Apple 2006 Annual Report Download - page 25

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arrangements. Failure to do so may have an adverse impact on the Company’s operating results and financial condition.
Future operating results are dependent upon the Company
’s ability to obtain a sufficient supply of components, including microprocessors,
some of which are in short supply or available only from limited sources.
Although most components essential to the Company’s business are generally available from multiple sources, certain key components
including microprocessors and ASICs are currently obtained by the Company from single or limited sources. Some key components (including
without limitation DRAM, NAND flash-memory, and TFT-LCD flat-panel displays), while currently available to the Company from multiple
sources, are at times subject to industry-wide availability and pricing pressures. In addition, 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. In situations where a component or product utilizes new technologies, initial capacity constraints
may exist until such time as the suppliers’ yields have matured. The Company and other producers in the personal computer and consumer
electronics industries also compete for various components with other industries that have experienced increased demand for their products.
The Company uses some components that are not common to the rest of the personal computer or consumer electronics industries. Continued
availability of these components may be affected if producers decided to concentrate on the production of components other than those
customized to meet the Company’s requirements. If the supply of a key component were delayed or constrained on a new or existing product,
the Company’s results of operations and financial condition could be adversely affected.
The Company must successfully manage frequent product introductions and transitions to remain competitive and effectively stimulate
customer demand.
Due to the highly volatile and competitive nature of the personal computer and consumer electronics industries, which are characterized by
dynamic customer demand patterns and rapid technological advances, the Company must continually introduce new products and technologies,
enhance existing products to remain competitive, and effectively stimulate customer demand for new products and upgraded versions of the
Company’s existing products. The success of new product introductions is dependent on a number of factors, including market acceptance; the
Company’s ability to manage the risks associated with product transitions, including the transition to Intel-based Macintosh computers, and
production ramp issues; the availability of application software for new products; the effective management of purchase commitments and
inventory levels in line with anticipated product demand; the availability of products in appropriate quantities and costs to meet anticipated
demand; and the risk that new products may have quality or other defects in the early stages of introduction. Accordingly, the Company cannot
determine in advance the ultimate effect new products will have on its sales or results of operations.
In June 2005, the Company announced its plan to begin using Intel microprocessors in its computers. During 2006, the Company introduced
new Intel-based models of the MacBook Pro, MacBook, Mac Pro, iMac, and Mac mini computers. The Company’s transition to Intel
microprocessors for Macintosh systems was completed in August 2006, and its transition for Xserve was completed in November 2006. This
transition has been and will continue to be subject to numerous risks and uncertainties including the timely innovation and delivery of related
hardware and software products to support Intel microprocessors, market acceptance of Intel-
based Macintosh computers, and the development
and availability on acceptable terms of components and services essential to enable the Company to timely deliver Intel-based Macintosh
computers. In addition, the Company is dependent on third-party software developers such as Microsoft and Adobe to timely develop current
and future applications that run on Intel-based Macintosh computers. Universal versions of Microsoft Office and Adobe’s Creative
Suite applications are not currently available. Additionally, there can be no assurance that the Company will be able to maintain its
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