Apple 2007 Annual Report Download - page 14

hardware, software and services related to consumer electronic devices, including iPods, and mobile communication devices, including iPhone.
Raw Materials
Although most components essential to the Company's business are generally available from multiple sources, certain key components
including, but not limited to, microprocessors, enclosures, certain LCDs, certain optical drives, and application-specific integrated circuits
("ASICs") are currently obtained by the Company from single or limited sources. Some key components, while currently available to the
Company from multiple sources, are at times subject to industry-wide availability constraints and pricing pressures. In addition, the Company
uses some components uncommon to the rest of the personal computer, consumer electronics and mobile communication industries, 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 or single-sourced component to the Company
were to be delayed or curtailed or in the event a key manufacturing vendor delayed shipment 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 suppliers
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 condition. 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., Infineon Technologies AG, Intel Corporation, Inventec Appliances Corporation,
LG. Phillips Co., Ltd., Matsushita, Murata Manufacturing Co., Ltd., National Semiconductor Corporation, NVIDIA Corp., Inc., Quanta
Computer, Inc., Renesas Semiconductor Co. Ltd., Samsung Electronics, Sony Corporation, Synaptics, Inc., Texas Instruments, and Toshiba
Corporation. Certain of these vendors are the sole-sourced supplier of components and manufacturing outsourcing for many of the Company's
key products, including but not limited to, assembly of most of the Company's portable Mac computers, iPods, and iPhones.
Research and Development
Because the personal computer, consumer electronics, and mobile communication industries are characterized by rapid technological advances,
the Company's ability to compete successfully is heavily dependent upon its ability to ensure a continual 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 computer hardware and peripherals, consumer electronics products, mobile communication devices, system
software, applications software, networking and communications software and solutions, and Internet services and solutions. 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 $782 million, $712 million, and $535 million in 2007, 2006, and 2005,
respectively.
11