Title Apple-Inc, HBS case study - cho vào.pdf ✅

9-715-456 REV: OCTOBER 28, 201 5 DAVID B. YOFFIE ERIC BALDWIN Apple Inc. in 2015 On March 9, 2015, Apple’s CEO, Tim Cook, announced the Apple Watch, his first major strategic initiative following the tragic death of Steve Jobs, his mentor and predecessor. Jobs, of course was a legend: he had changed Apple from a company on the verge of bankruptcy to one of the largest and most profitable companies in the world. Four years later, Cook was trying to demonstrate that he could not only sustain Apple’s achievements in computers, MP3 players, phones, and tablets, but he could also take Apple to the next level. By almost any measure, Apple’s performance in the prior decade had been stellar. As 2015 opened, Cook had reason to celebrate his own accomplishments. In the final quarter of 2014, Apple posted record profits of $18 billion, the largest quarterly profits in corporate history (see Exhibit 1). Spurred by the release of the iPhone 6, the iPhone shattered sales records, selling 74.5 million units in the 2014 holiday quarter. Sales were particularly robust in China, the world’s largest smartphone market. The company’s momentum and stock performance was undeniable (see Exhibit 2). But there were also challenges in 2015. Smartphone competition was intense, especially in China, where new low- cost competitors such as Xiaomi were taking the market by storm. iPod sales had been falling for seven straight years. Even though Macintosh sales had grown faster than the industry in recent years, Apple’s share of worldwide PCs remained in single digits. Worse, the iPad had suffered a significant decline in sales, down 22% from Q4 in 2013. With sales of the iPod and iPad slipping, and those of the Mac remaining relatively small, Apple was increasingly dependent on the iPhone, which accounted for 69% of its revenue.1 The announcement of the Apple Watch led many to ponder whether Cook would successfully transition Apple to “his” company, or whether Apple would still live off of Steve Jobs’s legacy? Would the Apple Watch be another home run, similar to the iPhone, or would it become another niche product, like Apple TV? Cook had big shoes to fill, and he had to wonder: Had he made the right strategic moves to deliver on Apple’s daunting ambitions? Professor David B. Yoffie and Research Associate Eric Baldwin prepared this case. This case derives from earlier cases, including: “Apple Inc., 2008,” HBS No. 708-480, by Professor David B. Yoffie and Research Associate Michael Slind, “Apple Computer, 2006,” HBS No. 706-496 by Professor David B. Yoffie and Research Associate Michael Slind, “Apple Inc. in 2010,” HBS No. 710-467 by Professor David B. Yoffie and Research Associate Renee Kim, and "Apple Inc. in 2012," HBS No. 712-490, by Professor David B. Yoffie and Research Associate Penelope Rossano. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2015 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. For the exclusive use of K. Ngo, 2016. This document is authorized for use only by Khanh Ngo in 2016.
715-456 Apple Inc. in 2015 Apple’s History Steve Jobs and Steve Wozniak, a pair of 20-something college dropouts, founded Apple Computer on April Fool’s Day, 1976.2 Working out of the Jobs family garage in Los Altos, California, they built a computer circuit board that they named the Apple I. Within several months, they had made 200 units and had taken on a new partner—A.C. “Mike” Markkula Jr., who was instrumental in attracting venture capital as the experienced businessman on the team. Jobs’s mission was to bring an easy-to- use computer to market, which led to the release of the Apple II in April 1978. It sparked a computing revolution that drove the PC industry to $1 billion in annual sales in less than three years.3 Apple quickly became the industry leader, selling more than 100,000 Apple IIs by the end of 1980. In December 1980, Apple launched a successful IPO. Apple’s competitive position changed fundamentally in 1981 when IBM entered the PC market. The IBM PC, which used Microsoft’s DOS operating system (OS) and a microprocessor (also called a CPU) from Intel, was a relatively “open” system that other producers could clone. Apple, on the other hand, practiced horizontal and vertical integration. It relied on its own proprietary designs and refused to license its software to third parties. IBM PCs not only gained more market share, but also emerged as the new standard for the industry. Apple responded by introducing the Macintosh in 1984. The Mac marked a breakthrough in ease of use, industrial design, and technical elegance. However, the Mac’s slow processor speed and lack of compatible software limited sales. Apple’s net income fell 62% between 1981 and 1984, sending the company into a crisis. Jobs, who was often referred to as the “soul” of the company, was forced out in 1985.4 The boardroom coup left John Sculley, the executive whom Jobs had recruited from Pepsi-Cola, alone at the helm. The Sculley Years, 1985–1993 Sculley pushed the Mac into new markets, most notably in desktop publishing and education. Apple’s desktop market was driven by its superior software, such as Aldus (later Adobe) PageMaker, and peripherals, such as laser printers. In education, Apple grabbed more than half the market. Apple’s worldwide market share recovered and stabilized at around 8% (see Exhibit 3). By 1990, Apple had $1 billion in cash and was the most profitable PC company in the world. Apple offered its customers a complete desktop solution, including hardware, software, and peripherals that allowed them to simply “plug-and-play.” Apple also stood out for typically designing its products from scratch, using unique chips, disk drives, and monitors. IBM compatibles narrowed the gap in ease of use in 1990 when Microsoft released Windows 3.0. Still, as one analyst noted, “[T]he majority of IBM and compatible users ‘put up’ with their machines, but Apple’s customers ‘love’ their Macs.”5 Macintosh’s loyal customers allowed Apple to sell its products at a premium price. Top-of-the-line Macs went for as much as $10,000, and gross profit hovered around an enviable 50%. However, as IBM-compatible prices dropped, Macs appeared overpriced by comparison. As the volume leader, IBM compatibles were also attracting the vast majority of new applications. Moreover, Apple’s cost structure was high: Apple devoted 9% of sales to research and development (R&D), compared with 5% at Compaq, and only 1% at many other IBM-clone manufacturers. After taking on the chief technology officer title in 1990, Sculley tried to move Apple into the mainstream by becoming a low- cost producer of computers with mass-market appeal. For instance, the Mac Classic, a $999 computer, was designed to compete head-to-head with low-priced IBM clones. Sculley also chose to forge an alliance with Apple’s foremost rival, IBM. They worked on two joint ventures, one to create a new PC OS and one aimed at multimedia applications. Apple undertook 2 For the exclusive use of K. Ngo, 2016. This document is authorized for use only by Khanh Ngo in 2016.

715-456 Apple Inc. in 2015 machines for the first time. Thanks to the iMac, Apple’s sales outpaced the industry’s average for the first time in years. Following Jobs’s return, Apple posted a $309 million profit in its 1998 fiscal year, reversing the previous year’s $1 billion loss. Another priority for Jobs was to break away from Apple’s tired, tarnished image. Jobs wanted Apple to be a cultural force. Not coincidentally, perhaps, Jobs retained his position as CEO of Pixar, an animation studio that he had bought in 1986. (Jobs sold Pixar to Walt Disney for $7.4 billion in 2006.) Through multimillion-dollar marketing campaigns such as the successful “Think Different” ads and catchy slogans (“The ultimate all-in-one design,” “It just works”), Apple promoted itself as a hip alternative to other computer brands. Later on, Apple highlighted its computers as the world’s “greenest lineup of notebooks” that were energy efficient and used recyclable materials.12 The goal was to differentiate the Macintosh amid intense competition in the PC industry. The Personal Computer Industry While Apple pioneered the first usable “personal” computing devices, it was IBM that brought PCs into the mainstream in the 1980s. But by the early 1990s, a new standard known as “Wintel” (the Windows OS combined with an Intel processor) dominated the industry. Thousands of manufacturers—ranging from Dell Computer to no-name clone makers—built PCs around standard building blocks from Microsoft and Intel. Growth was driven by lower prices and expanding capabilities. The overall industry continued to boom through the early 2000s, propelled by Internet demand and emerging markets such as China. By 2013, emerging markets accounted for nearly 58% of PC shipments.13 Growth in PC shipments started to slow after 2005 and tipped over into a 4% decline in 2012, followed by a drop of 10% in 2013, and 2.1% in 2014. Total PC shipments slipped to 308.7 million in 2014.14 Slowing revenue growth followed the slowdown in volume. Despite PCs that were faster, with more memory and storage, average selling prices (ASPs) declined by a compound annual rate of 8%– 10% per year from the early 1990s through 2005.15 The rate of decline in ASPs lessened between 2006 and 2014 to a compound annual rate of 2%.16 By 2014, the average profit margin for the major PC manufacturers was under 3%.17 The standardization of components led PC makers to cut spending on R&D to between 1% and 3% of revenue (see Exhibit 5).18 As contract manufacturing in Taiwan and China became popular, Asian firms took over responsibility for more innovations, such as industrial designs. The largest segment of the PC industry was laptop computers, which represented 56% of shipments in 2014.19 The growth in demand for laptops was linked to lower prices: the ASP for a portable PC had fallen to roughly $700. 20 Buyers and Distribution PC buyers fell into five categories: home, small and medium-sized business (SMB), corporate, education, and government. Home consumers represented the biggest segment, accounting for nearly half of worldwide PC shipments.21 While all buyers cared deeply about price, home consumers also valued design, mobility, and wireless connectivity; business consumers balanced price with service and support; and education buyers depended on software availability. In distribution, a significant shift occurred in the early 1990s when more knowledgeable PC customers moved away from full- service dealers that primarily sold established brands to business managers. Instead, larger enterprises bought directly from the manufacturer, while home and SMB customers started to buy PCs through superstores (Walmart, Costco), electronics retailers (Best Buy), and web-based retailers. At the same time, the so-called “white-box” channel—which featured generic machines assembled by 4 For the exclusive use of K. Ngo, 2016. This document is authorized for use only by Khanh Ngo in 2016.