Apple in 2006

9-706-496
REV: MAY 30, 2007

DAVID B. YOFFIE MICHAEL SLIND

Apple Computer, 2006
Early in 2006, following a surge in the stock price for Apple Computer, CEO Steve Jobs savored a moment of triumph over one of his chief rivals in the personal computer (PC) industry. In an e-mail to his employees, he quipped that “Michael Dell wasn't perfect at predicting the future. Based on today's stockmarket close, Apple is worth more than Dell [Inc., Dell’s namesake company]. Stocks go up and down, and things may be different tomorrow, but I thought it was worth a moment of reflection today.”1 Back in 1997, not long before Jobs returned to the company that he had founded, Dell had recommended that Apple throw in the proverbial towel: “I’d shut it down and give the money back to theshareholders.”2 Dell’s remark was not without warrant. Apple had just gone through five years of turmoil. But not quite a decade later, Apple was riding high. In the fiscal year 2005, it posted $1.3 billion in net income on $13.9 billion in sales, and recorded an operating margin of 11.8%. Since 2001, its sales had grown at a compound annual rate of 27%. Early in 2006, its stock was trading at an all-time high of$86 a share—up from its 1997 low of $7.3 Jobs had made several dramatic moves since returning to Apple. He had pushed the company to turn out innovative products, such as the iMac and the OS X operating system. He had launched the Apple retail chain and had accelerated the outsourcing of key manufacturing tasks. In 2005, he announced an especially striking shift: Apple would source chips fromIntel, a company that (along with Microsoft) had formed the basis of its main platform competitor.4 Through all of these changes, Apple retained a core of fervent customers, although its PC market share remained low. Meanwhile, with its profit-fueling iPod product line, Apple had ventured aggressively into areas that seemed distant from its traditional focus on designing and selling Macintoshcomputers. Jobs faced a new variation on an old question: Was Apple’s recent success merely another blip in the company’s up and down history, or had Jobs finally found a sustainable strategy?

Apple’s History
Steve Jobs and Steve Wozniak, a pair of 20-something college dropouts, founded Apple Computer on April Fool’s Day, 1976.5 Working out of the Jobs family’s garage in Los Altos, California, theybuilt a computer circuit board that they named the Apple I. Within several months, they had made 200 sales and taken on a new partner—A.C. “Mike” Markkula, Jr., a freshly minted millionaire who had retired from Intel at the age of 33. Markkula, who was instrumental in attracting venture capital, was
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Professor David B. Yoffie and Research Associate Michael Slind prepared this case from published sources. This case derives from earlier cases, including “Apple Computer 2002,” HBS No. 702-469, by Professor David B. Yoffie and Research Associate Yusi Wang, and “Apple Computer, 2005,” HBS No. 705-469, by Professor David B. Yoffie. HBS cases are developed solely as the basis forclass discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2006, 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No partof this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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Apple Computer, 2006

the experienced businessman on the team; Wozniak was the technical genius; and Jobs was the visionary who...