1. Apple Computer, Inc. Annual Profit Plan
MNGT 3280
Alex Milovic

2. Introduction History of Innovation Many changes over the last 20 years
                                          
                                          
                                          
History of Innovation
Many changes over the last 20 years
New Direction
iPod
iTunes
OS X Operating System

3. Situation Analysis Strengths Brand Name: Known for Innovation
Steve Jobs: “Forward Thinking”
Market leader in MP3 Sales (59% market share)
Market leader in legal music downloads (62% market share)
Cupertino, CA plant: in-house production
Large amount of cash reserves ($6.5 billion)
Apple on-line store, retail stores

4. Situation Analysis Opportunities
OS X operating system is currently only available on Macintosh computers
OS X only has a 5% market share in operating systems market
Downloading only represents 2% of overall music sales

5. Situation Analysis Weaknesses
Many bad strategies over the last 20 years
Only a 3% market share in computer sales
Do not have the resources to compete head-to-head with Microsoft

6. Situation Analysis Threats OS X vs. Microsoft Napster
Paying for downloads vs. piracy
Licensing arrangements with music companies
                            

7. Mission
Our goal is to provide innovative computer products(both hardware and software) to consumers of all ages through retail stores, online stores and through our Apple retail locations.

8. Objective Continue success of iPod line iTunes vs. Napster
Launch OS X on all computer platforms

9. Market Size 2004 $55 billion Projected 2005 $63.525 billion
Operating Systems
Market Size 2004 $55 billion Projected 2005 $ billion

10. Market Size 2004 $2.37 billion Projected 2005 $5.7 billion
MP3 Players
Market Size 2004 $2.37 billion Projected 2005 $5.7 billion

11. Market Size 2004 $1.61 billion Projected 2005 $3.765 billion
Downloaded Music
Market Size 2004 $1.61 billion Projected 2005 $3.765 billion

12. Competitive Analysis OS X Operating System Microsoft Windows
Apple iPod Dell Pocket DJ, Samsung, Gateway
Apple iTunes Napster, Walmart

13. Potential Variable Margin (per unit)
Cost Price VM
OS X (Panther) $ $ $112.00
iPod 
iTunes 

14. Competitive/Pricing/Promotions Strategies:
OS X Offensive Strategy
Windows security has been an issue
Failure to come out with updated Windows
Develop separate application of software compatible with non-Macs
iPod/iTunes Defensive Strategy
Block Napster’s attempt to gain market share through subscription service
Promote the iPod and iTunes as package
Develop subscription service for iTunes

15. Product Features OS X iPod Increased security iLife program bundle
iWork program bundle
Frequent update availability
iPod
Several available versions
iPod photo
iPod mini
iPod shuffle
iPod U2 special edition

16. Promotions/Distribution Strategies and Supporting Action Plans:
Partner with PC leader (Dell, IBM, eMachines, etc.) to offer OS X as primary operating system
Sold through major retail chains (Best Buy), Apple retail stores, online store
Targeted to consumers with focus toward age 15-50
Promotion of iLife and iWork
Heavy promotion of new subscription service for iPod and iTunes to counter Napster

17. Product Promotions Timeline
Q1 2005:
Continue to focus on iPod advertising
Print advertising: Sports Illustrated, Maxim, People, Popular Science, Us Weekly, Runner’s World, Men’s Health
Product review in Consumer Reports
Television Advertising: CBS, NBC, ABC, FOX, UPN, WB, MTV, VH1, ESPN, TechTV, CNN, Lifetime, Oxygen, E! Entertainment
Sales force begins to sell iPods to more retail outlets

18. Promotions Timeline (cont.)
Q2 2005
Begin advertising new iTunes subscription plan through above media
Begin advertising OS X operating system
Print Advertising: PC Magazine, PC World, Computer Edge, Computer Weekly, Computer World
Product review in Consumer Reports
Television Advertising: CBS, NBC, ABC, FOX, TechTV, CNN, Bloomberg, Lifetime, E! Entertainment, Headline News, TBS
Sales force meets with retailers to propose iPod/OS X plan (reduced cost of OS X when iPods are purchased)

19. Promotions Timeline cont.
Q3 2005
Increase advertising of iPod and OS X
Q4 2005
Continue to advertise during Christmas season
Meeting between Senior Marketing and International Business interests concerning international promotion/distribution of OS X and iPod in 2006

20. Distribution Timeline
Q1 2005:
Sales reps continue to sell iPod line to retailers
Senior marketing secures shelf space for newest lines of iPods
Q2 2005
Sales reps begin to discuss OS X/iPod package
Senior marketing meets with Dell management to discuss adding OS X to online store

21. Distribution Timeline (cont.)
Q3 2005
Sales force makes preliminary Christmas orders; communicates with Operations to ensure demand will be met
Q4 2005
Sales force makes additional Christmas orders as necessary

22. Operations New Product: Innovated Existing Product:
OS X Operating System
Innovated Existing Product:
iPod

23. Manufacturing/Suppliers
We will add extra equipment in our Cupertino, CA plant, as well as increase labor
Since our supply demands will increase, we must make sure our materials are available for production

24. OS X Timeline
Q1 2005:
Design and final testing of the OS X software is complete
Operations Managers and labor are hired and trained to mass produce the new OS X Operating System
Q2 2005:
Accommodations are made in the plant and additional machinery is in place to begin production
Production of OS X begins
Q3 2005:
Marketing completes product design and software is ready to be packaged
Meetings between marketing and key retailers used to determine ordering
OS X is shipped by truck fleets to retailers and stocked on retailer’s shelves, ready for the 2005 Christmas season
Online retailers are also stocked and ready to sell
Q4 2005:
Product is sold through retailers

25. iPod Timeline Q1 2005: Q2 2005: Q3 2005: Q4 2005:
Production of iPods continues in order to meet orders
Production begins on newest iPod lines
Q2 2005:
Meet with Product team to discuss future iPod products, meet with operations management to discuss production needs of new lines
Use current forecasts to project Q3 and Q4 sales, see if we can meet demand
Q3 2005:
Use retail pre-order forecasts to guide production schedule for Q3 and Q4
Begin 24/7 schedule to increase production
Q4 2005:
Continue to process orders
Begin production of new iPod lines for 2006

26. Quality Control
ISO quality in procurement, production, and installation
Six-Sigma - reduces our overall defect rate

27. Repair/Technical Support
We outsource our repair and technical support programs
Mac Service - repair work and training.
Technical support is available online and at our Apple retail locations

28. Shipping/Retailers Shipping Retailers
Online customers - United Parcel Service
Retailers - outsourced trucking fleet
Retailers
OS X - sold everywhere computers are sold
Packaged with Dell
iPod
Department stores, Discount stores, Music stores, our website

29. Income Statement

30. Balance Sheet

31. Key Ratios

32. Revenue and Gross Margin
iPod/iTunes: Billion
OS X: Billion
Other: Billion
Total Sales: 13 Billion
Gross Margin: 28.5%
1.5% increase from 2004
Factors: more favorable pricing on certain commodity components, higher revenue which provided for strong leveraging of fixed production costs and a more favorable mix of direct sales.

33. Fixed Costs R/D: $750 Million 34.8% increase from 2004 5.76% revenue
SG&A: $1700 Million
16.4% increase from 2004
13.1% of revenue
Total: $2.45 Billion
Source: cash, equivalents, and short-term investments
Why: to ensure a continuing and timely flow of innovative and competitive products and technologies to the marketplace

34. Net Profit 2004: $276 Million 2005: $929 Million
236.5% increase in Net Profit
19% return on invested capital
9.4% return on assets