Apple 2010 Annual Report Download - page 41

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Table of Contents
Gross Margin
Gross margin for the three years ended September 25, 2010, are as follows (in millions, except gross margin percentages):
The gross margin percentage in 2010 was 39.4% compared to 40.1% in 2009. This decline in gross margin is primarily attributable to new
products that have higher cost structures, including iPad, partially offset by a more favorable sales mix of iPhone, which has a higher gross
margin than the Company average.
The gross margin percentage in 2009 was 40.1% compared to 35.2% in 2008. The primary contributors to the increase in 2009 as compared to
2008 were a favorable sales mix toward products with higher gross margins and lower commodity and other product costs, which were partially
offset by product price reductions.
The Company expects its gross margin percentage to decrease in future periods compared to levels achieved during 2010 and anticipates gross
margin levels of about 36% in the first quarter of 2011. This expected decline is largely due to a higher mix of new and innovative products that
have higher cost structures and deliver greater value to customers, and expected and potential future component cost and other cost increases.
The foregoing statements regarding the Company’s expected gross margin percentage are forward-
looking and could differ from anticipated
levels because of several factors, including but not limited to certain of those set forth below in Part I, Item 1A, “Risk Factors”
under the
subheading “ Future operating results depend upon the Company’
s ability to obtain key components including but not limited to
microprocessors, NAND flash memory, DRAM and LCDs at favorable prices and in sufficient quantities ,”
which is incorporated herein by
reference. There can be no assurance that targeted gross margin percentage levels will be achieved. In general, gross margins and margins on
individual products will remain under downward pressure due to a variety of factors, including continued industry wide global product pricing
pressures, increased competition, compressed product life cycles, product transitions and expected and potential increases in the cost of key
components including but not limited to microprocessors, NAND flash memory, DRAM and LCDs, as well as potential increases in the costs of
outside manufacturing services and a potential shift in the Company’
s sales mix towards products with lower gross margins. In response to these
competitive pressures, the Company expects it will continue to take product pricing actions, which would adversely affect gross margins. Gross
margins could also be affected by the Company’
s ability to manage product quality and warranty costs effectively and to stimulate demand for
certain of its products. Due to the Company’s significant international operations, financial results can be significantly affected in the short-
term
by fluctuations in exchange rates.
Operating Expenses
Operating expenses for the three years ended September 25, 2010, are as follows (in millions, except for percentages):
38
2010
2009
2008
Net sales
$
65,225
$
42,905
$
37,491
Cost of sales
39,541
25,683
24,294
Gross margin
$
25,684
$
17,222
$
13,197
Gross margin percentage
39.4%
40.1%
35.2%
2010
2009
2008
Research and development
$
1,782
$
1,333
$
1,109
Percentage of net sales
2.7%
3.1%
3.0%
Selling, general and administrative
$
5,517
$
4,149
$
3,761
Percentage of net sales
8.5%
9.7%
10.0%