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0000320193
20161026
10-K
38
Business Organization The Company manages its business primarily on a geographic basis.
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The Company’s reportable operating segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.
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The Americas segment includes both North and South America.
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The Europe segment includes European countries, as well as India, the Middle East and Africa.
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The Greater China segment includes China, Hong Kong and Taiwan.
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The Rest of Asia Pacific segment includes Australia and those Asian countries not included in the Company’s other reportable operating segments.
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Although the reportable operating segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region.
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20161026
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Further information regarding the Company’s reportable operating segments may be found in Part II, Item 7 of this Form 10-K under the subheading “Segment Operating Performance,” and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 11, “Segment Information and Geographic Dat...
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iPhone includes Siri®, a voice activated intelligent assistant, and Apple Pay and Touch ID® on qualifying devices.
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In September 2016, the Company introduced iPhone 7 and 7 Plus, featuring new camera systems, immersive stereo speakers and water and dust resistance.
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During the third quarter of 2016, the Company also began selling iPhone SE, which has a 4-inch Retina® display.
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iPhone works with the iTunes Store, App Store, iBooks Store and Apple Music for purchasing, organizing and playing digital content and apps.
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iPad iPad is the Company’s line of multi-purpose tablets based on its iOS operating system, which includes iPad Pro™, iPad Air® and iPad mini™.
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iPad includes Siri and also includes Touch ID on qualifying devices.
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iPad works with the iTunes Store, App Store, iBooks Store and Apple Music for purchasing, organizing and playing digital content and apps.
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Mac Mac is the Company’s line of desktop and portable personal computers based on its macOS operating system.
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The Company’s desktop computers include iMac®, 21.5” iMac with Retina 4K display, 27” iMac with Retina 5K display, Mac Pro® and Mac mini®.
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The Company’s portable computers include MacBook®, MacBook Air®, MacBook Pro® and MacBook Pro with Retina display.
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Operating System Software iOS iOS is the Company’s Multi-Touch™ operating system that serves as the foundation for iOS devices.
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Devices running iOS are compatible with both Mac and Windows personal computers and Apple’s iCloud services.
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In September 2016, the Company released iOS 10, which introduces the ability for Siri to do more by working with apps, updates Messages, includes redesigned Maps, Photos, Apple Music and News apps, and the Home app, which provides a way to manage home automation products in one place.
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macOS macOS is the Company’s Mac operating system and is built on an open-source UNIX-based foundation and provides an intuitive and integrated computer experience.
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Support for iCloud is built into macOS so users can access content and information from Mac, iOS devices and other supported devices and access downloaded content and apps from the iTunes Store.
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macOS Sierra, released in September 2016, is the 13th major release of macOS and incorporates Siri and Apple Pay on the Mac, improves continuity and document access across Apple devices and includes the new Memories feature in Photos.
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watchOS watchOS is the Company’s operating system for Apple Watch.
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Released in September 2016, watchOS 3 provides improved performance with the ability to launch favorite apps instantly, enhanced navigation with the new Dock and new fitness and health capabilities for Apple Watch, including the Breathe app designed to promote exercises for relaxation and stress reduction.
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tvOS tvOS is the Company's operating system for Apple TV.
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The tvOS operating system is based on the Company’s iOS platform and enables developers to create new apps and games specifically for Apple TV and deliver them to customers through the Apple TV App Store.
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The new tvOS, released in September 2016, incorporates new Siri capabilities that allow searching across more apps and services.
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Application Software The Company’s application software includes iLife®, iWork® and various other software, including Final Cut Pro®, Logic® Pro X and FileMaker® Pro.
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iLife is the Company’s consumer-oriented digital lifestyle software application suite included with all Mac computers and features iMovie®, a digital video editing application, and GarageBand®, a music creation application that allows users to play, record and create music.
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iWork is the Company’s integrated productivity suite included with all Mac computers and is designed to help users create, present and publish documents through Pages®, presentations through Keynote® and spreadsheets through Numbers®.
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The Company also has Multi-Touch versions of iLife and iWork applications designed specifically for use on iOS devices, which are available as free downloads for all new iOS devices.
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Apple Inc. | 2016 Form 10-K | 2 Services Internet Services The iTunes Store, available for iOS devices, Mac and Windows personal computers and Apple TV, allows customers to purchase and download music and TV shows, rent or purchase movies and download free podcasts.
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The App Store, available for iOS devices, allows customers to discover and download apps and purchase in-app content.
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The Mac App Store, available for Mac computers, allows customers to discover, download and install Mac applications.
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The TV App Store allows customers access to apps and games specifically for the Apple TV.
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The iBooks Store, available for iOS devices and Mac computers, features e-books from major and independent publishers.
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Apple Music offers users a curated listening experience with on-demand radio stations that evolve based on a user’s play or download activity and a subscription-based internet streaming service that also provides unlimited access to the Apple Music library.
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iCloud iCloud is the Company’s cloud service which stores music, photos, contacts, calendars, mail, documents and more, keeping them up-to-date and available across multiple iOS devices, Mac and Windows personal computers and Apple TV.
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iCloud services include iCloud Drive®, iCloud Photo Library, Family Sharing, Find My iPhone, iPad or Mac, Find My Friends, Notes, iCloud Keychain® and iCloud Backup for iOS devices.
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AppleCare AppleCare® offers a range of support options for the Company’s customers.
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These include assistance that is built into software products, printed and electronic product manuals, online support including comprehensive product information as well as technical assistance, the AppleCare Protection Plan (“APP”) and the AppleCare+ Protection Plan (“AC+”).
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APP is a fee-based service that typically extends the service coverage of phone support, hardware repairs and dedicated web-based support resources for Mac, Apple TV and display products.
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AC+ is a fee-based service offering additional coverage under some circumstances for instances of accidental damage in addition to the services offered by APP and is available in certain countries for iPhone, iPad, Apple Watch and iPod.
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Apple Pay Apple Pay is the Company’s mobile payment service available in certain countries that offers an easy, secure and private way to pay.
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Apple Pay allows users to pay for purchases in stores accepting contactless payments and to pay for purchases within participating apps on qualifying devices.
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Apple Pay accepts credit and debit cards across major card networks and also supports reward programs and store-issued credit and debit cards.
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Other Products Accessories The Company sells a variety of Apple-branded and third-party Mac-compatible and iOS-compatible accessories, including Apple TV, Apple Watch, Beats products, iPod, headphones, displays, storage devices, and various other connectivity and computing products and supplies.
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In September 2016, the Company introduced AirPods™, new wireless headphones that interact with Siri.
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Apple TV Apple TV connects to consumers’ TVs and enables them to access digital content directly for streaming high definition video, playing music and games, and viewing photos.
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Content from Apple Music and other media services are also available on Apple TV.
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Apple TV allows streaming digital content from Mac and Windows personal computers through Home Share and from compatible Mac and iOS devices through AirPlay®.
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The Company's Apple TV runs on its tvOS operating system and is based on apps built for the television.
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Additionally, the Apple TV remote features Siri, allowing users to search and access content with their voice.
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Apple Watch Apple Watch is a personal electronic device that combines the watchOS user interface and technologies created specifically for a smaller device, including the Digital Crown™, a unique navigation tool that allows users to seamlessly scroll, zoom and navigate, and Force Touch, a technology that senses the dif...
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Apple Watch enables users to communicate in new ways from their wrist, track their health and fitness through activity and workout apps, and includes Siri and Apple Pay.
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In September 2016, the Company introduced Apple Watch Series 2, featuring new fitness and health capabilities, built-in GPS and a 50-meter water resistance rating for swimming.
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Apple Inc. | 2016 Form 10-K | 3 iPod iPod is the Company’s line of portable digital music and media players, which includes iPod touch, iPod nano® and iPod shuffle®.
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All iPods work with iTunes to purchase and synchronize content.
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iPod touch, based on the Company’s iOS operating system, is a flash-memory-based iPod that works with the iTunes Store, App Store and iBooks Store for purchasing and playing digital content and apps.
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Developer Programs The Company’s developer programs support app developers with building, testing and distributing apps for iOS, macOS, watchOS and tvOS.
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Developer program membership provides access to beta software and advanced app capabilities (e.g., CloudKit®, HealthKit™ and Apple Pay), the ability to test apps using TestFlight®, distribution on the App Store, access to App Analytics and code-level technical support.
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Developer programs also exist for businesses creating apps for internal use (the Apple Developer Enterprise Program) and developers creating accessories for Apple devices (the MFi Program).
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All developers, even those who are not developer program members, can sign in with their Apple ID to post on the Apple Developer Forums and use Xcode®, the Company’s integrated development environment for creating apps for Apple platforms.
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Xcode includes project management tools; analysis tools to collect, display and compare app performance data; simulation tools to locally run, test and debug apps; and tools to simplify the design and development of user interfaces.
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All developers also have access to extensive technical documentation and sample code.
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Markets and Distribution The Company’s customers are primarily in the consumer, small and mid-sized business, education, enterprise and government markets.
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The Company sells its products and resells third-party products in most of its major markets directly to consumers and small and mid-sized businesses through its retail and online stores and its direct sales force.
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The Company also employs a variety of indirect distribution channels, such as third-party cellular network carriers, wholesalers, retailers and value-added resellers.
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During 2016, the Company’s net sales through its direct and indirect distribution channels accounted for 25% and 75%, respectively, of total net sales.
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The Company believes that sales of its innovative and differentiated products are enhanced by knowledgeable salespersons who can convey the value of the hardware and software integration and demonstrate the unique solutions that are available on its products.
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The Company further believes providing direct contact with its targeted customers is an effective way to demonstrate the advantages of its products over those of its competitors and providing a high-quality sales and after-sales support experience is critical to attracting new and retaining existing customers.
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To ensure a high-quality buying experience for its products in which service and education are emphasized, the Company continues to build and improve its distribution capabilities by expanding the number of its own retail stores worldwide.
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The Company’s retail stores are typically located at high-traffic locations in quality shopping malls and urban shopping districts.
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By operating its own stores and locating them in desirable high-traffic locations the Company is better positioned to ensure a high quality customer buying experience and attract new customers.
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The stores are designed to simplify and enhance the presentation and marketing of the Company’s products and related solutions.
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The retail stores employ experienced and knowledgeable personnel who provide product advice, service and training and offer a wide selection of third-party hardware, software and other accessories that complement the Company’s products.
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The Company has also invested in programs to enhance reseller sales by placing high-quality Apple fixtures, merchandising materials and other resources within selected third-party reseller locations.
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Through the Apple Premium Reseller Program, certain third-party resellers focus on the Apple platform by providing a high level of product expertise, integration and support services.
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The Company is committed to delivering solutions to help educators teach and students learn.
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The Company believes effective integration of technology into classroom instruction can result in higher levels of student achievement and has designed a range of products, services and programs to address the needs of education customers.
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The Company also supports mobile learning and real-time distribution of, and access to, education related materials through iTunes U, a platform that allows students and teachers to share and distribute educational media online.
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The Company sells its products to the education market through its direct sales force, select third-party resellers and its retail and online stores.
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The Company also sells its hardware and software products to enterprise and government customers in each of its reportable operating segments.
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The Company’s products are deployed in these markets because of their performance, productivity, ease of use and seamless integration into information technology environments.
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The Company’s products are compatible with thousands of third-party business applications and services, and its tools enable the development and secure deployment of custom applications as well as remote device administration.
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No single customer accounted for more than 10% of net sales in 2016, 2015 and 2014.
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Apple Inc. | 2016 Form 10-K | 4 Competition The markets for the Company’s products and services are highly competitive and the Company is confronted by aggressive competition in all areas of its business.
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These markets are characterized by frequent product introductions and rapid technological advances that have substantially increased the capabilities and use of mobile communication and media devices, personal computers and other digital electronic devices.
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The Company’s competitors that sell mobile devices and personal computers based on other operating systems have aggressively cut prices and lowered their product margins to gain or maintain market share.
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The Company’s financial condition and operating results can be adversely affected by these and other industry-wide downward pressures on gross margins.
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Principal competitive factors important to the Company include price, product features (including security features), relative price and performance, product quality and reliability, design innovation, a strong third-party software and accessories ecosystem, marketing and distribution capability, service and support an...
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The Company is focused on expanding its market opportunities related to personal computers and mobile communication and media devices.
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These markets are highly competitive and include many large, well-funded and experienced participants.
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The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently of...
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These markets are characterized by aggressive pricing practices, frequent product introductions, evolving design approaches and technologies, rapid adoption of technological and product advancements by competitors and price sensitivity on the part of consumers and businesses.
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The Company’s digital content services have faced significant competition from other companies promoting their own digital music and content products and services, including those offering free peer-to-peer music and video services.
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The Company’s future financial condition and operating results depend on the Company’s ability to continue to develop and offer new innovative products and services in each of the markets in which it competes.
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The Company believes it offers superior innovation and integration of the entire solution including the hardware (iOS devices, Mac, Apple Watch and Apple TV), software (iOS, macOS, watchOS and tvOS), online services and distribution of digital content and applications (Internet Services).
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