Apple Company and Its Products, Term Paper Example

Background information on your company. When was it founded? By whom?

Apple Inc. was founded by Steve Jobs and his friend Steve Wozniak in 1976. The two individuals had always been interested in the field of electronics and are well renowned for have left school and joining companies operating in the Silicon Valley. In 1976, the company did not receive much recognition and it was in 1977 that Apple Computers became known with their “Apple II” (Apple-History, 2012).

How is your company organized? Who are its major owners?

The company is headed by Tim Cook, who is its CEO. Formerly the company was headed by its co-founder Steve Jobs however his demise saw ex-COO Apple being promoted to CEO. The company’s board comprises of individuals external to the company including Albert A. Gore, who is ex-Vice President of the US and Robert Iger, President and CEO of the Walt Disney Co (Apple plc, 2013).

Where is it located? How many people does it employ?

The corporate hub of Apple’s operations is called the Apple Campus and is situated in Cupertino, California. The corporate centre is designed around spaces of greenery and is shaped as a university. It was constructed in 1993 and covers an area of 0.85 million square feet. The company currently employs in excess of 70,000 workers. In 2012 the company went from a store base of 357 to 390 and future plans aim to open up further stores, a majority of which will be located outside the United States (Golson, 2012).

What type of product(s) is produced?

The company is mainly involved in the electronics business selling consumer electronics used in everyday life for instance audio players, cameras, mobile phones, personal computers and televisions etc. In addition the company also sells computer softwares. Among the well known brands of the company, the “Mac” series of laptops, the iPod music player, the iPhone mobile phone and the iPad tablet are most prominent.

What specific factors influence demand for this product (advertising, weather….)?

Apple operates in the technology sector where the rate of change of products and consumer preferences is frequent. The major demand pulling factor is the features on offer by the products and the price. The advertising also plays a major role in influencing the demand as Apple positions itself as a differentiator in the market.

Name major inputs into production.

The company at present has agreements with various suppliers globally to provide it with the raw materials required to produce its products. Among the various raw materials used, there is plastic, metal, chips, wires and cables etc. One of the major problems that the company faces is that in the market for products designed for mass communication, there is competition over raw materials by other industries that have, in recent years, experienced an upward surge in demand (Apple plc, 2012).

How high would you guess is its average cost of production?

In hindsight it would be difficult to identify what the company’s average cost of production would be considering the company has a vast variety of products. However on a year on year comparison of the cost of sales figure reveals that the cost of sales as a percentage of sales was 60.6% in 2010 which has come down to 56.12% in 2012 (Apple plc, 2012).

What is the current market price?

As of 12^th April 2013, the company’s stock price was $429.8. The traded volume of shares for the company exceeded 8.5 million shares with the highest price during the day going up till $434.15. The beta of the company is less than 1 indicating that the company’s share is less risky compared to the market in which it operates (NASDAQ, 2013).

If they were to increase prices by 10%, would total revenue (sales) increase or decrease in the short run? What does it imply about the price elasticity of demand? Would things be different in the long run?

The total revenue is likely to experience a decrease because the company operates in a price sensitive environment where due to the similar nature of the products on offer, the consumers tend to bend decisions based on prices. The demand for the products is therefore very elastic and in the long run, things are likely to remain the same unless the company comes up with products that the competition does not offer.

Is this a profitable product for the firm? Do you think it will remain profitable for a long time?

An analysis of the company’s entire product range reveals that all of its products have experienced a positive growth in sales with the highest revenue flowing in from the sale of the iPhone smart phone (51% of total sales). The iPad was finished second with a 21% share of total sales while a 15% share was taken up by the sales of Mac computers (Apple plc, 2012).

What kinds of strategies is the firm pursuing in order to stay competitive–cutting prices, increasing promotion, advertising, lowering costs?

In recent years, the firm has adopted a strategy of cutting prices i.e. initially with the release of the iPhone, a premium price was charged however it was cut down to meet the prices offered by the competition. In addition, the company has outsourced most of its value chain resulting in lower operating costs and also focuses on advertising as a means of continuing to position itself as a differentiator.

Does technological progress impact its products/processes?

Technological progress is probably the most important determinant of performance for Apple and the entire industry. The company has to keep up with the changes in technology and has to alter its products accordingly in order to keep its market share up. In terms of processes, the company has outsourced most of its work abroad resulting in a loss of control over the production and distribution of products.

Who are its major direct competitors?

The company faces direct competition from companies like HTC, Samsung and Nokia in the smartphones market. In addition, in the personal computers market, the major competitors are Samsung, HP and Dell etc. The company also faces competition from Toshiba and Samsung in the market for tablets. The company’s operating software faces competition from Microsoft’s Windows. All these factors indicate that the company operates in a highly competitive market.

How many sellers and how large are firms in the industry?

There are a number of different sellers in the market across which Apple operates including the smartphones, personal computers, tablets and operating systems markets. If we take up the Smartphone industry in particular, the major competitors include Samsung who has a P/E ratio of 9.8 compared to HTC who has P/E ratio of 17.5. Samsung reported revenues of $247.5 billion in 2011 compared to HTC who reported revenue figures of $9.4 billion (Samsung, 2012).

Who are the buyers in this industry, where are they located?

Apple operates in an industry where the buyers are located globally. The company operates in the mass consumer market and the products are bought and sold in different parts of the world. The products are designed for individual users and therefore the scope for corporate services is limited.

Do all firms produce identical or somewhat different products? How important is product differentiation?

Although all companies strive to differentiate their products based on the features however competitors catch up making it difficult to retain a differentiator status. Apple has been able to do that for several years because its products and product features in particular have remained unmatched. However changing times perceive the Smartphones market to be heading towards Android technology which may lead Apple to lag behind (NASDAQ, 2013).

What are the barriers to entry for new firms in this industry?

The industry is highly saturated with established players operating on a global scale. This makes the industry difficult to penetrate into because the consumers have made selected choices and tend to stick by their brand. In addition, the technology industry is capital intensive which acts as a major barrier to entry. Other barriers to entry include higher fixed costs requiring economies of scale approach to sales. In addition, frequent need for product differentiation also acts a deterrent for new entrants.

Is the industry perfectly competitive, monopolistically competitive, oligopoly or monopoly? Why do you think so?

The industry is fairly competitive because there is a large number of market participants each striving to achieve a higher market share. In the recent years, the market has seen that no company is large enough to dominate the industry in anyway resulting in competition and policies developed towards achieving value in production, excessive sales and better after sales support.

What pricing strategies do firms in this industry use? Price discrimination, predatory pricing, limit pricing, collusion? Do all of the firms tend to raise or lower their prices together or not?

The company has adopted various pricing strategies over time including skimming product prices and / or making use of price discrimination. The pricing leader in the market is the one who is able to bring out the latest product first. This sets a tone of the pricing to be held in the market however prices are eventually reduced to match what competitors are offering simply to remain competitive since pricing is also a factor considered heavily by the consumer (Sliwinska, et al., 2012).

Are there merger activities in the industry? Why?

Recent times have not seen any mergers or acquisitions in the industry. Business formations largely occur in industries where larger players buy out smaller players or where two equally sized companies combine to operate bigger. In the technology market, all the companies are different with different operating styles and management. The competition disallows the companies to merge together.

Have there been any antitrust violations by the selected firm or other major firms in the industry? What type of violations?

Apple was in fact charged with antitrust violations and was sued by the US for have had colluded with e-book publishers MacMillan for raising prices of the e-books. The move was targeted at breaking the market share of Amazon.com. The Justice Department believed that the pricing agreements between the two companies were set in a way that sought to increase the competition in the market for e-books (Voris, 2012).

Bibliography

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Samsung, 2012. Samsung Profile 2012. [Online]
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Sliwinska, D., Ranasinghe, J. & Kardava, I., 2012. Apple’s Pricing Strategy. [Online]
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Voris, B. V., 2012. U.S. Files Antitrust Lawsuit Against Apple, Hachette. [Online]
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