Is Apple a successful company?? Compare Apples financial performance with its main competitors

CASE 32

APPLE INC.: WHERE’S THE NEXT INNOVATION?*

In April 2019, Apple CEO Tim Cook held the second quar- ter earnings presentation at the Apple Park corporate cam- pus in the 1,000-seat auditorium named the Steve Jobs Theater. Part of a 175-acre campus developed in 2017, the ring-shaped 2.8-million- square-foot facility with walls of curved glass surrounding an inner greenspace courtyard was possibly the last evidence of the direct vision and inno- vation of Apple co-founder Steve Jobs. Originally envi- sioned by Jobs in 2011 as a center for creativity and collaboration, the building honored his legacy, memory, and enduring influence. Jobs, who died in 2011, would have turned 64 in February 2019. As Apple’s current CEO Tim Cook said, “Steve’s vision for Apple stretched far beyond his time with us. He

intended Apple Park to be the home of innovation for generations to come.”1

Yet the pace of innovation at Apple had slowed consid- erably. Since Steve Jobs’s death, the only new physical prod- uct launched had been the Apple Watch in 2014. The iconic iPhone, in FY2018 representing 63 percent of total reve- nues, was over 10 years old, and even though upgrades kept customers coming back, competition had eroded Apple’s smartphone market share such that second quarter 2019 iPhone revenues had declined by over 17 percent year over year. Mac computer and iPad sales had declined as well. Although Apple’s FY2018 revenues were up by about 16 percent overall, the bulk of that increase came from ser- vices and other products such as the Apple Watch. In this environment, there was some concern that although re- search and development spending was up in FY2018, re- search output had not produced any recent meaningful breakthroughs. This posed yet again the unavoidable ques- tion that still seemed to haunt the 42-year-old Apple: What happens to a modern company whose

innovations and in- spirations are so closely tied to the vision of one leader when that leader’s influence is no longer present?2

Tim Cook was considered a highly effective leader, yet had been criticized for “lack of ambition and vigor,” for be- ing perhaps too cautious about entering new product cate- gories, pursuing acquisitions, or driving employees to achieve almost impossible

stretch goals.3 On the other hand, investors had been mostly very pleased with the stock performance under Cook. Since he was named CEO in August 2011, Apple share price had risen from an average * This case was prepared by Professor Alan B. Eisner of Pace University and Professor Pauline Assenza, Western Connecticut State University. This case is based solely on library research and was developed for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2019 Alan B. Eisner. of over $45 to a high of $230 in August 2018, and when the company reached a market capitalization of over $1 trillion in 2018, that made it the most valuable company in the world. In addition, Cook had instituted Apple’s first dividend since 1995 in 2012,

and bought back more than $200 billion of shares, producing strong free cash flows and an “impressive” balance sheet.4 This had made investors happy. Cook had done what CEOs of public companies are sup- posed to do—drive up value. But revenue from the flagship products— iMac, iPad and iPhone—was falling or stagnant, and only the services and other products sectors were see- ing growth. In addition, operating margins were declining in products, indicating that high iPhone prices may have been the only thing keeping margins stable at around 30 percent. If iPhone sales were increasingly challenged by lower price competitors such as China’s Xiaomi, and Huawei, something would have to change. Was Apple’s recent shift into services and other products going to be the answer? (See Exhibits 1 to 3.) “Other products” included wearables such as the iWatch and the AirPod wireless ear- phones, and home products such as the HomePod voice- controlled smart speaker system. These were new, but perhaps not as innovative as Apple’s other products. Were expectations of major breakthroughs unrealistic? As one analyst said, it is hard to find “ways to make the world’s most valuable company even more valuable when it’s al- ready so big that conventional growth strategies—

extending product lines, moving into new territories—would barely move the needle.”5

Apple, Fortune Magazine’s “world’s most admired com- pany” since 2008,6 had distinguished itself by excelling over the years not only in product innovation but also in revenue and margins (since 2006 Apple had consistently reported gross margins of over 30 percent). By 2019, Apple Inc. was known for having top-selling products not only in desktop (iMac) and notebook (MacBook) personal computers but also in online music and “app” services (iTunes and App Store), mobile communication devices (iPhone), digital consumer entertainment (Apple TV), tablet computers (iPad), operating systems (macOS and iOS), software (Sa- fari web browser) and online services (iCloud), as well as wearable technology (Apple Watch, AirPods) and home ac- cessories (HomePod, Beats products), mobile payment sys- tems (Apple Pay), and a subscription-based music streaming service (Apple Music). Additional services roll- ing out in 2019 included Apple TV+ original content, sub- scription services Apple Channels, Apple News+ and C252 CASE 32 :: APPLE INC.: WHERE’S THE NEXT INNOVATION? Strategic Management: Text and Cases EXHIBIT 1 Apple Sales, 2015–2018 (dollars in millions and units in thousands)

2018 Change 2017 Change 2016 2015

Net Sales by Reportable Segment:

Americas $112,093 16 % $ 96,600 12 % $ 86,613 $ 93,864

Europe 62,420 14 % 54,938 10 % 49,952 50,337

Greater China 51,942 16 % 44,764 (8 )% 48,492 58,715

Japan 21,733 23 % 17,733 5 % 16,928 15,706

Rest of Asia Pacific 17,407 15 % 15,199 11 % 13,654 15,093

Total net sales $265,595 16 % $ 229,234 6 % $215,639 $233,715

Net Sales by Product:

iPhone (1) $166,699 18 % $ 141,319 3 % $136,700 $155,041

iPad (1) 18,805 (2 )% 19,222 (7 )% 20,628 23,227

Mac (1) 25,484 (1 )% 25,850 13 % 22,831 25,471

Services (2) 37,190 24 % 29,980 23 % 24,348 19,909

Other Products (1)(3) 17,417 35 % 12,863 16 % 11,132 10,067

Total net sales $265,595 16 % $ 229,234 6 % $215,639 $233,715

Unit Sales by Product:

iPhone 217,722 — % 216,756 2 % 211,884 231,218

iPad 43,535 — % 43,753 (4 )% 45,590 54,856

Mac 18,209 (5 )% 19,251 4 % 18,484 20,587

1. (1) Includes deferrals and amortization of related software upgrade rights and non-software services. 2. (2) Includes revenue from Digital Content and Services, AppleCare, Apple Pay, licensing, and other services. Services

net sales in 2018 included a favorable one-time item of $236 million in connection with the final resolution of various lawsuits. Services net sales in 2017 included a favorable one-time adjustment of $640 million due to a change in estimate based on the availability of additional supporting information.

3. (3) Includes sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and other Apple-branded and third-party accessories.

Sources: Annual Report. Apple Inc. 2017.; Annual Report. Apple Inc. 2018. EXHIBIT 2 Apple Product Performance—Percentage of Total Sales iPad 7% 8% 10% Services 14% 13% 11%

Product 2018 2017 2016

iPhone 63% 62% 63%

Ma c

10% 11% 10%

Source: Annual Report. Apple Inc. 2018. Apple Arcade for games, and Apple Card, a credit card stored in Apple Wallet. (see Exhibit 4). As the time line shows, most of the product innovations occurred after 1998, when Apple was under Steve Jobs’s lead- ership. However, there was also a 12-year period in which Jobs was not in charge. The company’s ongoing stated strategy was to leverage “its unique ability to design and develop its own operations systems, hardware, application software and ser- vices to

provide its customers products and solutions with in- novative design, superior ease-of-use and seamless integration.”7 This strategy required not only product design and marketing expertise but also scrupulous attention to Strategic Management: Text and Cases CASE 32 :: APPLE INC.: WHERE’S THE NEXT INNOVATION? C253 EXHIBIT 3 Apple Products and Services Revenue and Gross Margins

Second Quarter Comparison 2018 to 2019

Three Months Ended Six Months Ended

March 30, 2019 March 31, 2018 Chang March 30, 2019 March 31, 2018 Change

e

Net sales by category:

iPhone (1) $31,051 $37,559 (17)% $ 83,033 $ 98,663 (16)%

Mac (1) 5,513 5,776 (5)% 12,929 12,600 3%

iPad (1) 4,872 4,008 22% 11,601 9,763 19%

Wearables, Home and Accessories (1)(2) 5,129 3,944 30% 12,437 9,425 32%

Services (3) 11,450 9,850 16% 22,325 18,979 18%

Total net sales $58,015 $61,137 (5)% $142,325 $149,430 (5)%

1. (1) Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.

2. (2) Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and Apple-branded and third-party accessories.

3. (3) Services net sales include sales from the company’s digital content stores and streaming services, AppleCare, Apple Pay, licensing, and other services. Services net sales also include amortization of the deferred value of Maps, Siri, and free iCloud services, which are bundled in the sales price of certain products.

Three Months Ended Six Months Ended

March 30, 2019 March 31, 2018 March 30, 2019 March 31, 2018

Gross margin:

Products $14,518 $17,351 $39,715 $45,940

Services 7,303 6,071 14,137 11,394

Total gross margin $21,821 $23,422 $53,852 $57,334

Gross margin percentage:

Products 31.2% 33.8% 33.1% 35.2%

Services 63.8% 61.6% 63.3% 60.0%

Total gross margin percentage 37.6% 38.3% 37.8% 38.4%

Source: Quarterly Report Form 10-Q. Apple, March 30, 2019. operational details. Given Apple’s global growth in multiple product categories, and the associated complexity in strategic execution, CEO Tim Cook would be challenged to sustain the level of innovation for which the company was known. Company Background Founder Steve Jobs Apple Computer was founded in Mountain View, California, on April 1, 1976, by Steve Jobs and Steve Wozniak. Jobs was the visionary and marketer, Wozniak was the technical genius, and A. C. “Mike” Markkula Jr., who had joined the team several months earlier, was the businessman. Jobs set the mission of empowering individu- als, one person–one computer, and doing so with elegance of design and fierce attention to detail. In 1977, the first version of the Apple II became the first computer ordinary people could use right out of the box, and its instant suc- cess in the home market caused a computing revolution, essentially creating the personal computer industry. By 1980, Apple was the industry leader and went public in December of that year. C254 CASE 32 :: APPLE INC.: WHERE’S THE NEXT INNOVATION? Strategic Management: Text and Cases EXHIBIT 4 Apple Innovation Time Line

Date Product Events

1976 Apple I Steve Jobs, Steve Wozniak, and Ronald Wayne found Apple Computer.

1977 Apple II Apple logo first used.

1979 Apple II1 Apple employs 250 people; the first personal computer spreadsheet software, VisiCalc, is written by Dan Bricklin on an Apple II.

1980 Apple III Apple goes public with 4.6 million shares; IBM personal computer announced.

1983 Lisa John Sculley becomes CEO.

1984 Mac 128K, Apple IIc Super Bowl ad introduces the Mac desktop computer.

1985 Jobs resigns and forms NeXT Software; Windows 1.01 released.

1986 Mac Plus Jobs establishes Pixar.

1987 Mac II, Mac SE Apple sues Microsoft over GUI.

1989 Mac Portable Apple sued by Xerox over GUI.

1990 Mac LC Apple listed on Tokyo Stock Exchange.

1991 PowerBook 100, System 7 System 7 operating-system upgrade released, the first Mac OS to support PowerPC-based computers.

1993 Newton Message Pad (one of the first Sculley resigns; Spindler becomes CEO; PowerBook sales reach 1 million units. PDAs)

1996 Spindler is out; Amelio becomes CEO; Apple acquires NeXT Software, with Jobs as adviser.

1997 Amelio is out; Jobs returns as interim CEO; online retail Apple Store opened.

1998 iMac iMac colorful design introduced, including USB interface; Newton scrapped.

1999 iMovie, Final Cut Pro (video editing iBook (part of PowerBook line) becomes best-selling retail notebook in October; software) Apple has 11% share of notebook market.

2000 G4Cube Jobs becomes permanent CEO.

2001 iPod, OS X, iTunes software, Apple iTunes software is a mobile device management application. First physical retail Store store opens, in Virginia.

2002 iMac G4, iLife Apple releases iLife software suite.

2003 iTunes Store Apple reaches 25 million iTunes downloads.

2004 iMac G5 Jobs undergoes successful surgery for pancreatic cancer.

2005 iPod Nano, iPod Shuffle, Mac Mini First video iPod released; video downloads available from iTunes.

2006 MacBook Pro Apple computers use Intel’s Core Duo CPU and can run Windows software; iWork software competes with Microsoft Office.

2007 iPhone, Apple TV, iPod Touch Apple Computer changes name to Apple Inc.; Microsoft Vista released.

2008 iPhone 3G, MacBook Air, App Store App Store launched for third-party applications for iPhone and iPod Touch and brings in $1 million in one day.

2009 17-inch MacBook Pro, iLife, iWork ’09 iTunes Plus provides DRM-free music, with variable pricing; Jobs takes medical leave.

2010 iPad, iPhone 4, Mac App Store iPhone 4 provides FaceTime feature; iTunes reaches 10 billion songs sold.

2011 iPad2, iPhone 4S, iCloud iPhone available on Verizon Wireless; Jobs resigns as CEO, dies on October 5th. Tim Cook becomes CEO.

Strategic Management: Text and Cases CASE 32 :: APPLE INC.: WHERE’S THE NEXT INNOVATION? C255 Continued EXHIBIT 4 Continued

Date Product Events

2012 iBook Author, iPhone5, iPad Mini, Apple Wallet

iBook supports textbook creation on iPad. Retina displays, skinny Macs. Apple Wallet stores coupons, tickets. Apple becomes world’s most valuable company by market capitalization.

2013 Mega Mac, iPad Air Workstation in a small aluminum cylinder.

2014 iPhone 6 Plus, Apple Watch, Apple Pay

Biggest iPhone yet, Apple Watch = computer on your wrist introduced in 2014, actual delivery in 2015, Apple Pay mobile payment service, acquisition of Beats Electronic for headphones, streaming digital content.

2015 Apple Music Streaming music subscription service, including Internet radio station Beats 1, blog platform Connect.

2016 iPhone 7, iPhone 7 Plus, iPad Pro, Apple AirPods, Apple Watch Series

Seventh generation iPhone, AirPods wireless earphones, Apple Watch multiple series included Nike and Hermes; over 1 billion Apple devices are in use worldwide.

2017 iPhone 8, iPhone 8 Plus, iPhone X

Fall 2017 release.

2018 HomePad, iPhone XS & XR, iPadPro with Face ID, iPad Air with Apple Pencil support

HomePad smart speaker with voice control; Apple reaches $1 trillion market value, becomes the largest publically traded corporation in the world by market capitalization.

2019 Apple TV+, Apple Channels, Apple News+, Apple Arcade, Apple Card

Apple TV+ will produce original content, Channels subscription gives access to premium network TV, News+ subscription gives access to digital magazines & newspapers, Apple Arcade gives access to games via the App Store, Apple Card is a credit card stored in Apple Wallet.

Sources: Timeline of Apple Inc. products. Wikipedia; author estimates. In 1983, Wozniak left the firm and Jobs hired John Sculley away from PepsiCo to take the role of CEO at Apple, citing the need for someone to spearhead marketing and operations while Jobs worked on technology. The result of Jobs’s creative focus on personal computing was the Macintosh. Introduced in 1984, with the now-famous Super Bowl television ad based on George

Orwell’s novel Nineteen Eighty-Four,8 the Macintosh was a breakthrough in terms of elegant design and ease of use. Its ability to handle large graphic files quickly made it a favorite with graphic designers, but it had slow performance and limited compatible software was available. That meant the product as designed at that time was unable to help significantly Apple’s failing bottom line. In addition, Jobs had given Bill Gates at Microsoft some Macin- tosh prototypes to use to develop software and, in 1985, Mi- crosoft subsequently came out with the Windows operating system—a version of GUI for use on IBM PCs. Steve Jobs’s famous volatility led to his resignation from Apple in 1985. Jobs then founded NeXT Computer. The NeXT Cube computer proved too costly for the business to become commercially profitable, but its technological con- tributions could not be ignored. In 1997, then Apple CEO Gilbert Amelio bought out NeXT, hoping to use its Rhapsody—a version of the NeXTStep operating system—to jump-start the Mac OS development, and Jobs was brought back as a part-time adviser. Under CEOs Sculley, Spindler, and Amelio John Sculley had tried to take advantage of Apple’s unique capabilities. Because of this, Macintosh computers became easy to use, with seamless integration (the original plug-and- play) and reliable performance. This premium performance meant Apple could charge a premium price. However, with the price of IBM compatibles dropping, and Apple’s costs, especially research and development (R&D), way above industry averages, this was not a sustainable scenario. Sculley’s innovative efforts were not enough to substan- tially improve Apple’s bottom line, and he was replaced as CEO in 1993 by company president Michael Spindler. Spindler continued the focus on innovation, producing the PowerMac in 1994. Even though this combination pro- duced a significant price-performance edge over both previ- ous Macs and Intel-based machines,

the IBM clones continued to undercut Apple’s prices. Spindler’s response was to allow other companies to manufacture Mac clones, a strategy that ultimately led to clones stealing 20 percent of Macintosh unit sales. Gilbert Amelio, an Apple director and former semicon- ductor turnaround expert, was asked to reverse the compa- ny’s financial direction. Amelio intended to reposition Apple as a premium brand, but his extensive reorganiza- tions and cost-cutting strategies could not prevent Apple’s stock price from slipping to a new low. However, Amelio’s C256 CASE 32 :: APPLE INC.: WHERE’S THE NEXT INNOVATION? Strategic Management: Text and Cases decision to stop work on a brand-new operating system and jump-start development by using NeXTStep brought Steve Jobs back to Apple in 1997. Steve Jobs’s Return One of Jobs’s first strategies upon his return was to strengthen Apple’s relationships with third-party software developers, including Microsoft. In 1997, Jobs announced an alliance with Microsoft that would allow for the creation of a Mac ver- sion of the popular Microsoft Office software. He also made a concerted effort to woo other developers, such as Adobe, to continue to produce Mac-compatible programs. In late October 2001, Apple released its first major non- computer product—the iPod. This device was an MP3 music player that packed up to 1,000 CD-quality songs into an ultra- portable, 6.5-ounce design: “With iPod, Apple has invented a whole new category of digital music player that lets you put your entire music collection in your pocket and listen to it wherever you go,”

said Steve Jobs. “With iPod, listening to music will never be the same again.”9 This prediction became even truer in 2002, when Apple introduced an iPod that would download from Windows—its first product that did not require a Macintosh computer and thus opened up the Apple “magic” to everyone. In 2003, all iPod products were sold with a Windows version of iTunes, making it even easier to use the device regardless of computer platform. In April 2003, Apple opened the online iTunes Music Store to everyone. This software, downloadable on any com- puter platform, sold individual songs through the iTunes application for 99 cents each. When announced, the iTunes Music Store already had the backing of five major record labels and a catalog of 200,000 songs. Later that year, the iTunes Music Store was selling roughly 500,000 songs a day. In 2003, the iPod was the only portable digital player that could play music purchased from iTunes, and this intended exclusivity helped both products become dominant. After 30 years of carving a niche for itself as the premier provider of technology solutions for graphic artists, Web de- signers, and educators, Apple had reinvented itself as a digital entertainment company, moving beyond the personal com- puter industry. The announcement in 2007 of the iPhone, a product incorporating a wireless phone, a music and video player, and a mobile Internet browsing device, meant Apple was also competing in the cell phone/smartphone industry. That year, Apple changed its name from Apple Computer to Apple Inc. Also introduced in 2007, the iPod Touch incorporated Wi-Fi connectivity, allowing users to purchase and down- load music directly from iTunes without a computer. Then, in 2008 Apple opened the App Store. Users could now pur- chase applications written by third-party developers specifi- cally for the iPhone and iPod Touch. In 2010, Apple launched the large-screen touch-based tablet called the iPad and sold over 2 million of these devices in the first

two months.10 That same year, Apple’s stock value increased to the extent that the company’s

market cap exceeded Microsoft’s, making it the biggest tech company in the world.11 In 2011, Steve Jobs made his last product launch appearance to introduce iCloud, an online storage and syncing service. On October 4, 2011, Apple announced the iPhone 4S, which included “Siri,” the “intelligent software assistant.” The next day, on October 5, came the announcement that Steve Jobs had died. Apple continued to innovate, however, and on September 21, 2012, Apple had its biggest iPhone launch ever with the iPhone

5.12 On September 19, 2012, Apple stock reached $702.10, its highest level to date, which made Apple the most valuable company in the world. 2013 saw the iPhone5C and the high-range iPhone5S, which intro- duced the Touch ID fingerprint recognition system. The iPhone 6 and 6 Plus, with larger displays, faster processors, and support for mobile payments, were

released in Septem- ber 2014.13 The prototype of the Apple Watch was unveiled in 2014. Also introduced in 2014 was Apple Pay, a mobile payment system meant to augment all Apple mobile prod- ucts. February 2015 saw Apple reach the highest market cap of any U.S.-traded company. During 2016 Apple intro- duced Apple Music, a streaming music service meant to take advantage of its already strong relationship with artists and music publishers, and therefore positioned to success- fully compete with Pandora and Spotify. In addition, iPhone 7 and 7 Plus and the Apple Watch Series 2 all had a positive response from customers. Apple products had more than 1 billion users worldwide by the end of 2017. Apple had become a diversified digital entertainment corporation. Back in 2005 analysts believed Apple had “changed the rules of the game for three industries—PCs, consumer electronics, and music and appears to have noth- ing to fear from major

rivals.”14 On top of steady sales of its computers, of the iPod, and of iTunes, the added categories of iPhone and iPad had shown

substantial growth; but by 2013, Samsung had outperformed Apple in worldwide smartphone sales,15 and Google’s Android had captured the largest market share of cell phone operating systems. At the same time, both the Amazon Kindle Fire HD and Microsoft’s Surface tablet had emerged to challenge the iPad. 2015 was marked by competition in the wearable tech space, and 2017 saw the Windows 10 operating system become four times more popular than the macOS, the Microsoft Surface defeating iPad in user satisfaction, and customers frustrated that the MacPro had not yet been redesigned to recover from its 2013 design misstep. Could Apple continue to grow, and, if so, in what categories?

Apple’s Operations Maintaining a competitive edge required more than innova- tive product design. Operational execution was also impor- tant. For instance, while trying to market its increasingly diverse product line, Apple believed that its own retail stores could serve customers better than any third-party retailers. By the beginning of 2019, Apple had 506 stores open, including 234 international

locations.16 Some of Strategic Management: Text and Cases CASE 32 :: APPLE INC.: WHERE’S THE NEXT INNOVATION? C257 these stores worldwide were considered architectural wonders, including the iconic Fifth Avenue glass cube in New York City.

Apple had even received trademark protec- tion for its retail stores’ “distinctive design and layout.”17 Partly due to the appealing design of both the shopping ex- perience and the products being sold within, Apple retail stores had traditionally generated more

sales per square foot than any other U.S. retailer, including its closest luxury rival Tiffany & Co.18

To solidify its supply chain, Apple had entered into mul- tiyear agreements with suppliers of key components. Apple had had

historically excellent margins, partly because of its simpler product line, leading to lower manufacturing costs.19 Apple had outsourced almost all manufacturing and final assembly to its Asian partners, paying close attention to scheduling and quality issues. Outsourcing to Asian manu- facturers was not without its problems, however. In 2012, headlines worldwide exposed China’s Foxconn manufactur- ing facility for labor abuses that led to worker suicide threats. Apple, as well as most other technology companies, used Foxconn facilities to assemble products, including the iPad and iPhone. After the story broke, Apple CEO Tim Cook visited the Foxconn plant and reviewed an audit of working conditions that found violations in wages, overtime, and environmental standards. Apple stated that it remained “committed to the highest standards of social responsibility across our

worldwide supply chain,”20 and Cook announced that Apple would be bringing some of the production of Mac computers back to the United States, starting in 2013. They could do this without affecting the company’s profit- ability, because of automation

cost savings.21

Apple had also historically paid attention to research and development, increasing its R&D investment year after year. In the second quarter of 2019, Apple spent $3.9 billion on R&D, an increase of 1 percent from the previous year. As one of Steve Jobs’s legacies, Apple had traditionally kept the specifics of its research and development a closely guarded secret and fiercely protected its innovative patents. For example, a well-publicized series of lawsuits in 2012 highlighted rifts between Apple and Samsung, who was both a rival and supplier. Samsung smartphones had cap- tured more market share than Apple’s iPhones in the begin- ning of 2012, and Apple argued that Samsung had succeeded with both its phones and tablets

only by copying Apple’s designs. Samsung replied by claiming that Apple had infringed on Samsung’s patents.22 U.S. intellectual property courts found in favor of Apple, but Japanese courts found in favor of Samsung. The threat of ongoing battle meant Apple needed to look for other suppliers of chips and displays. Supply chain watchers pointed out that Apple still had a major challenge finding reliable suppliers for increasingly scarce components, and that the continued reliance on Foxconn as the

sole manufacturer of the iPhone meant that any disruption there could have major conse- quences for delivery.23

Status of Apple’s Business Units in 2019 The Apple Computer Business In the computer market, Apple had always refused to com- pete on price, relying instead on its reliability, design ele- gance, ease of use, and integrated features to win customers. An opportunity for increased market share was realized when Apple began using Intel processors in the iMac desk- top and the MacBook portables, which allowed them to run Microsoft Office and other business software. However, in FY2018 Apple’s worldwide Mac computer sales decreased 5 per

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