate consumer demand. Management must watch frequent product introductions and their transitions. “Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce new products, services and technologies, enhance existing products and services, and effectively stimulate customer demand for new and upgraded products” (annual report, 2011 pg 11 . Using this financial information, management will know their future operating results. Areas of improvement will help Apple obtain significant changes, such as prices and supply chain. “Because the Company currently obtains components from single or limited sources, the Company is subject to significant supply and pricing risks.” ( annual report, 2011) This financial information gives management room to speculate. In 2011, Apples expectation of its gross margin was to decrease. Apples cost increases stemmed from new products for their valued customers. “Apples expects to experience decreases in its gross margin percentage in future periods, as compared to levels achieved during 2011, largely due to a higher mix of new and innovative products with flat or reduced pricing that have higher cost structures and deliver greater value to customers, and potential future component cost and other cost increases” (1/2 inch margin) Globalization Globalization has impacted Apples business strategies. Apple benefits from product manufacturing and logistic services that provided outsourcing to partners located outside the US. “Substantially all of the Company’s manufacturing is performed in whole or in part by a few outsourcing partners primarily located in Asia” (annual report, 2011, p. 12). Outsourcing allows for Apple to lower operating cost and to lessen direct control of production and distribution. Apples outsourcing partners include the United States, Asia and Europe. Disruption in either location regarding manufacturing or logistic issues may cause financial hardship on the company. “If manufacturing or logistics in these locations is disrupted for any reason including, but not limited to, natural and man-made disasters, information technology system failures, military actions or economic, business, labor, environmental, public health, or political issues, the Company’s financial condition and operating results could be materially adversely affected” (annual report, 2011, p. 12). Global markets for Apples products and services are highly competitive and subject to technology changes. Price cutting and performance characteristics and the introduction of new product affect Apples gross margin. “The Company’s products and services compete in highly competitive global markets characterized by aggressive price cutting, with resulting downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product price/performance” characteristics, rapid adoption of technological and product advancements by competitors, and price sensitivity on the part of consumers” (annual report, 2011, p. 10). (1/2 inch margin) Benchmarking Benchmarking is a simple comparison involved with companies in the same industry. It compares performance standards and Practices Company’s use to compete and advance in a particular market. With every new product Apple’s system grows stronger allowing the company to set new benchmarks in other industries. “Apple is defined by its consumers as having achieved its benchmark success through the industrial design and ease of use systems for its entire line of products including but not limited to; tablet computing, smart phones, mp3 players, desktop and laptop computers.” [ (Eberhand) ]. Benchmarking will help compare, Apple, Inc, Microsoft, Inc, and Dell best practices, procedures, product and services will be analyzed. Both Apple and Microsoft processes include risk assessments, the process to identify business ethics and legal compliance. Apple and Microsoft have similar products. like Apples IPad , Microsoft has s similar product called the tablet. “Microsoft is entering the tablet world with its new product called Surface.  Surface is being introduced not only with consumer’s in mind but with businesses in mind.  With Surface, Microsoft is trying to make a tablet that can compete in the IPad market” Dell on the other hand does not have many products to compare with Apple. Dell and Apple both distribute computers. Both companies cater to different markets. Dell’s PC is used for engineering and legal field while Apples Mac’s are used for production and web design . “PCs are generally used in the business, legal, and engineering fields. Macs tend to be found in the art, video production and web design fields” [ (Eberhand) ]. Apple draws its success from others along with its benchmarked product line “It is that interconnection between Apple’s financial strategy and its benchmarked product line that defines Apple’s success” [ (Eberhand) ]. In conclusion, Apples financial health for the past three years have been profitable. Apple has been able to remain in constant competition with its competitors. Apple net sales fluctuate, but remain constant. Compare to Microsoft and Dell, its number show that Apple is one of the top company’s in the technological market. Apples technological advantage is the amount of product in which they distribute. Management has used financial system to improve sales and to advance their products into competition. Not only does Apple maintain a competitive advantage they value their consumers. Apple globalization efforts result form outsourcing. Apple has stores worldwide. They partner with different countries for manufacturing and logistic purposes. Also Apples benchmarked products flourish into profits. Apples struggle and efforts to grow allowed for them to be successful in the market of technology. “Apple’s success is about focusing in on making a limited product line, and drawing upon the success of others in other industries. Apple has used this strategy to organically evolve from the brink of bankruptcy to become the world’s largest company in not much more than a decade.” Reference Dowling, S. (2012). Press Info. Retrieved September 6, 2012, from Apple, Inc.: http://www.apple.com/pr/library/2012/01/24Apple-Reports-First-Quarter-Results.html Katz, J. (2012, July 1). Apple Reigns Supreme in 2011. IW 50 BEST U.S. MANUFACTURERS, pp. 22-26. Lamiman, K. (2012). Apple Inc. Better Investing, 1.