Apple though is at a pivotal point in its history. Competition is now fierce and Apple’s growth is stalling.
There’s a lot to love about Apple, its history iconic leaders and pioneering design. But let’s face it, others have caught up.
Apple is now looking quite exposed with over 55% of revenue from a single product line which is facing fierce competition, particularly from Asia. Is Apple is in jeopardy of following in the footsteps of Nokia?
Part of any SWOT requires is an analysis of the company’s financial performance, market and the Apple business model.
In this Apple SWOT analysis, I’ll take a look into the external challenges Apple faces – the Opportunities and Threats, as well as its internal capabilities to realize the opportunities and deal with the threats – Strengths and Weaknesses.
What is the SWOT analysis For Apple?
The SWOT analysis of Apple analyses the internal capabilities of Apple (strengths and weaknesses) as well as the external environment (opportunities and threats). The result shows Apple is at a pivotal point in its history.
Financial Analysis of Apple
To see the full breakdown of Apple’s financial results
Apple has maintained the position of being the number one brand in the world for the seventh consecutive year – source Interbrand.
At the end of 2019, Apple had $205 billion cash in hand. That gives it a war chest of money to invest in future acquisitions, technologies and/or expanding into new markets.
Apple excels at innovation and that is demonstrated in how it continually evolves the features in its products. In 2018 alone it filed for more than 2000 patents ranking it number in 10th for US patents.
Apple operates has 506 stores in 25 countries worldwide. It is estimated that the stores alone account for around $16 billion in sales placing it in the top tier of retail stores.
Consistently growing a business, remaining ahead of the competition and producing new and innovative products is the dream of most CEO’s. Yet few companies can boast that level of success. Beyond the legacy of Steve Jobs, many other senior members of Apple helped create that success.
Apple has strategically diversified from only selling products to creating an ecosystem of services. Services accounted for 446 billion in turnover but a whopping $29 billion in gross margin (63%). Digital services provide higher margins and a platform for growth by tapping into their product user base. (see digital business models)
Digital services include: iCloud storage, Apple TV+, Apple news+, Apple Pay, and Apple Arcade (gaming). All are based on a subscription business model.
Apple’s scale gives it an advantage in being able to produce products a low costs (see economies of scale). As an example, when Apple launched Arcade their gaming platform they already had over 900 million iPhone users as potential customers.
Apple creates innovative technologies but it also creates innovative customer experiences. How Apple applies the technology and designs the user experience continues to give it a competitive edge
High Priced Products
The iPhone represents over 55% of Apple’s revenue in 2019. However, iPhone sales recently slumped, dropping from $165 billion in 2018 to $139 billion in 2019.
Apple charges premium prices across all its products and in developing Countries Apple is pricing itself out of the market. Lower-priced smartphones are taking market share and in Asia Apple is losing ground to brands such as Huawei
China now accounts for 30% of the smartphone market but Apple saw a sharp decline in sales of over 30%.
Narrow Product Set
Apple has focused on a very slim set of products and often has limited the number of varieties. The high-prices and narrow range may restrict growth in developing Countries where smaller competitors have a similar feature set phones at lower prices.
A further weakness is that not all products in the range are successful. The HomePod is not a very good smart speaker and has had no impact in the market. Amazon and Google still dominate with their range of speakers.
Incompatability with other software
Apple has long been criticized for how poorly Apple devices and software connect with other non-Apple devices.
Lack of innovation
There has been plenty of improvements in the Apple range – new features with the iPhone (and the high price to go with it), new features for the IPad but no real groundbreaking products have been launched recently. Many analysts are questioning if Apple has lost its innovative spirit and is simply playing safe by expanding into services rather than creating new products.
Competing in non-core markets
Apple’s move to service could pay off but Apple hasn’t been a platform business before. It is now going up against pure born-platform leaders such as Netflix, Disney and Amazon. Most people will favour one maybe two services at most and Apple is just breaking into this market – whether it will be successful in the long run remains to be seen. In the meantime, Apple is facing tough market conditions in its traditional product markets.
Limited Distribution and Partnerships
Apple has a limited number of stores and distribution network. It has stores in 25 Countries which leaves a lot of gaps in worldwide retail distribution. Although Apple deals with retail partners these are carefully selected and are limited.
China and Asia
Sales in China are declining and there is no real growth in the rest of Asia. This could present a problem for Apple in the future. If the western countries fell into a recession sales of the Apple premium products would drop leaving Apple exposed. You can see from the Apple infographic of the last three years revenue the China and Rest of Asia performance.
Growth and Investment in Services
Apple is cash-rich and could use its money to aggressively market its services to capture market share. It’s particularly, important for Apple to establish market share in the US and Europe.
Apple hasn’t released any major new product lines in recent years. New product lines could be related to its rumoured Electric Car investments, more wearables other than the Apple Watch or new gaming devices
Apple has had a history of acquiring other companies but nowhere near the pace and scale of Amazon for instance. With a sizeable amount of cash in hand, Apple could buy new existing companies with products that show promise in Asia. Apple has previously purchased other brands such as New Partnerships
Governments and corporates are feeling the political and social pressure to reduce global reliance on natural resources, extend the lifetime of products and make recycling more efficient.
Although Apple uses a robotic system to dismantle and recycle parts it is the initial design and lack of modularity that causes the problems in extending the life of products and enabling greater efficiencies in recycling materials.
Wearables, the Apple Watch, has been a runaway success and without doubt, has been a redeeming factor in an otherwise poor performing portfolio of products. The Apple Watch apps have also contributed revenue to the services pot of revenue, although exact figures are not known.
The healthcare opportunity is a big market and Apple is in a good position to seize both personal and professional aspects of it through wearables.
Afuture opportunity could be to have a professional monitoring system designed specifically for remote healthcare as opposed to the consumer offering. However, to do this Apple needs to make further investments in AI, and platform technologies. With Fitbit being acquired by Google the race is now on as to who produces the best future wearable watch.
New Technologies – AI/VR/AR
Augmented Reality and Virtual Reality will play a significant role in the future in how we interact with information and communicate. As yet, there has been no product that has reached the mass market. Google glasses failed, although they have released a new set aimed at enterprises at $999.
Corona virus Outbreak
Apple manufacturers like Foxxconn were forced as a result of the coronavirus in China. Additionally, Apple stores in China shut their doors creating a further problem. China accounted for $43 billion of sales in 2019, roughly 16.5% of total sales, but now sales have plummeted. Not only has Apple’s supply chain has been disrupted but retail across the globe has suffered from lockdowns in major markets.
Intensity of Competition
Smartphones are a crowded market where more and more consumer electronic companies have now compete. The strongest brand at the moment is Samsung, but the market for smartphones, music streaming, entertainment streaming is becoming more competitive. As an example, Disney used to license its content to Netflix but has more recently launched Disney+.
Asia has seen its own homegrown streaming video services such as Youku Tudou and Hooq.
New Disruptive Brands
Oppo which is largely unknown in the west has grown to become China’s top smartphone – a clear case of disrupting the established players. These disruptive newcomers could expand and erode Apple’s dominance by offering lower-cost phones with similar features to gran the lower end of the market then move upmarket with higher-end phones.
The US government has imposed a tariff on imports from China. Inevitably this will lead to an increase in the overall cost of Apple products. This could create the perfect storm and along with coronavirus and talks of a downturn in the economy, even devoted Apple fans might seek solace in lower-cost smartphones.
Rising Costs in China
The cost of labour in China has and continues to rise as the China economy evolves. In turn, this could place further pressure on pricing at a time when Apple continues to push premium products over more economical versions.
Intellectual Property Infringements
Apple and Broadcom had to pay out $1.1 billion for infringing the California Institute of Technology’s patents. While Apple has money to pay for this, it brings into question their ethics and approach to intellectual property and the potential for related cases.