Apple Inc. (NASDAQ: AAPL) is one of the world’s most visible and recognizable consumer electronics brands. Apple has long been an investor favorite because of its strong revenue growth and high return on investment.
Even though it started as a traditional computer company, Apple now designs and manufactures a wide variety of electronic devices, including smartphones, tablets, music players and television sets. Apple has a very unique business model in which it writes and designs proprietary software and offers its own operating system for all of its devices.
In recent years, Apple has branched out into entertainment and information services. It is now one of the world’s largest online retailers of music, streaming video and software solutions, including smartphone applications.
Despite its uniqueness, Apple’s business model has been very successful. It reported revenues of $224.34 billion on June 30, 2015. Apple also reported sales of $50.77 billion for the second quarter of 2015 and estimated sales of $233.02 billion for the current fiscal year. It was also able to achieve a profit margin of 21.52% for the second quarter of 2015.
Potential Impact of Political Factors on Apple
- Apple is one of a number of American technology companies that has accumulated a large amount of cash. It had $34.7 billion in the bank on June 30, 2015. This is generating calls for higher corporate taxation in the United States, where income inequality has become a major political issue.
- Apple is heavily dependent on lower cost manufacturing in China. Social and political unrest in China could disrupt manufacturing or increase manufacturing costs in that country. There have been also been calls to restrict Chinese imports in the United States in an effort to boost American manufacturing.
- The cost of finding alternatives to Chinese manufacturing could be high for Apple. This could lead to increased prices for Apple products.
- Apple’s dependence on Chinese manufacturing and markets makes it vulnerable to political unrest in that country.
- Apple could become the target of growing nationalism and anti-Americanism in China, which could reduce its market share.
- Apple’s close association with China could become a political issue in countries like the United States and Japan if China were to be perceived as a threat.
- Apple’s dominant position in fields like music could lead to antitrust concerns and political pressure to break the company up or limit its market share.
Potential Impact of Economic Factors on Apple
- Increased labor costs in China could take away the cost advantage of some Apple products.
- Stagnating middle-class incomes in some developed countries, including the United States, could shrink the potential market for higher-end consumer goods such as those marketed by Apple.
- A strong U.S. dollar could increase exchange rates, making it more expensive for Apple to do business in key markets like Europe and China.
Potential Impact of Social Factors on Apple
- The biggest growth in consumer spending in coming decades will be in areas of the world such as Africa where people are unfamiliar with Apple products.
- Consumers in those markets and younger people in Apple’s established markets, such as the United States, lack the strong emotional attachment to Apple products that drive sales.
- There is a backlash against expensive and stylish products among some customers in the United States and Europe.
- Ethical concerns about Apple’s manufacturing in China could limit its products’ appeal among socially-conscious consumers.
- Apple’s close association with China could offend some potential customers in other regions, such as North America and Europe, particularly if tensions with China rise.
- Apple’s music marketing strategy has created resentment and led to public criticism from major recording stars that could tarnish the brand’s image.
Potential Impact of Technological Factors on Apple
- Competitors such as Google and Samsung have demonstrated a strong ability to duplicate Apple’s products and services. It took less than a year for Google to roll out a payment app; Android Pay, with the same capabilities as Apple Pay. This means that many of Apple’s signature services and products are no longer unique.
- The number of new consumer products Apple can bring out is limited. Many of its new offerings, such as Apple TV, will have a limited market.
- Growing use of smartphones and tablets will lower demand for Apple’s popular personal computers.
- Apple’s proprietary operating system can limit the variety of applications available to smartphone users.
- The growing capabilities of cyber criminals make Apple’s systems less secure and take away one of its strongest competitive advantages: its reputation for high levels of security and safety.
Potential Impact of Legal Factors on Apple
- Apple has recently entered the highly regulated financial services sector via Apple Pay. This could increase the level of regulation and government oversight it faces.
- By offering financial services, Apple could face increased levels of litigation.
- News reports indicate that Apple is planning to enter another highly-regulated sector: automobile manufacturing. Entering the auto business could increase regulatory, insurance and litigation costs at Apple.
- Apple depends on a variety of products covered by intellectual property laws, such as software and music, for much of its income. This leaves the company highly vulnerable to both piracy and litigation.
Potential Impact of Environmental Factors on Apple
- The biggest environmental issue facing Apple is the disposal of used or nonworking electronic devices. The expense of disposing of devices, particularly those containing lithium batteries, could be high. Apple could be forced to assume that expense because of concerns about such devices in landfills.
- Pollution and other environmental side effects from manufacturing facilities in China are a growing concern. This could lead to increased regulation and higher manufacturing costs at some point in the future.
- China’s efforts to cut greenhouse gases and limit fossil fuel use could increase electricity rates and manufacturing costs for Apple in that country.
- Climate change created by global warming could disrupt transoceanic shipping and Apple’s supply chain.
- Concern about energy use and other side effects from data centers could lead to increased regulation and costs.
- Apple is highly vulnerable to increases in electricity costs because of its dependence on data centers and other Internet infrastructure.
Apple should be able to thrive in spite of these challenges because it has demonstrated an impressive ability to adapt to a changing environment. In particular, Apple’s research and design capabilities give it an advantage that should propel its revenue growth for decades to come.