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Apple Inc.

September 30, 2019, 6:47 am. CEO Tim Cook sat on the top floor at Apple's newly constructed $5
billion headquarters on I Apple Park Way in Cupertino, Caliiornia, which made it the most expen
sive office building on the planet. After an early morning workoet in the facility's new gym and a
quick shower and massage. Tim Cook stood in his office and gazed out of his all-glass walls, seeing
the first sun rays emerge on the horizon. He greatly eajoyed the surround view that the "spaceship
like" office building afforded. Yet. as Tim Cook opened a can of low-carb Monster while reviewing
Apple's 2019 annual report on his MacBook Pro prior to his investor call later in the day. he worried
how long the magic would last.
Several issues-other than too much caffeie--kep: him awake at night: Apple's sales of its iconic
iPhone were dropping fast, especially ig China bat also in other key markets. Apple had yet to launch
y maju puuu t d
mat
he late Steve lohs had iust left Annl desigs
time, Cook had just annouaeed tne new Apple TV" streaming services, which meant that Apple was
not only joining the fray to compete hcad-on in the streaming wars" with Netflix, Amazon, Hulu.
but also with other new streaming ent ants such as Disney and AT&T's TimeWarner.
At the same time. Cook reminded bBmself that Apple was the first company to have ever surpassed
the $1 trillion mark in market capitalization (in October 2018). Indeed, since its IPO on December
12. 1978, Apple's stock market valuation had risen over an astounding 43,000 percent. In 2019,
Apple had annual suies of $260 billion and $60 billion in net income (Exhibits I and 2).

A Brief History of Apple

In 1976. Steye jobs and Steve Wozniak founded Apple Computer, Inc. to commercialize the
personai (ivme) computer. which was a revolutionary idea at the time. In 1978. they launched the
Apple II with 4K bytes RAM and sold it for $666.66-ads encouraged consumers to "Byte into an
Apple. ke December of thal same year. Apple had a successful initial public offering (IPO), making
it a publicty raded company. By 1980. Apple had released three improved versions of the personal
computer.

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Apple lec

In 1981. IBM (Big

Blue")
player. IBM set the industry entered with
the personal
computer market and quickly became the
standard an open architecture.
manufaCturers, giving rise to many more computer companies in Whica Was easily imiable by other
dominant
1), as well as in Taiwan.
its DOS operating system (later
Korea, and other Asian countries. In the m States MAC(e.g.. Con1paq
rrosoft with
renamed Windows) and Intel with its
ture) set
industry standard ("Wintel. the portmanteau of WindowsmicrogrosessoriS$O (186 architec
and Intel).
In 1984, Apple introduced the
Macintosh. which offered advanced capabilities with an
graphical user interface (GUI). The Macintosh
oduced via a dramatic televiston commercial
intuitive
during the 1984 Super Bowl. AI the same time, competitio
coranuter hardware industry was
cutthroat and given Apple's closed operating system, not many soft Were avuilable.
Rather. because the Wintel standurd was open, software developers (locke around it : av

important software products such as spreadsheets. word processor, tnd

the meantime. Apple continue presentation n softw
struggle with a high cost stucture and lack of software for its
hardware

As a consequence, in 1985, Steve Jobs

professional manager from B ur uner power struggle with C'EO John
Sculley. Things turned from
bad to worse for Apple. By 1996. the onee hot state
revenue and laid off 30 percent of the company's total wors 1orce of 13,400, Product guality and
reputation hit an all-time low. In 1997, Apple was near bankrunicy.

Steve Jobs Returns

ARer heing fired from Apple. Steve Jobs in the high-tech space with
pursue ther Piar a eomputer animation
NexT. developer ane nin f , s5 million, and invested anothet $5 million
studio. of his oWn
10 remake the company into the conputer-animated movie studio as we know it today. In
2006, Disney purchased Pixar for $7.6 bililon
to Apple. Steve Jobs was
Apple's purchase of NeXT in late 1996 opened the way for Steve's return s called himself
d "interim CEO s the fall of 1997, and Was pata le continued to struggle and
*CEO and the "interin" tikle was dropped o e m Microsoft in 1997:
largely survived based un a s m m v d mononoly antitrust concerns. However.
Microsoft's intent
was to keep Apple gnd its operating produets that would shape the future of
technology. and
it gave Steve Jobs needed evelop pr
in modern-day corporate history.
to orchestrata one of the arcatest come-backs
tinued several products
had helped start and distTake camera-all now
Jobs awiftly refocuscd the company that he
LaserWriter printer line, and the.
such as tçe Newion PDA, the As part of the res
ts and lower costs, Jobs also
collector itenis for Apple enthusiasts. distribution system by ending relation
mTnufacturing to Talwan and scaled down the
outsourced
ships with smaller outlets.
computer models (one laptop and
focused Apple on only two e consumer market)
Perhaps even more important. Jobs segments (the professional market and
two market
One deslttop) n each of

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This document is authortzed
 Apple le.

In 1981. IBM ("Big Blue") entered the personal computer market and quickly became the dominant
player. IBM set the industry standard with an open architecture, which was easity imiable by other
manufacturers, giving rise to many more computer companies in the United States (e.g.. Con1paq
and Dell), as well as in Taiwan. Korea, and other Asian countries. In the meantime, Microsoft with
its DOS operating system (later renamed Windows) and Intel with its microprocessors (186 architec
ture) set the industry standard (Wintel," the portmanteau of Windows and Intel).
In 1984. Apple introduced the Macintosh, which offered advanced capabilities with an intuitive
graphical user interface (GUI). The Macintosh was introduced viaa dramatic televison commercial
during the 1984 Super Bowl. At the same time. competition in the coraruter hardware industry was
cuthroat and given Apple's closed operating system, not many software products were available.
Rather, because the Wintel standard was open, software developers flocted around it and provided
important software praducts such as spreadsheets, word processoIs, nd presentation software. In
the meantime. Apple continue to struggle with a high cost siructure and lack of software for its
hardware.

As a consequence, in 1985. Steve Jobs was forced cut after a power struggle with CEO John
Sculley, a professional manager from Pepsi who was hired two years carlier. Things turned from
bad to worse for Apple. By 1996, the once hot startup repotied a mere $69 million in first-quarter
revenue and laid off 30 percent of the company's totai work torce of 13,400. Product quality and
reputation hit an all-time low. In 1997. Apple was neat bankrug:cy.

Steve Jobs Returns

After being fired from Apple. Steve Jobs pursucd other opportunities in the high-tech space with
NeXT, a developer and manufacturer of camputer workstations, and Pixar, a computer animation
studio. In 1986 Jobs purchared Pixar fo: $5 million, and invested another $5 million of his own
money to remake the company into the conputer-animated movie studio as we know it today. In
2006. Disney purchased Pixar for $7.6 biljon.
Apple's purchase of NeXT in late i996 opened the way for Steve's return to Apple. Steve Jobs was
named "interim CEO" Is the fall of 1997, and was paid a symbolic Si salary. Jobs called himself
"iCEO" and the "interin" title was dropped officially in 2000. Yet, Apple continued to struggle and
largely survived based un a 315U million cash injection from Microsoft in 1997: Microsoft's inteat
was to keep Apple nd its operating system viable to avoid monopoly antitrust concerns. However.
it gave Steve Jobs needed tinie to develop products that would shape the future of technology. and
to orchestrat8 one of uhe arcatest come-backs in modern-day corporate history.
Jobs swiftly relocusrd the company that he had helped sturt and discontinued several products
such ar the Newton PDA, the LaserWriter printer line. and the Apple Quick Take camera-all now
toueetor rens t0f Apple enthusiasts. As part of the restructuring efforts and lower costs, Jobs also

ships with smaller outlets.

to Taiwan and scaled down the distribution system by ending relation

Perhups even more important, Jobs focused Apple on only two computer models (one laptop and
One deslttop) in each of two market segments (the professional market and the consumer market)

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 Aple lng,
as
opposed to
product lineup dozens of
enhanc non-differentiated products within each segment. This
Apple's strategic focus.
Jobs also started to streamilning of its
like
Applecomputers inits the brand Apple as a
market. functionally
Continuing in the sameappeaiing. hip alternatrve 0 ether
culture
launched Think Dirferent camppaign in vein as the well-knowa dall. clone
984 ieies ision ad.
featured Appie.
ma
which comprised great 1997.
DeotThe aim of the campaign w
artists, scientist5, and
Albert EEins politicians*ho think differently. The teiexiinrefiect
were seen as
the
tasements
Hitchcogk: PabloPLuther
Picasso: and JerryKing. Jr.: John Lenninon: Tho mas independeat thinkers,
with specific produe Seinfeld, Edison: Aaeila Earhart: Alfred
ucts, and everything Similarly, Apple's pint
one of the historic
corner. With Jobs' savyfigures and
to do
a small Apple
with company
logo with the word-ey advertisements
ysimply
featured
had less to do
a portrait of
y insight for hink Different" in the
sell Apple products what consumers
directly to customers online wanted, te IRunchsd a new website in bottom
1997 to
These strategic
declining sales. In initiatives combined with
1998. Apple started to be operational improveme nts helped to boost previously
grim. Jobs believed that Apple. with. ler. e azain. Even so. the outlook for Apnle was
omputer industry where desktops and t market share, could not win
in the personal
Microsoft, Intel. and Dell were the star laptops had
hecun.e commoditized gray boxes. In
performers. that worid.
Yet at the same time.
Steve Jobs firmly believed that Apale
throughs that would reshape future could create major innovation
industrics. Jobs' attitude toward
strategy and competitive advantug innovation as key to a
Rumelt shortly after Jobs returnedt an interview with UCLA professor Richard
successful
Apple in 1998:
I wasinterested in wha Steve Jobs migit say about the
egy for Apple. for all iis skill and future of Apple. His survival strat
drama,
that moment in time, Apple had less than
was not going to propel Apple
future, At
four
The de facto standard vas Windavvs-Intel (later percent
of the personal-computer
"Wintel"| and there seemed to be no
for Apple to do more ihan jusi hang on to a tiny niche.
I said. "Steve, this turnaround at
eAiatei
mpressive. But everything
stasmall we knowThe
niche position. about the PC business says that Apple
to upset the W
network effects are just too strong
strategy?" 1Stexe l.hei id you going to do in the longer term? What is venr
Smiled aud said, I'm going to wais: f e u E n he didnt agree with it either, He iust
for the next big thing.
Jobs a!so realized the necessity of making Apple's operating system more
providers. iHe witched from a closed to an open-5 ource. UNLX-based operating accessible for software
system, Mac OS X.
Tlais piaved to be a more stable operating environment and permitted the company to issue annual
upgrades in response to customer feedback. In 2005. Apple completed this transition by switching
from PowrPC to Intel processors. which meant that Apple computers could run not only the Mac
oS X. bui aiso Microsoft's Windows operating system.

Beyond changing the operating system, the most visible change Jobs instituted was leveraging
indastrial design to produce more aesthetically pleasing computers. Jobs almost instantly revitalized
Appie's image by pushing the limits of technology and design. He appointed Jonathan "Jony Ive. a
British designer. head of Apple's in -house Industrial Design group (IDg).

the prr wrtin comsent

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 Apple I

in 1992. Ive's design philosophy is

Jony Ive had been working for Apple since its dark days"
not even realizing yeu are using
to make technology as intuitive as possible-in a way that you are conmauni
cutting-edge technology but are able to focus on your main tasks such as writing. reading. their thin, lght.
are characterized by
cating. creating, or consuming media. As such, Apple products such as headphone jacks.
and minimalistic designs. For instance, over time, Apple removed ports
work at
bezels, and buttons from their iPhone. much to the chagrin of current users. Ive's
including being knighted i United
won him a slew of awards and worldwide recognition,
Kingdom, making him Sir Jonathan Ive.
of the tPod, a portable digital music
By 2001, Apple's revitalization took off with the introduction
Apple's retail stores earn
player (Exhibit 3). In the same year Apple opened its first retailIn stores.
2003. Apple soared even higher
some of the highest r square foot of any retail outlets.
when it launched iTunes. a digital store front.
smartphone rzrket with the introduction
In 2007. the California tech company revolutionized the
by introducing the iPad. For
of the iPhone. Just three years later, Apple re-created the tablet seyment
up with incremental product
each of its iPod. iPhone. and iPad lines of businesses. Apple followed
innovations that extended each product category. Under Sieve Jobs,andApple reclaimed its status as
the iPad.
global icon following the introduction of the iPod. iTunes, iPhone,

Tim Cook, Apple's CEO

After going on second medical leave in wo yeas following a liver transplant in 2009, Steve
Jobs e's board to appoint Tim Cook CEO. Apple's former Chief Operating
recommenwas
officer., Tim C appointed CEO n August 4. 201L. A few weeks later, on October 5.
Steve Jobs lost his battle with cance.
2011.

a BS in Industrial Engineering from

Tim Cook, who holds an MBA from Luke University and
He directed the outsourcing for most of
Auburn University, had been Apple's CO0 since 2007.
can decrease the value of unsold goods by two
Apple's production in a business where obsolescence
percenta week.
standpoint.
Cook had been Apple's CEO for over eight years, and, from a financial
In 2019, Tim
he has been a clear pple's superior performance along a number of dimensions such
revenues, net income shareholder value appreciation (Eshibits 1-4). Under Cook's tenure as
close to
CEO, ple has not managed to introduce an innovation to be even remately in the
a success
ess of the iPhune, albeh the Apple Watch (introduced in 2015) is considered
wearable devices calegory.

Peak iPhone: What's Next?

Globally, Appíe has sold more than one billion iPhe

odate, making it one of the most success
eld 13 percent market share with mobile operaling
ful product introductions ever. In dmohile operatating system had 87 percent market share. At the
system iCs. while Alphabet's A of profits generated in the smartphone
sume tinne, Apple continues to extract the about 75 percent

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 industry. Exhibit Shows the
global market
shows how iPhone salesshare over
tems, while Eshibitit 6 time of different
in units over time. smartphone operating S
Apple launched the iPhone in
the 2007,
iPhone was "the Internet your poc revolutionary
in product at the time. Accordins, lo Jobs,
agreement withAT&T, who subsidized initial Initially. Apple had a exclusive
&T Wireless
customers. iPhone users to incentive them to wiseiessor
Also, in 2007, Computer
mputer, Inc,-to reflect Apples
Comn was dropped frm the become remain
sumer electronics expansion from the ariginal name-Apple
persanal computer narket to general con
In
2008, Apple launched the
2010. Apple released iPhone 3G,
the iPhone 4 ith twowhich was advertiset iwice as fast at half the price. n
year. Apple captured 17.4 percent of built-in cameras and higher
resolutions. In t
2008. It had taken onty two years for Annlephone markel, wità 82 percent sales gtowth sc
market share. The iPhone 45, an update ta hePhcone place ehind Nokia, withJ2.7 netcent
released in 2011. The iPhone S, which had al a e wih a voica assistant known as "Sit" wa%
z012. The iPhone 6, launched in 2014. renresented 4O IPhone, was released
PI
eiter compete with larger phones from Samsunw Thalpare and included the iPhone 6
Inand2012 Anstoved camera. Apple incodueea she ip nabied longer battery life.
launched the 10th anniversary editian oi the
the iPhone XS Max. In
2019, Apple introduce dthe iPhone ll. iPhone 10. and Phone Plus in 2016
introduced
point. with three cameras and a lower price
After more than a decade. the
petition also from non-U.S. rivalsiPhone has bern eom moditized. Apple
sucb as Samsung (of South continues to face stiff com
(all from China). In addition. the Korea) and Huawei. Xiaomi, and Oppo
glbal smariphone market has
growth rates in 2013 and 2014. growih Ater reaching double-digit
A ales of new has
phones h
2017 (Ex hibit 7). This imnplies taat most slowed but contracted
while purchases are mere replacemer
nsumers hold on to their phones for longer. As a consequence, some of theexisting phones,
11 models
offered.roduced in the fall of 2019) were priced lower iPhone
Apple lower price poini on a newer model for the firstthan the iPhone 10, the prior model.
time.
Since 2012. IPhete fales made up
between 50 and 70 percent of total revenues for
8), which stood at $260 billion in 2019
(down from $2e Apple (Exhibit
ing sales of iPhone ugits from its neak in 205E it6)
o n in 2018. see Exhibit ). With declin
2017, while reaund1og in 2018, in part due to more revenues were falling in 2016 and
expensive iPhon
marketbetore
lion, cap had dropped by 40 percent from its peak of $1. trilon in the fi
rebaunding. Since 2012. Apple has been struggling to 8 to $672 es
bil
above the NASLDAQ-100, albeit
succeeding (Exhibit 4). sustain a performance over and

Another probiea for Apple is that China made up some 25

years. hut Apple's popularity in China b percent of Apple's revenues in recent
sions (Exbiblt 9). The Chinese smartehe e ace of local competition and trade ten
Of similar capabilities and user friendiness for on t r P p Vio, and Xtaomi offer phones
share in China had fallen to five percent, down from a high or less. In 2019, Apple's market
201% (Exhibit 0). Moreover, given the trade tensions between the United States 7 percent in
and China, Apple

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 Aele Iec.

can expect more headwinds in China. For example. a consumer boycott could be instigated, or a stifl
tax could be levied on Apple products by the Chinese authorities, especially in light that the Chirese
tech company Huawei is considered a threat to national security in the United Staten

Apple Watch
The Apple Watch has come a long way since its initial model that started slling in April 2015.
Originally envisioned as a health-monitoring device, many of those functions did cot make it in the
initial product. The original Series I Apple Watch cost $350 and only wnrked with an iPhone nearby
via Bluetooth.

Fast forward three years and in 2018 alone, revenues for the Apple Waich alone were about $I0
illi
iced at S1.000.
In 2019, Apple released its Series 5 Apple Watch. which comes with health-related capabilities
like the ECG function and menstrual cycle tracking alorg with incremental improvements to the
Series 4.

Home Pod

While Apple pioneered the use of digital assisants wih Siri included in ios S with the iPhone
4s. Amazon's Echo (Alexa) is by far the lcading 1o-home digital assistant. in 2018, Apple released
the Home Pod. At the time. Apple marketed the homePud as a speaker first anda digital assistant
features to control smart home erjucts (think uhermostats and lightbulbs) while Siri remained
relatively stagnant in its toolkit.
Apple's HomePod also lags behind ir market share. capturing only 6 percent of the digital
assistant market when compared to Amazon Echo's share at 70 percent. In 2019, Apple lowered
its HomePod price from $349 to $299 Lo make it more competitive but to no avail. The $299 price
point is still significanty igher than the average smart speaker price of $43. The Home Pod market
s an important one. If Appie continues to lag beh ind its competitors in the smart assistant market.
tmay lose out on other parallei markets such as digital service markets that the digital assistant can
act as a gateway to.

Beats by Dr. Dre and Apple Music

In 2014, Appie acquired Beats Electronics for $3 billion, the tech company's largest acquisition
at that tine. Founded in 2008. Beats Electronics is known globally for its premium consumer head.
phones. Beats by Dr. Dre. Since early 2014. the company has been offering Beats Music. a streaming
music subscription service.
Conisn: delivery As
of amusic and video i shifting from via downloads to eaming on
emand Centie quence, music downloads have declined in the past few
discuatitnued the classic iPod in 2014: the intent was always that the iPhone would subsume the

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 Ae lae

MP3 capability. After being the dominant player in the music download space since iTunts lauach
in 2003. Apple found itself on the defensive vis-å-vis first movers in the music stesming isdestry.
In 2013, it created iTunes Radio as an initial attempt to compete in the online music streaming seg
ment. However. iTunes Radio failed to gain any traction.
mpettor
The acquisition of Beats allowed Apple to become a viable compett the music streaming
space. By 2019. Apple Music had Surps ald .s. subscribers with over
28 million subscribers ed the Swedisi. mwal globally. However.
Apple Music aste rglobally than Spotify and the gap is beginning in lose. Apple Music
of over 45 million songs when compared to Srotify's 30 million songs. Also,
growing fast is Amazon with its Prime Music and Music Unlimited services.

Apple Pay
to mobile payment. With Apply Pay.
Launched in 2014, Apple Pay represents Apple's
users can upload their credit or debit cards
app and use their smart device to securely

pay at stores. eliminating the neeu cash or ohysixal card transactions. Apple earns a percent
the mohila oavment service. Ia 2019. Apple partnereu
age of each transSaction l edit ead to heln users better manage their money. *hE
with
Goldman
simuitane ou sing Apple Pay's membersip. They fier financial
IApply Pay and have gotter 55 per cent of J.S. retail
incentives to use both the
locations to support Apple Pay.
and pay bills on time. ln 2019, Apple Pay
ple offers a simple way for users to buy, tonck4 speading,
ercent of the global iPhone user base. It is o
had 383 million users worldwide and cantured brought 152
prominent mobile payment providers wordwide and is estimated to have
the most
million in revenue in 20T

Apple TV+
entertainment industry. Apple TV, which
nnounced anuthet major push into the
In 2019.
devices, will serve as a portal log-on
will carry
where Users Appeeontent
of lew
and be available on competitor'sATATs
content from Apple as well as from
initiative marks a stark shift in Apple's focus
HBO or CBS's Showtime
on closed ecosystem. Wit strategic
t e head-on with
StatesApple is oving into the $I00 billion entertainment industry and will nies e
such as C
Comcast
as Amazon and Netfli, 4s well as old.
other tech corapanies such rnerMedia (including HBO).
of Hulu, a streaming service) and AT&T, which owns
(part-owEer
to
move to begin debuting original, feature-length content first a
In 2019, Apple aiso announced could help increase the appeal
of Apple TV+. This marks
theaters and ihn io Apple T\ subscription service as
building and prestige for the content availabie on its
move in begin Apples subscription
box office releases
launched in Nove
than its competitors
entimes have more curbside appeal.
2019.
(think
At $4.99 a month, Apple TV is
Disney+ at S6.99 a month and
Netflix at $12.99 streamonton
a significantly more affordable
 Apgle Int.

Competition

Alphabet 's Google

In 2019, Alphabet had revenues of $1 50 billion with a net income of$ $35 hillion: its market capi
talizution stood at $850 billion, making it one of the valuable tech companies giebally.
Just about 20 year earlier, in 1998. 24-year-old Sergey Brin and 25-year-old Larry Page founded
Google. They met as graduate students in the computer science depatuent at Stanford University
where they began working together on a web crawler, with the goal of Imyroving online search. What
started as a homework assignment launched the two into an entreprenecrial venture when they set
up shop in a garuge in Menlo Park, California. Google went pubiíc in 2004, atid its market valuation
has increased by some 2,400 percent since IPO.
In 2015, Google becume a holding company called Alphabet with Google (Seat
Maps, Android, Chrome OS. among othets) representing tàe core business managed s 8/24
other strategic business units. Alphabet's business units. in addition to Google. in
(autonomous vehicles). Google X (R&D lab). Deep Mind (atificial intelligence). Access (internet
service provider). Loon (Internet balloons). Calico (lougevity research). Wing (delivery drones).
Google Ventures (early-stage vC fund). and Goagie Capital (late-stage VC fund)
Google's operating system, Android, is used exclusively by Samsung Electronics, a Korean electron
Smartpn
in tieular the fast-gre ing Chinese competilnts sush as Huawei. Oopo, and Xiaomi all used an
open version of Android. Yet, due to escelating trace tensions between the United Stales and China.
the use of Android as mobile cperaling by Chinete vendors is no longer permitted.
In 2015. Google launched low-cost wireless service in the United States. Called Google Fi. the
wireless service plans offered by Google cost $20 a month for talk and text. including Wi-Fi and
international coverage. Each gigahyte of data costs $ 10 per month. Google's goal is that by providing
lower-priced wireless services, more people will connect to the Internet, which means more demand
for its core online search business and ad-supported YouTube video service. On the downside. ini
tially it is available only witi Google phones such as the Pixel.
In 2017, Google acquired HTC's smartphone engineering group for $1.1 billion. Integrating HTC's
smartphone init wihin Gole will allow engineers to more tightly integrate hardware and software.
This in turn wai! allow Gioogle to differentiate its high-end Pixel phone more from the competition.
especially Apple's new iPhone models and Samsung's Galaxy line of phone. Even though HTC by
itself tost oui lo Samsung. Apple. and a handful of new Chinese firms in the highly competitive
smartphone industry, vertical integration along the industry value chain allowed HTC to build a core
competency s the design and manufacturing of smartphones for which Google paid over $1 billion.
and thus to inteyrate it more fully with its Android group that develops the software for Google's
mobile operating system. As such, Google released the Pixel 4 and Pixel 4 XL phones in the fall of
2019. Users of Google phones are enthusiastic about the ir devices, and especially appreciate the
Use of tie latest "stock And roid." that is a faster version of the mobile operating system due its lack

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 Age Ine

"bloatware" such as Verizon or T-Mobile Well the lack of pre-installed Samsg

on all its Galaxy line of phones (some of which users cannot remove unles they "ront the
phone and forgo any warranty, ete.).

In 2019. Google acquired the wearable fitness device company Fitbit for S2.1. arkiag a further
entry into devices. In future, Google will attempt to compete with the Apple Watch, moreover. wear
able devices are becoming increasingly important in collected user data

Amazon. com
In 2019. Amazon had revenues of $250 billion with a net income of $12 billion: its market capi
talization stood at $900, making it one of the valuable tech, companick globally. Founded in 1994
by Jeffrey Bezos as an online book retailer, some 25 years later, this fledgling online startup has
become one of the world's most valuable companies active in every.hing from ecommerce. cloud
computing, and online advertising to media entertainment, aud groceries.

Amazon continues to diversify. Besides offering every imaginable product online, Amazon also
sells its own line of consumer products (Amazon Rasics) s well as electronics such as e-readers, tab
lets. and voice-enabled wireless devices such as Echo. Among them, the Kindle e-reader (launched
in 2007). which is running an Android operating system. has transformed the publishing industry
Amazon holds a two-thirds market share ir e-books and no# seils more e-books than print books.

In 2007. Amazon launched Amazon Music. which initially started to compete with iTunes by sell
ing music without copy restrictions. Today. Anazan Music has over 34 million subsr
behind Spotify at 108 million and Apple Musie with over 60 million. In 2019, Ar
a higher-quality audio version of its music atreaming service titied Ultra-HD, m 9/24
streaming service to do tais. Amazon's Ukra-HD promises over 50 million high o.
Amazon is trying to diffenentiate itself in a market that is dominated by Spotify and Appty Music
that capture nearly two-thirs of the market. Yet. for users the main draw for Amazon's music service
is its ability to integrate thit service with Echo.
Launched in 2014, Scho is powered b Amazon's Alexa, an Al-based digital assistant that marks
Amazon's foray into acgmented reality. Amazon's digital assistant Alexa competes directly with
Apple's Siri to be centsai, voice-controlled digital assistant. The Echo creates customer lock
in with an Ama2on Prime subscription and comes with multiple apps called skills." To further
enhance the product's ppeal. Amazon has integrated Alexa to a slew of its products ranging from
earbuds to eyeglasses.
Amazon's neW carbuds. called Echo Buds. compete directly with Apple's Air Pods. and capture 53
percent of the global earbud market share. In 2018. Amazon began partnering with car makers such
as Toyou and its Lexus luxury brand to include Alexa in their vehicles. Moreover. Amazon began
offering Alexa-enabled computer chips that can be used in household products like coffee makers
and microwaves. This is part fa move by Amazon to lock consumer into its ecosystem.

In 2016. Amazon began offering its video-streaming service. Amazon Prime Video. as a stand
alone option at $8.99 a month, competing directly with the likes of Netflix and Apple TV+. Amazon
has been working on developing its own original programming like Mozart in the Jungle and spends
about $3 billion on streaming video content annually. The move to a stand-alone video-streaming
service shows that Amazon is confident enough in its video content to compete head on with other

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 Apple Iae

video-streaming competitors. Amazon offers this video service complimentary to its annual Prime
members.

Samsung Electronics
In 2019, Samsung Electronics. the flagship unit of the Korean Samsung cunglomerate had over
$210 billion in sales. t continues to the largest smartphone maker in terms of units sold globally.

Samsung Electronics has been the global smartphone market leader an terms of units sold since
2012, mostly because of its highly successful Galaxy devices. With is Galaxy line of smartphones.
Samsung has been able to imitate successfully the look and feel of Apple's iPhones. Samsung's
Galaxy smartphones use Google's Android operating system and apps íron: Google Play as an alter
native to Apple's ioS and App Store. The Galaxy line of phones is conparable (if not superior) in
both design and technical features to the iPhone.
One of the main drivers of Samsung's rise to market ieader in terms of units sold has been its
pricing structure. Its premium products are priced similarty to Apple's in the United States, but the
company also heavily discounts the other phone models. sometimes to less than a quarter of the sug
gested retail price which makes the brand popular in cmerging economies.
Unlike Apple which outsources manufacturing to Forconn (ia China) and other OEMs. Samsung
manufactures all of its own smartphones, including the components, giving it a cost advantage.
Apple uses Samsung to manufacture a portion of its ifhone product line, as well as sources parts
from Samsung. Still, intense competition between Apple and Samsung has led to many legal battles.
mostly over patent infringement.

Chinese Competilors

Ina country where feature-rich ghones at lower prices have captured market share. Apple is facing
increased competition in China for smerphones. Sales for Apple devices in Greater China (includ
ing Hong Kong and Taiwas) fell by 20 percent to $32.54 billion over a three-quarter period in 2019.
Four Chinese firms- iuavei, Oppo, Vivo, and Xiaomi - account for over half the Chinese smart
phone market and have pus hed Apple to fifth place (Exhibits 9 and 10). To regain market share.
Apple launched a uew serius of iPhones in late 2019 with improved camera quality and lower price
points. In China, cumera tachnology has become a major differentiating factor. A year earlier than
Apple, Huawei introduced a triple-rear camera model last year that helped it significantly increase
its market share tu alusost 40 percent.

Moreo.e, as competitors introduce new models with SG capabilities, the speedier generation of
cellular etwork technology. Apple's challenges in China are likely to intensify. In 2019, Huawei
introduced iis Mate 30 model with 5G; other competitors, Xiaomi, Oppo, and Vivo, are all expected
to release deviccs with $G by the end of 2019. Apple has yet to release a phone that is 5G-capable.
whieh the California tech company slated for the fall of 2020. To further complicate things, U.S.
China trade tensions make it more difficult for Apple to hold on to Chinese consumers. In an
effort to show nationalistic pride, the Chinese consumer may hold off from buying a product from
an Anerican company, and support local companies, in particular Huawei after the Shenzhen-based
tech conglomerate was singled out as a potential national security risk to the United States.

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 In terms of tariffs, Apple has faced minimal impact from the tariffs placed on Chinese goods so
far. However, because Apple assembies the mujority of its products in China by Foseonn. Apple does
face significant exposure should tariffs be levied on its products for sales in the Un ted Stutes. Apple
has taken measures to diversify its supply chain and has considered whether or not to begin produc:
ing devices in India in an effort to reduce its dependence on China (or manufacturing.

Challenges Ahead
Despite Apple's incredibie performance over the last decade yeats or so, Tim Cook knows all too
well that Apple faces significant challenges. Perhaps Apple's g1 satest challenge involves investors
and consumers having big expectations. Past growth largely came frum China, but increased compe
tition fronm local smartphone makers and trade tensions has ied lo a steep fall in Apple's sales there.
Additionally, Apple has increasingly become dependent on iPhone ales as product innovation has
stalled. Further, new iPhone sales often go to existing customers upgrading phones and not to new
customers.

Again, where will expected growth come from? Will in involve a combination of products or some
thing entirely new, or new markets? How should Apple compete in China or other emerging markets
such as India? Increased competition from Chinese smatphone manufacturers also begs the ques:
tion of how Apple should respond? By ths Sane token. Apple has plenty of cash on hand. but
investors are becoming impatient.

Tim Cook has some important stratogic decisions to make in the short term, while also deciding
where and how Apple should compete in the long kerm. Given the blurring industry boundaries
that allow competitors to pressure Apple, Cook needs to carefully plan the come-- ---* moves
:wanis to sustain Apple' cempetitivc advantage and growth. He takes a s
Monst , und cakes anotaer look at the rising sun getting brighte 11/24
fall day in California beg ns ..

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