1. Industry Classification
Computer Hardware and Related Software
iMac
MacBooks
Mac Pro Desktops
iPad
Mac Displays
Time Capsule
Xserve/ Mac Pro Servers
Mac Mini Server
Mac OS X
Final Cut Studio
Logic Studio
iLife
Aperture
iWorks
Apple Remote Desktop
Media and Communication Devices
iPhone
iPod
Apple TV
iOS Operating System
Digital Media Content
Music
Movies
E-books
App Store
Before we carry out the analysis of environmental threats faced and opportunities available to Apple, it is essential to settle on the industry in which Apple operates. As Apple designs, manufactures, and markets a range of personal computers, mobile communication and media devices, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications; It is fair to say that defining the industry for Apple is not straightforward. Thus, we have broadly divided Apple’s presence in three industries:
Computer Hardware
Media and Communication Devices
Digital Media Content
Under the Computer Hardware industry Apple designs, manufactures, and markets a range of personal computing products such as iMac, MacBooks, Mac Pro Desktops and variety of related peripherals .Apple also manufactures and markets some business solutions such as Xserve, Mac Pro server, and Mac Mini server. Apple also markets a range of software products which are exclusively operable on Apple’s hardware; Mac OS X, Final Cut Studio, Logic Studio, iLife, iWorks, Aperture, and Apple Remote Desktop are few of those software products.
Under the Media and Communication device industry Apple designs, manufactures and markets revolutionary products such as iPods, iPhone, Apple TV and more recently iPad. iOS operating system is the platform for these devices.
Under the Digital Media Content industry Apple markets third-party digital media contents such as downloadable music, movies, E-books, and apps etc.. iTunes store is a well integrated platform developed by Apple to deliver these third party digital contents directly to its customers.

2. Computer Hardware Industry Overview
A highly competitive industry
A mature industry
Market is characterized by frequent product introductions
A few well-established companies, such as:
HP (Global leader with 17.4% market share)
Dell
Acer
Apple (Seventh in global market share (4.3%)
Toshiba
Lenovo
Three main operating systems for personal computers:
Microsoft Windows(used in 85-90% of PCs worldwide)
Mac OS X
Different flavors of Linux
Intel Corp.’s processors are used in approximately 80%of PCs
79.2 % of US Market Share
The Computer Hardware industry consists of companies engaged in assembling and manufacturing computers, computer hardware and computer peripherals. The highly competitive PC market is the largest sector of the computer hardware industry in terms of both units and dollars. It represented over 80% of the total amount spent on PCs, servers, and workstations in Portability has been a key driver: more and more people want their own computer and the ability to take it with them easily. PC users want to clear their desks of cords, which further drives
demand for portable PCs, tablets and wireless accessories. In 2009, for the first time, portables accounted for more than half of worldwide PC shipments.

3. Porter Five Force Analysis of Computer Hardware Industry in Relation to Apple
Level of Threat in the Industry:
Moderate to High
Threat of New Entrants:
Low
Threat of Buyers:
Threat of Suppliers:
Moderate
Threat of Substitutes:
Threat of Rivalry:
High

4. Threat of New Entrants Threat of Substitute Threat of Rivalry
Economies of Scale
Product Differentiation
Cost Advantages Independent of Scale
Proprietary Technology
Know How
Favorable Access to Raw Material
Learning-Curve Cost Advantages
Customer-Switching costs
Access to distribution
Threat of Substitute
Smartphones are the biggest substitutes for personal computers
More than 10 billion units being used world wide
New smartphone functionalities are on the rise
iPad is likely to bridge the gap between PC’s and Smartphones
Threat of Rivalry
Intense price competition
Personal Computer industry is dominated by Windows, Apple is a minor player
Continuous Product Introductions that primarily focus on product feature enhancements than product innovations
Successful launch of iPad has established Apple as the market leader in the tablet market; competitive pricing of iPad has also allowed Apple to compete with low-end laptop or netbook market of the competitors
Threat of Suppliers
Intel is the sole supplier of Microprocessors for Apple’s desktops or laptops
Apple uses a multitude of custom components that can be usually sourced from one supplier only
Sole-sourced third-party vendors in China perform final assembly of substantially all of the Company’s Mac products
No risk of forward integration from the suppliers
Threat of New Entrants
Threat of new entrants is low in this industry; it stems from the following factors:
Economies of Scale
Product Differentiation
Cost Advantages Independent of Scale
Proprietary Technology
Know How
Favorable Access to Raw Material
Learning-Curve Cost Advantages
Customer-Switching costs
Access to distribution
Threat of Rivalry
The threat of rivalry is high ,it is characterized by the following:
Intense price competition (The typical price point for a PC
In 1997was $2,000, since then PC vendors have responded with lower prices, By 2006, desktop models could be bought
for less than $500, and laptops for less than $700.
Personal Computer industry is dominated by Windows, Apple is a minor player
Continuous Product Introductions that primarily focus on product feature enhancements than product innovations; Successful launch of iPad has established Apple as the market leader in the tablet market; competitive pricing of iPad has also allowed Apple to compete with low-end laptop or netbook market of the competitors
Threat of Substitutes
The biggest substitute for PCs are the mobile computing platforms such as smartphones.
As processing power and capabilities of smartphones is increasing; its appeal to the masses can not be under-estimated. There are at least 10 billion mobile units all over the world, which also allows internet access beside other functionalities. Thus, mobile platforms such as smartphones and tablets are a definite threat to PC market in the coming decade
iPad is likely to bridge the gap between PC’s and Smartphones
Threat of Suppliers
Intel is the sole supplier of Microprocessors for Apple’s desktops or laptops
Apple uses a multitude of custom components that can be usually sourced from one supplier only
Sole-sourced third-party vendors in China perform final assembly of substantially all of the Company’s Mac products
No risk of forward integration from the suppliers
Threat of Buyers
A large number of individual buyers who are fragmented
Apple also sells its products through whole sellers and resellers at low profit margins; may have incentive to sell competitor’s products
Buyers including major resellers and whole resellers are unlikely to engage in backward integration as they may not have resources and capabilities to do so.
Threat of Buyers
A large number of individual buyers who are fragmented
Corporate buyers have some power to negotiate better pricing
Apple also sells its products through whole sellers and resellers at low profit margins; may have incentive to sell competitor’s products
Buyers including major resellers and whole resellers are unlikely to engage in backward integration as they may not have resources and capabilities to do so.

5. Opportunities for Apple in Computer Hardware Industry
Computer Hardware is a Mature Industry and profitability of a firm in a mature industry is usually affected by the intense competition. However, Apple can continue to gradually increase its market share in this mature industry by:
Engaging in product feature enhancements
Capitalizing on its excellent service and support
Improving the processes to reduce the costs
Capitalizing on the “Halo Effect” associated with Apple products

6. Mobile and Communication Device Industry Overview
A relatively new and emerging market; more than 10 billion units being used world wide
22% of consumers already have a smartphone, with this percentage rising to 31% amongst year olds
Smartphone sales increased in 2010 by 72.1 percent from the prior year, whereas sales for all mobile phones only increased by 31.8 percent.
A highly concentrated market with a few major players
A highly competitive industry characterized by
Competitive pricing for end-users
Intense competition for market share
Frequent product introductions and innovations to maintain competitive advantage over the rivals
High Customer-Switching Costs
Product differentiation on the basis of product features, linkage with other firms(Wireless Carriers), consumer marketing, and product reputation.

7. Porter Five Force Analysis of Mobile and Communication Device Industry in Relation to Apple
Level of Threat in the Industry:
Moderate
Threat of New Entrants:
Low
Threat of Buyers:
Threat of Suppliers:
Threat of Substitutes:
Threat of Rivalry:
High

8. Threat of New Entrants Threat of Substitute Threat of Rivalry
Apple has significant cost advantages over the potential entrants because of:
Economies of Scale
Learning Curve Cost Advantages
Favorable access to raw materials
Difficult for new entrants to match the Product Differentiation in terms of product features, linkage with other firms, and most importantly the “Halo Effect”
Proprietary Technology and Know How
High Customer-Switching costs
Threat of Substitute
Personal Computers, Tablets, Game Consoles, Portable gaming systems(PSP, Nintendo DS etc.), and CD Players
Although smartphone functionalities are on the rise but can not match processing power and functionalities of PCs
Cheaper and easier access to third party digital contents is complimentary to the Smartphone market.
All the substitutes except portable gaming systems and Tablets do not provide mobile or portable user experience
Threat of Rivalry
There are relatively large number of competing firms such as Apple, HTC, Nokia, RIM Samsung, Motorola
Intense competition between major players
Android phones constitute 33% and iPhone constitute 16% of Global Smartphones market share
iPhone is the first choice for majority of consumers when able to switch from other devices
Customers are able to choose from a variety of devices
Frequent product launches and rapid technological advances by rivals to maintain or gain competitive advantage
Prices for subsidized phones are very competitive
Threat of Suppliers
Apple uses a multitude of custom components that can be usually sourced from limited suppliers only; thus, some suppliers may have incentive to leverage this specialized capability to raise the prices on these vital resources
Sole-sourced third-party vendors in China perform final assembly of iPhones and iPods
No risk of forward integration from the suppliers as they may not have access to all the expertise and proprietary technologies to develop a competing product
Threat of Buyers
A large number of individual buyers who are fragmented
Buyers including major resellers and whole resellers are unlikely to engage in backward integration as they may not have resources and capabilities to do so.
Products are differentiated, which makes it difficult for customers to switch to other devices

9. Digital Media Content Industry Overview
Digital Media content industry includes downloadable music, streaming or downloadable movies, applications for mobile computing devices such as smart phones and tablets, and E-Books
An emerging and highly competitive industry; major players are Apple, Amazon, Netflix and Google
Most of the contents are developed by third parties
Most of the contents are platform specific e.g. Apps are designed to run exclusively on either iOS or Android OS
Apple is the market leader for Apps and Music; 10 billion apps downloaded by the end of 10 quarters since its launch
Apple started the digital music revolution with the launch of iTunes and iPod.
Amazon is the market leader for E-books
Netflix is the market leader for streaming videos through its monthly subscription program; Amazon is widely expected to leverage its financial muscle and cloud computing capabilities in improving its offerings for streaming videos

10. Porter Five Force Analysis of Digital Media Content Industry in Relation to Apple
Level of Threat in the Industry:
Moderate
Threat of New Entrants:
Low
Threat of Buyers:
Threat of Suppliers:
Threat of Substitutes:
Threat of Rivalry:
High

11. Threat of New Entrants Threat of Substitute Threat of Rivalry
Apple has significant cost advantages over the potential entrants because it can use its market power to negotiate lower cost for third-party contents
Apple’s significant market share of mobile and communication devices makes it difficult for customers to switch to a platform developed by new entrants
Proprietary Technology such as iTunes that provides an easy user interface; iTunes-device relationship is a formidable barriers to overcome by any new entrant
It is unlawful for customers to access the copyrighted digital content through unauthorized means such as torrents , these governmental regulations not only protects the content providers but also favor incumbents in this industry.
Threat of Substitute
Books, DVD’s, Video Games on Game consoles and portable gaming Systems, Cinemas, and any outdoor activities are suitable substitutes for digital media contents
Although popularity of digital media content is gaining ground but the abovementioned substitutes are still viable and popular options for majority of population
Threat of Rivalry
Although, There are a few major players in this industry, but competition is intense between the major competitors
Prices are competitive for most of the digital media content
Competitors are continuously engaged in gaining First- movers advantage by launching new services or offerings. Amazon recently launched “Cloud Music Player” to allow Android users to access their music from anywhere.
Apple’s position as a market leader for App market is likely to be challenged by Amazon and Google in the coming years Amazon has recently launched “AppStore” to market apps for Android phones.
A few people , although unlawful, do access copyrighted digital media content through unauthorized channels
Threat of Suppliers
Developers of Applications are fragmented, thus does not have market power to win favorable terms from Apple
Providers of E-books, Music and Movies are not fragmented; thus have the ability to reduce economic profits of Apple
Content providers have the option to switch or provides the same contents to the competitors unless prevented by exclusivity clause.
Big content providers such as record companies, movie studios or TV networks may start the distribution of the content directly
Threat of Buyers
A large number of individual buyers who are fragmented
High switching costs for customers.
Products are undifferentiated, especially in the case of non-exclusive digital content

12. Opportunities for Apple in Mobile and Communication Device/ Digital Media Content Industries
Both these industries are relatively new and emerging industries; thus, provide Apple with a multitude of opportunities towards superior economic performance. Apple can continue to be a dominant player in these industries by:
Implementing technological leadership strategy--- making investments in developing or acquiring patented technologies
Investing in strategically valuable assets
Creating customer-switching costs