Case Study Apple SWOT & PESTLE/PESTEL Analysis

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Paul Nave
    

Master of International Business (MIB) University of Wollongong, Australia

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A Brief Profile of Apple Inc

Owing to its uniqueness and innovation in its wide range of products, Apple is regarded as the world’s most notable and recognizable brand for electronic devices. This multinational corporation has carved out a niche for itself ever since its co-founders —two college dropouts Steve Jobs and Steve Wozniak — brought a revolution in personal computing. Now, Apple is the recognized as the world’s largest information technology company in terms of revenue, the world’s largest technology company in total assets, and the world’s second largest mobile phone manufacturer with 115,000 employees (last recorded on July, 2016).

Industry Served Consumer electronics, computer hardware, computer software and online services

Headquarter Apple Campus, Cupertino, California, U.S.
Area Served Worldwide
Revenue $215.6 Billion (2016)
Current CEO Timothy Donald ‘Tim’ Cook
Competitors Samsung Electronics Co. Ltd., Google Inc., Cisco Systems Inc., Hewlett-Packard Company, Lenovo Group Limited, Sony Corporations
Products iPhone, iPod, iPad, Mac, Apple TV, software applications system iOS, OS X operating system, portable digital music players, iCloud and its accessories, applications like App Store, iTunes Store, iBook Store and Mac App Store and many more

Website www.apple.com

SWOT and PESTLE Analysis of Apple

The study is conducted to assess the relation of Apple’s high performance linked to the external and internal factors. This study reveals the macro and micro environmental factors that this company must consider to continue with its success. For the purpose of the study, the data is collected from various published sources and different case studies conducted on Apple. Two methods of analysis have been used to review Apple’s business framework — SWOT analysis for internal analysis and PESTLE analysis to evaluate the factors that affect this company externally.

SWOT Analysis

SWOT is one of the most common strategic management tools that help the managers to assess and organize ideas during environmental scanning. SWOT is an acronym for,

  • Strengths
  • Weaknesses
  • Threats
  • Opportunities

The purpose of SWOT analysis is to enhance the organization’s strengths, excludes its weaknesses, pursue opportunities and avoid potential threats.

SWOT Analysis of Apple

Strengths

Leading innovators among electronics brands:

Apple has been ranking consistently at the top of the BDG’s list of 50 companies since 2005 due to its innovation in electronic devices. It is also regarded as the pioneer of introducing the most innovative products in the market such as iTunes Media Player, iLife (for organizing editing, publishing photos, music and movies) and iWork (a presentation program). Additionally, in recent years, Apple has expanded its reach to entertainment and information services and is now one of the largest online retailers for streaming music and video and software solutions.

Terrific sales growth with each passing year

Apple has witnessed strong sales growth in the year of 2016, and has wisely managed its cash flow, resulting in the company ending up on top of the Forbes 100 Most Valuable Brands (2016) list with a total capital of $416.62 billion. The company expecting 38% revenue growth in 12 months (ending march 2017).

Annual Financial Report of Apple Inc.

Fiscal Year October – September, all values are given in USD

  2011 2012 2013 2014 2015 2016
Sales Revenue 108.6 B 155.97 B 170.87 B 183.24 B 231.28 B 214.23 B
Costs of Goods Sold (COGS) incl. D&A 64.08 B 87.92 B 107.24 B 112.55 B 142.26 B 131.51 B
Gross Income 44.52 B 68.06 B 63.63 B 70.69 B 89.03 B 82.72 B
Net Income 25.92 B 41.73 B 37.04 B 39.51 B 53.39 B 45.68 B
High brand recognition

From $2.4 billon in 2011, Apple invested $4.5 billion in 2013 for R&D in order to assess the market more closely. To achieve the results, it positioned its direct sales branches at high traffic locations to contribute to the company’s revenues. It took complete control of supply chain and circulated code of conducts report to the suppliers to enhance the brand recognition. The practice still continues. Consumers have immense trust in this brand name and they stand in the freezing night just to be among the fortunate ones to get a new version of their phones.

Strong and effective marketing team:

In its study, CEB explained that the most effective way of reaching out to the consumer was not through elaborated and complex websites, but to cater the right information to the customer as to what exactly they needed. This is what Apple has been doing. It involves simplicity in marketing its products.

For example - Take their Mac Vs PC advertisement. Two guys are standing against a white background, they are not talking about any lengthy list of features or even the price, no professional voiceover with emotional background score, not even the information on how to buy MAC; only one point is made: MAC is better than PC in every way.

High-quality customer experience

Apple always follows a magic formula; that is building up customer relations in order to sell more products. The customer service of Apple follows few steps to win over the trust of the consumers

  • Approach the consumer in a more personalized manner
  • Politely understand the need of the consumers
  • Present a solution that consumers will accept
  • Listen and resolve to their issues or concerns
  • End the customer’s current visit with an invitation to return.

Weaknesses

High price

Many criticize the brand for its high prices, but Apple fans justify the situation by tagging the brand as a ‘premium’ gadget-maker. They also say it is for those people who can afford a pony. Apple, in other words is like BMW, not Ford. But problem arises when consumers have access to cheaper products with more or less same features. Samsung, Microsoft and many other companies provide low-priced products compared to Apple. Here’s where apple loses its customer base. In 2013, Strategy Analytics found that 88% of iPhone users would purchase another iPhone compared to 93% in 2012. So with each passing year, its customers are being lured by the competitors.

Apple Cost Samsung Cost
32GB iPhone 7 £599/$649 Samsung Galaxy S7 with 32GB micro SD cared £597/$670

Unsuccessful anticipation

Apple founder Steve Jobs predicted that ‘No one’s going to buy big phones’. He got it wrong. Apple failed to predict the future of few brand categories like Phablets. Apple did not launch any larger screen phone despite having invested in tablets. But Samsung outperformed Apple when it came to Phablets by launching Samsung Galaxy Note in 2011, and now has a commanding presence in the Phablet market. The demand of large screen phone is only accelerating.

Incompatibility of different OS

Consumers whoever is accustomed with other OS systems do not get a handy experience when they choose to use iOS or OS X. The reason is if you are switching from a PC to MAC, it can be pretty intimidating using Apple’s operating system at first. When you are accustomed to using ‘Start’ menu, Apple will force you to use ‘Finder’ where you will find your apps, documents and other files.

Apple iPhone market shares are declining

According to Kanter Worldpanel ComTech’s surveys of smartphones sales in 2015, February findings showed that the market shares of Apple iPhone had declined for two months in a row in US, Japan, Germany, Great Britain, Italy and Spain. As a result, the company had less power to influence its customer to buy its iPhones. Here is a graphical representation of Apple’s iPhones’ shares falling in January and February in 2015

Country In 2015 In 2016
US 38.8% 43.5
Japan 49.8% 45.4
Germany 17.04% 15.03%
Great Britain 38.60% 39.90%
France 21.60% 20.45%
Italy 17.50% 17.20%
Spain 8.70% 7.35%
Overdependence on iPad and iPhone

The revenues of Apple Inc. are intensely dependent on the sales of iPad and iPhone. The revenues from these two products consumed 72.1% of its total revenues in 2013. Eventual decline in the sales of these products is leaving an adverse effect on the company’s sustainability and viability.

Defect in new products

Apple had given a statement to the New York Times, confirming manufacturing defects in iPhone 5s. There was a long list of issues in the device including battery life that iPhone 5s users were facing. Few problems were also detected in iPhone 6 after its release. The issue(s) was, however, quickly resolved by the engineers working with Apple.

Opportunities

High demand of products

Studies show that there is a high demand for new Apple products, especially a flourishing demand for recently introduced PowerBook and Power Mac products, as well as new upgrade to MAC OS X. Apple CEO Tim Cook asserted that the demand for new Apple Watch was exceeding the available supply. This is why so many pre-order deliveries were pushed back to May or later. Apple consumers are also waiting for new iMac line and iDVD.

Growth in communication devices market

CEO Cook further said in one of his interviews that Apple did not intent to sell low-cost phones. The aim was always to provide high-end products. Despite the huge price difference from its competitors, Apple still enjoys increasing market demands in the smartphone industry.

Worldwide SmartPhone Market Share of Apple
Period Apple
2012 Q2 16.6%
2013 Q2 12.9%
2014 Q2 11.6%
2015 Q2 13.9%
2016 Q2 11.7%
A vast unexplored market in Commonwealth countries:

Apple is yet to touch the growth prospective in the electronics market. There is a high possibility of earning revenues from the middle class segment of the commonwealth nations. Apple should take note that UK is developing closer ties with the Commonwealth nations and hence Apple UK should position itself in the markets in these member-countries to take advantage of the situation.

Increased Cloud-based services

Some believe that the upcoming iCoud innovation will bring future revenues to the company. To meet the high-rising demands of the iCould services, Apple can expand its services or can adapt new strategies to involve more consumers in these services.

Threats

The evolving environment of electronic communication

The complex structure of electronic environment communication devices is constantly innovating. The company must keep up with the pace or it will lag behind with its competitors. It poses a serious challenge to Apple company and the future market positions. Due to the fierce competition in communication market, this company is forced to constantly design and modify its product to match the needs of consumers.

Reputation damage due to tax scandal

Apple was involved in a tax scandal that went viral. Apple managed to keep $44 billion of its revenues from going into the hands of the taxmen. The company has no tax perspectives and pays minimal taxes. The tax professional did a bit of guesswork to analyze the source of revenues from its foreign operations.

Infringement of intellectual property (IP) rights

The company has a fault in its IP rights policies. If any company breaches the Apple patent rights, Apple takes time to acquire the information, and not as soon as the theft takes place. It takes some time to discover it. As a result, the company faces severe damages to their brands and services.

Android OS growth

Worldwide Smartphone Sales to End Users by Operating System in 2015 (Thousands of Units)

Operating System 2015 Units 2015 Market Share (%) 2016 Units 2016 Market Share (%)
Android 271,010 68.5 243,484 75.6
iOS 48,086 20.2 35,345 18.9
Windows 8,198 9.9 8,9095 4.9
Others 1,229.0 1.4 1,416.8 0.6

It poses a serious threat to the company that consumers can switch to Android operating system over iOS system.

PESTLE Analysis

PESTLE refers to the analysis of external factors which play a vital role while conducting research before beginning a new project. Managers assess the risks that the identified factors pose and use their knowledge to take beneficial decisions for the company. PESTLE is mainly an acronym of six factors which are,

  • Political
  • Economic
  • Social
  • Technological
  • Legal
  • Environmental

Unlike SWOT analysis, it concentrates on the external macro environmental factors that might affect the position of the business in present or near future.

PESTLE Analysis of Apple

Political factors

Major sales contribution to Apple Company comes from outside US amounting to more than $113.8 whereas the revenue from the home country is $68.8 billion. So any political insurgence in these countries can affect the company’s position negatively.

Suicide cases against Apple’s biggest Taiwanese supplier

Apple underwent a political pressure as suicides cases were registered against one of the biggest Apple’s supplier, Foxconn (a Taiwanese company). In May 2010, suicide cases were filed against Foxcoon holding it responsible for forcing the employees to work for long hours; two of the workers committed suicide. In another incident, 16 others were injured in an explosion in one of Apple’s supplier facilities.

Political unrest in China

Apple is immensely dependant on the low labor cost in China. But the unsettled political environment in China disrupts its manufacturing now and then. As a result, the manufacturing costs increases. Additionally, there is also an imposed restriction on Chinese imports in US in order to enhance the manufacturing in America. The political bonds with the Chinese government have immensely affected this US-based company. If the company tries to find an alternative for China, it will cost the company more and it will lead to increased prices for Apple products. Due to growing nationalism in China, Apple could become a potential target for anti-Americanism in China resulting in reduced market share.

Chances of terrorist attack

Despite the fact that United Kingdom boasts a stable government, there is always a risk of terrorist attacks. It can leave a negative impact on the company. The current political challenges in UK that Apple can counter are the increasing tensions in the ruling coalition and sagging government popularity.

Ban on Tim Cook in Russia

A lawmaker in Russia, who is noted for his harsh approach towards gay propaganda, has made a suggestion to ban Apple CEO Tim Cook from visiting Russia due to his public acknowledgment of his homosexuality in October.

Economic factors

Recessions and economic crises can affect the company’s revenues negatively to a greater extent compared to other businesses due to the choice of premium pricing policies.

Impact of global recession

At the time of global recession (2013), Apple had witnessed slow economic growth in 2013 and 2014. Apple has been affected by global recession immensely.

The decrement in sales growth due to global recession

Country 2011 – 2012 2012-2013
US         50% 9%
Europe 31% 4%
China 78% 13%

Europe’s economic difficulties

A change European economy has directly affected Apple which has resulted in decreased revenue by 16% in the third quarter of 2012 compared to the same period in the previous year.

Increased rate of inflation in US

At the time of increased rate of inflation in US, the company got affected as it reserved a large amount of cash. But hedge fund billionaire David Einhorn sued the company to force payments of dividends of $137 billion. The cash was used to dole out the dividend.

Increasing labor cost in China

China was known to be the hub of the manufacturing factories for Apple, but now the labor cost in China is rising. The Chinese government decides the minimum wages in China. It varies from region to region with benefits including housing, food and overtime pay. But official figures released by Trading Economies reflected that wages in some areas of Northern Hebei Province increased by 22% last year, while southern Gaungdong city recorded increment of 5%-17% in wage. The increased labor cost is directly affecting the cost of Apple products. Moreover, if the company seeks for any alternative, it will be expensive for the organization.

Rising value of US dollar

Due to the rising value of US dollar, the exchange rates are increasing. The increased exchange rates directly affect the cost of Apple products. The difference of between the US dollar and other currencies like Euro and Yuan makes it more expensive for Apple to do business in key markets such as Europe and China. Apple’s revenue could have been 800 points higher. In other words, Apple would report revenue of $52.8 billion if there is no increase in value of dollars, but it reported acquiring revenue of $49.6 in 2015.

Social factors

Globalization, the increased usage of the virtual world and the current lifestyle are few factors that leave an enormous impact on Apple.

An accessory of high-status lifestyle

Apple is one of the leading companies in the world. It is all about brand, it is the name that people around the world want to carry. This has got nothing to do with iPhone and iMac. The uniqueness, innovation in design, simple marketing of the products and high price of the products — these all make the Apple more desirable to its consumers. It is gradually became a symbol of social status mainly because of its extremely high prices that only who are higher in class can afford.

Potential market place in third world country

Apple can see growth in consumer spending in the coming decades in third world countries like Africa where people are not aware of Apple products. The company can penetrate the market unexplored market and can harbor new possibilities of acquiring revenues.

Moral factors of manufacturing in China

Many would not consider this brand based on the social-conscious ground because it is farming out its manufacturing operations in China, whereas the company can create some job opportunities in the home country. It is choosing China for its low-cost labor factor. This could limit the product’s appeal to some extent.

Brand acquisition in many countries

In order to satisfy and fulfill customer’s needs, this brand has been making some acquisitions such as Embark Prime Sense and Topsy and alliances with Sony, Motorola, Philips, and AT&T. The social background of different brands plays a vital role in this company’s operations.

Technological factors

The stakes of information technology stays higher compared to other industries when it comes to earning revenues. The companies who innovated with time, earned well and Apple is no doubt one of them.

The advantage of 760 China Mobile Subscriber

In 2013, Apple unveiled a deal with China Mobile to bring iPhone to customers in a market dominated by low-cost android smartphones. The deal gave this company a bigger entry to the Chinese market and China Mobile’s 760 subscribers. Under the agreement Apple products iPhone 5, iPhone 5S are available at China Mobile and Apple retail stores in China.

Assessing the consumer’s minds

In 2015, Apple reportedly spent $8.07 billion for R&D that accounted for about 3% of the company’s net sales. These researches are conducted in order to assess the customer mind-set considering the short product life cycle of the industry.

Preferences to screen size

Apple is known for its stunning concept design. It has created some of the finest and most attractive designs for their products that its contemporaries cannot match. But gradually consumers are giving preferences to larger screens.

Year Screen Preference Description
2008 Sub-4” Was thought as big enough
2011 4.0” to 4.3” Smartphones like Samsung Galaxy S II and Thunderbolt have pushed size to 4.3”
2014 4.5” to 5.0” 5”+ devices are immensely getting popular
2015 5.0” to 5.5” Samsung Galaxy S6 and G4 got the preferences because of their bigger sizes
2015 5.5” to 5.7”

Microsoft launched its new windows phone that is growing high in demand with days

Whereas, Apple’s last product iPhone 6 has only 4.7” display, and iPhone 6 Plus has 5.5” screen size.

Competitors offering the same

Apple’s direct competitors Samsung and Google are now offering the products and services that were once the signature of Apple. It took Google less than a year to build payment app Google Pay just like Apple Pay so it is no more a unique product of Apple. Apple’s competitors showed the ability to replicate its products and services that can threaten Apple brand as a whole.

Limited market for new products

The number of consumer products Apple can launch is limited. Moreover, these consumer products like Apple TV has a very restricted customer base.

The growing menace of cyber crimes

The increasing number of cyber crimes makes Apple systems vulnerable and less secure for consumers. It actually takes away the most competitive advantage which is a high reputation for security and safety.

The company operates globally which makes it vulnerable to many legal factors and litigation.

Domestic legal stress

Apple is going under a legal stress in its homeland, America. As in previous year, the company restored the imports of some of its parts used in iPhone that was earlier banned by US government.

Offering financial services by Apple Pay

Apple has introduced financial services through Apple Pay. It recently entered the highly regulated financial sector that could lead the company to increased level of regulation. The company could face increased level of litigation for offering financial services.

Breach of IP laws:

Apple produces a variety of brands that are covered by intellectual property laws such as software and music. Software produced by apple consumes a big part of its income that makes the company vulnerable to both piracy and litigation.

Entering automobile industry

Apple is making all preparation to enter automobile industry and pushing its team to begin production of electric vehicles as soon as 2020. This multinational company has invested $6.04 billion for R&D in the past year, and CEO Tim Cook is facing immense pressure to return the money to its shareholders. A lawsuit filed against this company says, ‘Apple has started the campaign of hiring best minds for battery making, despite a company who is starting from scratch needs more than 10 years to launch its products. Apple is planning it to launch it as soon as 2020.”

Environmental factors

Various environmental factors like disposal can influence the company’s revenues and brands.

Disposal of used or non-working electronic devices

Apple is countering a massive problem of discarding the electronic junk that is used or is in non-working position. This company is facing a huge problem of discarding the electronics that has lithium batteries in it. It would cost the company some huge expenses. Apple is forced to incur the expenses because of the environmental factor related to it.

Pollution concern in China

The manufacturing facilities in China are a growing concern for the company because of the pollution and environmental side effects. To minimize the environmental issues in the facilities, the company has to shell out more money in the future that could lead the company to huge expenses.

Attempt to cut greenhouse effect increases cost in China

China has taken the initiative to reduce greenhouse gasses and limit the fossil fuel use. This attempt of China could increase the electricity rates in the country. As a result, it could potentially raise the manufacturing costs for Apple.

Global warming

Due to increasing rate of global warming, Apple could face the problem of transoceanic shipping that is the core part of Apple chain supply.

Increased electricity costs

Apple is vulnerable to increased rates of electricity because of its dependence on data centers and other internet infrastructure. The company has to shell out more expenses in its manufacturing facilities.

Conclusion

After assessing all the factors in SWOT analysis, it is seen that Apple has more opportunities and strengths compared to threats and weaknesses. Given the company’s current leadership in the industry, Apple is in a position to enjoy these opportunities. But the company should devise few strategies to address effectively the threats and weaknesses that it recently developed or has chances of developing.

On the basis of PESTLE analysis, Apple should be able to thrive in electronic device industry in the next five years in spite of the challenges because it demonstrates an impressive ability to adopt to a challenging environment. The uniqueness in its design gives the company a competitive advantage which reflects in their sales and revenues. So it can be said that Apple will continue to be the leader in the electronic industry in years to come.

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