Apple - Case Study (Historical Context)

Jan ’07 – Apple shed’s “computer” from its name, and becomes Apple Inc. (Mac Sales now account for less than half of Apple’s total revenue).

June ’08: Apple earned a net profit of $1.07B on $7.46B, in revenue – 38% increase in YoY quarterly sales.

Total sales in fiscal ’07 – topped $24B, up 24% YoY

However, Apple’s strategic profile remained largely unchanged – Apple’s share of worldwide PC market, peaked at 3%.

Key Question: Was Apple’s recent success just another temporary “up” in it’s up and down history, or had Steve Jobs finally established a sustainable strategy for the company.

Historical Context
1976: Apple Computer – founded in ’76. Jobs was the visionary who sought to change the world through technology.
1978: Apple II is launched – it helped drive PC industry to $1B in annual sales – in less than 3 years. Apple becomes the industry leader, selling more than 100K units by the end of 1980.
1981: IBM enters the PC Market – with the MS DOS operating system (OS), vs. Apple’s proprietary hardware & software (closed syst)
I. BM compatibles grew in popularity, Apple sales slowed and market share dropped to 6.2%
1983/84: Apple launches the Macintosh – breakthrough PC in terms of ease of use, industrial design and technical elegance – but slow processor speed and lack of widely compatible software, limited sales. (net income fell 17% and jobs was removed from his operational role and replaced by John sculley.
1985 – ’93: Sculley focused on making apple a leader in desktop publishing and education.

Competitive Advantage: Superior proprietary software and peripherals – provided extraordinary capabilities in desktop publishing. Sales grew and by 1990 and Apple’s worldwide share stabilized at 8%, $1B in cash and was the most profitable PC maker in the world.

Software/Hardware
Apple practiced horizontal and vertical integration – it designed it’s products from scratch using unique chips, disk drives and monitors. The company also manufactures its own proprietary operating system, application software and hardware peripherals.

This enabled apple to control all aspects of its computer and offer customers a complete desktop solution (hardware, software and peripherals) – at the time the only credible competitor, IBM-compatible machines, could not offer the same level of integration. Apple’s competitive advantage enabled the company to chart a premium price for its products – gross profit was ~50%. IBM-compatibles dropped prices and competed on price points, with the more high end Apple products.

1990: Sculley became CTR & CTO – and strove to move apple to mainstream by offering “products & prices designed to regain market share. That meant becoming a low-cost producer of computers with mass market appeal.
I. Oct ’90: apple shipped the Mac Classic, a $999 computer designed to compete head on with lower priced IBM-clones.
1991: apple launched the PowerBook laptop, to rave reviews
1991: Apple formed an alliance with IBM (Taligent) – the goal was to create a revolutionary new OS @ the cost of $500M. Apple also undertook another cooperative project with Novella and Intel – to rework the Mac OS to run intel chips.
1993: Apple introduced the Newton – a high profile PDA, unfortunately – the product failed

Cost Cutting: Apple tried to cut costs by shifting manufacturing to subcontractors = but profitability still declined. Apples gross margin dropped to 34%, down 14pts from 10 year averages. Sculley was eased out and replaced by Michael Spindler

1993 – ’97: Spindler/Amelio
Back to basics: Spindler tried to reinvigorate Apple’s core markets – (education & desktop publishing), in which Apple held 60% and 80% share, respectively. Spindler killed the plan to put the Mac OS on Intel chips and instead announced that Apple would license a handful of companies to make Mac clones.
II. International Growth became a key objective for Apple – by 1992, 45% of the company’s sales came from outside the U.S.
III. Cut costs: Apple slashed its work force by 16% and reduced R&D spending
Still, apple lost momentum – and by 1995, Intel based PCs were in the ascendancy

1995: Taligent fell through at a cost of ($500M) – and in early ’96, apple reported a ($69M) loss and more layoffs. Splinder was replaced by Gilbert Amelio

1996: Amelio sought to push Apple into high-margin segments – (servers, internet access devices and PDAs).
 Amelio soon declared that Apple would return to its premium-price differentiation strategy.
 Amelio cancelled the Devpt of the proposed new Mac OS, and in Dec ’96, announced that apple would acquire NeXT software and develop an new OS based on the work done by NeXT. (the company started by Steve Jobs, after he was kicked out of Apple
 Amelio led Apple through 3 reorgs and several deep payroll cuts, despite these cost cutting initiatives, apple lost $1.6B on his watch and it’s WW mkt share, dropped from 6% to 3%. The board forced Amelio out and in ‘’97, brought back Steve Jobs as the interim CEIO
1997: August – jobs announced that MSFT would invest $150M & develop MS Office for the Mac.

Steve Jobs – Strategic moves
 He ended the Mac licensing program (Mac clones had reached 20% of Mac sales at that point) and Mac market had fallen to 11%
 He refused to license the latest Mac OS – his belief was that Mac Clones were cannibalizing sales of the Mac Units
 Jobs consolidated Apple’s product range – reducing the number of its lines from 15 to 3

1998: Jobs launches the iMac, in Aug ’98. (low end CPU, CD-ROM drive & modem)
The imac supported key peripherals which were designed for Windows –based machines (previous Macs had required peripherals which were built of the Apple platform only).
Imac sold about 6M units vs. 300M PCs during that same time frame. (2% share).

More Strategic Moves / restructuring efforts
It outsourced manufacturing of Mac products to Taiwanese contract assemblers and revamped its distribution system
Apple eliminated relationships with thousands of smaller outlets & instead built relationships with national chains.
New Distribution Channel: In Nov ’97 apple launched a website to sell its products directly to consumers – for the first time
Internally (jobs worked to streamline operations and reinvigorate innovation – apple pared down its inventory significantly and increased its R&D spending

Brand Image
Jobs also took steps to reenergize apples image – the company started promoting itself as a hip alternative to other computer brands. Jobs had a vision for apple – as a cultural force.