Apple 1998 Annual Report Download - page 25

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Form 10-K at Notes 1 and 2 of Notes to Consolidated Financial Statements, which information is hereby incorporated by reference.
INVENTORY AND SUPPLY
The Company records a write-down for inventories of components and products that have become obsolete or are in excess of anticipated
demand and accrues for any cancellation fees of orders for inventories that have been canceled. Although the Company believes its inventory
and related provisions are adequate, given the rapid and unpredictable pace of product obsolescence in the computer industry, no assurance can
be given that the Company will not incur additional inventory and related charges. In addition, such charges have had, and may again have, a
material effect on the Company's consolidated financial position and results of operations.
The Company must order components for its products and build inventory in advance of product shipments. Because the Company's markets
are volatile and subject to rapid technology and price changes, there is a risk that the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products. The Company's consolidated operating results and financial condition have been in the past and
may in the future be materially adversely affected by the Company's ability to manage its inventory levels and respond to short-term shifts in
customer demand patterns.
Certain of the Company's products are manufactured in whole or in part by third-
party manufacturers. In addition, the Company has outsourced
much of its transportation and logistics management, particularly in North America and Europe. The Company expects that the proportion of
the Company's products produced and distributed under outsourcing arrangements will continue to increase. While outsourcing arrangements
may lower the fixed cost of operations, they will also reduce the direct control the Company has over production and distribution. It is
uncertain what effect such diminished control will have on the quality or quantity of the products manufactured, or the flexibility of the
Company to respond to changing market conditions. Moreover, although arrangements with such manufacturers may contain provisions for
warranty expense reimbursement, the Company remains at least initially responsible to the ultimate consumer for warranty service based on the
Company's limited warranties. Accordingly, in the event of certain product defects or warranty liability, the Company may remain primarily
liable. Any unanticipated product defect for which the Company is held liable or warranty liability, whether pursuant to arrangements with
contract manufacturers or otherwise, could adversely affect the Company's future consolidated operating results and financial condition.
Although certain components essential to the Company's business are generally available from multiple sources, other key components
(including microprocessors and application specific integrated circuits) are currently obtained by the Company from single or limited sources.
If the supply of a key single-sourced component were to be delayed or curtailed, the Company's business and financial performance could 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 alternate source. The Company and other producers in the personal computer industry also compete for other semiconductor
products with other industries that have experienced increased demand for such products, due to either increased consumer demand or
increased use of semiconductors in their products (such as the cellular phone and automotive industries). Finally, the Company uses some
components that are not common to the rest of the personal computer industry (including certain microprocessors and ASICs). Continued
availability of these components may be affected if producers were to decide to concentrate on the production of common components instead
of components customized to meet the Company's requirements. Such product supply constraints and corresponding increased costs could
decrease the Company's net sales and adversely affect the Company's consolidated operating results and financial condition.
The Company's ability to produce and market competitive products is also dependent on the ability and desire of IBM and Motorola, the sole
suppliers of the PowerPC RISC microprocessor for the
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