The credit crisis since 2007 has affected the demand for Apple products significantly. With unemployment sitting at multi-year high and a grim job market outlook, discretionary income is likely to be constrained or even decrease. Consumer confidence in the US was at 44.9 in November. Up from 38.8 in October, but it is still in negative territory. Combined with a worse credit situation consumer spending is likely to stay low.
In overseas market we are expecting the same situation unfolding in Europe and Japan. Euro-zone's GDP is contracting -0.2% in the third quarter and expected to continue in the fourth quarter, entering a technical recession. Japan is already in recession. The credit crisis has spread globally, affecting businesses everywhere.
Apple's products are mainly electronics and online media delivery. With a shrinking customer pocket, the demand for these products is likely to drop in the near future. We may see a small bounce during the holiday shopping sessions but the magnitude would be small. We expect Apple sales to grow significantly slower well into 2009.
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Apple Industry and Competitors
Apple used to be considered to be in the industry of Personal computers, but now apple can be seen as a media company due to it iPod and iTunes products. Apple's main competitors in Personal computers include Dell Inc., Hewlett-Packard Corporation, and Microsoft Corporation. Dell Inc. Dell does not have any dividend policy. HP has a dividend policy dividend of $.08 every quarter. HP has been paying this dividend since 1998. Microsoft has a dividend policy. Microsoft originally changed from its annual dividends to quarterly dividends. On average Microsoft pays a dividend of $ .10 quarterly.
Key Statistics in 2008
Fourth quarter fiscal year 2009 ended September 27, 2008. The Company posted revenue of $7.9 billion. Apples had a net quarterly profit of $1.14 billion. Their Gross margin was 34.7 percent, up from 33.6 percent in the year-ago quarter. International sales accounted for 41 percent of the quarter's revenue. Apple shipped 2,611,000 Macintosh computers during the quarter. This is a 21 percent growth compared to a year ago. The Company sold 11,052,000 iPods during the quarter, which is an eight percent growth and three percent revenue growth compared to fourth quarter last year. Quarterly iPhone units sold were 6,892,000 compared to 1,119,000 in the year-ago-quarterly. Apple has sold more iPhones than Rim selling BlackBerry.
Apple's Product Line
Apple is in the home computer industry, but its cash cow products are the Apple iPod and the Apple iPhone. With Apple upgrading its iPhone to the new 3G iPhone, Apple is expected to triple its net profit for 2009. The iPhone 3G has faster speeds, cheaper prices, and a new application platform will help lead to amazing sales for apple holiday quarter. Apple feels that their iPhone sales will look like iPod sales in 2005. iPod sales in 2005 tripled year after year. The iPhone in September made 806 million dollars in revenue for apple. It is also estimated that apple has sold over 6 million phones. Apple sells its iPod and iPhone through large distribution centers in order to have a probability to easily triple it sales during the Christmas holiday. Apple has Wal-Mart, Target, Best buy, and Circuit city selling Apple top of the line products which include the iPhone, iPod and Mac Book. Many analysts are predicting that Apple will sell 24 million iPhone 3Gs in 2009. During today's economic time Apple is being cautious in its cost controls of their products. Apple's revealing its new line-up of Mac Book and Mac Book Pro laptops shows that Apple placed great concern in Research and Development. The new Mac book gives the customer amazing technology for the price of $1299 .00. Apple is also working on the next version of its operating system OS X Snow Leopard, which is expected to come out in 2009. Apple has taking great consideration in making price cuts on their products to accommodate with today's economic landscape.
Apple continues to make sales in rough economic times because its iPod and iPhone products are performing exceptionally well and there are many reasons for Apple's success. Apple's online store has an amazing stock of iPod and iPhone. Apple provides the customer not only with it product but numerous software updates for free. Apple also supplies the customer with low price music sales that are legal. Apple also has The App Store which is the top reason why people are willing to pay the full amount for the iPhone and iPod Touch. The software marketplace pushed heavily by the iPhone is also on and available for all iPod Touch devices, making the iPod Touch more than just a music player. The iPod touch is a full scale entertainment device. You have the ability to watch movies, play games, and access the internet. The other models, the iPod Nano and Shuffles continue to make a great stocking stuffer year after year due to their low prices. A broad product line ensures they have continuously growing revenue.
Always on Time
Marked to Standard
SWOT Analysis: Strengths
Apple has diversified its business to appeal to consumers in all different types of businesses. These businesses are education, enterprise, government, and special creative markets. Apple uses wholesalers, resellers and regional retailers to have their products easily distributed to their customers all around the globe. What makes Apple so appealing to all these different types of businesses is their wide range of products which their customers purchase and lead to the ultimate goal of high sales. From these sales no specific business type consumer accounts for more than 10% of the net sales in 2006-2008. This is an important aspect because not only does it keep Apple focused on providing quality products to all types of consumers, it continues to show how they company can be ready for when a new type of business structure forms and needs products or new services and Apple would be able to deliver.
Apple currently has a competitive advantage by offering superior innovation and integration of its hardware and software including the iMac, iPod, iPhone, iTunes, and distribution of content through the iTunes Store.
Long-Term Supply Agreements
In 2006, Apple entered into long-term supply agreements with Hynix Semiconductor, Inc., Intel Corporation, Micron Technology, Inc., Samsung Electronics Co., Ltd., and Toshiba Corporation to secure supply of NAND flash memory for their products to last until forecasted 2010. In these agreements, Apple prepaid $1.25 billion for flash memory, which will be applied to certain inventory purchases which will be made over the lifetime of the respective agreement with each company. This allows Apply to lock-in prices for the flash memory used in every device that they produce. It helps keep costs lower and prevents them from avoiding price hikes when the economy is not doing well.
Most essential materials that are required for Apple's business are available from multiple sources; however certain key materials are currently obtained by Apple from single or limited source. This creates difficulty for Apple because they are subject to significant supply and pricing risks. Raw materials that are obtained from multiple sources can also suffer from supply issues, such as industry-wide shortage and significant commodity pricing fluctuations. As mentioned as one of Apple's strengths, having long term contracts in place can help deal with these issues however the is no guarantee that Apple will be able to extend or renew these agreements on the same favorable terms upon expiration or even get a favorable pricing agreement in the future.
Therefore, Apple is subject to significant risks of supply shortages and price increases that can have a material large effect on its financial condition and operating results. Apple and other consumer computer manufactures, consumer electronics manufacturers and mobile communication industries compete for a range of components with other industries that have experienced increased demand for their products.
Also, Apple uses some custom components that are not common to the rest of the personal computer, consumer electronics and mobile communication industries, and new products introduced by Apple often utilize custom components available from only one source until they has evaluated whether there is a need for additional suppliers. When a product uses new technology, the suppliers of this new technology might not be ready for mass production and they supply will not balance with demand until the suppler has found the best way to mass produce what Apple needs for their new product. So if Apple's supply of a key component only obtained from one source for a new or existing product were delayed, or if the materials were available only at significantly higher prices, Apple would be in a poor financial condition and operating results could be affected. Continued availability of these materials at acceptable prices, can be difficult because the supplier may choose to produce common items for all of Apple's competitors instead of components customized to meet Apple's needs. One last weakness is the limited amount of companies that Apple outsources the creation of the iPod, the iMac, or the iPhone. If one of these out-sourcing companies ran into some difficulty meeting the quota of the contract they had agree to produce with Apple, then Apple would be left without the appropriate amount of product made and would suffer losses in sales.
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Research and Development
The sectors of technology that Apple is involved in, the personal computer, consumer electronics, and mobile communication industries are all characterized by rapid technological advances, and Apples ability to compete successfully in this sector is dependent upon its ability to guarantee a constant and timely flow of competitive products, and services to the marketplace.
Apple is constantly working to develop new products and enhancing existing products in the areas of computer hardware, consumer electronics, mobile communication, system software, applications software, and Internet services and solutions.
The U.S. represents Apple's largest marketplace. Approximately 57% of net sales in 2008 came from sales to customers inside the U.S. The final assembly of products is currently performed in the manufacturing facility in Ireland, and by external vendors in California, Korea, China and the Czech Republic. The supply and creation of many vital components is performed by third-party vendors in the U.S., China, Japan, Korea, Malaysia, Philippines, Taiwan, Thailand, and Singapore. Apple has placed its business in all of these countries and more and will continue to expand further into other locations when it is cost effective but there are always more opportunities when expanding to countries with new possible consumers.
A very common threat for a large company like Apple is competition. Apple not only has competitors in the music player business, they have competitors in the computer business, software business, and phone business. This creates a large pool of possible threats from new releases to new technological usage in old or new devices. What also makes the technology sector so difficult to compete in is the rate at which technology changes. Technology is never standing still and with that people always want the new and improved products rather than purchasing products that have been on the market for months. Products can compete by having competitive prices, features, and performance characteristics.
Threats within the computer business consist of computers based on other operating systems have aggressively cut prices and lowered their product margins to gain or maintain market share. Apple's financial condition can be affected by these and other industry pressures on gross margins. Another factor is the internet, and when customers can connect from anywhere features such as Internet devices that are smaller, simpler, and less expensive than traditional personal computers may compete with Apple products.
Apples music products and services, the iPod and iTunes, have faced significant competition from other companies promoting their own digital music products. Apple should expect competition to increase as competitors attempt to imitate its approach on creating products and integrating these elements within their own products. Some of the current and potential competitors have substantial resources and may be able to provide such products and services at little or no profit or even at a loss to compete with Apple.
Apple has also decided to focus on market opportunities related to mobile communication devices including the iPhone. This industry is highly competitive with several large and experienced competitors. Apple faces competition from mobile communication device companies that may attempt to imitate some of the iPhone's functions and applications on their own Smartphone. The mobile industry is affected by aggressive pricing practices, many product introductions, evolving design approaches and technologies, rapid adoption of technological and product advancements by competitors, and price sensitivity on the part of consumers especially in today's economy.