® 2007, Tony Gauvin, UMFK Apple Computer Inc.

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>® 2007, Tony Gauvin, UMFK Apple Computer Inc. 2005  A Strategic Management ® 2007, Tony Gauvin, UMFK Apple Computer Inc. 2005 A Strategic Management Case Study Graphics are the property of Apple Computer

>® 2007, Tony Gauvin, UMFK 2 Overview A brief history of Apple Computer EOY ® 2007, Tony Gauvin, UMFK 2 Overview A brief history of Apple Computer EOY 2004 Mission, Vision, Objectives, Strategies 2005 New Vision and Mission External Analysis Opportunities & Threats CPM EFE Internal Analysis Financial Data Strengths and weaknesses IFE Financial ratios Strategic Analysis SWOT Matrix SPACE BCG IE matrix Grand Strategy Matrix Matrix Analysis QSPM Possible alternative strategies Our Recommendation Strategies Long range objectives EPS/EBIT Implementation Issues Proposed annual objectives (goal) and polices Proposed procedures for evaluation Epilogue Current Performance Questions Resources Utilized

>® 2007, Tony Gauvin, UMFK 3 History of Apple  1976  Apple started ® 2007, Tony Gauvin, UMFK 3 History of Apple 1976 Apple started in a garage in Santa Clara, CA by Steve Wozniak and Steve Jobs A easy to use PC for small computer users 1980 $117,000,000 in sales IPO 1983 Wozniak quits Jobs hires John Sculley From Pepsi Co. to become President of Apple 1984 Macintosh PC

>® 2007, Tony Gauvin, UMFK 4 History of Apple 1985 Jobs and Sculley have ® 2007, Tony Gauvin, UMFK 4 History of Apple 1985 Jobs and Sculley have a “falling out” Jobs fired Sculley becomes CEO Bill Gates wants to buy Mac O/S, Sculley says No, Gates buys DOS from IBM, Microsoft kicks Apple's butt (90% market share) 1993 Apple release Newton, the first PDA Earnings Plunge, Apple restructures, Sculley Resigns 1997 Apple CEO Gilbert Amelio buys NextStep from Steve Jobs Earnings Plunge, Apple restructures, Amelio Resigns 1998 Steve Jobs returns as iCEO

>® 2007, Tony Gauvin, UMFK 5 History of Apple 1998 Jobs restructures Apple along ® 2007, Tony Gauvin, UMFK 5 History of Apple 1998 Jobs restructures Apple along two products lines Consumer “i”Mac “i” for internet Professional “Power”Mac “power” for power user Sales return, Brand emerges, Innovation rules USB, Firewire, Airport iPod and iTunes Stock price takes off like a rocket!

>® 2007, Tony Gauvin, UMFK 6 Lesson learned  + = $ ® 2007, Tony Gauvin, UMFK 6 Lesson learned + = $

>® 2007, Tony Gauvin, UMFK 7 2004 Vision Statement  Apple ignited the personal ® 2007, Tony Gauvin, UMFK 7 2004 Vision Statement Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Apple is committed to bringing the beast personal computing experience to students, educators, creative professional, and consumers around the world through its innovative hardware, software, and Internet offerings

>® 2007, Tony Gauvin, UMFK 8 2004 Mission  Apple Computer is committed to ® 2007, Tony Gauvin, UMFK 8 2004 Mission Apple Computer is committed to protecting the environment, health and safety of our employees, customers and the global communities where we operate. We recognize that by integrating sound environmental, health and safety management practices into all aspects of our business, we can offer technologically innovative products and services while conserving and enhancing resources for future generations. Apple strives for continuous improvement in our environmental, health and safety management systems and in the environmental quality of our products, processes and services.

>® 2007, Tony Gauvin, UMFK 9 2004 Strategies Market Penetration Branding Niche player ® 2007, Tony Gauvin, UMFK 9 2004 Strategies Market Penetration Branding Niche player New Product Development Speech recognition Virtual reality

>® 2007, Tony Gauvin, UMFK 10 2004 objectives Double market Share from 5% to ® 2007, Tony Gauvin, UMFK 10 2004 objectives Double market Share from 5% to 10% Remain as the most profitable computer company in the industry

>® 2007, Tony Gauvin, UMFK 11 2004 Issues How can apple best capitalize on ® 2007, Tony Gauvin, UMFK 11 2004 Issues How can apple best capitalize on the needs of the business world for a safer, virus-free, worm-free system? Should Apple enter the consumer electronics business like Dell and Gateway did? Should Apple remain a lone wolf in Operating Systems or adopt a cross-platform format compatible with Windows and Intel How much emphasis should Apple place on developing the next generation of voice recognition computers?

>® 2007, Tony Gauvin, UMFK 12 A new vision   To become the ® 2007, Tony Gauvin, UMFK 12 A new vision To become the global leader in computer and digital music products.

>® 2007, Tony Gauvin, UMFK 13 A New Mission  The Apple commitment to ® 2007, Tony Gauvin, UMFK 13 A New Mission The Apple commitment to excellence is its mission to provide computers and service (2) for people (1) that meet the highest standards of value and reliability. Apple is one of the leaders in the computer industry and produces some of the best-selling computers and digital music products in the world (3). Apple provides the highest level of quality and value for our customers (7). Those are timeless fundamentals. We also apply innovative technology to our core business (4) to make our products irresistible to customers, beneficial to society, and profitable to our company (5). We strive to provide additional opportunities for growth and enrichment of company personnel while maintaining a work environment for all employees (9) that encourages personal commitment and participation in support of achieving excellence. We are committed to being a good corporate citizen, and being openly honest with all of our stakeholders (6). We support activities that enable people to improve their lives and reinforce their commitment to society (8).

>® 2007, Tony Gauvin, UMFK 14 Apple’s New Mission The new mission answers the ® 2007, Tony Gauvin, UMFK 14 Apple’s New Mission The new mission answers the following questions Customers: Who are the firm’s customers? Products or services: What are the firm’s major products? Markets: Geographically, where does the firm compete? Technology: Is the firm technologically current? Concern for survival, growth, and profitability: Is the firm committed to growth and financial soundness? Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the firm? Self-concept: What is the firm’s distinctive competence or major competitive advantage? Concern for public image: Is the firm responsive to social, community, and environmental concerns? Concern for employees: Are employees a valuable asset of the firm?

>® 2007, Tony Gauvin, UMFK 15 External Audit (Opportunities) Increase in worms and viruses ® 2007, Tony Gauvin, UMFK 15 External Audit (Opportunities) Increase in worms and viruses on PCs. Large population (Gen X & Y) which are extremely individualistic and name brand conscious. Government crackdown on pirating music off the Internet. Much of the world is still without computers. People enjoy small electronic gadgets.

>® 2007, Tony Gauvin, UMFK 16 External Audit (Threats) Companies not seeing Apple as ® 2007, Tony Gauvin, UMFK 16 External Audit (Threats) Companies not seeing Apple as compatible with their software. Dell and HP are major competitors. Increasing competition with music downloads. Competition produces similar products at often half the price. The population at large unwilling to use Macintosh.

>® 2007, Tony Gauvin, UMFK 17 Apple CPM ® 2007, Tony Gauvin, UMFK 17 Apple CPM

>® 2007, Tony Gauvin, UMFK 18 Apple EFE ® 2007, Tony Gauvin, UMFK 18 Apple EFE

>® 2007, Tony Gauvin, UMFK 19 Consolidated  Balance Sheet ® 2007, Tony Gauvin, UMFK 19 Consolidated Balance Sheet

>® 2007, Tony Gauvin, UMFK 20 Consolidated statement of operations ® 2007, Tony Gauvin, UMFK 20 Consolidated statement of operations

>® 2007, Tony Gauvin, UMFK 21 Internal Audit (Strengths) iTunes Music Store is a ® 2007, Tony Gauvin, UMFK 21 Internal Audit (Strengths) iTunes Music Store is a good source of revenue, especially with the iPod and its availability on Windows platform. Developing own software and hardware. Apple’s niche audience provides the company with some insulation from the direct price competition. Revamping desktop and notebook lines. Web technology can be used to improve product awareness and sales. Low debt—more maneuverable.

>® 2007, Tony Gauvin, UMFK 22 Internal Audit (weaknesses)  Weak relationship with Intel ® 2007, Tony Gauvin, UMFK 22 Internal Audit (weaknesses) Weak relationship with Intel and Microsoft. Weak presence globally. Dependency on new product launches. Weak presence in markets other than education and publishing. Slow turnaround on high demand products.

>® 2007, Tony Gauvin, UMFK 23 Apple IFE ® 2007, Tony Gauvin, UMFK 23 Apple IFE

>® 2007, Tony Gauvin, UMFK 24 Financial Ratio Analysis  (January 2006) ® 2007, Tony Gauvin, UMFK 24 Financial Ratio Analysis (January 2006)

>® 2007, Tony Gauvin, UMFK 25 Financial Ratio Analysis  (January 2006) ® 2007, Tony Gauvin, UMFK 25 Financial Ratio Analysis (January 2006)

>® 2007, Tony Gauvin, UMFK 26 Financial Trends ® 2007, Tony Gauvin, UMFK 26 Financial Trends

>® 2007, Tony Gauvin, UMFK 27 Apple Stock Performance  http://moneycentral.msn.com/investor/charts/charting.asp?symbol=AAPL ® 2007, Tony Gauvin, UMFK 27 Apple Stock Performance http://moneycentral.msn.com/investor/charts/charting.asp?symbol=AAPL

>® 2007, Tony Gauvin, UMFK 28 Apple Net Worth  (January 2006 in millions) ® 2007, Tony Gauvin, UMFK 28 Apple Net Worth (January 2006 in millions)

>® 2007, Tony Gauvin, UMFK 29 Strategic Analysis  Swot Matrix F. SWOT Matrix ® 2007, Tony Gauvin, UMFK 29 Strategic Analysis Swot Matrix F. SWOT Matrix

>® 2007, Tony Gauvin, UMFK 30 Strategic Analysis  Space Matrix ® 2007, Tony Gauvin, UMFK 30 Strategic Analysis Space Matrix

>® 2007, Tony Gauvin, UMFK 31 Strategic Analysis  Space Matrix ® 2007, Tony Gauvin, UMFK 31 Strategic Analysis Space Matrix

>® 2007, Tony Gauvin, UMFK 32 Strategic Analysis  Grand Strategy Matrix ® 2007, Tony Gauvin, UMFK 32 Strategic Analysis Grand Strategy Matrix

>® 2007, Tony Gauvin, UMFK 33 Apple IE Matrix   IFE Scores Strong ® 2007, Tony Gauvin, UMFK 33 Apple IE Matrix IFE Scores Strong Average Weak 3-4 2-2.99 1-1.99 High 3-4 Medium 2-2.99 Low 1-1.99 EFE Scores Grow and Build Hold and Maintain Harvest or Divest Segments Revenue Profit EFE IFE Domestic 54% 52% 3.5 2.6 International 46% 48% 3.0 3.0 International Domestic

>® 2007, Tony Gauvin, UMFK 34 High 1.0 Medium .50 Low 0.0 High +20 ® 2007, Tony Gauvin, UMFK 34 High 1.0 Medium .50 Low 0.0 High +20 Low -20 Medium 0 Segments Revenue Profit Growth Rate Relative Market Share Domestic 54% 52% 17 0.3 International 46% 48% 5 0.2 Domestic International Apple BCG Matrix

>® 2007, Tony Gauvin, UMFK 35 Matrix Analysis ® 2007, Tony Gauvin, UMFK 35 Matrix Analysis

>® 2007, Tony Gauvin, UMFK 36 Apple QSPM ® 2007, Tony Gauvin, UMFK 36 Apple QSPM

>® 2007, Tony Gauvin, UMFK 37 Apple QSPM ® 2007, Tony Gauvin, UMFK 37 Apple QSPM

>® 2007, Tony Gauvin, UMFK 38 Possible alternative Strategies Market Penetration Go after Dell, ® 2007, Tony Gauvin, UMFK 38 Possible alternative Strategies Market Penetration Go after Dell, HP and Microsoft (the Wintel alliance) markets Shares Market Development Asia & Europe New Product development New consumer electronics products Related Diversification Peripherals Retrenchment Reengineer to lower cost of goods sold in reaction to commoditization pricing of PC market

>® 2007, Tony Gauvin, UMFK 39 Recommendations  Strategy 1 Open twenty computer retail ® 2007, Tony Gauvin, UMFK 39 Recommendations Strategy 1 Open twenty computer retail stores (not just peripherals and accessories). Apple currently operates stores throughout the United States with only peripherals and accessories for their computers. Adding the hardware should generate more hands-on awareness and use already established locations. This will increase product accessibility for those who wish to view items other than just accessories and increase awareness of the originality of Apple’s products. Two percent increase in sales representatives for the computer hardware. Estimated cost of $ 5 million per store = $100 Million Total.

>® 2007, Tony Gauvin, UMFK 40 Recommendations  Strategy 2 Expand into the Asian ® 2007, Tony Gauvin, UMFK 40 Recommendations Strategy 2 Expand into the Asian market over a five-year period by building a manufacturing facility and headquarters in Hong Kong and expanding sales throughout Asia. Estimated cost $5 billion. Strategy 3 Add more features to current products including new iPod, Shuffle, and Macintosh enhancements and power. $50 million is the estimated cost for Research and Development. While it is usually prudent to embark on just one strategy at a time, Apple cash reserves (~$8 billion) and managerial talents (Steve Jobs) makes embarking on 3 strategies at one time is not only possible but recommended.

>® 2007, Tony Gauvin, UMFK 41 EPS/EBIT $ Amount Needed:  $5,100 M Strategy ® 2007, Tony Gauvin, UMFK 41 EPS/EBIT $ Amount Needed: $5,100 M Strategy 1 & 2 Stock Price: $75 Tax Rate: 26% Interest Rate: 5% (2006) # Shares Outstanding: 842M

>® 2007, Tony Gauvin, UMFK 42 EPS/EBIT ® 2007, Tony Gauvin, UMFK 42 EPS/EBIT

>® 2007, Tony Gauvin, UMFK 43 Implementation Issues Moving production overseas Unsettling for current ® 2007, Tony Gauvin, UMFK 43 Implementation Issues Moving production overseas Unsettling for current workforce MIS Integration problems Change in culture May damage brand (Made in USA) Environmental outlook New marketing strategies Paradox of marketing to deficiencies of Wintel platform while becoming cross platform capable Forward integration issues Do we have the talent to become direct sellers Cross selling competitors peripherals >> Brand Dilution?

>® 2007, Tony Gauvin, UMFK 44 Proposed annual objectives (goal) and polices Double sales ® 2007, Tony Gauvin, UMFK 44 Proposed annual objectives (goal) and polices Double sales revenue in 3 years 1st year 50%, 2 year 25, 3 year 25% Write division polices stating exact gains and marketing approaches to achieve gains Reduce unit cost of goods sold by 10% annually for next 3 years Leverage low cost labor overseas Introduce one new consumer product each year Provide adequate funding to R&D Provide funding for market research Insure strong communication ties between marketing and R&D Either provide functional enhancements to existing products each year or obsolesce product Assign R&D project teams to each existing product Have market research produce product maturity curves for existing products Create Chief scientist position on Corporate Board to reflect the importance of R&D to Apple Computer

>® 2007, Tony Gauvin, UMFK 45 Proposed procedures for evaluation Qtr & Yearly financial ® 2007, Tony Gauvin, UMFK 45 Proposed procedures for evaluation Qtr & Yearly financial reports Track Industry & market Reponses to new product development Balanced Scorecard Yearly strategic meeting of division management and corporate management

>® 2007, Tony Gauvin, UMFK 46 Epilogue  2006 iPods add Video Content from ® 2007, Tony Gauvin, UMFK 46 Epilogue 2006 iPods add Video Content from Disney, ABC, ESPN, SOAPnet Stock soars by 120% iPod morphs to Shuffle Nano Goes to Intel Architecture Sales increase by 45% Gross margin increase by 8% 2007 iPhone Sales predicted to increase by 35% Gross profit margin predicted to increase by 8%

>® 2007, Tony Gauvin, UMFK 47 Current Stock Performance  http://moneycentral.msn.com/investor/charts/charting.asp?symbol=AAPL ® 2007, Tony Gauvin, UMFK 47 Current Stock Performance http://moneycentral.msn.com/investor/charts/charting.asp?symbol=AAPL

>® 2007, Tony Gauvin, UMFK 48 Resources  Case Notes  Forest David; Francis ® 2007, Tony Gauvin, UMFK 48 Resources Case Notes Forest David; Francis Marion University Form 10-K SEC Filing, Sept. 25, 2005 Datamonitor SWOT Apple 2004 & 2005 PCs in the United States 2005 Consumer Electronics in the United States 2005 Market Watch Apple: Unix for the people, Unix for the masses 2005 Value line Investment survey Apple 2007 Computer Peripherals 2007

>® 2007, Tony Gauvin, UMFK 49 Questions   http://seriouslygood.kdweeks.com/images/apple-question.gif ® 2007, Tony Gauvin, UMFK 49 Questions http://seriouslygood.kdweeks.com/images/apple-question.gif