Apple Inc.

Name: Apple Inc.

Its iPhone and iPod devices, coupled with its iTunes Music Store, reshaped the digital-media landscape. There are rumors that the company is developing a tablet computer with a large touch-screen interface that could let it enter the e-reader market.

Stock Symbol: AAPL
URL: www.apple.com
Location: Cupertino, CA
Telephone: (408) 996-1010
Year Founded: 1976
Number of Employees: 34,300 (as of Sept. 30, 2009)

Executive Leadership:

CEO: Steven P. Jobs

Bio: Dropped out from Reed College. Co-founded Apple, and was later forced out of the company. Founded the NeXT computer company and Pixar Animation Studios before returning to Apple.

COO: Timothy D. Cook

Bio: Cook earned an M.B.A. from Duke University and a B.S. in Industrial Engineering from Auburn University. Before joining Apple, Cook was a vice president of Corporate Materials for Compaq. Previous to his work at Compaq, he was the COO of the Reseller Division at Intelligent Electronics. Cook also spent 12 years with IBM.

Board Members and Advisors

William V. Campbell, Chairman and former CEO of Intuit

Millard S. Drexler, Chairman and CEO of J. Crew

Al Gore Jr, former vice president of the United States

Steven P. Jobs

Andrea Jung, Chairman and CEO, Avon Products

Arthur D. Levinson, Chairman of Genentech

Jerome B. York, Chairman, President and CEO of Harwinton Capital

R&D:

Total R&D spending: $1.3 billion (FY2009)

R&D as a percentage of revenues: 3.6 percent

Percentage of employees engaged in R&D: N/A

Technology:

Continuing innovation in a small number of key products has been the key to the company’s success over recent years. It has developed an extensive patent portfolio around the touch-screen interface used in the iPhone and iPod Touch. In 2009, it won several patents that allow for simultaneous tracking of “multiple finger and palm contacts” which, according to the patent, should allow for “unprecedented integration of typing, resting, pointing, scrolling, 3D manipulation, and handwriting.” This intellectual property gives Apple a competitive advantage in the development of devices such as the iPhone, iPod touch or even tablet PCs in the future. The company has also successfully rejuvenated its desktop and laptop lines, developing the OS X operating system and switching to more power-efficient Intel processors in recent years.

Market:

Apple Inc. competes in 3 main digital media markets: personal computers, mobile communication devices, music devices and services. The global PC market had a value of $203.7 billion in 2008 and it is set to increase 28.1 percent by 2013, according to Datamonitor. Apple has positioned itself in a niche premium market with significant customer loyalty. While Apple has 7.4 percent of the world market for PCs and 9.4 percent of the US market (fourth among computer manufacturers in the US), Apple dominates 91 percent of market for the PCs priced above $1,000, according to NPD. Moreover, global Mac shipments were up 17 percent when compared to the same period last year (Q4 ‘08). According to Gartner, by 2011 Apple will have doubled its U.S. and Western Europe market share.

The mobile communications industry is highly competitive with several large, well-funded, and experienced competitors. Since 2007, Apple entered this new market with the release of the iPhone. In the worldwide smartphone market, the iPhone accounted for 17 percent of the sales in the third quarter of 2009. Moreover, the iPhone sales should be even stronger at the end of 2009 as the device is sold in 16 countries more (totaling 87), including the very important, so far unexploited, Chinese and South Korean markets.

Apple’s music products and services face competition from other companies promoting their own digital music and content products and services, including those offering free peer-to-peer music and video services. With digital music sales growing at 15 to 20 percent, and CDs falling by an equal proportion, digital music sales will nearly equal CD sales by the end of 2010, even though the global music and video market shrank by 1.1 percent in 2008 to reach a value of $64.1 billion, of which the Americas represent 48.7 percent. The introduction in January 2009 of songs without digital rights management to the iTunes catalog, together with its seamless integration with other Apple products (such as computers, iPods and iPhones) offer Apple an advantage over its competitors. Apple’s iTunes Store accounts for 25 percent of all music sold in the US, according to NPD. Moreover, it represents almost 70 percent of the digital music market.

Strategy:

Until a few years ago Apple was a company that primarily made computers for a narrow niche audience. It has successfully broken out of that niche with its move into the telecommunications and music industries. Products such as the iPod provide an inexpensive opportunity for customers to relate and identify themselves with a brand that has been successfully marketed as representing innovation, design and intuitive simplicity. At the same time, these devices encourage them to connect with other parts of Apple’s product line. As a whole, Apple continues to capitalize on the convergence of the personal computer, mobile communications, and digital consumer electronics by creating and refining innovations, such as the iPhone, iPod and the iTunes Store. Apple’s strategy also includes expanding its distribution network to effectively reach more of its targeted customers and provide them with a high-quality sales and post sales support experience. At the end of 2009, Apple owns 217 retail stores in the U.S. and 56 internationally. Apple is always ready to fight to defend its intellectual property. As Tom Cook, Apple’s COO and then-acting CEO told Wall Street analysts in January 2009 that the company is “ready to suit up and go against anyone”.

Challenges and Next Steps:

Apple is involved in legal complaints relating to patent infringement. As of October 2009, the company is defending more than 47 patent infringement cases, 27 of which were filed during fiscal year 2009, and several pending claims are in various stages of evaluation. If there is a temporary or permanent injunction prohibiting Apple from marketing or selling certain products or a successful claim of infringement against Apple requires it to pay royalties to a third party, Apple’s operating results could be badly affected.

In November 2009, Apple won a patent application which describes the use of a pen-like stylus to operate an “ink information” input system, and references tablet computing applications. Ideally, the digital ink and stylus input technology described in the patent would operate alongside touch input and could recognize handwriting. As rumors over a forthcoming Apple touch-controlled tablet spread over the internet, two markets could be foreseen for Apple, one for the tablet itself, and another in creating a media marketplace for electronic books.

Just as Apple transformed the music industry through the retail of songs without digital rights management, it might also revolutionize the publishing industry through the introduction of digital books to be read in an iPhone, iPod or even new devices such as a tablet PC.

Compiled by Jimena Almendares