Apple 2008 Annual Report Download - page 26

Table of Contents
Many factors unique to retail operations, some of which are beyond the Company’s control, pose risks and uncertainties that could have a
material adverse effect on the Retail segment’s future results, cause its actual results to differ from anticipated results and have a material
adverse effect on the Company’s financial condition and operating results. These risks and uncertainties include, among other things, macro-
economic factors that could have a negative effect on general retail activity, as well as the Company’s inability to manage costs associated with
store construction and operation, inability to sell third-party products at adequate margins, failure to manage relationships with existing retail
channel partners, more challenging environment in managing retail operations outside the U.S., costs associated with unanticipated fluctuations
in the value of retail inventory, and inability to obtain and renew leases in quality retail locations at a reasonable cost.
Investment in new business strategies and initiatives could disrupt the Company
’s ongoing business and present risks not originally
contemplated.
The Company has invested, and in the future may invest, in new business strategies or acquisitions. Such endeavors may involve significant risks
and uncertainties, including distraction of management from current operations, insufficient revenue to offset liabilities assumed and expenses
associated with the strategy, inadequate return of capital, and unidentified issues not discovered in the Company’s due diligence. Because these
new ventures are inherently risky, no assurance can be given that such strategies and initiatives will be successful and will not have a material
adverse effect on the Company’s financial condition and operating results.
The Company’s future operating performance depends on the performance of distributors, carriers, and other resellers.
The Company distributes its products through wholesalers, resellers, national and regional retailers, value-
added resellers, and cataloguers, many
of whom distribute products from competing manufacturers. The Company also sells many of its products and resells third-party products in
most of its major markets directly to end-users, certain education customers, and certain resellers through its online and retail stores. iPhone is
distributed through the Company, its cellular network carriers’ distribution channels, and certain third-party resellers.
Many resellers operate on narrow product margins and have been negatively affected in the past by weak economic conditions. Some resellers
have perceived the expansion of the Company’s direct sales as conflicting with their business interests as distributors and resellers of the
Company’s products. Such a perception could discourage resellers from investing resources in the distribution and sale of the Company’s
products or lead them to limit or cease distribution of those products. The Company’s financial condition and operating results could be
materially adversely affected if the financial condition of these resellers weakens, if resellers stopped distributing the Company’s products, or if
uncertainty regarding demand for the Company’s products caused resellers to reduce their ordering and marketing of the Company’s products.
The Company has invested and will continue to invest in programs to enhance reseller sales, including staffing selected resellers’ stores with
Company employees and contractors and improving product placement displays. These programs could require a substantial investment while
providing no assurance of return or incremental revenue.
The Company is exposed to credit risk and fluctuations in the market values of its investment portfolio.
Although the Company has not recognized any material losses on its cash, cash equivalents and short-term investments, future declines in their
market values could have a material adverse effect on the Company’s financial condition and operating results. Given the global nature of its
business, the Company has investments both domestically and internationally. Additionally, the Company’s overall investment portfolio is often
concentrated in the financial sector, which has been negatively impacted by the recent market liquidity conditions. Credit ratings and pricing of
these investments can be negatively impacted by liquidity, credit deterioration or losses, financial results, or other factors. As a result, the value
or liquidity of the Company’s cash, cash equivalents and short-term investments could decline and result in a material impairment, which could
have a material adverse effect on the Company’s financial condition and operating results.
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