Apple 2004 Annual Report Download - page 18

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contracts, and open orders based on projected demand information. Such purchase commitments typically cover the Company's requirements for
periods ranging from 30 to 130 days.
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., Ambit Microsystems
Corporation, ASUSTeK Corporation, ATI Technologies, Inc., Broadcom Corporation, Freescale Semiconductor, Inc. (formerly the
Semiconductor Products Segment of Motorola, Inc.), Hitachi Global Storage Technologies, Hon Hai Precision Industry Co., Ltd., IBM
Corporation, International Display Technology, Inventec Appliances Corporation, LG. Phillips Co., Ltd., Matsushita, Mitsubishi Electric
Corporation, NVIDIA Corp., Portal Player, Inc., Quanta Computer, Inc., Samsung Electronics, Synaptics, Inc., and Toshiba Corporation.
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,
consumer electronic products, system software, applications software, networking and communications software and solutions, and the Internet.
The Company may expand the range of its product offerings and intellectual property through licensing and/or acquisition of third-
party business
and technology. The Company's research and development expenditures totaled $489 million, $471 million, and $446 million in 2004, 2003, and
2002, respectively.
Patents, Trademarks, Copyrights and Licenses
The Company currently holds rights to patents and copyrights relating to certain aspects of its computer systems, iPods, peripherals and
software. In addition, the Company has registered, and/or has applied to register, trademarks and service marks in the U.S. and a number of
foreign countries for "Apple," the Apple logo, "Macintosh," and numerous other trademarks and service marks. Although the Company believes
the ownership of such patents, copyrights, trademarks and service marks is an important factor in its business and that its success does depend in
part on the ownership thereof, the Company relies primarily on the innovative skills, technical competence, and marketing abilities of its
personnel.
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 is no guarantee
that such licenses could be obtained at all. 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.
Foreign and Domestic Operations and Geographic Data
The U.S. represents the Company's largest geographic marketplace. Approximately 59% of the Company's net sales in fiscal 2004 came from
sales to customers inside the U.S. Final assembly of products sold by the Company is conducted in the Company's manufacturing facility in
Cork, Ireland, and by external vendors in Fremont, California, Fullerton, California, Taiwan, Korea, the Netherlands, the People's Republic of
China, and the Czech Republic. Currently, manufacture of many of the components used in the Company's products and final assembly of
substantially all of the Company's portable products including PowerBooks, iBooks, and the iPod are performed by third-party vendors in
Taiwan and China. Margins on sales of Apple products in foreign countries, and on sales of products that include components obtained from
foreign
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