Executive Summary Demand and Supply Smartphones have become the most common and

Executive Summary

Demand and Supply

Smartphones have become the most common and essential electronic devices to the point that they are considered a norm. Since the introduction of the Apple iPhone in 2007, the smartphone industry has been steadily growing in market size, number of models, and vendors (Smartphones Market Growth, Analysis, Trends (2022-27)| Industry Report, n.d.). After the introduction of the first mobile phone, about 90 percent of developed countries had been exposed to smartphones. Hence, consumers’ reliance on smartphones has increased as more features have become available, resulting in a rapid demand increase for smartphones (see Appx. 1) (Global Mobile Consumer Trends: Second Edition, 2022). In addition to the rising demand for smartphones, the industry has become more desirable and competitive. In 2021, the smartphone market was valued at 273.9 U.S billion dollars and was forecasted to reach 520.7 U.S. billion dollars by 2030 (Smartphones Market Growth, Analysis, Trends (2022-27)| Industry Report, n.d.).

As a result of the increase in demand for smartphones, top suppliers such as Apple, Samsung, Huawei, and a few others have established strategies that cope with high demand. The suggested firms above have processes that enable them to avoid missing the opportunity to maximize revenue due to their shortage in supply. For instance, Apple utilizes the strategy of releasing a new iPhone yearly. Once Apple produces an iPhone, it displays it into three models. The standard model, iPhone Pro, and iPhone pro max (see Appx. 2). The phone models have similar features and operate the same, except for a few tweaks that make each of them unique.

Such a strategy allows Apple to control the possibility of demand overflow and allow its customers to choose the iPhone they want. The system also allows the company to predict sales and revenue and avoid losses (see Appx. 3). This ability assists the firm in forecast supply based on the expected demand through unique circumstances such as Covid-19 (Frier, S. 2020).

Fixed and Variable Costs

As stated earlier, the smartphone industry has steadily increased since the early 2000s. The sector has attracted many firms participating in the abundant supply of smartphones. Consequently, firms in the industry have had to be creative and innovative to differentiate their smartphones from their competitors.

The creativity and innovations a firm makes on its smartphone depend on how different it wants its product to be, how much it is willing to invest, and if the benefits outweigh the costs. Therefore, the production costs for each smartphone industry firm vary. For instance, Apple Inc’s annual and quarterly operating expenses have skyrocketed since it produced the first iPhone. From 2019 to 2020, Apple’s operating yearly costs had a 6.11 percent increase (Apple Operating Expenses 2010-2022 | AAPL, n.d.). Apple’s annual growth in operating expenses fluctuates due to its fixed and variable costs.

Like other firms, Apple’s fixed costs consist of depreciation on equipment, factories, and buildings, as well as salaries and administrative costs. The fixed expenses stay relatively constant throughout Apple’s accounting periods. On the other hand, variable costs primarily affect Apple’s annual operating expenses. The increase of competing firms in the smartphone industry has compelled Apple to increase spending on research and development for its future smartphones. In addition to research and development, labor is another of Apple’s variable costs. Apple’s labor costs change depending on multiple factors, including releasing new products or catching up with pre existing orders (Fixed/Variable Costs and Profits – Sunniportfolio2, n.d.). Despite high fixed and variable costs, Apple prevails with much higher revenues than its costs. Most revenue comes from the smartphone iPhone (see Appx. 4).

Comparative Advantage

The smartphone industry has a constant growth of technology and unpredictable developments. For example, before 2007, there was no phone that people could use by hand and carry around. The introduction of the first iPhone by Apple’s technology entirely changed the smartphone industry (Copeland, 2010). In 1979, Sony created the first portable music player, and then later, Japan altered the music industry by introducing the Discman in 1990. Not long after the Discman, Apple also introduced the first generation of AirPods, which took the industry by storm (Bertolucci, 2009). The example shows that the industry can change rapidly through technology, and no one can know the next technological breakthrough.

Excluding price, smartphone companies define their core value by targeting different levels of customers (Hess, 2006). As a result, firms in the smartphone industry have different strategies and advantages to maintain their competitiveness in the market. For instance, in 2007, Apple removed the word “Computer” to reflect the company’s focus on consumer electronics and digital distribution (Apple, Inc., 2012). Apple’s decision gave them a competitive advantage because they could now explore more options for other products. In addition, Apple gained a comparative advantage in that it could now design and develop its operating systems, hardware, application software, and services to provide its customers with new products and solutions with superior ease of use, seamless integration, and innovative design. Another advantage of Apple is that the company believes in continual investment in research, development, marketing, and advertising (Apple’s Annual Report, 2011). This is one of the reasons why it can produce new iPhones and other products every year and raise higher revenues than the rest of the industry.

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References

Apple Operating Expenses 2010-2022 | AAPL. (n.d.). MacroTrends. Retrieved October 28, 2022, from https://www.macrotrends.net/stocks/charts/AAPL/apple/operating-expenses

Apple, Inc. (2012). www.apple.com. Apple’s No. 2 Has Low Profile, High Impact. (n.d.). Retrieved October 31, 2022, from http://www.eng.auburn.edu/enewsletter/november2006/alumni/tim-cook.html.

Bertolucci, J. (2009, 02). Reliability report card: grading tech’s biggest brands. PC World, 27(2). Chan, J. (2010, November 4). Retrieved October 31, 2022, from World Socialist Web Site: http://wsws.org/articles/2010/nov2010/foxn-n04.shtml.

Copeland, Michael, V. (2010, 03 22). The iPad changes everything. Fortune, 161(4). Dan, G. (2012). Os x global market share passes windows vista. Retrieved from http://www.bgr.com/2022/10/31/windows-os-x-market-share-august-2012/.

Fixed/Variable Costs and Profits – sunniportfolio2. (n.d.). Retrieved October 28, 2022, from https://sites.google.com/site/sunniportfolio2/business-history/apple-cost

Frier, S. (2020). Apple Won’t Meet Quarterly Revenue Target Due to Coronavirus. Bloomberg.Com, N.PAG.

Hess, M., and N.M. Coe (2006) “Making Connections: Global Production Networks, Standards, and embeddedness in the Mobile-Telecommunications Industry,” Environment and Planning (38), pp. 1205–1227.

Global mobile consumer trends: Second edition. (2022, March 17). Deloitte. https://www2.deloitte.com/global/en/pages/technology-media-and-telecommunications/articles/gx-global-mobile-consumer-trends.html

Smartphones Market Growth, Analysis, Trends (2022-27)| Industry Report. (n.d.). Retrieved October 24, 2022, from https://www.mordorintelligence.com/industry-reports/smartphones-market

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