A G10 Presentation

Lust

Knowledge

Hope

Anarchy

Forbidden

Genesis

In the beginning

Men

Computers

Big Blue

And men were taught about
computers

there was light

on one sunny day

A few crazy engineers

Think Different

Let’s teach computers about
people

Macintosh

The Computer for rest of us

Crazy

misfits

troublemakers

rebels

Round pegs in square holes

One’s who see things
differently

Not fond of rules

No respect for the Status quo

Praise them

Disagree with them

Quote them

disbelieve them

glorify them

Vilify them

The only thing you can’t do

Ignore them

They change things

They push the human race
forward

Crazy ones

Genius

the people who are crazy
enough

to think that they can

Are the ones who do

Think Different

Where is think different taking
Apple today?

Consumer Electronics

a risk worth taking

Another crazy gamble?

Distinctive Capabilities

Software

Hardware

Desktop Publishing

Education

Marketing

User Interface

insanely great

Core Competencies

27%

0.6%

Where did all the money go?

1. Innovation

10 years

1300

2. Branding

The Cult
of
The Cool

Microsoft
“Where do you want to go
today?”

Apple’s Mantra
“We know where do you want
to go today !!”

ultimate

Simplicity

3. Industrial Design

But

Smart

Small

A dollar in 1992

Worth $0.79 in 2002

What went wrong?

Who killed Apple Computers?

Apple
In the PC Industry

PC Industry Evolution

Before 1981
Proprietary

1981 - 1997
Open Structure

Attack of the clones

1997
Rise of the Internet

PC Industry Value Chain

But its really a value network ..

Value in Software

Commoditization

1976
Apple launched

Produced Microcomputers

$0.7 m to $76 m

IBM turns PC into
open structure

1984
Macintosh is born

The computer
“for the rest of us”

Apple misreads the trend

Macintosh peaks

Apple keeps losing
market share

IBM, Dell,
Hewlett-Packard, & Others

high priced proprietary system

not compatible with IBM PC

adopted Motorola CPU
instead of Intel

focused on education &
printing niches

Perception Map during 1998

1998: Defender

2007
Apple Computers becomes Apple
Inc.

1998 2007

has built a massive appeal

2007
Category
1998
Presence

How Big is Apple

Market Share ?

Income Statement

Share Price

“Apple should shut down for the
sake of its shareholders.”
Dell - 1997

A successful turn-around

After slugging it out in the PC
Wars

How did it happen?

Consumer Electronics
Industry

Cell-phone
Portable AV
Makers
PDA &
handhelds
Analogue
Manufacturers

Trends

1. Convergence

2. Global Supply Chain

3. DRM

4. Short Life Cycles

Consumer Electronics
Competitive Landscape

Oldies
Sony
Samsung
Thomson
LG
Creative
Matsushita

Convergence - PC
manufacturers
Microsoft
Dell
HP
Apple

Convergence -
Telecom/Broadband Players
Nokia
Cisco
Motorola
Sony Ericsson
Samsung

Convergence - PDA Makers
RIM
Palm
HP

Porters 5 Forces Analysis

Threat of Entry
Low

Capital Intensive Industry

Economies of scale

Market power is needed

Lower Net Margin

Threat of Suppliers
Low

Large Number of suppliers

High Substitutability

Forward Integration is Difficult

Threat of Buyers
Moderate to High

High elasticity of demand

Illegal peer to peer file sharing is
possible

Big dealers can pressurize to
reduce cost

Threat of Substitutes
Moderate

Alternative means to acquire
music are available

Threat of Rivalry
High

Highly competitive market

Both price and feature based
competition is there

Various online music sources are
available

Small stylish MP3 players are
available

Profitability

7%

What made Apple to move to the
CE Industry

1990s

Losing Internal Culture

Losing customer base

Diversification

1993: Newton (PDA)
1994: Quick Take
1996: Pippin

Could not handle 4 businesses
simultaneously

Don’t Diversify when things are
not going your way

1997

Revive Old Culture

Enter new markets

Non First mover advantage

But Still….

Digital Players Market

AAPL DELL HPQ MSFT Industry
Market Cap: 82.15B 52.87B 107.73B 273.11B 1.85B
Employees: 17,787 65,200 156,000 71,000 1.70K
Qtrly Rev Growth 23.80% -5.10% 10.70% 6.00% 24.30%
(yoy):
Revenue (ttm): 20.68B 57.88B 94.08B 46.06B 3.98B
Gross Margin 30.35% 17.56% 24.51% 79.43% 30.35%
(ttm):
EBITDA (ttm): 3.44B 4.43B 10.16B 17.94B 133.86M
Oper Margins 14.63% 6.85% 7.62% 36.20% 4.62%
(ttm):
Net Income (ttm): 2.43B 2.95B 6.52B 11.91B 86.38M
EPS (ttm): 2.76 1.284 2.306 1.17 0.82
P/E (ttm): 34.53 18.47 17.45 23.84 33.88
PEG (5 yr 1.42 1.24 1.21 1.38 2.74
expected):
P/S (ttm): 3.99 0.91 1.15 6 1.2

SNE MC PHG AAPL Industry
Market 52.11B 44.76B 42.52B 82.15B 235.61M
Cap:
Employees 158,500 334,402 121,732 17,787 11.25K
:
Qtrly Rev 10.10% 1.60% -0.80% 23.80% 7.20%
Growth
(yoy):
Revenue 67.99B 76.77B 35.85B 20.68B 235.85M
(ttm):
Gross 23.47% 29.94% 32.82% 30.35% 38.91%
Margin
(ttm):
EBITDA 5.19B 6.31B 2.28B 3.44B 12.35M
(ttm):
Oper 2.44% 5.04% 4.04% 14.63% 6.99%
Margins
(ttm):
Net 1.07B 1.99B 1.22B 2.43B 5.73M
Income
(ttm):
EPS (ttm): 1.02 0.91 6.05 2.76 0.3
P/E (ttm): 51.02 22.65 6.35 34.53 25.12
PEG (5 yr 2.14 1.22 2.15 1.42 1.36
expected):
P/S (ttm): 0.77 0.59 1.19 3.99 1.58

How did they do it?

The first mover ‘who gets it
right

Profitability Drivers

Uniqueness

Blue oceans

But not forever

Product Innovation may or
may not succeed

But innovation in the business
model will succeed almost every
time

Opportunities

Growing consumers electronic
market

Strategic alliances with peripheral
component manufactures and
media transmission giants

Opportunity to extend new
products to existing loyal
customers

High potential music phone
market

Threats

Very high level of competition

High product substitution effect

Legal Risks

Imitation

Technology Obsolescence

CSR Risks

Strengths

Innovation

Ease of use

Financial vitality

Brand loyalty

Weakness

Sporadic Innovation

Perfect can be the enemy of
good

Icon

iCon

SWOT Internal Internal
Strengths Weakness
Matrix
External S-O W-O
Opportunities
External S-T W-T
Threats

S-O Strategies

Use Brand Loyalty for
Selective Expansion in CE

Come out with more
consumer electronics devices

S-T Strategies

Create new markets through
Product Innovation

W-O Strategies

Apple’s digital offerings

W-T Strategies

Build socially complex
relations among partners

Increase productivity and turn
around of high demand
products

CE Product Value Chain : 1990s
Highly Vertically Integrated

CE Product Value Chain : 2000s
Emergence of vertical specialization

Primary success factors

Innovation

Differentiation

System Integration capabilities

Cost Structure

Complimentary success
factors

Consumer Branding

Manufacturing and supply chain
efficiency

Time to market

Service Provision

Critical success factors

Recruiting talented people

Securing partnerships with
value added resellers

Capitalizing on market-specific
opportunities

Competitive Advantage

Not in the technology

Not in the patents

Value Transference

Distribution Strategy

Apple’s value creation process

Multiple Products
Customised Products
Apple I/II/III
Mac Segmenting
Targeting
Focus on
iTV Education
Value
Creation
iPhone
Music Strategy
(iTunes, iPod)
Lifestyle
Convergence
Strategy Adding
Video Strategy (iDVD,
Value
iMovie, IPhoto)
Digital
Hub
Internet Strategy
(iTools, iDisk)

what does Ansoff’s matrix say?

what does BCG matrix say?

lessons

Strategies Adopted

Thinking Out-of-the-Box

recommendations

1. at the tipping point

fast in managing change

initiating it
understanding it
explaining & justifying it
planning & organizing it

driving & forcing it
timing & pacing it
containing it
financing it
selling it

the law of the few

stickiness

the power of context

2. be adept in change
implementation

3. transform technology into cash

major problem

successful choice,
bundling,
transformation
of new technologies

into
great new product
&
marketing strategies

answer lies in

Apple’s competence

re-conceptualize market focus

integrated management process
perspective

entered the highly competitive
mobile market

where nokia dominates all

encashing value contribution in a
mobile

Encashing Value Contribution in a Mobile
1992-97 1997-2002 2002-07
High-end &
Entry- Mid-tier
Level & smart new–to–market
phones phones phones
*Basic applications: Operating systems, micro-browsers, firewall, others

looking ahead in media

from punctual integration

to total integration

which means
more competitive markets

but, rules of competitive markets say

financial performance of generalists
improves with greater market share

while performance of specialists
drops off as market share increases

so,
adapt or die

to sustain

chalk out
relevant success factors

strategic
&
economic

challenges

1. form strategic alliances

critical to the success of its core
business

Critical to development or
maintenance of its core
competency

which blocks a competitive threat

which creates or maintains
strategic choices for Apple

which mitigates a significant risk to
its business

2. go on innovating

iPiano
iCar
iGuitar
iPottie

iGod iWatch
iPuff
iWash

finally

An Apple a day

Keeps Doctor away

Thank you
Chintan
Jasmer
Jyotsna
Qasim
Shalabh