Apple Inc.

Notes

Apple History

 Created by Steve Jobs (visionary) and Steve Wozniak (technical genius)

 Taken on a partner – Mike Markkula instrumental in attracting venture capital and experienced
businessman on the team
 Industry leader by the end 1980’s selling more than 100,000 Apple IIs
 IBM entered the market and Apple’s revenue continued to grow but their market share dropped
sharply
 IBM PC was relatively open system that other producers could clone – Apple in contrast on
proprietary designs that only Apple could produce
 1984 introduced the Macintosh – the slow processor speed and lack of compatible software
limited sales (Net income fell 17%) leaving the company in crises
 Apple’s board removed Jobs from an operational role and ended up leaving to start NeXT

Sculley Years (1985-1993)

 Recruited John Sculley as the new CEO from Pepsi

 He sought to make Apple a leader in desktop publishing as well as education and to bring Apple
into the corporate world
 Apple’s superior software Aldus (Adobe), PageMaker, and peripherals (laser printers) gave
unmatched capabilities in desktop publishing
 Education market accounted for almost half of the Apple’s sales with 50% market share
 Practiced horizontal and vertical integration
 Allowed customers the complete solution “plug and play”
 Apple’s products were to be more versatile than comparable IBM compatible machines
 Sold at a premium price – 9% to of sales to R&D compared with others 1-5%
 Sculley wanted to move to mainstream by becoming a low-cost producer of computers with
mass-market appeal
 Forged an alliance with Apple’s foremost rival IBM – 500 m to develop next-generation OS
 Gross margin dropped to 34% even with the driving down costs
 The Apple board appointed Michael Spindler

Spindler and Amelio Years (1993-1997)

 Spindler tried to reinvigorate its core markets: education (K-12) and desktop publishing
 Apple licensed a handful of companies to make Mac clones
 International growth became a key objective
 Spindler moved to slash costs, cutting 16% of Apple’s workforce and reducing R&D spending
 Apple and IBM parted ways after spending 500m neither side wanted to switch to a new
technology – Apple reported a $69m loss and announced further layoffs
 Gilbert Amelio replaced Spindler as CEO

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 Apple Inc. Notes

 Amelio sought to push Apple into high-margin segments such as servers, Internet Access
devices, and PDAs
 Return to premium-price differentiation strategy
 Apple acquired NeXT software and develop a new OS based and Steve Jobs would return part-
time advisor
 Amelio let the company through three reorganizations and several deep payroll cuts
 Apple lost 1.6billion on his watch and its worldwide market share dropped 6%-3%
 Steve Job replaced Amelio as CEO

Steve Jobs and Apple Turnaround

 Microsoft agreed to invest 150m in Apple commitment to develop core products Microsoft
Office and brought licensing to an end because the clones were cannibalizing Apple sales
 Consolidated Apple’s product range reducing its lines from 15-3
 Launched the iMac – it sold 6m units with sales of 300m PCs during the same time frame
 Outsourced manufacturing of Mac products to Taiwanese contract assemblers
 Revamped its distribution system, eliminating relationships with thousands of smaller outlets
and expanding in national chains
 Apple pared down its inventory significantly and increased its spending on R&D
 Promoting in hip alternative to other computer brands – culture force
 The Mac had differentiating features such as
o Attractive design factors
o High-quality bundled software
o Security
o Ease of use
 Mac became less closed system and incorporated standard interfaces
 Mac become a machine that could easily run Windows and Mac-based applications
 Apple introduced a fully overhauled OS in 2001 – Mac OS X and based on UNIX
 Launched sixth major OS X release, called leopard “most successful” OS X release ever
 Apple developed the Web browser Safari and Microsoft announced it was no longer developing
a Internet Explorer for Mac
 Opened their first retail store in 2001 – 210 stores by 2008 accounted for 19% of revenue
 Outlets in US, Australia, Canada, China, Italy, Japan, and United Kingdom
 By 2008 Apple became the third-largest PC maker in U.S. market with a market share 8.5%
 iPod “halo effect” gross margins ranged from 30%-35%
 Used flash memory instead of a hard drive, which was cheaper
 Apple commanded 70% of the US Market for portable music players
 iPod could only sync with Macs but in 2002 introduced an iPod for Windows
 iTunes Music Store – The first legal site that allowed music downloads on pay-per-song basis
 Sold more than 5 billion songs and 70% share of worldwide digital music market
 Combined iPod and iTunes sales accounted for 45% of total revenue at Apple
 iTunes was a loss leader for a profit-driving durable good because of the music industry taking
70% and 20% went to credit card fees – Apple only received 10%, which did not include the
costs entailed to run iTunes
 Apple TV - users could now acquire content for their TV directly from iTunes, while bypassing
their PC entirely
 iPhone wanted to reinvent with multifunction communication – “Internet in your pocket”

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 Apple Inc. Notes

 IPhone 3G – Revamped pricing model, a new retail channel advanced and a platform for third-
party applications
 Partnered with AT&T – received a 10% of all subscription fees
 In exchange for a five-year exclusivity period could not sell to third parties
 1 million of the 3.7 million iPhones sold fell to the “grey market” where customers bought
unlocked phones from unauthorized resellers
 The resulting loss of service-share revenue was a 1billion loss over a three-year period
 Gave up the calim to a share of subscription revenue instead received a fixed premium from
AT&T
 Partnerships with Google and YouTube allowed to provide customized search, mapping, and
video features
 Drawbacks to the iPhone was low storage capacity, low-resolution camera, which lacked video
 Available in roughly 70 markets worldwide
 Has yet to had a deal to sell in China (world’s largest mobile phone market)

PC Industry
 IBM was the company that brought PC’s into the mainstream
 Revenue growth, did not keep pace with volume growth because downward pricing pressure
 The average profit margin on a PC by 2007 was less than 5%
 The largest cost element was the microprocessor, which ranged ($50-$500)
 Standardized components drove PC makers to cut spending on research and development