Apple 2007 Annual Report Download - page 17

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described in Part I, Item 3, "Legal Proceedings," several derivative complaints and a class action complaint have been filed in state and federal
courts against the Company and certain current and former directors and executive officers pertaining to allegations relating to past stock option
grants. The Company has provided the results of its investigation to the SEC and the United States Attorney's Office for the Northern District of
California, and the Company has responded to their requests for documents and additional information. The Company intends to continue to
provide its full cooperation.
On April 24, 2007, the SEC filed an enforcement action against two former officers of the Company. In announcing the lawsuit, the SEC stated
that it would not bring an enforcement action against the Company based in part on the Company's "swift, extensive, and extraordinary
cooperation in the Commission's investigation." According to the SEC's statement, the Company's "cooperation consisted of, among other
things, prompt self-reporting, an independent internal investigation, the sharing of the results of that investigation with the government, and the
implementation of new controls designed to prevent the recurrence of fraudulent conduct."
No assurance can be given regarding the outcomes from litigation, regulatory proceedings, or government enforcement actions relating to the
Company's past stock option practices. These and related matters have required, and will continue to require, the Company to incur substantial
expenses for legal, accounting, tax, and other professional services, and may divert management's attention from the Company's business. If the
Company is subject to adverse findings, it could be required to pay damages and penalties and might face additional remedies that could harm its
financial condition and operating results.
Global markets for personal computers, digital music devices, mobile communication devices, and related peripherals and services are highly
competitive and subject to rapid technological change. If the Company is unable to compete effectively in these markets, its financial condition
and operating results could be materially adversely affected.
The Company competes in global markets that are highly competitive and characterized by aggressive price cutting, with its resulting downward
pressure on gross margins, frequent introduction of new products and products, short product life cycles, evolving industry standards, continual
improvement in product price/performance characteristics, rapid adoption of technological and product advancements by competitors, and price
sensitivity on the part of consumers.
The Company's ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of new innovative
products and technologies to the marketplace. The Company believes it is unique in that it designs and develops virtually the entire solution for
its personal computers, consumer electronics, and mobile communication devices, including the hardware, operating system, several software
applications, and related services. As a result, the Company must make significant investments in research and development. By contrast, many
of the Company's competitors seek to compete aggressively on price and maintain very low cost structures. If the Company is unable to continue
to develop and sell innovative new products with attractive margins, its financial condition and operating results may be materially adversely
affected.
In the market for personal computers and peripherals, the Company faces a significant number of competitors, many of which have broader
product lines and larger installed customer bases. There has also been a trend toward consolidation that has resulted in larger and potentially
stronger competitors. Price competition has been particularly intense as competitors selling Windows-based personal computers have
aggressively cut prices and lowered product margins. The Company also faces increased competition in certain of its key market segments,
including consumer, education, professional and consumer digital video editing, and design and publishing. An increasing number of Internet
devices that include software applications and are smaller and simpler than traditional personal computers compete for market share with the
Company's existing products.
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