Apple: A SWOT Analysis
Howard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the most talked-about stories of 2013 is the “fall” of Apple (NASDAQ: AAPL). Falling from its 52-week high of $705 down to $400 has made people wonder about the future of Apple. You can't read or watch investing news without hearing about where Apple’s stock price could eventually end up; estimates range from below $400 to $1000. One of the best ways to cut through the hype and develop a clear picture of a company is to use a SWOT analysis. Here are Apple's strengths, weaknesses, opportunities, and threats.
Apple is one of the most recognizable brands in the world. Interbrand ranked Apple’s brand at the No. 2 most valuable brand, behind only Coca-Cola, valued at $76.5 billion.
Most discussion surrounding Apple involves the large amount of cash holdings it has stockpiled. As of right now Apple has over $40 billion in cash. Coupled with no debt, Apple has the power to, under much speculation, purchase other companies, institute stock buyback programs, or increase dividend yield.
Apple has been regarded as one of the most innovative technology companies. Starting in 1984, with its Macintosh personal computer, Apple continues to produce market-disrupting products like the iPod, iPhone, and iPad. Forbes named Apple the 5th most innovative company in 2011, and the 26th in 2012.
Starting in 2001, Apple began building retail stores. As of 2012, there are 395 retail stores worldwide. Apple stores are the most profitable stores, earning $5,647 per square foot.
Apple’s iPad has been the undisputed king of the tablet computer market. In 2010, the iOS operating system accounted for 83.9% of the tablet market. Fast forward to 2012, and Apple is still on top with 53.8% of the tablet market. While this constitutes a respectable majority of the market, it's also a quickly declining share. Who was responsible for the decline of Apple? Google (NASDAQ: GOOG), with its Android operating system, has started to challenge Apple in the tablet market. In 2010, the Android OS accounted for only 14.2% of the market, but by the end of 2012, it had skyrocketed to 42.7%.
Since 2011, Apple has been going through major management changes. In 2011, Apple lost its famous visionary CEO, Steve Jobs, himself an icon of the company, to cancer. Tim Cook became the new CEO and has had mixed responses during his tenure. In 2012, retail chief, John Browett, and iOS chief, Scott Forstall, both announced they would be leaving the company. John Browett left immediately, but Scott Forstall plans to stay as an advisor and leave in 2013.
Apple is in a good position to capitalize on the increasing demand for smartphones. The smartphone market is estimated to have a compound annual growth rate of 12.56% from 2013 to 2016. With the iPhone, the world's top-selling smartphone, Apple has an opportunity in emerging markets like China and India.
With the $40 billion in cash that Apple has reserved, it has the potential to buy up companies with patents that would allow growth past the limits caused by current patents.
Also, with the potential for increasing iPhone and iPad sales comes more earning potential for Apple's mobile advertising model, iAd. iAd allows third party app developers to embed iAd and earn revenue from advertising, while Apple takes 70% of that revenue, creating a large potential for additional earnings for Apple
Google’s Android operating system is currently the biggest threat to Apple. As of 2012, the Android OS has claimed 42.7% of tablet sales. Android smartphone sales have increased from 57.5% of total smartphones worldwide in 2011, to 75% of smartphone sales in 2012. The Android OS seems to be growing too fast for Apple to keep up with.
A new threat that Apple has to watch out for is BlackBerry (NASDAQ: BBRY), as this company attempts to reestablish itself in the smartphone market with the BlackBerry 10 operating system and new smartphones, Z10 and Q10. With over one million new BlackBerry devices already sold, BlackBerry looks to be off to a good start for regaining its place in the smartphone market.
Samsung currently provides Apple with components for most of its products, including NAND flash memory, mobile processors, displays, and more. Apple’s dependency on Samsung for its high-tech components can become a problem for Apple. In 2011, Apple spent $7.8 billion on Samsung components. By the end of 2012, that number increased to $11 billion. Apple is expected to increases its expenditure to Samsung over the next two years, which leaves Apple exposed to price increases from Samsung, an issue about which Samsung has previously pressured Apple.
Remember that you're investing in a great company, not in market trends. While even small news can greatly swing the price of Apple, staying focused on the company behind the ticker should come first and market trends should only give you a point upon which to consider buying or selling. Using this SWOT analysis will give you a good starting point to develop your own opinions on Apple. In the future, remember to always reevaluate where Apple stands as a company with another simple SWOT analysis.
Howard Cranford has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!