Apple 2001 Annual Report Download - page 7

computers and related software and peripheral products is highly competitive. It continues to be characterized by rapid technological advances
in both hardware and software development, which have substantially increased the capabilities and applications of these products, and has
resulted in the frequent introduction of new products and significant price, feature, and performance competition. Recently, price competition
in the market for personal computers has been particularly intense. The Company's competitors who sell Windows-based personal computers
have aggressively cut prices and lowered their product margins to gain or maintain market share in response to weakness in demand for
personal computing products. The Company's results of operations and financial condition have been, and in the future may continue to be,
adversely affected by these and other industry wide pricing pressures and downward pressures on gross margins.
The principal competitive factors in the market for personal computers are relative price/performance, product quality and reliability, design
innovation, availability of software, product features, marketing and distribution capability, service and support, availability of hardware
peripherals, and corporate reputation. Further, as the personal computer industry and its customers place more reliance on the Internet, an
increasing number of Internet devices that are smaller, simpler, and less expensive than traditional personal computers may compete for market
share with the Company's existing products.
The Company is currently taking and will continue to take steps to respond to the competitive pressures being placed on its personal computer
sales as a result of innovations in the Windows platform. The Company's future operating results and financial condition are substantially
dependent on its ability to continue to develop improvements to the Macintosh platform in order to maintain perceived functional and design
advantages over competing platforms.
Further information relating to the competitive conditions of the personal computing industry and the Company's competitive position in that
market place may be found in Part II, Item 7 of this Form 10-K under the heading "Factors That May Affect Future Results and Financial
Condition," which information is hereby incorporated by reference.
Raw Materials
Although most components essential to the Company's business are generally available from multiple sources, certain 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, while currently available to the Company from multiple sources, are at times subject to industry
wide availability constraints and pricing pressures. In addition, the Company uses some components that are not common to the rest of the
personal computer industry, and new products introduced by the Company often initially utilize custom components obtained from only one
source until the Company has evaluated whether there is a need for and subsequently qualifies additional suppliers. If the supply of a key or
single-sourced component to the Company were to be delayed or curtailed or in the event a key manufacturing vendor delays shipments of
completed products to the Company, the Company's ability to ship related products in desired quantities and in a timely manner could be
adversely affected. The Company's business and financial performance could also 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 alternative source. 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. The Company attempts to mitigate these
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potential risks by working closely with these and other key suppliers on product introduction plans, strategic inventories, coordinated product
introductions, and internal and external manufacturing schedules and levels. Consistent with industry practice, components are normally
acquired through purchase orders typically covering the Company's forecasted requirements for periods from 30 to 130 days. However, the
Company continues to evaluate the need for a supply contract in each situation.
The Company believes there are several component suppliers and manufacturing vendors whose loss to the Company could have a material
adverse effect upon the Company's business and financial position. At this time, such vendors include Agere Systems, Inc., Alpha-Top
Corporation, Ambit Microsystems Corporation, ATI Technologies, Inc., Darfon Electronics Corporation, Hon Hai Precision Industry Co., Ltd.,
IBM Corporation, Inventec Appliances Corporation, LG Electronics, Matsushita, Mitsubishi Electric Corporation, Motorola, Inc., Nvidia
Corp., Philips Semiconductors, Quanta Computer, Inc., Samsung Electronics, and Solectron Corporation.
Further discussion relating to availability and supply of components and product may be found in Part II, Item 7 of this Form 10-K under the
heading "Factors That May Affect Future Results and Financial Condition," and in Part II, Item 8 of this Form 10-K in the Notes to
Consolidated Financial Statements at Note 10 under the subheading "Concentrations in the Available Sources of Supply of Materials and
Product," which information is hereby incorporated by reference.
Research and Development
Because the personal computer industry is characterized by rapid technological advances, the Company's ability to compete successfully is
heavily dependent upon its ability to ensure a continuing and timely flow of competitive products and technology to the marketplace. The
Company continues to develop new products and technologies and to enhance existing products in the areas of hardware and peripherals,
system software, applications software, networking and communications software and solutions, and the Internet. The Company's research and
development expenditures, before any charges for purchased in-process research and development, totaled $430 million, $380 million, and
$314 million in 2001, 2000, and 1999, respectively.