THEORY OF STRATEGIC MANAGEMENT
Gareth R. Jones
Texas A&M University
Charles W. L. Hill
University of Washington
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APPLE I N 2 0 0 8
In 1997, Apple Computer was in deep trouble. The company that had pioneered the personal computer (PC) market with its easy-to-use Apple II in 1978 and introduced the first graphical user interface (GUI) with the Macintosh in 1984 was bleeding red ink. Apple's worldwide market share, which had been fluctuating between 7% and 9% since 1984, had sunk to 4%. Sales were declining. Apple was on track to lose $378 million on revenues of $7 billion, on top of a $740 million loss in 1996. In July 1997, the cofounder of the company, Steve Jobs, who had been fired from Apple in 1985, returned as CEO. At an investor conference, Michael Dell, CEO of Dell Computer, was asked what Jobs should do as head of Apple. Dell quipped "I'd shut it down and give the money back to shareholders."1 By 2008, the situation looked very different. Apple was on track to book record sales of more than $32 billion and net profits of close to $4.7 billion. The stock price, which had traded as low as $6 a share in 2003 was about $170, with the market capitalization at $140 billion, which far surpassed that of Dell Computer which was about $41 billion. Driving the transformation were strong sales of Apple's iPod music player, music downloads from the iTunes store, and Apple's iPhone. In addition, strong sales of Apple's iMac laptop and desktop computers had lifted Apple's market share in the United States PC business to 8.5%, up from a low of under 3% in 2004. 2 Apple now ranked third in the United States PC market behind Dell with 32% and HP 25%. Moreover, analysts were predicting that the halo effect of the iPod and iPhone, together with Apple's adoption of Intel's microprocessor architecture, would drive strong sales going forward. To emphasize the broadening product portfolio of the company, Apple had dropped "computer" from its name. For the first time in 20 years, it looked as if Apple, the perennial also-ran, might be seizing the initiative. But questions remained. Could the company continue to build on its momentum? Could the company break out of its niche and become a mainstream player in the computer industry? How sustainable was the iPod driven sales boom? Would the iPhone continue to gain market traction? And with new competitors coming along, could Apple hold onto its market leading position in the market for digital music players?
APPLE 1 9 7 6 - 1 9 9 7
The Early Years
Apple's genesis is the stuff of computer industry ledged.3 On April Fools Day 1976, two young electronics enthusiasts, Steve Jobs and Steve Wozniak, started a company to sell a primitive personal computer that Wozniak's had designed. Steve Jobs was just 20 years old; Wozniak, or Woz as he was commonly called, was five years older. They had known each other for several years, having been introduced by a mutual friend who realized that they shared an interest in consumer electronics. Woz had designed the computer just for the fun of it. That is what peopie did in 1976. The idea that somebody would actually want to purchase his machine had not occurred
This case was prepared by Charles W. L. Hill, the University of Washington. Copyright Charles W. L. Hill © 2008. Reprinted by permission.
Business Level Cases: Domestic and Global
to Woz, but it did to Jobs. Jobs persuaded a reluctant Woz to form a company and sell the machine. The location of the company was Steve Jobs' garage. Jobs suggested they call the company Apple and their first machine, Apple I. They sold about 200 computers at $666 each. The price point was picked as something of a prank. The Apple I had several limitations: no case,...
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