Apple 2005 Annual Report Download - page 93

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10—Commitments and Contingencies (Continued)
Concentrations in the Available Sources of Supply of Materials and Product
Although most components essential to the Company’s business are generally available from multiple sources, other key components
(including microprocessors and application-specific integrated circuits (“ASICs”)) are currently obtained by the Company from single or
limited sources. Some other key components, while currently available to the Company from multiple sources, are at times subject to industry-
wide availability and pricing pressures. In addition, the Company uses some components that are not common to the rest of the personal
computer industry, and 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. If the supply of a key single-sourced
component to the Company were to be delayed or curtailed, or in the event a key manufacturing vendor delays shipments of completed
products to the Company, the Company’s ability to ship related products in desired quantities and in a timely manner could be adversely
affected. The Company’s business and financial performance could also be adversely affected depending on the time required to obtain
sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of
these components may be affected if producers were to decide to concentrate on the production of common components instead of components
customized to meet the Company’s requirements. Finally, significant portions of the Company’s CPUs, logic boards, and assembled products
are now manufactured by outsourcing partners, primarily in various parts of Asia. Although the Company works closely with its outsourcing
partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to
meet their production obligations.
Long-Term Supply Agreements
Subsequent to September 24, 2005, the Company entered into long-
term supply agreements with Hynix Semiconductor, Inc., Intel Corporation,
Micron Technology, Inc., Samsung Electronics Co., Ltd., and Toshiba Corporation to secure supply of NAND flash memory through calendar
year 2010. As part of these agreements, the Company intends to prepay a total of $1.25 billion for flash memory components by the end of the
second quarter of 2006.
Contingencies
The Company is subject to certain other legal proceedings and claims that have arisen in the ordinary course of business and have not been
fully adjudicated. In the opinion of management, the Company does not have a potential liability related to any current legal proceedings and
claims that would individually or in the aggregate have a material adverse effect on its financial condition, liquidity, or results of operations.
However, the results of legal proceedings cannot be predicted with certainty. Should the Company fail to prevail in any of these legal matters
or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular
reporting period could be materially adversely affected.
Production and marketing of products in certain states and countries may subject the Company to environmental and other regulations
including, in some instances, the requirement to provide customers the ability to return product at the end of its useful life, and place
responsibility for environmentally safe disposal or recycling with the Company. Such laws and regulations have recently been passed in several
jurisdictions in which the Company operates including various European Union member countries, Japan and certain states within the U.S.
Although the Company does not anticipate any material adverse effects in the future based on the nature of its operations and the thrust of such
laws, there is no assurance that
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