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Apple Inc: Into the Fifth Decade -2018

On November 1, 2018, Tim Cook, Apple Inc’s CEO, announced the fourth quarter results for
fiscal 2018 and remarked that the results were the best in terms of delivering double digit
growth in every geographical segment the company was operating in. According to him the
performance of the company was the strongest ever in the history of the company. The total
revenue of the company at the end of fiscal 2018 had increased from $229 billion in 2017 to
$265 billion. The gross margin had increased from $88 million to $102 million while the net
income had increased from $48.4 billion to $59.5 billion during the period against the
shareholders equity of $134 billion and $128 billion in 2018 and 2017 respectively. He also
mentioned that the company had shipped the 2 billionth iOS device and celebrated the tenth
anniversary of the App Store. The prospects for the future were governed by the market
response to a series of new product launches announced by the company two months earlier.
Between January and October 2018, the company had introduced HomePod – home speaker
system to compete with Amazon’s Alexa and Google’s home speaker. On October 30, 2018,
the company had launched the all screen version of iPad Pro with features like Liquid Retina
Display, A12 bionic chip, meant for supporting powerful, creative and mobile computing.
The company promised that it would will push what users could do on a computer further
than ever before. Two months prior to the end of the fourth quarter of 2018, the company
had announced new versions of iPhone, Apple Watch, iPad and Mac to gain and sustain
competitive superiority. For example, three versions of iPhone X – iPhone X(s), iPhone
XsMax and iPhone X(r) not only augmented the screen size but also provided for dual SIM.
The additional features in MacBook Air were Retina display, built-in FaceTime HD camera
and a three-microphone array and improved voice recognition for Siri. Apple watch series 4
aimed primarily at fitness and sports seekers, offered benefits like fall detection a nd ECG
monitor. Apple powered all its launches with its own operating system iOS. With each
additional feature, Apple attempted to scale new positions in pricing its products. The new
iPhone X versions of X(s) and XsMax and X(r) were priced at $999, $109 9. iPhone X(R)
was promoted as an affordable iPhone X. The basis model with 64GB storage capacity was
priced at $749. MacBook Air was priced at $1199. See Table 1 for the variations in the price
of iPhone over the years.
Apple was ranked as the world’s most valuable brand in the world with market capitalisation
exceeding US$1trillion. The company employed 123,000 full-time employees and
maintained 504 retail stores in 24 countries. It also sold its hardware products through
resellers and third-party retailers. Apple had sold more than one billion iPhones worldwide
between 2007 and 2018. In 2017 it had sold 216 million units worldwide against 231 million
units sold in the previous year. In 2012 the global sales were 125 million units. By the end of
fiscal 2018 the estimated sales were 217.9 million units.
Despite new launches and technological advances, the sustainability of superior performance
was not assured as the competitors in each of Apple businesses had introduced similar
features and were preparing to catch up. They offered similar features at lower price points.
The other concern in sustaining performance was the trend towards internal cannibalisation.
The desk top computer was being cannibalised by laptop, which in turn was the target of
attack by iPad. The iPad itself was losing its share as the smartphones had begun to support
similar capabilities. Internal cannibalisation was aided by the operating system that was the
same across devices. See table 2 for a perspective of the sales trend in iPad that was launched
in 2010.

Table 1 Price of iPhones over the years

Year Phone Screen Size (Inches) Storage Price
GB
2007 iPhone 3.5 4-8 499
2011 iPhone 4S 4.0 16-64 649
2012 iPhone 5 4.0 16-64 649

2014 iPhone 6/7 4.7 16-256 649

2016 iPhone 5.5 16-256 749
6plus/7plus

2017 iPhone 8 4.7 64-256 699

2017 iPhone X 5.85 64-256 999
2018 iPhone Xs 5.8 64-512 999
2018 iPhone Xs 6.5 64-512 1099
Max
Source: Times of India – September 14, 2018 and Apple website

Table 2
Global Sales of iPad

Year Sales in Millions of Units

2010 8
2011 32
2012 58
2013 71
2014 68
2015 55
2016 46
2017 44
2018 (estimate) 35
The new launches caught on with competition by providing dual SIM feature. Samsung and
all the Chinese manufacturers had introduced this feature earlier than Apple. There were
noticeable price differences between iOS phones and Android phones. See table 3 for a
comparison of the prices over the years. Samsung had continued to maintain its Number 1
position. Samsung had launched Galaxy Note 9 with 128 GB in August at a price of $999.99.
On October 16, Huawei, a Chinese telecom equipment manufacturer had launched Mate 20 in
5.8 inches and 6.5 inches versions with three cameras at the back. Its 64 GB version was
priced at $915. In August 2018, Huawei had become the second biggest seller of
Smartphones in the world. The other Chinese mobile phone manufacturers with brand names
like Mi, Oppo, Xiomi were expected to follow suit with more competitive price offerings. All
of them had developed their product on Android operating system developed by Google Inc.
The competitors in the early businesses of Apple like HP, Dell, Lenovo and Acer were also
matching the features of Apple note books. All the players had established distribution
network across the globe. They developed their computers on intel and windows platforms.

Table 3
iPhone vs Android Phone Average Prices

Year iPhone ($) Android ($)

2008 623 403
2009 600 425
2010 721 425
2011 790 380

2012 750 320

2013 725 275
2014 735 220
2015 750 215

2016 652 208

Source: Times of India, November 2, 2017
Apple Over the Years
Beginning as a hobby computer manufacturer in 1976, Apple had achieved a leading position
as an end to end manufacturer of innovative computation, communication and entertainment
products and provider of core and complementing software and internet service to use them
effectively. It offered products and services ranging from desk top computers, smart watches,
application software and compatible accessories through its online and retail stores to end
consumers, large enterprises, small and mid-sized businesses, educational institutions and
government. It was recognised as a pioneer in introducing distinctly featured smart phones,
tablets, lap tops and music players. According to the management of Apple, the focus of its
innovations in hardware and software were in enhancing its user and use experiences. It
attempted to leverage its abilities to design and develop its own operating systems, hardware,
application software and services. It continued to expand its platform for the discovery and
delivery of digital content and applicationsthrough multiple modes – own investment, joint
ventures and franchises.
Previously called Apple Computer Company, Apple was set up by Steve Jobs, a college
dropout, Steve Wozniak, an electrical engineer with experiences in HP, an electrical
engineering company at that time,and Ronald Wayne, 42, a consultant,on April 1,1976. It
was incorporated as Apple Computer Inc in January 1977. The computer technologies in the
main frame business had developed sufficiently well by that time to enable them to build the
concept of a desk top computer.As the concept materialised and users responded favourably
to it, the company took off and raised funds through an Initial Public Offer (IPO) in 1980. Its
success triggered IBM, a main frame computer manufacturer, to offer a standardised desk top
computer in alliance with Intel Corporation, an electronic chip manufacturer and Microsoft, a
software developer. IBM’s entry was followed by new companies like Compaq that offered
similar products at a lower price. In response, Apple offered a new line of computers called
Macintosh in January 1984 that built on the technology of Graphic User Interface (GUI)
developed in the Palo Alto Research Centre of Xerox Corporation in 1970s. The new line was
offered at a price of $2500as a distinct alternative to the competing models. Despite this, the
sales of Apple did not improve and the company suffered a loss. Steve Jobs was asked to quit
the company as the leader. Subsequent leaders who took charge of the company attempted to
defeature the company’s products, internationalise or enter into collaboration with
competitors to win.Despite these initiatives, the company struggled and suffered a loss of
$1.05 billion in 1997. Steve Jobs was called back to lead the company in 1997. On taking
over, Steve Jobs, galvanised the company to become a ‘cult force’ by introducing new
innovative products like iMac, iPod, iPhone and iPad. They were supported by the company’s
online and brick and mortar stores.He also accelerated the globalisation drive of the
company. Allthrough,Steve Jobs tried to build and sustain a strategy of premium
differentiation. He attempted to enable Apple to develop and offer products and services that
differentiated themselves in terms of design, user friendliness, functionalities, quality and an
overall sense of style and fashion. He expected the customers to pay a premium price for the
same. Steve Jobs died in 2011 and Tim Cook took charge as the CEO. He leveraged the
technologies of Apple and introduced upgradations in operating systems, iPhone, iPad,
MacBook and MacAir.
Future
On November 3, 2017, Apple Inc (Apple) had launched iPhone X, pronounced as iPhone
Ten, with a tag line ‘Say hello to the future’ and marked the tenth anniversary of the launch
of iPhone. Analysts opined that the high price of iPhone X shifted the iPhone series to an
ultra-luxury orbit. Tim Cook, CEO of Apple Inc, defended the high price of iPhone X by
stating that the customers obtained an advantage by trading their earlier versions of iPhone
and getting the promotiona l offers of carriers. According to him buying an iPhone X was
equivalent to buying high quality coffee.
Competitors of Apple, had anticipated the features of the new phone from Apple and
launched their own variants or were preparing to follow Apple. Samsung, a consumer
electronics company from South Korea, had introduced Samsung Galaxy S8 and S8 plus
before iPhone X launch and Google, an American search engine company, had introduced
Pixel 2 as a sequel to Pixel 1. Chinese producers like Xiaomi were expected to introduce their
versions of lower priced smart phone.
When new versions of iPhone X were announced, the initial response of customers to the new
features wasas expected. The pre-order book, built online through e-commerce channels and
offline through Apple’s own stores and the stores of partners across the globe, was as
anticipated. Though there were queues opposite the Apple stores across the world on the day
of the launch, the analysts noted that the ‘frenzy’ over the new launches was not that high.
There were anticipations about the next moves of the competitors. Google, the search engine
major, had earlier introduced Pixel 2 with the promise of the best camera ever under low
lighting conditions and long battery life. Samsung, a diversified electronic appliances and
entertainment company, had introduced Note 9. Nokia, a pioneer in the mobile telephone
space who had suffered a setback in the recent past, had returned to the market with Nokia 8
with similar features. The new Chinese players with brands like Vivo, Oppo, RedMI, Gionee
and Note Plus were expected to announce their latest versions in the less than $400 price
category. The competitors from China offered similar features and nearly half to one third
the price of Apple phones. They sold their phones through both e - commerce and brick and
mortar channels. While Apple functioned on the strength of its operating system iOS 1 2, the
other players relied on various versions of Android, developed by Google. All the key players
had developed their own eco system of component suppliers, application developers and
channel partners. In addition. they also relied on generic eco systems.
Apple faced competition not only in the smart phone market but also in each of its offerings –
operating systems, productivity tools, end use devices, internet services like cloud storage , e-
commerce and education. The competitors were from across the worked. It appeared that
innovations occurring in various aspects of information technology could pose competitive
threats from known and unknown players and also provide opportunities for growth. They
also tended to shorten the life cycle of a new launch, be it features or products. Increasingly
processing power was transferred to the tablet and the smart phone. Software players like
Microsoft and Google had launched their own hardware. Microsoft had launched the fourth
version of ‘Surface’ that competed with both tablets and laptops. The responses of other
computer manufacturers like HP, Dell, Lenovo and Acer were still awaited.
The developments faced by the company in a way mirrored the first two decades of Apple’s
existence when Apple faced competition from incumbents and new entrants. Apple could not
respond effectively to the developments and incurred a loss of $1.05 billion in 1997. With the
current and impending developments in the smartphone and related industries , analysts and
investment advisors were debating whether Apple w ould be able to sustain its superior
performance in the next five years and beyond. Much depended on the nature of competitive
dynamics that would unfold after the launch of new versions of Apple products.