Business Strategy

Analyse the attached case study and write a business report not exceeding 2000 words Including an Executive Summary strictly limited to

200 words. ( Case Study Attached )

Refer Hubbard (1996, 2000) for instructions on analyzing a case study ( Hubbard Attached ).
All the information needed to respond to the case is provided in the case.
The Report should address the below:

1. External environment: Economic, legal, political, technological, demographic, socio-cultural issues influencing the organisation or

industry.

2. Industry analysis: Apply the Porter five forces model to the industry or industries that are the subject of the case.

3. Identify critical success factors (CSFs) required for the organisation to survive in the industry.

4. Company analysis: Identify the competitive strategy for the organisation. What businesses are they in? What is the organisation

structure? Who are the key stakeholders and what are their values? What are the critical functional level issues? Do the functional level

issues interact?

5. SWOT: Analyse organisation strengths, weaknesses and external/industry opportunities and threats.

6. Recommendations or solution: Identify recommendations at the network, corporate, business and functional level. Can you demonstrate

your solution cascading through the organisation (e.g. CEO succession in head quarters, leadership development program in business units)?

What can be achieved in the short, medium and long term? Can you provide a sketch of a financial forecast for your solution to the case?

Can you draw your revised organisation structure if appropriate?
Apple Inc. in2015

On March 9, 2015, Apple’s CEO, Tim Cook, announced the Apple Watch, his first major strategic initiative following the tragic death of

Steve Jobs, his mentor and predecessor. Jobs, of course was a legend: he had changed Apple from a company on the verge of bankruptcy to

one of the largest and most profitable companies in the world. Four years later, Cook was trying to demonstrate that he could not only

sustain Apple’s achievements in computers, MP3 players, phones, and tablets, but he could also take Apple to the nextlevel.

By almost any measure, Apple’s performance in the prior decade had been stellar. As 2015 opened, Cook had reason to celebrate his own

accomplishments. In the final quarter of 2014, Apple posted record profits of $18 billion, the largest quarterly profits in corporate

history (see Exhibit 1). Spurred by the release of the iPhone 6, the iPhone shattered sales records, selling 74.5 million units in the

2014 holiday quarter. Sales were particularly robust in China, the world’s largest smartphone market.

The company’s momentum and stock performance was undeniable (see Exhibit 2). But there were also challenges in 2015. Smartphone

competition was intense, especially in China, where new low- cost competitors such as Xiaomi were taking the market by storm. iPod sales

had been falling for seven straight years. Even though Macintosh sales had grown faster than the industry in recent years, Apple’s share

of worldwide PCs remained in single digits. Worse, the iPad had suffered a significant decline in sales, down 22% from Q4 in 2013. With

sales of the iPod and iPad slipping, and those of the Mac remaining relatively small, Apple was increasingly dependent on the iPhone,

which accounted for 69% of itsrevenue.1
The announcement of the Apple Watch led many to ponder whether Cook would successfully transition Apple to “his” company, or whether Apple

would still live off of Steve Jobs’s legacy? Would the Apple Watch be another home run, similar to the iPhone, or would it become another

niche product, like Apple TV? Cook had big shoes to fill, and he had to wonder: Had he made the right strategic moves to deliver on

Apple’s dauntingambitions?
Apple’sHistory
Steve Jobs and Steve Wozniak, a pair of 20-something college dropouts, founded Apple Computer on April Fool’s Day, 1976.2 Working out of

the Jobs family garage in Los Altos, California, they built a computer circuit board that they named the Apple I. Within several months,

they had made 200 units and had taken on a new partner—A.C. “Mike” Markkula Jr., who was instrumental in attracting venture capital as the

experienced businessman on the team. Jobs’s mission was to bring an easy-to- use computer to market, which led to the release of the Apple

II in April 1978. It sparked a computing revolution that drove the PC industry to $1 billion in annual sales in less than three years.3

Apple quickly became the industry leader, selling more than 100,000 Apple IIs by the end of 1980. In December 1980, Apple launched a

successfulIPO.

Apple’s competitive position changed fundamentally in 1981 when IBM entered the PC market. The IBM PC, which used Microsoft’s DOS

operating system (OS) and a microprocessor (also called a CPU) from Intel, was a relatively “open” system that other producers could

clone. Apple, on the other hand, practiced horizontal and vertical integration. It relied on its own proprietary designs and refused to

license its software to third parties. IBM PCs not only gained more market share, but also emerged as the new standard for the industry.

Apple responded by introducing the Macintosh in 1984. The Mac marked a breakthrough in ease of use, industrial design, and technical

elegance. However, the Mac’s slow processor speed and lack of compatible software limited sales. Apple’s net income fell 62% between 1981

and 1984, sending the company into a crisis. Jobs, who was often referred to as the “soul” of the company, was forced out in 1985.4 The

boardroom coup left John Sculley, the executive whom Jobs had recruited from Pepsi-Cola, alone at thehelm.

The Sculley Years,1985–1993
Sculley pushed the Mac into new markets, most notably in desktop publishing and education. Apple’s desktop market was driven by its

superior software, such as Aldus (later Adobe) PageMaker, and peripherals, such as laser printers. In education, Apple grabbed more than

half the market. Apple’s worldwide market share recovered and stabilized at around 8% (see Exhibit 3). By 1990, Apple had $1 billion in

cash and was the most profitable PC company in theworld.
Apple offered its customers a complete desktop solution, including hardware, software, and peripherals that allowed them to simply “plug-

and-play.” Apple also stood out for typically designing its products from scratch, using unique chips, disk drives, and monitors. IBM

compatibles narrowed the gap in ease of use in 1990 when Microsoft released Windows 3.0. Still, as one analyst noted, “[T]he majority of

IBM and compatible users ‘put up’ with their machines, but Apple’s customers ‘love’ theirMacs.”5

Macintosh’s loyal customers allowed Apple to sell its products at a premium price. Top-of-the-line Macs went for as much as $10,000, and

gross profit hovered around an enviable 50%. However, as IBM-compatible prices dropped, Macs appeared overpriced by comparison. As the

volume leader, IBM compatibles were also attracting the vast majority of new applications. Moreover, Apple’s cost structure was high:

Apple devoted 9% of sales to research and development (R&D), compared with 5% at Compaq, and only 1% at many other IBM-clone

manufacturers. After taking on the chief technology officer title in 1990, Sculley tried to move Apple into the mainstream by becoming a

low- cost producer of computers with mass-market appeal. For instance, the Mac Classic, a $999 computer, was designed to compete head-to-

head with low-priced IBMclones.

Sculley also chose to forge an alliance with Apple’s foremost rival, IBM. They worked on two joint

ventures,onetocreateanewPCOSandoneaimedatmultimediaapplications.Appleundertook
2

another cooperative project involving Novell and Intel to rework the Mac OS to run on Intel chips that boasted faster processing speed.

These projects, coupled with an ambition to bring out new “hit” products every 6 to 12 months, led to a full-scale assault on the PC

industry. Yet Apple’s gross margin dropped to 34%, 14 points below the company’s 10-year average. In June 1993, Sculley was replaced by

Michael Spindler, the company’spresident.

The Spindler and Amelio Years,1993–1997
Spindler killed the plan to put the Mac OS on Intel chips and announced that Apple would license a handful of companies to make Mac

clones. He tried to slash costs, which included cutting 16% of Apple’s workforce, and pushed for international growth. Despite these

efforts, Apple lost momentum: a 1995 Computerworld survey found that none of the Windows users would consider buying a Mac, while more

than half the Apple users expected to buy an Intel-based PC6 (see Exhibit 4 for shipments of PC microprocessors). Spindler, like his

predecessor, had high hopes for a revolutionary OS that would turn around the company’s fate. But at the end of 1995, Apple and IBM parted

ways on their joint ventures. After spending more than $500 million, neither side wanted to switch to a new technology.7 Following a $69

million loss in Apple’s first fiscal quarter of 1996, the company appointed another new CEO, Gilbert Amelio, an Apple board member.8

Amelio proclaimed that Apple would return to its premium-price differentiation strategy, but Macintosh sales continued to fall. In

December 1996, Amelio announced the acquisition of NeXT Software (founded by Jobs after he left Apple) and plans to develop a new OS based

on NeXT. Jobs also returned to Apple as a part- time adviser. Despite more restructuring efforts, Apple lost $1.6 billion under Amelio

(see Exhibit 3). At one point, insiders believed that Apple was within 90 days of bankruptcy. To save the company, Jobs became the

company’s interim CEO in September1997.

Steve Jobs and the AppleTurnaround
Jobs moved quickly to reshape Apple. In August 1997, Apple announced that Microsoft would invest $150 million in Apple and make a five-

year commitment to develop core products, such as Microsoft Office, for the Mac. Jobs abruptly halted the Macintosh licensing program.

Almost 99% of customers who had bought clones were existing Mac users, cannibalizing Apple’s profits.9 Apple’s 15 product lines were

slashed to just four categories—desktop and portable Macintoshes, for consumers and professionals. Tim Cook, hired by Jobs in 1998 after a

career in operations at Compaq and IBM, was credited with streamlining Apple’s supply chain. In addition, Apple launched a website to set

up direct sales for the first time. Internally, Jobs focused on reinvigorating innovation. Apple pared down its inventory significantly

and increased its spending on R&D (see Exhibit 5 for PC manufacturers’ key operatingmeasures).

Jobs sought to bring a new culture to Apple. While previous CEOs sought to broaden Apple’s products, Jobs believed deeply in focus. Apple

had one of the narrowest product lines of any company of comparable size. Jobs also believed in extreme practices of secrecy, including a

“closed door policy” in which key cards accessed only certain areas, and dummy positions for new hires until they could be trusted.

Everyone knew that violation of Apple’s culture of confidentiality was grounds for termination.10 Employees reported that working with

Jobs was rewarding, but often difficult. Jobs noted that “I don’t think I run roughshod over people, but if something sucks, I tell people

to their face.”11 Jobs was especially fanatic about industrial design, simplicity, and productelegance.
This approach led to Jobs’s first real coup—the iMac—introduced in August 1998. The $1,299 all- in-one computer featured colorful

translucent cases with a distinctive eggshell design. The iMac also supported“plug-and-

play”peripherals,suchasprinters,thatweredesignedforWindows-based

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machines for the first time. Thanks to the iMac, Apple’s sales outpaced the industry’s average for the first time in years. Following

Jobs’s return, Apple posted a $309 million profit in its 1998 fiscal year, reversing the previous year’s $1 billionloss.

Another priority for Jobs was to break away from Apple’s tired, tarnished image. Jobs wanted Apple to be a cultural force. Not

coincidentally, perhaps, Jobs retained his position as CEO of Pixar, an animation studio that he had bought in 1986. (Jobs sold Pixar to

Walt Disney for $7.4 billion in 2006.) Through multimillion-dollar marketing campaigns such as the successful “Think Different” ads and

catchy slogans (“The ultimate all-in-one design,” “It just works”), Apple promoted itself as a hip alternative to other computer brands.

Later on, Apple highlighted its computers as the world’s “greenest lineup of notebooks” that were energy efficient and used recyclable

materials.12 The goal wastodifferentiatetheMacintoshamidintensecompetitioninthePCindustry.

The Personal ComputerIndustry
While Apple pioneered the first usable “personal” computing devices, it was IBM that brought PCs into the mainstream in the 1980s. But by

the early 1990s, a new standard known as “Wintel” (the Windows OS combined with an Intel processor) dominated the industry. Thousands of

manufacturers—ranging from Dell Computer to no-name clone makers—built PCs around standard building blocks from Microsoft and Intel.

Growth was driven by lower prices and expanding capabilities. The overall industry continued to boom through the early 2000s, propelled by

Internet demand and emerging markets such as China. By 2013, emerging markets accounted for nearly 58% of PC shipments.13 Growth in PC

shipments started to slow after 2005 and tipped over into a 4%

declinein2012,followedbyadropof10%in2013,and2.1%in2014.TotalPCshipmentsslippedto
308.7 million in2014.14

Slowing revenue growth followed the slowdown in volume. Despite PCs that were faster, with more memory and storage, average selling prices

(ASPs) declined by a compound annual rate of 8%– 10% per year from the early 1990s through 2005.15 The rate of decline in ASPs lessened

between 2006 and 2014 to a compound annual rate of 2%.16 By 2014, the average profit margin for the major PC manufacturers was under 3%.17

The standardization of components led PC makers to cut spending on R&D to between 1% and 3% of revenue (see Exhibit 5).18 As contract

manufacturing in Taiwan and China became popular, Asian firms took over responsibility for more innovations, such as industrial designs.

The largest segment of the PC industry was laptop computers, which represented 56% of shipments in 2014.19 The growth in demand for

laptops was linked to lower prices: the ASP for a portable PC had fallen to roughly$700.20

Buyers andDistribution
PC buyers fell into five categories: home, small and medium-sized business (SMB), corporate, education, and government. Home consumers

represented the biggest segment, accounting for nearly half of worldwide PC shipments.21 While all buyers cared deeply about price, home

consumers also valued design, mobility, and wireless connectivity; business consumers balanced price with service and support; and

education buyers depended on software availability. In distribution, a significant shift occurred in the early 1990s when more

knowledgeable PC customers moved away from full- service dealers that primarily sold established brands to business managers. Instead,

larger enterprises bought directly from the manufacturer, while home and SMB customers started to buy PCs through superstores (Walmart,

Costco), electronics retailers (Best Buy), and web-based retailers. At the same time, the so-called “white-box” channel—which featured

generic machines assembledby
4

local entrepreneurs—represented a large channel for PC sales, especially in emerging markets. White- box PCs reportedly represented about

30% of the overall market in 2009, and by 2012, white-box PCs accounted for half of all desktop PCs sold inChina.22

PCManufacturers
The three top PC vendors—Lenovo, Hewlett-Packard, and Dell, accounted for 51.1% of worldwide shipments in 2014 (see Exhibit 3 for PC

manufacturers’ market shares). Industry leadership had shifted numerous times in the prior three decades, with Lenovo supplanting Hewlett-

Packard (HP) as the market leader in early 2014. China-based Lenovo vaulted into the front ranks of PC vendors in 2005 when it acquired

IBM’s money-losing PC business for $1.75 billion. The upward trend continued through 2014 when Lenovo’s worldwide share grew to 19.2%.23

Lenovo’s greatest strength was its dominant position in China, the fastest-growing PC market in the world, where it commanded a 35%

share.24 Following a rough period after the acquisition of Compaq Computer in 2002, HP outsourced most of its production to Asia and

dramatically lowered its costs. But HP’s attempt to maintain PC leadership came at a high price: after 2005, HP market share eroded,

margins declined, and the board fired three CEOs.25 HP proposed spinning off PCs in 2011, recanted, then decided again to break up the

company. HP held the number-two position in worldwide shipment market share at17.1%.26
Dell held the third-largest market share, with 13.5% of worldwide PC shipments for 2014.27 Its distinct combination of direct sales and

build-to-order manufacturing was popular in the corporate market for a decade. Yet when a boom in retail consumer PCs outpaced corporate

sales, Dell was late to catch on. Founder Michael Dell returned as CEO in January 2007 and emphasized consumer- friendly products,

reentered retail distribution, and pushed for international expansion. Still, Dell struggled with cost controls and poor margins. Faced

with a declining share price and investor discontent,MichaelDelltookthecompanyprivateina$25billiondealcompletedinlate2013.28

Suppliers, Complements, andSubstitutes
Suppliers to the PC industry fell into two categories: those that made products (such as memory chips, disk drives, and keyboards) with

many sources; and those that made products—notably microprocessors and operating systems—that had just a few sources. Products in the

first category were widely available at highly competitive prices. Products in the second category were supplied

chieflybytwofirms:IntelandMicrosoft(seeExhibit6forselectedfinancialinformation).
Microprocessors Microprocessors, or CPUs, were the hardware “brains” of a PC. Intel had held the majority of the PC CPU market since

the 1980s. Despite competition from companies like Advanced Micro Devices (11.5% market share in Q4 2014), Intel remained the market

leader with leading-edge technology, manufacturing scale, and a powerful brand, commanding over 88% of the market at the end of 2014.29

Performance of CPUs continued to double roughly every 18 to 24 months, but prices had dropped (adjusted for changes in computing power)

by an average of 30% per year between 1970 and 2007. However, CPU prices had stabilized in recent years.30 In 2015, a few manufacturers

were shipping PCs with ARM, a low-power, lower-performance, and lower-priced CPU that was used in smartphones and tablets, but ARM’s

market share in PCs remainedtiny.
Operating system An OS was the software that managed a PC’s resources and supported its applications. Microsoft had dominated this market

since the IBM PC in the 1980s. Nearly 90% of all PCs in the world ran on some version of Microsoft’s Windows operating system at the end

of 2014.31 Microsoft’sbighitinthenewmillenniumwasWindowsXP.IntroducedinOctober2001,17million
5
copies of XP were sold in its first eight weeks of sales. Developed at a cost of $1 billion, XP initially garnered for Microsoft between

$45 and $60 in revenue per copy.32 However, the next three generations, Vista (2007), Windows 7 (2009), and Windows 8 (2012), met with

mixed reviews, and each new generation of OS faced higher development, marketing, and support costs. In mid-2015, Microsoft planned to

ship its latest update, Windows10.
Application software, content, and complementary products The value of a computer corresponded directly to the complementary software,

content, and hardware that were available on that platform. Key application software included word processing, presentation graphics,

desktop publishing, and Internet browsing. After the early 1990s, the number of applications available on PCs exploded, while ASPs for PC

software collapsed. Microsoft was the largest vendor of software for Wintel PCs and, aside from Apple itself, for Macs as well.33 Firms

such as Google even offered productivity software (Google Apps) for free. PCs also benefited from a wide selection of content and a vast

array of complementary hardware, ranging from printers to multimedia devices. The number of new, exciting PC applications had slowed

considerably in recent years, as software developers increasingly focused on new devices, such as phones andtablets.
Alternative technologies Since the early 2000s, consumer electronics (CE) products, ranging from cell phones to TV set-top boxes to game

consoles, started to encroach on functionality that was once the sole purview of the PC. For example, advanced game devices like Sony

PlayStation 3 allowed consumers to watch DVDs, surf the web, and play games directly online, in addition to playing traditional video

games. Another alternative to Windows and Mac PCs emerged with the introduction of Chromebooks by Google in 2011. Chromebooks were

ultraportable laptops designed for web-browsing, e-mail, and other online or cloud-based activities. In essence, a Chromebook was a low-

cost laptop with limited internal storage and a stripped-down operating system from Google, called ChromeOS. All applications ran inside

the Chrome web browser. Over the next few years, Samsung, Dell, HP, Lenovo, and Acer introduced Chromebooks, which retailed for $199 to

$349. Some analysts predicted Chromebook sales would surpass 9 million units in2015.34
Of course, the most widely used alternatives were smartphones and tablets. With 1.3 billion smartphones and 230 million tablets sold in

2014, PC sales were suffering. While several industry insiders worried about the impact of digital devices on the PC industry, Jobs viewed

all of these devices as part of an integrated strategy to deliver breakthrough userexperiences.

The Macintosh and Apple’s “Digital Hub”Strategy
In 2001, marking Apple’s 25thanniversary, Jobs presented his vision for the Macintosh in what he called the “digital hub.” He believed

that the Macintosh had a real advantage for consumers who were becoming entrenched in a digital lifestyle, using digital cameras, portable

music players, and digital camcorders, not to mention mobile phones. The Mac could be the preferred “hub” to control, integrate, and add

value to these devices. Jobs viewed Apple’s control of both hardware and software, one of the few remaining in the PC industry, as a

uniquestrength.
Apple subsequently revamped its product line to offer machines that could deliver a cutting-edge, tightly integrated user experience.

Thanks to creative marketing and several innovative computer products, such as the ultra-thin Mac Air, Apple became the third-largest PC

vendor in the U.S., with a 13% unit share in Q4 2014.35 The company’s greatest strength lay in the premium-priced PC category; 91% of PCs

priced above $1,000 in the U.S. market were sold by Apple.36 Globally, Apple’s market share had risen steadily since 2004, reaching 6.4%

at the end of 2014, placing it fifth among global PC manufacturers.37

6

Changing the Macintosh To accomplish his vision, Jobs made four important changes in the Macintosh. First, and perhaps most important,

Apple introduced a new OS in 2001, the first fully overhauled platform released since 1984. The Mac OS X was based on UNIX, an

industrial-strength OS favored by computer professionals. Analysts estimated that OS X cost Apple roughly $1 billion to develop. Second,

since the early 1990s, Apple had built Macs with an IBM CPU, called PowerPC. In 2006, Jobs made a large investment to shift Apple to Intel

chips. By the next year, the entire Macintosh line ran on Intel. With “Intel Inside,” Apple could produce thinner, lighter laptops as

well as more powerful computers. The Mac could also natively run Microsoft Windows along with Windows applications. This capability

potentially offset a long-standing disadvantage of choosing a Mac—the relative lack of Macintoshsoftware.
The third element of the new Mac strategy was developing a proprietary set of applications, even though building programs such as the

iLife suite required Apple to assume significant development costs.38 The final piece of Jobs’s puzzle was a new distribution strategy.

The first Apple retail store opened in McLean, Virginia, in 2001. Apple not only wanted consumers to look at the eye-catching Macintosh

designs, but also wanted people to directly use and experience Apple’s software. In 2014, the retail division—with nearly 450 stores in 14

countries—accounted for 12% of Apple’s total revenue.39 Observers viewed Apple’s retail strategy as a huge success: one analyst said that

the company had become “the Nordstrom of technology.”40 Most analysts believed that the popularity of media products, such as the iPod,

iPhone, and iPad, were critical to bringing consumers into the stores and exposing them to theMac.

Moving Beyond theMacintosh
Apple’s shift toward a digital hub strategy was initiated by the debut of the iPod in 2001, followed by the iPhone in 2007, then the iPad

in 2010. While the prospects for the Macintosh business had improved, it was the iPod that set Apple on its explosive growth path. Jobs’s

focus for the iPod was simplicity: he said that “to make the iPod really easy to use—and this took a lot of arguing on my part—we needed

to limit what the device itself would do. Instead we put functionality in iTunes on the computer. . . . So by owning the iTunes software

and the iPod device, that allowed us to make the computerandthedeviceworktogether,anditallowedustoputthecomplexityintherightplace.”41
ThehistoricaleconomicsoftheiPodwerestellarbyCEindustrystandards.TheiPodNano,forexample, had gross margins of around 40% in 2007.42 The

biggest cost component for theNanowasflashmemory,whichcouldaccountformorethanhalfofthebillofmaterials.Recognizingtheimportance of flash

memory, Apple invested in several memory producers in order

tosecureoutputatthebestprices,whichmadeApplewasoneofthelargestpurchasersofflashmemoryinthe world.
Apple’s approach to developing and marketing the iPod became, over the initial and strenuous opposition of Jobs, more open than its

strategy for the Macintosh. The iPod could initially sync only with a Mac, and Jobs wanted to keep it that way, reportedly declaring at

one point that Windows users would get iPods “over my dead body.”43 The rest of Apple’s executive team pushed Jobs to change his mind, and

he ultimately relented. Opening the iPod provided access to the vast market of Windows users, and sales only really took off after Apple

developed a version of the iPod and the iTunes software that worked on Windows PCs in2003.
iTunesTwo features that differentiated Apple’s iPods were its iTunes desktop software and its iTunes Music Store, which opened in April

2003. The two, in combination, completed Apple’s vision of an entertainment hub.44 The iTunes store was the first legal site that allowed

music downloads on apay-per-songbasis.Visitorscouldpay$0.99persongforatitleofferedbyallfivemajorrecord

7
labels and by thousands of independent music labels. The downloaded songs could be played on the user’s computer, burned onto a CD, or

transferred to an iPod. Within three days of launching the service, PC owners had downloaded 1 million copies of free iTunes software and

had paid for 1 million songs.45 Customers loved the vast music selections and ease of use, transforming the iTunes store into the number-

one music store in theworld.46

The launch of the iTunes store had a galvanic impact on iPod sales. In the quarter before the release of iTunes store, Apple sold only

78,000 iPods. After the iTunes store launch, iPod sales shot up to 304,000 units in one quarter and exploded thereafter.47 The direct

impact of iTunes on Apple’s profitability was far less impressive. On average, roughly 70% of the money Apple collected per download went

to the music label that owned it, and about 20% went toward the cost of credit card processing. That left Apple with only about 10% of

revenue per download, from which Apple had to pay for its website, along with other direct and indirect costs.48 In essence, Jobs had

created a razor- and-blade business, only in reverse: the variable element (songs) served as a loss leader for a profit- driving

durablegood.49
Competition Online music stores such as Amazon.com, Napster, and Walmart.com offered individual song downloads at competitive or

discounted prices to iTunes. Most competitors offered songs to play on various devices, including the iPod. As time went on, the iPod and

iTunes faced challenges from a variety of online music streaming services, such as Pandora, Spotify, Rdio, and Rhapsody. Some, such as

Pandora, operated by creating personalized radio stations, choosing songs based on listener preferences. Others, like Spotify, gave users

unlimited access to their online catalog, allowing users to create their own playlists, share them, and stream music like a virtual MP3

player. In some markets, music labels made more money from Spotify thaniTunes.50

Under fierce competition from streaming services, digital music downloads began to decline in 2013, both in the U.S. and globally, for the

first time since the iTunes store launched in 2003. The iTunes store experienced a decline of as much as 13% in the first half of 2014.51

In response, Apple launched iTunes Radio, an ad-supported streaming service, in September 2013. In May 2014, Apple acquired Beats

Electronics in a $3 billion acquisition that was the largest in the company’s history. Beats, founded in 2008 by record-industry executive

Jimmy Iovine and hip-hop artist Dr. Dre, generated most of its revenue—$1.1 billion in 2013—from a line of wireless speakers and high-end

headphones. Beats had also launched a streaming music service in January 2014, which by the middle of the year had acquired

250,000subscribers.

After peaking in 2008, iPod sales started to decline; iPod net revenues for 2014 were less than a quarter what they had been in 2008. The

disruption of the digital music by the rise of streaming services had hastened its decline, but even more important had been the

integration of digital music players into cell phones. Jobs had anticipated that the cell phone had the potential to topple the iPod as

early as 2005, and ensured that Apple would lead the way with the iPhone, introduced in June 2007. Jobs later noted, “If you don’t

cannibalize yourself, someone elsewill.”

TheiPhone
At the January 2007 Macworld, Jobs introduced the iPhone, saying, “Every once in a while a revolutionary product comes along that changes

everything. Today, we’re introducing three revolutionary products of this class. The first one is a widescreen iPod with touch controls.

The second is a revolutionary mobile phone. And the third is a breakthrough Internet communications device. . . . These are not three

separate devices, this is one device, and we are calling it iPhone.”52 Hailed as Time magazine’s “Invention of the Year,” the iPhone

represented Apple’s bid to “reinvent
8

the phone.”53 Two and a half years of development efforts had been devoted to the phone, guarded under intense secrecy, even among the

company’s own employees. The estimated development cost was around $150million.

Entry into mobile phones might have been a risky move for Apple. At the time, the industry was dominated by Nokia, Motorola, and Samsung,

with roughly 60% market share. In addition, products were characterized by short product life cycles (averaging six to nine months) and

sophisticated technology, including radio technology, where Apple had little experience. Smartphones, which brought multiple functions

together in the palm of one’s hand, were just coming into prominence. In distribution, Apple faced powerful cellular carriers such as T-

Mobile and Vodafone, which controlled the networks and often the phones used on those networks. In the U.S., the top two carriers—Verizon

Wireless and AT&T—collectively controlled more than 60% of the market, and their networks were “locked”: an AT&T phone would only work on

AT&T’snetwork.

The iPhone, however, changed the rules in the industry. A revolutionary 3.5-inch touch-screen interface placed commands at the touch of

users’ fingertips without a physical keyboard. The iPhone’s entire system ran on a specially adapted version of Apple’s OS X platform

called iOS. Above all, users found it intuitive to use. Apple initially gave the iPhone to only one network operator in most markets.

AT&T, the exclusive U.S. operator for the iPhone when it launched, did not provide a subsidy, contrary to the usual practice in the

industry. Instead, AT&T agreed to an unprecedented revenue-sharingagreementwithApple,whichgaveApplecontroloverdistributionandpricing.
The first-generation iPhone sold about 6 million units over five quarters. Over the next six years, Apple released new phones that were

thinner, faster, more intelligent, and offered new form factors. The second iPhone, for example, was released in 2008 and ran on a faster

3G network. More importantly, Apple revamped its pricing model. Carriers provided a subsidy on the phone in exchange for dropping the

revenue-sharing agreement, and some subsidies were $400 per phone or higher. Over the next few years, Apple released an upgraded iPhone

every 12 to 15 months and greatly expanded distribution. With the release of the 4s in October 2011, Apple introduced Siri, a voice-

activated technology that Apple bought in 2010. With Siri, the user could dictate texts, schedule appointments, ask questions, and send

e-mails using voice commands.54 The iPhone 5, announced in September 2012, offered a larger screen size for the first time; and a year

later, the company launched the iPhone 5c, Apple’s first attempt to move down-market. The most successful iPhones in history were the 6

and 6 plus, released in September 2014. These models had a 4.7-inch and a 5.5-inch screen, respectively, matching the best-selling

Androidphones.

Apple’s relationship with carriers changed, too. In most markets in the world, Apple moved from a single carrier to multiple carriers

selling iPhones. When Apple added new carriers, it had a reputation as a very tough negotiator: Sprint, for example, signed a four-year,

$15 billion deal with Apple that committed the carrier to sell at least 24 million iPhones.55 Apple also began to sell “unlocked” versions

of the phone; users paid full price and could bring them to any carrier. With each new generation of product, Apple also dropped the price

of prior generations. The combination of big subsidies, low prices on older models, and expanded distribution caused revenues and unit

volumes to explode (see Exhibit 1). Analysts also projected that Apple generated more than 60% of the cell-phone industry’s total profits

in 2013, with only 8.3% unit market share. In the fourth quarter of 2014, Apple took a staggering 93% of the handset industry’sprofits.56
Analysts estimated that Apple realized an ASP of $687 from its iPhones in the last quarter of 2014, while overall average selling prices

for smartphones was around $300.57 Falling component costs and design improvements helped to reduce the iPhone’s cost structure. One study

showed that the bill of
9
materials for the 16GB iPhone 6, which retailed for $649, was about $200.58 The first iPhone with half the storage capacity cost around

$220 to build.59 Apple’s drive to keep its costs down was often controversial. Apple had become one of the largest customers of Foxconn in

China. After several suicides of Foxconn workers, Apple commissioned a study by the Fair Labor Association,60which discovered “serious and

pressing” violations of the FLA’s code of conduct. Cook promised quick action to bring subcontractors intocompliance.
App Store One key driver behind the iPhone sensation was the launch of the Apple App Store, which Jobs only reluctantly supported. Jobs

initially wanted Apple to develop all the apps for the phone, a stance consistent with his preference for closed platforms and total

control. Other Apple executives pushed Jobs to open up the platform, and developers soon began to “jailbreak” the iPhone platform so it

could to run additional apps anyway. Jobs eventually relented, and the App Store launched in July 2008. Software applications for PDAs and

smartphones had been around for years. But Apple’s App Store was the first outlet that made it easy to distribute, access, and download

applications directly onto the mobile phone. Many apps were free; even paid apps usually started at
$0.99. The App Store was introduced as part of iTunes, which already had a huge following. Software developers also welcomed the App Store

because Apple made it easier to reach consumers. Apple reserved the right to approve all applications and kept a 30% cut of the

developer’s appsales.
The popularity of the App Store was stunning. In the first 18 months, 4 billion applications had been downloaded worldwide; by mid-2014,

the number of downloads had risen to 75 billion.61 By the end of 2014, over 1.4 million applications were available in categories ranging

from games to business productivity programs (see Exhibit 7 for an overview of smartphone operating systems and app stores).62 Walt

Mossberg of the Wall Street Journal claimed that “the App Store is what makes your device worth the price.”63 Mobile apps had turned into

a nice side business for Apple as well. In FY 2014, Apple generated $10.2 billion in revenues from the sale of music, books, videos, and

applications.64 Over time, Apple also paid out more than $25 billion to developers for the 75 billion apps downloaded to iPhones, iPods,

andiPads.65
Competitors Competition was fierce in the smartphone industry, where worldwide shipments surpassed 1.3 billion in 2014.66 TheiPhone’s

greatest competition came from Android, an open and free platform developed by Google. As more manufacturers entered the market,

innovation on the Android platform exploded. Not surprisingly, developers saw a potentially large market that might rival Apple. More

variety, lower prices, and a comparable set of applications powered Android-based phones to become the most popular smartphones in 2014,

with about 81% market share compared to about 15% for Apple. In 2014, more than 1 billion Android phones shipped worldwide (see Exhibit 7

for smartphone sales).67 The share for Apple’s iOS fell gradually with the growth of Android, from its peak of nearly 19% in 2011.

However, the biggest losers from Android’s growth were Nokia’s Symbian and RIM’s BlackBerry. Symbian had the largest share as late as

2010, but Nokia abandoned the platform in 2012 in favor of Microsoft Windows. By 2014, BlackBerry’s share, which was once as high as 20%,

had fallen to under1%.
Among handset manufacturers, Samsung was Apple’s most direct competitor. Samsung was a huge company that made chips, PCs, TVs, and

appliances as well as phones (see Exhibit 6 for financials of Apple competitors). Samsung was a relatively late entrant into the

smartphone segment, but it became the volume leader in 2011 with the introduction of its Android-based Galaxy handset. Although Samsung

remained the market leader in 2014 with 24.5% share,68its profits were being squeezed by Apple at the high end of the market, and

aggressive Chinese manufacturers at the low end. In Q4 2014, Apple and Samsung were practically tied for leadership, with each firm

selling about 75 millionunits.

10

Lenovo had emerged as the third-largest player in the smartphone industry, bolstered by its $2.9 billion acquisition of Motorola in 2014:

the combined company held 7.4% of the handset market globally. Similar to the PC market, Lenovo had a particularly strong position in its

home market, surpassing Samsung in 2014 as the top smartphone seller in China.69 Perhaps the most feared competitor in the market was a

new player from China called Xiaomi, which brought its first smartphone to market in 2011. With a business model built on selling

inexpensive phones with high- end specifications, Xiaomi’s sales doubled in 2013 and tripled in 2014, to 61.1 million units. Entering

2015, it had cracked the top-five in smartphone sales worldwide with 4.4% of the market, and had announced ambitious plans to expand

beyondChina.70

Microsoft struggled in smartphones. In what some analysts called a desperate move to imitate Apple, Microsoft bought Nokia’s devices

business for $7.2 billion in early 2014. Microsoft began selling Nokia’s Lumia line of smartphones, running its Windows Phone operating

system, under its own brand later that year. Although it continued to license its software to other vendors, such as Samsung and HTC,

Microsoft’s share of the global smartphone market slipped under 3% for2014.

Google’s competitor to Apple’s App Store, called Play Store, launched in late 2008 and trailed the App Store for the next several years.

In 2014, the number of Android apps surpassed the number available from Apple for the first time, and downloads from the Play Store were

60% higher than from the App Store. Despite fewer downloads, though, Apple’s App Store generated significantly more revenue, indicating

its strength in the premium market (see Exhibit 7).71 While Google had fewer restrictions than Apple,72 developers found it more

challenging to write applications for Android. Most Android phones varied slightly, which required software developers to write numerous

versions of theirapplications.
Suppliers The supplier base was structurally different in smartphones compared to PCs. The supplier that captured most of the value in

smartphones was Qualcomm, which largely controlled CDMA (3G) and LTE (4G)—the two most important protocols for wireless service. Except in

China, Qualcomm earned between 3.5% and 5% royalties on almost every CDMA and LTE phone sold in the world. The CPU business was also

structurally different: the vast majority of CPUs in smartphones were based on a design by ARM Holding, a U.K. company. ARM licensed its

core design for about 1% on each CPU, which sold for roughly $15–$20. Google also developed its application store to enable applications

to run on different versions of ARM as well as Intel’s x86 CPUs, so there was no architectural lock as there was on Windows PCs. Three

companies dominated the ARM CPU business in smartphones in 2014: Qualcomm had about 54%, Apple had roughly 15%, and MediaTek from Taiwan

had just under 14%.73 Dating back to the early days of Apple, Jobs always preferred to control the critical technologies that would drive

Apple’s differentiation. To grab greater control of mobile devices, Jobs bought two ARM microprocessor design companies for about $400

million between 2008 and 2010.74 Apple’s CPUs were manufactured by Samsung and optimized to deliver Apple’s demanding specifications on

battery life andperformance.
The patent wars Intense competition in the smartphone industries led to numerous lawsuits on design and intellectual property.75 Jobs

was the most aggressive CEO in pursuing legal redress. “From the earliest days at Apple, I realized that we thrived when we created

intellectual property. . . . If protection of intellectual property begins to disappear, creative companies will disappear or never get

started. But there’s a simpler reason: It’s wrong to steal. It hurts other people. And it hurts your own character.”76 In 2010, Apple

initiated litigations against several Android manufacturers. Jobs explained, “I will spend every penny of Apple’s $40 billion in the bank,

to right this wrong. I’m going to destroy Android, because it’s a stolen product. I’m willing to go to thermonuclear war on this. They are

scared to death, because they know they are guilty.”77 By2014,

11
Apple had won two large judgments against Samsung in U.S. courts. In early 2015, Swedish telecom pioneer Ericsson filed several lawsuits

in the U.S., asking the courts to block sales of iPhones and iPads. The suits came after the two companies failed to come to terms on the

renewal of Apple’s licensing agreement for several of Ericsson’s patents related to essential technology for connecting to high-speed

wireless communicationsnetworks.78

Moving Beyond the iPhone: TheiPad
The iPhone’s spectacular success may have satisfied many CEOs, but not Steve Jobs. In 2010, he saw another opportunity to make a bold move

to redefine computing with the launch of the iPad. “Some people say, ‘Give the customers what they want,’” said Jobs, “but that’s not my

approach. Our job is to figure out what they’re going to want before they do.”79 That was what he did with the iPad. Apple’s release of

the iPad on March 2, 2010, defined a new device category that Jobs described as “even more intuitive and easier to use than a PC, and

where the software and the hardware and the applications need to be intertwined in an even more seamless way than they are on a PC.”80

Prior to the iPad, tablet sales accounted for a trivial share of the PC market. When the iPad launched, market demand was uncertain, at

best. But doubters were quickly silenced, as sales of the new device took off. More than 450,000 iPads were sold during its first week on

the market. Jobs commented, “It feels great to have the iPad launched into the world—it’s going to be a game changer.”81 By the end of

2014,Applehadbuiltanother$30billionbusiness,cumulativelysellingnearly240millioniPads.82

The iPad was originally priced from $499 to $829 and was sold in the U.S. by Apple retail stores, wireless carriers, and other retail

stores. Operators did not subsidize iPads, as they did smartphones. Consumers could choose to connect to the Internet by paying for access

to a carrier’s data network or relying exclusively on Wi-Fi networks. Most tablet ownersopted for a Wi-Fi–only connection.83
Perhaps the biggest debate about the iPad was its usage model. Market research indicated that tablet owners viewed it primarily as a

device to consume content rather than produce it.84 The most popular activities included checking e-mail, playing games, watching full-

length videos, and shopping online. The iPad could run, with some limitations, almost all iPhone apps. To offset those limitations,

software developers released over 675,000 native iPad apps by late 2014.85 Over time, iPad consumers became more creative in finding uses

for the iPad for everything from writing music to restaurant menus, sales tools, and even car-owner manuals. In late 2012, Apple released

the iPad Mini, a less expensive version with a 7.9-inch screen. Although Jobs had previously dismissed such

tabletsas“tweeners,”theiPadMiniquicklybecameApple’sbest-sellingtablet.
An early controversy over the iPad erupted when Apple sought to offer its own bookstore. Historically, Jobs had insisted on low prices for

content on the iPod and iPhone ($0.99 for songs, and free or low-priced apps). But in trying to woo book and magazine publishers to the

iPad, Jobs faced Amazon, which distributed 90% of the digital books on the market through its Kindle e-reader. To stimulate demand, Amazon

priced many of its books at $9.99, often below Amazon’s costs. Publishers were unhappy with the pricing: they feared low prices would

devalue the content as well as cause rapid cannibalization of physical books. Apple made an offer to publishers that they set their own

prices, usually ranging from $12 to $15 for an e-book. Apple then took a 30% commission. After initially resisting, Amazon was forced by

publishers to follow suit. By April 2012, Amazon’s market share in e-books had fallen to 60%.86 The Department of Justice, however,

investigated Apple’s strategy in early 2012, accusing the company and five publishers of price fixing. The court ruled that Apple had in

fact colluded with publishers to raise prices, and in late 2014, Apple agreed to pay $400

millionindamagestoconsumerswhohadpaidartificiallyhighpricesfore-books(aswellas$50
12

million to lawyers).87 Since the settlement gave digital retailers flexibility again in setting prices, Amazon almost immediately lowered

prices back to $9.99 on somebooks.

Apple’s business model for the iPad was also slightly different from earlier products. Apple earned an estimated 25% gross margin on its

entry-model iPad by using its own CPU, giving the channel a lower margin and leveraging its scale in purchasing. Apple had lower costs

than most competitors, which could only make 15% gross margin at the same retail price.88 Yet despite Apple’s formidable lead, at least 20

major manufacturers launched tablets over the next few years, driving downApple’sonce-commandingmarketshare

(seeExhibit8forworldwidetabletshipments).
Competition Apple had at least three potential serious competitors for tablets: (1) manufacturers using Google’s version of Android; (2)

Amazon, which used a modified version of Android; and (3) Microsoft Windows–based tablets. Android-based tablets were rushed to the market

in late 2010, and by the end of 2014, Android had captured 70% share.89 Samsung was the leader in this camp, with 17.5% of the worldwide

tablet market.90 Similar to smartphones, Android’s app store was gradually catching up to Apple in the availability of tabletapps.

Amazon, by contrast, had a different model: it developed a distinctive user interface and sold its seven-inch tablet, the Kindle Fire, for

$199. Amazon’s product costs were estimated to be slightly more than $200.91 While Apple sought to make money on hardware, Amazon hoped to

make money on software, applications, and content. Despite an impressive start, Amazon struggled to sell large volumes: in 2014, Amazon

sold only 3.3 million tablets, for a market share of just1.4%.92
Microsoft brought its tablet—the Surface—to market in October 2012, powered by Windows 8, Microsoft’s newest OS. More like a PC than an

iPad, Microsoft captured only 2.1% unit share of the tablet market in 2013, and the company was forced to take a $900 million write-off in

the second quarter of 2013.93 Microsoft refocused its efforts on the enterprise market in 2014, which improved sales and margins. But

Surface’s market share remained under5%.
Saturation? After tremendous growth in its first three years, tablet sales began to lose momentum in 2014. The fourth quarter of 2014 saw

a worldwide year-over-year decline in tablet shipments of 3.2%. This was the first quarterly decline since the iPad launched. Apple was

hit particularly hard: for FY 2014, unit sales declined by 5% and net revenues were down 4%.94 By the end of 2014, the iPad had seen four

consecutive quarters of sales declines.95 In this slowing market, Apple remained the market leader, with 27.6% share, followed by Samsung,

ASUS, Lenovo, and Amazon.96

Partly to spur sales of the iPad, in July 2014, Cook announced a partnership with IBM to develop enterprise apps designed for the iPad and

iPhone and to enlist IBM’s sales force and business connections to sell Apple mobile devices to enterprise customers. As Cook pointed out,

iPhones and iPads were present in 90% of the Fortune 500, but the rate of penetration was low, providing Apple with what he described as a

huge opportunity to advance mobility in theenterprise.
iCloudOne of Jobs’s last acts as CEO was to prepare Apple for the launch of iCloud in October 2011. Jobs’s vision was that Apple was “the

first to have the insight about your computer becoming a digital hub . . . [which] worked brilliantly. But over the next few years, the

hub is going to move from your computer into the cloud. So it’s the same digital hub strategy, but the hub’s in a different place.”97

iCloud allowed users to synchronize seamlessly across multiple Apple devices by storing data, pictures, music, and so on, in one location

on the Internet. Five GB of cloud storage on iCloud was free for Mac, iPhone, iPad, and iPod Touch users. Consumers could also pay for

additional storage.98 To support iCloud, Apple invested in a huge data center in North Carolina at anestimated

13
cost of $500 million.99 Notably, iCloud worked only with Apple products. Following Apple’s lead, OS competitors such as Google and

Microsoft offered their own cloud storage services, while product competitors such as Samsung struck deals with Dropbox, a cross-platform

cloud storage solution first launched in2008.

Moving Beyond the iPhone and iPad: Apple Watch and ApplePay
During the three years after Steve Jobs’s death, Apple witnessed spectacular revenue growth, driven by booming iPhone and iPad sales.

After Jobs had revolutionized music, phones, and computing between 2001 and 2011, Apple fans were waiting for (and expecting) the next

revolution under Cook. Hoping to meet those expectations, Cook announced his first new major product initiative in September 2014: the

Apple Watch, Apple’s entry into wearable technology. Although the product would not ship until late April 2015, Apple showed off many of

its features in March 2015. The Apple Watch would function, of course, as a timepiece, but also incorporate fitness-tracking features.

When connected to a user’s iPhone, it would bring smartphone applications to the user’s wrist: users could receive notifications about

upcoming calendar events, e-mail, and text messages without looking at their phones, and could, for example, access maps and directions or

control the iPhone’s music player without needing to pick up theirphones.

Apple was not the first in the category, but it was expected to become the largest. The question was, how large? The Apple Watch had to be

charged every day, it only worked with new iPhones, and it was expensive: prices started at $349 for the basic model and ranged as high as

$17,000 for an 18-karat gold model. Moreover, there was already significant competition. The pioneer in the category was a start-up called

Pebble, which shipped the first real smartwatches in 2012 for both iOS and Android. Pebbles sold for as little as $150. The largest player

entering 2015 was Samsung, which like Apple, offered watches that only worked with its own phones. Overall unit sales for the industry had

been disappointing (see Exhibit 9). After Google announced “AndroidWear” in March 2014, extending the Android platform to watches, LG,

Motorola, and Samsung subsequently introduced watches based on the platform. The field was expected to be very crowded. Even fancy Swiss

watch companies, such as Tag Heuer, announced that they would join thefray.

The same day Cook announced the Apple Watch, he also introduced Apple Pay, Apple’s new mobile payment system. When it was announced, most

of the nation’s largest banks and credit card companies had signed on to support it. By early 2015, dozens of retailers, including

Walgreens, McDonald’s, Macy’s, and Whole Foods, had pledged to accept Apple Pay in their stores. To set it up, users added a credit or

debit card to Apple Pay on their iPhone. Once a card had been added, Apple Pay allowed users to pay simply by holding their iPhone or

Apple Watch near a wireless payment terminal while keeping their finger on the home button. Payment information was transmitted from the

device to the payment terminal using near field communication technology. To enable secure transactions, the system used TouchID, the

iPhone’s fingerprint recognition technology, to ensure that the phone’s owner was the one making the purchase. In addition, credit card

information was not transferred to the retailer during the transaction; rather, a device account number unique to the phone was

transmitted along with a dynamic security code unique to each transaction. Apple hoped that the combination of security and convenience

would encourage rapid uptake of the technology. Cook claimed in December that Apple Pay accounted for two-thirds of mobile payments at

participating retailers. By early 2015, nearly 2 million customers at two of the nation’s largest banks— Bank of America and Chase—had

added credit or debit cards to their Apple Payaccount.100
14

The OccasionalDisappointments
While almost everything that Apple had touched in the first decade of the 21stcentury turned to gold, the record was not unblemished.

Apple had two notable products that failed to live up to expectations. One was the Mac Mini. As Apple’s entry-level desktop, the $599

price tag did not come with a keyboard or a mouse. Consumers could buy a Windows desktop with more functions and faster performance at a

lower price. The other disappointment was Apple TV. Introduced in 2007, the set-top box was Apple’s attempt to bring digital video content

directly into consumers’ living rooms. Users could stream movies and TV shows over the Internet to a TV set and/or connect other Apple

devices to the TV over a Wi-Fi connection. However, Apple TV sales were paltry compared to Apple’s other products. Before he died, Jobs

claimed to have cracked the code for a next-generation television, which Apple watchers were still waiting to see in early2015.

Apple Inc. in the NextDecade?
Inevitably, many had wondered about what would happen to Apple with Jobs gone, but Apple had performed above everyone’s expectations in

Cook’s first three years as CEO. The stock price nearly doubled between the end of FY2011 and FY2014, while revenues were up nearly 70%

over the same period. In early 2015, Apple’s market capitalization surpassed $700 billion, making it the most valuable company in the

history of the world. Despite this success, some observers worried that Apple had become overly dependent on the iPhone and pondered how

long Apple could sustain its growth without the introduction of truly innovative new products. Cook claimed that the Apple Watch, Apple

Pay, Apple TV, and corporate customers were big growth areas for the company; he confidently exclaimed that Apple’s product “pipeline” was

the strongest he had ever seen. There were even rumors in the press that Apple would start to develop cars to compete with Tesla, and

Apple would soon offer TV services over the Internet to compete with cableoperators.
While Cook appeared supremely confident at the Apple Watch event, he had to be thinking: Could Apple Watch and Apple Pay really be the

next iPhone and iTunes? And what steps did he need to take to drive thatsuccess?

15
715-456 -16-

Exhibit1a AppleInc.,SelectedFinancialInformation,FY1991–2014(inmillionsofdollars,exceptfornumberofemployeesandstock-relateddata)

1991 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Netsales
6,309
9,833
5,941
7,983
5,742
8,279
19,315
37,491
65,225
156,508
182,795
Cost ofsales 3,314 8,865 4,462 5,817 4,139 6,022 13,717 24,292 39,541 87,846 112,258
Research anddevelopment 583 604 303 380 446 491 712 1,109 1,782 3,381 6,041
Selling, general, andadministrative 1,740 1,568 908 1,256 1,109 1,430 2,433 3,761 7,299 10,040 11,993
Operating income(loss) 671 -1,204 268 530 48 336 2,453 8,327 18,385 55,241 52,503
Net income(loss) 310 -816 309 786 65 266 1,989 6,119 14,013 41,733 39,510
Total cash, cash equivalents, and marketablesecurities
893
1,745
2,300
4,813
4,376
5,464
10,110
24,490
51,011
121,251
155,239
Accounts receivable,net 907 1,496 955 953 707 1,050 2,845 4,704 9,924 18,692 27,219
Inventories 672 662 78 33 45 101 270 509 1,051 791 2,111
Net property, plant, andequipment 448 598 348 419 621 707 1,281 2,455 4,768 15,452 20,624
Totalassets 3,494 5,364 4,289 6,803 6,298 8,050 17,205 36,171 75,183 176,064 231,839
Totalliabilities 1,727 3,306 2,647 2,696 2,203 2,974 7,221 13,874 27,392 57,854 120,292
Total shareholders’equity 1,767 2,058 1,642 4,107 4,095 5,076 9,984 22,297 47,791 118,210 111,547
Cash dividendspaid 57 14 — — — — — — — 2,488 11,126
Number ofemployees 14,432 10,896 9,663 8,568 10,211 11,695 17,787 32,000 46,600 72,800 92,600
Internationalsales/sales 45% 52% 45% 46% 43% 41% 41% 44% 56% 61% 62%
Grossmargin 47% 10% 25% 27% 28% 27% 29% 35% 39% 44% 39%
R&D/sales 9% 6% 5% 5% 8% 6% 4% 3% 3% 2% 3%
SG&A/sales 28% 16% 15% 16% 19% 17% 13% 10% 9% 6% 7%
Return onsales 5% NA 5% 10% 1% 3% 10% 16% 22% 27% 22%
Return onassets 13% NA 4% 6% 1% 3% 11% 17% 19% 24% 18%
Return onequity 19% NA 22% 22% 2% 6% 23% 33% 35% 43% 34%
Stock price lowa $1.44 $0.57 $0.48 $0.97 $0.95 $1.51 $7.17 $11.31 $27.18 $58.43 $70.51
Stock pricehigh $2.62 $1.27 $1.56 $5.37 $1.87 $4.97 $13.31 $28.61 $46.67 $100.72 $119.75
P/E ratio atperiod-end 21.9 NA 19.5 6.8 78.2 58.5. 25.6 8.2 14.7 15.1 15.6
Market value atperiod-end 6,649.9 2,598.5 5,539.7 4,996.2 5,146.4 25,892.5 72,900.8 75,870.6 295,455.3

499,821.0 647,506.9

Source: Compiled from Capital IQ data and ThomsonOne, as well as companydocuments.
aSharepricedata reflectcalendar-yearresultsandalsoreflectretroactiveapplicationof7:1 stocksplitthattookeffectinJune2014.

Exhibit1b Apple’s Net Sales by Product Category, 2002–2012 (in millions ofdollars)

2002
2004
2006
2008
2010
2012
2013
2014

Macintosh
4,534
4,923
7,375
14,354
17,479
23,221
21,483
24,079
iPad NA NA NA NA 4,958 30,945 31,980 30,283
iPod 143 1,306 7,676 9,153 8,274 5,615 4,411 2,286
Other musicproductsa 4 278 1,885 3,340 4,948 8,534 NA NA
iPhone, related products andservicesb NA NA NA 6,742 25,179 78,692 91,279 101,991
Peripherals and otherhardwarec 527 951 1,100 1,694 1,814 2,778 NA NA
Accessoriese NA NA NA NA NA NA 5,706 6,093
Software 307 502 NA NA NA NA NA NA
Service and other netsales 227 319 NA NA NA NA NA NA
Software, service, and othersalesd NA NA 1,279 2,208 2,573 3,459 NA NA
iTunes, software, andservicesf NA NA NA NA NA NA 16,051 18,063
Total netsales 5,742 8,279 19,315 37,491 65,225 156,508 170,910 182,795
Source: Compiled from Apple’s financial statements and casewriter calculations. Note: NA = Not Available or NotApplicable.
aRepresentsiTunesStoresales,iPodservices,andApple-brandedandthird-partyiPodaccessories.
bRepresentshandsetsales,carrieragreements,andApple-brandedandthird-partyiPhoneaccessories.
cIncludessalesofdisplays,wirelessconnectivityandnetworkingsolutions,andotherhardwareaccessories.
dIncludes sales of Apple-branded operating system, application software, third-party software, AppleCare services, and Internetservices.
eIncludes sales of Apple-branded and third-party accessories for iPhone, iPad, Mac, andiPod.
f Includes revenue from the iTunes Store, the App Store, the Mac App Store, the iBooks Store, AppleCare, licensing, and other services.
17
Exhibit1c Apple’s Unit Sales by Product Category, 2004–2012 (in thousands ofunits)
2004
2006
2008
2009
2010
2012
2013
2014

Desktopsa
1,625
2,434
3,712
3,182
4,627
4,656
NA
NA
Portablesb 1,665 2,869 6,003 7,214 9,035 13,502 NA NA
Total Macintosh unitsales 3,290 5,303 9,715 10,396 13,662 18,158 16,341 18,906
Net sales per unitsold $1,496 $1,391 $1,478 $1,333 $1,279 $1,279 $1,315 $1,274
iPads NA NA NA NA 7,458 58,310 71,033 67,977
Net sales per unitsold NA NA NA NA $665 $531 $450 $445
iPods 4,416 39,409 54,828 54,132 50,312 35,165 26,379 14,377
Net sales per unitsold $296 $195 $167 $149 $164 $160 $167 $159
iPhone unitssold NA NA 11,627 20,731 39,989 125,046 150,257 169,219
Net sales per unitsoldc NA NA $580 $629 $630 $629 $607 $603

Source: Compiled from Apple’s financial statements and casewritercalculations.
Note: Datafor2004–2011based on fiscal-yearresultsendingSeptember.Data for 2012reflect the latest12monthsendingMarch 31,2012.
aIncludes iMac, Mac Mini, Mac Pro, and Xserve productlines.
bIncludes MacBook, MacBook Air, and MacBook Pro productlines.
cSales/unit includes accessories and related servicerevenue.
Exhibit2 Apple’s Share Price vs. S&P 500 Index (December 31, 1982 =100)

Source: Created by casewriter using data from ThomsonOne, accessed March2015.

18

Exhibit3a Apple’s Worldwide PC Market Share,1980–2014
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Source: Adapted from InfoCorp., International Data Corp., Gartner Dataquest, and Merrill Lynchdata.
Exhibit3b PC Manufacturers: Worldwide Market Shares,2002–2011

2002
2004
2006
2008
2010
2011
2012
2013
2014

Hewlett-Packarda
16.0%
15.8%
16.5%
18.9%
18.5%
17.1%
16.6%
16.6%
18.4%
Dell 15.1% 17.9% 16.6% 14.7% 12.5% 12.2% 11.1% 12.0% 13.5%
Lenovob — 2.3% 7.1% 7.6% 9.8% 12.1% 15.0% 17.1% 19.2%
Acer — 3.6% 5.8% 10.9% 12.4% 10.2% 9.6% 7.8% 7.8%
Toshiba 3.2% 3.6% 3.9% 4.8% — — — — —
FujitsuSiemens 4.2% 4.0% — — — — — — —
IBMb 5.9% 5.9% — — — — — — —
Packard BellNEC 3.3% — — — — — — — —
Apple 2.3% 1.9% 2.3% 3.4% 3.9% 4.7% 5.0% 5.4% 6.4%
Total shipments (inmillions)
136.9
177.5
235.4
287.6
346.8
363.9
352.4
315.1
308.6

Source: “PC Market Stumbles on HDD Shortage While U.S. Market Sees Worst Annual Growth Since 2001, According to IDC,” IDC press release,

January 11, 2012; “PC Market Records Modest Gains During Fourth Quarter of 2010, According to IDC,” IDC press release, January 12, 2011;

“PC Market Stumbles on HDD Shortage While U.S. Market Sees Worst Annual Growth Since 2001, According to IDC,” IDC press release, January

11, 2012; “PC Leaders Continue Growth And Share Gains as Market Remains Slow,” IDC press release, January 12, 2015; Apple Inc. annual

financial reports; and casewriterestimates.
Note: Market share data for Apple are derived from Macintosh unit sales, as reported in the company’s annual reports. The sampling

of market shares for other companies comes mainly from annual listings of the top-five PC makers, as measuredbyIDC.Absenceofa

figureindicatesthatacompanyplacedbelowthetopfiveina givenyear.
aHPacquiredCompaq inmid-2002.The2002marketsharefigureforHPincludesCompaq salesforthefirstpartofthatyear.
bLenovo acquired IBM’s PC business in mid-2005. The 2005 market share figure for Lenovo incorporates IBM sales for the early part of

theyear.

19
Exhibit4 Shipments and Installed Base of PC Microprocessor (in millions ofunits)
TotalShipments
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

IntelTechnologies
PC unitsshipped 47.8 76 105 156 126 170 230 287 329 344 322
PC installedbase 211.4 347.5 542.5 839 1,111 1,433 1,863 2,411 3,034 3,695 4,237
Mac unitsshipped NA NA NA NA NA NA 5.7 9.9 14.4 17.1 19.6
Intel-Mac installed base
NA
NA
NA
NA
NA
NA
5.7
23.3
48.9
83.8
120.5
Motorola(680X0)
Unitsshipped 3.9 0.8 0.2 NA NA NA NA NA NA NA NA
Installedbase 24.9 26.8 27.5 NA NA NA NA NA NA NA NA
PowerPC
Unitsshipped 0.8 4 3.5 4.7 3.1 3.5 NA NA NA NA NA
Installedbase 0.8 7.8 14.1 22.2 29.4 36.2 NA NA NA NA NA

Source: Adapted from Gartner Dataquest, InfoCorp., IDC, Merrill Lynch, Credit Suisse data, and companydata.

Notes: Between 5% and 10% of total microprocessor shipments went into non-PC end products. In any given year, as much as 60% of

microprocessors in the total installed base involved older technologies that were probably no longer in use. The figures for PowerPC

shipments included microprocessors destined for Sony PlayStation and Xbox 360 machines. Figures for “Mac units shipped” over Macintosh

calendar-yearsales.

NA = Not Available or NotApplicable.
Exhibit5 PC Manufacturers’ Key Operating Measures,1997–2014

1997 2000 2003 2006 2008 2010 2012 2014

Gross margins(%)
Apple 21% 27% 29% 29% 35% 39% 44% 39%
Dell 23% 21% 19% 17% 18% 19% 21% —
Hewlett-Packard 38% 31% 29% 24% 24% 22% 22% 23%
Lenovo — 13% 15% 14% 15% 11% 11% 13%
R&D/Sales(%)
Apple 12% 5% 8% 4% 3% 3% 2% 3%
Dell 1% 2% 1% 1% 1% 1% 2% —
Hewlett-Packard 7% 5% 5% 4% 3% 2% 3% 3%

Source: Compiled from Capital IQ and ThomsonOne, accessed April 2012, March2015.

Note: Allinformationisonafiscal-yearbasis.Apple’sfiscalyearendsinSeptember,HP’sinOctober,Dell’sinJanuary,and Lenovo’s inMarch.
20

Exhibit6 Apple’sCompetitors:SelectedFinancialInformation,2004–2014(inmillionsofdollars)

2004
2006
2008
2010
2012
2013
2014

Microsoft
Totalrevenues 36,835 44,282 60,420 62,484 73,723 77,849 86,833
Cost ofsales 6,596 7,650 11,598 12,395 17,530 20,249 26,934
R&D 7,735 6,584 8,164 8,714 9,811 10,411 11,381
SG&A 10,640 12,276 16,687 16,685 18,426 20,425 20,632
Net income 8,168 12,599 17,681 18,760 16,978 21,863 22,074
Totalassets 94,368 69,597 72,793 86,113 121,271 142,431 172,384
Totalliabilities 19,543 29,493 36,507 39,938 54,908 63,487 82,600
Total shareholders’equity 74,825 40,104 36,286 46,175 66,363 78,944 89,784
Grossmargin 82.1% 82.7% 80.8% 80.2% 76.2% 74.0% 69.0%
R&D/sales 21.0% 14.9% 13.5% 13.9% 13.3% 13.4% 13.1%
SG&A/sales 28.9% 27.7% 27.6% 26.7% 25.0% 26.2% 23.8%
Return onsales 22.2% 28.5% 29.3% 30.0% 23.0% 28.1% 25.4%
Marketcapitalizationa 313,046 233,097 256,302 223,608 256,375 287,691 343,566
Intel
Totalrevenues 34,209 35,382 37,586 43,623 53,341 52,708 55,870
Cost ofsales 14,301 17,164 16,742 15,132 20,190 21,187 20,261
R&D 4,778 5,873 5,722 6,576 10,148 10,611 11,537
SG&A 4,659 6,138 5,452 6,309 8,057 8,088 8,136
Net income 7,516 5,044 5,292 11,464 11,005 9,620 11,704
Totalassets 48,143 48,368 50,472 63,186 84,351 91,924 91,956
Totalliabilities 9,564 11,616 10,926 13,756 33,148 33,668 35,469
Total shareholders’equity 38,579 36,752 39,546 49,430 51,203 58,256 55,865
Grossmargin 58.2% 51.5% 55.5% 65.3% 62.1% 59.8% 63.7%
R&D/sales 14.0% 16.6% 15.2% 15.1% 19.0% 20.1% 20.6%
SG&A/sales 13.6% 17.3% 14.5% 14.5% 15.1% 15.3% 14.6%
Return onsales 22.0% 14.3% 14.1% 26.3% 20.6% 18.3% 20.9%
Marketcapitalization 142,520 128,582 73,919 118,756 101,945 128,919 172,305
Hewlett-Packard
Totalrevenues 79,905 91,658 118,364 126,033 120,357 112,298 111,454
Cost ofsales 60,621 69,178 89,370 95,654 89,074 83,180 81,505
R&D 3,563 3,591 3,543 2,959 3,399 3,135 3,447
SG&A 10,496 11,266 13,326 12,718 13,500 13,267 13,353
Net income 3,497 6,198 8,332 8,761 (12,650) 5,113 5,013
Totalassets 76,138 81,981 113,331 124,503 108,768 105,676 103,206
Totalliabilities 38,574 43,837 74,389 83,722 83.053 76,674 75,339
Total shareholders’equity 37,564 38,144 38,942 40,781 22,436 27,269 26,731
Grossmargin 23.9% 24.3% 24.2% 22.3% 21.8% 21.9% 23.0%
R&D/sales 4.5% 3.9% 3.0% 2.4% 2.8% 2.8% 3.1%
SG&A/sales 13.1% 12.3% 11.3% 10.1% 11.2% 11.8% 12.0%
Return onsales 4.4% 6.8% 7.0% 7.0% –% 4.6% 4.5%
Marketcapitalization 60,011 109,914 87,433 98,080 27,970 53,386 73,799

aMarketcapitalizationfiguresforeachcompanyarebasedonthedatetheearningswerefiledwiththeSEC.
21
Exhibit 6(continued)
2004
2006
2008
2010
2012
2013
2014

Dellb
Totalrevenues 49,121 57,420 61,101 61,494 56,940 — —
Cost ofsales 40,103 47,904 49,998 50,041 44,754 — —
R&D 460 498 665 661 1,072 — —
SG&A 4,352 5,948 6,966 7,302 8,102 — —
Net income 3,018 2,583 2,478 2,635 2,372 — —
Totalassets 23,215 25,635 26,500 38,599 47,540 — —
Totalliabilities 16,717 21,307 22,229 30,833 36,839 — —
Total shareholders’equity 6,498 4,328 4,271 7,766 10,701 — —
Grossmargin 18.4% 16.6% 18.2% 18.5% 21.4% — —
R&D/sales 0.9% 0.9% 1.1% 1.1% 1.9% — —
SG&A/sales 8.9% 10.4% 11.4% 11.9% 14.2% — —
Return onsales 6.1% 4.5% 4.1% 4.3% 4.2% — —
Marketcapitalization 103,272 52,270 15,964 26,850 22,280 — —
Lenovo
Totalrevenues 2,972 13,343 16,351 16,605 29,574 33,873 38,707
Cost ofsales — — 13,902 14,815 26,128 29,800 33,643
R&D — — 230 214 450 624 732
SG&A — — 1700 1,406 2,342 2,735 3,303
Net income 135 22 484 129 473 635 817
Totalassets — — 7200 8,956 15,861 16,882 18,357
Totalliabilities — — 5587 7,350 13,413 14,202 15,332
Total shareholders’equity — — — 1,701 2,361 2,667 3,010
Grossmargin 13.6% 4.7% 15.0% 10.8% 11.4% 12.0% 13.1%
R&D/sales — — — 1.3% 1.5% 1.8% 1.9%
SG&A/sales — — — 8.5% 7.9% 8.1% 8.5%
Return onsales 4.5% 0.2% 3.0% 0.8% 1.6% 1.9% 2.1%
Marketcapitalization 2,708 3,380 5,943 6,766 9,172 10,378 11,497
Samsung
Totalrevenues 69,496 72,778 102,844 131,109 190,565 216,709 195,883
Cost ofsales 44,898 50,921 76,109 87,050 120,015 130,803 121,857
R&D — — — 7,715 10,757 13,640 13,665
SG&A 14,626 14,117 21,621 22,251 — — —
Net income 9,148 6,720 4,685 13,396 19,075 24,537 19,042
Totalassets 58,508 68,990 89,283 113,862 169,199 198,477 214,588
Totalliabilities 27,645 28,342 35,931 38,104 54,084 56,322 54,914
Total shareholders’equity 30,863 40,648 53,353 75,758 109,213 137,591 154,063
Grossmargin 35.4% 30.0% 26.0% 33.6% 36.6% 39.4% 37.3%
R&D/sales — — — 5.9% 5.7% 6.3% 7.0%
SG&A/sales 21.0% 19.4% 21.0% 17.0% — — —
Return onsales 13.6% 8.1% 4.4% 10.6% 10.0% 11.3% 9.7%
Marketcapitalization 54,468 61,792 49,763 101,065 185,747 171,095 158,373

Source: Created by casewriter using data from Capital IQ, ThomsonOne, and companydocuments.
Note: Allinformationisonafiscal-yearbasis,unlessnotedotherwise.HP’sfiscalyearendsinOctober,Dell’sinJanuary,Lenovo’s in March,

Intel’s and Samsung’s in December, and Microsoft’s inJune.
bDell was taken private in2013.

22

Exhibit7a Worldwide Smartphone Market Shares by Vendor,2009–2014

2009 2010 2011 2012 2013 2014

Samsung
3.2%
7.5%
19.0%
39.6%
31.0%
24.5%
Apple 14.5% 15.6% 18.8% 25.1% 15.1% 14.8%
Lenovo — — — 3.3% 4.5% 7.4%*
Huawei — — — 4.0% 4.8% 5.7%
LG — — — 3.6% 4.7% 4.6%
Nokia 39.0% 32.9% 15.6% 6.4% — —
HTC 4.7% 7.1% 8.8% 6.0% 2.0% 1.8%
RIM 19.9% 16.0% 10.3% 6.0% 1.9% 0.4%
Total shipments (millions)
173.5
304.7
491.1
725.3
1,019.4
1,301.1

Source: Created by casewriter using data from “In a Near Tie Apple Closes the Gap on Samsung in the Fourth Quarter as Worldwide Smartphone

Shipments Top 1.3 Billion for 2014,” IDC press release, January 29, 2015; “Worldwide Smartphone Shipments Top One Billion Units for the

First Time,” IDC press release, January 27, 2014; “Apple’s iPhone grew to 25.1% global market share in 2012,” Apple Insider, January 25,

2013, http://appleinsider.com/articles/13/01/
25/apples-iphone-grew-to-251-global-market-share-in-2012, accessed March 24, 2015; Nathan Olivarez-Giles, “Smartphone Shipments Rose 61%

Worldwide in 2011,” Los Angeles Times, February 6, 2012; and Lance Whitney, “Apple, Android Surge in 2010; Nokia, RIM Slip,” CNET,

February 7, 2011, http://www.cnet.com/news/apple- android-surge-in-2010-nokia-rim-slip/.

Note: The sampling of market shares comes mainly from annual listings of the top-five smartphone makers, as measured

byIDC.Absenceofa figureindicatesthata companyplacedbelowthetopfiveina givenyear.

23
Exhibit7b Overview of Smartphone Operating Systems and App Stores (as of late2014)
Operating System

Owner
Major Handset Vendors
Licensing Fee Approximate Number of AvailableApps

iOS
Apple
Apple
Proprietary
1.2million
Windows Mobile Microsoft Microsoft No 300,000
Android Google Samsung, Lenovo, Huawei,LG No 1.4million

Sources: Created by casewriter based on company websites and sources, including Dave Smith, “Google Play has more apps than Apple now, but

it’s still behind in one key area,” BusinessInsider, February 2, 2015, http://www.business insider.com/google-play-vs-apple-app-store-

2015-2; and Lance Whitney, “Windows Phone Store hits more than 300,000 apps,” CNet, August 8, 2014,http://www.cnet.com/news/windows-

phone-store-hits-more-than-300000-
apps/, accessed March 18,2015.

Exhibit7c Worldwide Smartphone Sales to End User by OperatingSystem,2006–2014(% of total marketshare)

2006 2007 2008 2009 2010 2011 2012 2013 2014

Symbian
62.4%
63.5%
52.4%
46.9%
37.6%
18.7%
3.0%
NAc
NA
RIM 6.9% 9.6% 16.6% 19.9% 16.0% 10.9% 5.0% 1.9% 0.4%
Microsoft 9.8% 12.0% 11.8% 8.7% 4.2% 2.1% 2.5% 3.3% 2.7%
iOS NA 2.7% 8.2% 14.4% 15.7% 18.9% 19.1% 15.1% 14.8%
Linux 17.6% 9.6% 7.6% 4.7% NA NA NA NA NA
Androida NA NA 0.5% 3.9% 22.7% 46.4% 66.4% 78.7% 81.5%
Othersb 3.3% 2.6% 2.9% 1.5% 3.8% 3.0% 5.0% 0.2% 0.6%

Source: Adapted from Gartner Smartphone Sales quarterly press releases between 2007 and 2014; “Gartner Says Smartphone Sales Surpassed One

Billion Units in 2014,” Gartner press release (Egham, UK, March 3, 2015); “Gartner Says Annual Smartphone Sales Surpassed Sales of Feature

Phones for the First Time in 2013,” Gartner press release (Egham, UK, February 13, 2014); “Gartner Says Worldwide Mobile Phone Sales

Soared in Fourth Quarter of 2011 with 47 Percent Growth,” Gartner press release (Egham, UK, February 15, 2012); “Says Sales of Mobile

Devices Grew 5.6 Percent in Third Quarter of 2011; Smartphone Sales Increased 42 Percent,” Gartner press release (Egham, UK, November 15,

2011); “Gartner Says Sales of Mobile Devices in Second Quarter of 2011 Grew 16.5 Percent Year-on-Year; Smartphone Sales Grew 74 Percent”

(Egham, UK, August 11, 2011); “Gartner Says 428 Million Mobile Communication Devices Sold Worldwide in First Quarter 2011, a 19 Percent

Increase Year-on-Year” (Egham, UK, May 19, 2011); and “Gartner Says Worldwide Mobile Device Sales to End Users Reached 1.6 Billion Units

in 2010; Smartphone Sales Grew 72 Percent in 2010” (Egham, UK, February 9,2011).

aAndroid was introduced in 2008; data before that year were notapplicable.
bIncludes Bada in 2010 and2011.
cSymbian included in “Others” for 2013; Nokia stopped shipping Symbian phones inmid-2013.
24

Exhibit8 Worldwide Tablet Shipments by Operating System,2010–2014

OS 2010 2011 2012 2013 2014

iOS
Sales (millions ofunits) 14.8 40.5 65.8 74.3 64.9
Market share(percent) 76.1 58.9 45.6 33.8 27.5
Android
Sales (millions ofunits) 4.6 26.4 75.1 137.5 159.5
Market share(percent) 23.6 38.4 52.1 62.5 67.6
Research In Motion(RIM)
Sales (millions ofunits) NA 0.9 0.8 0.4 —
Market share(percent) NA 1.3 0.6 0.2 —
Windows
Sales (millions ofunits) NA NA 1.3 6.5 10.9
Market share(percent) NA NA 0.9 3.0 4.6
Others
Sales (millions ofunits) 0.1 0.9 1.2 1.2 0.5
Market share(percent) 0.3 1.4 0.8 0.5 0.2

Source: Adapted from Tom Mainelli, “Worldwide and U.S. Media Tablet 2012–2016 Forecast,” IDC Research, April 2012, http://www.idc.com,

accessed May 2012; and Jean Philippe Bouchard, “Worldwide and U.S. Tablet Plus 2-in-1 2014–

2018ForecastUpdate,”IDCResearch,December22,2014,www.idc.com,accessedMarch2015.

Exhibit9 Worldwide Smartwatch Sales, 2013–2014 (thousands of units, millionsUS$)

2013 2014

UnitsShipped
Revenue Mkt. Share (Revenue ) Units Shipped
Revenue Mkt. Share (Revenue)

Samsung
800
240
33.8%
1,200
300
23%
Lenovo/Motorola — — — 500 125 10%
LG — — — 420 97 7%
Pebble 300 45 6.3% 700 91 7%
Garmin 200 60 8.4% 400 88 7%
Sony 250 50 7.0% 550 83 6%
Fitbit 450 59 8.2% 600 72 6%
Others 1,150 258 36.2% 1,625 283 34%

Source: Adapted from “Top 10 Smartwatch Companies 2013 (Sales),” Smartwatch Group, http://www.smartwatchgroup.com/top-10-smartwatch-

companies-sales/; and “Top 10 Smartwatch Companies 2014 (Sales),” Smartwatch Group, http://www.smartwatchgroup.com/top-10-smartwatch-

companies-sales-2014/, accessed March 22,2015.

25
Endnotes

1 Apple Inc., Form 10-Q, for the Fiscal Quarter Ended December 27,2014.
2 This discussion of Apple’s history is based largely on Jim Carlton, Apple: The Inside Story of Intrigue, Egomania, and Business

Blunders (New York: Times Business/Random House, 1997); David B. Yoffie, “Apple Computer—1992,” HBS No. 792-081 (Boston: Harvard Business

School Publishing, 1992); and David B. Yoffie and Yusi Wang, “Apple Computer—2002,” HBS No. 702-469 (Boston: Harvard Business School

Publishing, 2002). Unless otherwise attributed, all quotations and all data cited in this section are drawn from those twocases.
3 Carlton, Apple, p.10.
4 “SteveJobsTakesAnotherBiteatApple,”TheIndependent,January6,1997.
5 Yoffie, “AppleComputer—1992.”
6 DavidB.Yoffie,“AppleComputer—1996,”HBSNo.796-126(Boston:HarvardBusinessSchoolPublishing,1996).
7 CharlesMcCoy,“Apple,IBMKillKaleidaLabsVenture,” WallStreetJournal,November20,1995.
8 Louise Kehoe, “Apple Shares Drop Sharply,” Financial Times, January 19,1996.
9 DavidKirkpatrick,“TheSecondComingofApple,”Fortune,November9,1998.
10 David Gebler, “Illuminating Apple’s Culture of Secrecy,” Portofolio.com, April 17, 2012, http://www.portfolio.com/companies-

executives/2012/04/17/david-gebler-on-how-apple-can-shed-its-culture-of-secrecy# ixzz1u5HXYOz7, accessed May2012.
11 Walter Isaacson, Steve Jobs (New York: Simon and Schuster, 2011), p.569.
12 “MacBookAirandtheenvironment,”http://www.apple.com/macbook-air/environment.html,accessedMarch2010.
13 “IDC ExpectsPC ShipmentstoFallby-6%in2014andDeclinethrough2018,”IDC pressrelease,March4,2014.
14 See Angelo Zino, “Computers: Hardware,” S&P Capital IQ Industry Survey (New York: September 2014), p. 26; “IDC Expects PC

Shipments to Fall by -6% in 2014 and Decline through 2018,” IDC press release; and “PC Leaders Continue Growth and Share Gains as Market

Remains Slow,” IDC press release, January 12,2015.
15 IDC (International Data Corp.) data, as cited in Megan Graham-Hackett, “Computers: Hardware,” Standard & Poor’s Industry Surveys,

December 8, 2005, p.7.
16 Dylan Cathers, “Computers: Hardware,” Standard & Poor’s Industry Surveys, October 27, 2011, p. 15; and Angelo Zino, “Computers:

Hardware,” S&P Capital IQ Industry Surveys, September2014.
17 FY 2014 financial results for Acer, ASUS, HP, and Lenovo, and FY 2013 results for Dell from ThomsonOne, accessed February 11,

2015; see also Charles Arthur, “How the ‘Value Trap’ Squeezes Windows PC Manufacturers,” The Guardian, January 9, 2014,

http://www.theguardian.com/technology/2014/jan/09/pc-value-trap-windows-chrome-hp-dell-lenovo-asus-

acer,accessedFebruary11,2015,whichreacheda similarconclusionforthesamecompaniesfor2013.
18 Peter Misek, Jason North, and Billy Kim, “Computer Hardware—Cutting HP and Dell Estimates: Checks Indicate PC Sales Slowing

Materially,” Jefferies, March 15, 2012, p. 9; and James Chiu and Kevin YH Chen, “Lenovo: Premium Valuation Justified; Initiate with OW,”

Piper Jaffray, March 9, 2012, p.13.
19 Gartner Personal Computer Quarterly Statistics Worldwide Database, 2/12, cited in Mark Moskowitz, Anthony Luscri, Mike Kim,

GokulHariharan, Alvin Kwock, John DiFucci, Sterling Auty, Tien-tsin Huang, and Harlan Sur, “Global Technology: IT

SpendingPulse:2012OfftoaGoodStartinMostTechSegments;LiftingPCandTabletForecasts,” JPMorgan,March13,2012,
p. 29. See Rajani Singh, “Worldwide PC 2014–2018 Forecast Update: November 2014,” IDC, December 29, 2014, http://www.idc.com/getdoc.jsp?

containerId=252724&pageType=PRINTFRIENDLY,accessedFebruary10,2015.
20 Rajani Singh and Linn Huang, “Worldwide and U.S. PC Client Sub Form Factor 2012–2015 Forecast,” IDC, March 2012, p. 4; Rajani

Singh and David Daoud, “Worldwide PC 2011–2015 Forecast Update: December 2011,” IDC, December 2011, p. 7; and Singh, “Worldwide PC 2014–

2018 Forecast Update: November 2014,” p.6.
21 ThomasW.Smith,“Computers:Hardware,” Standard&Poor’sIndustrySurveys,October22,2009,p.18.
26

22 “Why Buy a Generic PC?” PC Generic, April 30, 2009, http://www.pcgeneric.com/articles/5131/Why-buy-a-generic-PC,

accessedMarch2010;and“ProfitinginChina’sWhite-BoxPC Market,”GartnerResearch,August21,2012.
23 “PC Market Stumbles on HDD Shortage While U.S. Market Sees World Annual Growth Since 2011,” IDC press release,

January11,2012,http://www.idc.com/getdoc.jsp?containerId=prUS23261412,accessedApril2012.
24 Chiu and Chen, “Lenovo,” p.1.
25 KulbinderGarcha, Deepak Sitaraman, Vlad Rom, Alban Gashi, Talal Khan, and Matthew Cabral, “Hewlett-Packard: Still in Transition,”

Credit Suisse, February 23, 2012, p. 1, accessed April 2012; and KulbinderGarcha, Deepak Sitaraman, Vlad Rom, Alban Gashi, Talal Khan, and

Matthew Cabral, “Hewlett-Packard: Transition continues with reorganization,” Credit Suisse, March 21, 2012, p. 1, accessed April2012.
26 “PCMarketStumblesonHDDShortageWhileU.S.MarketSeesWorldAnnualGrowthSince2011,” IDC pressrelease.
27 “PCLeadersContinueGrowthandShareGainsasMarketRemainsSlow,” IDC pressrelease,January12,2015.
28 See Connie Guglielmo, “Dell Officially Goes Private: Inside The Nastiest Tech Buyout Ever,” Forbes, October 30, 2013,

http://www.forbes.com/sites/connieguglielmo/2013/10/30/you-wont-have-michael-dell-to-kick-around-anymore/, accessed February 10,2015.
29 SeeShaneRao,“WorldwidePCandx86ServerMicroprocessor4Q14VendorShares,”IDC,January28,2015.
30 ClydeMontevirgenandKaranKawaguchi,“Semiconductors,”Standard&Poor’sIndustrySurveys,May31,2007,p.25.
31 “Global market share held by operating systems of Desktop PCs from January 2012 to December 2014,” Statista, January

2015,http://www.statista.com/statistics/218089/global-market-share-of-windows-7/,accessedFebruary11,2015.
32 David B. Yoffie, Dharmesh M. Mehta, and Rudina I. Suseri, “Microsoft in 2005,” HBS Case No. 705-505 (Boston: Harvard Business

School Publishing,2006).
33 ArikHesseldahl,“What’sBehindApple’siWork?”BusinessWeekOnline,August10,2007,viaFactiva,accessedApril2010.
34 Gary Marshall, “Why you should seriously consider a Chromebook as your next laptop,” TechRadar, May 23, 2014,

http://www.techradar.com/us/news/mobile-computing/don-t-fear-google-s-chromebooks-they-won-t-go-extinct-like-netbooks-did-1249814,

accessed March 9, 2015; Gregg Keizer, “Mac and Chromebook Sales Erode Windows PCs’ Retail Share,” ComputerWorld, September 26, 2014,

http://www.computerworld.com/article/2687742/mac-and-chromebook-sales-erode-windows-pcs-retail-share.html, accessed March 3, 2015; and

Singh, “Worldwide PC 2014–2018 Forecast Update: November 2014.”
35”PCLeadersContinueGrowthandShareGainsasMarketRemainsSlow,” IDC pressrelease,January12,2015.
36 “Windows7ReleaseMayTestApple’sWinningStreak,”ReutersNews,October14,2009,viaFactiva,accessedMarch2010.
37 Dylan Cathers, “Computer Hardware Industry Reports,” Standard & Poor’s NetAdvantage Database, April 19, 2012, p. 6,

accessedApril2012;and“PCLeadersContinueGrowthandShareGainsasMarketsRemainSlow,”IDCpressrelease.
38 Brent Schlender, “How Big Can Apple Get?” Fortune, February 21, 2005, p.66.
39 Apple Inc., Form 10-K, October 27, 2014 (Cupertino, CA, 2011), p.32.
40 Katie Hafner, “Inside Apple Stores, a Certain Aura Enchants the Faithful,” New York Times, December 27, 2007, p. C1, via Factiva,

accessed December2007.
41 Isaacson, Steve Jobs, p.389.
42 Thomas Ricker, “iSuppli: New iPod Nano Costs Apple Less than $83 in Components,” September 19, 2007,

http://www.engadget.com/2007/09/19/isuppli-new-ipod-nanos-cost-apple-just-59-and-83-in-component/,accessedMarch 2010.
43 Isaacson, Steve Jobs, p.405.
44 iTuneswasavailablefrom2001withtheoriginaliPod, butthefunctionalityasastoredid notcomeuntil2003.
45 ChrisTaylor,“The99¢Solution,”Time,November17,2003,p.66,via Factiva,accessedNovember2007.
27
46 “iTunesStoreTops10BillionSongsSold,”AppleInc.pressrelease(Cupertino,CA,February25,2010).
47 Apple,Inc.,December21,2001,Form10-K405(filedDecember21,2001);Apple,Inc.,December19,2002,Form10-K(filed
December 19, 2002); Apple, Inc., May 13, 2003, Form 10-Q (filed May 13, 2003); and “Number of iPods sold through 2002:

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69 Gerry Shih, “After China smartphone success, Lenovo plans leap forward overseas,” Reuters, August 14, 2014,

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76 Isaacson, Steve Jobs, p.396.
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29

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97 Isaacson, Steve Jobs, p.533.
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