Apple Industry Analysis: SWOT and Porter’s Five

Company Description:
Apple Inc. (Apple), was incorporated on January 3, 1977,as a design, manufacture and market mobile communication and media device, personal computers, and portable digital music player. The company also sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. Apple is famous for its iconic cellular products. Some of these products and services include iPhone, iPad, Mac, iPod, and Apple TV. It also produces a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings.
The company sells its products worldwide through retail stores, online stores, direct sales force, third party wholesalers and resellers. Apple has also taken up conventional way of selling and it delivers digital content and applications through its iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store.
Other Famous Products:
Apple Laptops:

Apple Business Products:

Apple Software Products:

Apple Accessories:

A brief history:
Then
Apple Computers Inc. was founded on April 1, 1976,in a garage by Steve Jobs and
Steve Wozniak who were college drop-outs. At that time the computer industry
was in the nascent stages and the two founders had a vision to change the way
people interacted with computers. At that time, computers were huge bulky
machines and Jobs-Wozniak wanted to make computers as a mass commodity so that
general consumers could use it readily.  
Apple
then revolutionized the industry through its color graphical interface. The
company clocked in sales of US$7.8 million in 1978, which later swelled to US$117
million in 1980, the year Apple went public (Brashares, p. 21)
In 1983, John Sculley joined in as the president,
after Wozniak left Apple in 1983. However, this move backfired and after much
controversy with Sculley, Jobs resigned in 1985. He founded another company of
his called NeXT Software. He also bought Pixar which is also a huge name in
computer animation.
Jobs deal with adobe, resulted in smooth sailing
for Apple throughout the 1980s. The two companies together created Adobe Portable
Document Format (PDF), which led to another iconic computer product, desktop
publishing (Brashares, p. 59).
Industry Analysis:
The
computers and peripherals industry includes PC equipment, handheld devices,
complex information technology systems and network equipment. Technological
factors such as interoperability of hardware products and compatibility with
the web have brought about industry consolidation. Also, intense competition
and the importance of intellectual property rights have been instrumental to
growth of the industry.
The
computers and peripherals industry in the USA is considered to be one of the
largest global markets. It includes giants like Apple (AAPL), EMC (EMC), Canon
(CAJ), Western Digital (WDC), and HP (HPQ). The computers industry is highly
dependent on technology thus it is very capital-intensive and has high degree
of automated operations compared to other industries. Within this space, giants
such as Apple take advantage of economies of scale and are profitable due to
mass production and large share od customer purchasing power. On the other
hand, smaller firms look for niche and produce specialty product with superior
technology.

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Stages of Industry Maturity:
 From this matrix we can see that majority of
the factors lie in the growth stage except for ease and entry and technology.
That too because high capital investments are required in order to enter this
industry and due to the innovation within telecommunication sector. Therefore,
the smart phone industry is in growth stage of the industry life cycle.
Relatively, the industry is is 7-8 years old, 
which is why after it’s initial years it has reached its growth stage.
At this point if manufacturers continue to invest in innovation and too much
foreign competition does not hinder the industry, there is no doubt that its
growth will increase.
Summary
of industry outlook is presented in the table below:

Level of industry concentration
level
of industry concentration tells us about the distribution of power amongst the
firms operating in the industry. High level of concentration means that firms
face low intensity of competition.  As
power will be vested or concentrated in few firms, the larger firms would be
able to determine quantity supplied to the market at the price of their
choosing. They can also lobby against suppliers or force policies on any
reluctant customers.
In
my opinion, Smart Phone industry is Oligopolistic in characteristics, with few dominant
firms in the market. The bulk of market share is vested between Apple and
Samsung, with Hawaii and Lenovo as close but niche competitors. In this regard,
the level of market concentration is high.   
Relative Size of firms in the Industry
While
we have already discussed that the smart phone industry is more oligopolistic
in nature the industry is structured in a way that Samsung and Apple are the
major players with the rest as small and less impactful players.
it
is also imperative to mention here that while conducting my research, that
latest report by CNBC highlighted that as per the 3Q 2016 review of Strategy
Analytics Apple’s market share of operating income in smart phone was 91%
(CNBC2016). This means that Apple enjoys a monopoly status.
Having
said this, the strategy analytics report does not mention about samsung, which
in my opinion is a major player with a degree of industry power. Thus we have
presented market share data that is complete and comparable.
Source: IDC
Importance of Technology and Research
In
a similar fashion, research and development spending for bigger companies
ranges between 5% and 15% of product revenue, while it is much larger for
smaller companies and number falls for pure assemblers such as Dell.
Another
distinguishing feature within the industry and its players is of patent
licensing and disputes arising from patents. The industry is highly technology dependent,
thus technological advancement makes product life-cycle short and products are
quickly out-dated with many products which have a lifespan of just 12-18
months. Firms that have superior process technology, coupled with
capital-intensive component production and display flexibility in high-volume
assembly usually tend to dominate the hardware value chain. on the other hand,
firms that have patent capital, tend to have close ties with component and
equipment producers and developers. They tend to invest heavily in research and
development and have high capital investment expenditures. These firms tend to
have superior economic profits in the future.
In
USA, the industry’s competitive advantage lies in its excellent design skills, however,
the industry is very fragmented, does not have adequate capital and lacks a
long-term vision. Despite these impediments, US companies have put in place
corporate structures, strategies and operational techniques that have been key
driving factors of their success globally.
Going
forward, the computers and peripherals industry is forecasted to dominate any
other industry as firms invest heavily towards automation, process efficiency
and engineering in order to improve their competitive positions in the
industry.
Competition Local, Regional, National or International
Major
players in the sector, including apple, tend to obtain a great chunk of their revenues
from foreign markets adding geographic diversity to their product sales base. previously,
a weaker US dollar made American products more competitive and gave them a pricing
edge over other international players. In such competitive environment
companies do not have any margin for error or for any inefficiencies that may
deem their products uncompetitive.
Oligopolistic structure:
As
discussed above, Apple Inc. operates in multiple market segment. In desktop
computing Apple’s competitors are Microsoft, Dell, Asus, Hewlett-Packard and
Acer. In smart phone market, major players include Samsung, google, Nokia,
Lenovo and other small fragmented players. In the iOS market Apple competes with
Google Android and Apple’s in-house services such as Apple Pay competes with PayPal
and Google (Dudovskiy, 2016).
Thus,
in my opinion the markets in which Apple operates are more However, the markets
appear to have an oligopolistic structure, with few dominant players that
derive the market quantity and work together to protect profitability.
Some
key features of the industry are:
Being an oligopoly the
market has high barriers to entry, with respect to patents, control over raw
material, along with brand loyalty adds up to strong barriers to entry. Companies have joint
control over the price and therefore it is in their interest to collude or have
a mutual interdependence. As consumers are  price conscious an increase in price leads to
fall in demand and thus fall in profitability.
Porters Five Forces Model:
Michael
Porter’s model of five forces is basically centers on the approach that a
corporate strategy should be robust enough to deal with and capitalize on the
opportunities and threats that are present in the organizations both internal
and specifically external environment. He emphasis the importance of the
competitive strategy and its foundation to be laid on the understanding of the
industry structure and the dynamics involved, in way the industry changes. It
helps the marketer to contrast a spirited competitive environment. It has similarities
with other tools for environmental audit, such as PEST analysis, but tends to
focus on the single, standalone, business or SBU (Strategic Business Unit)
rather than a single product or range of products. (Porter’s Five Forces
Model). Five forces analysis looks at five key areas namely the 1) threat of
entry, 2) the power of buyers, 3) the power of suppliers, 4) the threat of
substitutes, and 5) competitive rivalry

Threat of New Entrants:
The
markets in which Apple competes in are highly competitive and threat of new
entrants is also high. This can be guaged from the number of new companies
entering in the market from China. Some big names include Lenovo, Huawei,
Xiaomi. These new entrants have managed to acquire decent amont of market share
despite their relatively small size facing intense business competition (Chen,
Chen & Wu, 2011; Einhorn, 2013; Larson & Stone, 2014).
Although
Apple has carved a niche for itself through brand loyalty. It has side-lined
itself from cheaper markets where price is the main criterion. Apple products
never go on sale!. Despite this, I believe that new entrants pose significant
threats to big players due to cost advantages. Xiaomi was able to take over a
sizeable market shares of Samsung over a very short period of time, implies
that threats of new entrants can be very high.
Power of Buyers:
Given
the plethora of options available to buyers in both, laptop and Smartphone
industries as well as iOS services market, the buyers have many choices and
thus the power of buyers is high (Wu, 2011, Nair & Leng, 2012). Although
Apple and Samsung invest heavily in brand equity in order to ensure customer
loyalty, however, such consumers constitute a small pool compared to the
broader market. This is especially true for emerging market economies where
consumers want good value for money. They tend to choose electronic devices which
are of good quality at cheaper prices (He & Chen, 2005). Thus through
branding and product differentiation companies such as Apple & Samsung
compete to build customer loyalty towards their brands.
Power of Suppliers:
In
the markets in which Apple operates is very large and broad in scope &
scale. While supplier power is relatively Low, it is imperative to mention that
the industry is characterized by short product cycle and constant innovation.
Some suppliers who hold patents have advantage over smaller suppliers but
overall suppliers are fragmented and companies such as Apple and Samsung have
in-house expertise as well (Nair & Leng, 2012).
Threat of substitutes:
As
we have already mentioned, the industry of consumer electronics is constantly changing
due to technological innovation. Creative disruption is a huge phenomenon among
tech-giants. Therefore, the threat of substitute is high, as it is hard to say
when a substitute may emerge and out-dates the existing product and technology (Nair
& Leng, 2012).
Rivalry in the Industry:
Rivalry
among members in the industry is high. Previously, Apple was able to ward off
competitive pressure through patents & intellectual properties,
top-of-the-line capability in innovative technology and Apple’s visionary
leadership under Steve Jobs. However, with increasing competitive pressure
within the industry has led to  legal
battles (Apple & Samsung), shorter product cycle, increase marketing to
build brand equity and shorter time to commoditization.
The Company:
Apple
Inc. has been a leader in the computers & peripheral devices’ digital media
revolution. The company was historically known for its consumer friendly Mac
product family and carved out a decent high-end niche within the PC industry.
The company’s profile began to change in late 2001, when it launched the now
iconic iPod. Today Apple’s iTunes website and market dominating iPod are the
clear market leaders in the music space, in terms of both mind share and
revenue, and the company has extended its reach into the digital video and
gaming spaces.  In 2007, the company
further expanded its product reach with the launch of the revolutionary iPhone,
which has rapidly gained market share while ushering in the new era of the
smartphone. Soon after that Apple launched its tablet device in 2010, which has
ushered the era of portable laptops and mini desktops.
From
Apple’s company report, in 2014  only 38%
of revenue came from the traditional Mac business. Apple’s next largest revenue
category, was the iPod, at 22% of sales, but revenue growth there has slowed
dramatically, and may even decline going forward. The iPhone, less than 3 years
after launch, already accounted for 18% of revenue, and if one counted just the
cash revenue received from iPhone, that business would have been nearly as big
as the Mac business. The iTunes download store is the other major source of
revenue, at 11% of revenue in F09. The other revenue buckets include Apple
software and services, at about 7% of revenue, and third party hardware and
peripherals, at 4% of revenue.
Competitive advantage
Technology
experts and several stakeholders have long being of the opinion that Apple’s
exceptionalism is based not just in superior products, but in a superior user
experience, enabled by Apple’s control of the broader content ecosystem. The
term “ecosystem” is anything but precise, but does adequately describe how
Apple integrates proprietary semiconductor, hardware, and firmware design with
operating systems, applications, and web services to create a unique offering.
This ecosystem approach not only adds significantly to the user experience, but
also creates barriers to competitors as consumers become invested in that
ecosystem.
Some
key factors for Apple are as follows:
Manufacturing/Supply Chain Advantage:
 It is well known that Apple’s estimated $80
billion annualized supply chain, coupled with a $117.2 billion cash and
investment balance, is a huge competitive advantage. Apple uses these balances
to build its purchasing power on important strategic supply of its devices. An
examples of Apple’s supply chain prowess include Apple’s capability to navigate
through Thailand flooding impact on HDD availability without any impact,
compared to that HP took a $1 billion bump on its books due to the flooding
impact. Also Apple has strategic ties to get any supply of components such as
NAND, DRAM (e.g., Elpida), etc very quickly while Samsung has to have a wait
time.

One
of the key success factors for this industry is to innovate and disrupt the
market through its technology forward products. Apple understands this better,
as its R&D investments has grown at an estimated 30% CAGR over the past
seven years with little inorganic investment, which compares to HP’s 2% CAGR
decline despite some noted acquisitions for external growth, while Dell clocked
in 7% and Microsoft 11% CAGR growth over the same timeframe. As can be seen in
the graph below that Apple will actually lose profitability in the long run if
it does not innovate
Source: Alessandro, Paper
Apple’s
ability to centralize its focus on key categories by  creating innovative products has been
unbeatable so far by any other technology. Through its R&D Apple was able
to capturethe market at a time when other major players such as Nokia, Dell /7
Blackberry were more focusing on streamlining their product SKUs or focused on customization
or restructuring their business models. The industry was commoditizing rather
than innovating. Apple not only developed iPad taking away business from Dell
& other Desktop providers. through its innovation it introduced iPhone, iTouch,
iWatch and provided services through iTunes, taking away business from many
industries through its focus on constant innovation.
With
more focus on data storage and iCloud, Apple’s focus on R&D will prove to
be its key competitive advantage.
Ecosystem:
One
of the biggest competitive advantage of Apple has been its ability to develop
and thrive its operational ecosystem. The ecosystem Apple has built, cultivated
it and grew it is focused mainly towards proliferation and use of digital
content. In this day and age of data mining and cloud computing Apple has
captured and mastered the capture and proliferation of digital content, which
is as important as the end devices the company sells. Given this ecosystem, Apple’s
has also exhibited its ability to leverage its iOS & MacOS, iTunes & App
Store, and iCloud services as the underpinning of the company’s innovative
product portfolio. These services provide a wealth of consumption data to
Apple.  Currently Apple has an iTunes/App
Store ecosystem with over 650,000 total Apps, of which 225,000 are specific to
the iPad.  On an estimate Apple has
cumulatively paid out over $50 billion to App developers (Fortune, 2016).
By
developing this ecosystem Apple has outdated the previous technologies, such as
CDplayers etc. This puts pressure even on the most reluctant end user to switch
to Apple products. The development of its ecosystem has led to interdependency
of many other apps like whatsapp, iBook, facebook messenger to use Apple iOS,
which is as fundamentally important as the company’s supply-chain advantages
when it comes to content distribution.
Smartphone propagation
According
to Qualcomm’s most recent results, 3G/4G mobile subscriptions currently stand
at approximately 1.8 billion, or approximately 29% of total mobile
subscriptions(Qualcomm 10-K). This is up from 19%, 22%, and 24% of total mobile
subscribers ending the same period for 2009, 2010, and 2011, respectively
(Qualcomm 10-K). This data shows how quickly smartphones are being adopted. It
has become a way of life for most people, as dependencies on Google Maps,
weather apps, and various social media websites continue. At the very heart of
this dynamic growth stands Apple with its iPhone and strong ecosystem of
information.
Apple, with its strong and innovative product and exceptional supply chain, stands to take advantage of the growing demand from the emerging markets. To get an idea of this, Apple has also launched prepaid iPhones through Leap Wireless and Virgin Mobile. Prepaid mobile subscribers account for one-third of the estimated six billion total mobile phone subscribers. According to Google/Ipsos research exiting 2011, smartphone penetration stood at around 35% in the U.S. (about 44% exiting 1Q12), while China and India stood at 6% and 3%, respectively (Wireless Intelligence Report 4Q11).  Therefore, China and India, which account for over 35% of the global population, have over 1.8 billion people still using feature phones.  Thus with Apple strategic focus turning towards emerging market the company has a clear advantage with its 3G/4G technology to capture the Chinese and Indian markets.  Although emerging market users are also very price conscious, Apple in order to cater to this has introduced cheaper priced options of its iPhone along with the premium iPhone over the recent years.
Source: Wireless Intelligence
All-in-all,
we can conclude that Apple has a clear competitive advantage with its iPhone
technology to take advantage of these key trends as global smartphone
penetration rates remains well below 50% of the total 5.98 billion mobile phone
subscriber base.
Elasticity:
Elasticity
are a key matrix through which firms can guage whether their products can stand
any shock through external pressures. More importantly it helps firms to
strategize.
Price elasticity of
demand:
It
is the measure of how sensitive the demand of a product or good is relative to its price.
While Apple has many product we focus on its
flagship product the iPhone. The reason is Apple iPhone encompass many of the
market Apple is in: iOS, smartphone, iPad and MacOS. The price elasticity of
iPhone shows the resilience of Apple products, compared to other phones.
Source: Alessandro, Paper
As
can be seen, the price inelasticity of iPhone is relatively inelastic as oppose
to other providers. This ties well with our own research above. We believe key
factors are responsible for this:
Apple’s Ecosystem where
incremental products of Apple adds more value to customerApple’s in-house
operating system and various apps that run only on the OSState-of-the-art
technology and innovative features
Income elasticity
The
income elasticity measures the sensitivity of the product or good to change in
the income level. Apple appears to have a positive Income elasticity as
consumers are price sensitive in the smartphone industry. Apple has always
positioned itself as a premium product, being aware of its positive income
elasticity Apple has also introduced cheaper smartphone to cater to emerging
market consumers in China and India.
Source: Alessandro, Paper
Cross-price elasticity:
The
Cross price elasticity is a measure of how change in good A has an impact on a
related good B.
In
this regard, Apple appears to have a positive cross-price elasticity. This is
because from our analysis above we know that, Apple has developed a strategic
network of interdependent companies. If a consumer is buying iPhone 5 it will
also buy a protect-ant cover to protect the iPhone from damages, it will also
purchase an insurance from damage, and/or it will also buy various apps/services
such as a good headphone or Bluetooth device or apple watch etc.
SWOT Analysis
SWOT
stands for strengths, weaknesses, opportunities and threats. It is a tool to
analysize the internal and external strensths and weakness of the company and
environment it operates in.
The SWOT for Apple is presented below. 
(S)trengths:
String Brand EquityInnovative ProductsFocus on R&D and
innovationStrong balance sheet and
financial positionsophisticated
supply-chain Leadership position in
the marketstrategic ties with
vendorshigh profit margins
(W)eaknesses
Premium price products
thus competition takes away a chunck of market share by low pricing (Samsung)Apple products are
incompatible with other systems and products, as iOS is in-house builtLatest iPhone did not
have any major technology improvementsDeath of Steve Jobs has
taken away the visionary leadership
(O)pportunities:
Cloud computing is
increasing and Apple’s R&D towards data management is key to successProduct diversificationStrategic relationship
building in the industryProducts to be more compatible.
This is because the industry has a very short product cycle, so to stay in
business for a long time, one needs to not stand-alone but have products with
compatibility with others
(T)hreats:
Apple seems to have lost
its innovative spark. Tim Cook’s maangement is more focused towards
consolidating the business rather than focusing on new product innovationCompetition in emerging
markets is increasing, as Samsung has now the bulk of market shareLaw suits with Samsung
and tax scandals have led many consumers to view Apple as an unethical companyIncreasing R&D and
cheaper iPhone introduction has led to increasing manufacturing costs
Summary of Competitive Position

This
chart shows the automobile industry’s competitive position in the economy in
accordance to different variants. Due to the ever-increasing demand fueled by
higher incomes and auto financing, profitability and relative market share are
strong. The key success factors of this industry contribute quietly strongly to
it’s success which can be seen by this chart. Currently, we would rate its
competitive position as being favorable as it is not being able to meet the
current demands which is why government had to allow imports of cars giving
local auto industry’s competitive position a slight set back.
References:
Alessandro, iPhone Economic Analysis. Retrieved from http://www.academia.edu/6543906/Iphone_economic_analysisBrashares, Ann. Steve Jobs Thinks Different. Brookfield, CT: Twenty-First Century Books, 2001. LC Call Number: HD9696.2.U62 J633 2001 Catalog Record: 00057706Dudovskiy, John. Retrieved from 2016, http://research-methodology.net/apple-porters-five-forces-analysis-3/Kharpal, Arjun. Apple captures record 91 percent of global smartphone profits: Research. CNBC 2016. Retrived from http://www.cnbc.com/2016/11/23/apple-captures-record-91-percent-of-global-smartphone-profits-research.htmlOligopoly Structure: http://www.oocities.org/znuniverse/micro_economics/Price_Determination_under_Oligopoly.htmKing, Rachel. Fortune Magazine, June 2016. Reterived from http://fortune.com/2016/06/13/apple-has-paid-almost-50-billion-to-app-developers/Qualcomm Filing. Retrieved from https://www.sec.gov/Archives/edgar/data/804328/000123445212000371/qcom10-k2012.htmWireless Intelligence Report: http://change-corp.com/wp-content/uploads/2012/03/MWC12_WirelessIntelligence_Report.pdfNair, P. B., & Leng, Q. A. (2012). The sweet and sour Apple: The case of CEO strategies at Apple Inc. Vidwat, 5(1), 21-24.Wu, K. (2011). Customer loyalty explained by electronic recovery service quality: Implications of the customer relationship re-establishment for consumer electronics E-tailers. Contemporary Management Research, 7(1), 21-43He, Z., & Chen, X. (2005). Understanding the structure of China’s consumer electronics market: An empirical investigation of its consumer segments. Multinational Business Review, 13(2), 43-61Chen, Y., Chen, C., & Wu, W. C. (2011). Is China’s independent director system working? The case of the electronics industry. Journal of Economic Studies, 38(4), 360-383.Einhorn, B. (2013). Surging Lenovo takes aim at Apple and Samsung. Business Week, 1.Larson, C., & Stone, B. (2014). Xiaomi aims at Apple, Samsung with a low-cost tablet and TV. Business Week, 1.
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