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The Company’s portable computers include MacBook®, MacBook® Pro and MacBook Air®.
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MacBook is a portable computer designed for consumer and education users.
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MacBook Pro is a portable computer designed for professionals and consumers.
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MacBook Air is a high performance, ultra-slim notebook computer designed for professionals and consumers.
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iTunes® iTunes digital music management software (“iTunes”) is an application for playing, downloading, and organizing digital audio and video files and is available for both Mac and Windows-based computers.
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iTunes 10 features Ping, a music-oriented social network, AirPlay® wireless music playback, Genius Mixes, Home Sharing, and improved syncing functionality with the Company’s mobile communication and media devices.
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iTunes is integrated with the iTunes Store®, a service that allows customers to find, purchase, rent, and download third-party digital music, audio books, music videos, short films, television shows, movies, podcasts, games, and other applications.
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The iTunes Store currently serves customers in 23 countries.
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The iTunes Store includes the Company’s App Store™ and iBookstore™.
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The App Store allows customers to discover and download third-party applications, and the iBookstore features electronic books from major and independent publishers and provides customers a place to preview and buy books for their mobile communication and media devices.
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Customers can access the App Store through either a Mac or Windows-based computer or wirelessly through an iPhone®, iPad™ or iPod touch®.
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The iBookstore is accessed through the iBooks® application on an iPhone, iPad or iPod touch.
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iPhone iPhone combines a mobile phone, a widescreen iPod® with touch controls, and an Internet communications device in a single handheld product.
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Based on the Company’s Multi-Touch™ user interface, iPhone features desktop-class email, web browsing, searching, and maps and is compatible with both Macs and Windows-based computers.
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iPhone automatically syncs content from users’ iTunes libraries, as well as contacts, bookmarks, and email accounts.
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iPhone allows customers to access the iTunes Store to download audio and video files, as well as a variety of other digital content and applications.
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In June 2010, the Company introduced the iPhone 4 featuring an all-new design, FaceTime® video calling, a new high resolution Retina™ display, a 5 megapixel camera with LED flash and front facing camera, high definition video recording, Apple’s A4 processor and a 3-axis gyroscope.
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In addition to the Company’s own iPhone accessories, third-party iPhone compatible products are available through the Company’s online and retail stores and from third parties.
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The Company has signed multi-year agreements with various cellular network carriers authorizing them to distribute and provide cellular network services for iPhones.
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These agreements are generally not exclusive with a specific carrier, except in the U.S. iPad In January 2010, the Company introduced iPad, a multi-purpose mobile device for browsing the web, reading and sending email, viewing photos, watching videos, listening to music, playing games, reading e-books and more.
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iPad is based on the Company’s Multi-Touch technology and allows customers to connect with their applications and content in a more interactive way.
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iPad allows customers to access the iTunes Store to download audio and video files, as well as a variety of other digital content and applications.
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In addition to the Company’s own iPad accessories, third-party iPad compatible products are available through the Company’s online and retail stores and from third parties.
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iPod The Company’s iPod line of portable digital music and media players is comprised of iPod touch, iPod nano®, iPod shuffle® and iPod classic®.
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All iPods work with iTunes.
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In addition to the Company’s own iPod accessories, third-party iPod compatible products are available, either through the Company’s online and retail stores or from third parties.
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The iPod touch is a flash-memory-based iPod with a widescreen display and a Multi-Touch user interface.
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The Company’s latest iPod touch, introduced in September 2010, includes features such as a Retina display, FaceTime video calling, high definition video recording and Game Center.
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iPod touch allows customers to access the iTunes Store to download audio and video files, as well as a variety of other digital content and applications.
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The Company’s latest iPod nano, introduced in September 2010, is a flash-memory-based iPod that has been redesigned to feature the Company’s Multi-Touch interface allowing customers to navigate their music collection by tapping or swiping the display.
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The new iPod nano features a polished aluminum and glass enclosure with a built-in clip.
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iPod shuffle, which was updated in September 2010, is a flash-memory-based iPod that features a clickable control pad to control music playback and VoiceOver technology enabling customers to hear song titles, artists and playlist names.
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The iPod classic is a hard-drive based portable digital music and video player.
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Displays & Peripheral Products The Company manufactures the Apple Cinema High Definition Display™ and sells a variety of Apple-branded and third-party Mac-compatible peripheral products, including printers, storage devices, computer memory, digital video and still cameras, and various other computing products and suppl...
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Apple TV® Apple TV is a device that allows customers to rent and watch movies and television shows on their television.
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Content from Netflix, YouTube, Flickr and MobileMe™, as well as music, photos and videos from a Mac or Windows-based computer can also be wirelessly streamed to a television through Apple TV.
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Software Products and Computer Technologies The Company offers a range of software products for consumer, SMB, education, enterprise, government, and creative customers, including the Company’s proprietary Mac OS X and iOS operating system software; server software and related solutions; professional application softwa...
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Operating System Software Mac OS X Mac OS X is built on an open-source UNIX-based foundation.
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Mac OS X Snow Leopard is the seventh major release of Mac OS X and became available in August 2009.
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Mac OS X Snow Leopard features upgraded speed and performance and includes a new version of QuickTime® X, support for Microsoft Exchange Server 2007 and VoiceOver integration with the Multi-Touch trackpad.
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Mac OS X offers Stacks, a means of easily accessing files from the Dock; Finder® that lets users quickly browse and share files between multiple Macs; Quick Look, a way to instantly see files without opening an application; Spaces®, a feature used to create groups of applications and instantly switch between them; and ...
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iOS iOS is the Company’s mobile operating system that serves as the foundation for iPhone, iPad and iPod touch.
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In June 2010, the Company launched iOS 4, the latest version of the Company’s mobile operating system.
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iOS 4 features Multitasking that allows customers to move between applications, Folders to organize and easily access applications, a unified Mail inbox, support for the iAd™ mobile advertising platform, and the iBooks reader and iBookstore.
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The iAd mobile advertising platform provides media rich advertisements which allows mobile device customers to engage with an ad without being removed from the applications they are currently using.
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iOS 4 became available for iPhone 3G, iPhone 3GS, iPhone 4, and second and third generation iPod touch in June 2010, and is expected to be available for iPad in November 2010.
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Certain features of the iOS 4 software will not function on certain earlier iPhone and iPod touch models.
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Application Software iLife iLife ’11 is the latest version of the Company’s consumer-oriented digital lifestyle application suite included with all Mac computers.
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iLife features iPhoto®, iMovie®, iDVD®, GarageBand®, and iWeb™.
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iPhoto is the Company’s consumer-oriented digital photo software application and iMovie is the Company’s consumer-oriented digital video editing software application.
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iDVD is the Company’s consumer-oriented software application that enables customers to turn iMovie files, QuickTime files, and digital pictures into interactive DVDs.
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GarageBand is the Company’s consumer-oriented music creation software application that allows customers to play, record and create music.
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iWeb allows customers to create online photo albums, blogs and podcasts, and to customize websites using editing tools.
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iWork® iWork ’09 is the latest version of the Company’s integrated productivity suite designed to help users create, present, and publish documents, presentations, and spreadsheets.
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iWork ’09 includes updates to Pages® ’09 for word processing and page layout, Keynote® ’09 for presentations, and Numbers® ’09 for spreadsheets.
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In January 2010, the Company also introduced a new version of iWork for iPad, a productivity suite including versions of Pages, Keynote and Numbers designed specifically for Multi-Touch.
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Other Application Software The Company also sells various other application software, including Final Cut Studio®, Final Cut® Express, Final Cut® Server, Logic Studio®, Logic® Express 9, Logic Studio® Pro, and its FileMaker® Pro database software.
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Internet Software and Services The Company is focused on delivering seamless integration with and access to the Internet throughout the Company’s products and services.
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The Company’s Internet solutions adhere to many industry standards to provide an optimized user experience.
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Safari 5® is the latest version of the Company’s web browser that is compatible with Macs and Windows-based computers.
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MobileMe is an annual subscription-based suite of Internet services that delivers email, contacts and calendars to and from native applications on iPhone, iPad, iPod touch, Macs, and Windows-based computers.
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Product Support and Services AppleCare® offers a range of support options for the Company’s customers.
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These options include assistance that is built into software products, printed and electronic product manuals, online support including comprehensive product information as well as technical assistance, and the AppleCare Protection Plan (“APP”).
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APP is a fee-based service that typically includes two to three years of phone support and hardware repairs, dedicated web-based support resources, and user diagnostic tools.
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Markets and Distribution The Company’s customers are primarily in the consumer, SMB, education, enterprise, government and creative markets.
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The Company utilizes a variety of direct and indirect distribution channels, such as its retail stores, online stores, and direct sales force, and third-party cellular network carriers, wholesalers, retailers, and value-added resellers.
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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, software, and peripheral integration, demonstrate the unique digital lifestyle solutions that are available on its products, and demonstrate the compatibilit...
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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 expand and improve its distribution capabilities by expanding the number of its own retail stores worldwide.
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Additionally, the Company has 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 integration and support services, and product expertise.
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One of the Company’s customers accounted for 11% of net sales in 2009; there was no single customer that accounted for more than 10% of net sales in 2010 or 2008.
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Competition The Company is confronted by aggressive competition in all areas of its business.
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The markets for the Company’s products and services are highly competitive.
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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 personal computers, mobile communication and media devices, and other digital electronic devices.
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The Company’s competitors who sell 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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The principal competitive factors include price, product features, relative price/performance, product quality and reliability, design innovation, availability of software and peripherals, marketing and distribution capability, service and support, and corporate reputation.
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The Company is focused on expanding its market opportunities related to mobile communication and media devices, including iPhone and iPad.
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The mobile communications and media device industries are highly competitive and include several large, well-funded and experienced participants.
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The Company expects competition in these industries to intensify significantly as competitors attempt to imitate some of the iPhone and iPad features and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer.
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These industries 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 iPod and 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 believes it offers superior innovation and integration of the entire solution including the hardware (personal computer, iPhone, iPad and iPod), software (iTunes), and distribution of digital content and applications (iTunes Store, App Store and iBookstore).
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Some of the Company’s current and potential competitors have substantial resources and may be able to provide such products and services at little or no profit or even at a loss to compete with the Company’s offerings.
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Alternatively, these competitors may collaborate with each other to offer solutions that are more integrated than those they currently offer.
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The Company’s future financial condition and operating results are substantially dependent on the Company’s ability to continue to develop and offer new innovative products and services in each of the markets it competes in.
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Supply of Components Although most components essential to the Company’s business are generally available from multiple sources, certain key components including but not limited to microprocessors, enclosures, certain liquid crystal displays (“LCDs”), certain optical drives, and application-specific integrated circuits...
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Many of these and other key components that are available from multiple sources including but not limited to NAND flash memory, dynamic random access memory (“DRAM”), and certain LCDs, are subject at times to industry-wide shortages and significant commodity pricing fluctuations.
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In addition, the Company has entered into certain agreements for the supply of key components including but not limited to microprocessors, NAND flash memory, DRAM and LCDs at favorable pricing, but there is no guarantee the Company will be able to extend or renew these agreements on similar favorable terms, or at all,...
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Therefore, the Company remains subject to significant risks of supply shortages and/or price increases that can materially adversely affect its financial condition and operating results.
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The Company and other participants in the personal computer, and mobile communication and media device industries also compete for various components with other industries that have experienced increased demand for their products.
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In addition, the Company uses some custom components that are not common to the rest of these industries, and new products introduced by the Company often utilize custom components available from only one source.
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When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured or manufacturing capacity has increased.
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If the Company’s supply of a key single-sourced component for a new or existing product were delayed or constrained, if such components were available only at significantly higher prices, or if a key manufacturing vendor delayed shipments of completed products to the Company, the Company’s financial condition and opera...
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The Company’s business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source.
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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.
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Substantially all of the Company’s Macs, iPhones, iPads, iPods, logic boards and other assembled products are manufactured by outsourcing partners, primarily in various parts of Asia.
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A significant concentration of this outsourced manufacturing is currently performed by only a few outsourcing partners of the Company, including Hon Hai Precision Industry Co. Ltd. and Quanta Computer, Inc.
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The Company’s outsourced manufacturing is often performed in single locations.
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