Question

It is a strategic management

Question 1: Discuss the business-level and corporate-level strategies of Apple, as discussed in the articles below. Why is Apple pursuing these strategies? Be sure to discuss competitive pressures from Sony as it pursues its strategy. Compel your response with data from the articles.

Article 1:

THE NEWEST NUMBERS ARE IN —While iPhone sales remain stagnant, Apple services hit $10 billion in revenue

Apple announced on its earnings call today that it had surpassed its revenue estimates for Q4 2018. The iPhone maker boasted $62.9 billion in revenue, slightly more than the $60-62 billion it previously estimated, as well as $14.1 billion in profit, up from $11.5 billion in the previous quarter.

"We're thrilled to report another record-breaking quarter that caps a tremendous fiscal 2018, the year in which we shipped our two billionth iOS device, celebrated the 10th anniversary of the App Store, and achieved the strongest revenue and earnings in Apple's history,” Apple CEO Tim Cook said in a statement.Ars Technica

Apple sold 46.8 million iPhones, 9.6 million iPads, and 5.2 million Macs in the final quarter of 2018. While that represents a 14 percent increase in iPhone sales when compared to last quarter, it's about the same number of iPhones sold this time last year. However, year-over-year revenue from iPhone sales was up by 29 percent, thanks to the increase in iPhone prices.

This quarter saw the reveal of the iPhone XS and XS Max, but only a fraction of those sales contribute to these numbers because of the handsets' late release date. The YoY increase mostly comes from the $1,000 iPhone X, which has been the best-selling iPhone since its launch in September 2017. The X continues to sell well enough that Apple moved roughly the same number of iPhones and made nearly 30 percent more. Now, the average sale price for an iPhone is $793, up drastically from $618 in the same quarter last year.

Apple's services business, a constant bright spot in recent quarters, hit a revenue milestone in Q4 2018: $10 billion (it's $9.98 billion to be exact, but Apple rounded up). That's an increase of 27 percent from Q4 2017, in which services including iCloud, Apple Music, the App Store, and others brought in $7.9 billion in revenue.

When asked about how Apple plans to continue growing its services business, CFO Luca Maestri highlighted the "exponential trajectory" of all of Apple's services from Apple Music to the Apple Store to Apple Pay. Maestri also called out Apple's "very large and growing" install base, which is currently at an all-time high. With so many users within the Apple ecosystem, the company now has the opportunity to monetize more services, improve existing services, and add new ones like Apple's Search Ad business on the App Store. Maestri said that the company is on track to double its fiscal 2016 services revenue by 2020.

iPad numbers were lackluster: unit sales were down 16 percent from last quarter, and revenue was down 14 percent as well. That might be due to all the rumors leading up to this week's "special event" in which Apple released the new iPad Pros. Those devices feature all-new designs, a new Apple Pencil, and higher prices to boot. Meanwhile, Mac sales brought in 39 percent more revenue than last quarter, thanks in part to sales of the updated MacBook Pros and the back-to-school season overall.

Apple's "other products" category, which includes the Apple Watch, AirPods, Apple TV, HomePod, and others, saw a 13 percent sequential increase and a 31 percent increase from this time last year. Cook praised the wearables segment (Apple Watch, AirPods, and Beats devices) numerous times on today's call, although Apple still doesn't provide individual product sales numbers for the devices included in that category.

Cook said the company saw an "overwhelmingly positive" response to the Apple Watch Series 4, which debuted in September alongside the iPhone XS and XS Max. When asked about Apple's future in the health care space, Cook said that health is an "area of major interest" for Apple as the company looks to add more health products and services into its business.

Notably, Apple will start treating all of its hardware like it does the "other products" category we're used to seeing in its earnings reports. Apple stated that it will no longer report unit sales for iPhones, iPads, and Macs in future reports. Maestri said that unit sales are "not representative of the underlying strength of our business." Analysts and investors often look to those numbers to determine how well certain devices have sold in comparison to previous quarters and years, and they help calculate average selling prices per product. Apple clearly wants to highlight how much it's making from product sales, without also showing that some devices, like the iPhone, may not be selling as many units as some expected.

Both Apple and investors are looking forward to the first quarter of 2019, which will include holiday sales and more data about iPhone XS, XS Max, and XR sales. Apple set its sights high: it estimates Q1 2019 revenue to be between $89 and $93 billion.

Article 2 - Sony:

Pioneer of Walkman targets premium market dominated by Bose and Beats

TOKYO -- When Ichiro Takagi took over Sony Corp.'s audio business seven years ago, he found the staff took pride in being the global No. 1 in headphones, in terms of units sold. But he was appalled at how many were $10 headphones sold for minimal profit at grocery stores. "What's the point of that? Where's our brand image?" Mr. Takagi recalls telling employees. Fast forward to this fall and the international electronics show in Berlin, where Mr. Takagi was showing off the latest version of his flagship product, a $350 pair of noise-canceling wireless headphones.

The premium-price headphone market has been largely dominated by Bose, the industry pioneer popular with frequent fliers, and Beats, the fashion-savvy brand acquired by Apple Inc. for $3 billion in 2014. All share the challenge of wooing listeners who already get free earbuds with their smartphones.

Sony said in May it has 11% of the headphone market in terms of revenue, the third-largest slice. It didn't name the top two companies.

The audio business -- where Sony has been a player since the 1950s -- is a prime example of how it got back to profitability in recent years, even in a traditional hardware business that once looked like a lost cause. For the year that ended in March, sales for the audio unit rose for the first time in 20 years after having fallen some 80% from the peak.

More important for Chief Executive Kenichiro Yoshida, the home-electronics division, including audio and televisions (another former money loser), posted operating profit of nearly $800 million for the year, helping Sony achieve record overall profit. Mr. Yoshida is hoping roughly to match that record in the current fiscal year: Quarterly earnings coming Tuesday will give a progress report. The rise of Spotify Technology SA and other music services has been good for headphone makers, increasing the time consumers spend listening on the go. Streaming companies such as Spotify and France-based Deezer offer high-resolution services that have expanded the market for higher-quality headphones costing hundreds or even thousands of dollars. Recent product releases by Sony include a $280 pair of earphones; an $8,500 portable music player targeted at audiophiles goes on sale in December, with a gold-plated volume controller and a battery system designed to reduce noise.

In the first generation of portable MP3 music players, "the quality of the music sources was poor," Sony audio executive Yoshinori Matsumoto said. "We couldn't push high-end listening devices because they would highlight the coarseness." Now, better technology has "made high-quality music more accessible both to customers and creators," he said.

Audio has paralleled Sony's highs and lows through its 72-year history. The Walkman in 1979 set off a revolution in portable electronic devices, with Sony in the lead. But in the 2000s, Sony let Apple and the iPod seize the dominant position. By 2011, the Tokyo company was nearly giving up on its old hardware products. "The attitude of management at that time was like, 'If you're so-so, that's fine,' " Mr. Takagi, the audio-unit chief, said. That changed under then Chief Executive Kazuo Hirai, who took over in 2012, and Mr. Yoshida, who was chief financial officer under Mr. Hirai and became CEO this year. They pushed the audio team to drop cheap products and focus on a few high-end models.

Mr. Takagi says the new management scrapped an organizational chart that had separate groups of engineers focusing on subcategories like car audio. "I told them to look around the whole industry to come up with products that consumers are willing to pay extra for," he said.

Sony says the $350 headphones can detect the owner's facial shape, hairstyle and presence of glasses, as well as pressure changes in an airplane, all to optimize the noise-canceling feature. "Our latest model is distinctly the best in terms of noise-canceling technology," says Mr. Takagi, who is in the habit of visiting electronics stores to eavesdrop on what customers are saying to salespeople. "It's obvious if you ask your ears."

Another Sony rival, especially for younger customers, is Beats. Mr. Matsumoto says the competition has led Sony to stress fashion as well as sound quality. "In China, headphones have become part of the outfit for young people, and they have to have a style that people want to wear all the time, even when they are not listening," he said.

Mr. Takagi said there is more innovation to come, such as headsets that stream music from the internet on their own without having to be hooked up to a smartphone. "Audio will remain a profitable business so long as we keep listening to music," Mr. Takagi said. "If we remain as a strong and respected player in the industry, then the whole company will be too because audio is the origin of Sony."

Answer 1

According to me, Apple has the fantastic opportunity of having some of the brightest minds in the world leading their company. The strategies being undertaken by Apple are exemplery and praise worthy. It is a fact that currently, Apple is no longer the technology pioneer of the world. Companies from all over the world, especially from the eastern countries (such as Samsung and Sony) have developed their own technological capabilities to develop products of similar or even better quality (debatable). Apple's management knows this, and hence they have taken up the step of focussing on other potentially profitable areas.

The market for iPhones (in terms of number of units sold) is almost saturated. The latest generation of iPhones already have almost all the features which can be potentially placed in a phone. Hence the focus has been shifted to make the services (such as Apple music and Apple pay) profitable to enjoy long term benefits.In management terms, it is called vertical intergration. Apple has been simlutaneously differentiating themselves from their competitors by offering a bundle of services which no other company provides right now. This differentiation strategy is helping Apple develop a thriving ecosystem where the apps and data are free flowing and connected across all Apple products. Thus, a mixture of vertical intergration (entering new markets like wearables, home products etc.) and differentiation (developing a thriving ecosystem) is an integral part of Apple being the world's first trillion dollar company and posting record revenue figures every quarter.

With a 11% market share (which is pretty significant), Sony is the third largest behind only Bose and Beats (Apple owned). As mentioned in the article, the new CEO of Sony Audio took the best possible strategy of product differentiation. By this strategy, the profitability of each unit of Sony headphones is greatly enhanced (which helped gain record revenues along with helping the brand reclaim a portion of their lost brand image). This turnaround puts Sony in direct competition with Beats and Bose for the premium music customers in the market. In China (traditionally a market for Sony), with many youngsters focussing on fashion, Sony took the startegy of developing products which appeal to these customers. This puts it in direct competition with Apple's Beats (focusses on the youger and visual appeal savvy crowd). Apple is aware of the threat from Sony, but with their investments in developing their ecosystem, Apple can surely hope to maintain their market share, provided their branding is consistent along with quality. A cost differentiation strategy won't work for both companies (Sony has already tried it). With the level of innovation involved, I would suggest the price skimming strategy to be better.