Apple 2004 Annual Report Download - page 52

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rating or clock speed of the microprocessors it utilizes in its Macintosh systems compares unfavorably to those utilized by other operating
systems and translates to slower overall system performance. There have been instances in recent years where the inability of the Company's
suppliers to provide advanced PowerPC microprocessors in sufficient quantity has had significant adverse effects on the Company's results of
operations. In addition, IBM is currently the Company's sole supplier of the PowerPC G5 processor, which is used in the Company's current
Power Mac, Xserve, and iMac products. Freescale Semiconductor, Inc. is the sole supplier of the G4 processor, which is used in the Company's
eMac and portable products. IBM has recently experienced manufacturing problems with the PowerPC G5 processor, which resulted in the
Company delaying the shipment of various products and constrained certain product shipments during the second half of 2004. The inability of
IBM to remedy these problems in a timely manner, avoid manufacturing problems in the future, and to deliver to the Company microprocessors
in sufficient quantities with competitive price/performance features could further constrain shipments of products containing the G5 processor
and could adversely affect the Company's results of operations and financial condition.
The Company is dependent on manufacturing and logistics services provided by third parties, many of whom are located outside of the U.S.
Most of the Company's products are manufactured in whole or in part by third-party manufacturers. In addition, the Company has outsourced
much of its transportation and logistics management. While outsourcing arrangements may lower the cost of operations, they also reduce the
Company's direct control over production and distribution. It is uncertain what effect such diminished control will have on the quality or quantity
of the products manufactured or services rendered, or the flexibility of the Company to respond to changing market conditions. Moreover,
although arrangements with such manufacturers may contain provisions for warranty expense reimbursement, the Company may remain at least
initially responsible to the ultimate consumer for warranty service in the event of product defects. Any unanticipated product defect or warranty
liability, whether pursuant to arrangements with contract manufacturers or otherwise, could adversely affect the Company's future operating
results and financial condition.
Final assembly of products sold by the Company is currently 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 is performed by third-party vendors in Taiwan and China. If for any
reason manufacturing or logistics in any of these locations is disrupted by events such as regional economic, business, environmental, medical,
political, information technology system failures, or military actions, the Company's results of operations and financial condition could be
adversely affected.
The Company's future operating performance is dependent on the performance of distributors and other resellers of the Company's products.
The Company distributes its products through wholesalers, resellers, national and regional retailers and cataloguers, many of whom distribute
products from competing manufacturers. In addition, the Company also sells many of its products and resells certain third-
party products in most
of its major markets directly to end users, certain education customers, and certain resellers through its online stores around the world and its
retail stores. Many of the Company's significant resellers operate on narrow product margins and have been negatively affected by recent
economic conditions. Considerable trade receivables that are not covered by collateral or credit insurance are outstanding with the Company's
distribution and retail channel partners. The Company's business and financial results could be adversely affected if the financial condition of
these resellers weaken, if resellers within consumer channels were to cease distribution of the Company's products, or if uncertainty regarding
demand for the Company's products caused resellers to
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