Financial Management - I

Apple Incorporation
Valuation Dilemma

Project under Prof. Trilochan Tripathy

By BM-A, Group 8
B19005 – Ambar Laad
B19019 – Harsh Parasrampuria
B19025 – Kshitij Gupta
B19051 – Sneha Bahety
B19058 – Veni Gupta

20th December 2019

Company Background
Apple Inc. is an American global innovation organization headquartered in Cupertino, California, that
structures, creates, and sells shopper gadgets, PC programming, and online administrations. It is viewed
as one of the Big Five innovation organizations, alongside Amazon, Alphabet, Facebook, and Microsoft.

Apple was established by Steve Jobs, Steve Wozniak, and Ronald Wayne in April 1976 to create and sell
Wozniak's Apple I PC, however, Wayne sold his share back in 12 days. It was fused as Apple Computer,
Inc., in January 1977, and offers PCs, including the Apple II, and developed rapidly. Inside a couple of
years, Jobs and Wozniak had procured a staff of PC creators and had a generation line. Apple opened to
the world in 1980 to moment money related achievement. Throughout the following years, Apple
transported new PCs including creative graphical UIs, for example, the first Macintosh in 1984. Be that as
it may, the significant expense of its items and restricted application library caused issues, as powered
battles between administrators. In 1985, Wozniak left Apple agreeably and stayed a privileged employee,
while Jobs and others surrendered to establish NeXT.

As the market for PCs extended and developed through the 1990s, Apple lost piece of the pie to the
lower-estimated duopoly of Microsoft Windows on Intel PC clones. The board selected CEO Gil Amelio
to what might be a 500-day charge for him to restore the monetarily upset organization—reshaping it with
cutbacks, official rebuilding, and item center. In 1997, he drove Apple to purchase NeXT, settling the
urgently bombed working framework technique and bringing Jobs back. Employments contemplatively
recaptured administration status, turning out to be CEO in 2000. Apple quickly came back to productivity
under the reviving Think diverse battle, as he reconstructed Apple's status by propelling the iMac in 1998,
opening the retail chain of Apple Stores in 2001, and securing various organizations to widen the product
portfolio. In January 2007, Jobs renamed the organization Apple Inc., mirroring its moved concentration
toward purchaser gadgets, and propelled the iPhone to incredible basic approval and budgetary
achievement. In August 2011, Jobs surrendered as CEO because of wellbeing difficulties, and Tim Cook
turned into the new CEO. After two months, Jobs kicked the bucket, denoting the finish of a time for the
organization. In June 2019, Jony Ive, Apple's CDO, left the organization to begin his very own firm, yet
expressed he would work with Apple as its essential customer.

Products:

Macintosh:
Macs :

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  iMac: Consumer across the board personal computer, presented in 1998.
 Macintosh Mini: Consumer sub-work station, presented in 2005.
 MacBook Pro: Professional scratch pad, presented in 2006.
 Macintosh Pro: Workstation personal computer, presented in 2006.
 MacBook Air: Consumer ultra-slight, ultra-convenient note pad, presented in 2008.

iPod:
On October 23, 2001, Apple introduced the iPod digital music player.

iPhone:
At the Macworld Conference and Expo in January 2007, Steve Jobs presented the long-anticipated
iPhone, a combination of an Internet-empowered cell phone and iPod.The original iPhone was discharged
on June 29, 2007, for $499 (4 GB) and $599 (8 GB) with an AT&T contract.

iPad:
On January 27, 2010, Apple presented their eagerly awaited media tablet, the iPad.It offers multi-contact
association with sight and sound arrangements including papers, digital books, photographs, recordings,
music, word handling archives, computer games, and most existing iPhone applications utilizing a 9.7-
inch screen

Apple Watch:
The first Apple Watch smartwatch was reported by Tim Cook on September 9, 2014, being presented as
an item with wellbeing and wellness tracking. It was introduced on April 24, 2015.

Apple TV:
At the 2007 Macworld meeting, Jobs exhibited the Apple TV (Jobs incidentally alluded to the gadget as
"iTV", its codename, while in front of an audience), a set-top video gadget expected to connect the
closeout of substance from iTunes with top quality TVs
Write about company – formation, founders, timeline, major thingies (highpoints) until now.

Include a sub-heading for business lines and include 4-5 line details about each business line.
Products like ipad and iphone, wearables like Apple watch, services like apple pay, itunes, apple
store and apple tv, computers like mac and laptops, etc.

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Financial Performance and Policies
Over the past 3 years the company has raised its resources for research and
development leading to expenses of $1,109 million in 2008, $1,333 million in 2009 and
$1,782 million in 2010, a total increase of 60% (2008 to 2010). As a result Apple
launched several new and revolutionary products such as the iPhone in 2007, the time
capsule software in 2008, a new edition of the iPhone in 2009 and the iPad in 2010
which have led to a sustained success that reflects in the financial statements of the
recent years (Datamonitor, 2010, p. 9):

In the fiscal years 2008, 2009 and 2010 ending in September of each year Apple
increased its revenue by 14,4% to $42,905 million (2008 to 2009) and thereafter by 52%
to $65,225 million (2009 to 2010). The company’s net profit was $6,119 million, $8,235
million and $14,013 million in 2008, 2009 and 2010 which resembles an increase of
34,6% (2008 to 2009) and 59% (2009 to 2010).

The Company posted quarterly income of $64 billion, an expansion of 2 percent from
the year-prior quarter, and quarterly profit per weakened portion of $3.03, up 4 percent.
Universal deals represented 60 percent of the quarter's income.

"We closed a momentous monetary 2019 with our most noteworthy Q4 income ever,
fuelled by quickening development from Services, Wearables and iPad," said Tim Cook,
Apple's CEO. "With clients and analysts raving about the new age of iPhones, the
present presentation of new, clamor dropping AirPods Pro, the long awaited appearance
of Apple TV+ only two days away, and our best lineup of items and administrations ever,
we're exceptionally hopeful about what the occasion quarter has coming up."

"Our solid business execution drove record Q4 EPS of $3.03 and record Q4 working
income of $19.9 billion," said Luca Maestri, Apple's CFO. "We likewise returned over $21
billion to investors, incorporating nearly $18 billion in share repurchases and $3.5 billion
in profits and reciprocals, as we proceed on our way to arriving at a net money impartial
situation after some time."

Apple is giving the accompanying direction to its financial 2020 first quarter:

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income between $85.5 billion and $89.5 billion

net edge between 37.5 percent and 38.5 percent

working costs between $9.6 billion and $9.8 billion

other pay/(cost) of $200 million

charge pace of around 16.5 percent

Apple's top managerial staff has proclaimed a money profit of $0.77 per portion of the
Company's regular stock. The profit is payable on November 14, 2019 to investors of
record as of the end of business on November 11, 2019.

Write about facts and figures. Can write a few lines about financial performance not being great
when steve jobs left (see case in handbook). Write about policies, write about excess cash (don’t
dwell into it much here. It should be covered in issues.)
Mention stock price, number of outstanding shares, and volatility of share price over last few
years. Maybe even relate a great product launch to a sharp rise in share price.
Other things you might find important.

Board Composition
Apple has a solitary unitary top managerial staff. It comprises of both official and nonexecutive chiefs. As
of now, the organization contract accommodates the appointment of 8 executives who should serve for
one year each, subject to re-appointment (Investor Apple, 2014). To guarantee that the top managerial
staff is fit for conveying, Apple has rules that guide the board individuals arrangement and choice
procedure. To meet all requirements for arrangement as a board part, one must be exceptionally qualified,
have solid authority aptitudes, and have a sufficient measure of work understanding (Investor Apple,
2014).

There additionally exists rules and limitations on the quantity of different sheets that an official board part
at Apple can be a piece of. At present, this breaking point is set at two different sheets (Investor Apple,
2014). The present executives incorporate Tim Cook, Al Gore, Robert Iger, Andrea Jung, William
Campbell, Arthur Levinson, Mildred Drexler, and Ronald Sugar (Apple, n.d.).

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The guidelines and arrangements identifying with the characteristics of board individuals stipulated above
are not definitely being pursued since the majority of the board individuals expressed above are
associated with administration at various different organizations. The contribution of board individuals in
various organizations is a wellspring of worry for some partners because of the unavoidable danger of
irreconcilable situations. Mr. Levinson and Mr. Schmidt, for instance, had been board individuals for both
Apple and Google Inc., which are contending organizations. It was just the mediation by the US Federal
Trade Commission in the year 2009 that prompted their renunciation from one of the organizations.
Levinson left Google's board while Schmidt left Apple's board (Waters and Menn, 2009). Mr. Levinson is
likewise connected with Roche Holdings and Calico LLC. As per the Federal Trade Commission (n.d.), it
is a break of the Clayton Antitrust Act for an individual to fill in as an executive for two organizations
that have clashing interests.

Additionally, Apple's governing body has been intensely condemned for neglecting to watch sexual
orientation balance. Satariano (2014) calls attention to that no single lady has ever been delegated to
Apple's directorate for quite a while, and this has activated far reaching analysis from different
substances, including the investors. Mac's CEOs, beginning from the organizer Steve Jobs, have
additionally been scrutinized for their fanatical methodology towards basic leadership during executive
gatherings.
I’ll see what can/has to be written here along with governance. Might need a bit of help to
understand what he wants here.

A look at the Competition

Given that Apple works in the work area and PC phone, and amusement innovation spaces, it faces
rivalry from a regularly developing exhibit of friends and from various sides.

PC Manufacturers

A significant number of Apple's essential rivals are principally makers of PCs. Dell Technologies
(DVMT) is a maker of both work area and versatile registering gadgets and one of Apple's essential
rivals. The contention between these two organizations returns numerous years, with Dell in any event,
endeavoring to corner a portion of a lot of the versatile music player advertise with its Dell DJ, structured

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as an early contender to the iPod. Dell has taken an interest in various acquisitions and different
associations as of late, however it doesn't offer cell phones.

Lenovo Group is another PC producer that contends with Apple. This Chinese organization offers
shopper PCs just as cell phones and different gadgets. Along these lines, Lenovo rivals Apple on a wide
range of product offerings.

HP Inc. (HPQ) has a history going back to 1939 as a component of the first Hewlett-Packard Co. Most as
of late, the organization centers around reasonable buyer PC items. One of HP's qualities is its expansive,
worldwide nearness, making it an especially solid Apple contender outside the U.S.

Another significant Apple contender is Sony Corp. (SNE). Sony PCs are inconceivably well known in
numerous business sectors around the globe. Offers of its PC items have propelled Sony into the top
positions of hardware organizations, and the organization presently offers a variety of gadgets from
individual buyer items to video game consoles.

The Taiwanese organization ASUSTeK Computer Inc. – better known under the brand name Asus – has a
long history of making moderate PC parts, peripherals and, all the more as of late, tablets and cell phones.
Asus started as a producer of motherboards, and it has become over almost 30 years to turn into a pioneer
in the worldwide IT showcase.

Cell phone Manufacturers

Among the most critical Apple items is the iPhone. As in the PC space, however, Apple has not totally
overwhelmed the market. Samsung, a South Korean organization delivering both PCs and cell phones, is
a significant contender, especially for the iPhone. The Samsung Galaxy and Note arrangement have been
liable for decreases in iPhone deals for a long time. Today, Samsung has formed into one of the biggest
and most beneficial organizations, both in the Asian district and on the planet generally speaking.

There are numerous extra contenders which try to focus on a little segment of Apple's administrations or
items. Further, in light of the fact that the innovation field is continually changing and developing, there

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are much of the time new organizations entering the quarrel also. With the entirety of the challenge, the
purchaser profits by extended advancement and brought down costs.

Mention that it is an issue to idenfity direct competition to apple, because of growth, variety and
stuff. Leave it there, rest will be covered in issues. Talk about Microsoft, google, ibm, amazon.
And where these companys compete with apple (no one is direct one to one). You can also
mention key highlights of the competitors (recent or upcoming big news or launches). And
mention financial performance of competitors in bried.

Issues at Hand
Excess cash – how to use
Growth slowed down
Innovation driven – slowed innovation recently – iPhone X countered…again slowing
Changing line of business to more service based? Or not?
No one-to one competitor. Difficult to compare on all fronts to one entity
Tech driven, knowledge driven, innovation driven industry – hard to predict.
Volatile – one big new discovery can change industry. 20 years ago no smartphones…etc
Other issues
With all this, how do we value apple?

Valuation Analysis
Write about process.
Values for perpetual and high growth and stuff.
Why those values were chosen.
Spell out the assumptions
What is the result. Explain our fcff method and formula for npv and perpetual value.
What does the market say about the current valuation
How does our estimation compare against them.
Why the variation? (Best case…itna high growth not possible long term)

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Conclusion
One para of 8-10 lines.
Summarizing – write final result of ‘valuation analysis’. 1-2 problem restate firse. And say ki
valuation of apple for the three different scenarios were found taking into consideration the
issues, challenges and assumptions.