Apple 2006 Annual Report Download - page 24

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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 targeted 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 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 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 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 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 significant competition from other companies promoting their own digital music products including MP3
players, music enabled cell phones, free peer-to-peer music and video services, and free streaming of digital content via the Internet. These
competitors include both new entrants with different market approaches, such as subscription services models, and also larger companies that
may have significant technical, marketing, distribution, and other resources, 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. The
Company expects competition in this space to intensify as competitors attempt to imitate the Company’s approach to tightly integrating these
components within their individual offerings or work more collaboratively with each other to offer solutions that are more integrated than those
they offer currently. Some of these current and potential competitors have substantial resources and may be able to provide such products and
services at little or no profit or even at a loss to compete with the Company’s offerings. There can be no assurance the Company will be able to
continue to provide products and services that effectively compete in these markets. 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.
The Company also faces significant competition in the U.S. education market. U.S. elementary and secondary schools, as well as college and
university customers, remain a core market for the Company. In an effort to gain market share and remain competitive, the Company will
continue to pursue one-to-one (1:1) learning solutions in education. 1:1 learning solutions typically consist of a portable computer for every
student and teacher along with the installation of a wireless network . These 1:1 learning solutions and other strategic sales are generally priced
more aggressively and could result in significantly less profitability or financial losses, particularly for larger deals. Although the Company
believes it has taken certain steps to strengthen its position in the education market, there can be no assurance that the Company will be able to
increase or maintain its share of the education market or execute profitably on large strategic
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