Apple 2008 Annual Report Download - page 13

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Table of Contents
the supply of key components including, but not limited to microprocessors, NAND flash memory, DRAM and LCDs at favorable pricing, but
there is no guarantee that the Company will be able to extend or renew these agreements on similar favorable terms, or at all, upon expiration or
otherwise obtain favorable pricing in the future. Therefore, the Company remains subject to significant risks of supply shortages and/or price
increases that can have a material adverse effect on its financial condition and operating results.
The Company and other participants in the personal computer, consumer electronics and mobile communication industries also compete for
various components with other industries that have experienced increased demand for their products. In addition, the Company uses some
custom components that are not common to the rest of the personal computer, consumer electronics and mobile communication industries, and
new products introduced by the Company often utilize custom components available from only one source until the Company has evaluated
whether there is a need for, and subsequently qualifies, additional suppliers. When a component or product uses new technologies, initial
capacity constraints may exist until the suppliers’ yields have matured. If the Company’s supply of a key single-sourced component for a new or
existing product were delayed or constrained, if such components were available only at significantly higher prices, or if a key manufacturing
vendor delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially
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 at acceptable prices, or at all, may be affected if those suppliers decided to concentrate on the production of
common components instead of components customized to meet the Company’s requirements.
Significant portions of the Company’s Mac computers, iPods, iPhones, logic boards, and other assembled products are 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 suppliers
of components and manufacturing outsourcing for many of the Company’s key products, including but not limited to final assembly of
substantially all of the Company’s portable Mac computers, iPods, iPhones and most of the Company’s iMacs. Although the Company works
closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing
partners were unable to meet their production commitments. 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, without limitation, 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 Display, LSI Corporation,
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.
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 $1.1 billion, $782 million, and $712 million in 2008, 2007, and 2006,
respectively.
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