Apple Inc., an American multinational company Created by Steve Jobs and Steve Wozniak in 1976, designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players and sells a variety of related software, services, peripherals, solutions for networks and for hardware products and other manufacturers of content networks and digital applications. Among the company's products and services include iPhone, iPad, Mac, iPod, Apple TV, the iTunes multimedia content browser, the iLife suite (creativity and multimedia software), the iWork suite (productivity software), Final Cut Studio (a professional video editing suite), Logic Studio (software for audio editing on audio tracks), Aperture (software for editing RAW images), the Safari web browser, iTunes various consumer applications and professional software, the iOS and OS X operating systems, iCloud and a variety of accessories, services and support offers (Stephan, 2017). The company operates more than 300 proprietary stores in nine countries, thousands of distributors (including premium distributors or Apple Premium Resellers) and an online store (available in several countries) where its products are sold and technical assistance is provided.
The mission of Apple is to provide quality solutions, through the initiative and response of its members, offering cutting-edge technologies and value-added services to ensure the satisfaction of its customers. Apple is committed to ensuring that their customers have the best user experience by launching innovative software, services hardware, and internet offerings, among others. With this commitment Apple Inc. to offer its users devices, programs, and peripherals that make them experience innovation and quality among many other qualifiers of their products. Apple balances its unique ability to design and develop its own operating system, equipment, software applications, and services to provide the final consumer with new products and solutions with superior ease of use, complete integration, and innovation in industrial designs (Zhang, 2018). For Apple to achieve all this, it continually invests in the search, development, and improvement of its products and technologies. The market focuses that the company seeks to include education, small and medium enterprises, corporate, government and creative markets as well as information and scientific technologies. Each of them with specific offers that benefit the customer directly by the combination of devices, programs, and services relevant to them. The main competitors of Apple Inc. within the electronic equipment and hardware subsector are Blackberry Ltd., Lenovo Group, Sony, Microsoft (players and computing), Samsung, Google, Nokia, and LG among others. The net income of Apple Inc. has been increasing over the years. The following graph shows the net income from 2005 to 2018.
Graph 1. Apple's net income in the company's fiscal years from 2005 to 2018 (in billion U.S. dollars) (Statista, 2019)
As can be observed, the net income has been increasing over the years, especially from 2005 to 2012. In 2013, the income dropped slightly before increasing again in 2014 and 2015, it dropped in 2016 but then rose again in 2017 and 2018.
Apple's worldwide revenue has also been increasing over the years as shown below.
Graph 2. Apple's revenue worldwide from 2004 to 2018* (in billion U.S. dollars) (Statista, 2019)
Although there have been a few years where the revenue has decreased compared to the past year, the general trend shows that the revenue has been increasing over the years.
The stock price of Apple has also been increasing over the years. There are some few years where the stock price has reduced but mostly, the trend shows that the stock price has been on the rise.
Graph 3. The stock price from 2016 to February 2019 (Macro trends, 2019)
Graph 4. The P/E ratio of Apple Inc. from 2008 to 2018 (Macro trends, 2019)
Other financial ratios that show how Apple Inc. has been performing over the years are shown below.
Graph 5. Apple Current Ratio 2006-2018 | AAPL (Macro trends, 2019)
Graph 6. Apple ROE 2006-2018 | AAPL (Macro trends, 2019)
Graph 7. Apple Stock Price 1999-2019 | AAPL (Macro trends, 2019)
The current ratio of Apple has been consistently higher over the last 2 years. This indicates a higher coverage of current debts by its' current assets. The current ratios for the past two years clearly show that Apple Inc.'s assets outweigh its liabilities. It can, therefore, be concluded that Apple Inc. is in good financial health. The quick ratios for the past years show that Apple Inc. is more than able to pay off its short-term debts and current liabilities without having to liquidate is inventory, this clearly shows that Apple Inc. is in good financial health. The cash ratio for Apple is showing that Apple is enormously healthy. This ratio indicates the price the market is willing to pay for a company's earnings. When the EPS ratio is higher, it means that the market is more willing to pay for the company's earnings. The EPS ratio is calculated by dividing the net profit after tax by the number of shares outstanding (or the number of equity shares).
The financial reports indicate that the gross margin and net profit margin of Apple have been improving from the year 2014 as well as net profit margin too. Return on equity and return on assets are also increased from the year 2015 to 2016. There is a slight increase in asset turnover, current ratio and quick ratio which explains that the liquidity position of the company has not changed significantly. The Debt ratio of the company is showing that the company has taken more loans to finance its operations as well as dividend payout ratio shows that the company paid fewer dividends during the 2017/2016 as compared to the previous year (2016/2015). Price per earning (P/E) ratio decreased in the year 2015/2016. From the ratios, it can be observed that the company has increased its net income and maintained its liquidity position too. Cash flow from operations of Apple has also increased with a great amount, which explains how the company has maintained its liquidity.
Although Apple's total revenue has been increasing over the years, their profits have been declining. This could be attributed to the fact that the sale of its main devices (iPhones) have been declining. Apple is spending a lot of money and resources on advertising its products to create more awareness about its products and deal with its competitors.
Sources of Risk and Uncertainty in Apple's Operations
There are several risk factors affecting the performance of Apple Inc. First, Apple depends on international and regional economic factors to succeed and this could materially impact its dealings and operations. Regional and international economic situations keep fluctuating and this poses a threat to Apple's operations. Every country has different trends in its consumer spending and this is because of different employment levels, availability or unavailability of credit, unstable financial markets, low income, and unfavorable and tough government regulations such as high taxes and so many requirements needed to open a store. High dollar exchange rates in foreign currencies are also hindering factors since they make Apple products costlier more so in developing countries and markets. Apple has also faced stiff competition from its competitors such as Samsung and Huawei which use Android applications. The ease with which new companies have entered the mobile industry has increased the competition further.
Apple's core businesses lie in mobile communication devices and phones and personal computers as well as associated services, this sector is highly competitive and there are many other different companies providing similar services and products. Small and medium-sized enterprises (SMEs) have also entered the market thus making Apple increase its budget on advertising and research and development.
Fig 1. As can be shown, Apple uses so much money in research and development compared to its competitors (Business Insider, 2018)
Apple's budget for research and development has been increasing over the years. This shows that Apple has been facing huge competition over the years and is forced to spend more money every year to maintain its dominance. However, this indicates that Apple's financial success is dependent on the company's capability to continue developing new innovative products and services that can compete with those of Samsung, HP, Dell, and Huawei among others.
Government Regulations That Have Affected Apple's Operations Domestically and Abroad
All governments, including the USA government, is intent on protecting its consumers and ensuring that no company sales poor quality or harmful products and services to its consumers. The government also collects taxes from these companies. These two factors, government regulations, and taxes may affect Apple negatively or positively. Regulations that encourage investment or create a conducive environment for companies and low taxes favor Apple while high taxes and tough regulations affect Apple negatively. For example, in France, the government filed a lawsuit against Apple citing that the business actions of the company were promoting and encouraging a monopoly in the software and digital music industries. Domestically, Apple is also in trouble since it is facing antitrust allegations from the European Commission and the American Department of Justice because of anti-competitive actions in the e-book market.
Inputs Used in Apple's Production Function and The Challenges in Getting These Inputs
The raw materials, logistical services, and product manufacturing inputs used by Apple Inc. are mostly secured from outsourcing partners. Many of these partners are found in other countries such as China and Japan. There is one main advantage of outsourcing raw materials, it lowers the operating costs but it reduces the direct influence of Apple on the production and distribution of the products. Additionally, the reduced control of production and distribution may lower the quality and quantity of the products and services provided. Nonetheless, Apple maintains a good relationship with its suppliers and has no major problems with the supply of microprocessors, operating systems, memory chips, disk drives, and keyboards. And with more limitation in terms of commodities. Some of the suppliers of the inputs used by Apple include:
- Intel: processor provider for MacBook, MacBook Pro, MacBook Air, MacMini, iMac and Mac Pro.
- Compaq: supplier of printed circuits for the MacBook Air and some models of iPod
- Toshiba Corp: Japanese manufacturer of chips for iPhone and hard drives for the iPod
- Balda AG: German supplier of touch screens for iPhone
- TXC Corp: manufacturer of frequency controllers for iPhone
- Sharp Corp: flash memory manufacturer for iPhone
- Gold Circuit Electronics: manufacturer of printed circuits for the iPod
- Inventec: Chinese manufacturer of IPOD VIDEO
- Quanta Computer: manufacturer of exclusive laptops from Apple
- Wintek Corporation: the company responsible for manufacturing screens for Apple's iPhone
- LG: new supplier of LCD screens
- Entery Industrial Co: manufacturer of cables and plugs for iPhone
Has Apple Introduced New Products in Existing Markets or Created New Markets Over Time? How Have the Finances Been Affected?
Originally, Apple Inc. mostly focused on computer products and software. However, it started diversifying its products in 2007 and began production of mobile phone devices, for example, iPod, iPhone, touch products, and iPad. The decision to diversify its products greatl...
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