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Lou Marino
John E. Gamble
espite the effects of ongoing poor economic conditions in the United States,
Apple Inc. celebrated record quarterly
revenues and unit sales of computers during its
third quarter of 2010. In addition, the company's
newly released iPad tablet computer had sold
3.3 million units between its April 3, 2010, launch
and the June 26, 2010, quarter end. The company
also sold 8.4 million iPhones during the quarter.
Most of the smartphone units sold during the
third quarter of 2010 were iPhone 3GS models
since the new iPhone 4 launched only four days
prior to the close of the quarter. Although there
had been some criticism of the antenna design of
the iPhone 4, more than 3 million iPhone 4 units
had been purchased by July 16, 2010, with only
1.7 percent being returned by dissatisfied customers. By comparison, the iPhone 3GS had a 6 percent return rate.
Apple's chief operating officer, Tim Cook,
commented to the Wall Street Journal that the
company was selling iPads and iPhones "as fast
as we can make them" and was "working around
the clock to try to get supply and demand in
balance.'" Some analysts were projecting that
Apple would sell nearly 12 million iPad tablet
computers by year-end 2010. However, others
were concerned that once Apple aficionados had
purchased an iPad to complement their iPhone,
iPod, or Mac, further sales growth might be
difficult to achieve. A former Apple executive
commented, "The first five million will be sold in
a heartbeat. But let's see: you can't make a phone
call with it, you can't take a picture with it, and
you have to buy content that before now you were
not willing to pay for. That seems tough to me.,,2
Analysts were also concerned with the general decline in iPod unit sales and worried that
Apple might have to struggle to sustain its growth
in the smartphone market. The iPod had been
important in the company's resurgence in the past
decade, but sustained growth in iPhone sales were
critical to the company's financial performance,
since iPhone sales accounted for $5.33 billion
of the company's third-quarter 2010 revenues
of $15.7 billion. Research in Motion (RIM) had
been known for innovative smartphones since it
introduced the BlackBerry in 1999, but Google's
development of the Android operating system for
smartphones had allowed HTC, LG, Nokia, and
Samsung to introduce smartphones that matched
many of the iPhone's best features. In addition,
Microsoft's Windows Mobile 7 operating system,
planned for a late-201O launch, was expected to
surpass some of the capabilities of the iPhone
operating system. Google was also a growing
threat to Apple, since many computer makers
were developing new tablet computers similar to
the iPad that would run the Android operating
system; the two companies seemed to be headed
for a future battle in mobile ads.ZYXWVUTSRQPONMLKJIHGF
C O M P A N Y H IS T O R Y
A N D F IN A N C IA L
PERFORM ANCE
Steven Wozniak and Steven Jobs founded Apple
Computer in 1976 when they began selling a
crudely designed personal computer called the
CopyrightrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCB
2010 by Lou Marino. All rights reserved.
C-142ZYXWVUTSRQPONMLKJIHGFEDCBA
P a rt 2 Cases in Crafting and Executing Strategy
Case
10
C-143
IN D U S T R Y
Even though a larger percentage of Apple's revenues were increasingly coming from noncomputer
products, the company still saw computers as its
core business. Apple's proprietary operating system and strong graphics-handling capabilities differentiated Macs from pes, but many consumers
and business users who owned PCs were hesitant
to purchase a Mac because of Apple's premium
pricing and because of the learning curve involved
with mastering its proprietary operating system.
The company's market share in the United States
had improved from 4 percent in 2005 to 8 percent
in 2009 primarily because of the success of the
iPod and iPhone. These products created a halo
effect whereby some consumers (but not business
users) switched to Apple computers after purchasing an iPod or iPhone.
Apple's computer product line consisted of
several models in various configurations. Its desktop lines included the Mac Pro (aimed at professional and business users); the iMac (targeted
toward consumer, educational,
and business
use); and Mac mini (made specifically for consumer use). Apple had three notebook product
E x h ib it
.;
S u m m ary
P erfo rm an ce,
2005-2009 ($ m illio n s,
excep t
o
sh are am o u n ts) srqponmlkjihgfedcbaZYXWVUTSR
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01>.
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N et S ales
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19,870
$ 18,469
$ 14,128
$ 11,486
International
16,667
14,010
9,878
7,829
5,597
36,537
32,479
24,006
19,315
13,931
Domestic
-b
8,334
C o sts an d E xp en ses
*'"
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Cost of sales
23,397
21,334
15,852
13,717
9,889
1,333
1,109
782
712
535
4,149
3,761
2,963
2,433
1,864
5,482
4,870
3,145
2,399
Operating income
7,658
6,275
3,745
4,409
"''"
2,453
1,643
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(R&D)
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326
620
599
365
165
7,984
6,895
5,008
2,818
1,808
2,280
2,061
1,512
3,496
829
480
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$ 1,989
Net income
Shares used in computing earnings per share-diluted
(in thousands)
~.
t,
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1,328
"':;
$5.36
$3.93
$2.27
$1.55
en
907,005
902,139
889,292
877,526
856,878
5,704
4,834
g-
$ 24,490
$ 15,386
3,361
2,422
1,637
1,252
455
346
270
165
2,954
509
2,455
1,832
1,281
817
Total assets
53,851
39,572
25,347
Current liabilities
19,284
14,092
9,299
17,205
6,443
11,516
3,487
Noncurrent liabilities
Shareholders'
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$ 23,464
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$6.29
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equity
$10,110
6,737
4,450
1,516
778
$ 27,832
$ 21,030
$ 14,532
$ 9,984
8,261
895
601
7,428
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2005-2009 ($ m illio n s)
N et S ales
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Desktops
by
$14,573
7,622
$11,596
5,460
1,509
6,315
2,460
1,082
4,115
1,753
$24,006
$32,479
$ 9,415
4,096
1,211
3,246
1,347
$19,315
$ 6,950
3,073
920
2,350
998
$13,931
P ro d u ct
Portables"
Total Macintosh net sales
iPod
Other music related products and services d
iPhone and related products and services e
Peripherals and other hardware f
Software, service, and other sales 9
Total net sales
Unit Sales by Product:
Desktops"
Portables ?
Total Macintosh unit sales
Net sales per Macintosh unit sold h
iPod unit sales
Net sales per iPod unit sold I
iPhone unit sales
$ 4,308
9,472
$13,780
8,091
4,036
6,754
1,470
2,406
$36,537
3,182
7,214
10,396
$1,326
54,132
$149
20,731
$ 5,603
8,673
$14,276
9,153
3,340
1,844
1,659
2,207
$32,479
$ 4,020
6,294
10,314
8,305
2,496
3,712
6,003
9,715
$1,469
2,714
4,337
7,051
54,828
$167
11,627
123
1,260
1,508
$24,006
$1,463
51,630
$161
1,389
$ 3,319
4,056
7,375
7,375
1,885
$ 3,436
2,839
6,275
4,540
899
1,100
1,279
$19,315
1,126
1,091
$13,931
2,434
2,520
2,014
4,534
$1,384
22,497
$202
2,869
5,303
$1,391
39,409
$195
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Hewlett Packard'
18,781
26.9%
16,218
24.7%
16,759
23.9%
11,600
21.5%
12,456
19.5%
5,630
11.5%
Dell
17,099
24.5
19,276
29.4
19,645
28.0
20,472
31.2
21,466
33.6
9,645
19.7
7,761
15.9
6,106
9.3
3,860
5.5
1,421
2.2
n.a.
n.a,
n.a.
n.a.
n.a.
Compaq'
3
4
Acer'
Apple
7,983
5,579
11.4
8.0
5,158
7.9
4,081
5.8
3,109
4.7
2,555
n.a.
4.0
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Toshiba
5,379
7.7
3,788
Others
15,008
21.5
15,026
All vendors
69,829
100.0%
65,571
5.8
22.9
--
100.0%
3,509
22,235
70,088
5.0
2,843
4.3
2,327
31.7
23,350
35.7
25,070
100.0%
65,481
100.0%
63,874
--
3.6
39.2
-100.0%
n.a.
n.a.
18,959
38.8
48,900
100.0%
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7.4%
Hewlett Packard'
59,942
20.3%
54,293
18.9%
50,526
18.8%
38,838
16.5%
32,575
15.7%
10,327
Dell
38,416
13.1
42,388
14.7
39,993
14.9
39,094
16.6
37,755
18.2
14,801
10.6
17,399
12.5
Compaq'
Acer2
38,377
13.0
31,377
Lenova/18M3
24,887
21,870
Toshiba
10.9
7.6
21,206
7.9
13,594
5.8
9,845
4,7
n.a.
20,224
7.5
16,609
7,1
12,979
6,2
9,308
15,878
13,727
4,8
10,936
4.1
9,292
3.9
7,234
3,5
Others
116,709
39.7
123,910
43.1
126,075
46.9
117,971
50.1
107,450
51.7
80,640
Ail vendors
294,208
100,0%
287,566
100,0%
268,960
100.0%
235,397
100.0%
207,837
100.0%
139.057
--
n.a.
OJ
n.a,
6,7
n.a.
58.0
---
100.0%
c..
n.a. = not available; sales andmarket sharesfor these companies in the years where n.a. appears are included in the "Others" category because the company was not in the top 5 in
shipments or market share.
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8.5
5.4
3Lenovo,a Chinese compu1ereompany, completedthe acquisition of IBM's PC business in 2005.The numbersfor LenovollBM for 2000 reflect sales of IBM branded pes only; the nurnbers for 2005-2009 reflect1hei combined salesbeginning in the second quarter of 2005. In 2007.Lenovo rebranded all IBM PCs as Lenovo.
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10
C-147
H e w le tt-P a c k a rd
Dell Inc.
Dell Inc. was the world's second-largest seller of
personal computers, with revenues of $52.9 billion for the fiscal year ending January 29, 2010.
P e rs o n a l S y s te m s
G ro u p , N e t R e v e n u e ($ m illio n s )
tt
Notebooks
$20,210
$22,657
$17,650
$12,005
$ 9,763
12,864
16,626
15,889
14,641
14,406
1,261
1,902
1,721
1,368
1,195
Handhelds
172
360
531
650
836
Other
798
750
618
502
541
$35,305
$42,295
$29,166
$26,741
Desktop pes
Workstations
Total
Source: Hewlett-Packard,
$36,409
Part 2srqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Cases in Crafting and Executing StrategyZYXWVUTSRQPONMLKJIHGFEDCBA
C-l48
E x h ib it 5
D e ll's R e v e n u e s
b y P ro d u c t
C a te g o ry ,
F is c a I2 0 0 8 -F is c a I2 0 1 0
($ m illio n s ) rqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
Servers and
networking
$ 6,032
11%
$ 6,512
11%
$ 6,486
11%
Storage
2,192
2,667
2,429
Services
5,622
11
5,351
4,980
9,927
17,961
29
Software and
peripherals
Mobility
Desktop pes
9,499
18
10,603
17
16,610
31
18,604
30
17,364
29
-~
12,947
Totals
25
$52,902
100%
$61,101
100%
16
19,350
$61,133
32
100%
E x h ib it 6
F in a n c ia l
S u m m a ry
Revenue
Gross profit
Operating income
Operatinq marqin
Income before income taxes
Net income
Financial Snapshot,
A cer
Taiwan-based Acer was the world's second-largest
portable computer provider and third-largest
desktop computer manufacturer in 2010. Acers
2009 consolidated revenues rose by approximately 13 percent from the previous year to reach
$18.3 billion, while operating income increased by
17 percent to reach $488 million. Its 40.5 percent
annual growth in global PC shipments between
2005 and 2009 ranked first among the industry's
leading sellers. The company's largest and one
of its fastest-growing geographic segments was
the Europe/Middle East/Africa segment, which
accounted for 52 percent of the company's PC,
desktop, and notebook sales. A summary of the
company's financial performance between 2006
and 2009 is presented in Exhibit 6.
fo r A c e r In c o rp o ra te d ,
2 0 0 6 -2 0 0 9 ($ th o u s a n d s )
$18,264,125
$16,186,102
$15,252,801
$10,577,113
1,855,993
1,697,374
1,565,278
1,150,865
488,102
416,962
336,211
224,993
2.7%
2.6%
2.2%
2.1%
476,759
438,723
498,736
408,481
$361,248
$347,919
$427,774
$308,080
http://www.acer-group.com/public/lnvestorRelations/financial_snapshot.htm.
Case 10
C-149
Acer's multibrand
strategy-which
posihad been able to achieve a market share greater
tioned Acer, Gateway, eMachines, and Packard
than 5 percent in 2010. Most consumers did not
find many convincing reasons to consider any
Bell at distinct price points in the market for
PCs-had
helped it become one of the fastestbrand of media player other than Apple.
In 2010, Apple offered four basic styles in the
growing vendors in the United States. The comiPod product line:
pany based its competitive strategy on its four
pillars of success: a winning business model,
The iPod Shuffle-s-e. basic flash-based player
competitive products, an innovative marketing
with no screen, FM radio, or voice recorder.
strategy, and an efficient operation model. The
The 4 gigabyte (GB) model was capable of
company's computer offering included desktop
storing 1,000 songs, and its rechargeable lithand mobile PCs, LCD monitors, servers and storium polymer battery provided up to 10 hours
age, and high-definition TVs and projectors. In
of playback time.
2009, the company entered the market for smart The iPod Nano-: multimedia player offered
phones with the launch of its Liquid line of stylin 8 GB (8 hours of video or 2,000 songs)
ish, high-end smartphones, which used Google's
and 16 GB (16 hours of video or 4,000 songs)
Android operating system.ZYXWVUTSRQPONMLKJIHGFEDCBA
sizes that used a click wheel interface to navigate the player's controls. It allowed users to
view photos and videos as well as to listen to
A P P L E 'S C O M P E T IT IV E
music in Apple's Advanced Audio Coding
P O S IT IO N IN T H E
(AAC) format, and it provided up to 24 hours
of music playback and 5 hours of video playP E R S O N A L M E D IA
back on a single charge.
P L A Y E R IN D U S T R Y
C-l50
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2 Cases in Crafting and Executing Strategy
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CaseZYXWVUTSRQPONMLKJIHGFEDCBA
10 Apple Inc. in 2010rqponmlkjihgfedcbaZYXWVUTSRQPON
about 11 percent for 2010. The growth in shipments of smartphones during the first quarter of
2010 outpaced the growth in basic-feature phone
shipments by a considerable margin. The shipments of smartphones grew by 56.7 percent during the first quarter of 2010, while shipments of
basic-feature phones increased by 18.8 percent
between the first quarter of 2009 and the first
quarter of 2010. The rapid growth in demand for
smartphones during early 2010 allowed Research
in Motion (RIM) to become the first company
producing only smartphones to become a Top 5
vendor in the industry-see Exhibit 7.
Developing countries such as China offered
the greatest growth opportunities but also presented challenges to smartphone producers. For
example, there were 700 million mobile phone
users in China, but popular-selling models were
quickly counterfeited, it was difficult to develop
keyboards that included the thousands of commonly used characters in the Chinese language,
and most consumers preferred inexpensive feature
phones over smartphones. Nevertheless, many
analysts expected China to account for 10 percent of worldwide smartphone shipments within
the near term. Apple planned to begin selling the
iPhone in China in 20 I0 through a network of
25 flagship stores located in the country's largest
cities. The iPhone would be available in 80 countries by year-end 2010.
With the market for smartphones growing rapidly and supporting high average selling
prices, competition was becoming more heated.
Google's entry into the market with its Android
operating system had allowed vendors such as
HTC, Motorola, Acer, and Samsung to offer
models that matched many of the features of
the iPhone. In addition, Microsoft's Windows
Mobile 7, which was planned for a late-20W
launch, was expected to exceed the capabilities
of the iPhone operating system with live tiles of
rotating pictures, e-mail messages, and socialnetworking feeds. In addition, smartphones operating on Windows Mobile 7 would have all of
the functionality of a Zune media player just as
the iPhone included all of the functionality of the
iPod Touch. While iPhones and Android phones
primarily targeted consumers enthralled with
clever and helpful Web apps, RIM had built a
number one position in the smartphone market
by appealing to businesspeople who needed the
A P P L E 'S
ENTRY
THE M ARKET
TABLET
IN T O
FOR
COM PUTERS
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5
20 00 an d 2005-2009 rqponmlkjihgfedcbaZYXWV
Nokia
Samsung
LG
R IM
Sony Ericsson
Others
All vendors
107.8
64.3
27.1
10.6
10.5
74.6
294.9
36.6%
21.8
9.2
3.6
3.6
25.3
100.0%
431.8
227.2
117.9
n.a.
57.0
293.8
1,127.8
srqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFEDCBA
38.3%
20.1
10.5
n.a.
5.1
26.0
100.0%
468.4
196.8
100.8
n.a.
96.6
327.7
1,190.1
39.4%
16.5
8.5
n.a.
8.1
27.5
100.0%
437.1
161.1
80.5
38.3%
14.1
7.1
n.a.
n.a.
103.4
9.1
31.4
358.8
1,140.9
100.0%
n.a. = not available; sales and market shares for these companies in the years where n.a, appears are included in the "Others" category because the company was not in the top 5 in
shipments or market share.
Source: International Data Corp.
Case 10
Exhibit 8
..
ApplesrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFE
Inc. in 2010
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,,
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Periods,
RIM (BlackBerry)
42.6%
41.6%
42.1%
41.7%
Apple iPhone
24.1
25.3
25.4
24.4
19.0
18.0
15.1
13.2
Google Android
2.5
5.2
13.0
Palm
8.3
6.1
9.0
5.4
Others
3.5
3.8
3.0
2.9
100.0%
100.0%
100.0%
Total
--100.0%
4.8
Source: ComScore.com.
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