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0000320193
20131030
10-K
119
Other Application Software The Company also sells various other application software, including its professional line of applications, Final Cut Pro®, Logic® Pro X, and its FileMaker® Pro database software.
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Displays & Peripheral Products The Company manufactures the Apple LED Cinema Display™ and Thunderbolt Display.
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The Company also sells a variety of Apple-branded and third-party Mac-compatible and iOS-compatible peripheral products, including printers, storage devices, computer memory, digital video and still cameras, pointing devices, and various other computing products and supplies.
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Apple TV Apple TV connects to consumers’ high definition TVs and enables them to access iTunes content directly for streaming HD video, playing music and viewing photos.
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Content from Netflix, YouTube, Flickr, MLB, Hulu Plus, iTunes Radio and other media services is also available.
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Apple TV allows streaming iTunes content from Macs and Windows personal computers through Home Share and through AirPlay® from compatible Mac and iOS devices.
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Compatible Mac and iOS devices can also mirror their device screens as well as stream and play games on Apple TV.
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iOS and Mac Developer Programs The Company’s iOS and Mac Developer Programs support app developers with the development, testing and distribution of iOS and Mac apps through the App Store and the Mac App Store.
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Development tools included with the Company’s Developer Programs include Xcode®, the Company’s integrated development environment for creating apps for iOS devices, including iPhone and iPad, and Mac.
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20131030
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Xcode includes project management tools; analysis tools to collect, display and compare app performance data; simulation tools to locally run, test, and debug apps; tools to simplify the design and development of user interfaces; and the latest software development kits for iOS and OS X.
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The Company’s Developer Programs also provide access to multiple development resources including the Company’s Developer Forums, extensive technical documentation, and sample code.
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The Company’s Developer Programs also provide developers with access tools and information for submitting their apps to the App Store and the Mac App Store.
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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 include assistance that is built into software products, printed and electronic product manuals, online support including comprehensive product information as well as technical assistance, the AppleCare Protection Plan (“APP”) and the AppleCare+ Protection Plan (“AC+”).
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APP is a fee-based service that typically includes two to three years of phone support, hardware repairs and dedicated web-based support resources.
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AC+ is a fee-based service available in certain countries for iPhone and iPad.
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AC+ offers additional coverage under some circumstances for instances of accidental damage in addition to the services offered by APP.
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Markets and Distribution The Company’s customers are primarily in the consumer, SMB, education, enterprise and government markets.
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The Company sells its products and resells third-party products in most of its major markets directly to consumers and SMBs through its retail and online stores and its direct sales force.
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The Company also employs a variety of indirect distribution channels, such as third-party cellular network carriers, wholesalers, retailers, and value-added resellers.
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During 2013, the Company’s net sales through its direct and indirect distribution channels accounted for 30% and 70%, respectively, of total net sales.
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The Company believes that sales of its innovative and differentiated products are enhanced by knowledgeable salespersons who can convey the value of the hardware and software integration, and demonstrate the unique solutions that are available on its products.
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The Company further believes providing direct contact with its targeted customers is an effective way to demonstrate the advantages of its products over those of its competitors and providing a high-quality sales and after-sales support experience is critical to attracting new and retaining existing customers.
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To ensure a high-quality buying experience for its products in which service and education are emphasized, the Company continues to expand and improve its distribution capabilities by expanding the number of its own retail stores worldwide.
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The Company’s retail stores are typically located at high-traffic locations in quality shopping malls and urban shopping districts.
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By operating its own stores and locating them in desirable high-traffic locations the Company is better positioned to ensure a high quality customer buying experience and attract new customers.
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The stores are designed to simplify and enhance the presentation and marketing of the Company’s products and related solutions.
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The retail stores employ experienced and knowledgeable personnel who provide product advice, service and training and offer a wide selection of third-party hardware, software, and other accessories and peripherals that complement the Company’s products.
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The Company has also invested in programs to enhance reseller sales by placing high quality Apple fixtures, merchandising materials and other resources within selected third-party reseller locations.
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Through the Apple Premium Reseller Program, certain third-party resellers focus on the Apple platform by providing a high level of product expertise, integration and support services.
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The Company is committed to delivering solutions to help educators teach and students learn.
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The Company believes effective integration of technology into classroom instruction can result in higher levels of student achievement and has designed a range of products, services and programs to address the needs of education customers.
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The Company also supports mobile learning and real-time distribution of, and access to, education related materials through iTunes U®, a platform that allows students and teachers to share and distribute educational media online.
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The Company sells its products to the education market through its direct sales force, select third-party resellers and its online and retail stores.
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The Company also sells its hardware and software products to enterprise and government customers in each of its geographic segments.
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The Company’s products are deployed in these markets because of their performance, productivity, ease of use and seamless integration into information technology environments.
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The Company’s products are compatible with thousands of third-party business applications and services, and its tools enable the development and secure deployment of custom applications as well as remote device administration.
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No single customer accounted for more than 10% of net sales in 2013, 2012 or 2011.
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Competition The markets for the Company’s products and services are highly competitive and the Company is confronted by aggressive competition in all areas of its business.
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These markets are characterized by frequent product introductions and rapid technological advances that have substantially increased the capabilities and use of mobile communication and media devices, personal computers, and other digital electronic devices.
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The Company’s competitors who sell mobile devices and personal computers based on other operating systems have aggressively cut prices and lowered their product margins to gain or maintain market share.
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The Company’s financial condition and operating results can be adversely affected by these and other industry-wide downward pressures on gross margins.
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20131030
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161
Principal competitive factors important to the Company include price, product features, relative price/performance, product quality and reliability, design innovation, a strong third-party software and peripherals ecosystem, marketing and distribution capability, service and support, and corporate reputation.
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20131030
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The Company is focused on expanding its market opportunities related to personal computers and mobile communication and media devices.
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These markets are highly competitive and include many large, well-funded and experienced participants.
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The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently of...
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These markets are characterized by aggressive pricing practices, frequent product introductions, evolving design approaches and technologies, rapid adoption of technological and product advancements by competitors, and price sensitivity on the part of consumers and businesses.
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The Company’s digital content services have faced significant competition from other companies promoting their own digital music and content products and services, including those offering free peer-to-peer music and video services.
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The Company’s future financial condition and operating results depend on the Company’s ability to continue to develop and offer new innovative products and services in each of the markets in which it competes.
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The Company believes it offers superior innovation and integration of the entire solution including the hardware (iPhone, iPad, Mac, and iPod), software (iOS, OS X and iTunes), online services, and distribution of digital content and applications (iTunes Store, App Store, iBooks Store and Mac App Store).
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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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Supply of Components Although most components essential to the Company’s business are generally available from multiple sources, a number of components are currently obtained from single or limited sources.
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In addition, the Company competes for various components with other participants in the markets for mobile communication and media devices and personal computers.
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Therefore, many components used by the Company, including those that are available from multiple sources, are at times subject to industry-wide shortage and significant pricing fluctuations that can materially adversely affect the Company’s financial condition and operating results.
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The Company uses some custom components that are not commonly used by its competitors, 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 components for a new or existing product were delayed or constrained, or if an outsourcing partner delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected.
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The Company’s business and financial performance could also be materially 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 concentrated on the production of common components instead of components customized to meet the Company’s requirements.
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The Company has entered into various agreements for the supply of components; however, there can be no guarantee that the Company will be able to extend or renew these agreements on similar terms, or at all.
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Therefore, the Company remains subject to significant risks of supply shortages and price increases that can materially adversely affect its financial condition and operating results.
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While the Company has announced plans to begin manufacturing some Macs in the United States, substantially all of the Company’s hardware products are currently manufactured by outsourcing partners that are located primarily in Asia.
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A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations.
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Certain of these outsourcing partners are the sole-sourced suppliers of components and manufacturers for many of the Company’s products.
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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 its requirements for periods up to 150 days.
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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 depends heavily 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 technologies to enhance existing products and to expand the range of its product offerings through research and development, licensing of intellectual property and acquisition of third-party businesses and technology.
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Total research and development expense was $4.5 billion, $3.4 billion and $2.4 billion in 2013, 2012 and 2011, 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 iPhone, iPad, Mac and iPod devices, peripherals, software and services.
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The Company has registered or has applied for trademarks and service marks in the U.S. and a number of foreign countries.
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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 innovations arising from its research, development and design, and is currently pursuing thousands of patent applications around the world.
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Over time, the Company has accumulated a large portfolio of issued patents in the U.S. and worldwide.
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The Company 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 its patents is adequate relative to the expected lives of its products.
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Many of the Company’s products are designed to include intellectual property obtained from third parties.
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It may be necessary in the future to seek or renew licenses relating to various aspects of its products, processes and services.
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While the Company has generally been able to obtain such licenses on commercially reasonable terms in the past, there is no guarantee that such licenses could be obtained in the future on reasonable terms or at all.
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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 that certain components of the Company’s products, processes and services may unknowingly infringe existing patents or intellectual property ...
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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 During 2013, the Company’s domestic and international net sales accounted for 39% and 61%, respectively, of total net sales.
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Information regarding financial data by geographic segment is set forth in Part II, Item 7 of this Form 10-K under the subheading “Segment Operating Performance,” and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 11, “Segment Information and Geographic Data.” While subst...
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The supply and manufacture of a number of components is performed by sole-sourced outsourcing partners in the U.S., Asia and Europe.
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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 concentration in the available sources of supply of materials and products is set forth in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 10, “Commitments and Contingencies.” Business Seasonality and Product Introductions The Company has historically ex...
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Additionally, new product introductions can significantly impact net sales, product costs and operating expenses.
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Product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new product inventory following a product introduction, and often, channel inventory of a particular product declines as the next related major product launch approaches.
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Net sales can also be affected when consumers and distributors anticipate a product introduction.
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However, neither historical seasonal patterns nor historical patterns of product introductions should be considered reliable indicators of the Company’s future pattern of product introductions, future net sales or financial performance.
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Warranty The Company offers a limited parts and labor warranty on most of its hardware products.
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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, where available, consumers may purchase APP or AC+, which extends service coverage on many of the Company’s hardware products.
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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 customers anticipate shortages.
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Backlog is often reduced once 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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Employees As of September 28, 2013, the Company had approximately 80,300 full-time equivalent employees and an additional 4,100 full-time equivalent temporary employees and contractors.
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