Apple's iPhone

Economic
'When Apple's IPhone first went on sale in Europe six months ago, hopes were high that the device would be just as big a hit is it had been in the U.S. But analysts are now raising concerns that the iPhone may not translate as well overseas, with sales sluggish in Europe because of the device's high price and strong competition from Nokia and others' Jennifer L.Schenker 'the iPhone in Europe: Lost in Translation', The plummeting economy persuaded Apple to decrease the price of it's product as global recession was hitting it's peak by the time Apple launched it's product in the European market. The market although dense & vast still couldn't afford the price of the product so Apple had to work on the problem enumerate the decision factors and the best alternative it had according to the situation was lowering the price. This was the right step as buying power of the western world was getting affected by the economic downturn and job security was affected so a high price item would not have attracted the consumers. The economic growth in south Asia has tempted Apple to enter the Asian market where India and China are home to about 25% of the world's population for firms to aim their products at together and emerging markets even during the economic downturn coupled with cheap labour and the lower costs in these countries are not to be ignored. How Apple wants to be aware of the effects of this factor in the macro environment is that product exclusivity might not be favourable in the Asian markets as people will never want to and be able to pay the high costs of switching. It has worked in the western world but not in the Asian countries although in certain places people have a lot of spare cash yet the psyche of a credit shopping spree or big monthly mobile bills doesn't prevail. To meet those standards Apple will have to subsidise its products and not make any changes to its quality or features because that is Apple standard. And with the brand image and classic nature of its products Apple won't be long away from its initial goal of creating definite brand recognition.

Technological
Technology is a sector which grows very rapidly and keeps the organisations such as Apple always on their feet striving to develop their products continuously to compete in the fast competition. Apple having launched their product in Europe saw that the mobile phone industry in Europe was much more advanced than the U.S. People in Europe want their phones to do much more than just make calls and iPhone only capable of running on GSM technology lacked the potential to dominate and further acquire the market share in the telecom industry in Europe. Thus Apple came up with the newer model of its product, iPhone 3GS to meet the needs of the consumers and stats show that the move helped Apple maintain its growing user base. In the future too Apple needs to lay a lot of focus on working on it's tradition of bringing out something new. Another challenge that Apple faces is the grey market that appears in iPhone, although it has been a successful product still people not having been able to switch to its high cost have the phone unlocked on to the other networks which costs apple. The contract between Apple and the network providers says that network providers will only pay Apple if the phone remains on the same network thus it loses Apple a lot of money. What Apple needs to do now is to develop network locks and codes that don't let people unlock the phone so as to keeping Apple's profits promised

Social & Legal

A huge set back Apple has had to face in the Asian world and is getting stronger by the day is the presence and dominance of the fake counterparts of Apple's products. Apple will have to put up with the fact that copyright laws and stronger piracy are very much a part of the South Asian and American countries. Most of Apple's products replicate are probably already being sold in these countries at half the price of the original item, without Apple even having launched there. To tackle that problem Apple's products will need to have certain features which are visible clearly in hardware or software, which can't be replicated or some attributes to the products which are available only if bought direct from the Apple store. There should be some extra augmentation added to the products that Apple manufactures so as to stand out from the fake replica. Apple will have the right to proceed with legal action against the copyright violations but in those countries them small fraudsters are big business probably so acquiring them or overtaking if feasible to maintain dominance in the market could also be an option for Apple.

Political
Apple maintains relations with third parties very strongly and relies on them a great deal before entering into any new territories, When Apple decides to enter the Chinese or the central Asian booming economies those strong ties with the third parties might be affected. The major reason for the failure that might drop its axe on Apple in the Chinese telecom industry is the fact that only 2 companies dominate the telecom industry in china and one of them is a monopoly now. When apple goes out to pitch its product to the existing giants in telecom in China it has to be careful so as to not fall out of its hands. The Chinese govt. itself doesn't allow companies to let the consumer's use Wi-Fi on their one phones, all the information that the public gets is what the government channels out and controls so as to keep close scrutiny. iPhone without Wi-Fi is not really much of use, no wonder indirect sales of iPhone have only earned it 7% market share in the Chinese mobile phone market. To make a bigger impact and get more market share quickly, Apple needs to make its grounds firm by opting to establish brand loyalty and product exclusivity with the bigger brand in the competition in the Chinese mobile industry as they have both got things in common. Apple is set to become the biggest mobile phone industry in the world and china Unicom is the biggest network subscriber in the world. There are certain constraints though towards the selection of either brand as one of them does not run on the required band width and the Chinese government is not that flexible to let the brands define their business and make changes to the business environment unless authorised by the government. Analysis of porter 5 forces Michael porters 5 forces (1980), an analytical tool illustrate the biggest factors that may enter into the strategic decision making process, these are on a vertical level supplier and customer on a horizontal level, competition from products, new entrance and rivals. Current rivalry: Apple is facing very intense and fierce competition as the PC industry has very low switching cost. Apples main competitors are Dell, HP and IBM etc. Threat of new entrance: New entrants are reluctant to enter to the market as the initial investments are massive. In 2006 the White Box PC had a share of 36% worldwide but since existing brands have created strong brandling awareness so in result of this the threat for new entrance is very low. Bargaining power of suppliers.

There are two types of suppliers, whereas microprocessors and Operating system has very few suppliers on the other side memory chips, keyboards, disc drives are provided by many suppliers. In order to compete, suppliers have to provide high quality on competitive prices which leaves the suppliers in a low power position. Bargaining Power of buyers. The switching cost is low. This situation places the buyer power in a strong position that can only be countered by companies with strong product, differentiation that would increase the switching cost.

Threat of substitute product:

The more differentiation of product the less likely the switch to a substitute will occur. If the prices are higher then the company with the higher price has to provide justification for the increase. Apple's operating system differentiation can command higher pricing when it is presented to the creative designer community but not to the individual computer buyer unless they are specifically looking for such enhanced graphic capabilities. Overall the PC industry is a very competition intense sector and with technology undergoing paradigm shifts, copying with these changes can make life difficult for the players in the sector. These dynamic do not look favourable for apple, but at the same time apple has been able to manage to retain its technology savvy and designer approach to come out of this quagmire. Apple could convert some of these problematic features into opportunities by looking at its SWOT analysis which is discussed further.

SWOT ANALYSIS
Strength Apple is innovative in both product development & branding of its image Loyal customer base worldwide which has confidence over Apple's endeavours Halo effect can utilize the iPod/iPhone users to slowly convert windows users to Mac Strong management and leadership team ensures Apple maintains its standards Experienced in product diversification and design

Apple has established strong relationship with 3rd party manufacturers such as Foxconn. Weakness High switching costs in it's telecom sector are not very favourable Negative propaganda towards pricing by competitive brands Centralizing the important information prevents other hands from creating efficiencies around the tasks that occur during a product release Expensive hardware and no repairing facilities Weak brand in developing parts of the world Opportunities International expansion into various parts of the globe Market share in personal computer & software space low but promising Partnering with other supporting vendors to ensure that support products (i.e. Hard Drives) are compatible with Mac products. Phenomenal success of the iTunes store and continuation of its growth Growth and expansion of sales over the internet Gaming platform establishment for more success of iPods where it becomes a musical Hand held gaming device

Use of iPhone as a hub to integrate with 3rd party devices opening vast range of additional

markets Threats Increased competition from experienced players in the telecom market Products like Mac are becoming too ubiquitous Potential risk from viruses for its products becoming too popular Aggression of Microsoft on Mac vs. Pc commercials High expectations lead to a higher impact when the company does not deliver exactly what the market expects.

Apple's Marketing strategy

Apple has the ability to launch the new product according to the demand of the customers which help the apple to have an edge over their competitors. For example apple offered the first iPod to his customer but after analysing the changing needs of the customer, quickly developed new types of iPods. But on the other hand dell does not offer any MP3 players that are strictly made by dell; it seems they have a part or accessory in many other brands. Apple, Inc always looks forward to improve their product and increase their market shares. Secondly Apple also offers many different services that are very proactive on their behalf. For example, Apple signed on Disney to sell movies through their iTunes store for people to watch on their iPods. This is very proactive because not only does apple receive the benefits of people using their services but Disney receives higher scales result in return. By having partnership with different organisations Apple has also the opportunity in long term business. This is a major pro for Apple, inc. not only Apple are able to make profit with the help of partnership, it also help to show case possible product development opportunities as well. Another pro for apple is that their approach to addressing demand is finally the ability to use windows operating system on their computers. This was never an option for Mac lovers until the newest release of Apple software, leopard. There were patches released in 2006, however prior to the patches Mac user had to strictly use Apple version of popular programs. For example, Microsoft word, excel and PowerPoint is widely used in the current business word, and until now Apple was unable to support such operations, which in turn led to slower sales for corporation who used those applications regularly. Apple, Inc has inability to touch the gaming network of people within society today. Computer and console gaming system and games are extremely popular currently amongst men and women ages 11-32. According to the Steve Jobs (Apple CEO) Apple making the right decision by lowering the price of iPhone, and even though the technology road is bumpy, we need to do a better job taking care of our early iPhone customers as we aggressively go after new ones with a lower price. Our early customers trusted us, and we must live up to that trust with our actions in moments like these. Therefore, we have decided to offer every iPhone customer who purchased an iPhone from either Apple or AT&T, and who is not receiving a rebate or any other consideration, a $100 store credit towards the purchase of any product at an Apple Retail Store or the Apple Online Store. Details are still being worked out and will be posted on Apple's website next week. Stay tuned. We want to do the right thing for our valued iPhone customers. We apologize for disappointing some of you, and we are doing our best to live up to your high expectations of Apple.

Valuation

The discounted cash flow (DCF) model determines the present value of company by estimating its future cash flows, discounting those cash flows to present value, and summing these discounted values. Apple, Inc. going through lifecycle transitions from high growth to average growth. The DCF model relies on stoke price and dividend growth forecast that must be in sync to produce accurate results. Apple's Earning per share (EPS) is 3.94. The long term debt is $0 while the number of shares of stock understanding was 171.63M. Apple, Inc has no long term debt because they do not borrow any money; Apple simply reinvests its money back into development. Apple, Inc. has seamlessly delivered to their customers. Apple, Inc. also has no debt, which increases the desirability of this investment; all revenue can be continuously cycled back into research, development and expansion. Based on the company's historical and projected future earnings and cash flow growth rates, any person who is looking for a smart short to medium term investment, Apple, Inc. stock would be the right decision. Apple, Inc. can be viewed as having moderate to risky equity due to its steady growth in earning and dividends, its strong brand name loyalty and non existing debt levels.

Areas for improvement

The industry has a fast growth, as the new technologies hitting the market day after day. Mainly Apple is facing a very strong competition from Dell, HP, Acer and Lenovo. There is a high entry barrier for the new companies due to the standardization of the PC components, as the new companies need to have a differentiated strategy as compare to the existing brands. The main concern for the Apple is that the substitutes for the most of its products are available on very cheap prices, leaving the buyer to choose from the wide range of products on a cheaper prices and acceptable quality. Apple is competing in a market where the customers are very demanding and if the customer can't buy an iPhone he has the option to buy on a cheaper price product from different brands. So Apple needs to reconsider their pricing strategy in or order to compete more efficiently. Where as the young generation is very trendy and they love to show off the new things as a fashion statement. So customers expect from the company to provide new products which are different from the previous one. Its main example can be the mobile sector where new shapes and new technologies make a statement for the young generation, whereas the iPhone is introducing new mobiles with the latest technology but with the same shape. So to compete even more efficiently iPhone needs to work on the out look of their products. Demographics of India will be a key for the Apple recognize their brand in India, as the majority of the Indian public lies in the middle class and their average earning per month is very low, so it is very difficult for the majority of the target market to pay big amount of money for the apple products. So Apple will need to device supply chain initiative to maintain its operation.

Conclusion
To sum up, Apple is moving in the right direction but still there are a lot of areas which still needs to be work on, i.e. compatibility of MS office with the Mac computers. Whereas on the other side Apple's management needs to review their pricing strategy in order to compete more efficiently, especially in the current scenario of recession by using the aggressive pricing strategy. As for as the I Phone's are concern company need to review that their strategy towards the appearance of the product.