Apple 2007 Annual Report Download - page 87

The following table reconciles changes in the Company's accrued warranties and related costs (in millions):
The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software
infringes third-party intellectual property rights. Other agreements entered into by the Company sometimes include indemnification provisions
under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an
indemnified third-party. However, the Company has not been required to make any significant payments resulting from such an infringement
claim asserted against itself or an indemnified third-party and, in the opinion of management, does not have a potential liability related to
unresolved infringement claims subject to indemnification that would have a material adverse effect on its financial condition or operating
results. Therefore, the Company did not record a liability for infringement costs as of either September 29, 2007 or September 30, 2006.
Concentrations in the Available Sources of Supply of Materials and Product
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 which subjects the Company to supply and
pricing risks. Many of these and other key components that are available from multiple sources including, but not limited to, NAND flash
memory, DRAM memory, and certain LCDs, are at times subject to industry-wide shortages and significant commodity pricing fluctuations. In
addition, the Company has entered into certain agreements for the supply of critical components at favorable pricing, and there is no guarantee
that the Company will be able to extend or renew these agreements when they expire. Therefore, the Company remains subject to significant
risks of supply shortages and/or price increases that can adversely affect gross margins and operating margins. In addition, the Company uses
some components that are not common to the rest of the global personal computer, consumer electronics and mobile communication industries,
and new products introduced by the Company often 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 single-sourced component to the Company
were to be delayed or curtailed, or in the event a key manufacturing vendor delays shipments 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 producers
were to decide to concentrate on the production of common components instead of components customized to meet the Company's requirements.
Finally, significant portions of the Company's CPUs, iPods, iPhones, logic boards, and other assembled products are now manufactured by
outsourcing partners, primarily in various parts of Asia. A significant concentration of this outsourced manufacturing is currently performed by
only a few of the Company's outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-
sourced supplier of
components and manufacturing outsourcing for many of the Company's key products, including but not limited to, assembly
83
2007
2006
2005
Beginning accrued warranty and related costs
$
284
$
188
$
105
Cost of warranty claims
(281
)
(267
)
(188
)
Accruals for product warranties
227
363
271
Ending accrued warranty and related costs
$
230
$
284
$
188