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0000320193
20041203
10-K
11
Factors that might cause such differences include, but are not limited to, those discussed in the subsection entitled "Factors That May Affect Future Results and Financial Condition" under Part II, Item 7 of this Form 10-K.
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The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
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Item 1. Business Company Background Apple Computer, Inc. ("Apple" or the "Company") was incorporated under the laws of the State of California on January 3, 1977.
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The Company designs, manufactures and markets personal computers and related software, services, peripherals and networking solutions.
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The Company also designs, develops and markets a line of portable digital music players along with related accessories and services including the online distribution of third-party music and audio books.
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The Company's products and services include the Macintosh line of desktop and notebook computers, the iPod digital music player, the Xserve server and Xserve RAID storage products, a portfolio of consumer and professional software applications, the Mac OS X operating system, the online iTunes Music Store, a portfolio o...
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The Company sells its products worldwide through its online stores, its own retail stores, its direct sales force, and third-party wholesalers, resellers and value added resellers.
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In addition, the Company sells a variety of third-party products that are compatible with the Company's Macintosh and iPod product lines, including computer printers and printing supplies, storage devices, computer memory, digital video and still cameras, personal digital assistants, iPod accessories, and various other...
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The Company's fiscal year ends on the last Saturday of September.
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Unless otherwise stated, all information presented in this Form 10-K is based on the Company's fiscal calendar.
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Business Strategy Apple is committed to bringing the best personal computing and music experience to students, educators, creative professionals, businesses and consumers around the world through its innovative hardware, software, peripherals and Internet offerings.
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The Company's business strategy leverages its unique ability, through the design and development of its own operating system, hardware and many software applications and technologies, to bring to its customers around the world meaningful new products and solutions with superior ease-of-use, seamless integration and inn...
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The Company believes continual investment in research and development is critical to facilitate innovation of new and improved products and technologies.
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Besides updates to its existing line of personal computers and related software, services, and peripherals, the Company continues to capitalize on the convergence of digital consumer electronics and the computer by creating product innovations like the iPod and iTunes Music Store.
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The Company has also invested in new product areas such as rack-mount servers, RAID storage systems and wireless technologies.
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The Company's strategy also includes expanding its distribution network to effectively reach more of its targeted customers.
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Digital Hub The Company believes personal computing is in an era in which the personal computer functions for both professionals and consumers as the digital hub for advanced new digital devices such as the Company's iPod digital music players, personal digital assistants, cellular phones, digital still and movie camer...
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The attributes of the personal computer, including its ability to run complex applications, possess a high quality user interface, contain large and relatively inexpensive storage, and easily connect to the Internet in multiple ways and at varying speeds, can individually add value to these devices and interconnect the...
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Apple is the only company in the personal computer industry that controls the design and development of the entire personal computer-from the hardware and operating system to sophisticated applications.
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Apple provides innovative industrial design, intuitive ease-of-use, and built-in networking, graphics, and multimedia capabilities.
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Thus, the Company is uniquely positioned to offer integrated digital hub products and solutions.
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Apple develops products and technologies that adhere to many industry standards in order to provide an optimized user experience through interoperability with peripherals and devices from other companies.
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Apple has played a role in the development, enhancement, promotion, and/or use of numerous of these industry standards, many of which are discussed below.
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Expanded Distribution The Company believes a high quality buying experience with knowledgeable salespersons, who can convey the value of the Company's products and services, is critical to attracting and retaining customers.
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As such, in addition to expanding its indirect distribution channels, the Company has expanded its product distribution strategy to include its own retail locations, Apple online stores worldwide, and the Apple Sales Consultant Program.
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The Company sells many of its products and resells certain third-party products in most of its major markets directly to consumers, education customers, and businesses through its retail stores in the U.S. and internationally, or through one of its online stores around the world.
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The Company has also invested in programs like the Apple Sales Consultant Program, which is designed to enhance reseller sales by the placement of Apple badged employees at selected third-party reseller locations.
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The Company believes enabling a direct interface with its targeted end customer provides an efficient means to effectively demonstrate the advantages of the Company's Macintosh and other products over those of its competitors.
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For certain of its consumer electronic products, including the iPod product family, the Company has also significantly expanded the points of distribution in order to make available its products at locations where its customers shop.
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Since inception of its retail initiative in 2001, the Company has opened 84 retail stores in the U.S. and 2 international stores in Tokyo and Osaka, Japan through the end of fiscal year 2004.
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During the first quarter of 2005, the Company anticipates opening 14 additional stores, and expects to exit the calendar year at approximately 100 stores.
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The Company has typically located its stores at high traffic locations in quality shopping malls and urban shopping districts.
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Approximately half of the stores expected to open during the first quarter of 2005 are in the new "mini" store design, which is the Company's smallest store format to date, allowing them to be placed in a variety of new locations to introduce the Company's products to even more customers.
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The Company also opened its third international store in London, England during the first quarter of 2005.
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One of the goals of the retail initiative is to bring new customers to the Company and expand its installed base through sales to both first time personal computer buyers and those switching to the Macintosh platform from competing operating system platforms.
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By operating its own stores and building them in desirable high traffic locations, the Company is able to better control the customer retail experience and attract new Apple customers.
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The stores are designed to simplify and enhance the presentation and marketing of personal computing products.
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To that end, retail store configurations have evolved into various sizes in order to accommodate market demands.
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The stores employ experienced and knowledgeable personnel who provide product advice and certain hardware support services.
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The stores offer a wide selection of third-party hardware and software products selected to complement the Company's own products.
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Additionally, the stores provide a forum in which the Company is able to present entire computing solutions to users in areas such as digital photography, digital video, music, children's software, and home and small business computing.
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Apple retail stores host customer events and free classes, including the popular "Getting Started" class, and have brought back the concept of customer service with innovations like the Genius Bar.
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Education For more than 25 years, the Company has focused on the use of technology in education and has been committed to delivering tools 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, especially when used to support collaboration, information access, and the expression and representation of student thought and ideas.
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The Company creates solutions that enable new modes of curriculum delivery, better ways of conducting research, and opportunities for professional development of faculty, students, and staff.
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A range of products and services is designed by the Company to help schools maximize their investments in technology.
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This is manifested in many of the Company's products and services that are designed to meet the needs of education customers, including the eMac™ and the iBook®, video editing solutions, wireless networking capabilities, student information systems, one-to-one learning solutions, and high-quality curriculum and profess...
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Creative Professionals Creative professionals constitute one of the Company's most important markets for both hardware and software products.
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This market is also important to many third-party developers who provide Macintosh compatible hardware and software solutions.
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Creative customers utilize the Company's products for a variety of creative activities including digital video and film production and editing; digital video and film special effects, compositing, and titling; digital still photography; graphic design, publishing, and print production; music performance and production;...
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The Company designs its high-end hardware solutions, including servers, desktops, and portable Macintosh systems, to incorporate the power, expandability, and features desired by creative professionals.
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Additionally, the Company's operating system, Mac OS X, incorporates powerful graphics and audio technologies and features developer tools to optimize system and application performance when running powerful creative solutions provided by the Company or third-party developers.
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The Company also offers various software solutions to meet the needs of its creative customers, many of which are described below.
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Business Organization The Company manages its business primarily on a geographic basis.
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The Company's reportable operating segments are comprised of the Americas, Europe, Japan, and Retail.
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The Americas segment includes both North and South America, except for the activities of the Company's Retail segment.
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The Europe segment includes European countries as well as the Middle East and Africa.
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The Japan segment includes only Japan and excludes revenue from the Company's own retail stores in Japan, which is included in the Company's Retail segment.
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The Retail segment currently operates Apple-owned retail stores in the U.S., Japan and England.
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Other operating segments include Asia-Pacific, which includes Australia and Asia except for Japan, and the Company's subsidiary, FileMaker, Inc. Each reportable geographic operating segment provides similar hardware and software products and similar services.
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Further information regarding the Company's operating segments may be found in Part II, Item 7 of this Form 10-K under the heading "Segment Operating Performance," and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements at Note 11, "Segment Information and Geographic Data."
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Hardware Products The Company offers a range of personal computing products including desktop and notebook personal computers, related devices and peripherals, and various third-party hardware products.
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All of the Company's Macintosh® products utilize PowerPC® RISC-based microprocessors.
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The Company's entire line of Macintosh systems, excluding servers and storage systems, features the Company's Mac OS® X Version 10.3 "Panther" and iLife® suite of software for digital photography, music, movies, and music creation.
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Power Mac® The Power Mac line of desktop personal computers is targeted at business and professional users and is designed to meet the speed, expansion and networking needs of the most demanding Macintosh user.
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Powered by the PowerPC G5 processor, the Power Mac G5 utilizes 64-bit processing technology for memory expansion up to 8GB, and advanced 64-bit computation while also running existing 32-bit applications natively.
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The Power Mac G5 product line comes in four processor configurations-single 1.8GHz, dual 1.8GHz, dual 2.0GHz and dual 2.5GHz.
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All Power Mac G5 desktops feature a SuperDrive™ and either the NVIDIA GeForceFX 5200 Ultra or the ATI Radeon 9600 XT graphics card.
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In addition, all Power Mac G5 desktops deliver connectivity and high-performance input/output (I/O), including Gigabit Ethernet, FireWire® 800 and FireWire 400 ports, USB 2.0 ports, optical digital audio input and output, built-in support for 54 Mbps AirPort® Extreme wireless networking, and optional Bluetooth connecti...
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Xserve® and Xserve RAID Storage System Xserve, the Company's first rack-mount server product, was designed for simple setup and remote management of intensive I/O applications such as digital video, high-resolution digital imagery, and large databases.
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In January 2004, the Company announced Xserve G5, which is available with either a single or dual 2.0 GHz PowerPC G5 processor.
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Xserve G5 includes a system controller with up to 8GB of PC3200 error correcting code memory; three hot-plug Serial ATA drive modules that deliver up to 750GB of storage; and dual on-board Gigabit Ethernet for high-performance networking.
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In January 2004, the Company also introduced its Xserve RAID storage system, a 3U high-availability rack storage system, along with support for Windows and Linux-based computing environments.
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In October 2004, the Company updated its Xserve RAID storage system to deliver 5.6 terabytes of storage capacity and also expanded support for heterogeneous environments.
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The dual independent RAID controllers with 512MB cache per controller offer sustained throughput of over 380MBps-high enough to support two streams of uncompressed 10-bit HD video editing using protected RAID level 5.
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PowerBook® The PowerBook family of portable computers is designed to meet the mobile computing needs of professionals and advanced consumer users.
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In April 2004, the Company updated its PowerBook G4 notebooks with faster PowerPC G4 processors.
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Both the 15-inch and 17-inch PowerBook G4 offer up to a 1.5 GHz PowerPC G4 processor, an available SuperDrive and the ATI Mobility Radeon 9700 graphics processor.
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The 12-inch PowerBook G4 features a 1.33 GHz PowerPC processor, an available SuperDrive, and NVIDIA GeForce FX Go5200 graphics.
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Every PowerBook G4 notebook comes with built-in AirPort Extreme wireless networking, an internal Bluetooth module for wireless connectivity, as well as a full complement of I/O ports including Firewire 400, USB 2.0., a built-in 56K v.92 modem and Ethernet (10/100BASE-T), for connectivity to a wide range of peripherals.
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The 15-inch and 17-inch PowerBook G4 models also include built-in Gigabit Ethernet and Firewire 800. iMac® The iMac line of desktop computers is targeted to consumer and education markets.
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In August 2004, the Company introduced the iMac® G5, featuring the PowerPC G5 processor and a design that integrates the entire computer into the flat panel display.
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The line offers 17- or 20-inch active matrix widescreen LCDs and PowerPC G5 processors running up to 1.8 GHz.
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The 17-inch models come with either a 1.8 GHz PowerPC G5 processor and a SuperDrive, or a 1.6 GHz PowerPC G5 processor and a Combo drive.
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The 20-inch model has a 1.8 GHz PowerPC G5 processor and a SuperDrive.
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The iMac G5 offers up to a 600 MHz front-side bus, 400 MHz DDR memory expandable to 2GB, AGP 8X graphics and 7200 rpm Serial ATA drives holding up to 250GB.
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The iMac G5 comes standard with NVIDIA graphics with dedicated video memory.
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The iMac G5 desktops offer a total of five USB ports (three USB 2.0) and two FireWire® 400 ports, an optional internal Bluetooth module, a built-in antenna and card slot to support an optional AirPort Extreme Card for 54 Mbps 802.11g wireless networking, and also includes built-in Ethernet (10/100BASE-T) and a 56K V.92...
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eMac™ The eMac, which is targeted primarily at the Company's education and consumer customers, features a PowerPC G4 processor, a high resolution 17-inch flat cathode ray tube display, and preserves the all-in-one compact design of the original iMac favored by many of the Company's education and consumer customers.
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In April 2004, the Company updated its eMac, which now has a suggested retail price starting at $799 and is available with a SuperDrive for a suggested retail price starting at $999.
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The eMac offers PowerPC G4 processors running at up to 1.25 GHz, 333 MHz DDR memory, ATI Radeon graphics and USB 2.0 connectivity to peripherals.
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iBook® The iBook is designed to meet the portable computing needs of education and consumer users.
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In October 2004, the Company upgraded its iBook® G4 line to include faster PowerPC G4 processors running up to 1.33 GHz, built-in AirPort Extreme 54 Mpbs 802.11g wireless networking and an available slot-load SuperDrive.
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The 12-inch model features a 1.2 GHz PowerPC G4 processor and a slot-load Combo drive, while the 14-inch models include a 1.33GHz G4 processor and either a Combo or SuperDrive optical drive.
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All iBook G4 models offer a full complement of I/O ports including FireWire 400, USB 2.0, a built-in 56K v.92 modem and Ethernet (10/100BASE-T), as well as an optional internal wireless Bluetooth module, for connectivity to a wide range of peripherals.
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Music Products and Services The Company offers its iPod® line of digital music players and related accessories to Macintosh and Windows users.
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The Company also provides an online service to distribute third-party music and audio books through its iTunes® Music Store.
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Net sales of iPods and other music products and services generated year-over-year revenue growth of 316% and accounted for 19% of the Company's total net sales in fiscal 2004. iPod® In July 2004, the Company introduced the fourth generation of the iPod, the Company's portable digital music player, featuring Apple's pat...
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The iPod features Apple's patent pending Auto-Sync technology that automatically downloads an entire digital music library onto the iPod and keeps it up-to-date whenever it is plugged into a Macintosh or Windows computer using FireWire or USB.
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The iPod also features Shuffle Songs, which randomly plays songs in a selected playlist or across the entire library.
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