Apple has been among the leading companies in the sale of iPhones and smartphones. The company recorded the highest income by hitting a historic high of $705 following the late entry of the Steve Jobs into Apple Inc. as the chief executive officer. Apple has been leading in terms of innovation and technological development.
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However, the company has registered low incomes over the recent past, causing alarm to the shareholders due to the decrease in profit margins. The price per earnings ratio has decreased drastically, thus prompting the management to start strategizing new business options to increase profitability.
One of the strategies that the company is planning to adopt is the manufacture of low cost iPhones. Currently, the net sales per iPhone unit sold are about $644.
There is a possibility that most people are not likely to afford the device, considering the recent economic recession. It is important to note that most of the people who buy these products are the young people, most of who do not have a stable income. Therefore, lowering the cost of iPhones would be a good step toward reviving the company’s business. The target net sales for an iPhone should be set at around $400.
The target price for a 16GB iPhone 3G should be at around $400. This will be affordable to most people. The amount of units sold will increase and revenue is likely to increase. Manufacturing target cost should be about $200, and the target gross profit will be $200.
The iPhone will have made a good profit that can increase the price per earnings ratio after the deduction of other expenses. People are not likely to afford expensive products with the economic environment today. In this regard, producing lower cost iPhones will boost the company’s performance.
The use of wearable computers has increased over the last couple of years. Very many people today use these devices for various reasons. The wearable computers have a number of purposes that they can be used for. This makes the demand for them even higher.
The computers are mainly used by the media personnel and organizations that deal with the collection of intelligence information. These devices are, therefore, used in information technology as well as in the development of the media.
Apple Inc. has not been in the business of wearable computers despite the increasing demand for these devices. The company’s main business has been iPhones and other smartphones. There is the need for Apple to explore any market that has the ability to increase the company’s income in a bid to counter its decreasing performance. Wearable computers present this opportunity.
In fact, wearable computers are seen as the likely long term replacement for iPhones. It is important to be price sensitive in manufacturing the wearable computers. The current price of wearable computers is in the range of about $1,700. This is a cost that not many people are likely to afford, thus sales from the device are likely to be down.
Therefore, Apple Inc. should target a price that is much lower, like $1000- $1300, when producing wearable computers. Despite the fact that this is still a high cost, it will be much cheaper compared to the prices in the market at the moment.
The manufacturing cost of the device will be targeted at about $600- $800. The gross profit will, therefore, be about $400- $500. It will be assumed that the market for wearable computers will increase in the foreseeable future. The total revenue will, therefore, grow significantly in the next 10 years.
Current products and Technology to Drive Sales and Profits
Sales for Apple’s current products have decreased, thus profitability has gone down in a manner that is worrying to the company’s stakeholders. Competition has increased as several other companies have come up and are capable of producing similar products and sell them at a lower cost.
Therefore, it is high time for the company to notice that the current technology might not be relied upon to generate revenue in the future. There is a need for more innovations and advancement of the current technology in order for the company to regain its competitive advantage.
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However, reducing the price for current products and sticking with the current technology can be effective in increasing the level of sales in the recent future. For instance, it has been estimated that the production cost for iPhone will be about $200. Assuming that the same number of units produced last year will be produced this year, the total manufacturing cost will be $25,009,200.
Similarly, the total profits will be $11,588,200 assuming that the total expenses for this year will be the same as those for last year (gross profits – total expenses). It is important to note that this strategy is likely to be effective in the short run only. In this regard, there is the need to come up with a strategy that can increase the company’s profits in the long run. Wearable computers can be a viable plan for long term profitability.