Apple 2007 Annual Report Download - page 20

the supply and manufacture of many critical components is performed by sole-sourced third-party vendors in the U.S., China, Japan, Korea, and
Singapore. Sole-sourced third- party vendors in China perform final assembly of substantially all of the Company's portable products, including
MacBook Pros, MacBooks, iPods and iPhones. If manufacturing or logistics in these locations is disrupted for any reason, including natural
disasters, information technology system failures, military actions or economic, business, labor, environmental, public health, or political issues,
the Company's financial condition and operating results could be materially adversely affected.
The Company relies on third-party digital content, which may not be available to the Company on commercially reasonable terms or at all.
The Company contracts with third parties to offer their digital content through the Company's iTunes Store. The Company pays substantial fees
to obtain the rights to this content. The Company's licensing arrangements with these third parties are short-term and do not guarantee the
continuation or renewal of these arrangements on reasonable terms, if at all. Some third-party content providers currently or may in the future
offer competing products and services, and could take action to make it more difficult or impossible for the Company to license their content in
the future. Other content owners, providers or distributors may seek to limit the Company's access to, or increase the total cost of, such content.
If the Company is unable to continue to offer a wide variety of content at reasonable prices with acceptable usage rules, or continue to expand its
geographic reach, the Company's financial condition and operating results may be materially adversely affected.
Many third-party content providers require that the Company provide certain digital rights management ("DRM") and other security solutions. If
these requirements change, the Company may have to develop or license new technology to provide these solutions. There is no assurance the
Company will be able to develop or license such solutions at a reasonable cost and in a timely manner. In addition, certain countries have passed
or may propose legislation that would force the Company to license its DRM, which could lessen the protection of content and subject it to
piracy and could also affect arrangements with the Company's content providers.
The Company relies on access to third-party patents and intellectual property, and the Company's future results could be materially adversely
affected if it is alleged or found to have infringed intellectual property rights.
Many of the Company's products are designed to include third-party intellectual property, and it may be necessary in the future to seek or renew
licenses relating to various aspects of its products and business methods. Although the Company believes that, based on past experience and
industry practice, such licenses generally could be obtained on commercially reasonable terms, there is no assurance that the necessary licenses
would be available on acceptable terms or at all.
Because of technological changes in the global personal computer, consumer electronics and mobile communication industries, current extensive
patent coverage, and the rapid issuance of new patents, it is possible that certain components of the Company's products and business methods
may unknowingly infringe the patents or other intellectual property rights of third parties. From time to time, the Company has been notified that
it may be infringing such rights. Responding to such claims, regardless of their merit, can consume significant time and expense, and several
pending claims are in various stages of evaluation. In certain cases, the Company may consider the desirability of entering into licensing
agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur. If there is
a temporary or permanent injunction prohibiting the Company from marketing or selling certain products or a successful claim of infringement
against the Company requires it to pay royalties to a third party, the Company's financial condition and operating results could be materially
adversely affected. Information regarding certain claims and litigation related to alleged patent infringement and other matters is set forth in
Part I, Item 3, "Legal Proceedings." In management's opinion, the Company does not have a potential liability for damages or royalties from any
known current legal proceedings or claims related to the infringement of patent or other intellectual property rights that would individually or in
the
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