STRATEGIC AUDIT WORKSHEET FOR APPLE INC. Prepared by: MGMT 4480 FALL 2009 I. CURRENT SITUATION A. Current Performance: Apple announced financial results for its fiscal 2009 fourth quarter ended September 26, 2009. The Company posted revenue of $9. 87 billion and a net quarterly profit of $1. 67 billion. These results compare to revenue of $7. 9 billion and net quarterly profit of $1. 14 billion, in the year-ago quarter. Gross margin was 36. 6 percent, up from 34. 7 percent in the year-ago quarter. International sales accounted for 46 percent of the quarter’s revenue.
Adjusting GAAP sales and product costs to eliminate the impact of subscription accounting, the corresponding non-GAAP measures* for the quarter are $12. 25 billion of “Adjusted Sales” and $2. 85 billion of “Adjusted Net Income. ” Apple sold 3. 05 million Macintosh® computers during the quarter, representing a 17 percent unit increase over the year-ago quarter. The Company sold 10. 2 million iPods during the quarter, representing an eight percent unit decline from the year-ago quarter. Apple sold 7. 4 million iPhones in the quarter, representing seven percent unit growth over the year-ago quarter.
B. Strategic Posture Focus on making the best product, and rewards will follow. In fact, Apple’s new partners are signing up in spite of, rather than because of, Jobs’ rules of engagement. Apple makes little pretense of building a level playing field, but routinely picks favorites—such as Google for building mapping and video applications for the iPhone. And rather than aim for the most partners, Apple focuses on attracting the best ones. As a result, the Mac and iPod feel more like a gated, elitist community, with Apple keeping close watch over who gets in. The notion of a platform is a very PC-oriented way of looking at the world,” says Silicon Valley financier Roger McNamee. “Consumers just want a great experience. They don’t buy platforms. ” II. CORPORATE GOVERNANCE A. Board of Directors Bill Campbell Chairman and former CEO Intuit Corp. Millard Drexler Chairman and CEO J. Crew Albert Gore Jr. Former Vice President of the United States Steve Jobs CEO, Apple Andrea Jung Chairman and CEO, Avon Products Arthur D. Levinson, Ph. D. Chairman Genentech Jerry York Chairman, President and CEO Harwinton Capital
B. Top Management Steve Jobs CEO, Apple Timothy D. Cook Chief Operating Officer Scott Forstall Senior Vice President iPhone Software Jonathan Ive Senior Vice President Industrial Design Ron Johnson Senior Vice President Retail Bob Mansfield Senior Vice President Mac Hardware Engineering Peter Oppenheimer Senior Vice President and Chief Financial Officer Mark Papermaster Senior Vice President Devices Hardware Engineering Philip W. Schiller Senior Vice President Worldwide Product Marketing Bertrand Serlet Senior Vice President Software Engineering
Bruce Sewell Senior Vice President and General Counsel III. EXTERNAL ENVIRONMENT: OPPORTUNITIES AND THREATS A. Societal Environment: SOCIETAL ENFIRONMENT FACTOR PROJECTED CHANGE OPPORTUNITY/THREAT PROBABILITY OF OCCURRENCE IMPACT OF CHANGE ON THE INDUSTRY ECONOMIC-Opportunity ThreatIndustry booms Industry declines as consumers want less luxury products The overall global economy outlook is not as good for this and the following. The raise of oil and food prices has lead inflation to the world economy while the consumers’ income has not been much reduced.
Since consumers are also facing a greater risk of being unemployed, it will push them to spend less in consuming luxuries goods, like update their current computer or to buy a new iPhone. This will have a quite big influence on Apple’s retail business. Considering the US economy will continue going down this year, the exchange rate might be falling further down. However, Apple has used foreign exchange forward and option positions to hedge the currency movement’s risk. The forward and option position means Apple has purchased its foreign currency in a fixed price well ahead they actually receive such income.
The adverse effect of the exchange movements can be minimized by such financial instruments. Indeed, the continual depreciation of the US currency had increased Apple’s revenue and other receivables in the overseas market so far. POLITICAL/LEGALthere are around 52% of the company’s net sales in 2007 coming from countries outside America.  War, terrorism, geopolitical uncertainties, public health issues may affect the company’s business greatly. All these events are far beyond the company’s ability to control.
Further more, Apple has outsourced its components, product manufacturing, transportation and logistics management to many third-party manufactures to lower operating costs. Many of these third-party manufactures are located outside the U. S. A. For example, the final assembly of the company’s products is being performed in countries such as Cork, Ireland, Korea, China and Czech Republic.  The manufacturing or logistics in these countries might be interrupted by political events. Once it is delayed by such political events, Apple may not be able to deliver its products to its customers on time.
Such events will damage the credit image of the company to both consumers and retailers. SOCIAL/CULTURALHealth safety and environmental protection are becoming more and more an important issue in countries which the company is operating its business. A variety of regulations and laws may adversely affect the company’s financial condition and operating results by requiring a safe disposal or recycling of Apple’s products. Particularly, there are now various countries within Europe and Asia, certain Canadian provinces and certain states within the U. S adopting such regulations to against companies like Apple Inc. 37] Certain products of the company is actually face health issues because of the design problem. It is reported that the improper use of iPod may lead to hearing loss for users.  TECHNOLOGICALThe market for PC, portable music player, mobile phone and other consumer electronic products are subject to not only huge competition but also fast technological changes. The short product life, frequent introduction of new products and the continual improvement in product performance and design requires the company to continue invest in the research and development in order to stay in the top of the industry.
Apple’s control over the entire production procedures of personal computer and the continual innovation on iPod and iPhone is a clear advantage over its competitors. Others have to simply follow its path. In the other hands, the increasing cost on R&D causes Apple to spend its capital reserve compared with its competitors. For example, Dell uses Microsoft’s operating system in all of its products while Apple installs its own brand operating system. But as a leading company in the industry, it might be worth to keep its advantage in such cases.
INTERNATIONALThe exchange rate between dollars and other currencies like euro and pounds sterling has fallen sharply since the credit crunch and the housing market problem in the US. Apple has used foreign exchange forward and option positions to hedge the currency movement’s risk. The forward and option position means Apple has purchased its foreign currency in a fixed price well ahead they actually receive such income. The adverse effect of the exchange movements can be minimized by such financial instruments III. EXTERNAL ENVIRONMENT: OPPORTUNITIES AND THREATS
B. Task Environment: INDUSTRY ENVIRONMENTAL FACTOR STRENGTH OF FACTORDESCRIPTION OF INDUSTRY STRUCTURAL FACTORS EXPECTED INDUSTRY REACTION RIVALRY5Page 4 BUYERS3 SUPPLIERS3 NEW ENTRANTS1 SUBSTITUTES5 OTHER STAKEHOLDERS C. Summary of External Factors IV. INTERNAL ENVIRONMENT: STRENGTHS AND WEAKNESSES A. Corporate Structure- The Board oversees the Chief Executive Officer (the “CEO”) and other senior management in the competent and ethical operation of the Corporation on a day-to-day basis and assures that the long-term interests of the shareholders are being served.
To satisfy its duties, directors are expected to take a proactive, focused approach to their position, and set standards to ensure that the Corporation is committed to business success through the maintenance of high standards of responsibility and ethics. B. Corporate Culture Very long hours (60-70) hours a week. Very hard working individuals. Pervasive secrecy measures. Employees sometimes aren’t allowed to know what future customers do. Executives travel to visit potential customers. Leisurely dress code. Employees have cited lack of compensation and the hardship of upward mobility lack of bonuses, raises, and stock options
C. Corporate Resources VALUE CHAIN ACTIVITYSTRENGTHSWEAKNESSES Materials Management Manufacturing/Operations Distribution, Marketing, Sales & Service Firm Infrastructure (Structure and Leadership) Human Resources Research and Development (both process and product) Information Systems Financial Resources D. Summary of Internal Factors V. ANALYSIS OF STRATEGIC FACTORS A. Situational Analysis STRATEGIC FACTORSDURATION COMMENTS Short (3 years) B. Review of Mission and Objectives VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY A. Strategic Alternatives B. Recommended Strategy VII.
IMPLEMENTATION A. Programs to be Developed B. Financial and Schedule Feasibility C. Operating Procedures to be Developed VIII. EVALUATION AND CONTROL A. Sufficiency of Current Information Systems and Controls B. Adequacy of Control Measures “Apple has its challenges for market share, and will never compete directly with Dell or HP. Instead, the focus is on creativity and the Digital Hub. Products such as the iPod are keeping us profitable during the economic downturn. If Apple continues to develop innovative and quality products like the iPod, then the long term picture should be secure. STRATEGIC AUDIT APPENDICES I. COMPANY FINANCIAL STATEMENTS A. Common-Sized Income Statement (5 years) B. Common-Sized Balance Sheet (5 years) C. Ratio Analysis (5 years) II. COMPARATIVE FINANCIAL STATEMENTS A. Comparative Common-Sized Income Statement (5 years) B. Comparative Common-Sized Balance Sheet (5 years) C. Comparative Ratio Analysis (5 years) REFERENCES USED http://www. businessweek. com/magazine/content/07_28/b4042058. htm http://www. associatedcontent. com/article/1170502/an_investment_analysis_of_apple_inc_pg14_pg14. html? cat=3