Apple’s Growth Strategy: How it Reached US$2 Trillion in Market Value

Apple is an American multinational company headquartered in California, which designs, develops, and sells consumer electronics, computer software, and online services. Founded in 1976, by Steve Jobs, Steve Woznaik, and Ronald Wayne, the company became recognized in delivering a range of technically advanced mobile phones known as iPhones. Following the success of iPhones, the company indulged in the development of other products such as iPad, Airpods, and Apple TV amongst other.  In September 2020, Apple became the first country to enter the US$2 trillion in the world.

In this report, Analytics Insight will analyse different strategies embarked by Apple to increase its business, expand its operations, and become the first country with a US$2 trillion market cap from the year 2016-2019, along with some of the significant achievements made by the company in 2020.

Focus on Decisive Investments

Organizations become lucrative after investing in areas, where the company scrutinize and contemplates growth. Hence, any big tech like Apple formulates all the pros and cons, before indulging into the thought of making big investments. As Apple is being recognized for augmenting their technology, improving products and services, and presenting the customers with an assortment of options, each more suited from the previous one, hence most of the investments are made in the research and development of new apple products. Also, as most of the investment by Apple is not disclosed, different areas and segments of investment could not be tracked down.

In 2016, Apple stated that the company is developing new technologies to enhance existing products thus expanding the range of its product offerings through R&D, licensing of intellectual property and acquisition of third-party businesses and technology. The total research and development expense was compounded to be US$10.0 billion in 2016, while the total cash and short term investment of Apple for the year 2016, accounted at US$67 billion.

Apple's investment continued to grow for the year 2017 as well. For the year 2017, Apple's iPhone business garnered 60% of the total revenue by investing in its phone business. The total R&D expense for 2017, accounted for US$11.6 billion, and was heavily governed by delivering, and licensing intellectual properties, and acquisition of third-party businesses and technology. The intellectual property of Apple includes patents, copyrights, trademarks, service marks and other forms of intellectual property rights. The total cash and short-term investment compounded for US$74 billion.

In 2018, the company made heavy investments in the research and development of its product. The total cost for research and development accounted to be US$14,236 billion, The total investment of the Q2 for the year 2018, valued at US$3.378 billion on research and development.

Apple's investment in the research and development of its products and services increased in 2019, as compared to 2018. The company invested US$16,217 billion for research and development, which was 7.9% of its total revenue according to the reports. As Apple observed a decrease in the sale of the company's major product iPhone, the company then invested more in its core technologies. Apple has also invested US$1billion for purchasing Intel's modem division, thus making this as the largest ever from an employee integration standpoint.

Growing Inorganically through Mergers and Acquisitions

Though there is no magic formula to make acquisitions successful, some of them have the potential to change the course of the main company. Most of the acquisitions or mergers are made in view to augment the performance and offerings of the target company, broaden the market and acquire skills or technologies that will be instrumental in boosting the scalability and provide an edge in the market. While previously critics charged that Apple is too slow to acquire outside companies and new technologies, the company has proved this notion wrong in the past few years. Last year, CEO Tim Cook issued a statement saying Apple purchasing a company every two to three weeks on average. And the reason most of such deals don't come in the limelight is that Apple doesn't announce them since the companies are small and Apple is "primarily looking for talent and intellectual property. In the annals of its history, the most significant acquisition was its US$3 billion purchase of Beats in 2014 and turning it into Apple music.

While the fanfare of Apple always gets excited during any Apple events, especially the iPhone, the recent announcements on the mergers and acquisitions, highlight the company's appetite to emphasize beyond the traditional iPhone market and audience. For instance, one of the main focuses is to expand the AR/VR segment of Apple. Closer scrutiny reveals that the M&A activities have tracked closely with elevated capital expenditure budgets and aims for a win-win scenario.

Starting with 7^th January 2016, Apple acquired Emotient, an emotional intelligence startup that leverages AI to decipher people's emotions by analyzing their facial expressions. This technology is used for detecting a person's emotions at any given moment, in real-time, just by analyzing their facial patterns. One of Emotient's first wearable applications was a Google Glass add-on that the company hoped salespeople could use to judge whether a person actually loves a product or not. Next came Flyby Media, a company that designs technology allowing mobile phones to see and scan, through the camera, the world around them in applications like indoor mapping to driverless cars. Later on 5^th August, Apple bought Turi, an AI startup focused on tools that help enterprises make better sense of data for US$200 million. And the next major AI acquisition was Tuplejump which is an Indian machine learning company that aims to simplify data management technologies and make them extremely simple to use. A Techcrunch report says, Apple wanted this company for its FiloDB project, which was an open-source project that Tuplejump was building to efficiently apply machine learning concepts and analytics to massive amounts of complex data right as it streamed in.

On 24^th September 2018, Apple had completed its acquisition of music recognition service Shazam for US$400 million, after reaching a preliminary agreement in December 2017 and made the Shazam app ad-free for all users. Shazam, which is a fan favorite for music lovers, offers identification of the names and lyrics of songs, music videos, TV shows, and more, simply by listening to and deciphering whatever is playing. Next month, on 11^th October 2018, Apple paid US$600 million to license intellectual property, assets, and talent from English semiconductor manufacturer Dialog. Apple had accounted for 74pc of Dialog's sales in 2016, and the chipmaker had been the exclusive supplier of power management integrated circuits (PMICs) for the iPhone, iPad, and Apple Watch.

From 10^th December 2017 to 19^th January 2018, Apple had acquired a team of data scientists from a company called Silicon Valley Data Science. The startup was described as a company focused on providing data analysis to larger companies "to improve their forecasts, operational efficiency, and customer relationships." Apple confirmed that it acquired Akonia Holographics intending to continue its work on lenses for augmented reality glasses. By then, Akonia Holographics has held some 200 patents related to technologies and displays for augmented reality glasses. Spektral, a Danish startup that specialized in software to digitally steerage people and objects from the background, was also purchased by Apple with merging by 10^th October. Apple's next acquisition of 2018 in AI came on 20^th November, when it acquired Silk Labs, an AI startup focused on software lightweight enough to fit onto consumer hardware like cameras and user privacy.

Apple's list of acquisitions over the past year range includes Drive.ai, IKinema, and more. Drive.ai, a self-driving startup that was founded in 2015 by machine learning researchers from Stanford University under Andrew Ng, specializing in self-driving software systems and intelligent communications systems. Meanwhile, IKinema is a UK-based 3D animation company that develops motion capture technology that could morph video footage of people into animated characters. Apple plans to use this technology to improve its Animoji feature that enables users to transform their faces into characters, including an alien, robot, poop, or an owl.

In January this year, Apple acquired Xnor.ai, a venture-funded startup company established in 2017, for an estimated US$200 million. Xnor.ai offers technology specializing in image recognition and machine learning techniques or algorithms that work locally on mobile devices. It is believed that Xnor.ai models' installation capability on edge devices and Apple's strategy to invest in its products with onboard intelligence that doesn't need cloud servers can bring a new era of edge systems. Another of Apple's most recent acquisitions was the purchase of Dublin AI startup Voysis. Noel Ruane founded Voysis with Peter Cahill in 2012 to help businesses to set up deep-domain, brand-specific intelligent voice systems that can provide users with rich, natural language interactions. Bloomberg reports that Apple plans to use Voysis's offerings to improve Siri's understanding of natural language. Further, technology developed by Voysis can help improve digital assistants in online shopping apps. In June, Apple bought Fleetsmith. This company offers a suite of management and security services that enables its users to oversee their fleet of enterprise devices.

Leveraging Disruptive Technology to Strengthen Product Development

The month of September is infamous for new product launches for Apple. This year the Apple Event took place on 15^th September. While millions of tech enthusiasts and Apple fans waited to get a sneak peek of iPhone 12, the company had some other equally exciting products in the line. In the live webcast, Apple announced the Apple Watch Series 6 (starting price of $399), Apple Watch SE (starting US$279), iPad 8th generation (starting US$329), and iPad Air series (starting at US$599). Besides, Apple announced that by 2030 it would be 100 percent carbon neutral. As part of its efforts to reducing electronic waste, Apple is also removing the power adapters from the Watch box this year. It also launched a fitness service called Fitness+. This feature lets the user choose the workout from the watch, iPhone, iPad, or Apple TV. It shows the user's real-time calories burns, activity rings, and the summary of the entire workout. Further, Apple One subscription bundles were also announced during the event.

Despite the galore of new launches, tech experts were excited by the new Apple A14 Bionic chip. Claimed as Apple's most advanced chip powering the iPad Air, this chip is the first to use breakthrough 5-nanometer process technology, with housing 11.8 billion transistors for increased performance and power efficiency. According to Apple, it delivers a 40 percent CPU performance boost over the previous-generation iPad Air (using a new 6-core design), along with a new 4-core graphics architecture for a 30 percent improvement in graphics. The device also has a USB-C connector, which helps ensure that it works with more third-party accessories. A14 Bionic includes a new 16-core Neural Engine, which is twice as fast and capable of performing up to 11 trillion operations per second, taking machine learning apps to a whole new level. It also includes second-generation machine learning accelerators in the CPU for ten times faster machine learning calculations. This combination of the new Neural Engine, CPU machine learning accelerators, and high-performance GPU enables powerful on-device experiences for image recognition, natural language learning, analyzing motion, etc.

Meanwhile, the new iPad will use A12 Bionic chip for improved performance. As per Apple, this new entry-level iPad offers a 40% GPU boost over the last-generation mode and has a 2X jump in graphics. Not only that, but the A12 Bionic brings Apple's Neural Engine to the entry-level iPad for the first time, enabling more artificial intelligence features. Apple claims it is 2 times faster than the top-selling Windows laptop, 3-times Android tablet, and 6-times than Chromebook.

Apple claims that its latest version of the Apple Watch Series 6 has a sensor that can measure the amount of oxygen in the user's blood. According to Apple, blood oxygen saturation is a good measure of overall respiratory health. Apple will sponsor three studies to validate the feature and its benefits. Also, the S6 chip inside is 20 percent faster than its predecessor and is based on the processor in the iPhone 11. The new processor is also fast enough to handle an always-on altimeter for tracking elevation and the new blood oxygen monitor. The Apple Watch SE will run on the last generation S5 processor.

Geographic Expansion

Apple's Geographic expansion includes sales in the continents, where the company can foster large gains. With the lucrative mindset, the company has expanded its operations in Europe, Japan, Greater China and the Asia Pacific region for Technology.

In April 2020, the company announced its largest geographical expansion ever. The Apple store, Apple Arcade, Apple Music, Apple Podcasts, and iCloud are were made available in 20 more countries with Apple music having the availability in 52 additional countries.

Apple's plan for expansion in Africa gained momentum after the company opened Apple stores, Apple Arcade, Apple Podcasts, and icloud in African countries such as Cameroon, Democratic Republic of Congo, Gabon, Libya, Morocco, Rwanda, Nigeria, Tanzania, and Tunisia. Moreover, the apple store is expanded in 175 countries and regions.

It must be noted that for the year 2019, Apple generated 23% of its revenue from Europe. Apple employs a strong workforce of 22000 employees. It is forecasted that the global market size of Apple will increase by 3.42 million tones during 2020-2024

The future outlook of Apple while providing AI products and services is observed to be optimistic. With Apple entering the US$2 trillion economies, the company will continue to grow in the near future.