RIDING THE STRATEGY ROLLERCOASTER: APPLE

EVOLUTIONARY DYNAMICS FROM ITS INCEPTION

TO 2019

On 10 April 2012, Apple confirmed its position as the world's most valuable firm with a market
capitalization of over $600 billion. This remarkable performance, underpinned by better than expected sales of
the firm's iPad and latest iPhone products, is despite the fact that Steve Jobs, the driving force behind the firm,
died in October 2011. Just over 14 years earlier in September 1997, the picture was very different, as Jobs returned
to run the organization he founded in the 1970s, Apple was close to bankruptcy. Jobs went on to transform the
organization, through a series of well-crafted and executed strategies, from an ailing personal computer (PC)
manufacturer to one of the coolest organizations on the planet with a stake in the music, mobile telephone and
personal media player Industries. His first move, however, was to scale Apple back to a size that matched its real
Industry position - that of a niche player ni a highly competitive Industry. From 1997 to 1999 the organization
focused on a limited number of products - the iMac computer and the iBook notebook. Distribution and staffing
levels were reduced and most manufacturing was outsourced to Taiwan. Even in 2011 most manufacturing of
Apple gadgets was outsourced to a range of suppliers. By the end of 1999 Apple was back in profit and its share
price was at an alI-time high.

However, it was the launch of the iPod in 2001 followed by the iTunes service in 2003, that started Apple's
transformation. These products moved the organization beyond their computer niche and into consumer
electronics. Apple soon dominated the digital download market with a 70 percent share despite not being the first
or best digital music player on the market. Customers were attracted by the iPod's iconic design despite
competitors such as Sony and Microsoft. In contrast, the iPhone, launched in 2Q07, was seen as a ground-breaking
new product that took the integration of mobile telecoms, the Internet and other consumer electronic gadgets, started
by organizations such as RIM and Nokia, to a higher level of sophistication. The iPhone had a wide range of
unique product features and was hailed by TIME magazine as the Invention of the Year in 2007. The iPhone’s
launch coincided with a dramatic growth in the smart phone sector of the mobile telecoms handset industry and
attracted other new entrants such as HTC (the organization behind Google's Nexus One), Samsung and Microsoft.
Apple's most recent new venture was Into the market for tablet computers with the iPad, launched in 2010. In each
of the new sectors It has entered, Apple products appear to become the standard by which other devices are judged.
For example, as each new smartphone was launched after 2007 the media would speculate whether this was an
iPhone ‘killer’. This may be because they have underestimated the strategy underpinning each launch. The
electronic gadgets may be relatively easy to copy, which is why Apple has become involved in an increasingly
bitter series of patent disputes with competitors. However, each gadget is part of a platform, rather than a standalone. The
iPod has iTunes; the iPhone a huge range of apps from games to restaurant recommendations and the iPad
combines an even wider range of functions including access to e-books, films and the Internet. Each gadget is also
aimed at a high growth market, though how far each new product itself has added to the growth in that market is
not clear.

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 Apple’s performance has also demonstrated the success or their strategy to date. By April 2012 the firm had
sold 67 million of its iPad devices, which were launched in 2010. It took 24 years to sell a similar number of Mac
computers. This rapid growth also saw net income grow from $1.9 billion in 2006 to $11.6 billion in just the first
quarter of 2012. Apple's profits are greater than Google’s quarterly turnover and the firm's value is close to that
of Microsoft's at the height of the dotcom boom in the late 1990s. Apple’s shares have risen from $3.19 in 1997
to a staggering $644 in 2012 despite the global financial crisis.

This radical turn around and despite the end of Steve Jobs era, has resulted to the emergence of a company
profile, which finally has taken more than 20 years to be established. Already, some market watchers, including
Piper Jaffray, say that Apple has evolved so much that its service business today is worth an estimated $500
billion, more than the estimated $400 billion value of the hardware business. That's even though services
comprise a much smaller share of Apple's total sales. In fiscal year 2018, Apple posted sales of $265.6 billion
on net income of $59.5 billion. In the first quarter of 2019, earnings came in at $4.18 on a per share basis, an
all-time high. Apple posted Q1 revenue of $84.3 billion, with the iPhone business accounting for 61.7% of total
sales. Apple’s growing services segment made up 12.9% of revenues, ahead of the Mac, which generated 8.8%
of total revenue. The wearables, home and accessories segment comprised 8.7% of sales and the iPad accounted
for 8%.

Here is a more detailed look at Apple's 5 most profitable business lines.

1. iPhone
Apple’s core product, the iPhone, has ranked amongst the top five smartphone vendors in the world since
2009. In Apple's latest fiscal Q1 ending in December, however, iPhone sales declined 15% to $51.98 billion.
The iPhone continues to make up more than 60% of Apple’s total sales, down from over 70% in Q1 2018, per
Statista. A slowdown in China, a longer iPhone replacement cycle, and heightened competition in the global
smartphone market have been cited as negative forces. “Our customers are holding on to their older iPhones a
bit longer than in the past. When you paired this with the macroeconomic factors particularly in emerging
markets, it resulted in iPhone revenue that was down 15 percent from last year,” said CEO Tim Cook on the
Q1 call.

2. Services
Apple’s Services segment posted revenue of $37.2 billion in fiscal 2018 and $10.9 billion in Q1 2019, a
19% increase to an all-time high. In the first quarter, Apple's services business posted gross margins of 62.8%,
approaching double the iPhone’s 34.3% margin. The service margin also is dramatically bigger than the Apple's
38% margin for its overall businesses. That service revenue comes from selling everything from iCloud storage
services to Apple Music subscriptions to AppleCare warranties. Services revenue has risen more than five-fold
since 2010 to $41 billion, and CEO Cook is driving to speed up that growth. In March, Apple introduced new
additions to Apple’s Services business, including a streaming movie and TV service to rival Netflix Inc.
(NFLX) and Walt Disney Co. (DIS), called Apple TV. It also introduced the Apple Card that will compete
against other financial payment giants, as well as a new video game subscription service and other products.

3. Mac
Apple’s personal computer business, built around the Mac, generated sales of $25.5 billion in fiscal 2018
even as the Mac’s contribution to Apple's growth has fallen as the global PC industry experiences slowing
global demand. Revenue for the Mac grew an impressive 9% in Q1, nonetheless, illustrating the brand's
strength. Apple’s PC business is still important for the company strategically because it's part of a broad,
interlinked product family running on the iOS operating system.

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 4. iPad
When Apple launched its iPad in 2010, it quickly became the first commercially successful tablet computer
to hit the market. In the first three months after it was released, the device sold more than 3 million units, per
Statista. As of 2016, the iPad accounted for roughly 25% of global tablet sales. In fiscal 2018, iPad sales came
in at $18.8 billion, and in Q1 grew by 17%.

5. Wearables, Home and Accessories

Apple’s Wearables, Home and Accessories segment, previously called Other Products, is made up of
devices including AirPods, Apple Watches and HomePods. The segment posted $17.4 billion in sales in fiscal
2018. In Q1, this segment grew 33% over the same period last year, making it the fastest-growing revenue
segment in the quarter. Apple has been ramping up the release of these products. For example, the AirPods 2
is expected to launch in the first half of this year, equipped with health-related features that monitor users' heart
rate.