Apple 2011 Annual Report Download - page 13

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There can be no assurance the Company will be able to continue to provide products and services that compete effectively.
To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and transitions.
Due to the highly volatile and competitive nature of the industries in which the Company competes, the Company must continually introduce
new products, services and technologies, enhance existing products and services, and effectively stimulate customer demand for new and
upgraded products. The success of new product introductions depends on a number of factors including but not limited to timely and successful
product development, market acceptance, the Company’
s ability to manage the risks associated with new products and production ramp issues,
the availability of application software for new products, the effective management of purchase commitments and inventory levels in line with
anticipated product demand, the availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new
products may have quality or other defects in the early stages of introduction. Accordingly, the Company cannot determine in advance the
ultimate effect of new product introductions and transitions on its financial condition and operating results.
The Company faces substantial inventory and other asset risk in addition to purchase commitment cancellation risk.
The Company records a write-
down for product and component inventories that have become obsolete or exceed anticipated demand or net
realizable value and accrues necessary cancellation fee reserves for orders of excess products and components. The Company also reviews its
long-
lived assets for impairment whenever events or changed circumstances indicate the carrying amount of an asset may not be recoverable. If
the Company determines that impairment has occurred, it records a write-
down equal to the amount by which the carrying value of the assets
exceeds its fair market value. Although the Company believes its provisions related to inventory, other assets and purchase commitments are
currently adequate, no assurance can be given that the Company will not incur additional related charges given the rapid and unpredictable pace
of product obsolescence in the industries in which the Company competes. Such charges could materially adversely affect the Company’
s
financial condition and operating results.
The Company must order components for its products and build inventory in advance of product announcements and shipments. Consistent with
industry practice, components are normally acquired through a combination of purchase orders, supplier contracts, open orders and, where
appropriate, inventory component prepayments, in each case based on projected demand. Such purchase commitments typically cover forecasted
component and manufacturing requirements for periods up to 150 days. Because the Company’
s markets are volatile, competitive and subject to
rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of
components or products, or not fully utilize firm purchase commitments. The Company’
s financial condition and operating results have been in
the past and could be in the future materially adversely affected by the Company’s ability to manage its inventory levels and respond to short-
term shifts in customer demand patterns.
Future operating results depend upon the Company
’s ability to obtain components in sufficient quantities.
Because the Company currently obtains components from single or limited sources, the Company is subject to significant supply and pricing
risks. Many components that are available from multiple sources are at times subject to industry-
wide shortages and significant commodity
pricing fluctuations. The Company has entered into various agreements for the supply of components; there can be no guarantee that the
Company will be able to extend or renew these agreements on similar terms, or at all. The follow-
on effects from the credit crisis on the
Company’s suppliers, referred to in “ Economic conditions could materially adversely affect the Company ”
above, also could affect the
Company’
s ability to obtain components. Therefore, the Company remains subject to significant risks of supply shortages and price increases
that could materially adversely affect the Company’s
11