Apple Inc.'s Business and Financial Environment

Apple Inc. Comprehensive Analysis
Table of Contents Executive Summary. 3 Introduction. 4 Consumer Electronics and Computer Software Industry Business Environment 5 Consumer Electronics and Computer Software Industry Finance Environment 9 Apple Capital Analysis. 10 Apple’s Hedging and Derivatives Strategy. 13 Analysis of the Apple’s Green Bonds. 15 Conclusion. 17 References. 19
Executive Summary
Apple Inc. is a multinational technology company based in Cupertino, California founded in 1976 by Steve Jobs, Steve Wozniak, and Ronald Wayne using funds from the sale of a Volkswagen bus, a calculator, and an unused circuit board (Linzmayer, 2004). The company designs, develops, and sells various products such as consumer electronics, computer software, and online services (Linzmayer, 2004). Apple’s hardware products include popular devices like the iPhone, iPad, Mac computer, iPod, Apple Watch, Apple TV, and HomePod. The company also offers software such as operating systems like macOS and iOS, media player iTunes, web browser Safari, and the iLife and iWork suites (Linzmayer, 2004). Their online services include the iTunes Store, iOS App Store, Mac App Store, Apple Music, and iCloud (Linzmayer, 2004).
The growing concern about climate change has put pressure on companies in the consumer electronics and software industry to improve the environmental sustainability of their operations. However, this pressure is compounded by the ongoing challenges caused by COVID-19 and economic hardship (Twinn et al. 2020), which make it difficult for companies to secure the funding they need to invest in environmental stewardship. As a major player in the industry, Apple must balance the need to raise funds for sustainable projects with the need to generate value for its investors. Apple's emphasis on research and development is reflected in its capital structure, with R&D making up the largest operating expenditure in 2022. To avoid negatively impacting the company's capital structure, Apple has issued green bonds, which provide a low-cost way to raise funds for research and development of sustainable innovations that help reduce the company's carbon footprint (Baulkaran, 2019).
Introduction
Apple Inc. is one of the largest and most valuable companies in the world, with a market capitalization of over $2 trillion (Mickle, 2020). In recent years, the company has been criticized for its environmental impact, particularly concerning the production and disposal of its products. To address these concerns, Apple has made several commitments to improve its environmental sustainability. These include reducing its carbon footprint, using more renewable energy, and increasing the efficiency of its products. For example, the company set a goal to be 100 percent powered by renewable energy and achieved it in 2018 (Apple Inc. 2021). They also publicly disclosed the carbon footprint of their products, and are working on the development of recycling technologies to recover valuable materials from devices at the end-of-life (Apple Inc. 2021). In addition to these efforts, Apple has also introduced several features in its products and services to help its customers reduce their environmental impact. These include energy-saving features in its devices and a recycling program that allows customers to trade in their old devices for new ones.
Notably, one of the most important financial decisions that executives of the company have faced is deciding on the financial approach that should be used to facilitate the organization's investment in sustainability projects without a significant impact on the current performance of the company (Podolny & Hansen, 2020). To this end, the investment that Apple requires to make to become sustainable is huge but the return associated with the investment in the present is minimal. Consequently, it was essential for the management to settle on a capital source that allowed the company to make huge investments without incurring a significant interest expense that would harm the performance of the company. The use of Green Bonds to fund investment in sustainable projects has been the main approach taken by the organization to ensure that it invests in sustainable projects without a significant impact on the overall performance of the company (Apple Inc. 2021).
The following paper starts by exploring the business environment within which Apple Inc. operates as well as the financial environment within which the company makes decisions on capital sourcing, to allow for a rational analysis of green bonds as the vehicle for capital project financing.
Consumer Electronics and Computer Software Industry Business Environment
Overall, the consumer electronics and computer software industry is a challenging and rapidly changing market, and companies must be able to adapt quickly to be successful. The consumer electronics and computer software industry is a highly competitive and dynamic market (Apple Inc., 2022). Companies operating in this industry must constantly innovate to stay ahead of the competition and meet the rapidly changing needs and preferences of consumers.
One of the main drivers of the industry is the rapid pace of technological advancements, which creates a constant demand for new and improved products. This can make it challenging for companies to keep up with the latest trends and developments, and those who are unable to innovate quickly risk becoming obsolete. Another major influence on the industry is the global economy, as consumer spending on technology products can be affected by economic downturns (Apple Inc., 2022). Companies must also navigate a complex and ever-changing regulatory environment, with laws and standards varying by country and region. Consumers are increasingly concerned about the environmental impact of technology products and companies are facing increasing pressure to reduce their environmental footprint (Apple Inc., 2022). In addition, companies are increasingly facing pressure to address ethical and social responsibility issues within the supply chain, such as workers' rights, inclusivity, and diversity.
In terms of the software industry, one of the major trends has been the shift toward cloud computing and the software as a service (SaaS) business model, which allows for more flexible and cost-effective access to software and IT resources. The software industry is also heavily dependent on Intellectual Property Rights, and thus, companies have to navigate through various legal challenges such as patent and copyright infringement (Apple Inc., 2022).
The performance of the companies in the industry is heavily reliant on the prevailing trends in the global economy, with negative economic performance having a significant influence on a company’s ability to generate profits for its shareholders. The rising inflation, declining economic growth, and the introduction of new tariffs have been negatively impacting the levels of consumer spending and resulting in decreased demand for the various products produced in the industry (Apple Inc., 2022). The uncertainty in the global economic performance also destabilizes the stability of the supply chains that companies in the industry rely upon to facilitate the production and marketing of its products in that an adverse economic environment interferes with the supplier’s ability to secure the finances they need to continue being a part of the supply chain (Twin et al., 2019). The downturn in the global economy also increases the credit risk faced by the companies in the industry in regards company’s trade receivables, ability to access financing, the valuation of the financial instruments held by the company, and the viability of the derivatives (Apple Inc., 2022). The ongoing decline in global economic performance as exacerbated by the Russia-Ukraine political dispute means that companies in the industry are being forced to perform in an adverse operating environment.
Notably, the industry has experienced both positive and negative effects of the COVID-19 pandemic. On the positive side, the pandemic drove increased consumer demand for various consumer electronics and software (Apple Inc., 2022). With many people working from home and attending school remotely due to the pandemic, there has been a significant increase in demand for technology products such as laptops, tablets, and webcams. Additionally, there has been a spike in sales for video conferencing software such as Zoom, Microsoft Teams, and other telecommunication software, to help people stay connected during the pandemic. On the other hand, the pandemic has had a significant negative effect on the performance of the companies in the field by causing disruptions in the supply chains. Companies have had to navigate logistics challenges and delays, as well as difficulty in sourcing components due to the pandemic (Apple Inc., 2022). The economic downturn and lack of funding opportunities have pushed out some of the key players in the supply chain, especially the small operators. Many of them have had to pivot their business models to survive in this new reality.
The COVID-19 pandemic has had a significant impact on the supply of Apple’s products as it caused disruptions to the global supply chain and affected the production and delivery of technology products. One of the main ways the pandemic has affected the iPhone supply is through disruptions to the production of iPhones in China, which is where many of the devices are manufactured. The outbreak of the pandemic in China led to the closure of factories and supply chain disruptions, which caused delays in the production of iPhones (Apple Inc., 2022). As a result, many retailers have reported a shortage of iPhones in stock and delays in the delivery of devices to customers. Additionally, the pandemic has also had an impact on the demand for iPhones, as the global economic downturn caused by the pandemic has led to a decrease in consumer spending on luxury items like the iPhone, which could affect the revenue for the company and demand for the products. Apple, like many companies, had to adjust quickly to the changing situation, and shifted its focus from producing iPhones to producing products that are essential during the pandemic such as face shields, and PPE, and even started developing a testing kit for COVID-19.
Concerns about climate change mean that companies in the industry face significant pressure from internal and external stakeholders to adopt a measure that would minimize their environmental footprint. The production and disposal of consumer electronics and the manufacture and distribution of software can have a significant environmental impact. The mining of raw materials for electronic devices, such as rare earth metals and lithium, can cause pollution and habitat destruction. The production of these devices can also generate significant greenhouse gas emissions. Additionally, the disposal of electronic waste (e-waste) is a major problem as it can contain harmful substances such as lead, mercury, and cadmium, which can leach into the environment if not properly managed (Clark & Clark, 2019). In addition to that software distribution usually goes to the high energy consumption of data centers and transportation of physical products.
Improper disposal of e-waste can also lead to the release of these harmful substances into the environment and can cause health problems for people living near e-waste disposal sites. Moreover, the shipping of electronic devices and software products around the globe for distribution also contributes to environmental issues through the energy consumption of transportation and the generation of carbon emissions (Apple Inc., 2022). Companies in the consumer electronics and software industry are increasingly recognizing these environmental issues and taking steps to address them. Some companies are implementing more sustainable manufacturing practices, designing products with a longer lifespan, and increasing their use of renewable energy. Additionally, many companies are also taking steps to improve the recycling and disposal of e-waste.
Apple’s financial decision to raise capital in the global markets was informed by the increased scrutiny that the company’s sustainability effort receive from internal and external stakeholders. It was essential for the company to raise finances that could be reliably used to fund efforts directed toward increasing the level of the company’s environmental stewardship without a significant influence on the financial performance of the company (Apple Inc., 2022).
Consumer Electronics and Computer Software Industry Finance Environment
Access to bank financing can vary for companies in the consumer electronics and co...