SWOT Analysis of Apple Inc. 2019.
|Industry||Computing & Smartphone Industry|
|Founders||Steve Jobs & Steve Wozniak.|
|Headquarters||Cupertino, California, United States.|
|Net Revenue||$265.6 Billion|
|Net Income||$59,531 Million|
|Number of Employees||132,000|
|Main Markets||United States & China|
Apple was founded by Steve Jobs and Steve Wozniack in 1976. The company was incorporated in 1977. It is a leading personal computing and smartphone brand with a global presence and market leading position. Apple is famous worldwide for several things including its cutting edge technology, superior quality premium products, marketing as well as financial strength. It is one of the main rivals of Microsoft. For Apple, 2018 was an year of strong financial performance. Since the company revolutionized personal computing by introducing Macintosh in 1984, it has continued to remain on the leading edge of technological transformation globally. Its market cap touched 1 trillion dollars last year. In 2019 however, Apple’s market cap has remained mostly at $920 to $960 billions.
While the success of Apple as a technology brand is attributed to the visionary leadership of Steve Jobs, its products have continued to outshine rival products and brands even after his departure. Under Tim Cook, Apple’s performance in some areas has improved a lot. Its services revenue grew the highest in its history in 2018. Even if the performance of the brand in the first two quarters of 2019 has not been as good as last year, the reasons can be attributed to the trade wars and some other changes in the PC and smartphone industries. Otherwise, Apple remains just as focused on technological innovation and is working on growing its services portfolio.
Apple’s large product portfolio includes Mac OS, iOS, notebooks, desktops, Mac Mini, iPad, IPhone and several more products and services. The company is among the leading brands in the world of personal computers and rivalled by brands like Dell, HP and Lenovo. The premium products of Apple have a large base of loyal customers all around the globe.
Learn more about the personal computing brand, its strengths, weaknesses, as well as its financial performance and crucial focus areas in this SWOT analysis.
Brand image and equity :-
One of the leading strengths of Apple is its strong brand image. The high level of brand equity or customer trust Apple enjoys can be attributed to its exemplary customer focus. Apple gained a lot of popularity right during its early days and its focus on research and innovation since then has been high. Its focus upon product quality and innovation, established the brand as a leader in computing technology right during its early days. While Apple still continues to rule, its continued focus upon user experience has helped it strengthen its brand equity.
iPhone and Macbook Pro as well as Macbook Air are among the most popular products of the brand. User experience as well as marketing are some core focus areas which have bolstered its image among technology users. Brand image matters more than ever in the twenty first century and in this area, Apple is considered second to none. High brand equity has also translated into superior financial performance for the technology brand and heavy influence in the computing and smartphone industry.
Product Portfolio :-
Apple’s product portfolio has continued to grow bigger with time and has expanded from core hardware and software products to include several new services. Apple, now has a large portfolio of products and services. They include iPhone, iPad, Mac, Apple Watch, AirPods, Apple TV, HomePod, a portfolio of consumer and professional software applications, iOS, macOS, watchOS and tvOS operating systems, iCloud, Apple Pay and a large range of other accessories, services and support offerings. Apple also sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, Book Store and Apple Music (collectively “Digital Content and Services”).
Apple products are sold globally through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and resellers. The Company sells a limited range of third-party Apple-compatible products, including application software and various accessories, through its retail and online stores (Apple Annual Report, 2018). iPhone is its leading source of revenue. Other major sources of revenue for the brand are Macbook and iPad. However, services also form a significant part of its portfolio as the company’s revenue from services grew past $37 billion in 2018.
International presence :-
Apple is truly an international brand and its popularity is high not just in the domestic markets but also abroad. The reason is its consistent focus upon innovation and user experience. Americas are the leading source of revenue for Apple. However, Greater China also accounts for a significant part of its earnings. In 2018, Greater China accounted for around 19% of the total revenue of the brand. Apple has very well managed its international presence through physical and online stores. Apart from that, the company utilises third party retailers, resellers and wholesalers also for selling its products in various corners of the world.
Research and Development :-
Innovation is one of the primary sources of Apple’s competitive advantage. The company is considered one of the most innovative brands on the earth right since its early days. However, with time its focus upon user experience as well as research and innovation has only grown. As a part of its research and development program, it focuses on growing its range of products and services as well as making improvements to the existing ones.
It also makes significant investment of financial and other resources in research and development every year. Level of financial investment in research and development at Apple has grown sharply during the last three years. In 2016, the R&D expenses of Apple stood at $10 Billion and grew to $11.6 billion in 2017. In 2018, its R&D expenditure grew past $14 billion to reach $14.24 billion. In this way, it is also one of the leading R&D spenders in the entire industry.
Profit margins : –
Apple has one important source of competitive advantage. It makes and sells only premium products. From Macbooks to iPhones, iPads and all other products from the house of Apple, carry a premium price tag. The reason is their excellent quality and the great user experience. This is also why Apple enjoys huge customer loyalty and there is a distinguishable difference in the quality of its products and those by its rivals. Apple customers do not mind paying extra for its premium range of products. However, there is an additional benefit of quality for Apple. It enjoys huge profit margins on almost all its offerings. Profit margins on most products and particularly the iPhone, which is Apple’s leading revenue generator is quite high. No rival brand enjoys such high profit margins. It is widely quoted that Apple enjoys 200% profit margin on its iPhone XS Max.
Marketing : –
Steve Jobs had helped Apple earn a special place for itself in the world of technology. However, apart from product quality, there are other things also which have helped Apple secure a place for itself in the hearts of its customers. Steve himself was a great marketer, who very well knew how to set the products Apple created apart from the competition. His focus was not just on innovation but on creating products everyone could fall in love with.
Apple also focuses on marketing for product promotions and customer engagement. In this area, the brand utilises a large range of marketing channels and mainly digital marketing channels for promotions. The company uses paid channels as well as e-commerce platforms for the promotion of its products and services. Apple’s logo makes it an easily recognisable brand. While the competition is fierce and might grow fiercer with time in the tech-world, Apple’s leadership position is bolstered by its focus upon marketing. The brand also invests a large sum each year in advertising. Its advertising costs are included in its selling, general and administrative expenses which reached $16.7 billion in 2018 (Annual report, 2018). The company has also raised its focus upon corporate social responsibility in the recent years. Tim Cook has tried to change the image of Apple from a fiercely competitive tech brand to a competitive and passionate company.
Large and loyal customer base: –
Apple enjoys a very large and loyal customer base spread throughout the globe. Its popularity in most corners of the world is very high and customers from around the world love its technology products. Greater China is one of the leading markets of Apple apart from America. United States is the largest market for Apple products followed by China. Apple’s focus on user experience has helped it earn the consumers’ trust. The brand values customers’ trust and does everything to retain it. Product quality, user experience, innovation, marketing and customer engagement are the reasons that enabled Apple to win a large and loyal customer base from all over the world.
Supply chain management : –
Apple’s leading strength is the quality of its products. However, to retain the quality level and maintain its quality standards, it sources from the best component suppliers located around the world. It ensures that only the suppliers who offer the best quality raw materials are a part of its supply chain. Majority of Apple’s supply chain as well as manufacturing and assembly activities are located outside the United States. A large part of the company’s supply chain and manufacturing activities are located in Asia.
Nearly all of Apple’s hardware products are manufactured by outsourcing partners located mainly in Asia, with some Mac computers manufactured in the U.S. and Ireland. A significant part of this manufacturing is currently carried out by a small number of outsourcing partners, often in single locations. Some of these outsourcing partners are single-sourced suppliers of components and manufacturers for several Apple products. While on the one hand, Apple has set rules and regulations for its suppliers in several areas including product quality and labor, on the other it has also made available resources which will make their task easier and working with the company profitable.
Fluctuating sales of Iphone :-
While Apple has a strong position in the computing and smartphone industry, the technology industry is undergoing fast changes. It is pitted against several major players. 2018 was a great year for the brand financially. However, in 2019, the sales of Apple products have fallen. Whatever, be the reason behind the fall, it is not a great signal. Microsoft, which is a leading rival, has continued to gain faster leaving a gap of around 100 billion in the market caps of the two brands. Sales of Iphone reduced in 2019 first and second quarters, compared to the same period last year. iPhone sales fell from $61 billion in the first quarter of 2018 to around $52 billion in 2019 q1.
There was again a major difference in the net sales of iPhones during the second quarters of fiscal 2018 and 2019. In the second quarter of 2019, the net sales of iPhone came down to around $31 billion compared to $37.6 billion during the same period last year. Net sales of iPhone in the first half of 2019 equalled $83 billion compared to $98.66 billion in the first half of 2018. This is a major difference. Mac sales on the other hand have remained comparatively stable. However, iPhone is the leading source of revenue for the brand and decline in iPhone sales has a more significant impact on the net revenue of Apple.
Premium prices :-
Apple has been able to sustain its premium pricing strategy despite the growing intensity of competition in the smartphone and personal computing industry. However, its premium pricing strategy is also a reason behind the fluctuation in sales. Otherwise, the brand would have a larger customer base. However, while the premium prices of Apple products do not entirely constitute a weakness, Apple sales could have been higher with lower prices. The problem is that Apple risks dilution by bringing prices down. So, premium prices still constitute a hindrance to sales growth.
Failure to seize several important opportunities :-
Apple has stayed focused mainly on its core products. While the industry has changed swiftly and its competitors embraced latest opportunities including cloud technology, Apple has been relatively slower in this area. Its revenue from services has grown. However, Microsoft and Amazon are reaping larger benefits by entering the cloud industry. Apple still has not been able to move very far from its core products like iPhone, Mac and Ipad. Other leading players including Microsoft and Amazon have continued to see their revenue from cloud services growing. To make its position and competitive advantage stronger and to enjoy more stable sales annually, the company should seize the opportunities created by emerging technologies.
Growing services portfolio : –
The technology industry has advanced faster in the recent years. Apple can very well benefit from growing its services portfolio. Apple’s earnings from services are already growing fast. If the company focuses on services, it could see its revenue growing faster. While iPhone is its leading source of revenue, lower sales of iPhone in 2019 versus previous year have alarmed the management. Its services include everything from app store to the licensing deals. Moreover, services are a really profitable area and by growing its revenue from services, the company would be able to reduce its dependence on other sources.
AI and IoT : –
Emerging technological areas can be a profitable deal for Apple. From 5G to AI and IoT, all these emerging areas in technology have brought a large number of opportunities for the technology brands. Sources say Apple is working on autonomous driving technology and about the release of an iCar in the near future. One cannot say anything with much certainty right now. However in case, Apple enters any of these areas on a larger scale then it could prove highly profitable for the brand.
Ever Intensifying competition :-
Competition in the technology industry including personal computing, cloud technology and smartphone industry has kept growing. While the rise of mobile computing has led to growth in the number of opportunities for smartphone brands, it has also affected the PC businesses. Moreover, Apple is rivalled by brands like HP, Dell and Lenovo which are equally aggressive in terms of innovation and product quality. The demand for affordable computing products has grown as a larger number of people are joining information technology jobs. Competition and the battle for market share is among the leading threats Apple faces.
Trade wars :-
The trade wars between China and United States have kept intensifying resulting in higher pressure on both American and Chinese technology firms. It is not just the Chinese firms like Huawei that are on the receiving end. Other technology giants including Apple have also found their operational costs increasing due to the growth in tariffs. Tim Cook attributed the decline in revenue and sales during the first quarter of 2019 to the trade war and rising tariffs which led to lower sales in China. Currently, China is the second largest market for Apple products, accounting for close to 20% of the brand’s revenue.
Economic fluctuations :-
Currency fluctuations and economic changes also affect the business of international technology brands like Apple. These factors are related directly to the profit of a brand like Apple. If economic activity in any of its leading markets declines, it leads to lower demand and lower sales. This affects revenue negatively and the profits as well. Last fiscal year, key economies including Asian economies remained relatively stable which boosted Apple’s revenue. However, a stronger dollar is still having a negative affect on its profits.
Regulatory pressures :-
Regulation of the technology industry has grown stiffer during the recent years. Apart from privacy and data security, there are several more concerns that have led to higher government scrutiny of tech firms. Governments around the world have taken stricter measures for the control and regulation of the tech firms including Apple, Google, Amazon and Microsoft. Higher regulation has also led to higher compliance costs and growth in the number of barriers. For some firms market expansion is being particularly difficult in this situation. Whether, it is China or European Union, Apple, Google, Microsoft, Amazon and Facebook, all have faced challenges due to growing regulatory pressure.
Apple is one of the big four players in the technology industry. The company enjoyed impressive sales in 2018. However, its financial performance in 2019 (q1 and q2) has weakened due to US China trade wars and some other factors. However, there is also some good news. Its services revenue is rising steadily and in the next few years if revenue from services accelerates, Apple could again be number one. However, it remained stuck with its core products for along time. Meanwhile Amazon and Microsoft entered the cloud industry and have seen their revenue and profits grow faster. The market environment is also much more challenging now than some years ago.
Apple’s core strength is its focus on innovation and product quality which have helped it maintain its strong position. Apart from fluctuations in revenue, overall the brand maintains its formidable presence in the tech industry. However, to reduce its dependence on personal computing and mobile computing products, it will need to diversify into new areas. The PC market stabilised a bit in 2018 but again declined in 2019. All these factors have led to growth in number of challenges before the brand while its rival Microsoft has steadily managed its market cap above 1 trillion for past few months. The challenges before Apple are big and unless it focuses upon expanding its sources of revenue and attracting new user segments, the gap between it and its leading rival Microsoft might grow bigger. Amid all these challenges, Apple’s existing user base is still a reliable source of revenue and its strong cash flow will continue to support investment in fresh innovations.
- More Sources:
- Apple Annual Report 2018.