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0000320193
20120725
10-Q
519
By contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures, and emulating the Company’s products and infringing its intellectual property.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
520
If the Company is unable to continue to develop and sell innovative new products with attractive margins or if competitors infringe on the Company’s intellectual property, the Company’s ability to maintain a competitive advantage could be adversely affected.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
521
The Company markets certain mobile communication and media devices based on the iOS mobile operating system and also markets related third-party digital content and applications.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
522
The Company faces substantial competition in these markets from companies that have significant technical, marketing, distribution and other resources, as well as established hardware, software and digital content supplier relationships.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
523
Additionally, the Company faces significant price competition as competitors reduce their selling prices and attempt to imitate the Company’s product features and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently ...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
524
The Company also competes with illegitimate ways to obtain third-party digital content and applications.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
525
The Company has entered the mobile communications and media device markets, and some of its competitors in these markets have greater experience, product breadth and distribution channels than the Company.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
526
Because some current and potential competitors have substantial resources and/or experience and a lower cost structure, they may be able to provide such products and services at little or no profit or even at a loss.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
527
The Company also expects competition to intensify as competitors attempt to imitate the Company’s approach to providing these components seamlessly within their individual offerings or work collaboratively to offer integrated solutions.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
528
The Company’s financial condition and operating results depend substantially on the Company’s ability to continually improve iOS and iOS devices in order to maintain their functional and design advantages.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
529
The Company is the only authorized maker of hardware using OS X, which has a minority market share in the personal computer market.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
530
This market is dominated by computer makers using competing operating systems, most notably Windows.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
531
In the market for personal computers and peripherals, the Company faces a significant number of competitors, many of which have broader product lines, lower priced products, and a larger installed customer base.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
532
Consolidation in this market has resulted in larger and potentially stronger competitors.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
533
Price competition has been particularly intense as competitors selling Windows-based personal computers have aggressively cut prices and lowered product margins.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
534
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
535
The Company’s financial condition and operating results depend substantially on its ability to continually improve the Mac platform to maintain its functional and design advantages.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
536
There can be no assurance the Company will be able to continue to provide products and services that compete effectively.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
537
To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
538
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, and effectively stimulate customer demand for new and upgraded products.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
539
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 products and production ramp-up issues, the availability of application software for new prod...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
540
Accordingly, the Company cannot determine in advance the ultimate effect of new product introductions and transitions.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
541
The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
542
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
543
The Company also reviews its long-lived assets for impairment whenever events or circumstances indicate the carrying amount of an asset may not be recoverable.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
544
If the Company determines that impairment has occurred, it records a write-down equal to the amount by which the carrying value of the assets exceeds its fair market value.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
545
Although the Company believes its provisions related to inventory, capital assets, 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 in the industries in which ...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
546
The Company must order components for its products and build inventory in advance of product announcements and shipments.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
547
Consistent with industry practice, components are normally acquired through a combination of purchase orders, supplier contracts, open orders and, where appropriate, inventory component prepayments, in each case based on projected demand.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
548
Such purchase commitments typically cover forecasted component and manufacturing requirements for periods up to 150 days.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
549
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
550
Future operating results depend upon the Company’s ability to obtain components in sufficient quantities.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
551
Because the Company currently obtains components from single or limited sources, the Company is subject to significant supply and pricing risks.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
552
Many components that are available from multiple sources are at times subject to industry-wide shortages and significant commodity pricing fluctuations.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
553
While the Company has entered into various agreements for the supply of components, there can be no assurance that the Company will be able to extend or renew these agreements on similar terms, or at all.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
554
The follow-on effects from global economic conditions on the Company’s suppliers, described in “Global economic conditions could materially adversely affect the Company” above, also could affect the Company’s ability to obtain components.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
555
Therefore, the Company remains subject to significant risks of supply shortages and price increases.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
556
The Company expects to experience decreases in its gross margin percentage in future periods, as compared to levels achieved during the first nine months of 2012, largely due to a higher mix of new and innovative products with flat or reduced pricing that have higher cost structures and deliver greater value to custome...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
557
The Company and other participants in the mobile communication and media device, and personal computer industries compete for various components with other industries that have experienced increased demand for their products.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
558
The Company uses some custom components that are not common to the rest of these industries.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
559
The Company’s new products often utilize custom components available from only one source.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
560
When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
561
Continued availability of these components at acceptable prices, or at all, may be affected if those suppliers decided to concentrate on the production of common components instead of components customized to meet the Company’s requirements.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
562
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
563
The Company depends on component and product manufacturing and logistical services provided by outsourcing partners, many of whom are located outside of the U.S.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
564
Substantially all of the Company’s manufacturing is performed in whole or in part by a few outsourcing partners primarily located in Asia.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
565
The Company has also outsourced much of its transportation and logistics management.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
566
While these arrangements may lower operating costs, they also reduce the Company’s direct control over production and distribution.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
567
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
568
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
569
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
570
The supply and manufacture of many critical components is performed by sole-sourced outsourcing partners in the U.S., Asia and Europe.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
571
Single-sourced outsourcing partners in Asia perform final assembly of substantially all of the Company’s hardware products.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
572
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, military actions or economic, business, labor, environmental, public health, or political issues...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
573
The Company relies on third-party intellectual property and digital content, which may not be available to the Company on commercially reasonable terms or at all.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
574
Many of the Company’s products include third-party intellectual property, which requires licenses from those third parties.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
575
Based on past experience and industry practice, the Company believes such licenses generally can be obtained on reasonable terms.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
576
There is, however, no assurance that the necessary licenses can be obtained on acceptable terms or at all.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
577
The Company also contracts with third parties to offer their digital content through the iTunes Store.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
578
The licensing arrangements with these third parties are short-term and do not guarantee the continuation or renewal of these arrangements on reasonable terms, if at all.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
579
Some third-party content providers 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 their content in the future.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
580
Other content owners, providers or distributors may seek to limit the Company’s access to, or increase the cost of, such content.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
581
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
582
Many third-party content providers require the Company to provide digital rights management and other security solutions.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
583
If requirements change, the Company may have to develop or license new technology to provide these solutions.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
584
There is no assurance the Company will be able to develop or license such solutions at a reasonable cost and in a timely manner.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
585
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
586
The Company is frequently the subject of intellectual property litigation, and could be found to have infringed on intellectual property rights.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
587
Technology companies, including many of the Company’s competitors, frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
588
In addition, patent holding companies seek to monetize patents they have purchased or otherwise obtained.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
589
As the Company has grown, the intellectual property rights claims against it have increased and may continue to increase.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
590
In particular, the Company’s cellular enabled products compete with mobile communication and media device companies that hold significant patent portfolios, and the number of patent claims against the Company has significantly increased.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
591
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 Europe and Asia.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
592
The plaintiffs in these actions frequently seek injunctions and substantial damages.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
593
Regardless of the scope or validity of such patents or other intellectual property rights, or the merits of any claims by potential or actual litigants, the Company may have to engage in protracted litigation.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
594
If the Company is found to infringe one or more patents or other intellectual property rights, regardless of whether it can develop non-infringing technology, it may be required to pay substantial damages or royalties to a third-party, or it may be subject to a temporary or permanent injunction prohibiting the Company ...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
595
In certain cases, the Company may consider the desirability of entering into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
596
These licenses may also significantly increase the Company’s operating expenses.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
597
In management’s opinion, there is not at least a reasonable possibility the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies, including matters related to infringement of intellectual property rights.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
598
However, the outcome of litigation is inherently uncertain.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
599
Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be ma...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
600
The Company’s future performance depends in part on support from third-party software developers.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
601
The Company believes decisions by customers to purchase its hardware products depend in part on the availability of third-party software applications and services.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
602
There is no assurance that third-party developers will continue to develop and maintain software applications and services for the Company’s products.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
603
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
604
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 produ...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
605
This analysis may be based on factors such as the perceived strength of the Company and its products, the anticipated revenue that may be generated, continued acceptance by customers of OS X, and the costs of developing such applications and services.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
606
If the Company’s minority share of the global personal computer market causes developers to question the Company’s prospects, developers could be less inclined to develop or upgrade software for the Company’s products and more inclined to devote their resources to developing and upgrading software for the larger Window...
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
607
With respect to iOS devices, the Company relies on the continued availability and development of compelling and innovative software applications, which are distributed through a single distribution channel, the App Store.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
608
The absence of multiple distribution channels, which are available for competing platforms, may limit the availability and acceptance of third-party applications by the Company’s customers, thereby causing developers to reduce or curtail development for the iOS platform.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
609
In addition, 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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
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 software for the Company’s products rather than its competitors’ products, including devices that use competing platforms...
0001193125-12-314552/full-submission.txt
0000320193
20120725
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
612
The Company depends on the performance of distributors, carriers and other resellers.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
613
The Company distributes its products through wholesalers, resellers, national and regional retailers, and value-added resellers, many of whom distribute products from competing manufacturers.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
614
The Company also sells many of its products and third-party products in most of its major markets directly to education customers, cellular network carriers’ distribution channels, resellers and consumers through its online and retail stores.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
615
Carriers providing cellular network service for iPhone typically subsidize users’ purchase of the device.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
616
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.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
617
Many resellers have narrow operating margins and have been adversely affected in the past by weak economic conditions.
0001193125-12-314552/full-submission.txt
0000320193
20120725
10-Q
618
Some resellers have perceived the expansion of the Company’s direct sales as conflicting with their business interests as distributors and resellers of the Company’s products.
0001193125-12-314552/full-submission.txt