Apple 1997 Annual Report Download - page 27

system software to run on the PowerPC microprocessor. IBM produces personal computers based on Intel microprocessors as well as
workstations based on the PowerPC microprocessor, and is also the developer of OS/2, a competing operating system to the Company's Mac
OS. Accordingly, IBM's interest in supplying the Company with microprocessors for the Company's products may be influenced by IBM's
perception of its interests as a competing manufacturer of personal computers and as a competing operating system vendor. In addition,
Motorola has recently announced its intention to stop producing Mac clones. As a result, Motorola may be less inclined to continue to produce
PowerPC microprocessors.
The Company's current financial condition and uncertainties related to recent events could affect the terms on which suppliers are willing to
supply the Company with their products. There can be no assurance that the Company's current suppliers will continue to supply the Company
on terms acceptable to the Company or that the Company will be able to obtain comparable products from alternate sources on such terms. The
Company's future operating results and financial condition could be adversely affected if the Company is unable to continue to obtain key
components on terms substantially similar to those currently available to the Company.
Further discussion relating to availability and supply of components and product may be found in Part I, Item 1 of this Form 10-K under the
heading "Raw Materials," and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements under the subheading
"Concentrations in the Available Sources of Supply and Material Product" included under the heading "Concentrations of Risk" and under the
subheading "Purchase Commitments" included under the heading "Commitments and Contingencies," which information is hereby
incorporated by reference.
MARKETING AND DISTRIBUTION
A number of uncertainties may affect the marketing and distribution of the Company's products. Currently, the Company distributes its
products through wholesalers, resellers, mass merchants, cataloguers and direct to education institutions (collectively referred to as "resellers").
In addition, in November 1997 the Company began selling many of its products directly to end users in the U.S. through the Company's on-
line
store. Many of the Company's significant resellers operate on narrow product margins. Most such resellers also distribute products from
competing manufacturers. The Company's business and financial results could be adversely affected if the financial condition of these resellers
weakened or if resellers within consumer channels were to decide not to continue to distribute the Company's products.
Uncertainty over demand for the Company's products may continue to cause resellers to reduce their ordering and marketing of the Company's
products. In addition, the Company has in the past and may in the future experience delays in ordering by resellers in light of uncertain demand
for the Company's products. Under the Company's arrangements with its resellers, resellers have the option to reduce or eliminate unfilled
orders previously placed, in most instances without financial penalty. Resellers also have the option to return products to the Company without
penalty within certain limits, beyond which they may be assessed fees. The Company has recently revised its channel program, including
decreasing the number of resellers and reducing returns, price protection and certain rebate programs, in an effort to reduce channel inventory,
increase inventory turns, increase product support within the channel and improve gross margins. In addition, in November 1997 the Company
opened its on-line store in the U.S. which makes many of the Company's products available directly to the end-user. Although the Company
believes the foregoing changes will improve its consolidated operating results and financial condition, there can be no assurance that this will
occur.
Further discussion relating to Marketing and Distribution may be found in Part I, Item 1 of this Form 10-K under the heading "Markets and
Distribution," which information is hereby incorporated by reference.
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