Apple 2004 Annual Report Download - page 51

Download and view the complete annual report

Please find page 51 of the 2004 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

Failure to do so could result in lost revenue, loss of reputation, and significant warranty and other expense to remedy.
Because orders for components, and in some cases commitments to purchase components, must be placed in advance of customer orders, the
Company faces substantial inventory risk.
The Company records a write-down for inventories of components and products that have become obsolete or are in excess of anticipated
demand or net realizable value and accrues necessary reserves for cancellation fees of orders for inventories that have been cancelled. Although
the Company believes its inventory and related provisions are adequate, given the rapid and unpredictable pace of product obsolescence in the
computer and consumer electronics industries, no assurance can be given that the Company will not incur additional inventory and related
charges. In addition, such charges have had, and may 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 or order from third
parties excess or insufficient inventories of particular products. Consistent with industry practice, components are normally acquired through a
combination of formal purchase orders, supplier contracts, and open orders based on projected demand information. Such purchase commitments
typically cover the Company's forecasted component and manufacturing requirements for periods ranging from 30 to 130 days. 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.
Future operating results are dependent upon the Company's ability to obtain a sufficient supply of components, including microprocessors, some
of which are in short supply or available only from limited sources.
Although most components essential to the Company's business are generally available from multiple sources, certain key components including
microprocessors and ASICs are currently obtained by the Company from single or limited sources. Some 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. In addition, 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. In
situations where a component or product utilizes new technologies, initial capacity constraints may exist until such time as the suppliers' yields
have matured. The Company and other producers in the personal computer industry also compete for various components with other industries
that have experienced increased demand for their products. 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. If the supply of a
key component were to be delayed or constrained on a new or existing product, the Company's results of operations and financial condition
could be adversely affected.
The Company's ability to produce and market competitive products is also dependent on the ability and desire of IBM and Freescale
Semiconductor, Inc. (formerly the Semiconductor Products Segment of Motorola, Inc.), 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
price/performance features that compare favorably to those supplied to the Company's competitors by Intel Corporation and other developers and
producers of microprocessors used by personal computers using other operating systems. Further, despite its efforts to educate the marketplace to
the contrary, the Company believes that many of its current and potential customers believe that the relatively slower MHz
48