Instability in the global economic factors materially affects the companys operations adversely. The changes affect Apple products expected demand which consequently surges down. The global and regional energy costs especially fuel costs increase the operation costs, reducing the expected returns. Banking and financial recessions materially shrink the returns, for instance, the 2008 housing bubble, notably reduced both the sales volume and operation income.
The global computing technology has giant competitors. The companys products are traded among a saturated market. The company has been selling through continuous product features improvement and price cutting. The product life cycles are very short, therefore adversely placing management pressure on the gross margin and returns. The company has lengthened the products life cycles through continuous development and features advancing. Besides, Apple is on a streak of introducing new products in the market. It has diversified to various market segments.
In the personal computers market, the company is authorized to manufacture hardware with OS X, which has a minority market dominance. However, the company produces PC which allows Windows OS installation; this has improved the products revenue and global market (Went, 2011).
Apples products have a global market. Therefore, the company intensely depend on distributor and carriers performance. Fluctuation in the carrier industry notably poses adverse effect on the company. The company can reduce the distribution costs and risk through upward integration.
Ability to maintain the Frequency of introducing new products.
The PC global market is highly volatile. New models are hitting the market at an amazing frequency. Apple has a significant brand loyalty which remains to be volatile. The company needs to maintain its sales revenue and return growth. It has billions of dollars invested in hatching new products. The technology labs ability to maintain the desired level of innovation, nobility and creativity are not guaranteed. The company can, therefore, hedge this risk through a partnership with complimenting product producers, as well as roll a takeover of undervalued competitors. This will diversify the market as well as increase the market share. Besides the company will enjoy synergy presented by the strategic business combination (Nwogugu, n.d.).
Apple operations involve mass inventory and high-value assets especially the manufacturing plant. The company stands on billions of dollars worth manufacturing system; these high-value assets pose impairment risks. Variations in the market leave the assets idle, as well as an idle workforce. To reduce the asset risks, the company should improve the inventory management system, stabilize arrangement with supplies as well as improve the manufacturing plant maintenance and safety.
Beta is 1.47277, cost of Equity= 6.60%, required rate of return of 12%, market risk premium given is 10.5%.
Went, P. (2011). Analyzing Risks And Returns In Emerging Equity Markets. Journal Of Business & Economics Research (JBER), 5(8). http://dx.doi.org/10.19030/jber.v5i8.2565
Nwogugu, M. The Case of Apple Computers, Inc.: Failed Strategic Alliances, Corporate Governance and Risk Management. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.2622286
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