Business Analysis of Apple

In this post, we are going to conduct an analysis of Apple Inc, the world’s largest technology business with a strong global presence and offering a nice range of market leading technological products and services.

Apple Inc is a leading US based technology firm dealing in a limited range of hardware and technological services. The company is known worldwide as the maker of iPhone. Its range of hardware also includes Mac, iPad and wearables. The company also offers a nice range of services. Apple is the most valuable company in the world by market cap. Its market capitalization in 2022 is around $2.5 Trillion.

The company was founded by Steve Jobs and Steve Wozniak on April 1, 1976.  Its headquarters are located in Cupertino, California, United States. The company has achieved strong financial growth in recent years driven by higher sales of iPhones and services worldwide mainly.

Apple’s growth is also driven by other factors including a strong brand image, market leading products, strong focus on marketing, technological innovation and strong customer loyalty. The company has continued to improve its competitive advantage and market position over the past several years. 2021 was the best financial year in its history when the company generated record breaking revenue and income.

SWOT ANALYSIS OF APPLE:

STRENGTHS:

World’s largest technology business:

Apple is the world’s largest technology business. Its market capitalization is close to $2.5 trillion. The technology brand has experienced solid improvement in its market value over the past few years. Led by Tim Cook, Apple has continued to release new models of iPhone and other products over the recent years. Apple has rapidly released new models, which demonstrates its dedication to innovation and customer experience. As the world’s largest technology business, Apple holds very strong clout in the industry.

Nice range of technology products and services:

Apple offers a nice range of technology products and services. Its core product is iPhone, which accounts for the largest part of its net sales each year. The company also offers other hardware products including iPad, Mac, wearables and a nice range of services. Compared to most of its rivals in the market including smartphone and laptop brands, the company offers a limited range of services. However, its products are market leading products that enjoy solid popularity across the globe.

Strong competitive advantage:

Apple’s competitive advantage is the strongest among all the technology brands. Even its closes rivals are unable to match its market leading capabilities whether it is in terms of marketing, customer experience, sales and distribution, or supply chain management. Apple’s brand image and customer loyalty are also proofs of its competitive strength. The company has established a culture focused on innovation and customer experience. Its culture and sustained focus on innovation have also helped the company grow its competitiveness.

Focus on technological innovation:

In the technology sector, market leadership comes from technological innovation. Apple is known as a fiercely competitive brand, behind which is rapid innovation. Customer preferences have changed fast in recent years. However, the company has smartly responded to the changing market dynamics and customer preferences to retain its sales and market leadership position. It invests a large sum in research and development each year. While compared to some rivals like Amazon or Alphabet, its R&D investment is smaller and yet the company generates better results from its investment in research and development.

Strong financial position:

The company is also a market leading brand with very strong financial position. It achieved record breaking financial performance in 2021. The company generated $365.8 billion in net revenue or 33% higher compared to the prior year. For the first time, it has achieved more than $350 billion in net sales. The company enjoys strong profit margins on its products. The total net income of the company in 2021 reached around $95 billion, which was 64% higher than the prior year.

Strong customer loyalty:

Apple is one of the very few brands that enjoy as strong customer loyalty across the globe. According to 9to5Mac, customer loyalty for iPhone continues to run as high as 90%. The company has several loyalty programs in place to drive customer loyalty higher.

Strong market share in the US:

Apple enjoys the largest market share in US smartphone sales. The company has close to half of the market share in the US smartphone market. Samsung has close to 31%.

WEAKNESSES:

Limited range of products and services:

Compared to most rivals in the market including Samsung, Huawei and other smartphone brands, the company offers a limited range of products. Apple is not as diversified as several other technology brands including Microsoft, Amazon, Samsung, and others. Apple continues to focus on its main products, while also enhancing its range of services.

Limited focus on cloud technology:

While other leading technology brands including Amazon, Google, and Microsoft have invested aggressively in growing their market share in the cloud industry, Apple has focused on retaining its position in hardware. While cloud technology offers excellent growth opportunities, Apple is still unwilling to diversify from its core. Its sales of services have increased in recent years, but Apple seems uninterested in being a cloud player.

Mainly limited to the higher end market:

Apple products are made mainly for the higher end market. Compare it to the closest rival in the smartphone industry, Samsung, and its range of products is not just limited but also costly. Apple targets the higher end market. While it has also released lower priced basic versions of iPhones, they are still not as competitively priced as the various models released by Samsung or other smartphone brands including LG. It can be understood as a weakness but on the other hand, it also proves Apple’s dominance in the higher end market.

OPPORTUNITIES:

Cloud technology:

Cloud technology offers some excellent growth opportunities for Apple. However, it is not among the core focus areas of the company. Apple could achieve faster growth by investing in cloud technology and related services. AI & other related modern technologies are also worth investing in.

Diversification:

Apple deals in a limited range of products and services. Its core product, iPhone accounts for the largest part of the company’s net annual sales. The company could increase its sales and revenue by diversifying its product range and entering new technological areas. There has been talk about an Apple car in the media for quite some time. However, there are several other sectors too where Apple’s resources and capabilities could help it find solid growth. Apple has kept its focus limited to the areas where it has already proved its competitiveness. Diversification also brings risks and Apple might not like to hurt its existing momentum in any manner. So, it appears rather improbable that it would like to diversify from its core. However, one cannot deny the fact that Apple might expand its range of services and add new ones to improve its profitability.

Emerging markets:

Emerging markets offer excellent growth opportunities for market leading technology brands like Apple. India, Brazil, Mexico, and other emerging markets have experienced growth in middle-class consumers’ disposable income. The company is focusing on improving its digital presence and customer relationships in these markets to expand its customer base in these regions. The importance of the emerging markets has also grown in the light of Apple having stopped operations in Russia following the Ukraine war.

THREATS:

Competition from Chinese and South Korean brands of smartphones:

Apple is operating in a highly competitive industry environment.  Samsung is currently the dominant player in the global market while Apple is the dominant player in the US market. Apple’s market share in the global market according to counterpoint research in the first quarter of 2022 was 18% compared to Samsung’s 23%. In the US market, its share in 2021 remained either close to or above 50%. In the first quarter of 2022, its market share was 50%. While Apple is among the dominant smartphone brands in the global market, it is facing strong competitive challenge from other players like Samsung, LG, Lenovo, Oppo, One Plus, Xiaomi and others.

Competition from various laptop brands:

Lenovo and HP are the two market-leading and dominant players in the laptop and PC industry. While Apple’s market share in the first quarter of 2022 improved in this sector compared to the previous year, the company is on fourth position as a PC vendor. Lenovo is the market leader in the PC industry with 23.6% and HP held 20.5% market share in the first quarter of 2022. Dell’s market share in the same period stood at 17.7% while that of Apple was at 9%. The PC industry is experiencing a fiercely competitive battle among the leading four brands. Apple has released new Mac models which helped it grow its market share in the PC industry.

Political and regulatory environment:

The complex political and regulatory environment in various regions of the world is also making the task challenging for leading technology brands including Apple. The regulatory environment of technology industry has continued to grow complex and Apple has also faced additional complexity caused by the poor relationships between the US and China. The legal environment has also grown more complex as Apple has faced several legal challenges including those related to its payment processing system and the charges for using App store.

Changing market trends and customer preferences:

The market trends and consumer preferences have changed fast in recent years which have forced companies to grow their focus and pace of innovation. Apple has rapidly released new models of iPhone, mac, iPad and other products to maintain customer loyalty. Companies now have to dedicate more resources to marketing and innovation to maintain their market share in a highly volatile and fast changing industry environment.

PESTEL ANALYSIS OF APPLE:

POLITICAL:

Political factors have always played a central role in the context of international business. Businesses around the world are affected by the political environment of the market that they operate in and their government policies. Apple is a global business. While the US is its leading market, the company operates globally and has acquired a solid position in several leading markets including China, Canada, the UK, India and several more markets.

Government policies in these various markets including the United States have continued to evolve over years. The changing regulatory environment affects business strategy and other significant areas related to business operations.

Geopolitical changes also affect the business environment of various markets. For example, the Russia-Ukraine war to the suspension of operations in Russia by several companies including Apple.

Changing governments or political instability also affect business operations. Government changes also affect government policies regarding technology businesses, which in turn affects their sales and profitability in various markets.

ECONOMIC:

Economic factors affect business performance to a significant extent. The changes in the global economic environment can have a significant impact on the sales and profitability of large and global businesses like Apple.  From the GDP to exchange rates and interest rates, level of employment and other important economic factors, there are several factors affecting the conditions of businesses across the globe.

For example, during the pandemic, the level of employment in various regions around the globe including the United States, China, the UK, and several other important markets dropped. It led to a recession like situation causing sales of various nonessential products like electronics and smartphones to fall.

Changing currency exchange rates also have a sharp effect on profitability of businesses. Some brands are better able to manage the impact of economic factors on their business compared to the others. Apple sells higher end products and its buyers are from affluent families. Due to that, the effect of recession, higher unemployment and other similar factors is low on its business. However, currency exchange rates still affect its profitability since it is a global business and generates a large part of its income from outside the United States.

To some extent, the brand image, marketing strategy, customer experience, customer loyalty and the brands competitiveness also affect its ability to manage the impact of economic factors.

SOCIOCULTURAL:

Sociocultural factors also affect businesses to a significant extent in terms of marketing, sales and other areas. Companies strive to be as diverse as possible and embrace the diversity of their customer base. Businesses that operate globally across various regions and cover diverse societies and cultures need to understand the impact of these factors on their brand image, HR management, marketing, sales, distribution and overall business operations.

Companies should formulate strategies for various geographic regions based on their understanding of the local cultures and society. Social factors like demographic changes also have a clear impact on business growth and profitability. Apple mainly targets the millennial customers, who are among the largest customer demographics in its customer base.

Suggested Reading: How Apple manages diversity?

TECHNOLOGICAL:

Technology and technological factors are also just as important in the context of international business. Technology is a key driver of business growth across various industry sectors. Apple is a technology brand that makes hardware products, operating systems and also offers a nice rage of services to Apple customers.

Technological innovation and differentiation are the key drivers of its success in the global market. It is the largest brand in the technology sector and also the largest in the entire industry with a market cap of close to $2.5 Trillion.

It is known for offering a superior customer experience and innovative products that are matchless in terms of performance. Its Mac OS and iOS are highly differentiated and superior compared to the Android OS or Windows in terms of performance.

The company is also a leader in terms of digital marketing. Apart from its market leading smartphone, the company is also a market leader in wearables and related technologies. It offers an attractive range of technological services as well. Over the past few years, the popularity and sales of Apple products has grown at a much faster range which is demonstrated in its financial performance. The reason behind its faster growth in recent year is its acute focus on technological innovation that differentiates it from other brands.

LEGAL:

Legal factors are also an important concern for international businesses. Compliance is a critical concern for technology businesses since governments across the world have taken stricter measures against tech businesses in various areas like consumer data, privacy and others. Apart from these, labor related laws, and more laws which can differ from market to market are also affecting the performance of international businesses.

Apple has dealt with several legal concerns in its history. Among the most important legal concerns facing the tech giants like Apple are antitrust laws. Apple has been facing antitrust cases in the US, Europe and even India. According to a 2021 news report by Reuters, Apple is facing an antitrust challenge in the Indian market related to the fees charged on its App store.

Apple is also facing more litigations in this area related to abusing its dominant market position. However, the company also takes utmost care to operate its business in legal compliance with all the relevant laws in all the regions where it operates.

PORTER’S FIVE FORCES ANALYSIS OF APPLE:

In this section, we will conduct a Porter’s five forces analysis of Apple Inc, highlighting the effect of these five important forces on Apple’s business.

BARGAINING POWER OF SUPPLIERS: LOW

Suppliers are an important force in every industry. Their role is critical in conducting a successful business. Companies rely on suppliers to maintain a regular supply of good quality raw materials. The bargaining power of suppliers is higher in cases when the number of suppliers is small and the size of the supplier firm is bigger than the buyer firm. In some cases where the risk of forward integration by suppliers is higher, the bargaining power of suppliers is also higher.

Apple sources raw materials form suppliers around the globe and a large part of its supply chain is located in Asia. The company has maintained excellent relationships with its suppliers worldwide.  However, Apple is the largest company in the industry and its suppliers are smaller companies. Therefore, compared to Apple they do not hold strong bargaining power.  Apple has also applied a code of conduct for its suppliers to follow. The bargaining power of Apple suppliers is limited.

BARGAINING POWER OF BUYERS: MODERATE

Bargaining power of buyers/consumers has grown in the twenty first century. It is because of several factors including a higher number of substitutes in the market, availability of information, and more factors like a growing number of laws protecting consumers. Apple is known worldwide for its consumer focus. The company is a customer-oriented brand that maintains a strong focus on customer experience and customer service. It has also maintained a strong brand image. Its focus on product quality, innovation and customer experience have continued to strengthen its brand image and customer loyalty. These are some important factors that have helped moderate the bargaining power of Apple customers.

THREAT OF SUBSTITUTES: MODERATELY HIGH

Apple operates in a highly competitive industry environment. The company has several rivals in the international market, and operates in a fiercely competitive industry environment. The focus of its rivals on research and development is very high. Its closest rival Samsung also invest heavily in research and development and is among the top R&D spenders.

There are a large number of brands including Samsung, LG, OPPO, Xiaomi, Lenovo, Huawei and others that produce, market and sell smartphones. However, iPhone is known for its quality, performance and superior experience. Apple has differentiated its products from the ones made by its rivals. Due to the superior quality and performance, threat from the substitutes gets moderated and iPhone remains one of the most popular and best-selling models around the world despite the large price tag.

THREAT OF NEW ENTRANTS: LOW

The threat of new entrants in the smartphone and PC industries is low. The market has grown highly saturated. There are more barriers making entry into the highly lucrative smartphone industry complex. Apart from the high financial costs of entry, there are legal barriers and other barriers, some of which are technical. Apple and Samsung are the largest brands in the smartphone industry and also the most aggressive when it comes to defending their territory against new entrants.

Any company that tries to enter the smartphone, laptop or wearable industries, must have the necessary technical knowhow and be able to make a large financial investment to grow its market share. Apple targets the higher end market and there are not many models that can compete against iPhone except Samsung Galaxy and a few other higher end models made by LG, Xiaomi, and other brands. Apple has been able to establish its clout in the industry by creating its own mobile operating system. All these factors mitigate the threat from the new entrants.

LEVEL OF COMPETITIVE RIVALRY IN THE INDUSTRY: HIGH

The level of competitive rivalry in the industry is very high.  There are many strong players in the smartphone industry with a strong global presence and critical technological capabilities. Apple, Samsung, Huawei, LG and Xiaomi are all market leading brands of smartphones. Apple holds around half of the US smartphone market.

Samsung also enjoys a strong competitive position in the global market and strong sales in its domestic and overseas markets. These brands also focus aggressively on innovation and customer experience. Other factors that are critical to maintain a brand’s competitive position in the industry include brand image, customer experience, marketing, supply chain management, and customer service. Apple enjoys a strong brand image globally and also has other critical capabilities in various areas including marketing, supply chain and sales and distribution. These factors have helped it mitigate the threat of competition. However, analyzing the overall situation in the smartphone industry shows that the level of competition in this sector is fierce.

BUSINESS STRATEGY OF APPLE:

Business strategy is a set of plans, actions, and goals that highlight how a company will compete in a particular market with its product and services offerings.

Apple’s competitiveness in the global market depends on the success of its business strategy.  The company has been hailed worldwide for its excellent management of its business operations in all areas from supply chain management, to HR, marketing, distribution and store operations.

Apple’s excellent capabilities in most areas including technology, production and supply chain are considered matchless. However, business strategy is a very critical thing and to achieve the desired objectives using resources and capabilities, it is important to focus on business strategy.

The core focus of Apple’s business strategy is fast paced innovation and superior customer experience to achieve stronger growth momentum and higher profitability.  The company invests heavily in research and innovation. However, at the same time, the company also strives to generate the best results from every single R&D dollar it spends.

Another important area where Apple has focused to achieve solid growth and market position is marketing and customer engagement. These are some critical areas where Apple is considered second to none. When it comes to great marketing, Apple has always remained an industry leader. Apple’s marketing strategy is clearly outside the box. Instead of investing only in marketing and promotions, the company has focused on all the areas where it can offer a superior customer experience and grow customer engagement.

Apple has also adopted a great distribution strategy. While at the surface, there is nothing so extraordinary about it, everything in the case of Apple lies somewhere below the surface. In the markets, where the company does not have a solid physical presence, it is using its digital sales and distribution channels for sales, service and customer engagement. However, the efficiency with which the company uses its digital resources and capabilities to maximize customer satisfaction is amazing. The company has thus been able to maximize sales, profitability, customer loyalty, and customer satisfaction.