Apple: Branching Out

Apple’s valuation grew to over $700 billion today as shares increased by 0.8 percent. Apple is the largest company in the world by market capitalization, ahead of Exxon by nearly $300 billion. Apple’s unveiling of the new iPhone 6, Apple Watch, and Apple Pay in September is largely responsible for the recent growth of the firm’s market cap. So, is Apple’s company value a good indicator of the firm’s current and future stability?

Apple

Apple faces stiff competition from Google and Samsung in the smartphone industry, but Apple has fierce brand loyalty from millions of consumers. Some analysts have forecasted that Apple will sell more than seventy million iPhones in the fourth quarter alone. The new Apple Watch (available in 2015), Apple’s acquisition of Beats by Dre earlier this year, and the mobile payment system Apple Pay are new products that the company is offering in an attempt to diversify its portfolio. More than half of the revenue Apple earns is from sales of the iPhone, which is over twice as expensive as the average smartphone on the market. As a result, competitors like Samsung have eaten away at Apple’s share of the market by offering competitively priced phones that have similar specifications and capabilities. Additionally, Google’s Android is run on 71% of smartphones used today. Apple’s decision to diversify its product line is a risky plan to stay competitive; Google is already far ahead of Apple in terms of having a diverse portfolio of products and services. Apple’s botched roll-out of their map service shows that the company still has a long way to go to become relevant (and successful) in other industries.

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5 thoughts on “Apple: Branching Out

  1. It is interesting that while many customers have brand loyalty towards their respective companies whether it is Apple, Google, or something else there are still certain products that are better than others. For example, I have an iPhone yet I do not like the maps program that Apple provides therefore I download “Google Maps” for my navigation needs. What I never really thought about before is why does Apple even allows for me to download Google products onto my phone when they have competing applications that do the exact same thing. Would Apple be better off banning competitors apps to be downloaded onto the iPhone? Or would it cause too much disruption in their customer base?

  2. In terms of diversifying their “portfolio”, offering a broad range of products is nevertheless risky. Similar to periods of heavy acquisitions, we’ve seen Apple scooping up companies like Beats and off shooting their product lines as such. However, as professor has suggested, Apple might instead invest in financial markets rather than taking on additional business risks that very well could flop (Apple pay has not been accepted by many retailers, their maps app is poor as discussed, etc.). While financial markets may be no less simple to determine fair bets, those investments are more liquid and could work for the preservation of the company if they ever find themselves falling on hard times. Might Apple over invest in new endeavors, becoming more a technological force rather than a profit producing company like Amazon? Few could argue that Amazon has not over extended itself. Perhaps Apple might be best in sticking to what they already know; company growth is admirable, but the tortoise always beats the hare. Perhaps Apple should focus on their bottom line- if they don’t, holding the title of ‘largest company in the world’ doesn’t mean squat.

    • For clarification, I intended to imply that Amazon is a technological force to be reckoned with, but not a profit producing company (their last quarter ended in losses), and as Apple diverges into new business ventures, they allow themselves exposure to the same risks.

  3. You bring up a very good point. Why does Apple allow Google applications on its iPhones? Apple actually removed Google Maps from iPhones when iOS 6 was released; however, an uproar from consumers led Apple to bring Google Maps back. Since then, Apple has also allowed alternate e-mail and browsers to be used (e.g. GMail, Google Chrome) on iPhones. I think this shows that Apple will not ban competitors that have produced superior apps in fear of retaliation from consumers.

  4. As other firms eat away at Apple’s share of the smartphone market the company will have to find other means to stay on top because they’ve already experienced large losses in ipods, which used to be the engine driving their sales. Other firms have also caught up in the tablet market, and Microsoft and Google are working on their own top of the line laptops to compete with the MacBook Pro. Of course Apple will always have an advantage in branding, but even in Asia companies like Xiaomei and Lenovo are starting to challenge Apple. The hotelling model predicts that apple’s share will diminish as other firms produce similar products for a better price, and there’s little evidence that Apple will have another innovative product to bring out in the post-Jobs era.

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