Apple Inc. and its Products and Services

Introduction

Apple Inc. (Apple) designs, manufactures, and markets a range of personal computers, mobile communication, and media devices, and portable digital music players, and sells a range of related software, services, peripherals, networking solutions, and third-party digital content and applications.

Its products and services include Macintosh (Mac) computers, iPhone, iPad, iPod, Apple TV, Xserve, a portfolio of consumer and professional software applications, the Mac OS X and iOS operating systems, third-party digital content and applications through the iTunes Store, and a range of accessory, service and support offerings. The Company sells its products globally through its retail stores, online stores, direct sales force, and third-party cellular network carriers, wholesalers, retailers, and value-added resellers.

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As of September 25, 2010, the Company had opened a total of 317 retail stores, including 233 stores in the United States and 84 stores internationally.

Opening Case

Apple reveals the iPhone Macworld San Francisco—January 9, 2007—Apple® today introduced iPhone, combining three products—a revolutionary mobile phone, a widescreen iPod® with touch controls, and a breakthrough Internet communications device with desktop-class email, web browsing, searching, and maps—into one small and lightweight handheld device.

iPhone introduces an entirely new user interface based on a large multi-touch display and pioneering new software, letting users control iPhone with just their fingers. iPhone also ushers in an era of software power and sophistication never before seen in a mobile device, which completely redefines what users can do on their mobile phones.

“iPhone is a revolutionary and magical product that is literally five years ahead of any other mobile phone,” said Steve Jobs, Apple’s CEO. We are all born with the ultimate pointing device—our fingers—and iPhone uses them to create the most revolutionary user interface since the mouse. ” iPhone is a Revolutionary Mobile Phone iPhone is a revolutionary new mobile phone that allows users to make calls by simply pointing at a name or number. iPhone syncs all of your contacts from your PC, Mac®, or Internet service such as Yahoo! so that you always have your full list of up-to-date contacts with you.

In addition, you can easily construct a favorites list for your most frequently made calls, and easily merge calls together to create conference calls. iPhone’s pioneering Visual Voicemail, an industry first, lets users look at a listing of their voicemails, decide which messages to listen to, then go directly to those messages without listening to the prior messages. Just like email, iPhone’s Visual Voicemail enables users to immediately randomly access those messages that interest them most.

The phone includes an SMS application with a full QWERTY soft keyboard to easily send and receive SMS messages in multiple sessions. When users need to type, iPhone presents them with an elegant touch keyboard that is predictive to prevent and correct mistakes, making it much easier and more efficient to use than the small plastic keyboards on many smartphones. iPhone also includes a calendar application that allows calendars to be automatically synced with your PC or Mac. iPhone features a 2-megapixel camera and a photo management application that is far beyond anything on a phone today.

Users can browse their photo library, which can be easily synced from their PC or Mac, with just a flick of a finger, and easily chooses a photo for their wallpaper or to include in an email. iPhone is a quad-band GSM phone which also features EDGE and Wi-Fi wireless technologies for data networking. Apple has chosen Cingular, the best and most popular carrier in the US with over 58 million subscribers, to be Apple’s exclusive carrier partner for iPhone in the US.

iPhone is a Widescreen iPod Phone is a widescreen iPod with touch controls that lets music lovers “touch” their music by easily scrolling through entire lists of songs, artists, albums, and playlists with just a flick of a finger. The album artwork is stunningly presented on iPhone’s large and vibrant display. iPhone also features Cover Flow, Apple’s amazing way to browse your music library by album cover artwork, for the first time on an iPod. When navigating your music library on your iPhone, you are automatically switched into Cover Flow by simply rotating your iPhone into its landscape position. The phone’s stunning 3. 5-inch widescreen display offers the ultimate way to watch TV shows and movies on a pocketable device, with touch controls for play-pause, chapter forward-backward, and volume.

iPhone plays the same videos purchased from the online iTunes® Store that users enjoy watching on their computers and iPods and will soon enjoy watching on their widescreen televisions using the new Apple TV™. The iTunes Store now offers over 350 television shows, over 250 feature films, and over 5,000 music videos. iPhone lets users enjoy all their iPod content, including music, audiobooks, audio podcasts, video podcasts, music videos, television shows, and movies. iPhone syncs content from a user’s iTunes library on their PC or Mac and can play any music or video content they have purchased from the online iTunes store.

iPhone is a Breakthrough Internet Communications Device iPhone features a rich HTML email client which fetches your email in the background from most POP3 or IMAP mail services and displays photos and graphics right along with the text. The phone is fully multi-tasking, so you can be reading a web page while downloading your email in the background. Yahoo! Mail, the world’s largest email service with over 250 million users, is offering a new free “push” IMAP email service to all iPhone users that automatically pushes new email to a user’s iPhone, and can be set up by simply entering your Yahoo! name and password. iPhone will also work with most industry-standard IMAP and POP-based email services, such as Microsoft Exchange, and Apple.

Mac Mail, AOL Mail, Google Gmail, and most ISP mail services. iPhone also features the most advanced and fun-to-use web browser on a portable device with a version of its award-winning Safari™ web browser for iPhone. Users can see any web page the way it was designed to be seen, and then easily zoom in to expand any section by simply tapping on iPhone’s multi-touch display with their finger. Users can surf the web from just about anywhere over Wi-Fi or EDGE, and can automatically sync their bookmarks from their PC or Mac. The phone’s Safari web browser also includes built-in Google Search and Yahoo! Search so users can instantly search for information on their iPhones just like they do on their computers.

iPhone also includes Google Maps, featuring Google’s groundbreaking maps service and iPhone’s amazing maps application, offering the best maps experience by far on any pocket device. Users can view maps, satellite images, and traffic information and get directions, all from iPhone’s remarkable and easy-to-use touch interface. iPhone’s Advanced Sensors Phone employs advanced built-in sensors—an accelerometer, a proximity sensor, and an ambient light sensor—that automatically enhance the user experience and extend battery life. iPhone’s built-in accelerometer detects when the user has rotated the device from portrait to landscape, then automatically changes the contents of the display accordingly, with users immediately seeing the entire width of a web page or a photo in its proper landscape aspect ratio.

iPhone’s built-in proximity sensor detects when you lift iPhone to your ear and immediately turns off the display to save power and prevent inadvertent touches until iPhone is moved away. The phone’s built-in ambient light sensor automatically adjusts the display’s brightness to the appropriate level for the current ambient light, thereby enhancing the user experience and saving power at the same time.

Competitor Analysis

Market Share by OS Nokia still has a third of the overall mobile phone market. The average selling price of a Nokia Smartphone fell by 21% from 2009. Nokia is selling plenty of devices, but they are at the cheap end of the market. They lost what some in the industry refer to as "mindshare" to Apple's iPhone and the Google Android mobile software platform. Nokia wants to sell services - music, maps, and applications - as well as hardware but high-end phone users, are looking elsewhere.

The company says a new family of smartphones, led by the N8 released in 2010, will revive its fortunes at the top end of the market. Nokia chief executive Stephen Elop was forced to abandon the mobile phone giants in September 2010. The news that the Finnish firm might only break even in the second quarter of this year slashed 25 percent off its value in 24 hours. Mobile phone manufacturer Nokia has announced it will shed 7,000 jobs from next year as part of a plan to refocus the company on Smartphones. The Finnish firm is moving from Symbian to Microsoft's Smartphone technology.

The firm recently confirmed the deal with Microsoft last week to jointly develop Smartphone technology, which will cut costs by about 1bn Euros a year. Under the terms of that deal, Nokia agreed to start using Microsoft's operating system on its Smartphone instead of its own Symbian platform. Nokia's response to the Smartphone threat from competitors such as Apple's iPhone and phones using Google's Android system has been long been a key investor concern. Prior to the iPhone, Nokia was the king of mobile handsets. Now its share of the Smartphone market has plunged from 47 percent to 27 percent.

It has also lost its ranking as the largest handset maker in terms of revenue to Apple. Android When Google decided to get into the Smartphone business it decided that Android devices would be everything that the iPhone was not. Apply one or two handsets and Google on the other hand was laying out a great number of handsets. Manufacturers such as HTC, LG, and Motorola could use the new operating system for free. It enabled Google to have phones for every section of the market - high-powered and pricey, cheap and practical. Android's real selling point would be the apps.

Here too, the policy was one of openness. Apple controlled its App store controlling every submission and rejecting those that contravened its rules. For Android, anyone who had written an app could upload it. At first, users and app developers welcomed the free-and-easy approach. However, some have begun to question if Google's policy for the apps is the best way to manage the Market. Three years after its launch, hardware sales are booming. Yet sales of Android apps remain relatively poor. Estimates of Apple’s App store in 2010 were 1 billion. Android Market managed just 62 million. The figure was lower than both Blackberry App World (100m) and Nokia's Ovi store (64m). Research predicts massive improvements for Android by this time in 2012 but it is still expected to lag far behind iOS. Finally, Android's market share grew to surpass the Symbian platform used by Nokia making it the most-sold Smartphone Microsoft Microsoft market share is declining in the Smartphone platform market. Windows Phone 7 lacks a number of features despite the innovation of its user interface.

Microsoft hopes to gain market share once Nokia Windows Phones and its wide-ranging “Mango” software update get released later in 2011. Microsoft has unveiled the first major update to its Windows Phone 7 operating system it launched in 2010. The update, codenamed Mango, introduces more than 500 changes. Microsoft’s attempts to break into the Smartphone race have been mediocre at best. Currently, the company controls less than 4% of the market. Despite this, Microsoft’s Windows Phone 7 platform is forecasted to beat Android in 2013.

Microsoft introduced Pocket PC in 2000, followed by Windows Mobile in 2003, prior to Apple and Android's release. However it still failed to compete in the market, or rival Symbian who controlled nearly 90% of the market share. Microsoft lacked the features and compatibility that Symbian was featuring at the time, and as a result, consumers refused to recognize its product or give Microsoft the opportunity to be a contender in the Smartphone industry. The platform was notoriously sluggish and the most difficult of any platform to use. Microsoft tried to solve some of these issues with minor tweaks and software updates over the years to little or no avail.

As Windows Mobile market shares continued to decline, Microsoft had no other option than to overhaul the Microsoft platform and launch Windows Phone 7 in 2010. Windows Phone 7 was much improved. But Microsoft still failed to take control of the market, or garner any real significant attention from consumers. RIM Research In Motion has given up more ground to Apple and Google in the hypercompetitive Smartphone market, a report shows, while two brokerages cut their price targets for the BlackBerry maker on concerns it can no longer keep pace. The latest figures dropped RIM from second to third place. The Canadian company's struggle to compete is unlikely to get any easier, with Apple's upcoming iCloud service expected to hurt RIM.

Sales Analysis

Apple produced some stellar results: revenues up 48% year-on-year to $13. 5bn, and profits are up. The process is confusing because Apple has begun restating its year-ago earnings, to take into account the fact that it now recognizes income and revenue from subscription-based products such as the iPhone(which may be sold on an 18-month contract) as soon as it gets it, rather than deferring it over the life of the device/contract as it used to.

It began doing that in the most recent quarter, covering Christmas, which - confusingly - is the first quarter of its financial year. So previously, the second-quarter revenues were $8.16bn, not the newly-restated $9.08bn; the profits were $1. 21bn, not the now-given figure of $1. 62bn. The numbers also don't include the iPad, because the quarter ended on March 31 - the iPad was launched three days later. According to MacJournals, which chewed over the numbers, "At $5. 445 billion, iPhone sales accounted for 40% of Apple's revenue. All Mac sales were 28%, and all iPod/Music sales were 24%. Mac sales are 2.943m units, generating revenue of $3. 76bn - which Apple says was 33% year-on-year growth, compared to market growth of 24%.

The company's market share of mobile subscribers has also taken a deep plunge. Market research firm comScore says that between October and January, Microsoft's share of the market fell from 19. 7% to 15.7%. RIM, the maker of the BlackBerry, remained the leader, growing from 41.3% to 43%. Apple's iPhone increased slightly, from 24.8% to 25.1% and Google's Android grew by more than 250%, going from 2.8% to 7. An interesting analysis comes from Tomi Ahonen, a former Nokia executive. "I am writing the first history of the once-iconic iPhone, written now in early April 2010, before Apple released its first-quarter earnings for 2010. This is literally the peak of the short reign that Apple's iPhone had as the most emulated Smartphone. […] And mark my words, the numbers are now very clear, Apple's market share peak among smartphones, and among all handsets, on an annual basis, is being witnessed now. "

Profitability Analysis

Apple reported in the second quarter of 2011 that net income rose 95 percent, to $5.9 billion, or $6.40 a share, from $3.07 billion, or $3.33 a share, in 2010. Revenue climbed 83 percent, to $24.67 billion, from $13.5 billion. The profit margin in 2011 is 22. 36% of the sales which is an improvement over the level the company achieved in 2010. The company’s return on equity is 38. 78% while in 2010 it was 26.2% which means that there is a 12.58% increase in the return on equity. The gross margin is 39.07% which is slightly better than the company achieved in 2010.

Demand, Cost, and Pricing

Demand Apple’s iPhone Supply and Demand Concept of Supply and Demand There is a general rule in economics that if the price of a certain good or service rises, then the demand for such good or service declines. If the price decreases, then potential demand also increases (inverse relationship). On the supply side, if the price of a good or service increases, then firms will be willing to supply the market with a higher volume of such a good or service.

If the price decreases, then firms will cut their supply of the good or service (positive relationship. The market then adjusts the price of the good or service in order to satisfy both the consumers and the suppliers. This is called market equilibrium. Apple iPhone Demand Last July, Apple iPhone was able to outsell all smartphones in the United States. It almost equaled the sales of the most popular feature phone, giving it a relatively stable position in the market.

New Apple handset models accounted for almost 1 . of all phone handset sales in the US for about a month. It was estimated that the demand for Apple iPhone was rising at 7.2 a month, equivalent to about 5 million units of quantity demanded. The market research firm iSuppli noted “This is a remarkable accomplishment for Apple, considering that July marked the first full month of sales for the iPhone. While iSuppli has not collected historical information on this topic, it’s likely that the speed of the iPhone‘s rise to competitive dominance in its segment is unprecedented in the history of the mobile-handset market.

In short, an almost unexpected rise in demand for the Apple iPhone was unaccounted for by many experts, including of which are some of its competitors. The same research firm also noted that the survey revealed that almost 57 of iPhones (bought in July ) were purchased by US consumers. Most of the consumers are aged 17-35. Almost 52 of the consumers of this product are male, and about 48 are female, revealing an almost equal propensity to consume the product among the sexes. Added to that, iSuppli noted that 62 of the consumers of the product are actually college graduates or those with graduate courses.

Nonetheless, the same research firm noted that “some of the iPhone‘s success in July can be attributed to pent-up demand following months of hype (stagnant demand). The real proof of success will come in the coming months as demand patterns stabilize. This prediction was almost accurate when the demand for iPhones was almost rising at 8 per month (month of June). Cost Apple's iPhone 4 smartphone, for which it's charging at least $500 at retail, is built of parts that cost $187. 51, according to market research firm Isuppli.

According to the tear-down, the most expensive part of the iPhone 4 is the 3.5-inch LCD screen which costs $28. 50. Isuppli thinks that the iPhone 4 screen must be identical to the one made by LG. It seems that Apple has managed to keep its parts cost at about $170 to $180 per unit. Isuppli's cost estimate doesn't include labor, shipping, advertising, software development, or patent licensing. The cost is based on a 16GB version of the iPhone 4 but the low costs of each component are fairly staggering. The Apple A4 processor reportedly is made by Samsung Electronics for $10.75 per chip.

Isuppli thinks that Geneva-based STMicroelectronics supplied the gyroscope chip at an estimated cost of $2.60, as well as an accelerometer chip used in previous iPhone versions, which has an estimated cost of 65 cents. Other component suppliers named by Isuppli include Skyworks, a wireless chipmaker, and TriQuint Semiconductor. In 2009, Isuppli estimated that the components and materials used in the iPhone 3GS cost about $179. Since then Isuppli thinks that the materials costs for that model have fallen to $134. Thus the iPhone 4 costs a bit more to make than the earlier model.

Of course, this means that Apple's gross margin on the hardware in iPhones is extremely high. The actual price margin gets obscured by the fact that AT&T heavily subsidizes the phone in the US for about what it costs to manufacture. However, the real winner is Apple, which does not have to pay for the cost of manufacture and still takes home about three times iPhone 4 production costs, on average. Pricing Because the iPhone price is entirely set by Apple, it makes an interesting case study on how much the price of technology drops over time.

The official price of the iPhone periodically drops, as shown in the table below. But, there are no sales and a new iPhone is never sold for less than the official price. (There are occasionally sales on the refurbished iPhones for example on black Friday the refurbished 3GS was sold for $50. 00 instead of the usual $150. 00.)

Pure competition, Monopolistic Competition & Oligopoly

Apple Inc. planned to begin producing this year a new iPhone that could allow U. S. phone carriers other than AT&T Inc. to sell the iconic gadget, said people briefed by the company. The new iPhone would work on a type of wireless network called CDMA, these people said. CDMA is used by Verizon Wireless, AT&T's main competitor, as well as Sprint Nextel Corp. and a handful of cellular operators in countries including South Korea and Japan. The vast majority of carriers worldwide, including AT; T, use another technology called GSM. With Apple developing a phone with CDMA capability, its exclusive U. S. arrangement with AT; T dating to 2007 appears set to end. Verizon Wireless, owned by Verizon Communications Inc. and Vodafone Group PLC, declined to comment. An AT; T spokesman said: "There has been lots of incorrect speculation on CDMA iPhones for a long time. We haven't seen one yet and only Apple knows when that might occur. " Apple declined to comment.

For AT; T, the Apple relationship has been crucial, helping to make the carrier the U. S. leader in lucrative smartphone market share. According to comScore Inc., AT; T has over 43% of all U. S. smart-phone customers, compared with 23% for Verizon. These customers are especially attractive because they generally pay higher monthly rates for data plans. For several quarters, AT; T's growth has come almost single-handedly from the iPhone. In the fourth quarter of 2009, the carrier said it activated 3. 1 million new iPhones. In comparison, it counted only a net total of 2. million new subscribers as some customers moved from other phones to iPhones. Now that a new Verizon-compatible iPhone appears to be on the horizon, Digits looks at what Apple can do to win over mobile business users, particularly from RIMM's BlackBerry market.

The people briefed on the matter said the upgraded GSM iPhone is being made by Taiwanese contract manufacturer Hon Hai Precision Industry Co., which produced Apple's previous iPhones. The CDMA iPhone model is being made by Pegatron Technology Corp., the contract manufacturing subsidiary of Taiwan's ASUSTeK Computer Inc. said these people. One person familiar with the situation said Pegatron is scheduled to start mass-producing CDMA iPhones in September. Other people said, however, that the schedule could change and the phone may not be available to consumers immediately after production begins. Representatives of Pegatron and Hon Hai declined to comment. Verizon has publicly stated its interest in the iPhone, but people familiar with the situation said Apple originally decided against developing a phone for Verizon to keep its development process simple since the technologies are incompatible.

Verizon also is upgrading its network to a higher-speed technology, so Apple has said it believed CDMA was a short-term technology. Apple later changed its mind as it realized Verizon's upgrade would take longer than expected, said people familiar with the situation. Making the iPhone available through Verizon, which has over 91 million customers, as well as potentially other CDMA carriers, could open up a significant new market. In 2009, iPhone sales globally rose 83% to 25. million, far outpacing the 20% to 25% growth in smartphone sales overall, according to Bernstein. But since Apple already dominates smartphone sales through existing partners, "sooner rather than later, Apple is going to have to look to find incremental distribution," which implies a monopolistic competition between all smartphone sellers, said Bernstein analyst Toni Sacconaghi. He estimates Verizon could help Apple nearly double the number of iPhone users in the U. S.

Some advantages that iPhone has compared to other smartphones are:

1. iPhone is not just a phone it is a widescreen iPod with touch controls that lets you enjoy all your content — including music, audiobooks, videos, TV shows, and movies — on a beautiful
2. 5-inch widescreen display (Nokia N95 only has a 2.6-inch screen). The N95 does have a good media player, however, with all the iPod features and 4 GB / 8 GB space, it makes the iPhone the best music phone.
3. Advanced Safari browser: iPhone lets you see any web page the way it was designed to be seen, then easily zoom in by simply tapping on the multi-touch display with your finger which will change mobile browsing for the good.
4. OS X: All the power and sophistication of an advanced operating system that gives you access to true desktop-class applications and software, including rich HTML email, applications such as widgets, Safari, calendar, text messaging, Notes, and Address Book, etc. iPhone is fully multi-tasking, so you can read a web page while downloading your email in the background. This software completely redefines what you can do with a mobile phone.
5. User Interface: iPhone features the most revolutionary user interface since the mouse. It’s an entirely new interface based on a large multi-touch display and innovative new software that lets you control everything using only your fingers.
6. Visual Voicemail: The iPhone lets you select and listen to voicemail messages in whatever order you want — just like email using a revolutionary new feature called visual voicemail.

Conclusion

Analyzing as managerial economics students, we can conclude that although the current methods and techniques are serving us well in analyzing the current market situation, there will be new techniques emerging in the future with global changes occurring at leaping speeds.

What is essential for us to grasp is that the theory is flexible with these changes and that it can be shaped or rounded to be applied to any market situation analysis. The content and subjects we learned in this course are nothing but the bedrock tools that any manager needs to know and use in his daily life in order to forecast revenues and demand, analyze current markets, and evaluate his company’s stance regarding his competitors.

References:

1. http://theblogpaper. co. uk/article/business/31may09/price-elasticity-demand-iphone
2. http://news. cnet. com/8301-13506_3-20064223-17.
3. http://www. bbc. co. uk/news/business-10725887
4. http://www. bbc. co. uk/news/uk-13284156
5. http://m. ibtimes. com/microsoft-windows-phone7-google-android-apple-157595.
6. http://www. reuters. com/article/2011/06/03/us-rim-research-ubs-idUSTRE7523PP20110603
7. www. newyorktimes. com www. wallstreetjournal. com

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