Apple 2011 Annual Report Download - page 12

Download and view the complete annual report

Please find page 12 of the 2011 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 107

  • 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
  • 104
  • 105
  • 106
  • 107

changes in fair value of derivative instruments. Increased volatility in the financial markets and overall economic uncertainty would increase the
risk of the actual amounts realized in the future on the Company’
s financial instruments differing significantly from the fair values currently
assigned to them.
Global markets for the Company’
s products and services are highly competitive and subject to rapid technological change. If the Company is
unable to compete effectively in these markets, its financial condition and operating results could be materially adversely affected.
The Company’
s products and services compete in highly competitive global markets characterized by aggressive price cutting, with resulting
downward pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual
improvement in product price/performance characteristics, rapid adoption of technological and product advancements by competitors, and price
sensitivity on the part of consumers.
The Company’
s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of innovative new
products and technologies to the marketplace. The Company believes it is unique in that it designs and develops nearly the entire solution for its
products, including the hardware, operating system, numerous software applications, and related services. As a result, the Company must make
significant investments in research and development and as such, the Company currently holds a significant number of patents and copyrights
and has registered and/or has applied to register numerous patents, trademarks and service marks. By contrast, many of the Company’
s
competitors seek to compete primarily through aggressive pricing and very low cost structures. If the Company is unable to continue to develop
and sell innovative new products with attractive margins or if other companies infringe on the Company’s intellectual property, the Company’
s
ability to maintain a competitive advantage could be negatively affected and its financial condition and operating results could be materially
adversely affected.
The Company markets certain mobile communication and media devices based on the iOS mobile operating system and also markets related
third-
party digital content and applications. The Company faces substantial competition in these markets from companies that have significant
technical, marketing, distribution and other resources, as well as established hardware, software and digital content supplier relationships.
Additionally, the Company faces significant price competition as competitors reduce their selling prices and attempt to imitate the Company’
s
product features and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more
competitive than those they currently offer. The Company also competes with illegitimate ways to obtain third-
party digital content and
applications. The Company has entered the mobile communications and media device markets, and some of its competitors in these markets
have greater experience, product breadth and distribution channels than the Company. Because some current and potential competitors have
substantial resources and/or experience and a lower cost structure, they may be able to provide such products and services at little or no profit or
even at a loss. The Company also expects competition to intensify as competitors attempt to imitate the Company’
s approach to providing these
components seamlessly within their individual offerings or work collaboratively to offer integrated solutions. The Company’
s financial condition
and operating results depend substantially on the Company’
s ability to continually improve iOS and iOS devices in order to maintain their
functional and design advantages.
The Company is the only authorized maker of hardware using Mac OS X, which has a minority market share in the personal computer market.
This market is dominated by computer makers using competing operating systems, most notably Windows. In the market for personal computers
and peripherals, the Company faces a significant number of competitors, many of which have broader product lines, lower priced products, and a
larger installed customer base. Consolidation in this market has resulted in larger and potentially stronger competitors. Price competition has
been particularly intense as competitors selling Windows-
based personal computers have aggressively cut prices and lowered product margins.
An increasing number of Internet devices that include software applications and are smaller and simpler than traditional personal computers
compete for market share with the Company’s existing products. The Company’
s financial condition and operating results depend substantially
on its ability to continually improve the Mac platform to maintain its functional and design advantages.
10