Apple 2005 Annual Report Download - page 48

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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 as competitors who sell Windows and Linux based personal computers have aggressively cut prices
and lowered their product margins 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. Additionally, if
unauthorized copies of the Mac OS are used on other companies’ hardware products and result in decreased demand for the Company’s
hardware products, the Company’s results of operations may be adversely affected.
The Company is currently focused on market opportunities related to digital music distribution and related consumer electronic devices,
including iPods. The Company faces increasing competition from other companies promoting their own digital music products, including
music enabled cell phones, distribution services, and free peer-to-peer music services. These competitors include both new entrants with
different market approaches, such as subscription services models, and also larger companies that may have greater technical, marketing,
distribution, and other resources than those of the Company, as well as established hardware, software, and digital content supplier
relationships. Failure to effectively compete could negatively affect the Company’s operating results and financial position. There can be no
assurance that the Company will be able to continue to provide products and services that effectively compete in these markets or successfully
distribute and sell digital music outside the U.S. The Company may also have to respond to price competition by lowering prices and/or
increasing features which could adversely affect the Company’s music product gross margins as well as overall Company gross margins.
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