Apple Inc 2005

9-705-469
REV: AUGUST 4, 2005

DAVID B. YOFFIE

Apple Computer, 2005
In 2004, the iPod dominated media coverage about Apple. With its sleek MP3 player, priced
between $249 and $499, Apple captured the lion’s share of the market. Though the price was on the
high end for portable music players, the iPod offered outstanding quality and ease of use and
weighed only six ounces. Depending onthe model, the iPod could hold up to 10,000 songs. For the
first time in many years, Apple was on a roll. In the fourth quarter of 2004, Apple reported $3.49
billion in sales, its highest quarterly revenue in a decade. Profits also surged, to $295 million.
Looking to 2005, Apple’s CEO, Steve Jobs, faced a familiar problem: every time that Apple had
jumped into the lead in a product categoryduring the past two decades, it had had difficulty in
sustaining its leadership position. The question on Jobs’s mind was: “Will it be different this time?”
Apple’s competitors wondered about that too.

Core Macintosh Business
In 2004, the majority of Apple’s revenue continued to come from its Macintosh business.
However, despite growing sales figures, Apple’s overall market share in PCsworldwide remained
mired between 2% and 3%. (See Exhibit 1 for Apple's share of the worldwide personal computer
market, 1980–2004.) Historically, Apple’s product strategy focused on computers with cutting-edge
design, large displays, and premium prices. Its latest Power Mac, the G5, was introduced in 2003 and
was priced between $1,999 and $2,999. (See Exhibit 2 for personal computer average sellingprice
and units, 2000–2004E.) These new models appealed to customers in Apple’s core business niche, the
graphic design and print publishing markets, where customers were attracted to the performance
gains of the 64-bit architecture and optimized applications. While the G5 processor, running at 2.5
gigahertz (GHz), had closed the gap with Intel-based PCs (running up to 3.8 GHz), it did notmeet the
goal publicly set by Jobs that Apple would deliver “the world’s fastest personal computer.” (See
Exhibit 3 for shipments and installed base of various PC microprocessors, 1992–2004.)
The iMac G5 was launched in 2004, featuring an entire computer mounted in a two-inch-thick
chassis with an integrated monitor. The machine weighed approximately 20 pounds and shared the
sleek look of theiPod, placed on an anodized aluminum stand.1 Apple introduced additional
innovations, including the Apple Cinema Display LCD monitors, which were noted for superior
brightness and viewing angles for monitors of their size.2 The strongest product in 2004 for Apple
was the iBook laptop, which delivered a 74% increase in sales. In the fall of 2004, Apple upgraded the
iBook with a host of newfeatures, including the latest wireless networking.
________________________________________________________________________________________________________________
Professor David B. Yoffie and Research Associate Barbara J. Mack prepared this case. This case was developed from published sources. HBS
cases are developed solely as the basis for class discussion. Cases are not intended to serve asendorsements, sources of primary data, or
illustrations of effective or ineffective management.
Copyright © 2005 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
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Apple Computer, 2005

On the operating system front, Apple had been migrating its installed base to the latest Mac
operating system, OS X, for several years. By 2004, roughly half of all...