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0000320193
20031219
10-K
852
Consistent with industry practice, the Company acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand information.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
853
Such purchase commitments typically cover the Company's forecasted component and manufacturing requirements for periods ranging from 30 to 130 days.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
854
As of September 27, 2003, the Company had outstanding third-party manufacturing commitments and component purchase commitments of approximately $848 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
855
Indemnifications The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
856
Other licensing agreements entered into by the Company sometimes include indemnification provisions under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an indemnified third-party.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
857
However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against itself or an indemnified third-party and, in the opinion of management, does not have a potential liability related to unresolved infringement claims that would have a material adverse ...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
858
Factors That May Affect Future Results and Financial Condition Because of the following factors, as well as other factors affecting the Company's operating results and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use ...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
859
General economic conditions and current economic and political uncertainty could adversely affect the demand for the Company's products and the financial health of its suppliers, distributors, and resellers.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
860
The Company's operating performance depends significantly on general economic conditions.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
861
For much of the past several years, demand for the Company's products has been negatively impacted by difficult global economic conditions.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
862
Additionally, some of the Company's education customers appear to be delaying technology purchases due to concerns about the overall impact of the weaker economy on their available funding.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
863
Continued uncertainty about future economic conditions continues to make it difficult to forecast future operating results.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
864
Should global and regional economic conditions fail to improve or continue to deteriorate, demand for the Company's products could continue to be adversely affected, as could the financial health of its suppliers, distributors, and resellers.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
865
War, terrorism or public health issues could disrupt supply, delivery or demand of products which could negatively affect the Company's operations and performance.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
866
War, terrorism or public health issues, whether in the U.S. or abroad, have caused and could continue to cause damage or disruption to international commerce by creating economic and political uncertainties that may have a strong negative impact on the global economy, the Company, and the Company's suppliers or custome...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
867
Although it is impossible to predict the occurrences or consequences of any such events, such events could result in a decrease in demand for the Company's products, make it difficult or impossible to deliver products to its customers, or to receive components from its suppliers, and could create delays and inefficienc...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
868
The Company's operating results and financial condition have been, and in the future may continue to be, adversely affected by these events.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
869
The Company and some of its manufacturing vendors and component suppliers have significant operations in various locations throughout Asia, including locations in mainland China, the Hong Kong Special Administrative Region, and Singapore, all of which were subject to the World Health Organization and Centers for Diseas...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
870
Similar travel advisories were issued for Taiwan, where a significant amount of the Company's portable Macintosh systems and the iPod are assembled.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
871
Should the severity of the SARs threat increase or other public health issues arise, the Company could be negatively impacted by the need for more stringent employee travel restrictions, additional limitations in the availability of freight services, governmental actions limiting the movement of products between variou...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
872
The market for personal computers and related peripherals and services is highly competitive.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
873
If the Company is unable to effectively compete in these markets, its results of operations could be adversely affected.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
874
The personal computer industry is highly competitive and is characterized by aggressive pricing practices, downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product price/performance characteristics, rapid adoption...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
875
Over the past several years, price competition in the market for personal computers and related peripherals has been particularly intense.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
876
The Company's competitors who sell Windows-based personal computers have aggressively cut prices and lowered their product margins in order to gain or maintain market share in response to the weakness in demand that began in the second half of calendar 2000 for personal computing products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
877
The Company's results of operations and financial condition have been, and in the future may continue to be, adversely affected by these and other industry-wide pricing pressures and downward pressures on gross margins.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
878
The personal computer industry has also been characterized by rapid technological advances in software functionality, hardware performance, and features based on existing or emerging industry standards.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
879
Further, as the personal computer industry and its customers place more reliance on the Internet, an increasing number of Internet devices that are smaller and simpler than traditional personal computers may compete for market share with the Company's existing products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
880
Several competitors of the Company have either targeted or announced their intention to target certain of the Company's key market segments, including consumer, education, professional and consumer digital video editing, and design and publishing.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
881
Several of the Company's competitors have introduced or announced plans to introduce digital music products that mimic many of the unique design, technical features, and solutions of the Company's products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
882
The Company has a significant number of competitors, many of whom have greater financial, marketing, manufacturing, and technological resources, as well as broader product lines and larger installed customer bases than those of the Company.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
883
Additionally, there has been a trend towards consolidation in the personal computer industry that has resulted in larger and potentially stronger competitors in the Company's markets.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
884
The Company is currently the only maker of hardware using the Mac OS.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
885
The Mac OS has a minority market share in the personal computer market, which is dominated by makers of computers utilizing Microsoft's Windows operating systems.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
886
The Company's future operating results and financial condition are substantially dependent on its ability to continue to develop improvements to the Macintosh platform in order to maintain perceived design and functional advantages over competing platforms, including Windows.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
887
The Company is currently focused on market opportunities related to digital music distribution and related consumer electronic devices including iPods.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
888
The Company faces increasing competition from other companies promoting their own digital music distribution services, free peer-to-peer music services, emerging companies, and larger companies that may have greater resources, including technical and marketing resources, and supplier relationships.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
889
There can be no assurance that the Company will be able to provide products and services that effectively compete in these markets.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
890
Failure to effectively compete could negatively affect the Company's operating results and financial position.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
891
The Company has higher research and development and selling, general and administrative costs, as a percentage of revenue, than many of its competitors.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
892
The Company's ability to compete successfully and maintain attractive gross margins is heavily dependent upon its ability to ensure a continuing and timely flow of innovative and competitive products and technologies to the marketplace.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
893
As a result, the Company incurs higher research and development costs as a percentage of revenue than its competitors who sell personal computers based on other operating systems.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
894
Many of these competitors seek to compete aggressively on price and maintain very low cost structures.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
895
Further, as a result of the expansion of the Company's Retail segment and costs associated with marketing the Company's brand including its unique operating system, the Company incurs higher selling costs as a percentage of revenue than many of its competitors.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
896
If the Company is unable to continue to develop and sell innovative new products with attractive gross margins, its results of operations may be materially adversely affected by its operating cost structure.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
897
The Company must successfully manage frequent product introductions and transitions in order to remain competitive and effectively stimulate customer demand.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
898
Due to the highly volatile nature of the personal computer industry, which is characterized by dynamic customer demand patterns and rapid technological advances, the Company must continually introduce new products and technologies, enhance existing products in order to remain competitive, and effectively stimulate cust...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
899
The success of new product introductions is dependent on a number of factors, including market acceptance; the Company's ability to manage the risks associated with product transitions, including production ramp issues; the availability of application software for new products; the effective management of inventory lev...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
900
Accordingly, the Company cannot determine in advance the ultimate effect that new products will have on its sales or results of operations.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
901
During 2001, the Company introduced a new client operating system, Mac OS X, and delivered its first major upgrade, Mac OS X version 10.1.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
902
Other major upgrades include Mac OS X Jaguar in 2002 and most recently Mac OS X Panther in October 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
903
Inability of the Company to provide additional improvements in the performance and functionality of Mac OS X, advance customer acceptance of the new operating system and its upgrades, obtain the continued commitment of software developers to transition existing applications to run on Mac OS X, or create new application...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
904
Because orders for components, and in some cases commitments to purchase components, must be placed in advance of customer orders, the Company faces substantial inventory risk.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
905
The Company records a write-down for inventories of components and products that have become obsolete or are in excess of anticipated demand or net realizable value and accrues necessary reserves for cancellation fees of orders for inventories that have been cancelled.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
906
Although the Company believes its inventory and related provisions are adequate, given the rapid and unpredictable pace of product obsolescence in the computer industry, no assurance can be given that the Company will not incur additional inventory and related charges.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
907
In addition, such charges have had, and may have, a material effect on the Company's financial position and results of operations.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
908
The Company must order components for its products and build inventory in advance of product shipments.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
909
Because the Company's markets are volatile and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and produce or order from third parties excess or insufficient inventories of particular products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
910
Consistent with industry practice, components are normally acquired through a combination of formal purchase orders, supplier contracts, and open orders based on projected demand information.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
911
Such purchase commitments typically cover the Company's forecasted component and manufacturing requirements for periods ranging from 30 to 130 days.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
912
The Company's operating results and financial condition have been in the past and may in the future be materially adversely affected by the Company's ability to manage its inventory levels and respond to short-term shifts in customer demand patterns.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
913
Future operating results are dependent upon the Company's ability to obtain a sufficient supply of components, some of which are in short supply or available only from limited sources.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
914
Although most components essential to the Company's business are generally available from multiple sources, certain key components including microprocessors and ASICs are currently obtained by the Company from single or limited sources.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
915
Some key components (including without limitation DRAM, TFT-LCD flat-panel displays, and optical and magnetic disk drives), while currently available to the Company from multiple sources, are at times subject to industry-wide availability and pricing pressures.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
916
In addition, new products introduced by the Company often initially utilize custom components obtained from only one source until the Company has evaluated whether there is a need for, and subsequently qualifies, additional suppliers.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
917
In situations where a component or product utilizes new technologies, initial capacity constraints may exist until such time as the suppliers' yields have matured.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
918
The Company and other producers in the personal computer industry also compete for various components with other industries that have experienced increased demand for their products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
919
The Company uses some components that are not common to the rest of the personal computer industry including certain microprocessors and ASICs.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
920
Continued availability of these components may be affected if producers were to decide to concentrate on the production of components other than those customized to meet the Company's requirements.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
921
If the supply of a key component were to be delayed or constrained on a new or existing product, the Company's results of operations and financial condition could be adversely affected.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
922
The Company's ability to produce and market competitive products is also dependent on the ability and desire of IBM and Motorola, the sole suppliers of the PowerPC RISC-based microprocessor for the Company's Macintosh computers, to provide the Company with a sufficient supply of microprocessors with price/performance f...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
923
Further, despite its efforts to educate the marketplace to the contrary, the Company believes that many of its current and potential customers believe that the relatively slower MHz rating or clock speed of the microprocessors it utilizes in its Macintosh systems compares unfavorably to those utilized by other operatin...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
924
There have been instances in recent years where the inability of the Company's suppliers to provide advanced PowerPC G4 and G3 microprocessors with higher clock speeds in sufficient quantity has had significant adverse effects on the Company's results of operations.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
925
In addition, currently IBM is the Company's sole supplier of the G5 processor used in current Power Macintosh products and Motorola is the sole supplier of the G4 processors.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
926
The inability in the future of the Company to obtain microprocessors in sufficient quantities with competitive price/performance features could have an adverse impact on the Company's results of operations and financial condition.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
927
The Company relies on third-party music content, which may not be available to the Company on commercially reasonable terms or at all.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
928
The Company contracts with third parties to offer their music content to customers through the Company's iTunes Music Store.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
929
The Company pays substantial fees to obtain the rights to offer to its customers this third-party music.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
930
Many of the Company's licensing arrangements with these third-party content providers are short-term in nature and do not guarantee the future renewal of these arrangements at commercially reasonable terms, if at all.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
931
Certain parties in the music industry have announced their intent to consolidate their music distribution operations, which could limit the availability and increase the fees required to offer music content to customers through the iTunes Music Store.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
932
If the Company is unable to continue to offer a wide variety of music content at reasonable prices with acceptable usage rules, or expand its geographic reach outside the United States, then sales and gross margins of the Company's iTunes Music Store as well as related hardware and peripherals, including iPods, may be ...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
933
Third-party content providers and artists require that the Company provide certain digital rights management solutions and other security mechanisms.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
934
If the requirements from content providers or artists change, then the Company may be required to further develop or license technology to address such new rights and requirements.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
935
There is no assurance that the Company will be able to develop or license such solutions at a reasonable cost and in a timely manner, if at all, which could have a materially adverse affect on the Company's operating results and financial position.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
936
The Company is dependent on manufacturing and logistics services provided by third parties, many of whom are located outside of the United States.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
937
Many of the Company's products are manufactured in whole or in part by third-party manufacturers.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
938
In addition, the Company has outsourced much of its transportation and logistics management.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
939
While outsourcing arrangements may lower the fixed cost of operations, they also reduce the Company's direct control over production and distribution.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
940
It is uncertain what effect such diminished control will have on the quality or quantity of the products manufactured, or the flexibility of the Company to respond to changing market conditions.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
941
Moreover, although arrangements with such manufacturers may contain provisions for warranty expense reimbursement, the Company may remain at least initially responsible to the ultimate consumer for warranty service in the event of product defects.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
942
Any unanticipated product defect or warranty liability, whether pursuant to arrangements with contract manufacturers or otherwise, could adversely affect the Company's future operating results and financial condition.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
943
Final assembly of products sold by the Company is conducted in the Company's manufacturing facilities in Sacramento, California, and Cork, Ireland, and by external vendors in Fremont, California, Fullerton, California, Taiwan, Korea, the Netherlands, the People's Republic of China, and the Czech Republic.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
944
Currently, manufacture of many of the components used in the Company's products and final assembly of substantially all of the Company's portable products including PowerBooks, iBooks, and the iPod is performed by third-party vendors in Japan, Taiwan and China.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
945
If for any reason manufacturing or logistics in any of these locations is disrupted by regional economic, business, environmental, medical, political, or military conditions or events, the Company's results of operations and financial condition could be adversely affected.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
946
The Company's products, from time to time, experience quality problems that can result in decreased net sales and operating profits.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
947
The Company sells highly complex hardware and software products that can contain defects in design and manufacture.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
948
Sophisticated operating system software and applications, such as those sold by the Company, often contain "bugs" that can unexpectedly interfere with the operation of the software.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
949
Defects may also occur in components and products the Company purchases from third-parties that may be beyond its control.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
950
There can be no assurance that the Company will be able to detect and fix all defects in the hardware and software it sells.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
951
Failure to do so could result in lost revenue, loss of reputation, and significant expense to remedy.
0001047469-03-041604/full-submission.txt