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Apple Computers

BADM 470-01 Assignment #4 November 24th, 2005 Olivia Lam Raymond Chow Samer Dabboussi Cissy Lei

Executive Summary

Apple is a product-cycle-driven company. If it introduces the appropriate products, it will gain share in the consumer market, even if that market is flat year after year. Apple has developed a set of strategies, which will continue to grow its base of Mac users and Apple consumers over time. Apple has faced challenges competing in an extremely competitive market. However the company has overcome the majority of these challenges by changing strategic focus and entering the high end consumer market. Overall Apple has pulled itself out of maturity/decline back into the growth stage. An important element of Apple is its ability to differentiate itself from its competitors with the combination of introducing new innovative products and implementing aggressive marketing tactics. If Apple continues to improve their strategic management, marketing, human resources, production, and financial position, they will be successful in catering to their target market.


Company History

On April 1 1976, Steven Wozniak and Steven Jobs had decided to sell the machine named Apple I, designed by Wozniak. It was not until 1977 when Apple II was introduce at local computer trade shows that people actually notice it. The Apple II was an impressive machine that came in a plastic case and includes color graphics. With the invention of the inexpensive Apple Disk II (floppy drive), Apple sales has further increased ever since. In 1980, when Apple III was released, the company has expanded to several thousand employees and began selling computers abroad. In 1981, IBM released its first PC. The PC quickly began to dominate the playing field. Jon later had realized in order for his company to compete in the market, Apple would have to be a "grown-up" company and figure he was not the ideal man for the job. So in 1983, Jobs began to invite John Sculley, then president of Pepsi-Cola. In April, Sculley became president and CEO of Apple. On January 22, 1984, Macintosh was introduced and sold well until users were fed up with the small amount of Ram and lack of hard drive connectivity. So around the beginning of 1985 was when Jobs and Sculley began to argue. Jobs believed that Sculley knew nothing about the computer industry and did not put a lot of effort to learn. While Sculley believed that Jobs was dangerous and out of control. For this reason, Jobs then switched over to managing the Apple "Macintosh" project. In May 1985, Jobs convince Sculley to schedule a meeting in China, and decided to have a boardroom rebellion while Sculley was gone. Information leaked to Sculley which lead to an argument between them two. Later Jobs resigned and Steve Wozniak returned to college, leaving Sculley as the head of Apple. At the same time Microsoft's Bill Gates introduce the Windows 1.0, which had many similarities to the Mac GUI (graphical user interface). It was not until Mac twin inventions of the LaserWriter, the first affordable PostScript laser printer for the Mac, and PageMaker, one of the first Desktop Publishing programs ever that made them back in the game. In 1987, the Mac II, Apple was shipping 50,000 Macs a month. This did not last long until 1990, where the market was saturated with PC-clones of every conceivable configuration and Apple was the only company selling Macs. Apple was experiencing difficulty providing both hardware and software to drive an industry. In 1991, Apple released its first generation of PowerBooks which was a success. In the meanwhile, the PDA-Newton were being ready to be released in August 1993, but was a failure due to the extremely poor hand-writing recognition (2.1 MB).


Sculley began to lose interest in the day-to-day operations of Apple. In June 1993, the Board of Directors relieved Sculley of his position as CEO, putting Spindler in the big chair. Sculley eventually resigned after being chairman for several months. In 1994, Apple co-developed with IBM and Motorola to produce an extremely fast processor which ran on the PowerMac family based on the PowerPC chip. This powerful chip has enabled Apple to be able to surpass the speed of Intel's newer processors. By June 1995, another obstacle Apple was experiencing was not selling computers but instead it was building them which led to them to $1 billion dollars in backorders. The problem grew worst as Windows '95. Due to the external and internal pressure, Apple took its worst plunge ever in the winter of 1995-96, to pushed low-cost Performa's over mid-range PowerMacs. This incident had cost Apple a $68 million loss for the quarter. In January 1996, Spindler was asked to resign as CEO and was replaced by Gil Amelio, the former president of National Semiconductor. Amelio has split the company into 7 separate division, each responsible for its own profit or loss. There has made tremendous efforts to bring down the losses. In late December 1996, Apple made an announcement that it will be acquiring NeXT and that Steven Jobs will return back. This merger was to acquire NeXTstep, which is going to be the basis for Apple's next-generation OS, which was schedule for a 1998 release. In early July 1997, Apple announced the resignation of Gil Amelio and in the meantime, Fred Anderson, Apple's CFO has been put in charge of day-today operation. Jobs was also given "expanded roles" at Apple for interim. Jobs began to make striking changes in the structure of Apple and was referred to as "interim CEO". Jobs also announced an alliance with Microsoft for a 5 year patent cross-license and more importantly, a final settlement in the ongoing GUI argument. In order to gain back its market share from the Clones Vendors such as Power Computing. Apple also announced to buy out Power Computing's MacOS license. On November 10, 1997, Jobs implement a new selling strategy making computers available to purchase both over the web and the phone. The Apple Store was a runaway success, and within a week was the largest eCommerce site on the web. For the first time ever for Apple it had a net profitable First Quarter of $44 million. In April 1998, $57 million and by July 1998, it rose as high as $101 million, pushing Apple's stock to several 52-week highs in just a few years. The iMac was the best selling computer in the nation for most of the fall. In January 2000, Jobs unveiled Apple's new Internet strategy: a suite of mac-only internet based applications called "iTools" and an exclusive partnership


with Earthlink as Apple's recommended ISP. Jobs also announced that he would be dropping the "interim" from his title, becoming permanent CEO of Apple. In the second half of 2000, Apple experience slower sales as well as the industry as a whole. One of the major contribution was the high price of the G4 Cube compared to Apple's other product. Another factor was the DVD-ROM drives in their consumer and professional machines instead of CD-RW drives. This has resulted in missing sales opportunities to customers who wanted to burn their own CDs. So in January of 2001, Apple announced a new line of PowerMacs, which included a new "SuperDrive" which could read and write both CDs and DVDs. These were all part of Apple's new corporate strategy during the slow time in the Technology industry. They also take advantage of introducing the personal electronic devices-CD-players, MP3 players, digital cameras, DVDplayers, etc. by building Mac-only applications that added value to those devices. In May 2001, Steve Jobs announced that Apple would be opening a number of retail stores across America, selling not only Apple computers, but various third-party "digital lifestyle' products such as mp3 players, digital still and video cameras, and PDAs. In the meantime, major update to the iBook line, a smaller and lighter design was in progress. In the Fall of 2001 brought new revisions to the PowerBook G4 and iBook which sold extremely well. In late October, Apple introduced its first non-computer in several years, the iPod. The iPod was a small hard-drive based digital music player and represented Apple's first hardware addition to its `digital hub" strategy. In 2002, Steve Jobs announced that free iTools would be rolled into a new subscription-based "dotMac" service. In January 2003, Apple release iLife, a bundled software package that included iTunes, iPhoto, iMovie and iDVD, for $50. Apple's financial troubles continued throughout 2002 due to the weak PowerBook and PowerMac sales. In 2003, Apple however began to recover, and to build for the future. In the meantime, the iPod was beginning to take off. In April of 2003, Apple unveiled the iTunes Music Store, which would sell individual songs through the iTunes application, for 99 cents each. These songs could only be played only on Macs or iPods. In October 2003, Apple released iTunes for Windows with the user-friendly Windows version of iTunes which include both iPod and Music Store. In the first year alone, the iTunes Music Store sold more than 70 million songs. iPods had moved from expensive to toys to must-have Christmas presents, and Apple found itself in the position of having a monopoly for the first time in several decades.


Analyzing the Computer Industry

After analyzing the industry, it is clear to notice that the market itself has reached the level of maturity. At this current level, the dominant operating strategy for firms would be to maintain sales by product differentiation and by managing cost efficiently. The most recent "concentration ratio of 45 percent (CR4=45)"1 also indicates that the top four industry giants only command an average of 11.25% per firm of market share. The present loose oligopoly nature of the industry also indicates that there is an intense level of rivalry among players, that is, there are number of firms offering close substitutes and firms are forced to engage in price wars in order to generate sales, consequently depleting profit margins. Currently, Dell is leading the market with highest sales of PC's in the United States, and being the dominant firm in industry Dell acts as the price setter. Due to these conditions it is clear to see that Apple's long term survival is going to depend on innovative product differentiation and heavy marketing campaign if it chooses to remain within this industry. So why is it that good products can fail and inferior products can succeed and why is it so hard for computers to innovate?



Current Position Ideal Positioning

Growth Development

Industry Growth Rate



U.S Bureau of Census, Census of Manufacturers, 1997, and industry reports.


Total U.S PC' Shipped s 56.0 Billion Units

Other 33.9%

Dell 33.1%

Apple 3.5% IBM 4.7% Gateway 5.3% Hp 19.5%

According to "The Invisible Computer", a successful innovative product must be balanced: marketing, technology and user experience must all play critical roles, but one cannot dominate the others.2 Different factors are important at different stages in the life cycle of computers. In the early stages, technology dominates. All that matters in that stage is better, faster, cheaper and more power. In the middle stages, marketing dominates. And finally in the maturity stage, where the computer industry is at now, technology is a commodity, user experience dominates over everything. Consumers want convenience and value for their money, ease of use and emotional appeal.

The above graph tries to explain why innovation is so difficult for the computer industry. In the early stages, the innovators and technology enthusiasts drive the market. They


Norman, Donald A. "The Invisible Computer" 1998


demand technology. In the later stages, the pragmatists and conservatives dominate the industry demanding solutions and convenience. Even though the technology market is initially driven by the innovators and early adopters, they make up only a small percentage of the market. The market is made up mainly of the pragmatists and conservatives. 3

The above graph depicts the needs-satisfaction curve of technology. New technology initially start at the bottom left of the curve, delivering less than what the customers demands and expects. As a result, consumers demand better technology with more features that offer more peace of mind regardless of the cost of inconvenience. This demand causes the sophistication of technology development to reach a point where it can satisfy the basic needs.4 Computer companies, such as Apple Inc, to maintain their position of their share of the market, try to create innovative products. This is essential to mass marketing, to bring prices down and quality up. But this procedure also requires standards, procedures, and administration. This can actually lead to a decrease in product innovation. Once process modernization sets in, it puts the entire computer company into an efficiency mode. It leaves the company little time, energy and inclination to look outside their narrow ways into whole new approaches.

This is a reason why smaller newer companies can take over: they are faster and are willing to take risks. Apple was able to grab onto the digital music market because creating innovative products and taking such a huge risk for producing it. This is

3 4

Norman, Donald A. "The Invisible Computer" 1998 Christensen, C.M. "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail" 1997


perhaps the main reason why once computer companies enter the mature stage in the industry life cycle it is so hard for them to be innovative. To properly fight this trend, larger corporations should have separate divisions charged with innovation, leaving them free of the tyranny of the quarterly profits and losses statement. This gives that particular division the ability to concentrate on bringing in fast return on equity. If a company is not failing in its new product attempts, then they aren't doing something right. To be innovative, a company must first face defeat. Lack of failure is a sign of conservative, safe and eventually suicidal behavior. The Five Forces Impacting Industry There are a numerous competitors within the industry offering similar products. The high competition is causing firms to stabilize prices in order to produce sales. The stable prices have lead to small profit margins. Currently, the computer market is in maturity as compared to the boom in sales a few years ago and is therefore experiencing a very slow growth rate. Also, in attempt to increase sales, firms are engaged in aggressive promotion strategies which could lead to the occurrence of "prisoner's dilemma" which will further reduce profit margins. There are not many other products that can offer the same satisfaction, of using computers, to customers. However, there are some considerations. The new cell phone technology is slowly merging the applications used in computers into the handset. E.g. Nokia 9500 and Palm. Also, if computers were solely used for entertainment purposes,

Number of Competitors

Stabilized Prices

Firm Rivalry (HIGH)

Slow Market Growth

Industry Profits are low.

Substitute Products (MEDIUM)

Product Sensitivity



Brand Sensitivity Power of Buyers (Low)

Buying Groups

Capital Requirements

Market Condition Threat of New Entrants (Low)

Potential Profits

whether it is gaming or graphic design, the threat of substitutes would indeed be a credible threat. E.g. Playstation and Xbox Luckily, the applications and uses of a computer can only be offered by the device itself. The demand for having a device with numerous functions can only be met using a PC and this prevents any lost sales by substitute products that satisfy this function. Although brand names are a key sales driver in this industry, it seems that their affect on sales is relatively minor as compared to the affect of prices. This also relates to rivalry within the industry. There could be possible buying groups in the Education market that force Apple to give purchase discounts. Difficult to enter the market because of the large financial requirements to manufacture the products. The market seems to be in an equilibrium condition, that is, the demand for computer products is approximately equal to the supply, and therefore entry into the industry is not worth the large capital requirement. The monopolistic competitive nature of the industry does not generate profit opportunities for firms and makes this industry less attractive for new entrants. The power is low due to the

Power of Suppliers

Supplier Concentrations


(LOW) Vertical Integration

suppliers being competitive to gain customers to manufacture products for. Suppliers manufacture goods that are not final end products, thus not needing to open retail stores to sell products.

The analysis above clearly indicates that companies are indeed sitting in a comfortable position in the industry and paying for that comfort with low profits. In order to generate increased revenue the companies would have to redevelop there strategies and target other industries where there is low market presence and high opportunity. Apple saw this opportunity and capitalized on it with the creation of the iPod. The iPod is a small hand help computer device that stores MPEG 3 files. The iPod ranges from 10 gigabytes to 40 gigabytes in size and can hold anywhere from 2500 songs to 10000 songs. As the iPod emerged in the markets, Apple captured a niche in the emerging digital music industry. Through its innovation and creativity Apple has broken out of its box as a boutique computer maker and emerged as a force to be reckoned with in consumer electronics and music. The iPod success has generated revenues up to "$3.5 billion"5 through the world wide sales of "4.6 million portable music players"6. This success has moved Apple from a company with a minuscule PC market share to achieving market shares of 65%, 70% and even 90% in other industries. Being the first of its kind, the iPod, allowed Apple to diversify from a competitive market into a new flourishing industry where Apple has become a dominant player, setting the standard for new entrants (potential rivals). The success of the iPod has put Apple back on the map and placed them in ideal position within the industry life cycle. With consumer demand rising and Apple being the dominant supplier, they have capitalized on large profits by setting premium prices. Looking at Apple's future strategic paths, it seems that Apple is using its resources to diversify and enter into different industries where the markets are not as saturated as the computer industry. Most companies have finally understood that "success is not merely producing a product that does the job, but is being able to bring ideas, bits and pieces if you will, from different industries then putting them together to come up with something new and innovative that ties into peoples needs or lifestyles."

5 6

Schlender, Brent. "How Big Can Apple Get?" Fortune. 21 Feb. 2005. Vol. 151 Iss. 4 Pg 66. Ibid.



Strengths · Professional notebooks · Financial position · Brand · R&D spending · Customer retention Weaknesses · Professional desktops · Cannibalization of products · Supply of raw materials · Reliance on US/iPod sales · Lawsuits

SWOT analysis for Apple Computers Inc: Data monitor

Opportunities · New product development · Expand retail operations · Grow international sales · Wireless products · iPod/ Music downloads Threats · Strong competition · US education market · Demand for IT products


Professional notebooks Sales of Apple's professional notebooks have been strong in recent times. The company's sales in this area have been boosted by sales of its 12 and 17inch models. The continued strong sales performance of Apple's 15-inch notebook has also boosted the company's sales in this area. In 2003 sales of Apple's PowerBook increased by 56% to $1,299 million overtaking PowerMac as the single largest product contributor to total revenues, helping to drive overall growth for the company. Financial position Please refer to the Financial Analysis section of this Report. The Apple brand is well regarded amongst most consumers. When thinking of Apple computers, the words "innovative", "easy to use", and "trendy". Apple also enjoys a high level of brand awareness and brand recognition for its products throughout the markets in which it operates. High brand awareness and brand recognition of Apple's products will help to drive sales of the company's products. Apple's strong brand name helps create barriers to entry within the market and differentiates the company from its competitors helping to guarantee future sales. Brand


Research &Development Spending Apple's research and development expenditure totaled $471 million and $446 million in fiscal 2003 and fiscal 2002, respectively. Rapid technological advances characterize the personal computer industry, so Apple's ability to compete successfully is heavily dependent upon its ability to ensure a continuing and timely flow of competitive products and technology to the marketplace. Continued R&D expenditure should see the company continue to develop new and innovative products to drive company revenues. Customer retention As Apple is the only PC vendor in the industry that designs and manufactures its own hardware and system software, they are able retain its customers more easily than other companies in the industry as it releases fresh products compatible with their existing PC. Providing the company can maintain the quality of its new product developments to the same standard as the rest of the industry, the company should be able to record a high level of customer retention.


Professional desktops Apple's professional desktops business has experienced sluggish sales in recent times. Sales of the company's PowerMac products have fallen by around 20% year- on-year to drop to their lowest level for a number of years. If future unit sales fail to partially or fully recover, it will be difficult for Apple to improve its overall profitability. Supply of raw materials While most of the company's raw materials are available from a number of sources, other materials tend to be only available through a limited selection of suppliers, and as such, the company is susceptible to a supply risk for key components. Also, Apple must contend with price fluctuations to ensure the continuity of supply, as pricing pressures and industry competition may drive up the cost of raw materials. Should problems with supply vendors occur, Apple's ability to produce its products in a timely manner may be adversely affected. Therefore, Apple's reliance on a small number of suppliers will not benefit the company. Reliance on US sales The United States represents Apple's largest geographic marketplace. Approximately 51% of the company's net sales in fiscal 2003 came from sales to customers inside the United States. This focus on the US market makes the company more vulnerable to adverse localized market conditions that may affect the revenues and profits generated by the company. Apple's reliance on the US


market possibly means that the company could be hit badly if any economic downturn affected this particular country. Lawsuits Apple is subject to certain legal proceedings. Claims could have a material adverse effect on its financial condition, liquidity or results of operations. Unresolved cases include issues such as patent infringement, false advertising and unfair business practices. These legal issues represent a considerable threat to Apple, as the company's insurance may not be sufficient to settle some of the more costly cases that could possibly arise.


New product development One way in which Apple could stimulate demand in the marketplace is to develop new products that more closely match customer needs. Apple's research and development spend should enable it to develop new products. For example, Apple has developed the PowerMac G5, which is the world's first 64-bit PC. The company hopes that the release of the product will stimulate demand to boost its professional desktop revenues and its overall company revenues. Expand retail operations Since inception of its retail initiative in 2001, Apple has opened over 65 retail stores in the United States. One of the main goals of the retail initiative is to bring new customers to the company and expand its installed base through sales to both first time computer buyers and those switching from other computing platforms. Additionally, the stores provide a forum in which the company is able to present entire computing solutions to users in areas such as digital photography, digital video, music, children's software, and home computing. Apple has attempted to locate its stores at high traffic locations in shopping malls and urban shopping districts. The company could look to open more retail outlets in order to increase the coverage of its stores in the US. Increased store coverage may mean Apple could potentially further expand its installed base through sales to both first time computer buyers and those switching from other computing platforms.



Strong competition Apple is confronted by aggressive competition in all areas of its business. The market for the design, manufacture, and sale of personal computers and related software and peripheral products is highly competitive. This market continues to be characterized by rapid technological advances in both hardware and software development, which have substantially increased the capabilities and applications of these products, and have resulted in the frequent introduction of new products and significant price, feature, and performance competition. Over the past several years, price competition in the market for personal computers has been particularly intense. Apple's competitors who sell Windowsbased personal computers have aggressively cut prices and lowered their product margins to gain or maintain market share in response to weakness in demand for personal computing products. Apple's results of operations and financial condition have been, and in the future may continue to be, adversely affected by these and other industry wide pricing pressures and downward pressures on gross margins. The principal competitive factors in the market for personal computers include relative price/performance, product quality and reliability, design innovation, availability of software, product features, marketing and distribution capability, service and support, availability of hardware peripherals, and corporate reputation.


Human Resources Analysis

Background of APPLE In the last two decades, Apple computer went through many changes in their product line, corporate direction, corporate mission, corporate strategy and most importantly, their management system. In 1990, executives at Apple Computers realized that the company needed to focus on volume and employ a strategy to increase market share to fight off price wars as the computer industry became more competitive. The Human Resource department saw this as a management opportunity to transform itself as they change their business model. This plan required operating expense to also be lowered leading to profit margins to go down. The Vice President of Human Resources played a key role in providing a persuasive vision and strong leadership. The Human Resource Management team also did a good job of managing the growth of employee expense while maintaining an aligned and committed workforce. This became beneficial as they did not foresee how far the margins would go down. Even though Apple experienced some difficulties in its industry, advancement in technology was still at the front position. Apple has put in astonishing work to align business with its Human Resource function. The Human Resource function' mission is s to contribute to the company's success by building up a outstanding working environment that draws and hold on to outstanding employees, support their position and loyalty, and encourage them to do extremely well. Apple Computer's Human Resource function to acquiring its mission requires: · Take an active role with management in developing the philosophies and strategies that define the working environment. · Be the keeper of the strategy for maintaining employee alignment and commitment; maintain the policies, programs, and processes that support employee alignment and commitment. · Keep management aware of any changes in the alignment and commitment of the critical asset -- its people.

Old Values · · · · We make great products that people love to use. No compromises. If I have passion and produce results, I will have a place at Apple. In return for my extraordinary effort and personal commitment, Apple will take care of me better than anyone else. "We are the Best" Apple is more than a business. My identity is Apple. Being here means I'm special


New Values · · · · · · · We will strive to offer an exciting environment that stimulates creativity and a high degree of personal involvement. We want individuals to participate in the success and the risk associated with being with a dynamic enterprise We will strive to provide opportunities and support to increase individual employability We will strive to be honest, truthful, and open in all our interactions. We will encourage and provide incentives for individuals to prepare for long-term financial needs We will ensure that you have protection against catastrophic events. When necessary, we will provide a helpful and respectful bridge into the future.

The Changing Nature of Employer/Employee Expectations When Apple went through major change, employees at Apple became concern about their job security and their expectations of the company. Change was a threat to them because they feared the possibility of losing their jobs, and their expectation of the company needed to be addressed. During this time, many employees were reevaluating their identity and commitment to Apple. In addition, many in the Human Resource Management thought that they had did a poor job in preserving their corporate culture. Also they experienced role in conflict being either employee supporter or manager supporter. The Human Resources of Apple thought it would be important to talk about current issues in Apple, instead of the pass problems.


Role and Organization Structure of Human Resources

VP of Human Resource

Central Services

Business Partners

Apple University

Domestic employment

Multicultural programs

HR planning

Compensation and Benefits

Employee Relations and Services

The Human Resource organization structure includes a VP of Human Resource. Under the VP of Human Resources are two major leadership position that report directly to them: Business Partners and Central Services. The Business Partners are assigned to each major business unit in Apple and provides consultant and act as business partners to the top executives unit. Business Partners develop HR strategies to maintain the business units' competitive strategy and train managers on how to apply people management tools and processes. In addition they help resolve any issues that arise. The Central Services function comprises of: Apple University, domestic employment, multicultural programs, HR planning, compensation and benefits, and employee relations and services. The main intention of Central Services is to plan and deliver products and services that permit management to lead their people resources and to allow employees to perform their jobs efficiently and effectively. The role of HR is guided strongly by several key implementation assumptions: 1) Management takes responsibility for human resources. 2) Individual employees are accountable for achieving their goals. 3) Human Resource must provide competitive high-quality products and services that support Apple's business proposition. 4) Human Resource must establish norms and measures for evaluating the effectiveness of its products/services. 5) Human Resource must be seen as champions of fairness and integrity in Human Resource practices.


Role of Technology Apple thinks that the use technology vital and all employees must have access to it; therefore, they created technology-based tools to improve employee and management efficiency. Using technology, Human Resources was able to reducing clerical and transaction expense. Change Approach · · · · · Provide all employees with access to technology Transform routine but critical work activities Provide information on demand Change communications patterns Create tools for self-sufficiency

Eventual Benefits of Change · · · · · Reduced clerical/transaction expense Increased knowledge-based problem solving More resources to leverage across organizations Higher level of customer satisfaction Increased productivity through standardization

Employee Help Line. The new service delivery model that is a essential tool for HR is the Employee Help Center, which deals with daily employee concerns and counseling. The Help Center consists of a group of 14 people who are trained in Apple policies and procedures. In addition online Internet support accessible as well. Complicated questions and situations are forwarded to a group senior HR staff. Lastly, for more serious matters face-to-face investigation may be required. In the last year, The Employee Help Line obtained about 165,000 calls. Shifting HR transactions to the line. Apple HR is uses technology focus for people management. HR is used the Macintosh desktop technology to transfer all traditional administration and documentation operate business. By doing this, HR is able use their time efficiently to help managers develop and apply the skills they need to manage their people resources. With the use of The Employee Help Line managers are able to perform this role. With the use of the internet technology, Apple uses On-line applications handle manager-employee transactions. These include compensation changes, promotions and demotions, and performance reviews, to adding someone to the payroll. The only transaction that HR must get involved in is involuntary termination. In addition, all policies and procedures are available on-line.


Transitioning the Skills of the HR Community

Past · · · · · · · · · Managers are very busy running the business HR is expected to take care of the people Business partner is the thing to be Being liked ("fit) is the thing to be We can pick and choose what we want to do Structure, discipline, process are boring We have unlimited personal freedom Money is no problem HR is responsible for protecting · · · · · · · · · ·

Today and Beyond A new financial model drives our function HR functional excellence is essential Seamless HR will be a requirement Policies, processes, and systems are priority Heavier focus on teaching versus doing Management and employee selfsufficiency is a must Emphasis on organizational transition and effectiveness Client and employee satisfaction are key measurements HR supports a variety of businesses within Apple HR is the norm by which others measure themselves


Since it was hard to prepare entry-level HR people, Apple finds that the best place for them to learn was on the Employee Help Line. This basic learning approach is the first step of the HR career. Measures Used to Evaluate Best Practice In addition to the traditional metric of HR professionals to employees, HR measures its effectiveness using HR expense as a percentage of operating expense. Apple HR has moved from being qualitatively oriented to quantitatively oriented.

Previous Human Resource employees managing the company:


Human Resource Employees


Today's Human Resource employees managing the company:


Human Resource Employees



Critical Success Factors · · · · · Be an intelligent, sensitive voice in helping the enterprise resolve the dilemma between pragmatism and humanism as you compete globally in the 1990's Become obsessed with customer services. Be committed to innovation and finding new ways of doing work. Become obsessed with the relevant use of technology to drive management, HR, and employees to become more self-sufficient. Be expert in: o Workforce dynamics o Employee development and career management o Evaluating management capabilities o Facilitating organizational change Become much more quantitatively focused in adding value to the business. Continuously examine your assumptions and strategies for the role of the HR function and how it supports the business

· ·


Production Analysis

Maturity Stage For companies that are currently in the maturity stage of the industry life cycle, it is important to improve the product and reduce operating costs. In order for Apple Inc. to grow and increase market share, they must be more proactive about technological changes in the market. However, Apple Inc. would not be able to survive if they continued to produce only computers with its Macintosh line of computers. So in order to be successful, the company must concentrate in attempting new products. Transition When products mature, the company must work to extend the life cycle by introducing product variants; "new and improved" or additional add-ons or features. Since the computer industry is at the maturity stage, Apple Inc. will have to sell off their existing products and start again with new products and new innovations. They' shifted our conceptions of how a computer should look and feel, and ve changed the way we interact with technology and listen to music and connect with friends. Some innovations are small, like the trash icon or the placement of a trackpad. Apple makes wildly imaginative products with a consistency few companies rival. "Idealism is a major part of Apple," says Andy Hertzfeld, an original Macintosh team member. "The company operates for artistic values rather than for commercial purposes."7 To consistently improve the products, Apple Inc. is slowly transforming it into a high-end consumer-electronics and services company "a la Sony" Apple is gradually transforming as of 1999 when the company introduced iMovie, a video editing program for the Mac that brought professional-quality editing to the masses.8 In September, 2005, there has been announcements that Apple Inc. is thinking of shifting to using chips from Intel in is systems beginning next year. This will help regain some of the market share back that was competed from Windows-based rivals.9 This will definitely be a turning point for Apple Inc. to be back in its original products


Apple's Other Legacy: Top Designers. September 6, 2005 8 Where "Think Different" is Taking Apple. August 5, 2003 9 Intel's Chips: Juice for Apple? September 6, 2005


Not only focusing on production efficiency and successors, Apple Inc. has decided also to add an additional division instead which gear towards the digital music market. Since then the iPod then latter the iPod nano, was introduced.

Ever since the trendy device, the iPod was introduced, Apple' stocks are soaring s as high as $77 to $100. As of Dec. 6, the stock was trading at around $64. This is the same Apple that opened the year at $21.28. "And it' all because of one cool s little music player." Apple's new product is not only about being cool as its number one selling feature. Its unique designs, marketing savvy, and cult figure, truly integrated, valuable innovation and past mistakes all contribute to this success. 10 Now competitor's like Hewlett Packard and IBM companies are also trying to come up with some similar music devices as well. . Growth Stage Apple Inc. is currently at the growth stage increasing its production capacity while retaining quality. They are still currently producing and offering the iPod shuffler and the iPod. Although the iPod mini which was the first one to be introduce out of all the devices, is almost reaching close to maturity stage. To ensure that Apple Inc. maintains the market leader in digital music, improving the current product is the way to go. When the iPod Nano was introduced, it basically replaces the best-selling iPod mini, with a brand-new model. It offers a higher resolution color screen, and a decrease in size of 25 % less wide (half the thickness), a greater hard drive capacity and is able to hold up to 25,000 photos you can sync from you Mac or Windows PC via iTunes. Figure 1. Products offer by Apple Inc. Before Apple Machintosh PowerBook Performa After iMac Power Macintosh G4 iPod mini iMac G5 iPod shuffle iPod nano


Could Apple Blow Its iPod Lead?, December 07, 2004


Marketing Analysis


Apple was and currently is a part of a newer age of marketers focusing on image and quality. Apple is in a constantly changing industry and faces tough competition by many names in the industry. It is never easy when you have Microsoft as a competitor. The most important element of a marketing plan is the development of a marketing strategy that will successfully penetrate the market. Most companies these days are using the traditional marketing tactics that are ineffective for their organizations. Some companies try to benchmark tactics from other successful companies; unfortunately such tactic rarely works to that company's target market. Essentially as time progresses, industries are getting more competitive and businesses are looking for ways to set themselves apart from the competition. An effective strategic marketing plan can provide a company with that edge. Apple tried several marketing tactics such as repositioning their products and several branding techniques, however with Microsoft in the picture it became hard to directly compete. Internal conflicts arose as the company was on the downfall, essentially entering the declining stage of the industry life cycle. Apple Computers has been in the PC industry for close to 30 years and they have experienced some major bumps along the way, especially with a player like Microsoft in the market. Initially marketing tactics for Apple were relatively simple with the introduction of the Apple II. It was the first personal computer to come in a plastic case and include color graphics. It was a hot item and people from all over were lining up to purchase it. However players in the industry soon caught on, resulting in the PC market being saturated with clones.

Apple Stores

There are over 120 Apple stores in the North America. Apple decided to install a number of techs, called Genuises. The Genuises are dressed in cool black uniforms and offer anyone that walks in the store ­ Mac or PC users -technical service and advice. So far, according to a USA Today dispatch, over 100,000 people visit the Genuises every week. And the stores represent nearly 50 percent of Apple's retail sales. The stores are setting a burning pace for revenue growth. Apple stores were on track to generate $1.2 billion in annual sales, compared to Apple's $8.3 billion fiscal revenue. Fascinatingly, Apple serves only about 2.6% percent of the computing public. 25


Apple Store downtown Vancouver.

The intimacy created by using real people to connect with other real people may not seem to be revolutionary, but when measured against the widespread forms of disturbing marketing tactics used by traditional marketers, it is clear how something like the notion of the Geniuses becomes an extraordinary tool to reach and influence the consumer.

Apple positioning

We believe that Apple had done an excellent job in positioning themselves. It is rare that you are able to see students that do not own an iPod. Since the iPod introduction many people switched from using PCs to Macs. Apple have now positioned themselves as a cool and hip gadget with the iPod, a must have object. Also apple were successful in positioning themselves with quality computer that are ad ware, virus, non freeze computers. Many companies fail to position themselves in the right fashion into their target market. This is something that tends to be overlooked in many businesses today. Companies will be able to attract new businesses and customers and creating the right buzz in to industry. Essentially if a company positions itself the proper way they can control how they want to be perceived by consumers. Ultimately this is the organization's goal, and if they can accomplish it their market presence will be tremendously larger. In the process of rejuvenation apple has changed numerous corporate strategies. Currently apple computers are targeted to certain type of customers instead of targeting the entire PC buyers industry; this was a very smart move by Apple to set the company away from the Microsoft competition. The company is now targeting the upper class and high end user. Currently Apple's market share is only 2.6% of the PC marketplace which is significantly lower than the competition; they have essentially created a market with very few substitutes. There are essentially no products in the industry that offer the high end user experience that Apple has established. Therefore the company must continue pursing with this strategy in order to continue catering to their niche market.


Competitive Advantage

In a rapidly evolving world, it becomes of great importance to be distinguished from the competition, and this is why many businesses nowadays have set off to maximize their competitive advantages over competing companies. One such company is Apple, whose unique product line and dynamic hardware have earned them a competitive advantage in the market. Yet, what is key to the survival and thriving of any business is their market tactics and strategies. These are so important that many business analysts have repeated that the marketing tactics and strategies are what give a name to the company. The success of Apple stems for their foresight for what will attract people to their product and the consequent execution of that vision. Rather than marketing their product based on its key features and technology like their competitor Dell, Apple adopts a new strategy by depicting how their product will enrich their customer's life and become an indispensable part of it. Ultimately, they try to create a connection with potential consumers which results in an influx of individuals who buy Apple products and enjoy them. Apple is renowed in the market for their aggressive advertising strategy. This makes the company stand out from their competitors who are employing more conservative marketing approaches. For example, a typical comercial for Apple products lavshes on the superiority of their product while bashing their competitors' goods. We all remember the ad aired a couple of years ago showing intel laptops catching fire while getting flattened by steam rollers. Apple has seen great benefits in their ads despite the fact that they appear controversial to many. It is precisely these advertisements that have earned Apple many advertisement awards while also enabling Apple to become a great contributor in the PC market.


Another way in which Apple established strong brand equity was through their interactive and informative website. Within the website consumers can find information on the company's different products. The website is very well constructed and further divided to different sectors such as ipod, map, iTunes... the website also includes vision mission and corporate strategy as well as the story of the company. Also the information on their stocks and finance are found on the website. More than that, the company has found a way to have consumers start their own blogs.


Future Plans

We recommend that Apple should continue to expand into new markets as they have done recently. We can not tell how long the iPod will have this effect on the market and on Apple Computers. In order to successfully accomplish this new strategy, they will need to be one step ahead from the competition in the markets they enter. Apple should be thorough and precise in its study before they take thei decisions just as they did with the introduction of iPod. As technology develops more innovative products will be introduced, thus creating increased competition. Nowadays there are new phone technologies that have been introduced that have mp3 playing compatibilities and have huge storing capabilities up to 32 gigs. Apple now needs to respond with a contingency plan to maintain their customer retention levels. Technology and competition are probably the two most serious threats that Apple has to consider. Perhaps offering added incentives to customers or adding new features to the existing iPod are examples that could help with retention levels. Apple now has had good improvements on their products with the introduction of the iPod NANO and new MAC mini. 28

Lessons to learn form Apple

In their last quarter Apple Computer has announced that their earnings more than quadrupled mainly due to holiday sales of the iPod digital music player. More than 28 million iPods have been sold since it was introduced in 2001. We believe that apple was extremely successful in the reengineering the Apple Computers Corporation from a company that is specialized with computers stuck in the decline stage to a company that has many specialties that is booming in the growth stage. There are some important marketing lessons to be learned from all this. First of all, Apple has created a product for a hungry market that has the financial means to purchase it even with the relatively high price point. Ever since the introduction of the MP3 file format we have seen the huge market potential for a device like the iPod. Apple was successful in finding a hot and hungry market, and creates a product for it. Apple computers further more benefits from these new markets by constantly introducing new versions such as the introduction of the iPod Shuffle a lower-priced version of the iPod with flash memory instead of hard drive storage. This has created a halo effect as the increasing sales of the iPod have generated more sales for Apple computers (Macintosh).

Brand Identity

Apple realized the concept of establishing a good brand identity and spent massive resources to provide end users with quality high end products. Potential consumers are going to be spending top dollar for these products, therefore the buying decision is more complex. Consumers are only going to purchase goods of high quality and from highly reputable and credible companies. As a result they have built up a solid reputation and a very strong brand name becoming one of the most high end brands in the business world. Innovation and quality are related with high price, the high price for the most part guarantees the customer with quality goods. This is a psychological approach that Apple has used, and has incorporated it within their business model. The human psychology says that the higher the price, the better the product. Cheap Apple products would mean low quality and a desperate need for cash. Ultimately this would hurt the Apple brand from both a short term and long term perspective. Apple can not break the association of themselves and


quality, nor can they consider significantly lowering their product prices. This would result in entering into direct competition with the likes of Dell; furthermore it would create a price war with Microsoft.

New Market Opportunities

Many businesses nowadays are venturing to new markets to have an edge over their competitors. These new markets are a means for businessmen to embrace opportunities as well as change strategic focus. The world of technology is a dynamic, rapidly evolving one creating new business opportunities for organizations with every new development. Apple was able to foresee the need for a change in strategic focus and hence began to invest in the digital music industry. With the dawning of the new century, the music industry faced a desperate dilemma. The advent of new digital music technologies allowed for novel methods of distributing and listening to music. People in the music industry were slow to react, and as a result, free file share systems became the most popular yet illegal way for consumers to download songs via the internet. Apple welcomed this change and saw an opportunity to invest in a new market and develop a new digital music product; the iPod MP3 player along with a new service, the iTunes Music Store. The more the company accelerated the revolution of digital music, the greater their initial success, which proved to be overwhelming. Apple, for the first time, had successfully entered a new market which caused them to abandon their roots of the PC market. With a new strategic focus at hand, many have wondered how this will impact Apple as a computer company, since most of its profits are still brought about by the computer business It is our view that now that Apple has lessened their emphasis on their computer industry; they will begin to feel a tremendous impact from their action. On the other hand, redirecting their strategic focus is of great importance for Apple too. As long as Apple recognizes it's strength and continues to provide quality hardware and great marketing strategies, they can successfully diversify and enter new markets. This however is not an implication for Apple to abandon their PC market.


Financial Analysis

Since getting itself out of the Maturity/Decline life cycle and back into the Growth life cycle, Apple Computers has been benefiting from rapid growth, with sales and earnings that are expanding at a faster rate than firms in other industries. Apple participates in several highly competitive markets, including personal computers with its Macintosh line of computers, consumer electronics with its iPod lines of digital music and distribution of third party music through its new iTunes Music Store. Apple is widely known for its innovation in personal computing as well as an emerging leader in the market for distribution of digital music. Growth of $10,000 Stock: Apple Computer Industry: Computer Equipment Index: S&P 500 YTD through 11-18-05

Total Returns % Apple Computers +/- Industry +/- S&P 500

2000 -71.1 -54.4 -62.0

2001 47.2 33.7 59.1

2002 -34.6 -9.0 -12.5

2003 49.1 3.2 20.5

2004 201.4 177.5 190.5

YTD 100.5 103.1 96.0

In order to maintain and increase its current hold onto the market, Apple should focus its spending on delivering timely updates and enhancements to its existing line of personal computers, displays, operating systems, software applications and portable music players. In order to remain competitive, we believe that Apple should increase their investment in research and development in order to maintain and extend its position in the markets where it now competes. Similar to building a growing portfolio, Apple should risk some of their capital in ways that will increase and preserve it. In order to do this, Apple must devise a way to keep the growth they've already established, take business from their competitors, showing up where growth is anticipated, invading adjacent markets and investing in new lines of business.


Returning to Double Digit Growth

Companies must build growth portfolios of varied initiatives, similar to a diversified investment portfolio, designed to risk capital in ways that can both increase and preserve it.11 Michael Treacy, the author of `Returning to Double Digit Growth' wrote, `The foundation of a growth portfolio corresponds to five basic sources of revenue, or growth disciplines: 1. Keeping growth already earned 2. Taking business from competitors 3. Showing up where growth is going to happen 4. Invading adjacent markets 5. Investing in new lines of business. The extent to which pursuing these five sources of revenue can and will successfully generate growth is entirely contingent upon the discipline and creativity with which they are managed.'

1. Keeping Growth already earned

The easiest way to improve growth is to slow the rate at which you lose your existing customers. These methods include: increase value, influence the buying decision process, offer services that entangle customers, create tailored offerings that keep the customers coming back, preempt customer defections, and foster emotional bonds.12

2. Taking Business from Competitors

To take business from competitors, Michael Treacy suggests: developing better customer information through applying economic pressure, committing to superior value with breakthrough operating models, and boosting market share by acquiring competitors.13 Through the change of leadership, Apple cut back on investments for products that were non-profitable yet increased R&D spending.

3. Show up where Growth is going to Happen

Market positioning, when done right, is perhaps the easiest way to grow, because it requires little more than establishing a presence in the fastest-growing segment of a market and getting a decent piece of the action. This can be done through:14 1. Spotting growth plays early by finding shifts in the purchase criteria, value breakthroughs, or shifts in demographics; 2. Moving early to establish position; and 3. Actively pruning low-growth positions

11 12

Treacy, Paul. "Returning to Double Digit Growth." Consulting to Management. Mar 2004. 15.1 Treacy, Paul. "Returning to Double Digit Growth." Consulting to Management. Mar 2004. 15.1 13 Treacy, Paul. "Returning to Double Digit Growth." Consulting to Management. Mar 2004. 15.1 14 Treacy, Paul. "Returning to Double Digit Growth." Consulting to Management. Mar 2004. 15.1


4. Invading Adjacent Markets

This requires a steely appraisal of whether a company's core operating capabilities can truly provide an advantage in an ancillary market, and whether an organization can build or acquire the additional capabilities needed to meet the competitive standards in the market.15 Prior to entering the MP3 market Apple was able to asses the markets attractiveness since it had the ability to expand there. Since, Apple built a strong financial background and strong leadership it was able to let its core capabilities lead it into a focused industry. Apple's lead in the adjacent industry proved it was a natural growth opportunity. Apple's balance sheet shows $8.52 per share in total liabilities, mostly from accounts payable. Those liabilities are easily covered by $22.34 per share in assets, including no less than $15.39 a share in cash and short-term investments.16 Apple's stated net worth is $13.82 a share. A buyer purchasing shares at $40 leaves Apple with profits of $ 26.18 per share to invade adjacent markets. Overall, looking at the 2004 financial statements, Apple is in a favorable financial situation. However, there is no assurance that Apple will be able to continue invading adjacent markets to provide products and services that enable them to compete in the market. This is the path Apple has taken to date, which has lead to positive fluctuating revenue growth.

5. Invest in New Lines of Business

This discipline is built on smart investing rather than management skills bolstered by a cautious investor's mindset.17 Apple's competitive investing capabilities have grown from $229 million to $2496 million over a nine year period. A correlation between short-term investments to sales can be seen. When sales grow, revenue is invested into marketable securities increasing investors' wealth and ability to grow financially to support operations. One of Apple's strengths lies in its finances. Although IT spending is expected to remain low in the immediate future, Apple's strong balance sheet should stand it in good stead.18 The company currently has a strong cash position with cash reserves of approximately $4.5 billion. Apple's strong financial position will enable the company to operate with a greater deal of financial flexibility. The company could use its cash reserves to expand its business, develop new products or acquire companies.

15 16

Treacy, Paul. "Returning to Double Digit Growth." Consulting to Management. Mar 2004. 15.1 Emgardio, Paul. Et la. "Apple: It may be too late to take a bite." Business Week. 21 Mar 2005. Iss. 3925. pg.84 17 Treacy, Paul. "Returning to Double Digit Growth." Consulting to Management. Mar 2004. 15.1 18


6. Five Disciplines Together

The five growth disciplines complement each other and act as a portfolio, creating a powerful growth stream that carries along an entire organization. Software is the user experience. As the iPod and iTunes prove, it has become the driving technology not just of computers but of consumer electronics.19 Apple will continue to gain revenues through the basic iPod. The portable digitalmusic player is in its infancy. Charlie Wolf, an analyst with Needham & Co., projects that by 2010 there' be 500 million portable players in circulation, about ll one for every 15 people on the planet. Apple' share will almost inevitably slip as s competition mounts, but the vastness of the market will mean many more billions of dollars in sales for the company.20 Still, Apple will have to tread carefully as it enters the low end of the PC market if it is to avoid succumbing to the profitless prosperity. To beat the odds, Apple will keep its costs low so it can maintain its profit margins and thereby have the resources to keep innovating. That' one reason that Apple has opted to keep its s new products simple, with fewer or less expensive components.


In conclusion Apple has evolved from its start in the market in the early 70's. Apple has successfully been able to redevelop its corporate direction to being a strong competitor and innovator in the computer business. Apple Computers started facing problems in this fast changing industry and the growing competition. After Apple has realized that the computer industry was generating low profit margins, the company diversified its product range to penetrate into the music electronic and consumer electronic industries, while also redeveloping its personal computer products in the price driven industry. Apple grew in to the maturity stage and started heading in to decline stage. Apple was very successful in turning the situation around with the start of the iPod revolution which helped change put Apple computers back into the growth stage. The analysis of different functions: Strategic Management, Marketing, Human Resources, Production, and Finance shows that Apple has managed these areas well enough to give it an advantage as compared to its rival competitors.

19 20

Schlender, Brent. "How Big Can Apple Get?" Fortune. 21 Feb. 2005. Vol. 151 Iss. 4 Pg 66. Sloan, Paul. "What's Next for Apple?" Business 2.0. Apr 2005 Vol 6. Iss 3. Pg 68.



Apple Finance at a Glance Size 09-30-2004 Total Revenue $Mil 12,603 % Industry Revenue 2.92 Industry Computer Equipment Apple is in an industry with a relatively large number of competitors, looking at its sales compared to those of its industry, Apple is one of the smaller players. Industry Life Cycle Large Growth Cycle

Apple's competitors tend to fall around the small cap growth area in the Industry Life Cycle. Apple Computer is different from its peers in that it has a large cap bias. Apple has seen a steady growth over the past three years, with its results over the past year being particularly impressive. Like its competitors, Apple's earnings per share have also grown at a very high rate over the past three years. In order to maintain this current growth rate, Apple will have to devise a way to raise additional capital from outside sources at some point if it wishes to continue their current upward trend. Apple Valuation Apple Industry Forward Earnings Yield Forward P/E Price/Cash Flow Price/Sales 2.74 5.31 36.5 18.9 24.1 13.8 4.3 2.1 S&P 500 5.35 18.7 14.4 2.9

S&P 500 data through 11-16-05 *Industry Average


With an estimated forward earnings yield of 2.96%, it indicates that that percent would be the annual return it would generate if its profits remained fixed and the company paid out all of its earnings as dividends. In order to generate decent returns for its investors, Apple will probably only have to realize moderate growth in earnings or a higher valuation by the market. Income Statement Sales $Mil Operating Income $Mil Income Tax $Mil Net Income $Mil Earnings/Share $ EPS (Cont Ops) $ Dividends/Share $ Total Shares Mil Cash Flow Statements Fiscal year-end: September Operating Cash Flow - Capital Spending = Free Cash Flow 2002 89 174 -85 2003 289 164 125 TTM = Trailing 12 Months 2004 TTM 934 2,226 176 223 758 2,003 2000 7,983 522 306 786 1.09 1.09 0.00 650 2001 5,363 -344 -15 -25 -0.04 -0.06 0.00 714 2002 5,742 17 22 65 0.09 0.09 0.00 722 2003 6,207 -1 24 69 0.10 0.10 0.00 726 2004 8,279 326 107 276 0.36 0.36 0.00 746 TTM 12,603 ----1,011 1.20 1.20 0.00 830

Balance Statement 2004 Balance Sheet Assets Cash Other Current Assets Long-Term Assets Total $Mil 7,526.0 1,850.0 1,112.0 10,488.0 Liabilities and Equity Current Liabilities Long-Term Liabilities Shareholders' Equity Total $Mil 3,123.0 544.0 6,821.0 10,488.0


Work Cited

U.S Bureau of Census, Census of Manufacturers, 1997, and industry reports.

Norman, Donald A. "The Invisible Computer" 1998

Christensen, C.M. "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail" 1997

Schlender, Brent. "How Big Can Apple Get?" Fortune. 21 Feb. 2005. Vol. 151 Iss. 4 Pg 66.

Apple's Other Legacy: Top Designers. September 6, 2005


Where "Think Different" is Taking Apple. August 5, 2003


Intel's Chips: Juice for Apple? September 6, 2005

Could Apple Blow Its iPod Lead?, December 07, 2004

Treacy, Paul. "Returning to Double Digit Growth." Consulting to Management. Mar 2004. 15.1





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