Apple 2004 Annual Report Download - page 49

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major seismic faults. Because the Company does not carry earthquake insurance for direct quake-related losses, the Company's operating results
and financial condition could be materially adversely affected in the event of a major earthquake or other natural or manmade disaster.
Although it is impossible to predict the occurrences or consequences of any such events, such events could result in a decrease in demand for the
Company's products, make it difficult or impossible to deliver products to its customers or to receive components from its suppliers, and could
create delays and inefficiencies in the Company's supply chain. In addition, should major public health issues, including epidemics, arise the
Company could be negatively impacted by the need for more stringent employee travel restrictions, additional limitations in the availability of
freight services, governmental actions limiting the movement of products between various regions, delays in production ramps of new products,
and disruptions in the operations of the Company's manufacturing vendors and component suppliers. The Company's operating results and
financial condition have been, and in the future may continue to be, adversely affected by these events.
The market for personal computers and related peripherals and services, as well as digital music devices and related services, is highly
competitive. If the Company is unable to effectively compete in these markets, its results of operations could be adversely affected.
The personal computer industry is highly competitive and is characterized by aggressive pricing practices, downward pressure on gross margins,
frequent introduction of new products, short product life cycles, evolving industry standards, continual improvement in product
price/performance characteristics, rapid adoption of technological and product advancements by competitors, price sensitivity on the part of
consumers, and a large number of competitors. Over the past several years, price competition in the market for personal computers and related
peripherals has been particularly intense. The Company's competitors who sell Windows and Linux based personal computers have aggressively
cut prices and lowered their product margins in order to gain or maintain market share in response to the weakness in demand that began in the
second half of calendar 2000 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 personal computer industry has also been characterized by rapid technological advances in software functionality, hardware performance,
and features based on existing or emerging industry standards. Further, as the personal computer industry and its customers place more reliance
on the Internet, an increasing number of Internet devices that are smaller and simpler than traditional personal computers may compete for
market share with the Company's existing products. Several competitors of the Company have either targeted or announced their intention to
target certain of the Company's key market segments, including consumer, education, professional and consumer digital video editing, and
design and publishing. Several of the Company's competitors have introduced or announced plans to introduce digital music products and/or
online stores offering digital music distribution that mimic many of the unique design, technical features, and solutions of the Company's
products. The Company has a significant number of competitors, many of whom have greater financial, marketing, manufacturing, and
technological resources, as well as broader product lines and larger installed customer bases than those of the Company. Additionally, there has
been a trend towards consolidation in the personal computer industry that has resulted in larger and potentially stronger competitors in the
Company's markets.
The Company is currently the only maker of hardware using the Mac OS. The Mac OS has a minority market share in the personal computer
market, which is dominated by makers of computers utilizing other competing operating systems, including Windows and Linux. 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 design and functional advantages over competing platforms.
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