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Apple is one of the Big Five technology companies, alongside Amazon, Google (Alphabet), Facebook, and Microsoft. Its array of products includes smartphones, tablets, personal computers, and wearable devices, among others. It serves a clientele that seeks authentic and aesthetically pleasing performance products with assured quality and durability. Hence, in this analysis, the author explores the companys performance between 2006 and 2019 by examining its macro and microeconomic environment and their impact. The author contextualizes the Apples performance by comparing it to Samsung and Microsoft.
The Fundamental Economics of Exposure
Business performance is the outcome of organizational strategy, which often represents a response to macro and microeconomic factors. For Apple, an effective response to the prevailing business conditions has always been designing, manufacturing, and marketing its products in a way that addresses changing customer needs. Evidence of excellent strategy of the California-based company is available in its financial reports, with the fiscal year being the 52nd or 53rd week period that ends on the last Saturday of September.
Exposure to the Macroeconomic Environment
Macroeconomics examines the global, regional, or national economy in its entirety as one big market. It considers how the government manages and controls money circulation by, for example, managing its debts or implementing austerity packages to facilitate stable growth (Begg and Ward, 2016). Macroeconomics is important to Apple because it addresses economy-level issues affecting its operational cost and revenues. Figure 2.1(a) concerns critical macroeconomic issues, with the area below and above the blue line representing unemployment and resource scarcity, respectively. At point 2.5, the company produces the same amount of Product Y and Product X using the available resources. At Point 5, the company generates more Product X and no Product Y. Therefore, resources are limited, and companies have to choose what to do with them to improve profitability.
In reality, however, many factors influence the operations of a company. For example, as Apple became profitable from improved customer engagement, it re-invested some of the money back into the business, leading to an increase in its ability to meet demand for iPhones, iPads, Macbooks, and services. Figure 2.1(b), for instance, shows that Apple produced more items progressively from 2006 to 2019. Each year, the number of manufactured units rose due to technological improvements at the company, among others.
Apple Performance from 2006 to 2019 Compared to Samsung and Microsoft.
Looking at the available records for the companies from their 2006 to 2019 fiscal years (see figure 2.1.1), Apples net income has generally risen faster than its competitors Samsung and Microsoft. Samsung has had almost the same upward trend as Apple, but Microsofts revenues increased by a significantly small margin over the period. Apple rose from an underdog in 2006 to have the highest revenues of the three companies in 2019. As shown in Figure 2.1.1, Apple had become a leader in terms of revenues by 2015. The companys success is due to the effectiveness of its business strategy and focus.
Performance During the 2008/2009 Financial Crisis
When the 2008/2009 financial crisis was deepening and rival sales softening, Apple attained significant sales in 2008s concluding three months. It sold more than 4.3 million iPhones and 2.7 million Macbooks (Form 10-K Apple Inc. for the period ending September 26, 2009, p. 43). In its first fiscal quarter, ending 31st December 2008, Apple sold 1.8 million notebooks (representing a 34 percent increase) and 728,000 desktops (representing a 25 percent drop over the same quarter in 2007) (Form 10-K Apple Inc. for the period ending September 26, 2009). Although Macbook sale revenues were essentially flat year-over-year in 2008, the company sold nine percent more of the product during the last three months of the period (Form 10-K Apple Inc. for the period ending September 26, 2009). The companys positive performance during the 2008 crisis confirms that innovation, Apples preferred emergency response, can push a business forward, regardless of the prevailing circumstances. For example, the company introduced new all-aluminum unibody Macbook notebooks during the 2008/2009 financial meltdown, which became major winners even though Apples growth rate slowed down during the period. In terms of stock, its price was a high of $7.64 on December 1, 2009, up from $3.49 on January 1, 2007. See Table 2.1.2.
Table 2.1.2: Apples Stock Price Fluctuation During the Global Financial Crisis of 2008-2009 (Source: Apple Inc. historical data, 2020).
Impact of Inflation
Inflation is the rate of change in the average price level. A three percent inflation rate means that prices have risen by that value over the previous 12 months. Inflation erodes customers purchasing power, encourages spending (investing), causes more inflation, may raise or lower borrowing costs, and increases growth. Thus, changes in this fundamental rate over time affected Apples potential sales, investment decisions, and borrowing decisions. When inflation rates were low, such as in 2009 (see Figure 2.1.3), customers had more purchasing power, and Apple experienced a surge in product sales. In 2008, when inflation was high, Apple had a reduced growth rate.
Impact of Fiscal, Monetary, and Government Policies
Governments use fiscal, monetary, and other policies to control the economy and influence growth. For example, Figure 2.1.4 shows the critical macroeconomic outputs associated with federal policies. As shown in the graph, inflation was under five percent in the United States from 2006 to 2019, and the government cut interest rates leading to increased borrowing, faster spending growth, and rising GDP. Companies, including Apple, benefitted from these changes. However, the budget deficit in the same period rose due to increased government spending and reduced taxation. Consequently, imports exceeded exports, and a national trade deficit remained. Fluctuating inflation and weak growth led to declining interest rates and growing unemployment. A temporary solution to the problem was implementing tax hikes. Meanwhile, these fiscal, monetary, and government changes affected Apples profitability because they influenced money availability.
Impact of International Trade and Exchange Rate
International trade and exchange rates affect Apples business because the firm designs and manufactures products and services for the local (US) and the global market. As shown in Figure 2.1.5, the US dollar value has fluctuated over time, affecting the iPhone designers revenues. Changes in the US dollar value also affected Microsofts and Samsung sales volumes because it is a global currency. For example, from Figure 2.1.5, the USD was the strongest on February 1, 2017. Apple, Samsung, and Microsoft revenues increased during this time, which was surprising given that they had significantly dropped in the previous year (see Figure 2.1.1 for revenue trends over time). The trade volume between the United States and other counties globally determines trade deficit levels and the dollars value or strength. If the US exports more goods than imports, it reduces its trade deficit while simultaneously increasing its currency value. More exports occur when proper infrastructures that support local production exist. Governments may also give local manufacturers incentives to do value addition to primary goods to encourage more economic engagement with the rest of the world. As a US corporation, Apple sells its products worldwide and this earns the country the much-needed foreign currency.
Exposure to the Microeconomic Environment (Market Exposure)
Microeconomics is the study of the reasons for product price changes, influences of firms cost, and the determinants of organizational profitability. The work involves examining and comprehending companies, consumers, and workers within markets. It addresses various market forces that affect a companys revenues, operational costs, profitability, and decision-making (Begg and Ward, 2016). Since its focus is on individual behavior, the study of microeconomics does not consider the whole economy; it shows why buyers prefer certain products instead. Figure 2.2 is an illustration of some components of microeconomics like social welfare and product and input pricing and how Apple and its competitors use them to influence wages, profits, rent, and interest.
Buyers/Aggregate Demand Curve
For Apple, microeconomic decisions revolve around anti-competitive conduct. For example, the companys leading revenue share, lock-in effects, and customer/client bigotry offer the iPhone manufacturer monopolistic power. For this reason, Apple controls 71 percent of the mobile platform market by revenues. Additionally, iPhone users switching costs to other platforms are 50 times more than a five percent app price increase. Most importantly, Apple has increased iPhone prices by 33 percent over time without losing sales. Since the firm often produces products according to existing orders, there is no excess demand or supply of iPhones, Macbooks, and iPads (see Figures 2.2.1(a), (b), and (c)). Still, the iPhone smartphone is the leading Apple product in terms of sales revenues (see Figure 2.2.1 (a)).
Suppliers/Aggregate Supply
Apple has hundreds of suppliers from mostly India and China. Indeed, the top 200 Apple suppliers represent 98 percent of procurement expenditures for manufacturing, materials, and assembly of its products worldwide for the 2019 fiscal year (Supplier list, 2019). Every year, the company improves upon its progress to protect the planet and those in its supply chain through deep partnerships and the setting of high standards that suppliers must meet. As shown in Figure 2.2.2, some suppliers depend on Apple almost entirely while others get less than 50 percent of their business from the iPad developer.
Competing Products
Competing products include Samsung phones and other smartphones on android or other platforms. In the personal computers segment, the arch-rival is the Windows operating system. Apple tries to stifle competition by using the lock-in effect, which ties its products and services to proprietary software. For example, iPhones operate exclusively on the iOS platform, while Macbooks use the Macintosh operating system. iPhone users can download the apps they need from the AppStore, which hosts more than two million applications and nearly 50 percent of American Smartphone users. These consumers generate over 20 billion in sales each quarter by downloading eight billion apps. Without a doubt, the Apple ecosystem ignited a social, cultural, and economic phenomenon that altered how people play, work, travel, and meet. Anticompetitive strategies implemented by the institution are the only threats to this thriving ecosystem. As shown in figure 2.2.3, theoretically, a fall in android prices (depicted in the left panel) causes a rise in its demand and a fall in iPhone sales.
Complementary Products
Essentially, Apple manufactures all complementary products for iPhones, Macbooks, and iPads. For example, the iPhone uses the iOS, and Macbooks use Macintosh, all of which are made by Apple. For mobile applications that improve user experience, iPhone owners rely on the AppStore only. Apples wearables (such as Apple Watch and Fitness products) are tied to the iPhone as well, meaning that it is easier for users to pair Apple products than use competing goods. The complementarity of these devices increases the companys sales volume, user convenience, and brand loyalty. Nonetheless, as shown in Figure 2.2.4, business ecosystems have a heterogeneous and ever-evolving array of interconnected firms and individuals relying on a complex, international network of associations.
Impact of Consumer Income
Increases in the buyers disposable income should result in more demand for products and vice versa in a perfectly competitive market. As shown in Figure 2.2.5, an advancement of the purchasers monetary strength from Lower Income A to Higher Income B led to an upward shift in the quantity of demanded products at each price level. The same applies to Apple products, as the company manufactures high-quality, expensive products. With increases in peoples spending abilities, Apple can sell more products because the buyers circumvent the cost barrier. However, other factors in the market like government regulations, price of Apple products, accessibility, and close substitutes availability may affect the quantity demanded.
Price Elasticity of Demand
Apple offers normal products because their demand is neither perfectly elastic nor inelastic. Changes in these goods prices are indirectly proportional to the demanded quantity; high prices lead to low demand and vice versa. However, Apple has successfully overcome this economic reality by introducing minimally upgraded versions of existing products periodically at a higher price. Sometimes, these updated versions have no significant functionality improvements, except for size alterations and name changes. Indeed, using this technique, Apple has increased the price of its products by at least 33 percent over time without experiencing a decline in demand.
Price Elasticity of Supply
As noted earlier, Apple supplies what customers order, therefore, there is no surplus demand or supply. However, because the company operates in a normal market, it wishes to supply more products at high prices, as shown in Figure 2.2.7. Indeed, the organization has been scaling up its production abilities over the years to ensure it can always meet buyer demand.
Apples Handling of the Microeconomic Environment
Apple has effectively handled its microeconomic environment, leading to its development into one of the worlds most significant and most valuable firms. The company has used persuasive tactics to address microeconomic issues and take advantage of existing market opportunities. As shown in Figure 2.2.8, strategic decisions that have facilitated the growth have included the launch of several products at different times, including the iPod, Macbook, iPhone, iPad, Apple Watch, and AirPods. With each new product, the company captured a bigger market and positioned itself well for an industry takeover. The California company updates these products periodically and packages them as more premium items compared to last versions.
Recommendations for Handling Pandemic and Beyond
Having survived the 2008/2009 financial meltdown, Apple is no stranger to dealing with crises. Even during the ongoing COVID-19 pandemic, the company continues to display positive performance and ability. For example, as more people resolved to work and study from home, there was a significant uptick in the sale of Macbooks and iPads. Thus, the only recommendation for Apple during the epidemic and beyond is for it to remain strategic and innovative by investing more money in research and development (R&D). As shown in figures 2.2.9(a) and 2.2.9(b), Apple has been investing significantly less money, both in absolute and relative terms, in R&D compared to its rival Microsoft. With more investment in R&D, future product updates will contain better features and functionalities that make users want to buy them. Also, separating products and their accessories and creating an array for different price ranges may help the company in the future.
Exposure to Government and Regulation
Within an economy, a government collaborates with existing systems to provide incentives, structures, and institutions that promote and foster development. Indeed, around the globe, national leaders, aided by voluntary private individuals and organizations, solve fiscal problems through joint law or policy formulation and implementation. They create regulations that improve the business environment while simultaneously ensuring corporate activity does not harm people or the environment. Apple has responded to government regulations over time by improving its products design and availability, changing its terms and conditions, and investing more money in corporate social responsibility. Thanks to stricter government requirements about pollution, Apple is keener on its carbon footprint now more than ever. It calculates it annually to determine priority areas to concentrate pollution reduction efforts. As shown in Figure 2.3, most of the companys negative impact on the environment comes from its manufacturing activities.
The Fundamental Economics of Cost Vulnerability
Business operations are risky undertakings that rely on the entrepreneurs ability to face and overcome challenges. Since its founding on April 1, 1976, Apple has faced various circumstances, ranging from financial crises to epidemics, that threatened its existence. These situations created vulnerabilities that have included human-social, physical, economic, and cultural-environmental risks. Table 3 below summarizes these issues and the associated indirect and direct losses. All these issues have hidden costs as Apple often evaluates and addresses them in monetary terms.