Apple 2008 Annual Report Download - page 84

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8—Commitments and Contingencies (Continued)
However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it 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 27, 2008 or September 29, 2007.
Concentrations in the Available Sources of Supply of Materials and Product
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 liquid crystal displays (“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 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 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 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.
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