Apple 2006 Annual Report Download - page 19

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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 or 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. The Company
attempts to mitigate these potential risks by working closely with these and other key suppliers on product introduction plans, strategic
inventories, coordinated product introductions, and internal and external manufacturing schedules and levels. Consistent with industry practice,
the Company acquires components through a combination of formal purchase orders, supplier contracts, and open orders based on projected
demand information. The Company’s purchase commitments typically cover its requirements for periods ranging from 30 to 150 days.
The Company believes there are several component suppliers and manufacturing vendors whose loss to the Company could have a material
adverse effect upon the Company’s business and financial position. At this time, such vendors include Agere Systems, Inc., Ambit
Microsystems Corporation, Amperex Technology Limited, ASUSTeK Corporation, ATI Technologies, Inc., Atheros Communications Inc., AU
Optronics Corporation, Broadcom Corporation, Chi Mei Optoelectronics Corporation, Cypress Semiconductor Corporation, Hitachi Global
Storage Technologies, Hon Hai Precision Industry Co., Ltd., Intel Corporation, Inventec Appliances Corporation, LG. Phillips Co., Ltd.,
Matsushita, NVIDIA Corp., PortalPlayer, Inc., Quanta Computer, Inc., Renesas Semiconductor Co. Ltd., Samsung Electronics, Sony
Corporation, Synaptics, Inc., Texas Instruments, and Toshiba Corporation.
Research and Development
Because the personal computer and consumer electronics industries are characterized by rapid technological advances, the Company’
s ability to
compete successfully is heavily dependent upon its ability to ensure a continuing and timely flow of competitive products, services, and
technologies to the marketplace. The Company continues to develop new products and technologies and to enhance existing products in the
areas of hardware and peripherals, consumer electronic products, system software, applications software, networking and communications
software and solutions, and the Internet. The Company may expand the range of its product offerings and intellectual property through
licensing and/or acquisition of third-party business and technology. The Company’s research and development expenditures totaled
$712 million, $535 million (as restated ), and $491 million (as restated ) in 2006, 2005, and 2004, respectively.
Patents, Trademarks, Copyrights and Licenses
The Company currently holds rights to patents and copyrights relating to certain aspects of its computer systems, iPods, peripherals, software,
and services. In addition, the Company has registered, and/or has applied to register, trademarks and service marks in the U.S. and a number of
foreign countries for “Apple,” the Apple logo, “Macintosh,” “iPod,” “iTunes,” “iTunes Store,” and numerous other trademarks and service
marks. Although the Company believes the ownership of such patents, copyrights, trademarks and service marks is an important factor in its
business and that its success does depend in part on the ownership thereof, the Company relies primarily on the innovative skills, technical
competence, and marketing abilities of its personnel.
(1)
See the “Explanatory Note” immediately preceding Part I, Item 1 and Note 2, “Restatement of Consolidated Financial Statements” in
Notes to Consolidated Financial Statements of this Form 10-K.
18
(1) (1)