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0000320193
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10-K
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Certain of these outsourcing partners are the sole-sourced supplier of components and manufacturing outsourcing for many of the Company’s key products, including but not limited to final assembly of substantially all of the Company’s Macs, iPhones, iPads and iPods.
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Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments.
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The Company’s purchase commitments typically cover the Company’s requirements for periods ranging from 30 to 150 days.
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The Company sources components from a number of suppliers and manufacturing vendors.
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The loss of supply from any of these suppliers or vendors, whether temporary or permanent, could materially adversely affect the Company’s business and financial condition.
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Research and Development Because the industries in which the Company competes are characterized by rapid technological advances, the Company’s ability to compete successfully is heavily dependent upon its ability to ensure a continual and timely flow of competitive products, services and technologies to the marketplace...
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The Company continues to develop new products and technologies and to enhance existing products that expand the range of its product offerings and intellectual property through licensing and acquisition of third-party business and technology.
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Total research and development expense was $1.8 billion, $1.3 billion and $1.1 billion in 2010, 2009 and 2008, respectively.
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Patents, Trademarks, Copyrights and Licenses The Company currently holds rights to patents and copyrights relating to certain aspects of its Macs, iPhone, iPad and iPod devices, peripherals, software and services.
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In addition, the Company has registered and/or has applied to register, trademarks and service marks in the U.S. and a number of foreign countries for “Apple,” the Apple logo, “Macintosh,” “Mac,” “iPhone,” “iPad,” “iPod,” “iTunes,” “iTunes Store,” “Apple TV,” “MobileMe” and numerous other trademarks and service marks.
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Although the Company believes the ownership of such patents, copyrights, trademarks and service marks is an important factor in its business and that its success does depend in part on the ownership thereof, the Company relies primarily on the innovative skills, technical competence and marketing abilities of its perso...
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The Company regularly files patent applications to protect inventions arising from its research and development, and is currently pursuing thousands of patent applications around the world.
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Over time, the Company has accumulated a portfolio of several thousand issued patents in the U.S. and worldwide.
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In addition, the Company currently holds copyrights relating to certain aspects of its products and services.
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No single patent or copyright is solely responsible for protecting the Company’s products.
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The Company believes the duration of the applicable patents it has been granted is adequate relative to the expected lives of its products.
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Due to the fast pace of innovation and product development, the Company’s products are often obsolete before the patents related to them expire, and sometimes are obsolete before the patents related to them are even granted.
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Many of the Company’s products are designed to include intellectual property obtained from third parties.
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While it may be necessary in the future to seek or renew licenses relating to various aspects of its products and business methods, the Company believes, based upon past experience and industry practice, such licenses generally could be obtained on commercially reasonable terms; however, there is no guarantee such lice...
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Because of technological changes in the industries in which the Company competes, current extensive patent coverage, and the rapid rate of issuance of new patents, it is possible certain components of the Company’s products and business methods may unknowingly infringe existing patents or intellectual property rights o...
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From time to time, the Company has been notified that it may be infringing certain patents or other intellectual property rights of third parties.
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Foreign and Domestic Operations and Geographic Data The U.S. represents the Company’s largest geographic marketplace.
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Approximately 44% of the Company’s net sales in 2010 came from sales to customers inside the U.S.
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Final assembly of the Company’s products is currently performed in the Company’s manufacturing facility in Ireland, and by external vendors in California, Texas, the People’s Republic of China (“China”), the Czech Republic and the Republic of Korea (“Korea”).
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Currently, the supply and manufacture of many critical components is performed by sole-sourced third-party vendors in the U.S., China, Germany, Ireland, Israel, Japan, Korea, Malaysia, the Netherlands, the Philippines, Taiwan, Thailand and Singapore.
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Sole-sourced third-party vendors in China perform final assembly of substantially all of the Company’s Macs, iPhones, iPads and iPods.
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Margins on sales of the Company’s products in foreign countries, and on sales of products that include components obtained from foreign suppliers, can be adversely affected by foreign currency exchange rate fluctuations and by international trade regulations, including tariffs and antidumping penalties.
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Information regarding financial data by geographic segment is set forth in Part II, Item 7 and Item 8 of this Form 10-K and in Notes to Consolidated Financial Statements at Note 9, “Segment Information and Geographic Data.” Seasonal Business The Company has historically experienced increased net sales in its first and ...
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This historical pattern should not be considered a reliable indicator of the Company’s future net sales or financial performance.
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Warranty The Company offers a basic limited parts and labor warranty on most of its hardware products, including Macs, iPhones, iPads and iPods.
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The basic warranty period is typically one year from the date of purchase by the original end-user.
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The Company also offers a 90-day basic warranty for its service parts used to repair the Company’s hardware products.
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In addition, consumers may purchase the APP, which extends service coverage on many of the Company’s hardware products in most of its major markets.
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Backlog In the Company’s experience, the actual amount of product backlog at any particular time is not a meaningful indication of its future business prospects.
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In particular, backlog often increases in anticipation of or immediately following new product introductions as dealers anticipate shortages.
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Backlog is often reduced once dealers and customers believe they can obtain sufficient supply.
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Because of the foregoing, backlog should not be considered a reliable indicator of the Company’s ability to achieve any particular level of revenue or financial performance.
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Environmental Laws Compliance with federal, state, local and foreign laws enacted for the protection of the environment has to date had no significant effect on the Company’s capital expenditures, earnings, or competitive position.
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In the future, compliance with environmental laws could materially adversely affect the Company.
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Production and marketing of products in certain states and countries may subject the Company to environmental and other regulations including, in some instances, the requirement to provide customers the ability to return product at the end of its useful life, and place responsibility for environmentally safe disposal o...
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Such laws and regulations have been passed in several jurisdictions in which the Company operates including various countries within Europe and Asia and certain states and provinces within North America.
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Although the Company does not anticipate any material adverse effects in the future based on the nature of its operations and the thrust of such laws, there is no assurance that such existing laws or future laws will not materially adversely affect the Company’s financial condition or operating results.
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Employees As of September 25, 2010, the Company had approximately 46,600 full-time equivalent employees and an additional 2,800 full-time equivalent temporary employees and contractors.
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Available Information The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), are filed with the U.S. Securities and Exchange Commissio...
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Such reports and other information filed by the Company with the SEC are available free of charge on the Company’s website at www.apple.com/investor when such reports are available on the SEC website.
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The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549.
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The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
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The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
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The contents of these websites are not incorporated into this filing.
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Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.
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Item 1A.
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Risk Factors Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends ...
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Economic conditions could materially adversely affect the Company.
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The Company’s operations and performance depend significantly on worldwide economic conditions.
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Uncertainty about current global economic conditions poses a risk as consumers and businesses may continue to postpone spending in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values, which could have a material negative effect on demand for the Company’s products...
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Demand also could differ materially from the Company’s expectations since the Company generally raises prices on goods and services sold outside the U.S. to offset the effect of a strengthening of the U.S. dollar.
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Other factors that could influence demand include increases in fuel and other energy costs, conditions in the real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, and other macroeconomic factors affecting consumer spending behavior.
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These and other economic factors could materially adversely affect demand for the Company’s products and services and the Company’s financial condition and operating results.
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In the event of renewed financial turmoil affecting the banking system and financial markets, additional consolidation of the financial services industry, or significant financial service institution failures, there could be a new or incremental tightening in the credit markets, low liquidity, and extreme volatility in...
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In addition, the risk remains that there could be a number of follow-on effects from the credit crisis on the Company’s business, including the insolvency of key outsourced manufacturing partners or suppliers or their inability to obtain credit to finance development and/or manufacture products resulting in product del...
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Other income and expense also could vary materially from expectations depending on gains or losses realized on the sale or exchange of financial instruments; impairment charges resulting from revaluations of debt and equity securities and other investments; interest rates; cash balances; and changes in fair value of de...
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Increased volatility in the financial markets and overall economic uncertainty would increase the risk of the actual amounts realized in the future on the Company’s financial instruments differing significantly from the fair values currently assigned to them.
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Uncertainty about current global economic conditions could also continue to increase the volatility of the Company’s stock price.
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Global markets for the Company’s products and services are highly competitive and subject to rapid technological change.
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If the Company is unable to compete effectively in these markets, its financial condition and operating results could be materially adversely affected.
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The Company competes in highly competitive global markets characterized by aggressive price cutting, with resulting 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...
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The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of innovative new products and technologies to the marketplace.
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The Company believes it is unique in that it designs and develops nearly the entire solution for its products, including the hardware, operating system, numerous software applications, and related services.
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As a result, the Company must make significant investments in research and development and as such, the Company currently holds a significant number of patents and copyrights and has registered and/or has applied to register numerous patents, trademarks and service marks.
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By contrast, many of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures.
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If the Company is unable to continue to develop and sell innovative new products with attractive margins or if other companies infringe on the Company’s intellectual property, the Company’s ability to maintain a competitive advantage could be negatively affected and its financial condition and operating results could b...
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In the market for personal computers and peripherals, the Company faces a significant number of competitors, many of which have broader product lines, lower priced products, and larger installed customer bases.
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Consolidation in this market has resulted in larger and potentially stronger competitors.
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Price competition has been particularly intense as competitors selling Windows-based personal computers have aggressively cut prices and lowered product margins.
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The Company also faces increased competition in key market segments, including consumer, SMB, education, enterprise, government and creative markets.
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An increasing number of Internet devices that include software applications and are smaller and simpler than traditional personal computers compete for market share with the Company’s existing products.
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The Company is currently the only authorized maker of hardware using the Mac OS.
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The Mac OS has a minority market share in the personal computer market, which is dominated by computer makers using competing operating systems, most notably Windows.
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The Company’s financial condition and operating results depend substantially on the Company’s ability to continually improve the Mac platform to maintain functional and design advantages.
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Use of unauthorized copies of the Mac OS on other companies’ hardware products may result in decreased demand for the Company’s hardware products, and could materially adversely affect the Company’s financial condition and operating results.
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The Company currently markets certain mobile communication and media devices, and third-party digital content and applications.
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The Company faces substantial competition from companies that have significant technical, marketing, distribution and other resources, as well as established hardware, software and digital content supplier relationships.
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Additionally, the Company faces significant price competition as competitors reduce their selling prices and attempt to imitate the Company’s product features and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently ...
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The Company also competes with illegitimate ways to obtain third-party digital content and applications.
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The Company has only recently entered the mobile communications and media device markets, and many of its competitors in these markets have significantly greater experience, product breadth and distribution channels than the Company.
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Because some current and potential competitors have substantial resources and/or experience and a lower cost structure, they may be able to provide such products and services at little or no profit or even at a loss.
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The Company also expects competition to intensify as competitors attempt to imitate the Company’s approach to providing these components seamlessly within their individual offerings or work collaboratively to offer integrated solutions.
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The Company currently receives subsidies from its exclusive and non-exclusive carriers providing cellular network service for iPhone.
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There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of the Company’s agreements with these carriers or in agreements the Company enters into with new carriers.
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There can be no assurance the Company will be able to continue to provide products and services that compete effectively.
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To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.
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Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce new products, services and technologies, enhance existing products and services, and effectively stimulate customer demand for new and upgraded products.
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The success of new product introductions depends on a number of factors including but not limited to timely and successful product development, market acceptance, the Company’s ability to manage the risks associated with new products and production ramp issues, the availability of application software for new products,...
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Accordingly, the Company cannot determine in advance the ultimate effect of new product introductions and transitions on its financial condition and operating results.
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The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.
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The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated demand or net realizable value and accrues necessary cancellation fee reserves for orders of excess products and components.
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The Company also reviews its long-lived assets for impairment whenever events or changed circumstances indicate the carrying amount of an asset may not be recoverable.
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If the Company determines that impairment has occurred, it records a write-down equal to the amount by which the carrying value of the assets exceeds its fair market value.
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Although the Company believes its provisions related to inventory, other assets and purchase commitments are currently adequate, no assurance can be given that the Company will not incur additional related charges given the rapid and unpredictable pace of product obsolescence in the industries in which the Company comp...
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Such charges could materially adversely affect the Company’s financial condition and operating results.
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