Apple 2004 Annual Report Download - page 54

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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 the
decisions 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 has not been 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 and competing digital media applications, including music distribution
service and technology. In June of 2003, Microsoft stated that it would no longer develop new versions of Internet Explorer for the Mac OS,
subsequent to the Company's introduction during 2003 of its own web browser, Safari. Further discontinuance of products for the Macintosh
platform, including Microsoft Office and other Microsoft products could have an adverse effect on the Company's net sales and results of
operations.
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 and consumer electronics industries, 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
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