Apple operates in the technology/electronics industry as they are

Apple operates in the technology/electronics industry as they are one of the biggest and most successful technology companies internationally. They operate in the radio and television broadcasting and wireless communications equipment manufacturing industry, the manufacture of computer equipment industry, the mobile payment industry, the electronic computers industry, and the telecommunications equipment industry These are all categories within technology, each having their own set of competitors. Generally speaking, consumer electronics that are very popular are more vulnerable to economies of scale and scope as barriers. An existing firm can produce and distribute their products at a lower cost due to their cheaper overhead costs (real estate, management), but a small firm competing with bigger firms must divide that same overhead price by their smaller amount of units, thus making each unit more expensive. Similarly, economies of scope also grant large companies an upper hand when competing with small and new firms. This is because the existing firms can use its existing machines and facilities to launch new units, which would result in a lower production cost since that firm already had the necessities needed to launch a new product. However, for newer firms, they usually do not have the required necessities needed to launch a new product, leading to higher production costs linked with their new unit as they would need to invest additional money into it. While consumers may accept simpler technology, most businesses demand electronics that are specialized towards its use, which requires a major scale of research and development. Established companies have spent billions specializing their technology towards the demand of the businesses, and new firms would need to license their technology from existing firms (they have patents on it) or try to compete with the successful and existing firm’s product which would be extremely difficult and costly for the new firm. For consumers, in the whole electronics industry, much of the business has to do with brand loyalty since switching brands often means learning new ways to use the different technology. Many successful companies strategically implant switching costs in an attempt to retain their customers, such as complicated storage transfer to new devices and costly contracts. For instance, in the smartphone industry, consumers are forced to pay termination fees when they want to change phone brands. Due to these inconvenient costs, this ends up creating loyal customers who continue to purchase from one brand. Due to these factors, it is very difficult for new brands to enter the industry.  Many companies in the electronics industry is tightly regulated by the government. Environmental regulations and product quality are used by almost every country, and compliance with their specific export laws creates a need for additional resources. For many larger companies, these regulations result in a high amount of supply chain costs. This is because working with government regulations needs specialized equipment, inspections, and software. Businesses must take into account the expenses and must pay the fines if they fail to comply with regulations. The supply chain expenses are usually very expensive and rise whenever new regulations are imposed. This is because regulations contribute to higher supply chain costs since the expenses increase when associated with electronic equipment disposal, production, packaging, and distribution. The environmental regulations also specify how raw materials need to be obtain and used. Depending on the country, some have laws that restrict acquiring materials from specific areas. Other regulations determine how toxic substances must be used in order to protect the employee and consumer safety. In the end, all these guidelines increase expense and often cause a higher price for the company. In order to ensure that a company is following the government regulations, many of the companies use outside resources and consultants. This process is costly for firms as any changes to the supply chain requires them to use different materials or production methods. Sometimes inefficiencies and an increase in production costs arises from supply chain changes, which reduces the company’s competitiveness as their profitability decreases. Outside the United States, many of the other countries heavily monitor pollution occurring during production but lightly regulate environmental impact. As the electronic manufacturing grows, more and more regulations are introduced to reduce any negative environmental impact caused by the production of goods. As Apple mainly sells their smartphones and computers, it can be separated into two different markets. Apple maintains an oligopoly market structure in the competition of the smartphones, but has a monopolistic competition in its computers. Comparing to oligopoly, monopolistic competition has many competitors, which is why its computers are considered as part of a monopolistic competition. Many other computer companies such as Samsung and Dell generate enough sales revenue to stay competitive to Apple. While Samsung is recognized as one of Apple’s closest competitors, Samsung and Apple can be considered to be involved in a monopolistic competition. This is because in the short run, both Apple and Samsung can use market power to generate some abnormal profit, but in the long run approach, other companies will enter the market due to the low entry barriers. These new companies will then get an edge on the existing companies and as a result they will grab the significant market share in terms of profit. To maximize profits, Apple would ideally want to produce quantity Qs and price Ps. The firm would want to produce their products where marginal cost and the marginal revenue curves will meet, because this point is the most efficient production point in favour of Apple. This means that the shaded area between Ps, Acs, and the AR curve will be the abnormal profit that Apple will receive. Production at this point will reward maximum profit for apple. Therefore, equilibrium is created for the short run. However, for maximum profits, both Samsung and Apple will need to produce a quantity of goods at point Qs where the marginal revenue curve meets with the marginal cost curve. If losses are incurred in the short run, the company will quit from the competition and the remaining firms will see higher demands on their products. In addition, in the long run approach, it is impossible to earn abnormal profits due to the Monopolistic competition. There are a few large firms, but there are also many small firms that will compete for profit which causes the company to deflate its prices in order to achieve targets. This only works because the goods are similar enough, ensuring that the competition will always be high.  Competition: As apple offers a range of different products and services, they have many different competitors for each of the fields they have touched up upon. For personal computers, their main competitor to the Apple iOS system is the Microsoft operating system. To be more specific, the major competitors using the Microsoft OS include Toshiba, Sony, HP, Acer, and Dell. For the iPad, Apple transformed the business model and prompted an entire industry of mobile computing imitators. Although Apple is by far one of the most successful and well known companies in this field, their main competitors are Alphabet Inc, Samsung, Microsoft, and Nokia. As for where Apple is most well known, their smartphones are very successful especially with the release of the iPhone 8 and iPhone X. However, the smartphone industry was once monopolized by BlackBerry Limited (BBRY). With the introduction of the Apple iPhone, Apple transformed this industry. Even though Apple has completely overpowered BlackBerry, their new fierce competitor is the Android operating system, which is produced by Alphabet Inc.’s Google, and is installed on most other phones produced by Huawei, Samsung, Sony, HTC, Lenovo, and many other brands. Even though Apple is currently seeing a high amount of success with their smartphones, they may face intense competition in the future. Amazon has been gradually invading on Apple’s territory in the recent years, with the introduction of their own video streaming service in competition with iTunes. Even though this is not much, Amazon is now selling their own smartphone applications, which is a big deal for Apple since their biggest assets is in their smartphone applications market. With these trends, it is likely that Amazon will develop their own smartphone and dive into the market with a powerful entrance. This is evident as Amazon is expanding more into the software industry, which will further pressurise Apple’s dominance. With all the phones, they come with their own version of entertainment media and applications. The Apple iOS is used on all apple devices, while the Google Android is used on almost all of the competitor tablets and phones. Each operating system uses the Google Play Store and iTunes, which allows users to purchase applications, books, music, and other media. Just recently, Apple has even entered the mobile payment industry. The key competitors to this industry is PayPal and Google. For the smartwatch field, FitBit is still a leading producer of wearable technology. They are known for their devices that people wear on their arm allowing them to track their performance during exercising. FitBit watches were released way before Apple even announced their idea of the iWatch. However, the iWatch does have the advantage of capability and connectivity between various Apple devices that FitBit does not offer. Since Apple purchased Beats electronics 2 years ago in a 3 billion dollar deal, they now attract audio companies such as Bose as a competitor. Beats has dominated the marketing, as their brand is very well known and visually appealing, which many other different audio brands failed to offer.  Rationale for choosing Apple: When choosing to invest in Apple, it was known that it was releasing their iPhone 8 and iPhone X soon. Because the most recent versions of the smartphone have been improved only slightly, there are millions of iPhone users who are several generations old. Therefore, the newest model has the potential to be swarmed with upgrades, especially since the latest Samsung Galaxy S8 failed to meet the demands of the market. Even without looking at the iPhones, Apple also has its Macs, iPads, Beats, and the new Series 3 iWatch (also releasing along with the iPhones). Even without the products, their service business has been enjoying a outstanding growth in the recent years. It started from a small business, but it has been growing exponentially and has become Apple’s second-largest business segment just behind the iPhone segment, generating more than $24 billion in sales revenue last year. The services sector has the potential to become a key factor of growth for Apple in the future because it has many ways of generating revenue itself, which most other segments lack. This is taken from revenue based on Apple’s digital content, AppleCare, Apple Pay, licensing, and more. As they have so many ways to grow in the future, Apple’s stock is worth investing in.   As Apple is such a big company, regardless of how they do in the future, it does not matters much since the numbers are so big. For example, they reported a revenue decline in 2016, but they still have a mind-blowing $52.13 billion of free cash flow. Even accounting with its debts, there is so much value incurred in its cash and investments that the net total including the debts still result in $158 billion of cash and investments on its balance sheet. Due to their huge amounts of profits, Apple is considered a safe company to invest in as the value of the stocks will not decrease drastically but has a chance to increase even more. Apple recently is on a roll, setting company records last quarter for both revenue (up 3.3% year over year, to $78.4 billion) and earnings per diluted share (up 2.4% to $3.36). But Apple’s capital returns is even more impressive. Apple returned almost $15 billion to shareholders during last quarter. This includes $3.1 billion in dividend payments, $5 billion to repurchase 44.3 million Apple shares on the open market, the completion of an accelerated share repurchase program to retire another 4.4 million shares, and the startup of a new $6 billion accelerated share repurchase that resulted in the retirement and initial delivery of another 44.8 million shares. After all, Apple has only used $201 billion of its current $250 billion capital return program, which as a fact was most recently expanded again by $50 billion following the company’s first-quarter 2016 earnings. Apple also promised investors at the time that it would complete the program by the end of March 2018. However, with the rate at which Apple has already returned so much cash back to the shareholders, and with more than $246 billion in marketable securities and cash on Apple’s balance sheet at the end of 2016, it is expected to see an increase of its capital return program once again. Due to their outstanding success, investing in Apple could not have gone wrong and definitely will be a profitable investment in the future.  Major factors affecting the future performance of the company’s stock: Apple’s services segment, which includes revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, licensing, and other services, has become a rapid growing segment. Much of the growth is a result due to the App store. After the release of then iOS 11, the App store revenues are expected to increase since the App store has been completely reformed. In addition, with the increase of iPhone sales, more and more customers are purchasing AppleCare. For those who are not, the services revenue will also increase in the future with the costly iPhone repairs since the new iPhones are made with glass that can easily be shattered.   Taking into consideration on the struggling iPad business, Apple witnessed a dramatic improvement in the iPad business recently. There has been an increase in the amount of sales in Japan, China, and the United States. The sales of iPads are starting to be used in the US education systems as more and more schools are using iPads because of specific iOS applications that aids education. Going ahead, a reform of the iPad lineup will help to sustain the growth seen in the business.   During an Apple earnings meeting, Tim Cook suggested many big hints that Apple may be planning to acquire a major media company. The deal never passed the discussion, but this strongly implies that Apple is in the market for an acquisition that will give it an advantage in the video content. Many analysts believe that their next target is Netflix, as it is a somewhat large company (like Beats, which they have recently acquired). Although Cook did not specify the company or whether or not this was going to happen, this news was enough to get many investors excited. As Cook described how he currently uses many smart home products, such as a connected connected lights and a coffee maker, it is evident that Apple is looking for a way to introduce themselves into the smart home industry. Using Apple’s personal assistant (Siri), it is expected that Apple’s presence will increase in the smart home, much like how both Amazon and Google are expanding. As smart home is one of the next big fields in technology, many investors are interested in investing in Apple because of this. It is known that Apple has a high amount of cash that can be used for research and development, and that they can be successful following the recent success of all their products and services.   Apple is planning on expanding their products in India, where the market for Apple products are not high right now. Apple products have not performed well in high-growth emerging market economies. Apple’s plan is to provide consumers with more affordable products, such as the iPhone SE, priced at around $300 in India. Although this plan is in its early stages, the early promising results and Apple’s miniscule 2% penetration rate in India is convincing enough for most long-term Apple investors.   Apple has been planning to enter the automobile industry soon with their “Project Titan”. There have been multiple reports proving that there were multiple meetings between Apple and BMW. With the recent success of Tesla and the focus on electric and autonomous vehicles, it can be predicted that Apple and BMW are planning on some sort of electric vehicle with self-driving capabilities. As Donald Trump is talking about a tax reform, Apple will most likely benefit the most from the corporate tax reform. Apple has approximately $250 billion in cash overseas, and the company would likely transfer some or all of the cash in overseas back to the U.S. during the proposed repatriation tax holiday. As a result, the Apple stock could rise due to an increase in capital returns while the company uses the cash effectively. Between share buybacks and tax cuts, it is estimated that Apple earnings per share will receive a 15% boost in 2018.   For investors investing in Apple stocks, one of the main reasons (one that applied for myself as well) is that Apple stocks are fairly inexpensive compared to its competitors. Apple is currently trading at an earnings multiple that is roughly 20% lower than Standard & Poor’s 500 index average. The 20% discount is practically in line with Apple’s five-year average. Based on both the potential for analysts to raise earnings all through 2018 and the previous iPhone 6 upgrades, it is very likely that Apple’s price-earnings ratio will increase. . Apple has grabbed Shazam away from two of their competitors (Snap Inc. and Spotify). Since Shazam was partnered with both Snap Inc. and Spotify, logically speaking Apple will keep the partnerships going, but Apple will most likely implement various sorts of advantages in Shazam that will only be accessible through Apple Music or Apple products. However, even though Apple Music is a very small contributor to Apple’s service business, Spotify remains its toughest competitor. Spotify currently owns the most subscribers, claiming to have 65 million while Apple only claims to have 30 million. More importantly, the rate at which Spotify is growing is much faster than Apple’s rate of growth as Spotify has been adding 2 million new subscribers per month, while Apple has only been adding about 1 million new subscribers per month. Logically, with Apple purchasing Shazam, a music-discovery app that networks and joins more than 1 billion users, it can be expected that Apple and Apple Music will catch up with Spotify with the aid of Shazam. Through buying Shazam, not only does it remove Shazam away from its competitors, but it also brings Apple one step closer with their ultimate plan around voice recognition. Shazam’s feature to listen to a song for a few seconds and accurately determine the song could be a vital component to Apple’s future devices. A problem with Apple’s smart-home devices currently is their ability to listen and understand human interaction, which using Shazam can help overcome this problem. Since Apple is looking forward to launching their first home speaker called the HomePod, of course Apple is seeking for any additional features in order to out compete the Amazon Echo and Google Home. Specifically, Shazam’s active-listening feature can work alongside with Siri to form one of the most intelligent assistants, which would be on par or be better than Amazon’s Alexa or the Google Assistant.