We chose to research Apple Incorporated, one of the most innovative companies of our generation. It is safe to say that nearly every one in the US and many foreign countries have used or at least heard of Apple products. We will be looking at the macroeconomic variables that impact Apple’s business as well as how the current developments in the industry have impacted Apple’s financials and we will also look at how Apple competes with other firms in the same industry.
The first macroeconomic variable that we believe will affect Apple, Incorporated is the global forecast for Gross Domestic Product for 2013. The global forecast for GDP is 3.3% for 2013 according to Global Macroeconomic Outlook. This is relatively slow growth because the 10-year average was 3.8%. Usually slow growth is followed by a fall in demand of goods and services. Since Apple makes and sells more cyclical items, this could lead to a decrease demand for Apple products.
To continue making the revenue that the company needs, it could force them to lower their prices, which will also result in lower profits. Although, Apple products are more of a luxury item, there is a trend of dependence on smart phones and other technology that Apple produces so they may not be affected as much as other companies that produce luxury products.
Apple, Inc. has a strong presence in the United States of America and Japan so another factor to look at would be the GDPs for those countries. The GDP in America is supposed to be 0.02% higher than the 10-year average and almost double (0.9% as the 10-year average to 1.6%) in Japan. Using these numbers we can guess that Apple, Inc. will probably continue to grow since those GDP’s are larger than the past average but at a very slow rate since the growth is minimal.
The profit margin for Apple, Inc. has increased from 21.5% in 2010 to 23.9% in 2011. Using these numbers we could estimate that the profit margin for the company will probably increase only a couple percentages between 2011 and the end of the 2013 fiscal year. This would make the profit margin around 25.5% in our estimations. With this growth rate we believe that Apple will be able to outperform many of their competitors such as Microsoft for personal computers and Sony for cellphones.
The second macroeconomic factor that our group has decided will probably affect Apple, Inc. is the exchange rates. According to U.S. Dollar Currency Exchange Rate Forecast, the U.S. dollar is expected to decline in comparison to world currencies in the next four years. This is good for foreign demand because it will cause international pricing to decrease parallel to the decrease in the U.S. dollar value. One reason for this is because a weaker dollar also means less expensive export fees. Hopefully the results to these decreased prices would be an increase in foreign demand for Apple products. Although the demand would be increased, the drop in prices could also lead to slightly lower earnings.
Another downfall to the U.S. dollar decreasing in value would be that the cost of supplies from foreign suppliers would increase. Apple, Inc. is very dependent on these foreign imports of parts so the increase in those prices could cause a significant loss in gross margins as well. On a positive note, other PC and smart phone manufacturers will also be in this same predicament because many technological products have foreign-produced parts so if Apple can combat these hurdles more efficiently then they can have an advantage in the industry. The weakening of the U.S. dollar as I mentioned before as increase the prices of imports which should eliminate foreign competitors who are trying to sell their electronics in the United States as well.
From 2007 to 2011 we have seen an overall decrease in the market value for PC’s and it its forecasted to continue to decline through 2016 as show on figures below. Despite the decrease in the industry’s market value, Apple has had a steady increase in revenue and net income over the past 3 years. Net Income for Apple increased from $14,013,000,000 in 2010 to $25,922,000,000 in 2011. Further, in 2012 net income increased to $41,733,000,000. This shows that while the industry was declining, Apple was able to stay strong and profitable.
In order to truly understand how Apple operates and what products they offer to consumers in the personal electronics in comparison to other companies in the market. There are many players in the personal electronics industry and Apple is 3rd place for market share capturing 11.1% of the US PC market share. HP is the leading player in the US market accounting for 26.1% share of the market, Dell accounts for 22.3%, Toshiba falls behind Apple with 9.3% of the market share.
Apple Inc., together with subsidiaries, designs, manufactures, and markets mobile communication and media devices, personal computing products, and portable digital music players worldwide. The also sell a variety of related software, services, peripherals, and networking solutions.Apple has a vertically integrated business model, meaning that they are involved in nearly every step of the production process for Apple products.
The hardware they produce can be accompanied by a variety of Apple brand accessory components consumers may wish to use with their Apple device. The most popular Apple devices include iPod, iPhone, iPad, MacBook and AppleTV. Apple products run on their own unique operating system, which sets them apart in the industry from other personal electronic producers. Along with producing the hardware and software.
Apple has its own retail stores staffed with knowledgeable employees who can be of resource to Apple users. Apple also reaches out to third-party suppliers for example cellphone carriers for its mobile devises and Best Buy has also started selling MacBooks and Apple Desktop computers. Apple handles its own service of these components through its retail stores or its customer service center. Along with these products and services Apple has also branched out into cloud computing called the iCloud where people can store music, photos, and information wirelessly and allows them to obtain this information a multitude of computers rather than just one. Another thing that Apple has recently added is its Apple TV where customers can wirelessly stream iTunes, Netflix or other music and videos from their Mac or Windows based computer to a TV.
Apple competes with other firms in its industry by setting itself apart from them. It does this in three key ways. The first is that Apple uses a “Think Different” approach to designing products. “Think Different” means that they do not go with the flow and do what everyone else in the industry is doing. They allow themselves to be innovative and leaders rather than the follower. Secondly, is that Apple has one central committee that makes decisions for the company rather than having to work with partner companies or subsidiaries. The third way that Apple sets itself apart from the competition is in design. It is said that apple is almost two years ahead of its competitors in many markets and most competitors are following Apple’s designs.
Another way that Apple stays ahead of the competition is that it is vertically integrated, as explained earlier it owns all the components of the supply chain. Most of Apple’s competitors only have one or two of the four. For example Dell, Toshiba, and many other competitors build the hardware and put Microsoft operating systems and software on their hardware.
One of the best things that allows Apple to compete is brand recognition and customer loyalty. Apple is recognized as having one of the best security setups within its software; viruses are virtually nonexistent in Apple products with out the need for an anti-virus software. Customer loyalty is also huge for Apple, users usually do not do price comparison to Apple’s competitors where as many of the competitors customers will compare prices and benefits between products and services. In other words, Apple users don’t even look to switch to another brand.
Overall we see Apple Inc. as a strong leader in the personal electronics industry and don’t foresee that ending anytime soon. This is shown by their ability to stay profitable in an industry that usually falls during an economic decline as well as being notorious for their supreme innovation in the industry and brand loyalty. It will be interesting to see what the future holds for this ever-growing, innovative company.
Global Macroecomic Outlook. (n.d.). Meketa Group. Retrieved October 7, 2013,
“Pcs Industry Profile: United States.” Pcs Industry Profile: United States (2012): 1-39. Business Source Premier. Web. 8 Oct. 2013.
US Dollar Currency Exchange Rate Forecast. (n.d.). Interest Rate, Stock Index, Real Estate Price & Exchange Forecasts. Retrieved October 8, 2013, from http://forecast-chart.com/usd-trade-weighted.html