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0000320193
20180801
10-Q
530
Competition has been particularly intense as competitors have aggressively cut prices and lowered product margins.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
531
An increasing number of internet-enabled devices that include software applications and are smaller and simpler than traditional personal computers compete for market share with the Company’s existing products.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
532
The Company’s financial condition and operating results also depend on its ability to continually improve the Mac platform to maintain its functional and design advantages.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
533
There can be no assurance the Company will be able to continue to provide products and services that compete effectively.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
534
To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
535
Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce new products, services and technologies, enhance existing products and services, effectively stimulate customer demand for new and upgraded products and successfully manage the trans...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
536
The success of new product introductions depends on a number of factors including, but not limited to, timely and successful product development, market acceptance, the Company’s ability to manage the risks associated with new product production ramp-up issues, the availability of application software for new products,...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
537
Accordingly, the Company cannot determine in advance the ultimate effect of new product introductions and transitions.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
538
Apple Inc. | Q3 2018 Form 10-Q | 37 The Company depends on the performance of distributors, carriers and other resellers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
539
The Company distributes its products through cellular network carriers, wholesalers, national and regional retailers and resellers, many of whom distribute products from competing manufacturers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
540
The Company also sells its products and third-party products in most of its major markets directly to education, enterprise and government customers and consumers and small and mid-sized businesses through its retail and online stores.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
541
Some carriers providing cellular network service for iPhone subsidize users’ purchases of the device.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
542
There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of the Company’s agreements with these carriers or in agreements the Company enters into with new carriers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
543
The Company has invested and will continue to invest in programs to enhance reseller sales, including staffing selected resellers’ stores with Company employees and contractors, and improving product placement displays.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
544
These programs could require a substantial investment while providing no assurance of return or incremental revenue.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
545
The financial condition of these resellers could weaken, these resellers could stop distributing the Company’s products, or uncertainty regarding demand for some or all of the Company’s products could cause resellers to reduce their ordering and marketing of the Company’s products.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
546
The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
547
The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated demand or net realizable value and accrues necessary cancellation fee reserves for orders of excess products and components.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
548
The Company also reviews its long-lived assets, including capital assets held at its suppliers’ facilities and inventory prepayments, for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
549
If the Company determines that impairment has occurred, it records a write-down equal to the amount by which the carrying value of the asset exceeds its fair value.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
550
Although the Company believes its provisions related to inventory, capital assets, inventory prepayments and other assets and purchase commitments are currently adequate, no assurance can be given that the Company will not incur additional related charges given the rapid and unpredictable pace of product obsolescence i...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
551
The Company must order components for its products and build inventory in advance of product announcements and shipments.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
552
Manufacturing purchase obligations typically cover forecasted component and manufacturing requirements for periods up to 150 days.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
553
Because the Company’s markets are volatile, competitive and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components or products, or not fully utilize firm purchase commitments.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
554
Future operating results depend upon the Company’s ability to obtain components in sufficient quantities on commercially reasonable terms.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
555
Because the Company currently obtains components from single or limited sources, the Company is subject to significant supply and pricing risks.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
556
Many components, including those that are available from multiple sources, are at times subject to industry-wide shortages and significant commodity pricing fluctuations.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
557
While the Company has entered into agreements for the supply of many components, there can be no assurance that the Company will be able to extend or renew these agreements on similar terms, or at all.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
558
A number of suppliers of components may suffer from poor financial conditions, which can lead to business failure for the supplier or consolidation within a particular industry, further limiting the Company’s ability to obtain sufficient quantities of components on commercially reasonable terms.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
559
The effects of global or regional economic conditions on the Company’s suppliers, described in “Global and regional economic conditions could materially adversely affect the Company’s business, results of operations, financial condition and growth” above, also could affect the Company’s ability to obtain components.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
560
Therefore, the Company remains subject to significant risks of supply shortages and price increases.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
561
The Company’s new products often utilize custom components available from only one source.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
562
When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
563
Continued availability of these components at acceptable prices, or at all, may be affected for any number of reasons, including if those suppliers decide to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
564
The supply of components for a new or existing product could be delayed or constrained, or a key manufacturing vendor could delay shipments of completed products to the Company.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
565
Apple Inc. | Q3 2018 Form 10-Q | 38 The Company depends on component and product manufacturing and logistical services provided by outsourcing partners, many of which are located outside of the U.S.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
566
Substantially all of the Company’s manufacturing is performed in whole or in part by a few outsourcing partners located primarily in Asia.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
567
The Company has also outsourced much of its transportation and logistics management.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
568
While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
569
It is uncertain what effect such diminished control will have on the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
570
Although arrangements with these partners may contain provisions for warranty expense reimbursement, the Company may remain responsible to the consumer for warranty service in the event of product defects and could experience an unanticipated product defect or warranty liability.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
571
While the Company relies on its partners to adhere to its supplier code of conduct, material violations of the supplier code of conduct could occur.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
572
The Company relies on sole-sourced outsourcing partners in the U.S., Asia and Europe to supply and manufacture many critical components, and on outsourcing partners primarily located in Asia, for final assembly of substantially all of the Company’s hardware products.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
573
Any failure of these partners to perform may have a negative impact on the Company’s cost or supply of components or finished goods.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
574
In addition, manufacturing or logistics in these locations or transit to final destinations may be disrupted for a variety of reasons including, but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military actions, economic, business, labor, environmental, pu...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
575
The Company has invested in manufacturing process equipment, much of which is held at certain of its outsourcing partners, and has made prepayments to certain of its suppliers associated with long-term supply agreements.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
576
While these arrangements help ensure the supply of components and finished goods, if these outsourcing partners or suppliers experience severe financial problems or other disruptions in their business, such continued supply could be reduced or terminated and the net realizable value of these assets could be negatively ...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
577
The Company’s products and services may be affected from time to time by design and manufacturing defects that could materially adversely affect the Company’s business and result in harm to the Company’s reputation.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
578
The Company offers complex hardware and software products and services that can be affected by design and manufacturing defects.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
579
Sophisticated operating system software and applications, such as those offered by the Company, often have issues that can unexpectedly interfere with the intended operation of hardware or software products.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
580
Defects may also exist in components and products the Company purchases from third parties.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
581
Component defects could make the Company’s products unsafe and create a risk of environmental or property damage and personal injury.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
582
These risks may increase as the Company’s products are introduced into specialized applications, including healthcare.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
583
In addition, the Company’s service offerings may have quality issues and from time to time experience outages, service slowdowns or errors.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
584
As a result, the Company’s services may not perform as anticipated and may not meet customer expectations.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
585
There can be no assurance the Company will be able to detect and fix all issues and defects in the hardware, software and services it offers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
586
Failure to do so could result in widespread technical and performance issues affecting the Company’s products and services.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
587
In addition, the Company may be exposed to product liability claims, recalls, product replacements or modifications, write-offs of inventory, property, plant and equipment, and/or intangible assets, and significant warranty and other expenses, including litigation costs and regulatory fines.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
588
Quality problems could also adversely affect the experience for users of the Company’s products and services, and result in harm to the Company’s reputation, loss of competitive advantage, poor market acceptance, reduced demand for products and services, delay in new product and services introductions and lost revenue.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
589
The Company relies on access to third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
590
The Company contracts with numerous third parties to offer their digital content to customers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
591
This includes the right to sell currently available music, movies, TV shows and books.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
592
The licensing or other distribution arrangements with these third parties are for relatively short terms and do not guarantee the continuation or renewal of these arrangements on reasonable terms, if at all.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
593
Some third-party content providers and distributors currently or in the future may offer competing products and services, and could take action to make it more difficult or impossible for the Company to license or otherwise distribute their content in the future.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
594
Other content owners, providers or distributors may seek to limit the Company’s access to, or increase the cost of, such content.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
595
The Company may be unable to continue to offer a wide variety of content at reasonable prices with acceptable usage rules, or continue to expand its geographic reach.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
596
Failure to obtain the right to make third-party digital content available, or to make such content available on commercially reasonable terms, could have a material adverse impact on the Company’s financial condition and operating results.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
597
Some third-party digital content providers require the Company to provide digital rights management and other security solutions.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
598
If requirements change, the Company may have to develop or license new technology to provide these solutions.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
599
There is no assurance the Company will be able to develop or license such solutions at a reasonable cost and in a timely manner.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
600
In addition, certain countries have passed or may propose and adopt legislation that would force the Company to license its digital rights management, which could lessen the protection of content and subject it to piracy and also could negatively affect arrangements with the Company’s content providers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
601
Apple Inc. | Q3 2018 Form 10-Q | 39 The Company’s future performance depends in part on support from third-party software developers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
602
The Company believes decisions by customers to purchase its hardware products depend in part on the availability of third-party software applications and services.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
603
There is no assurance that third-party developers will continue to develop and maintain software applications and services for the Company’s products.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
604
If third-party software applications and services cease to be developed and maintained for the Company’s products, customers may choose not to buy the Company’s products.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
605
With respect to its Mac products, the Company believes the availability of third-party software applications and services depends in part on the developers’ perception and analysis of the relative benefits of developing, maintaining and upgrading such software for the Company’s products compared to Windows-based produc...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
606
This analysis may be based on factors such as the market position of the Company and its products, the anticipated revenue that may be generated, expected future growth of Mac sales and the costs of developing such applications and services.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
607
If the Company’s minority share of the global personal computer market causes developers to question the Mac’s prospects, developers could be less inclined to develop or upgrade software for the Company’s Mac products and more inclined to devote their resources to developing and upgrading software for the larger Window...
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
608
With respect to iOS devices, the Company relies on the continued availability and development of compelling and innovative software applications, including applications distributed through the App Store.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
609
iOS devices are subject to rapid technological change, and, if third-party developers are unable to or choose not to keep up with this pace of change, third-party applications might not successfully operate and may result in dissatisfied customers.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
610
As with applications for the Company’s Mac products, the availability and development of these applications also depend on developers’ perceptions and analysis of the relative benefits of developing, maintaining or upgrading software for the Company’s iOS devices rather than its competitors’ platforms, such as Android.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
611
If developers focus their efforts on these competing platforms, the availability and quality of applications for the Company’s iOS devices may suffer.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
612
The Company relies on access to third-party intellectual property, which may not be available to the Company on commercially reasonable terms or at all.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
613
Many of the Company’s products include third-party intellectual property, which requires licenses from those third parties.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
614
Based on past experience and industry practice, the Company believes such licenses generally can be obtained on reasonable terms.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
615
There is, however, no assurance that the necessary licenses can be obtained on acceptable terms or at all.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
616
Failure to obtain the right to use third-party intellectual property, or to use such intellectual property on commercially reasonable terms, could preclude the Company from selling certain products or otherwise have a material adverse impact on the Company’s financial condition and operating results.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
617
The Company could be impacted by unfavorable results of legal proceedings, such as being found to have infringed on intellectual property rights.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
618
The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of business and have not yet been fully resolved, and new claims may arise in the future.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
619
In addition, agreements entered into by the Company sometimes include indemnification provisions which may subject the Company to costs and damages in the event of a claim against an indemnified third party.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
620
Claims against the Company based on allegations of patent infringement or other violations of intellectual property rights have generally increased over time and may continue to increase.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
621
In particular, the Company has historically faced a significant number of patent claims relating to its cellular-enabled products, and new claims may arise in the future.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
622
For example, technology and other patent-holding companies frequently assert their patents and seek royalties and often enter into litigation based on allegations of patent infringement or other violations of intellectual property rights.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
623
The Company is vigorously defending infringement actions in courts in a number of U.S. jurisdictions and before the U.S. International Trade Commission, as well as internationally in various countries.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
624
The plaintiffs in these actions frequently seek injunctions and substantial damages.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
625
Regardless of the merit of particular claims, litigation may be expensive, time-consuming, disruptive to the Company’s operations and distracting to management.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
626
In recognition of these considerations, the Company may enter into licensing agreements or other arrangements to settle litigation and resolve such disputes.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
627
No assurance can be given that such agreements can be obtained on acceptable terms or that litigation will not occur.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
628
These agreements may also significantly increase the Company’s operating expenses.
0000320193-18-000100/full-submission.txt
0000320193
20180801
10-Q
629
Except as described in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 9, “Commitments and Contingencies” under the heading “Contingencies,” in the opinion of management, there was not at least a reasonable possibility the Company may have incurred a material loss, o...
0000320193-18-000100/full-submission.txt