Apple 2003 Annual Report Download - page 39

Further information related to the Company's global market risks may be found in Part II, Item 7A of this Form 10-K under the subheading
"Foreign Currency Risk" and may be found in Part II, Item 8 of this Form 10-K at Notes 1 and 2 of Notes to Consolidated Financial
Statements, which information is hereby incorporated by reference.
The Company's future performance is dependent upon support from third-party software developers. If third-party software applications cease
to be developed or available for the Company's hardware products, then customers may choose not to buy the Company's products.
The Company believes that decisions by customers to purchase the Company's personal computers, as opposed to Windows-based systems, are
often based on the availability of third-party software for particular applications such as Microsoft Office. The Company also believes the
availability of third-party application software for the Company's hardware products depends in part on third-party developers' perception and
analysis of the relative benefits of developing, maintaining, and upgrading such software for the Company's products versus software for the
larger Windows market. This analysis is based on factors such as the perceived strength of the Company and its products, the anticipated
potential revenue that may be generated, acceptance by customers of Mac OS X, and the costs of developing such software products. To the
extent the Company's financial losses in prior years and the minority market share held by the Company in the personal computer market, as
well as the Company's decision to end its Mac OS licensing program, have caused software developers to question the Company's prospects in
the personal computer market, developers could be less inclined to develop new application software or upgrade existing software for the
Company's products and more inclined to devote their resources to developing and upgrading software for the larger Windows market.
Moreover, there can be no assurance software developers will continue to develop software for Mac OS X, the Company's operating system, on
a timely basis or at all.
In addition, past and future development by the Company of its own software applications and solutions may negatively impact the decision of
software developers to develop, maintain, and upgrade similar or competitive software for the Company's products. The Company currently
markets and sells a variety of software applications for use by professionals, consumers, and education customers that could influence
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the decision of third-party software developers to develop or upgrade Macintosh-
compatible software products. Software applications currently
marketed by the Company include software for professional film and video editing, professional compositing and visual effects for large format
film and video productions, professional music production and music post production, professional and consumer DVD encoding and
authoring, consumer digital video and digital photo editing and management, digital music management, desktop-based database management,
and high-quality presentations. The Company also markets an integrated productivity application that incorporates word processing, page
layout, image manipulation, spreadsheets, databases, and presentations in a single application.
In August 1997, the Company and Microsoft Corporation entered into patent cross license and technology agreements. In addition, for a period
of five years through August 2002, and subject to certain limitations related to the number of Macintosh computers sold by the Company,
Microsoft was required to make versions of its Microsoft Office and Internet Explorer products for the Mac OS. Although Microsoft has
released Microsoft Office and Internet Explorer for Mac OS X, Microsoft is not obligated to produce future versions of its products subsequent
to August 2002. While the Company believes its relationship with Microsoft has been and will continue to be beneficial to the Company and to
its efforts to increase the installed base for the Mac OS, the Company does compete directly with Microsoft in a number of key areas.
Accordingly, Microsoft's interest in producing application software for the Mac OS following expiration of the agreements may be influenced
by Microsoft's perception of its interests as the vendor of the Windows operating system. Discontinuance of Microsoft Office and other
Microsoft products for the Macintosh platform would have an adverse effect on the Company's net sales and results of operations. In June of
2003, Microsoft stated that it would no longer develop new versions of Internet Explorer for the Mac OS. Microsoft's decision to discontinue
development of Internet Explorer for Mac OS X appears to have been influenced in part by the Company's introduction during 2003 of its own
web browser, Safari. It is unclear what impact, if any, Microsoft's decision to cease further development of Internet Explorer for Mac OS X will
have on the Company. However, if customers chose not to purchase the Company's products because Internet Explorer is not available on the
Macintosh platform or should websites fail to provide support for web browsers other than Internet Explorer, the Company's net sales and
results of operations could be materially adversely affected.
The Company's business relies on access to patents and intellectual property obtained from third parties, and the Company's future results
could be adversely affected if it is alleged or found to have infringed on the intellectual property rights of others.
Many of the Company's products are designed to include intellectual property obtained from third parties. While it may be necessary in the
future to seek or renew licenses relating to various aspects of its products and business methods, the Company believes that based upon past
experience and industry practice, such licenses generally could be obtained on commercially reasonable terms. However, there can be no
assurance that the necessary licenses would be available or available on acceptable terms.
Because of technological changes in the computer industry, current extensive patent coverage, and the rapid rate of issuance of new patents, it
is possible certain components of the Company's products and business methods may unknowingly infringe existing patents of others. The
Company has from time to time been notified that it may be infringing certain patents or other intellectual property rights of others. Responding
to such claims, regardless of their merit, can be time consuming, result in significant expenses, and cause the diversion of management and
technical personnel. Several pending claims are in various stages of evaluation. The Company may consider the desirability of entering into
licensing agreements in certain of these cases. However, no assurance can be given that such licenses can be obtained on acceptable terms or