International Business Project - Apple Inc - Case Study Example

International Business Project (Apple Inc.) Student’s Name Institution’s Name Date Executive Summary Apple Inc. is an international technology company that is involved in marketing, manufacturing, and designing personal computers, media and communication devices, as well as portable digital music players. Apple was established in 1976 by Steve Jobs and two co-founder; Ronald Wayne and Steve Wozniak. Apple was incorporate in 1977 as Apple Computer Inc. The company later shifted its interest to consumer electronics. The company produces a wide range of products that include Mac PC, iPod, iPad, iPhone, Apple TV, Apple Watch, iTunes media player, iOS and OS X operating system, iCloud, and Mac App Stores, among others products and services. The company headquarters are situated in Cupertino, California, US, though it operates in various parts of the world that include Asia, and Europe. Apple has managed to establish over 254 stores in international countries and to make more sales via its online stores. Apple Company has gain popularity based on its innovative nature and for being the inventor of touch pad technology. The company is well known for its iPhone brands as well as other portable gadgets. Apple products are doing moderately good in the market. Although the company is experiencing stiff competition in the market, the company has been experiencing a continuous increase in its revenue and thus total sales in the last five years. Apple PC products are ranked fourth in the international market, in an industry dominated by Lenovo, HP and Dell. Its OS is ranked second in the PC industry after Windows. However, the company is failing quite well in smartphone industry where it is ranked second after Samsung and where it is recording a considerable increase in its market share as Samsung continuous to lose. Apple is also ranking second in the smartphone OS market after Google Android which is dominating the market. However, Apple has managed to surpass Microsoft with its Windows phone OS. Apple is performing fairly well financially. The company has managed a continuous increase in its revenue for the last five years. The company has been recording good net income, though with a slight decline in 2013, a situation that was later corrected. The company has a high current ratio; greater than one, for the last four years, though, this ratio keeps on fluctuating and sometimes going quite low. The company debt ratio also keeps on increasing year after year which is a clear indication that the company is currently depending more on debts than other sources of capital. The company has an average gross profit margin of around 40% and average net profit margin of around 23%. Although the two keep on fluctuating, the recent trend shows an improvement. Moreover the fluctuation margin is minimal and thus, the company can be considered to be financially stable. International Business Project (Apple Inc.) Apple Products Apple Inc. is involved in the marketing, manufacturing, and designing of mobile media and communication devices, portable digital music players, personal computers, and selling of different related software, networking solutions, peripherals, services and third-party digital applications and content (Market.ft, 2016). The Company’s main services and products include Apple TV, Apple Watch, Mac, iPhone, iPod, iPad, Mac Store, and customer portfolio. It also sells professional application software, iCloud, the OS X and iOS operating systems, and a number of accessories, support and services offering Apple also sells other different application software that include Logic Pro, Logic Studio, Final Cut Pro and FileMake Pro software (Reuters, 2016). Apple Industry Apple Company has a wide range of products which makes it fit in various industries that include computer hardware, computer software, and electronic equipment. However, it is common categorized in electronic equipment industry as way of generalizing its operation. This wide range of operation makes the company to experience different level of competition from different companies locally and internationally based on the competitor line of operation. For instance the company main competitors in computer hardware manufacturing include Lenovo, Hewlett-Packard (HP), Dell, Asus and Acer among others. The company main competitor in mobile computer and smartphones industry include Nokia, Samsung, Sony, Lenovo, Huawei, LG, and HTC among others. In software industry, the company’s major competitors include Microsoft for computer operating systems and application, and Google with Android, and Microsoft with Windows in smartphone operating system (Bloomberg, 2016). Apple Competitive Position in the Market Apple brand has been very competitive in the market. Although the company has been experiencing stiff competition from other companies in various categories, the company has continuously managed to secure a reasonable market shares. In the PC market, the sales of Mac PC declined by 3.4% in 2015 third quarter. Based on a comparison provided by Owens (2015), for the third quarter of 2014 and 2015, there was decline in PC market shares worldwide from what was recorded in 2014 to what was sold in 2015. Nevertheless, the PC industry is still dominated by other giant companies that include Lenovo, HP and Dell, and Apple has only managed to secure the fourth position in this market. Similarly, Microsoft wins in the PC market as compared to Apple iOS since all other computers operates using Windows as their main OS. Apple only secures 7.5% of the market and thus, it still has a long way to go. Below is an illustration of the PC market situation for the third quarter in 2014 and 2015 (Owens, 2015) Figure 1: PC Market Share Comparison for the 2014 and 2015 3Q Apple secures most of its income from smartphone sales. Although the company is experiencing competition from Samsung which uses Google Android OS, it has managed to surpass Nokia that runs in Microsoft Windows OS. The smartphones market is currently dominated by Samsung phones, though it is facing fierce competition from Apple, which is ranked second in the market. Apple is currently gaining more smartphone market share as Samsung lose a portion of its market share based on 2015 statistics. Nevertheless, Apple is also facing stiff competition from other companies such as Huawei and Xiaomi who are also securing more shares with time. Below is an analysis of the companies’ performance in the smartphone market for the last four years (IDC, 2015). Period Samsung Apple Huawei Xiaomi Lenovo* Others 2015Q2 21.4% 13.9% 8.7% 5.6% 4.7% 45.7% 2014Q2 24.8% 11.6% 6.7% 4.6% 8.0% 44.3% 2013Q2 31.9% 12.9% 4.3% 1.7% 5.7% 43.6% 2012Q2 32.2% 16.6% 4.1% 1.0% 5.9% 40.2% Based on this analysis, it is clear that Samsung has been constantly losing its market share as other companies such as Huawei and Xiaomi experience a constant increase in their market share. Apple on the other hand has not been very stable in its trend though, it recorded an increase in its market share in 2015 by 2.3% as compared to what was documented in 2015. With regard to the smartphone OS, Google Android has managed to dominate the market since it has been favored by all other smartphone producers other than Apple and Nokia. Nevertheless, Apple has managed to surpass Microsoft in the smartphones OS business. Below is analysis of smartphone OS market domination for the last four years (IDC, 2015). Period Android iOS Windows Phone BlackBerry OS Others 2015Q2 82.8% 13.9% 2.6% 0.3% 0.4% 2014Q2 84.8% 11.6% 2.5% 0.5% 0.7% 2013Q2 79.8% 12.9% 3.4% 2.8% 1.2% 2012Q2 69.3% 16.6% 3.1% 4.9% 6.1% Financial Performance Apple Company demonstrates a healthy financial performance. The company revenue demonstrates a positive trend for the last five years. This is demonstrated in the graph below: Figure 2: Company Revenue for the Last 5 years Nevertheless, the company has shown some irregularity in the net income growth. There was a slight decline in the company’s net income in 2013, a year after the death of its main founder and the then CEO Steve Jobs. This could have been attributed by management issue that resulted to increase in the company operation cost than usual. Nevertheless, the company has been able to recover from this shock and it has regained it positive net income growth trend in the following years. This is demonstrated in the graph below (Yahoo Finance, 2016): Figure 3: Company Net Income for the Last 5 Years Other Indicators for company financial performance will be demonstrated using financial ratios. Profitability Ratios The company gross profit margin for the last 5 years, which is computed as gross profit divided by the company’s revenue, is provided below (Morning Star, 2016): years 2011-09 2012-09 2013-09 2014-09 2015-09 gross Profit 43818 68662 64304 70537 93626 Revenue 108249 156508 170910 182795 233715 Gross Profit Margin 0.404789 0.438712 0.376245 0.38588 0.400599 Gross profit margin in % 40.5 43.9 37.6 38.6 40.1 The company net profit margin for the last 5 years is provided below. This is computed as the company net profit divided by the company’s revenue. years 2011-09 2012-09 2013-09 2014-09 2015-09 Net income 25922 42733 37037 39510 53394 Revenue 108249 156508 170910 182795 233715 Net Profit Margin 0.239466 0.27304 0.216705 0.216144 0.228458 Net profit margin in % 23.9 27.3 21.7 21.6 22.8 The Company Liquidity Ratio The company liquidity for the last five years will be measured by current ratio. Current ratio is computed by dividing the current assets with current liabilities. The current ratios for the five years are provided below years 2011-09 2012-09 2013-09 2014-09 2015-09 current Assets 44988 57653 73286 68531 89378 Current Liabilities 27970 38542 43658 63448 80610 Current Ratio 1.608438 1.495849 1.678639 1.080113 1.108771 The Company Debt Ratio The company debt position for the last five years will be measured by computing the debt ratio. Debt ratio is computed by dividing the company total liabilities with its total assets. This is provided below (Morning Star, 2016): years 2011-09 2012-09 2013-09 2014-09 2015-09 Total Liabilities 39756 57854 83451 120292 171124 Total Assets 116371 176064 207000 231839 290479 Debt Ratio 0.341632 0.328596 0.403145 0.51886 0.58911 Based on this analysis, the Apple Company shows at least an average of 40% gross profit margin. Although there is a decline in 2013, the company recovers almost immediately. A similar situation is observed in net profit margin. The trend shows that the company has an assurance of earning at least 40% of its revenue as gross profit every year. The company current ratio is above one. This shows that the company has enough liquid cash to handle its daily expenses. However, its current ratio keeps on fluctuating year after year, which is not very positive. In this regard, the company should keep on guarding its performance to ensure that its current ration does not go below 1. The company debt ratio keeps on increasing. Currently the company liabilities are more than 50% of its current assets, to ensure healthy financial performance, the company should consider reducing its dependency on debts. However, the company generally demonstrates a stable and healthy financial situation. Level of Foreign Operations Apple is an international company that sells its product globally via its online and retail stores. The company operates over 254 retail stores internationally and more than 260 retail stores in the United States. Apple sells around 36% of its product in the domestic market; US market. The rest of the products are sold in the international market. It international markets include Asia/Pacific which offers 6% market, Japan that offers 8% , China with 16% and Europe that offers 22% market to Apple products (Vault, 2016). References Bloomberg. (2016). Apple Inc. (AAPL: Consolidated issue listed on NASDAQ global select). Company description. Retrieved from < http://www.bloomberg.com/research/stocks/snapshot/snapshot_article.asp?ticker=AAPL> IDC. (2015). Smartphone OS market share, 2015 Q2. Retrieved from < http://www.idc.com/prodserv/smartphone-os-market-share.jsp> Market.ft. (2016). Apple Inc. APPL: NSQ. Retrieved from < http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=AAPL:NSQ> Morning Star. (2016). Apple Inc. AAPL. Retrieved from < http://financials.morningstar.com/balance-sheet/bs.html?t=AAPL®ion=usa&culture=en-US> Owens, J. C. (2015). Apple outperforms windows in struggling PC market. Retrieved from < http://www.marketwatch.com/story/apple-shines-in-otherwise-dismal-pc-market-2015-10-08> Vault. (2016). Apple Inc. Retrieved from < http://www.vault.com/company-profiles/computer-hardware/apple-inc/company-overview.aspx> Yahoo Finance. (2016). Apple Inc. AAPL. Retrieved from < https://finance.yahoo.com/q/pr?s=AAPL+Profile> Read More