Here’s How Apple Does Its Business

On May 22, 2020 at 5:07 pm UTC by Adedamola Bada · 7 min read
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Photo: Depositphotos
Photo: Depositphotos

You’ve 100% heard of Apple and, perhaps, used a product from this American technology company. Here’s a detailed look at how Apple business is done.

Apple is a globally recognized blue-chip company that does its business in the spheres of design, manufacture, and marketing of mobile devices, portable digital music players, personal computers. It also offers to purchase a wide range of related software, peripherals, services, third-party digital content, applications, and networking solutions.

Apple has a long list of products and services and they include iPad, Mac, iPhone, Apple TV, iPod, a host of consumer and professional software applications, operating systems like OS X and iOS, iCloud, support offerings, services, and accessories.

All these products are distributed to the consumers via a network of online stores, retail stores, third-party cellular network operators, direct sales strategies, retailers, value-added resellers, and wholesalers. It also facilitates the sales of third-party iPhone, iPad, iPod, and Mac compatible products, which includes accessories and application software through retail and online stores.

Launched in 1984, Apple’s Macintosh was the first personal computer featuring a graphical user interface (GUI) to be widely sold. The company’s reputation of being innovative was further boosted by its low-cost hard drive and improved floppy drive design. Apple’s hard drive design made data retrieval much faster and soon the company took its place as a pioneer in the technology industry.

This winning streak continued for the company into the future so much that in 2008 the Fortune magazine crowned it the most admired company in the United States and the world starting from 2008 to 2012.

On November 1st, 2020, the company made an addition to its digital content streaming services, which previously only featured the Apple Music, the Apple TV. There are lots of competitors to this tech giant which include smartphone manufacturers LG Electronics Inc. and Samsung Electronics Co. Ltd., computer manufacturers Dell Technologies Inc., Lenovo Group Ltd.,, streaming-content providers Netflix Inc., Spotify Technology S.A, and many more technology companies the likes of Alphabet Inc., Amazon.com Inc., and Microsoft Corp.

Apple’s Financial Details

At the end of the fiscal year 2019, whose end was on September 28, 2019, Apple recorded a revenue of $260.2 billion and a net income of $55.3 billion. To better understand the way Apple writes its report, revenue is actually referred to as net sales in its reports.

There was a decline in the net income and revenue of the company after a considerable spike was recorded in 2018. By the end of the fiscal year 2019, the net income experienced a 7.2% decline compared to the 23.1% rise that was recorded the previous year. Revenue fell by 2.0% after rising to 15.9% in the fiscal year 2018.

Those declines were caused, to a large extent, by the slow iPhone sales, which went down by 13.6% in the fiscal year 2019. Despite such a poor performance, the sales from iPhones make up about 55% of the total revenue of Apple. The next biggest source of revenue for the company is Services, which amounts to 18% of the revenue. This is closely followed by Mac at 10%, iPad at 8%, and Wearables, Home and Accessories at 9%. The category of Wearables, Home and Accessories, witnessed an explosive growth in revenue, surging by 40.9% for the year.

Apple has been able to fine-tune its business strategy which involves shifting its dependence on hardware products with lower-margins, due to their slow growth, unto other ventures with a higher acceleration tendency like its Services business.

It has been observed that the Services business has a more predictable and recurring revenue stream, as well as higher margins. The fiscal year 2019 was a remarkable year for Apple’s Services offerings, having given birth to a number of products such as Apple Card, Apple TV+, Apple Arcade, and Arcade News+. Although the corporate revenue as a whole experienced a decline, Services revenue rose 16.5% in the fiscal year 2019.

So far, Apple’s Services business has been able to maintain its high margins and even climbing to higher heights. The gross margin with regards to sales for Services and products for last year was 63.7% and 32.2%, respectively.

Apple released a strong year-over-year (YOY) net income and revenue growth for the first quarter of the fiscal year 2020, which ended December 28, 2019. The first-quarter results were better than that of the previous year. Net income grew by 11.4% and an 8.9% increase in revenue was also recorded. Revenue went on to break new grounds as a result of higher demand for iPhones, Services, and Wearables.

Apple Business

As we have been able to establish up there, Apple business operates in various geographical locations. The company has provided a breakdown of its operating income and revenue for the following geographical locations: Americas, Japan, Europe, Rest of Asia Pacific, and Greater China.

The dominant market for Apple remains the United States, with Asia following closely behind. Last year, the markets in China, Japan, and the Asia Pacific brought about 32% of revenue and 37% of operating income. This result simply makes the Asia region more significant to Apple compared to Europe in terms of profits and growth.

Americas

The regions classified as the Americas comprise of North and South America. Revenue of $116.9 billion was recorded during the fiscal year 2019, which is a 4.3% growth, which amounted to almost 45% of the total revenue of the Apple business. The United States alone contributed more than 39% of the total revenue. The operating income, on the other hand, rose by 0.7%, translating to 35.1 billion, which comprises of almost 41% of the operating income of all the other segments combined.

Europe

Countries in this category include European countries, the Middle East, Africa, and India. The revenue in this segment dropped by 3.4% during the fiscal year 2019 to $60.3 billion. They contribute 23% to the total revenue of Apple. Operating income dropped by 3.8% to $19.2 billion, and is more than 22% of the operating income for the entire segments combined.

Greater China

This segment is made up of Hong Kong, Taiwan, and China. They didn’t perform so well in the fiscal year 2019, as revenue declined by 15.9% which translates to $43.7 billion. This makes up almost 17% of Apple’s total revenue. The operating income also went down by 17.8% to 16.2 billion, making up close to 19% of the entire operating income of all the segments.

Japan

Revenue from the country of Japan saw a decline of 1.0% during the fiscal year 2019 to $21.5 billion. It contributed over 8% of the total revenue of the Apple business. There was a 1.4% decline in the operating income, which amounts to $9.4 billion, comprising about 11% of the total operating income of all the other segments.

Rest of Asia Pacific

Countries included in the Rest of Asia Pacific segment are Australia and the Asian countries that did not make the cut in the other reportable geographic segments of the company. This segment had a good run, recording a growth of 2.2% during the fiscal year 2019 to $17.8 billion. This segment makes up about 7% of Apple’s total revenue. However, operating income dropped by 2.0% to $6.1 billion, which is 7% of the total operating income for all the other segments combined.

Take note that the combined operating income referred to in the segment breakdowns is actually $86.0 billion in the fiscal year 2019. However, the consolidated operating income of $63.9 billion which was reported by the company for the year was arrived at by deducting expenses from research, development, and other corporate activities.

Recent Developments

Due to the Coronavirus pandemic, Apple announced in February that its previous revenue guidance will be put on hold. The company admitted that meeting its target for the current quarter will no longer be possible. This is because the company had to shut down its stores in China, together with other partner stores and iPhone manufacturer partner sites. All this is bound to affect sales considerably. Following recent events, Apple stores and its manufactures are gradually resuming activities.

Conclusion

Ever since Apple became a household name, it has continued to record massive successes. It has manufactured some of the best smartphones, tablets, laptops, and Wearables on the market. From the Americas to Europe, Asia, and Africa, its products have found a home in the hands of many individuals which translates to billions of dollars in revenue for the company.

However, this good record has been tampered with by the Coronavirus pandemic, a problem that also affects the rest of the world, making the company put a hold on its operation. Thankfully, things are gradually picking up for the Apple brand and soon the company will be back on track.

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