Synopsis
The company has launched a new model of the iPhone and has reported revenues of $265.6 billion in 2018; Apple Inc is certainly considered one of the most profitable companies in the world. With a major chunk of the market owned in the US Smartphone market and the global market as well, the company is vulnerable to several political, economic, social, legal and environmental factors. The PESTLE analysis shows how potential factors in the external environment can impact the profitability of the company. Furthermore, it is shown that the iPhone 6s and 6s+ are the best-selling phones among all iPhones. However, the iPhone X has been the most profit earning iPhone until now. The company profitability best metric would be the return on invested capital or the return on equity, however, for product profitability; the best profitability metric would be the profit margin as it takes into account all operating and non-operating costs of the product. Furthermore, the decision of launching multiple models of the iPhone is based on giving the latest technology to consumers and attending to changing consumer needs and demands. Furthermore, selling one model of iPhone would not help in earning higher profits and revenues for the company. Assuming all models’ demand is unlimited, and the skilled labor is limited, it would be the most efficient way to manufacture and sell iPhone X as it is a most profitable phone.
PESTLE Analysis
Apple Inc has branched out recently in information and entertainment services. The company is now one of the largest retailers of music, software solutions, streaming videos, and Smartphone applications. The company, despite its uniqueness, has been successful in operating in its business model. The company has launched a new model of the iPhone and has reported revenues of $265.6 billion in 2018. The impact of the political, economic, social, legal and environmental factors is instrumental in defining the current and future scenario of the company.
Political
Being one of the main technology companies, the company has large cash reserves. The company had $34.7 billion in its bank as of 2015 in June. The high cash and bank reserves have called for the taxation to be higher in the US for the cause of generating more equality. It has become more of a political issue. The Apple Company is also dependent on the Chinese plants lower manufacturing costs. The political and social unrest in these manufacturing plants would mean the loss for Apple Inc. The alternatives of the Chinese manufacturing plant would raise more costs which can lead to higher prices for the company products. The company’s dependence on one source of manufacturing plants and suppliers makes it vulnerable. It can also become the target of the rising anti-US emotions in China reducing its market share. The close association of Apple with China has on the other side become a problem for Apple in the US and Japanese market. The dominant position of Apple in the music field would be a reason for raising political pressure on the company. The company can limit its market share with antitrust issues with its dominant position in the music industry.
Economic
The labor costs of China are one of the main cost advantages of Apple products which, if changed can drastically affect its business model and profitability. The middle-class income holders of the developed companies are stagnating in numbers which can affect the affordability of Apple Inc. The exchange rate and changes in the Dollar value and Chinese currency can have a huge impact on the company financial position and profitability.
Social
The social factors which are of importance for the Apple Company can be the consumer spending patterns of the potential market for Apple. For instance, the African continent is going to witness the biggest growth in consumer spending in the coming years, which is not a familiar market for Apple. The other markets like the US which has the established branding of Apple do not have such emotional attachment with Apple that it cannot lose its market to a competitor. The ethical concerns regarding the low wage of Chinese manufacturing plants have caused many of its customers to shift to other companies. The close association of the Apple Company with China also has the potential of offending the other regional customers in case tension arises among regions. The marketing strategy of Apple music is also considered to have caused resentment among the public for the criticism it faced from the recording stars (Lombardo, 2015).
Technological
The company Apple Inc operates in one of the most competitive markets, which has competitors like Google, Samsung, etc. These competitors have shown a strong ability to replicate the services and products of Apple and in fewer prices. Google replicated the payment app in less than one year. It shows that all technology is not unique and needs to be updated and innovated constantly. The focus of Apple Inc on consumer products can limit it as the number of technological consumer products is limited. The Apple TV is one such example. The growing number of Smartphone is a threat for Apple Mac and iPhone. The operating system of Apple is also showing its limitation in adapting to other systems. Cybercriminals and their rising ability is another important threat which needs to be considered to make the system of Apple more secure.
Legal
The company Apple has recently started operating in the financial services industry as well through its Apple Pay application. The company can now be exposed to increased regulations and oversight of the government. The company also has to face increased litigation. The company is also looking into entering the automobile sector which can further induce more regulations, costs of litigation and insurance. Apple Inc has to be constantly up to date on its intellectual property laws as most of its products and software’s are patented. It makes it challengeable through litigation and piracy.
Environmental
The environment has become important for all businesses with the rising increase of awareness among its consumers. The biggest issue in this regard faced by Apple is the disposal of the non-working devices of Apple electronics. The disposing costs can be high as well. The company can be forced to bear the expense of disposing of over raised concerns. The manufacturing facilities cause environmental side effects and pollution, which is a growing concern in China. It can lead to increased costs for manufacturing and regulations. The efforts for reducing carbon footprint and greenhouse effects have increased the rates for electricity and manufacturing for Apple in China. Increased regulation can also occur with the rising concerns over the effects of data centers and high energy consumption. The dependence of Apple Inc on the infrastructure, internet and data centers makes it vulnerable to high electricity costs and high manufacturing costs as well (Lombardo, 2015).
Profitability of iPhone Model
A report has shown that global Smartphone profits have declined by 1% as the market is maturing. However, the report showed that eight of the ten top phones by profit are owned by Apple. It is not much to say as it is known that Apple has the most expensive phones. iPhone X is until now the most expensive phones with 35% of the Smartphone profits globally which is followed by the iPhone 8 and 8 plus. The iPhone 7 and 7 pus follows their suit with Galaxy note 8. Apple captures about 51% of the global market revenue from Smartphone. The revenue is three times more than Samsung. The company has about 86% of the total global profits from smartphones (Koetsier, 2018).
If it is to be found that which of the phones of the Apple were mostly sold, then the answer is not iPhone X. iPhone X holds the major profits because it was the most expensive. However, the iPhone 6 was the one which was mostly sold more than the 21% of the 728 million of the iPhone which are active. The sales figures make the iPhone model 6s the most popular of the iPhone models. The iPhone 6 is the best-selling phone of all time. The iPhone 6 generated 71.5 million of its unit sales three months after its launch.
The iPhone 6+ was the second best-selling iPhone of all time. The reason for its higher profitability could be given to the fact that it was one of the first redesigns which Apple had done in years. Also, this phone did not cost as much as iPhone X does now. Altogether with the fact that the iPhone 7 and the altogether the same show why iPhone 6 is the best-selling. iPhone 7 and 8 were not as good as 7. While iPhone X is better, it is way too expensive, making the iPhone 6 the perfect choice in comparison (Goodwin, 2018).
Best Metric for Gauging Profitability
The profitability metrics asks questions about the financial performance of the company and about its financial position at the time. The company is making good use of its debt, assets, and equities or not, the company is going to survive, and will it grow or not, the company discussed is going to be profitable or not. These are the questions which are answered by using the metric of profitability. The scholars have explained the profit-making company’s highest aim to be increasing the value of their owners.
These companies pursue the goal of earning profits for their owners. These earnings can be used to increase the owner’s value further. It can be done by paying the earnings in the form of dividends or by investing the earnings in the company and showing it as retained earnings (Hopper, Lassou, & Soobaroyen, 2017). It shows that the company main reason is to earn profits and its operating margcompany’sures this. Three metrics of profitability include the earnings margin as a percentage of the revenue (Dauth, Pronobis, & Schmid, 2017).
Then there are also four metrics which are kind of investment metrics as they compare the assets and equities with the earnings of the company to gauge its profitability. The first three profitability margins include the gross profit margin, the operating margin, and profit margin. The investment profitability metrics include the returns on total assets, capital employed, equity and the earnings per share.
Profitability is the ability of the company to earn, which is measured as a ratio of the total net sales vearn,. The best metrics in the case of gauging the profitability of a product would be to look at its profit margin. The Returns on investment and asset would be considered a better profitability ratio by many, however, regarding products, one cannot identify the assets utilized or equity utilized to one product, thus returns comparison with these particulars is nearly impossible. It leaves us with the profit margin ratio. For various cost levels, the various margins can be used. However, the profit margin takes into account all the operating and non-operating costs. Thus, it would be considered as the best profitability metrics (Schmidt, 2018).
Plan for Profit Maximization
If the demand for all the iPhone models is considered as unlimited, and the skilled labor limitation is considered, then the plan for maximum profit would follow the production of that one iPhone which has been the most profitable among all. Apple Inc has been launching several models of phone to cater to the various demands of the consumers. If this factor is assumed unlimited, then it means that whatever the model is, the sales would equal to total produced units (Georgescu & Cotlet, 2017). It means that the maximum profit will be yielded when the company is producing and selling the product’s model which has the highest contribution margin or the lowest costs or the highest profit margin. It has been discussed earlier that the company iPhone X has been the most profitable among all of its models. The company’s iPhone X has been the most successful in creating profits as the company has launched it with the highest price until now. The high price of the iPhone has also led the company to have the highest and largest profits, globally until now in all of the smartphones ever sold.
The rationale for Multiple Models of iPhone
The companies have always been aggressive in launching more models of its phones to cater to the various customer tastes. Every three in the ten people get their new phones as their last ones are lost or broken. While there are also the ones who want to have the updates one, the mobile phone industry becomes obsolete in months with the launch of the next big thing. This trend with having the newest model of the phone in hand and having the latest technology has led companies to update their phones and launch multiple models of phones constantly.
Apple Inc has been quite consistent in launching one phone at a time or 2 phones at a time in one year. This trend is the humblest one in all phone models launching regarding the quantity of models. However, still, the reason for the launch of a new iPhone model every New Year is much needed (Boztas, 2016). The reasons behind can be traced back to the drive behind the latest developments in technology or making new sales to earn more profits and to give the customers the latest technology in hand. IT is also for the cause of making further improvements to the last model that was launched.
Conclusion
Concluding, it can be said that Apple Inc being the most profitable iPhone owner and being the largest phone manufacturer globally and, in the US, has shown how its products are profitable in profit margins, while other products are earning more revenue from more sales. The iPhone model 6s and 6s+ have been the best-selling phone with the highest of the unit sales in all iPhone sales. While the iPhone X has caught the rank of earning the highest profits for any Smartphone until now, this is because it is the most expensive iPhone launched until now. Assuming that the company has unlimited demand, the company would certainly go on to develop the iPhone X more as it earns more profit margin. Furthermore, the profitability of the product may be seen in variant methods; however, the profit margin is the best metric for gauging the profitability of a product.
References
Boztas, S. (2016, August 15). Phone companies release too many new models, say consumers. https://www.theguardian.com/sustainable-business/2016/aug/15/phone-companies-release-too-many-new-models-consumer-survey-greenpeace
Dauth, T., Pronobis, P., & Schmid, S. (2017). Exploring the link between internationalization of top management and accounting quality: The CFO’s international experience matters. International Business Review, 26(2017), 71-88.
Georgescu, D., & Cotlet, B.-P. (2017). The challenges of globalization on the accounting information. Revista Economica, 69(5), 45-54.
Goodwin, R. (2018, Septmeber 12). What’s The Most Popular iPhone Model Is? (Hint: It’s NOT iPhone X). https://www.knowyourmobile.com/mobile-phones/apple-iphone-6/24999/whats-1-most-popular-iphone-model-hint-its-not-iphone-x
Hopper, T., Lassou, P., & Soobaroyen, T. (2017). Globalisation, accounting and developing countries. Critical Perspectives on Accounting, 43(2017), 125-148.
Koetsier, J. (2018, April 18). 8 Of The Top 10 Most Profitable Smartphones On The Planet Are Made By Apple. https://www.forbes.com/sites/johnkoetsier/
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Lombardo, J. (2015). Apple Inc. PESTLE Analysis. http://panmore.com/apple-inc-pestel-pestle-analysis-recommendations
Schmidt, M. (2018). Business Encyclopedia. Solutions Matrix Ltd.
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