First, read the Apple case that is in your textbook and also posted in the Modules section of Canvas. What are key forces in the general and industry environments that affect Apple’s choice of strategy?
 
 
 
 
 
 

In April 2019, Apple CEO Tim Cook held the second quar- ter earnings presentation at the Apple Park corporate cam- pus in the 1,000-seat auditorium named the Steve Jobs Theater. Part of a 175-acre campus developed in 2017, the ring-shaped 2.8-million-square-foot facility with walls of curved glass surrounding an inner greenspace courtyard was possibly the last evidence of the direct vision and inno- vation of Apple co-founder Steve Jobs. Originally envi- sioned by Jobs in 2011 as a center for creativity and collaboration, the building honored his legacy, memory, and enduring influence. Jobs, who died in 2011, would have turned 64 in February 2019. As Apple's current CEO Tim Cook said. "Steve's vision for Apple stretched far beyond his time with us. He intended Apple Park to be the home of innovation for generations to come."! Yet the pace of innovation at Apple had slowed consid- erably. Since Steve Jobs's death, the only new physical prod- uct launched had been the Apple Watch in 2014. The iconic iPhone, in FY2018 representing 63 percent of total reve- nues, was over 10 years old, and even though upgrades kept customers coming back, competition had eroded Apple's smartphone market share such that second quarter 2019 iPhone revenues had declined by over 17 percent year over year. Mac computer and iPad sales had declined as well. Although Apple's FY2018 revenues were up by about 16 percent overall, the bulk of that increase came from ser- vices and other products such as the Apple Watch. In this environment, there was some concern that although re- search and development spending was up in FY2018, re- search output had not produced any recent meaningful breakthroughs. This posed yet again the unavoidable ques. tion that still seemed to haunt the 42-year-old Apple: What happens to a modern company whose innovations and in spirations are so closely tied to the vision of one leader when that leader's influence is no longer present?? Tim Cook was considered a highly effective leader, yet had been criticized for "lack of ambition and vigor," for be- ing perhaps too cautious about entering new product cate- gories, pursuing acquisitions, or driving employees to achieve almost impossible stretch goals. On the other hand, investors had been mostly very pleased with the stock performance under Cook. Since he was named CEO in August 2011, Apple share price had risen from an average * This case was prepared by Professor Alan B. Eisner of Pace University and Professor Pauline Assenza, Western Connecticut State University. This case is based solely on library research and was developed for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright 2019 Alan B. Eisner. C252 CASE 32 :: APPLE INC.: WHERE'S THE NEXT INNOVATION? of over $45 to a high of $230 in August 2018, and when the company reached a market capitalization of over $1 trillion in 2018, that made it the most valuable company in the world. In addition, Cook had instituted Apple's first dividend since 1995 in 2012, and bought back more than $200 billion of shares, producing strong free cash flows and an "impressive" balance sheet. This had made investors happy. Cook had done what CEOs of public companies are sup- posed to do-drive up value. But revenue from the flagship products-iMac, iPad and iPhone-was falling or stagnant, and only the services and other products sectors were see- ing growth. In addition, operating margins were declining in products, indicating that high iPhone prices may have been the only thing keeping margins stable at around 30 percent. If iPhone sales were increasingly challenged by lower price competitors such as China's Xiaomi, and Huawei, something would have to change. Was Apple's recent shift into services and other products going to be the answer? (See Exhibits 1 to 3.) "Other products" included wearables such as the iWatch and the AirPod wireless ear- phones, and home products such as the HomePod voice- controlled smart speaker system. These were new, but perhaps not as innovative as Apple's other products. Were expectations of major breakthroughs unrealistic? As one analyst said, it is hard to find "ways to make the world's most valuable company even more valuable when it's al- ready so big that conventional growth strategies-extending product lines, moving into new territories-would barely move the needle."5 Apple, Fortune Magazine's "world's most admired com- pany" since 2008, had distinguished itself by excelling over the years not only in product innovation but also in revenue and margins (since 2006 Apple had consistently reported gross margins of over 30 percent). By 2019, Apple Inc. was known for having top-selling products not only in desktop (iMac) and notebook (MacBook) personal computers but also in online music and "app" services (iTunes and App Store), mobile communication devices (iPhone), digital consumer entertainment (Apple TV), tablet computers (iPad), operating systems (macOS and iOS), software (Sa- fari web browser) and online services (iCloud), as well as wearable technology (Apple Watch, AirPods) and home ac- cessories (HomePod, Beats products), mobile payment sys- tems (Apple Pay), and a subscription-based music streaming service (Apple Music). Additional services roll- ing out in 2019 included Apple TV+ original content, sub- scription services Apple Channels, Apple News+ and