CASE 20

APPLE INC. LIMITS TO

On January 3, 2022, Apple became the first company in history to reach a valuation of $3 trillion.
Although the stock did subsequently

retreat slightly from this historical milestone, analysts believed Apple's best days were still ahead.
Citing the continued demand for

Apple products, continued evolution of Apple's services and wearables, its home and accessories
segments, and rumors of Apple's

development of an augmented reality headset and an Apple car, analysts suggested the company
still could "prove the doubters wrong

with the renaissance of growth story playing out in Cupertino."

To market watchers in recent years, it had seemed that the pace of innovation at Apple had slowed
considerably. Since Steve Jobs's death

in 2011, the only totally new physical product launched had been the Apple Watch in 2014. The
iconic iPhone was over ten years old,

and even though upgrades kept customers coming back, competition had eroded Apple's
smartphone market share such that iPhone

revenues had declined 14 percent between 2018 and 2019, if subsequently bouncing back in 2021.
Although holding their own, Mac

computer and iPad sales had fluctuated as well. Apple's FY2021 revenues were up by about 33
percent overall, but 52 percent of that

increase came from services and other products such as the Apple Watch. Revenue from services
alone had almost doubled since 2018.

(See@Exhibits 1 and @ 2.) Instead of creating entirely new products, Apple had continued to revise
and refresh the old product lineup

and appeared to be relying on services and accessories for growth. In this environment, there was
some concern that although research

and development spending had been steady over the years, research output had not produced any
recent meaningful product

breakthroughs other than the Apple Watch. (See@ Exhibits 3-@5.) Was this all a problem?
Tim Cook's tenth year as CEO was 2021. From an investor perspective, what had he accomplished?
Since he was named CEO after

Steve Jobs's death in August 2011, Cook had seen Apple share price rise from S 11.63 to a high of S
182.88 in January 2022, when the

company briefly reached a market capitalization of over $3 trillion. This made Apple the most
valuable company in the world. In
addition, going into 2022 Apple had reported record first quarter growth in all segments except iPad,
with the best all-time overall

revenue of S 123.9 billion, up I I percent year over year. This was the largest single quarterly result
ever in Apple's history, and it was

achieved in spite of supply chain challenges that reduced availability of iPads. Cook reported that
Apple had beat analyst estimates in

every categ01Y except iPads, returning earnings per share of $2.10 versus an estimated $1.89. This
marked a 25 percent EPS increase

year over year. The biggest news was the 25 percent increase in services business, including iCloud,
Apple Music, search licensing and

App Store fees. Services, rather than hardware, was becoming Apple's most profitable business unit.
(See@ Exhibit 6.)

Cook had done what CEOs of public companies are supposed to do—drive up value. But growth
expectations from the flagship products,

iMac, iPad and iPhone, were not matching the growth of services, wearables, home, and accessories
products. Were expectations of
major product 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 already so big that conventional growth strategies—extending product lines,
moving into new territories—would

barely move the needle."2

Apple, Fortune Magazine's "world's most admired company" since 2008,3 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 2022, 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 (Safari web browser) and

online services (iCloud), as well as wearable technology (Apple Watch, AirPods) and home
accessories (HomePod, Beats products),

mobile payment systems (Apple Pay), and a subscription-based music streaming service (Apple
Music). Additional services included

Apple TV+ original content, subscription services Apple Channels, Apple News+ and Apple Arcade for
games, Apple Card, a credit

card stored in Apple Wallet, Apple Fitness, and a way to do contactless financial transactions with
tap-to-pay for iPhone coming in 2022.

In addition, the Apple TV+ Original Films Division had won a 2022 Oscar for its film "CODA." (See@
Exhibit 7.)
As the timeline shows, most of the product innovations occurred after 1998, when Apple was under
Steve Jobs's leadership. The

company's ongoing stated strategy had been to leverage "its unique ability to design and develop its
own operations systems, hardware,

application software and services to provide its customers products and solutions with innovative
design, superior ease-of-use, and

seamless integration." 4 This strategy required not only product design and marketing expertise but
also scrupulous attention to
operational details. Given Apple's global presence in multiple product categories, accelerated
development of service offerings, and the

associated complexity in strategic execution, it appeared CEO Tim Cook had been the right choice at
the right time to keep the company

on an upward trajectow. With rumors of a virtual reality headset in the works and continued activity
focused on autonomous

automobiles, was it possible Apple had not yet reached the limits of its growth?

Page

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 individuals, one person-one computer, and
doing so with elegance of design and

fierce attention to detail. In 1977 the first version of the Apple 11 became the first computer
ordinary people could use right out of the

box, and its instant success 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.

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,S 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 the time was unable to help significantly Apple's failing bottom
line. In addition, Jobs had given Bill
Gates at Microsoft some Macintosh prototypes to use to develop software, and in 1985, Microsoft
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
contributions 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
R&D, way above industry averages,

this was not a sustainable scenario.

Sculley's innovative efforts were not enough to substantially 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 produced a significant price-performance edge over both previous 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 semonductor turnaround expert, was asked to reverse
the company's financial direction.

Amelio intended to reposition Apple as a premium brand, but his extensive reorganizations and cost-
cutting strategies couldn't prevent

Apple's stock price from slipping to a new low. However, Amelio's 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.

One of Jobs's first strategies on 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 version of the popular

Microsoft Offce 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 noncomputer product, the iPod. This device was
an MP3 music player that packed up to 1,000 CD-quality songs into an ultraportable, 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."6 This prediction became even truer in 2002, when
Apple introduced an iPod that would

download from Windows—its first product that didn't 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 computer

Page C 181

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. In 2006 an opportunity for increased
market share was realized when

Apple began using Intel processors in the iMac desktop and the MacBook portables, which allowed
them to run Microsoft Offce and
other business software.

After 30 years of carving a niche for itself as the premier provider of technology solutions for graphic
artists, web designers, and

educators, Apple had reinvented itself as a digital entertainment company, moving beyond the
personal computer industry. The

announcement in 2007 of the iPhone, a product incorporating a wireless phone, a music and video
player which made the iPod

redundant, and a mobile Internet browsing device, meant Apple was also competing in the cell
phone/smartphone industry. Subsequent

smartphone models would increase the quality of the photo and video components to make even
the digital camera or camcorder appear

obsolete. 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 download music directly from

iTunes without a computer. Then, in 2008 Apple opened the App Store. Users could now purchase
applications written by third-party

developers specifically 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, accounting for 95 percent of U.S. tablet computer sales. 7, 8 The iPad tablet computer had
been selected by Time magazine as

one of the 50 Best Inventions of the Year 2010.9 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. 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.

Tim Cook Becomes CEO

After Steve Jobs's death, Apple continued to refine existing products and on September 21, 2012,
Apple had its biggest iPhone launch

ever, with the iPhone 5.11 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
introduced 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

September 2014.12 Regarding innovation, 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 products. February 2015 saw
Apple reach the highest market cap of

any U.S.-traded company.

By July 2016 Apple had sold over I billion iPhones becoming "one of the most important, world-
changing and successful products in

history. Also during 2016 Apple introduced Apple Music, a streaming music service meant to take
advantage of its already strong

relationship with artists and music publishers, and therefore positioned to successfully 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. By the
end of 2017 Apple products had

more than I billion users worldwide. In 2018 Apple moved more into integrated services by releasing
the HomePad smart speaker with

voice control. That year Apple reached S I trillion market value, becoming the largest publicly traded
corporation in the world by market

capitalization.

In 2019 a Channels subscription gave users access to premium network TV, and the News+
subscription gave access to digital magazines

and newspapers while Apple Arcade gave access to games via the App Store. Supporting growth in
financial services, Apple Card

became a credit card stored in Apple Wallet. Also, in 2019 Apple TV+ was created to produce original
content, and its most lauded

production to date, CODA, won an Academy Award in 2022. In 2020 Apple announced the move
away from Intel processors, doing

development in house with the Apple MI. In 2020 Apple also reached $2 trillion market cap, a
position subsequently eclipsed in 2022

when it became the first company in history to reach a valuation of $3 trillion. 2021 saw Fitness+
partnered with the Apple Watch to
give customers access to individualized health data, and its services sector reached a record 745
million paid subscriptions. In 2022

Apple released a Business Essentials subscription senrice for small businesses that allowed for
integrated device management. Apple was

also rated most valuable brand by Interbrand for the 9th consecutive year and Tim Cook marked his
10th year as CEO. In the 2022 first quarter earnings call, Cook reflected on the 15th anniversary of
Steve Jobs's unveiling of the iPhone. Commenting on

how the iPhone, with its iPhone 13 lineup, had set an all-time revenue record, Cook also noted
record revenues set for the Mac, Apple

Watch 7, and services such as the App Store. Commenting on what's to come, and paying attention
to global concerns, Cook said, "We

are gratified to see the response from customers around the world at a time when staying
connected has never been more important. We

are doing all we can to help build a better world—making progress toward our goal of becoming
carbon neutral across our supply chain

and products by 2030 and pushing forward with our work in education and racial equity and
justice."lS

Page CIS2

Competition Catches Up

Apple had become a highly successful diversified digital entertainment corporation. All the way 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 nothing to fear from

major rivals."16 At that time, on top of steady sales of its computers, of the iPod, and of iTunes, the
added categories of iPhone and iPad

went on to show substantial growth, but by 2013, Samsung had outperformed Apple in worldwide
smartphone sales,17 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 with

subsequent entries from the likes of Fitbit, while 2017 saw Windows 10 operating system become
four times more popular than the

macOS, and the Microsoft Surface defeating iPad in user satisfaction.

personal computing devices. Apple's iOS was competing with Microsoft Windows desktop operating
system globally, with Windows

capturing over 87 percent against Apple's 6 percent in the beginning of 2020. Linux and Chrome held
less than 3 percent of the

remaining share at that time, but by the end of 2020 Google's Chrome OS had taken share from both
Microsoft and Apple, making it

the second-most-popular operating system.

Chromebooks were being produced by Lenovo, HP, Dell, Acer and Asus, and had become popular
not only because of price differences

but also portability and ease of use most appreciated due to the COVID-19 impact on school
systems' need to move education into the

home.18 The evolution of this personal computing tool was evident in the numbers from@ Exhibit 8.

An additional alternative to the desktop computer was the all-in-one design as produced by Lenovo,
Dell, and HP, and the "mini" box

that provided the computing power but needed a monitor and keyboard. Apple and HP both
produced minis as the ultimate compact

option. Moving forward, in 2022 news surfaced about Apple's patent filing that appeared to create a
modular design combining the iPad

and MacBook into a single device with interchangeable screens and keyboards. This would take the
concept of a foldable

tablet/notebook device even further than the newest Microsoft Surface.19

By 2022, Apple's biggest global competitor was Samsung, the Korean company whose Samsung
Electronics division produced consumer

electronics (printers, cameras, televisions, speakers, and monitors plus the popular Galaxy
smartphones and tablets) and electronic
components (solid-state drives, lithium-ion batteries, semiconductors, image sensors, camera
modules, and display panels, which it

historically supplied to Apple). Samsung had consistently invested in innovation, and in 2021 was
rated second in the world for

published patent applications.20 Although intense competitors in the mobile phone market, with
third quarter 2021 global market share

favoring Samsung (Samsung 20 percent versus Apple's 14 Samsung had historically been one of
Apple's major suppliers of

memory and other components, prompting Apple CEO Tim Cook to state he was wary of suing
Samsung over its 2011 smartphone

patent infringement for fear of supply chain disruption.22 Apple did ultimately sue Samsung, which
countered. Litigation occurred in

eight different countries with judgments flipping from one to the other from 2011 through 2015. In
the United States, the final settlement

gave Apple an estimated $539 million to settle the claim that Samsung had initially copied Apple in
the early days of smartphone

23

manufacture.

Although Samsung continued to give Apple significant competition in the global market, especially in
smartphones, Apple had

countered with its business model of designing products and services that were all integrated (see@
Exhibit 9). Apple's products

worked so well with each other, if a customer chose the Apple ecosystem it became very diffcult for
them to justify switching to

something else. Buying an iPhone led to integration of products from the App Store, prompting the
additional purchase of an iPad or

Apple Watch for ease of transfer for favored services across devices. Apple's installed base, the
number of users who had chosen the

Apple iOS, had reached 1.8 billion in 2022, and paid subscriptions for services grew by over 165
million in 2021 to a record 785 million

total.24 In addition, although Samsung might have had more patents and therefore higher R&D
spend, Apple had tended to outsource

hardware component production and assembly, keeping initial R&D costs down by carefully
assessing other companies' product
development and then improving on it. The most well-known example of this was how Steve Jobs
redefined the MP3 player when he

introduced the iPod. The company belief was this: Apple does not need to be first. It only needs to
be better.
Reflecting on Apple's historic market capitalization, beating out rivals Microsoft, Alphabet, Amazon
and Tesla, and the boost Pag, C184

that could give the company going beyond 2022, analyst Eric Savitz pointed out, "Apple continues to
innovate, the company

has fanatical customer loyalty, and it continues a shareholder-friendly policy of aggressively buying
back its own shares. If you had to

pick just one tech stock to own for the long haul, many would choose Apple."44 Even factoring in the
movement toward the "metaverse"

and potential development of hardware to access the virtual/augmented reality world, Apple
appeared well positioned to use its business

model to be a major player in that space. As one analyst said, "Mark Zuckerberg may be talking the
most about the metaverse,

but Tim Cook's company might just be the big winner here." G

Other Services: The App Store—Apple Arcade, Apple News+

In its major move into services, in March 2008, Apple announced that it was releasing the iPhone
software development kit (SDK),

allowing developers to create applications for Apple devices and sell these third-party applications
via the Apple App Store. This opened

the window for another group of Apple customers, the application developers, to collaborate with
Apple. Developers could purchase the

iPhone Developer Program and create either free or commercial applications and then submit these
applications to be sold in the App

Store.

Between 2015 and 2020 over 170 billion apps had been downloaded from Apple's App Store, but
Google Play, the app store for Android

users, had grabbed more of the download business.46 The most popular App Store downloads were
games.47 Data showed that 90

percent of mobile time was spent on apps, so this was potentially lucrative business for both the app
developer and the platform host.

Apple capitalized on this by offering Apple Arcade, an ad-free subscription service, providing access
to over 100 exclusive or new games.

Apple was attracting game developers who appreciated the superior iPhone animation technology
and, unlike on the Google Play
platform, Apple had the ability to provide security, protection against malware, counterfeiting, and
piracy. This meant high-quality games

would be available exclusively for Apple products.

Also newly available in 2019 in the App Store was Apple News+, a $9.99 per month subscription to
300 magazines including Time,

Vogue, Popular Science, Sports Illustrated, and Fortune. Premium digital content from The Wall
Street Journal, Los Angeles Times, and

TechCrunch made this an attractive offering.

Apple Pay/Apple Card

Introduced in late 2014, Apple Pay allowed iPhone users in the U.S. to make secure payments for
goods and ser.'ices using their phones.

With over I million credit and debit card activations within the first 72 hours of its release, Apple Pay
was intended to replace the user's

wallet, and, according to CEO Tim Cook, would "forever change the way all of us buy things,"
primarily because the process was more

secure than a traditional card-based transaction. Major retailers such as Macy's, Walgreens,
McDonald's, Whole Foods, and Disney had

all agreed to accept Apple Pay. Apple reportedly received 0.15 percent of each purchase, making the
service a potentially lucrative

venture, but adoption had been poor, with only one-third of iPhone users trying it once or more. In
2019 Apple debuted the Apple Card

in partnership with Mastercard and Goldman Sachs. This was both a digital and physical credit card
option that provided better security

in its physical form, since nothing was printed on the card. The digital card could be used anywhere
Apple Pay was accepted, while the

physical version could be used in other places.

New services scheduled to roll out in 2022 included a "Tap to Pay" feature on iPhones that allowed
for contactless payments, but

analysts were skeptical of Apple's entry into this mobile payment ecosystem, since success was
dependent on collaboration between not

only smartphone manufacturers but also banks, retailers and mobile phone operators, all of whom
needed to see clear value for
themselves in the transition.49 In addition, Apple was moving to make its Wallet act as an
identification credential, linking driver's

license and state ID information. Introduced in Arizona in 2022, this meant residents had an easy,
secure, and private way to present

their ID when traveling. They could tap their iPhone or Apple Watch to be processed through select
TSA security checkpoints without

so

having to unlock their iPhone or show their ID card.

Product Extensions, Growth of Services

Rumors in 2015 surfaced that Apple had acquired resources, primarily engineers and related
technology that would enable it to develop

an automobile, ready for market after 2020. Speculation was that the Apple would not do the actual
assembly, but as with its other

products, would use its sophisticated supply chain expertise to outsource manufacturing, focusing its
considerable innovation skills on

the design and sales ofa product that incorporated Apple technology in multiple configurations. By
2022 Apple appeared to be

designing a fully autonomous vehicle, one that would be self-driving, requiring no interaction with a
driver, no steering wheel or pedals.

This would require the development of a high-powered Apple-designed chip with the ability to
handle the artificial intelligence neural

processing load. CEO Tim Cook called this autonomous system "the mother of all A1 projects," and
the chip "the most advanced

component Apple has designed internally. "52 The Apple Car was targeted for production in 2025.

The other new products under development, with a possible launch date in late 2022, included a
headset for viewing virtual

reality content, similar to Meta's (Facebook) Oculus, with augmented reality glasses, similar to the
abandoned "Google Glass" product,

to come at a later date. The AR glasses would be marketed as an iPhone accessory. Apple was
developing advanced chips to handle

independent computing, and creating a new operating system called "realityOS." Content would be
offered for gaming, streaming video,
and video conferencing. Apple's commitment to these products had been developing since 2015 and
involved acquisitions of over eleven

VR/VR firms to support the needed technology and hardware design, but the original idea had been
credited to Steve Jobs. Since 2008

over ten patents had been filed on design elements, lens adjustments, eye-tracking technology, and
software.S3

Even though existing hardware products were holding their own, analysts were looking to Apple's
services and the wearables, home, and

accessories categories for growth opportunities. While the wearable, home and accessories products
such as Apple Watch, Apple TV,

AirPods and HomePod grew 25 percent in 2021, the services category, which included Apple Pay,
Apple Music, iCloud, iTunes, and the

App Store, grew 27 percent to a record $68.4 million, and accounted for 19 percent of all revenues,
beating every category except the

iPhone. In addition, making this sector more attractive, profit margin estimates averaged almost 70
percent. In January 2022 Apple

reported that in 2021 it had more than 745 million paid subscriptions across the services on its
platform, which was up more than 160

million from 2020, and nearly five times the number of paid subscriptions it had in 2018. Many
analysts had wondered whether Apple

could create "the world's greatest subscription model, where users can opt to have the latest iPhone
and many services for a fixed fee.

This would lock many into its ecosystem and create a constant stream of recurring revenues."SS
Others cautioned that Apple's strength

was in "using the sentices division to boost the sales of the iPhone and keep people locked into an
ever-growing cycle of updated

hardware."S6 This might be Apple's exact intention.

Apple's Operations

Maintaining a competitive edge required more than innovative product design. Operational
execution was also important. For instance,

while trying to market its increasingly diverse product line, Apple believed that its own retail stores
could serve customers better than

57
any third-party retailers. In 2021, Apple had over 510 stores open, across 25 countries, with
approximately 70,000 retail employees.

Some of these stores worldwide were considered architectural wonders, including the iconic Fifth
Avenue glass cube in New York City.

Apple had even received trademark protection for its retail stores' "distinctive design and layout."' 8
In 2022 the Apple Retail Store had

existed for 20 years and had played an increasingly important role in promoting the Apple "lifestyle
experience." The Apple Store had

become a place where customers could not only get customer senrice, product support and
education, but also experience new products. Even in the aftermath of COMD-19, Apple Stores
allowed for enthusiastic brand ambassadors to showcase products and services as well

59

as provide a distribution hub for home delivery of new purchases.

Regarding the widely reported supply chain issues in fall 2021, CEO Cook noted that Q4 had lost
about $6 billion due to supply

constraints affecting the iPhone the iPad, and the Mac. These constraints came from both shortages
of computer chips and COMD-

related manufacturing disruptions in Southeast Asia.60 Although COMD19 had led to supply chain
challenges, Apple had previously

entered into multiyear agreements with suppliers of key components which made it possible to
better manage disruptions. Apple had

61

had historically excellent margins, partly because of its simpler product line, leading to lower
manufacturing costs.

Apple had outsourced almost all manufacturing and final assembly to its Asian partners, paying close
attention to scheduling and quality

issues. Outsourcing to Asian manufacturers was not without its problems, however. In 2012,
headlines worldwide exposed China's

Foxconn manufacturing 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.
„62 and

Apple stated that it remained "committed to the highest standards of social responsibility across our
worldwide supply chain,

Cook announced that Apple would be bringing some of the production of Mac computers back to
the U.S., starting in 2013. They could

63

do this without affecting the company's profitability, because of automation cost savings.

Apple had also historically paid attention to research and development, increasing its R&D
investment year after year. In 2021 Apple

spent $21.9 million or 6 percent of total net sales on R&D, an increase of I 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. However, Apple leadership was the driver of innovation, and under Tim Cook,
operational excellence and fierce

attention to detail had resulted in extraordinary financial performance. In addition, Apple had
maintained a functional organizational

structure where senior vice presidents were in charge of things like design, hardware engineering,
hardware technologies, software,

services, machine learning and A1, and were expected to have deep functional expertise, be able to
immerse themselves in details, and

work collaboratively to coordinate cross-functional development of the best products and services."
Even as it had transitioned itself

over the years, Apple had continued to make things that were innovative and useful, not just useful
but beautiful, "things people just

love. Page CIS6

Commenting on the operational ability needed to steer Apple through its various transitions, Warren
Buffet had said "it's

probably the best business I know in the world," and he said it because although Steve Jobs was the
innovator, the "wild, charismatic

dreamer," the "CEO for an age of revolution," Tim Cook, hand-picked by Jobs because of his deep
knowledge of how Apple really
worked, was the one chosen to carefully manage critical assets, the CEO for evolution, "iteration,
refinement and careful growth." 66

However, Cook, at 60 years old, after ten years in the top job, was having to develop his own
succession plan. Apple watchers were

assuming Cook had already been mentoring someone as deeply integrated as he had been in Apple
overall operations, since operations

67

was perhaps the company's most important division.

This leadership role was not without its controversy. In 2021 there were allegations from female
staff of harassment and pay gaps

compared to their male peers. A group of employees were speaking out about how Apple's famous
secrecy had created a "toxic culture"

that discouraged employees from sharing workplace concerns. This employee activism was unusual
for Apple, but not unexpected in the

tech indusüy, given that employee unrest had emerged at Google and Facebook as well.68 Whoever
took the top job would have to fully

understand Apple's unique culture, and this took time in place and experience in multiple positions.
In addition, corporate leadership in

the 21st century needed to understand social issues and be willing to take a stand as Tim Cook had
since coming out publicly as gay in

2014. CEO Cook had advocated for privacy, sustainability, and human rights, while still pressuring
suppliers to operate "under razor-thin

margins that trickle down to the factory floor.

The Future of Apple

Under Cook, Apple had transitioned itself "from being a hypergrowth company to being a premium,
branded consumer company.

Apple was a truly vertically integrated designer and marketer of products and services. If long-time
Apple fans were not satisfied with the

state of Apple's innovation today, they might have to realize, as former Apple marketing guru Guy
Kawasaki did, that "Apple has

established such high expectations that few other companies can keep up with it—and it's even
difficult for Apple to top itself. This is a
high-quality, though extremely diffcult, problem.... Is Apple simply the best device company or the
best device and services company?

It's trying to be the latter. Will it succeed? It would be foolish to bet against Apple based on my
experience.... If nothing else, Apple

will once again force everyone to improve their game.

Apple's 2021 10K document stated, "the Company's ability to compete successfully depends heavily
on ensuring the continuing and

timely introduction of innovative new products, services and technologies to the marketplace." As
Apple dealt with the worldwide

uncertainty caused by COVID-19, it appeared to demonstrate this ability to innovate around the
world, indicating it did not see any limits to its growth. CEO Tim Cook said this on October 28, 2021,
during the fourth quarter earnings call, while reporting on a year with

33 percent annual growth in spite of the pandemic's negative impact on Apple's supply chains: "we
are determined to be a ripple in the

pond that drives a far greater change. From the pandemic to climate change to inequity and
injustice. Global challenges won't abide

solitary solutions and we feel a deep sense of responsibility to help. We are incredibly proud of the
product lineup we have .

encouraged by the customer response we've seen. And while we cannot know exactly which path
the pandemic will take the world down

in the months to come, we feel quite confident that this new year will be driven by the values that
guide us and by the innovation that

defines us." 73 Did Apple have any limits to its future grovnh?