Apple has an "i" for revolutionary technology. Since its release, the company's iPhone has spurred a revolution in cell phones and mobile computing. It also continues to innovate its core Mac desktop and laptop computers, all of which feature its OS X operating system, including the iMac all-in-one desktop for the consumer and education markets, the MacBook Air ultra-portable laptop, and the high-end Mac Pro and MacBook Pro for consumers and professionals. Apple scored a runaway hit with its digital music players (iPod) and online music store (iTunes). Its iPad tablet computer has become another game-changer in the consumer market. Apple gets nearly 40% of sales from customers in the US.
Apple's high-profile co-founder and former CEO Steve Jobs died on October 5, 2011. Earlier that year Jobs had begun an indefinite leave of absence to deal with ongoing health problems before finally stepping down as CEO but retaining the chairman title. Tim Cook, who handled the company's day-to-day operations as COO during Jobs' leave, was named CEO. Jobs left Apple with a stable of innovative products and a revolutionary distribution system for applications that continues to stimulate demand for those products.
Also in October 2011, Apple released its iCloud offering, a set of free cloud services used to automatically and wirelessly store content and push it to multiple iOS (Apple's mobile operating system) devices, as well as Mac and Windows-based computers. iCloud enables simplified convergence among the many Apple devices, encouraging consumer loyalty to the brand. Among one of its benefits is that calendars, contacts, and e-mail are updated across all devices without the need to separately synchronize the data.
After emerging from the global recession with increased sales and profits in fiscal 2010, Apple continued to shine with overall sales that increased by two-thirds in 2011 and net income nearly double that of the prior period. Double-digit growth continues to be the norm for most of Apple's product lines. Sales of the iPhone and related products were up by 87% for the year, down slightly from 90% increases recorded in the prior two years. The main driver behind the company's sales growth in 2011, however, was the iPad; its sales rose more than 300% in 2011 to become Apple's third largest product line. Only the iPod saw sales decline for the year (by 10%), though it still managed to bring in a sales per unit increase as the product mix shifted toward the higher-margin iPod touch.
It was in 2010 that Apple first saw sales of the iPhone overtake personal computers as its largest product line; in 2011 iPhones and related products accounted for 43% of revenues. Initially launched in 2007, the iPhone combines features of a high-end handset with those of an iPod. Having already captured a significant share of the US smartphone market (where it competes primarily with RIM and a growing array of phones based on Google's Android operating system), the iPhone has received regular updates that include additional features, faster network speed, and lower price tags. The iPhone 4 was introduced in mid-2010, featuring video calling, high-definition video recording, a front-facing camera, and its new A4 processor. The following year, the iPhone 4S was released, adding a voice-activated personal assistant (Siri), as well as improved camera and high-definition video recording features.
One complaint about the iPhone was that it was only available for use with AT&T, which was named the exclusive carrier for the phone in the US market when it was released. In 2011 the iPhone became available on the Verizon Wireless network, substantially increasing its reach across the US. Apple also continued to expand international distribution, adding new carriers and resellers. Its carrier partners (which are not exclusive) include China Unicom, Deutsche Telekom, and O2. In 2011, Apple distributed the iPhone in 105 countries through some 225 carriers. The company is seeing increased competition in the smartphone market, with some consumers finding merit in handsets that are not tied to a specific carrier, especially considering the proliferation of websites offering applications for alternative smartphones.
Once the world's top PC maker, Apple was relegated to relative niche status in a market dominated by Microsoft Windows-based PCs. The company continues to lead the market in terms of design innovation, though in 2011 personal computers made up only about 20% of sales, a number that has continued to fall over the years. Apple's computers run its proprietary UNIX-based operating system, and the company cites the integration and interoperability of its hardware and software as the key advantage over Windows-based PCs. Sales of its portable systems were up 36% in 2011 due to higher demand for its newly updated MacBook Air and MacBook Pro systems.
The uniqueness of Apple's computers is a double-edged sword for the company. The graphical interface and form factor of Apple's computers reflect the aesthetic of Jobs, who had long championed the importance of visually attractive, user-friendly design. The features that distinguish Macs allowed the company to maintain a loyal following willing to pay premium prices and overlook any interoperability issues with Windows (a factor that Apple largely addressed with its OS X operating system). However, despite market share gains made in recent years, Apple still trails top Windows-based PC vendors, such as Hewlett-Packard and Dell. Building on the success of its App Stores for the iPhone, iPad, and iPod touch, the company launched the Mac App Store, which features both Apple and third-party software applications, in early 2011. More than a million apps were downloaded from the Mac App Store in its first day.
Another transformative product, the iPad fills a market niche between notebook computers, e-book readers, and smartphones. With its slightly larger touchscreen display, the tablet has a number of functions, such as playing games, music, movies, and videos; accessing the Web; keeping up with e-mail; and serving as an e-reader for books and periodicals. The company also unveiled iBookstore, used to buy and store e-books. In its first year, 2010, the iPad brought in around $5 billion in sales; the following year, the iPad and related products and services accounted for more than $20 billion in sales.
Only the late Jobs may have expected the level of success enjoyed by the company's music-related products. In 2011, sales of the iPod and other music-related products and services accounted for 13% of sales, a decrease of 7% over the prior year. The iTunes Store, App Store, iBookstore, and an expanding amount of third-party audio and video content available for sale and rent through iTunes, contributed growth of 33% in 2011 over the prior year. Some of the continued popularity of Apple's products can be attributed to interest in digital downloads available for its product lines. It didn't hurt that the Beatles catalog became available on iTunes late in 2010.
Since its debut, Apple has provided regular feature updates to the iPod, including touchscreen displays and wireless capabilities. It also launched an online music service called iTunes Music Store that lets computer users purchase and download songs for 99 cents each. Apple later expanded the online offerings to include music videos, audio books, movies, television shows, and other content, as well as international versions of its music store. In 2008 Apple became the top music retailer by volume in the US market, surpassing Wal-Mart. The following year it rolled out a demand-based price model (69 cents, 99 cents, $1.29) for music downloads; it also removed the digital rights management (DRM) protection that essentially restricted the use of iTunes downloads on non-Apple devices.
Apple opened another online market in 2008, the App Store, to provide free and paid applications created by third-party software developers for the iPhone and the iPod touch. Taking a 30% cut from sales of third-party apps, Apple created another revenue stream through the App Store, which the company tightly controls. In another effort to boost brand awareness and its appeal among consumers, the company operates some 245 Apple retail stores in the US and 112 stores in other countries. Apple generates around 13% of its sales through its retail channel.
Apple's FileMaker subsidiary provides database software. Apple also offers application software that includes iWork (productivity suite), Garage Band (consumer music creation), Final Cut (video film and editing), and Logic Studio (high-end audio recording and production), among others.
Always a secretive company about its product designs, Apple has brought some chip design expertise in-house to reduce its dependence on outside semiconductor suppliers. Its 2010 purchase of Intrinsity, a provider of chip design software, was intended to support this strategy. The company still relies on silicon foundries (contract semiconductor manufacturers) for the physical fabrication of its chips, but the moves mean fewer outsiders will be involved in future designs of the iPad, the iPhone, and other mobile devices. Apple outsources production of hardware products to a few partners, primarily Hon Hai Precision Industry and Quanta Computer.
In 2011 Apple was part of a consortium that paid $4.5 billion for some 6,000 patents and patent applications from Nortel Networks covering data networking, Internet, optical, semiconductor, voice, wireless, and wireless 4G technologies; additional members of the consortium included EMC, Microsoft, and Sony, among others. With the proliferation of mobile devices comes the need for companies to have access to, if not outright ownership of, a cache of intellectual property related to next-generation wireless technology. The Apple-Microsoft consortium beat out an alliance between Intel and Google, whose $900 million started the bidding war.
Apple shares a long and thorny history with Microsoft. Although it provides an alternative to Microsoft's omnipresent operating system, Apple's relative size and market share restrict its threat to the software giant's stranglehold. The companies long maintained a working relationship; the Mac-compatible version of Microsoft's popular Office suite is a key software title for Apple, and Apple scored crossover hits with Windows-friendly editions of iPod and iTunes. Soon after Apple released its Safari Web browser, however, Microsoft announced it would cease development of the Apple version of its Internet Explorer. In 2006 Apple released software that allows its computers to run Microsoft's XP operating system. Microsoft, meanwhile, tried unsuccessfully to emulate Apple's success with digital music players by marketing the Zune portable media player product.