Many aspects of our world continue to change. The days of neighborhood corner stores are gone forever; also gone with these neighborhood corner stores are the jobs they provided to the citizens of their towns. Larger companies have moved in, replacing these smaller stores with larger and fewer stores. Entrepreneurs who used to make a great living running their small businesses are finding themselves in positions which they can no longer compete with these larger corporations. This leads these entrepreneurs to have to enter a new line of work; most likely as employees of these larger companies.
Because of this, the entrepreneur now makes less money as do the employees he or she once employed. This has changed the economic tends in America and the world. People have less buying power and they did even five to ten years ago. If a company is to strive, or even survive, in today’s economic landscape, it has to account for this economic trend. AAPL has adjusted well to this change in the economic landscape. Once AAPL only sold high priced computers; that was their market niche. They had plenty of customers who were addicted to AAPL’s brand and hungered for the next high priced product which AAPL put out.
Sure someone could buy a computer for less than $1000, but many had a thirst for the $2000 – $5000 computers that AAPL was producing. As the economic trend in the world changed and fewer people could afford these top end machines, AAPL had to change as well. AAPL re-examined itself to find how they too could survive in a world where the economic trend appeared to be changing in a way that its customer base had less buying power. On October 23, 2001, AAPL introduced the first iPOD; iPOD was introduced as the next generation of portable music players.
It worked off of a hard drive, gone are the bulky tapes and compact discs. This device was much smaller than previous portable music players and allowed AAPL to enter a new emerging market that allowed them to target a customer group who were not necessarily looking for an Apple Computer. “With iPod, Apple has invented a whole new category of digital music player that lets you put your entire music collection in your pocket and listen to it wherever you go,” said Steve Jobs, Apple’s CEO. “With iPod, listening to music will never be the same again” (Apple Inc. , 2001).
AAPL continued its trend of lower priced products by introducing the iPod touch, a more advanced version of the iPOD with many other functionalities such as touch a touch screen and game play, in 2008 (Apple Inc. , 2008). Introducing new products is not enough for a company to find success in today’s world. A company needs to have a strategic plan for competing with its competitors in the marketplace. AAPL recently disclosed that it pre-bought nearly billion in components. In doing this, AAPL bought up as much as 60% of the available touch screens in the market.
AAPL got a huge price break because of the quantity it purchased. AAPL was able to do this for two reasons. First, it has the cash. Secondly, it knew that there would be actual customer demand for its products and that it could sell all of the products it makes with these screens. A competitor doesn’t have those luxuries. Motorola (MMI), for instance, hopes it can sell millions of Xooms, but because it does not have the same customer following that AAPL does. This would mean that MMI would be taking a much larger risk if it made such a purchase.
Therefore, it does not really matter because MMI does not have the huge cash reserves in the bank to prepay for components in large quantities that AAPL has. As a result, MMI goes to the display supplier and orders up to 500,000 touch screens, while AAPL has ordered into the 10’s of millions of the same touch screens. AAPL is buying more screens and therefore gets a better price break. The result of this strategic move allowed AAPL to sell its higher end 64GB iPad for $699, while MMI sells the Xoom, which has only 32GB of flash storage, for $799 (Bajarin, 2011).
After gathering countless pages of SWOT analysis, sales data, financial data, stock projecting, and company background information, it is time to come to a conclusion about the health of AAPL and the prospect of investing in it. AAPL has an abundance of strengths; they are one of the most powerful companies in the world. They have more cash than the United States Government. They have plenty of room for growth. As for weaknesses, I have found that AAPL has very few.
The former CEO recently resigned because of concerns, but it appears that he prepared the company and his successor very well to function seamlessly in his absence. Another weakness I identified was that AAPL has not paid out dividends since the mid 1990s, but after additional research, this may be a strength because it has allowed them to have the abundance of cash to make some very strategic moves. AAPL has tremendous opportunity as they currently only hold about a 5% market share on cell phones, this is an area they will target for massive growth.
AAPL does not have much of an obvious threat. Their biggest threat is in other companies copying their technologies, which has their legal teams tied up in litigation a lot of the time. I learned about AAPL’s stakeholders and how they all benefit greatly from AAPL’s financial health. In reviewing AAPL’s financial statements, I learned how financially healthy they are and why. I learned about their strategic approach to business and how they are able to compete with their competitors by purchasing larger quantities of components than their competitors are capable of doing.
As a mutual fund manager, it is my duty to decide on which companies my mutual fund invests in. It is my duty to make sure that I am investing wisely to make the fund grow for my clients. There are two ways in which a fund grows. The first is through dividends that are reinvested to increase the number of shares that are held, the other is increase in the price of the stock shares. AAPL does not give dividends, so the latter would need to be very strong in order for a company to be a sound investment. AAPL has a proven track record on the latter and time again has double in price over the years. It is for this reason that I would choose to add AAPL to the portfolio of my mutual fund.
References
Apple Inc.. (2001). Apple – Press Info – Apple Presents iPOD. Retrieved from http://www.apple.com Apple Inc.. (2008). Apple – Press Info – Apple Presents New iPod touch. Retrieved from http://www. apple. com/pr/library/2008/09/09Apple-Introduces-New-iPod-touch. html Apple Inc. : NASDAQ:AAPL quotes ; news – Google Finance. (2011). Retrieved from http://www. google. com/finance? q=aapl