Apple 2008 Annual Report Download - page 23

Download and view the complete annual report

Please find page 23 of the 2008 Apple annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 103

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103

Table of Contents
The Company’s products and services experience quality problems from time to time that can result in decreased sales and operating margin.
The Company sells highly complex hardware and software products and services that can contain defects in design and manufacture.
Sophisticated operating system software and applications, such as those sold by the Company, often contain “bugs” that can unexpectedly
interfere with the software’s intended operation. Defects may also occur in components and products the Company purchases from third parties.
There can be no assurance the Company will be able to detect and fix all defects in the hardware, software and services it sells. Failure to do so
could result in lost revenue, harm to reputation, and significant warranty and other expenses, and could have a material adverse impact on the
Company’s financial condition and operating results.
The Company expects its quarterly revenue and operating results to fluctuate for a variety of reasons.
The Company’s profit margins vary among its products and its distribution channels. The Company’s software, accessories, and service and
support contracts generally have higher gross margins than certain of the Company’s other products. Gross margins on the Company’s hardware
products vary across product lines and can change over time as a result of product transitions, pricing and configuration changes, and
component, warranty, and other cost fluctuations. The Company’s direct sales generally have higher associated gross margins than its indirect
sales through its channel partners. In addition, the Company’s gross margin and operating margin percentages, as well as overall profitability,
may be materially adversely impacted as a result of a shift in product, geographic or channel mix, new products, component cost increases, or
price competition. The Company has typically experienced greater net sales in the first and fourth fiscal quarters compared to the second and
third fiscal quarters due to seasonal demand related to the holiday season and the beginning of the school year, respectively. Furthermore, the
Company sells more products from time-to-time during the third month of a quarter than it does during either of the first two months.
Developments late in a quarter, such as lower-than-anticipated demand for the Company’s products, an internal systems failure, or failure of one
of the Company’s key logistics, components supply, or manufacturing partners, could have a material adverse impact on the Company’s
financial condition and operating results.
In certain countries, including the U.S., the Company relies on a single cellular network carrier to provide service for iPhone.
In the U.S., U.K., France, Germany, Spain, Ireland, and certain other countries, the Company has contracted with a single carrier to provide
cellular network services for iPhone on an exclusive basis. If these exclusive carriers cannot successfully compete with other carriers in their
markets for any reason, including but not limited to the quality and coverage of wireless voice and data services, performance and timely build-
out of advanced wireless networks, and pricing and other terms of conditions of end-user contracts, or if these exclusive carriers fail to promote
iPhone aggressively or favor other handsets in their promotion and sales activities or service plans, sales may be materially adversely affected.
The Company is subject to risks associated with laws, regulations and industry-imposed standards related to mobile communications devices.
Laws and regulations related to mobile communications devices in the many jurisdictions in which the Company operates are extensive and
subject to change. Such changes, which could include but are not limited to restrictions on production, manufacture, distribution, and use of the
device, locking the device to a carrier’s network, or mandating the use of the device on more than one carrier’s network, could have a material
adverse effect on the Company’s financial condition and operating results.
Mobile communication devices, such as iPhone, are subject to certification and regulation by governmental and standardization bodies, as well
as by cellular network carriers for use on their networks. These certification processes are extensive and time consuming, and could result in
additional testing requirements, product modifications or delays in product shipment dates, which could have a material adverse effect on the
Company’s financial condition and operating results.
20