Apple 1999 Annual Report Download - page 26

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developer support and market acceptance for those operating systems, may have an adverse impact on the Company's operating results and
financial condition.
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 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 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 the Company will forecast incorrectly and produce excess or
insufficient inventories of particular products. The Company's 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.
Many 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. While outsourcing arrangements may lower the fixed cost of operations, they also reduce
the Company's direct control 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. Accordingly, in the event of product defects or warranty liability, the Company may
remain primarily liable. Any unanticipated product defect or warranty liability, whether pursuant to arrangements with contract manufacturers
or otherwise, could adversely affect the Company's future 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 ("ASICs")) are currently obtained by the Company from single or
limited sources. Some other key components (including without limitation DRAM and TFT-LCD flat-
panel displays), while currently available
to the Company from multiple sources, are at times subject to industry wide availability and pricing pressures. If the supply of a key component
were to be delayed or constrained, 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, if possible, 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 components other than those 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 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-based microprocessor for the Company's Macintosh computers, to provide the Company with a sufficient
supply of microprocessors with
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