Talking outline

COMPANY PROFILE

Apple Inc

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Apple Inc TABLE OF CONTENTS

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TABLE OF CONTENTS

Company Overview ........................................................................................................ 3 Key Facts ......................................................................................................................... 3 SWOT Analysis ............................................................................................................... 4

Apple Inc Company Overview

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Company Overview

COMPANY OVERVIEW

Apple Inc (Apple) designs, manufactures, and markets mobile communication and media devices, personal computers (PCs), portable and wearable devices. The company also offers related software, services, accessories, networking solutions, and third-party digital content and applications. Apple’s product portfolio includes iPhone, iPad, Mac, iPod, Apple Watch, Apple TV. It offers various consumer and professional software applications such as iOS, macOS, iPadOS, and watchOS operating systems, iCloud, AppleCare, Apple Pay, and accessories. Apple sells and delivers digital content and applications through Apple Store, App Store, Mac App Store, TV App Store, Watch App Store and Apple Music. The company’s business operations span the US, Europe, the Middle East and Asia-Pacific. Apple is headquartered in Cupertino, California, the US.

The company reported revenues of (US Dollars) US$260,174 million for the fiscal year ended September 2019 (FY2019), a decrease of 2% over FY2018. In FY2019, the company’s operating margin was 24.6%, compared to an operating margin of 26.7% in FY2018. In FY2019, the company recorded a net margin of 21.2%, compared to a net margin of 22.4% in FY2018.

Key Facts

KEY FACTS

Head Office Apple Inc 1 Apple Park Way CUPERTINO California CUPERTINO California USA

Phone 1 408 9961010 Fax Web Address www.apple.com/ Revenue / turnover (USD Mn) 260,174.0 Financial Year End September Employees 137,000 NASDAQ Ticker AAPL

Apple Inc SWOT Analysis

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SWOT Analysis

SWOT ANALYSIS

Apple Inc (Apple) designs, manufactures, and markets smartphones, personal computers, tablets, wearables and accessories, Distribution channels, R&D, and liquidity position are the company’s major strengths, whereas lawsuit and financial performance remain cause for concern. Mobile 5G commercialization market, strategic initiatives, facilities and stores expansion, and new products are likely to provide growth opportunities to the company. However, foreign exchange risks, intense competition, dependence on network providers, and technological changes could impact its business operations.

Strength

R&D Liquidity Position Distribution Channels

Weakness

Lawsuits Financial Performance

Opportunity

Mobile 5G Commercialization Market Strategic Initiatives Facilities and Stores Expansion Launch of New Products

Threat

Dependence on Network Providers Technological Changes Foreign Exchange Risks Intense Competition

Strength

R&D

Apple’s ability to compete with peers depends upon its ability to ensure a continuous and timely introduction of innovative and competitive products, services and technologies. The company is well supported by its robust in-house R&D facilities. It continues to develop new technologies and up- gradation of existing products and services as well as expansion of its offerings through R&D. The company regularly files patent applications to protect innovations emerge from its R&D and is currently pursuing thousands of patent applications around the world. In FY2019, the company invested US$16,217 million on R&D efforts, which as a percentage of revenue, stood at 6.2%. Apple also holds wide intellectual property rights related to accessories, software, hardware devices and services, which include trademarks, copyrights, patents, trademarks and other forms of intellectual property.

Liquidity Position

Higher liquidity places Apple at an advantage, enabling it to capture potential opportunities arising in the market. At the end of FY2019, the current ratio of the company was 1.5 as compared to 1.1 in FY2018. This was due to 24% increase in its current assets from US$131,339 million in FY2018 to US$162,819 million in FY2019, resulting from increase in cash and short term investments from US$66,301 million in FY2018 to US$100,557 million in FY2019. The company's current ratio was higher than that of its major

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competitors, including Dell Technology Inc and HP Inc, which reported current ratio of 0.8 each.

Distribution Channels

Apple uses both direct and indirect distribution channels to effectively reach its customers in the consumer, small and mid-sized business, and education, enterprise, and government markets. The company sells its products and resells third-party products in most of its major markets directly to consumers and small-and mid-sized businesses through its retail and online stores and direct sales force. The company’s retail stores are typically located at high-traffic locations in quality shopping malls and urban shopping districts. By operating its own stores and locating them in desirable high-traffic locations, the company is better positioned to ensure improved customer buying experience and attract new customers. The stores are designed to simplify and enhance the presentation and marketing of the company’s products and related solutions. Apple also employs a variety of indirect distribution channels such as third-party cellular network carriers, wholesalers, retailers and value-added resellers. The company invested in programs to enhance reseller sales by placing quality Apple fixtures, merchandising materials and other resources within selected third-party reseller locations. Through the Apple Premium Reseller Program, certain third-party resellers focus on the Apple platform by providing a high level of product expertise, integration and support services. Its iTunes U platform also facilitates in mobile learning and real-time distribution of various education related materials. Apple sells its hardware and software products to enterprise and government customers in each of its reportable operating segments. In FY2019, Apple’s direct and indirect distribution channels contributed for 31% and 69%, respectively, of the total sales.

Weakness

Lawsuits

Legal proceedings could result in huge penalties. In March 2020, Apple agreed to pay about US$500 million to settle litigation filed against it for slowing down older iPhones to encourage owners to purchase replacement batteries or handsets, as it introduced new models. The lawsuit is yet to receive the approval from the US District Judge Edward Davila in California, the US. In their lawsuit, consumers opposed that performance of their handsets slowed down following installation of Apple software updates. The move made them believe that their handsets required replacements and new batteries. In its defense, Apple justified that such problems are due to temperature changes, more usage and other relevant issues, which its engineers will address shortly. The court directed Apple to pay US$25 per iPhone. The lawyers seek up to US$93 million in legal fees, apart from up to US$1.5 million for expenses. Following slow performance issues of iPhones, Apple apologized and lowered the price of replacement batteries to US$29 from US$79.

Financial Performance

Decline in financial performance restricts the company to provide higher returns to its shareholders and also decreases its ability to allocate adequate funds for growth initiatives. In FY2019, the company reported revenue of US$260,174 million, a decline of 2% as comparted to US$265,595 million in FY2018. The decrease in annual revenue was due to decrease in net sales of iPhone. The company also reported

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a decline of 9.8% in operating income from US$70,898 million in FY2018 to US$63,930 million in FY2019. Its net income declined by 7.2% to US$55,256 million in FY2019 from US$59,531 million in FY2018.

Opportunity

Mobile 5G Commercialization Market

The adoption of mobile 5G services will be augmented by the increasing demand for mobile data connectivity at higher speeds, mainly owing to mobile video consumption, communication services and the development of the IoT industry. According to in-house research, the global mobile 5G subscription is expected to reach 806.9 million, accounting for 8.1% of the mobile subscriptions worldwide. Asia-Pacific will remain the biggest mobile 5G market in absolute terms, with 447.7 million estimated subscriptions by 2023. North America is expected to report the highest adoption rates in terms of the population (51.3%), followed by Europe (12.8%), Asia-Pacific (10.4%), Latin America (5.7%) and the Middle East and North Africa (1%). The mobile 5G service is estimated to generate revenue of US$196.1 billion globally by 2023, accounting for 19.4% of mobile service revenue worldwide. In mobile 5G services, North America will make the biggest contribution to revenue, at 35.7% in 2023, followed by Asia-Pacific (20.2%), and Europe (12.3%). In Latin America, Middle East and North Africa, the share of mobile 5G service revenue in each region’s mobile service revenue will remain at single digits through 2023.

In July 2019, the company signed an agreement to acquire the majority of Intel Corp’s smartphone modem business. Through this acquisition, Apple will now hold over 17,000 wireless technology patents, ranging from protocols for cellular standards to modem operation and modem architecture. The deal provides Apple compete control of one of the most important components, 5G enabled modems that are used in its devices, along with graphic chips and the microprocessors.

Strategic Initiatives

The company undertook several strategic initiatives in FY2020 to expand its business operations. In January 2020, the company signed multi-year supply contracts with Broadcom to provide wireless components and modules, which Apple would utilize in its products. This partnership will help the company to improve its product capabilities. In the same month, the company acquired Xnor.ai, a US- based artificial intelligence software start-up. This acquisition could help the company to improve its smart home platform based on iPadOS and iOS as well and expertise to run artificial intelligence at the edge. In June 2019, the company entered into a partnership with consumer electronics retailer Best Buy Co Inc (Best Buy), which has about 1,000 retail stores in the US, as compared to 270 store footprint of Apple. The partnership allows Apple’s customers to get their products repaired at every store of Best Buy in the US.

Facilities and Stores Expansion

The company's recent expansions could drive its revenue growth. In November 2019, the company commenced construction of new campus in Austin, Texas, as a part of its broad expansion in the city. According to the company, the new facility will run on 100% renewable energy, including from solar power

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generated on site. In September 2019, the company opened its largest store Apple Marunouchi in Japan. The new store is the company’s most expansive store in Japan. In August 2019, the company opened its largest store in India with Aptronix, a flagship Apple premium re-seller in India. The store will sell third- party products such as health and fitness products and Apple accessories.

Launch of New Products

Launch of new products could help Apple in driving its revenue growth. In January 2020, the company announced plans to launch new affordable iPhone SE. The new product will help the company to target the medium range cellphone market. In October 2019, the company introduced AirPods Pro Apple Watch, a personal electronic device that combines the watchOS user interface and other technologies designed for smaller devices. In September 2019, the company launched iPhone 11, iPhone 11 Pro and iPhone 11 Pro Max, a new pro line for iPhone. These products features advanced performance for users and Super Retina XDR display and powerful Apple-designed A13 Bionic chip. It also features a new triple-camera system which offers pro level camera experience wide, ultra-wide and telephoto camera as well as low light photography and high quality videos. In the same month, the company introduced Apple Watch series 5. In June 2019, the company introduced all-new Mac Pro, which features a high-performance memory system with a massive 1.5TB capacity, workstation-class Xeon processors up to 28 cores, eight peripheral components interconnect express expansion slots and a graphics architecture featuring powerful graphics card. During 2019, the company also introduced new versions of MacBook Air, Mac mini and Mac Pro as well as two new version of iPad Pro, iPad Air and iPad mini.

Threat

Dependence on Network Providers

The company is heavily dependent on the cellular network providers with respect to its iPhone. It relies on a few cellular network carriers in the US, the UK, Germany, and France for iPhone distribution and related services. Apple depends on major cellular network carriers to distribute iPhone and related services including AT&T in the US, O2 in the UK, T-Mobile in Germany, and Orange in France. The inability of these network carriers to attract and retain iPhone customers or the termination of any of the agreements may prove unfavorable results for Apple. Dependence on network providers could affect the profitability of the company in case of any failure by such cellular carriers.

Technological Changes

The company operates in a highly competitive market that is subject to rapid technological changes. Introduction of products using new technologies or the adoption of new industry standards will make existing products or products under development obsolete or unmarketable. In this scenario, to compete effectively, the company has to continuously innovate and introduce new products that gain market acceptance. Unless the company understands the customers' requirements and adapts to emerging technologies in the market and introduces new products and services, its business could be affected. The deployment of products across a wide range of platforms, integration of software with third party software applications and databases are some of the major challenges for the company.

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Foreign Exchange Risks

Apple operates in many parts of the world and is exposed to fluctuations in foreign exchange rates. The company reports financials in US dollar and its revenue is exposed to the volatility of the US dollar against other functional currencies, as it conducts business operations worldwide. A significant part of its revenue is also denominated in other currencies such as Euro, INR, Japanese Yen and Chines yuan. The major elements exposed to exchange rate risks include the company's investments in overseas subsidiaries and affiliates and monetary assets and liabilities arising from business transactions in foreign currencies. In FY2019, the company reported a loss of US$408 million due to foreign exchange translation adjustments as compared to a loss of US$525 million in FY2018. To minimize risks from currency fluctuations, the company involves in foreign exchange hedging by entering into foreign exchange forward contracts. However, there may be no assurance that such hedging or other measures could limit the impact of movements in exchange rates on the company's results of operations.

Intense Competition

Apple’s products and services compete in highly competitive global markets that are characterized by aggressive price cutting and resulting downward pressure on gross margins, continual improvement in product price/performance characteristics and frequent introduction of new products. Further, the competition is also characterized by evolving industry standards, rapid adoption of technological and product advancements by competitors, short product life cycles and price sensitivity of consumers. Its major competitors include Alphabet Inc, Acer Inc, BlackBerry Ltd, Dell Technologies Inc, HP Inc, Fujitsu Ltd, and among others. Some of the competitors of the company have greater financial, marketing and other resources, which enables them to pursue more vigorous marketing and expansion activities. The company’s competitors that sell mobile devices and personal computers compete with aggressive pricing and very low cost structures. Major competitive factors to the company include product price, features, relative price and performance, quality and reliability of product and service, design innovation, third-party accessories and software ecosystem, distribution and marketing capability and corporate reputation.

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