Apple computers

1. Apple Computers

9. Apple in 2005 As of January 2005 Apple has introduced the Mini Mac and the iPod Shuffle.

13. Apple in the Market (as of 4/22/05) Last Trade: 35.50 52 Week Low: 12.75 52 Week High: 45.44 Apple had a 2:1 Stock split on 02/28/05

14. Vision Statement (proposed) To become the world wide leader in computer and mp3 player sales.

18. CPM – Competitive Profile Matrix Apple Computer Market Dell Critical Success Factors Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score Market Share Price Financial Position Product Quality Consumer Loyalty Advertising Management Global Expansion Innovation Web Development 0.10 0.10 0.15 0.15 0.15 0.04 0.06 0.06 0.14 0.05 1 2 3 3 4 2 4 2 4 3 0.10 0.20 0.45 0.45 0.60 0.08 0.24 0.12 0.56 0.15 3 3 2 2 2 3 3 2 2 2 0.30 0.30 0.30 0.30 0.30 0.12 0.18 0.12 0.28 0.10 4 4 3 4 3 3 3 3 2 3 0.40 0.40 0.45 0.60 0.45 0.12 0.18 0.18 0.28 0.15 Total 1.00 2.95 2.30 3.21

19. External Factor Evaluation (EFE) Matrix Key External Factors Weight Rating Weighted Score Opportunities Increase in worms and virus on PCs. 0.15 4 0.60 Downloadable music and MP3 players are highly marketable. 0.6 3 0.18 Large population (Gen X & Y) which are extremely individualistic and name brand conscious. 0.15 4 0.60 Increase in sales of laptops by 20 percent. 0.04 3 0.12 Increasing sales of computers online by 25 percent. 0.05 3 0.15 Creating more ties with Microsoft products. 0.10 4 0.40 Threats Increasing competition with music downloads. 0.07 2 0.14 Intel’s future Pentium release. 0.03 3 0.09 Dell and HP are major competitors. 0.10 4 0.40 Dell does not invent but provides computers at a more cost effective rate for customers. 0.06 3 0.18 Recession—price of Apple computers are higher. 0.04 2 0.08 Companies not seeing Apple as compatible with their software. 0.15 2 0.30 TOTAL 1.00 3.24

22. Internal Factor Evaluation (IFE) Matrix Key Internal Factors Weight Rating Weighted Score Strengths iTunes Music Store is a good source of revenue, especially with the iPod and the availability on Windows platform. 0.15 4 0.60 Apple’s niche audience provides the company with some insulation from the direct price competition. 0.10 3 0.30 Revamping desktop and notebook lines. 0.10 3 0.30 Low debt—more maneuverable. 0.06 4 0.24 Developing own software and hardware. 0.14 3 0.42 Good brand loyalty. 0.05 3 0.15 Web technology can be used to improve product awareness and sales. 0.10 4 0.40 Weaknesses Dependency on new product launches. 0.06 1 0.06 Weak presence in business arena. 0.07 1 0.07 Slow turn around on high demand products. 0.03 2 0.06 Weak relationship with Intel and Microsoft. 0.10 1 0.10 Weak presence in markets other than education and publishing. 0.04 2 0.08 Total 1.00 2.78

23. Financial Ratio Analysis (March 2004) www.investor.stockpoint.com Company Industry Sector S&P 500 Valuation Ratios P/E Ratio (TTM) 69.70 26.87 33.52 24.01 P/E High - Last 5 Yrs 277.96 54.58 64.14 45.41 P/E Low - Last 5 Yrs 6.84 17.34 19.55 16.26 Beta 1.75 1.60 1.91 1.00 Price to Sales (TTM) 1.41 1.84 5.08 3.33 Price to Book (MRQ) 2.20 7.56 4.78 4.29 Price to Tangible Book (MRQ) 2.26 8.77 6.53 7.56 Price to Cash Flow (TTM) 37.64 19.69 25.48 17.32 Price to Free Cash Flow (TTM) 45.13 23.77 28.26 28.97 % Owned Institutions 63.21 50.31 48.14 64.19 Dividends Dividend Yield N/A 0.70 0.75 2.04 Dividend Yield - 5 Yr Avg 0.00 0.34 0.27 1.48 Dividend 5 Yr Growth Rate NM 7.94 1.50 6.48 Payout Ratio (TTM) 0.00 7.99 9.34 26.78

24. Financial Ratios (cont) Growth Rates % Company Industry Sector S&P 500 Sales (MRQ) vs Qtr 1 Yr Ago 36.28 12.54 18.89 13.40 Sales (TTM) vs TTM 1 Yr Ago 15.45 10.97 11.78 11.90 Sales - 5 Yr Growth Rate 0.88 7.09 14.52 9.30 EPS (MRQ) vs Qtr 1 Yr Ago N/A 34.00 35.07 28.69 EPS (TTM) vs TTM 1 Yr Ago 587.04 35.55 41.74 21.92 EPS - 5 Yr Growth Rate -29.16 6.85 13.18 12.15 Capital Spending - 5 Yr Growth Rate 28.95 2.65 1.99 4.06 Financial Strength Quick Ratio (MRQ) 2.26 1.02 2.54 1.26 Current Ratio (MRQ) 2.53 1.25 3.02 1.76 LT Debt to Equity (MRQ) 0.00 0.38 0.23 0.68 Total Debt to Equity (MRQ) 0.07 0.52 0.29 0.85 Interest Coverage (TTM) 13.75 11.34 9.81 11.86 Profitability Ratios % Gross Margin (TTM) 27.27 30.60 51.71 47.32 Gross Margin - 5 Yr Avg 26.65 31.08 51.13 47.01 EBITD Margin (TTM) 3.34 12.43 18.41 20.79

25. Financial Ratios (cont) EBITD - 5 Yr Avg 2.87 12.18 16.18 20.82 Operating Margin (TTM) 1.63 8.70 13.63 20.33 Operating Margin - 5 Yr Avg 1.25 8.28 11.62 18.35 Pre-Tax Margin (TTM) 2.77 9.47 15.96 17.27 Pre-Tax Margin - 5 Yr Avg 5.34 9.76 14.77 17.54 Net Profit Margin (TTM) 2.03 6.02 9.90 13.12 Net Profit Margin - 5 Yr Avg 4.24 6.55 8.67 11.59 Effective Tax Rate (TTM) 26.74 29.57 27.57 31.31 Effective Tax Rate - 5 Yr Avg 22.62 30.59 32.39 34.20 Management Effectiveness % Return on Assets (TTM) 2.09 8.44 6.07 6.40 Return on Assets - 5 Yr Avg 5.47 9.25 5.79 6.79 Return on Investment (TTM) 3.05 16.54 8.75 9.97 Return on Investment - 5 Yr Avg 7.90 17.57 9.30 10.93 Return on Equity (TTM) 3.26 30.10 12.17 18.71 Return on Equity - 5 Yr Avg 10.37 31.78 13.11 19.22 Efficiency Revenue/Employee (TTM) 617,760 568,624 401,787 622,866 Net Income/Employee (TTM) 12,555 37,722 65,474 81,707 Receivable Turnover (TTM) 11.59 7.25 7.64 9.76 Inventory Turnover (TTM) 91.47 20.93 9.64 10.46 Asset Turnover (TTM 1.03 1.45 0.77 0.92

26. Net Worth Analysis SE + Additional paid in capital + retained earnings 4,095M + 119M +2,325= 6.5B 9/28/02 Net income x 565M x 5 = 325M Share price (10/17/03)/ EPS (10/17/03) x avg. net income (3years) [22.75/ 0.49] x 275M = 12.7B Number of shares outstanding x share price 358,958,989 x 22.75 = 8.1B Method average = 6.9B

29. SPACE Matrix Competitive Defensive Aggressive Space Matrix ES IS CA FS Conservative Forward Integration Backward Integration Horizontal Integration Market Penetration Market Development Product Development Joint Venture

30. Grand Strategy Matrix Apple Computer RAPID MARKET GROWTH Quadrant II Quadrant I WEAK STRONG COMPETITIVE COMPETITIVE POSITION POSITION Quadrant III Quadrant IV SLOW MARKET GROWTH Concentric Diversification Conglomerate Diversification Horizontal Diversification Retrenchment Divestiture Liquidation

31. The Internal-External (IE) Matrix Grow and Build 1.0 to 1.99 IX VIII VII Low 2.0 to 2.99 VI V IV Medium 3.0 to 3.99 III II I High 1.0 to 1.99 2.0 to 2.99 3.0 to 4.0 Weak Average Strong Segments Revenue Profit EFE IFE Domestic 54% 52% 3.5 2.6 International 46% 48% 3.0 3.0

32. Boston Consulting Group (BCG) Matrix Low -20 High 1.0 Medium .50 Low 0.0 International Domestic Cash need High vs. cash flow low Market Penetration Market Development Product Development Sell Dogs Cash Cows Medium 0 Question Marks Stars High +20 Segments Revenue Profit EFE IFE Growth Rate Relative Market Share Domestic 54% 52% 3.5 2.6 17 0.3 International 46% 48% 3.0 3.0 5 0.2

33. Matrix Analysis Summary Alternative Strategies IE SPACE GRAND COUNT Forward Integration * * 2 Backward Integration * * 2 Horizontal Integration * * 2 Market Penetration * * 2 Market Development * * 2 Product Development * * 2 Concentric Diversification * 1 Conglomerate Diversification * 1 Horizontal Diversification * 1 Joint Venture * 1 Retrenchment * 1 Divestiture * 1 Liquidation * 1

34. QSPM Key Internal Factors Weight Start producing Wintel compatible Expand production into Asia Strengths AS TAS AS TAS iTunes Music Store is a good source of revenue, especially with the iPod and the availability on Windows platform. 0.15 1.00 0.15 3.00 0.45 Apple’s niche audience provides the company with some insulation from the direct price competition. 0.20 4.00 0.80 3.00 0.60 Good brand loyalty. 0.20 4.00 0.80 3.00 0.60 Web technology can be used to improve product awareness and sales. 0.15 4.00 0.60 3.00 0.45 Weaknesses Weak relationship with Intel and Microsoft. 0.15 4.00 0.60 1.00 0.15 Weak presence in markets other than education and publishing. 0.15 2.00 0.30 4.00 0.60 SUBTOTAL 1.00 3.25 2.85

35. QSPM Key External Factors Weight Start producing Wintel Expand production into Asia Opportunities AS TAS AS TAS Increase in worms and virus on PCs. 0.15 2 .30 3 .45 Downloadable music and MP3 players are highly marketable. 0.06 1.00 0.12 4.00 0.48 Large population (Gen X & Y) which are extremely individualistic and name brand conscious. 0.15 1.00 0.10 4.00 0.40 Increase in sales of laptops by 20 percent. 0.08 1.00 0.08 4.00 0.32 Creating more ties with Microsoft products. 0.10 4.00 0.12 2.00 0.08 Threats Intel’s future Pentium release. 0.10 1.00 0.10 3.00 0.30 Dell does not invent but provides computers at a more cost effective rate for customers. 0.06 1.00 0.06 3.00 0.18 Companies not seeing Apple as compatible with their software. 0.15 1.00 0.05 3.00 0.15 SUBTOTAL 1.00 0.93 2.36 SUM TOTAL ATTRACTIVENESS SCORE 4.18 5.21

38. EPS/EBIT Analysis Common Stock Financing Debt Financing 50/50 Combination Financing High Low High Low High Low EBIT 20,000.00 6,000.00 20,000.00 6,000.00 20,000.00 6,000.00 Interest (6%) 0.00 0.00 3,900.00 3,900.00 1,950.00 1,950.00 EBT 20,000.00 6,000.00 16,100.00 2,100.00 18,050.00 4,050.00 Taxes (30%) 6,000.00 1,800.00 4,830.00 630.00 5,415.00 1,215.00 EAT 14,000.00 4,200.00 11,270.00 1,470.00 12,635.00 2,835.00 # Shares 5,653.00 5,653.00 1,837.00 1,837.00 3,747.00 3,747.00 EPS 2.48 0.74 6.14 0.80 3.37 0.76