Apple 2008 Annual Report Download - page 12

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Table of Contents
Markets and Distribution
The Company’s customers are primarily in the consumer, SMB, education, enterprise, government, and creative markets. The Company
distributes its products through wholesalers, resellers, national and regional retailers, and cataloguers. No individual customer accounted for
more than 10% of net sales in 2008, 2007, or 2006. The Company also sells many of its products and resells certain third-party products in most
of its major markets directly to customers through its own sales force and retail and online stores.
Competition
The Company is confronted by aggressive competition in all areas of its business. The markets for consumer electronics, personal computers,
related software and peripheral products, digital music devices and related services, and mobile communication devices are highly competitive.
These markets are characterized by rapid technological advances in both hardware and software that have substantially increased the capabilities
and use of personal computers, other digital electronic devices, and mobile communication devices that have resulted in the frequent introduction
of new products with competitive price, feature, and performance characteristics. Over the past several years, price competition in these markets
has been particularly intense. The Company’s competitors who sell personal computers based on other operating systems have aggressively cut
prices and lowered their product margins to gain or maintain market share. The Company’s financial condition and operating results can be
adversely affected by these and other industry-wide downward pressures on gross margins. The principal competitive factors include price,
product features, relative price/performance, product quality and reliability, design innovation, availability of software and peripherals,
marketing and distribution capability, service and support, and corporate reputation. Further, as the personal computer industry and its customers
place more reliance on the Internet, an increasing number of Internet devices that are smaller, simpler, and less expensive than traditional
personal computers may compete with the Company’s products.
The Company’s music products and services have faced significant competition from other companies promoting their own digital music and
content products and services, including those offering free peer-to-peer music and video services. The Company believes it currently retains a
competitive advantage by offering superior innovation and integration of the entire solution including the hardware (personal computer, iPod,
and iPhone), software (iTunes), and distribution of content (iTunes Store and iTunes Wi-Fi Music Store). However, the Company expects
competition in this space to intensify as competitors attempt to imitate the Company’s approach to tightly integrating these elements within their
own offerings or, alternatively, collaborate with each other to offer solutions that are more integrated than those they currently offer. Some of
these current and potential competitors have substantial resources and may be able to provide such products and services at little or no profit or
even at a loss to compete with the Company’s offerings.
The Company is currently focused on market opportunities related to mobile communication devices including the iPhone. The mobile
communications industry is highly competitive with several large, well-funded, and experienced competitors. The Company faces competition
from mobile communication device companies that may attempt to imitate some of the iPhone’s functions and applications within their own
smart phones. This industry is characterized by aggressive pricing practices, frequent product introductions, evolving design approaches and
technologies, rapid adoption of technological and product advancements by competitors, and price sensitivity on the part of consumers.
The Company’s future financial condition and operating results are substantially dependent on the Company’s ability to continue to develop and
offer new innovative products and services in each of its markets.
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, which subjects the Company to significant 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,
dynamic random access memory (“DRAM”), and certain LCDs, are subject at times to industry-wide shortages and significant commodity
pricing fluctuations. In addition, the Company has entered into certain agreements for
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