Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market this year with its revolutionary iPhone.

 History

Apple was founded in in 1976 by Steve Wozniak, Steve Jobs and Ronald Wayne. Together they built the first prototype of their production computer, the Apple I, in Steve Jobs parent’s living room using capital from selling Job’s VW bus and Wozniak’s HP scientific calculator. They sold the first set of Apple I computers at $500 a piece to a local computer store called the “the byte shop”. Using the same purchase order as collateral and a phone call to Terell they were able to secure the part for the order. With no out of pocket expense they were able to fulfill their first order. The Apple I was an instant success and repeat orders came, but as they received orders for the product they continued plans to release Apple II, an improved version of the Apple I.

The release of the Apple II was smooth and came through without a hitch even with banks refusing to grant Jobs a loan. Thanks to “Mike” Markkula they were able to receive a loan for $250,000.00 and additional capital of $91,000. Steve Wozniak considers Markkula, “probably more responsible for our early success” (Zasky, 2005). The release of the Apple II solidified the superiority of Apple products in the market.

At the end of 1980, the initial public offering of Apple was introduced to the investing public and it was the fastest rising common stock since Ford Motors since 1956.

Several bad business decisions soiled its exemplary reputation. The ambitious design of a no-fan computer for the Apple III was one of the first bad decisions. The Apple III was then recalled but the damage had already been inflicted. They followed this with the release of the Macintosh computer in 1983. Its release was spearheaded by brochures and one nationally televised super-bowl commercial directed by Ridley Scott. After this they spent $2.5 million of their advertising dollars to buy all the ad pages of a Newsweek post election special. Similarly, they ran a campaign called “Test a Macintosh,” which alienated suppliers. The campaign allowed credit card users to buy a Mac and return it the next day. Often the Macs came back in such bad condition that it could no longer be sold.

Set backs like this led then CEO John Scully to raise the price of the Mac to roughly $2,500.00. This turned the Mac into an overpriced product, which further alienated customers.

After a string non-success, a power struggle between then CEO John Scully and co-founder Steve Jobs caused the board to ask Jobs to resign. In 1985 Steve Jobs resigned.

There were three CEO’s between 1985 and 1987, namely, John Sculley, Michael Spindler and Gil Amelio. Their tenures have been marked by falling stock prices and bad marketing decisions.  Eventually, Gil Amelio was ousted by the Board of Directors as Apple stock fell to its 12 year low. Steve Jobs was named Interim CEO in 1997 and holds the position of CEO to this day.

In 1997, under Steve Job’s watch, Apple enjoyed a renaissance with increased market share and synergy with products like the iMac, iPod, and Power Mac.  He also ended the long standing rivalry between Apple and Microsoft when he announced a deal with Microsoft to release Microsoft office for Mac.

In 1998 Steve Jobs spearheaded the development of the iMac and the iBook. In 2001 they released Mac OS X based on NeXTSTEP, the operating system designed by NeXT, the company Steve started when he left Apple. In the same year they released the hugely successful iPod. In the same year apple also opened up “Apple Stores” which was the company’s way of addressing declining marketing share and poor marketing of Apple products in other retail outlets.

In January 2007, Apple Computer Inc. shortened its name to Apple Inc. to address the wide array of products that hey had. In the same year in June, they released the widely anticipated IPhone.

Business Strategy

Apple's business strategy relies heavily on its ability to leverage its unique capability to develop both its hardware and software products as well as its services to provide customers with new products and solutions with superior ease-of-use, seamless integration, and innovative industrial design.

Apple believes that commitment to continual investment in research and development is critical to the development and enhancement of innovative products and technologies.

Part of their business strategy was to provide a high-quality buying experience with knowledgeable salespersons who can convey the value of the Company’s products and services. In 2001 they opened up Apple stores to showcase their commitment to excellence. This was also in response to retail stores not being able to fully market the great designs of Apple products. By the end of fiscal 2007, Apple opened 197 Apple stores, including 174 stores in the U.S. and 23 stores in Canada, Japan, U.K. and Italy (Apple Inc, 2007).

So far the business strategy has been paying off. Sales have continually increased despite the economy slowing down. According to quarterly report ended June 28, 2008, the net sales 3 month ended have increased by 37.96% previous year’s growth for the same period. Net sales for that period grew to $7,464 from $5,410 from the previous year. (Apple Inc, 2008)

Success of their strategy has also shown in their earnings. Earnings have increased steadily from the past year 3 month ended period with a 31.05% increase of earnings per share. The earnings per share grew to $1,072 million after 3 months ended June 2008 from last years $818 million for the same period.

In line with their strategy to develop ground breaking products, their budget for research and developed remains at over 21% for this year and last year. (Apple Inc, 2008)

Products

Apple has continually been in the forefront of cutting edge technology,. They are considered one of the pioneers for personal computing. This is still true with their Mac series. They have innovative personal computing products like Mac Book Pro, Mac Book, Mac Pro, iMac, Mac Mini and the Xserve. The Mac Book Pro and Mac Book cover the portable segment of their personal computer line. The Mac Book Pro was introduced in January 2006 while the Mac book was introduced May of 2006. The Mac Pro, I Mac and Mac Mini are the desktop line.  The Xserve is the server line for Apple computers. “Xserve is a 1U rack-mount server powered by two dual-core 64-bit Intel Xeon processors running at up to 3.0GHz and features Mac OS X Server 10.5, which became available in October 2007” (Apple Inc, 2007)

Aside from personal computers, Apple has expanded their drive for product excellence to the consumer electronics market. The release of the iPod was revolutionary with its compact and cool design. The variants of the iPod include the iPod shuffle with 1GB flash memory and 12 hours battery life; the iPod nano with 4GB and 8 GB variants and 24 hours of battery life; iPod Classic with 40 hours of battery life and available in 80GB and 160GB; and lastly the iPod Touch which features a 3.5 inch wide touch screen display.

Aside from iPods and iMacs , Apple introduced iTunes, a media player application for playing, downloading, and organizing digital music and video files.  As part of its drive to widen its customer base iTunes is available for both Mac and Windows users. In September, Apple introduced the iTunes Wi-Fi Music Store offering the ability to purchase, and download songs and albums from their iPod Touch or iPhone over a Wi-Fi network. It now serves customers in 22 countries.

In January 2007, Apple released the iPhone. The iPhone is a handheld device that combines the features of a mobile phone, an iPod, and an Internet communications device all rolled into a sleek design. The iPhone provides talk time of up to 8 hours, Internet of 6 hours, video playback of 7 hours and audio playback up to 24 hours. The exclusive U.S. cellular network carrier for iPhone is AT&T.

Aside from computers and consumer electronics Apple offers a wide array of software products for education, creative professional, consumer, business and government customers. Their operating system software, Mac OS X Leopard, became available in October 2007. Apple also features application software like iLife ‘08, a digital lifestyle application suite, which features iPhoto, iDVD, GarageBand, iWeb, iTunes and Movie ’08.

Introduced in  July 2007, The FileMaker Pro database software is a relational database and desktop-to-web publisher.

As of June 28, 2008, quarterly Mac sales have reached $3,610 million and iPod sales have reached $1,678 million. These two products hold 70% of all total sales dollars of Apple, where total Mac sales units sold were 2,496,000 and total iPod units sold 11,011,000 units in the same period.

Management

Apple Computer Inc. was founded in 1971 by Steve Wozniak and Steve Jobs. The first CEO for the company was Michael Scott. Michael Scott was convinced by Apple investor Mark Markkula to be the Apple CEO due to the relative inexperience of the founders. He served as Apple CEO from 1977 to 1981. He was later replaced by Mark Markkula, the same person who hired him.

Markkula served as CEO for Apple from 1981 to 1983 and remained chairman of the board until 1997 when a new board was formed. Markkula was succeeded by John Sculley who was the president of Pepsi Co. He was then ousted by a board room coup and installed Michael Spindler.

Michael Spindler's stay in Apple is remembered by successful projects such as the Power PC and equally unsuccessful projects such as the Newton and Copland OS. He was eventually replaced on February 2, 1996 by Gil Amelio.

Gil Amelio was the CEO of National Semiconductor before taking the helm at Apple. While at Apple he pointed out the major flaws including low cash and liquidity, and low quality of products. The lack of viable operating system strategy was another issue. He addressed the issue of the operating system when he bought NeXT, a company that was started by Steve Jobs. This proved instrumental because this action brought Steve Jobs into Apple’s management. In 2007, Gil Amelio was ousted as the CEO of Apple and was replaced by Interim CEO Steve Jobs.

Steve Jobs, the premier CEO in all of business (Bellehumeur, 2008), was installed as interim CEO after Gil Amelio. He cancelled several projects including Newton, Cyber Dog and OpenDoc in an effort to lower costs. In 1998 they released the iMac which brought appealing designs and increased sales.

In 2004 Jobs was diagnosed with a rare and curable form of pancreatic cancer. He had surgery nine month after the diagnosis but questions about his health still continue to linger. His recent appearance in Macworld fueled the rumors of his poor health where he was looking “unusually thin and haggard” (Nocera, 2008). He has since talked to Joe Nocera and confirmed that his condition may be more than a common bug but was not enough to cause much of a concern.

Competition

Apple does not have much direct competition that caters to the same markets that Apple has in all segment of their products. Because of this it would be best to divide the competition by their products.

The iMac and other Mac products – this segment of Apple’s business is enjoying a renaissance thanks to hardcore iMac and Mac Book users. Though the difference in platform puts the Mac in a niche market they still compete for the same computer users as Dell and HP. The recent departure from the Power PC architecture and as they embrace the Intel architecture with their new releases it increases its consumer base.

Since 1998 when they release the sleek and sexy iMac, apple has enjoyed a steady growth in sales. In June 30, 2008 and 3 months ended prior, Mac sales increase by 41% where desktop Macs like the Mac and Mac Pro, increased unit sales by 49% while portables like the Mac Book and Mac book pro increased by 37%. Comparatively companies like Dell had a slightly slower growth. Dell enjoyed a growth on desktops 32% and portables grew by 28% (Dell Inc., 2007). HP enjoyed similar growth of 27.5% where desktop sales increased by 8% and notebook sales increased by 27%.

The iPod – This portion of apple’s business includes the iPod nano, iPod Touch, iPod Shuffle and the iPod classic. The competition with iPod is stiff but the sleek design has helped maintain its spot on top of the rankings. However, the competition is wising up and gaining headway in smaller designs and cheaper prices. New players arise that can take market share from iPod as Microsoft is set to “build a software platform and digital music player dubbed Zune” (Benderoff, 2006)

Apple Financials Since 2005

(millions)

* Based on Average Analysts Expectations

**Based on price predictions from Piqqem.com for Sept 20, 2008

The Apple iPhone has revolutionized the cellular phone industry, with more than 5 million units sold in only 3 quarters of production. These sales are only going to increase as Apple expands the the iPhone to the international market (Asia in particular), as the iPhone is opened up to software development and alternate cell phone carriers, and as the new 3G iPhone (the iPhone 2), is developed and eventually released. Apple's operating system, Mac OS X Leopard, is years ahead of the long awaited Microsoft Vista operating system, and longer Vista is out, the more users dislike it. On the financial side of the house, Apple's 2Q '08 results astounded Wall Street. Quarterly revenues were up 43% to $7.5 billion, while earnings rose 36% to $1.16 per share. And this time, Apple stock took off on the good news. These gains came mostly on a whopping 51% increase in Mac sales, proving that even though Apple produces high-end computers it can survive and even prosper in troubling economic times. Demand for Macs has been so high, in fact, that Apple has beat Wall Street's profit expectations more than 21 straight quarters. This has driven tons of cash into Apple's coffers, (on the order of $19.4 billion) allowing it to acquire low-power semiconductor maker P.A. Semi, fueling speculation that Apple could start making its own chips for a new model of iPhone.

Expectations and valuation are very high. The upcoming quarter maybe strong, but expect the company to provide conservative guidance which could deflate the stock. Marketwatch has a good writeup.

Apple announced the new iPhone 3G in early June with delivery set for July 11. This means that for the quarter ending June 30, Apple will lose an entire month of iPhone sales. This could put this quarter at risk for a significant upside surprise.