Apple 2011 Annual Report Download - page 8

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Markets and Distribution
The Company’
s customers are primarily in the consumer, SMB, and education, enterprise and government markets. The Company uses a variety
of direct and indirect distribution channels, such as its retail stores, online stores, and direct sales force, and third-
party cellular network carriers,
wholesalers, retailers, and value-
added resellers. The Company believes that sales of its innovative and differentiated products are enhanced by
knowledgeable salespersons who can convey the value of the hardware and software integration, and demonstrate the unique solutions that are
available on its products. The Company further believes providing direct contact with its targeted customers is an effective way to demonstrate
the advantages of its products over those of its competitors and providing a high-quality sales and after-
sales support experience is critical to
attracting new and retaining existing customers. To ensure a high-
quality buying experience for its products in which service and education are
emphasized, the Company continues to expand and improve its distribution capabilities by expanding the number of its own retail stores
worldwide. Additionally, the Company has invested in programs to enhance reseller sales by placing high quality Apple fixtures, merchandising
materials and other resources within selected third-party reseller locations. Through the Apple Premium Reseller Program, certain third-
party
resellers focus on the Apple platform by providing a high level of integration and support services, and product expertise.
No single customer accounted for more than 10% of net sales in 2011 or 2010. One of the Company
’
s customers accounted for 11% of net sales
in 2009.
Competition
The markets for the Company’
s products and services are highly competitive and the Company is confronted by aggressive competition in all
areas of its business. These markets are characterized by frequent product introductions and rapid technological advances that have substantially
increased the capabilities and use of mobile communication and media devices, personal computers, and other digital electronic devices. The
Company’
s competitors who sell mobile devices and personal computers based on other operating systems have aggressively cut prices and
lowered their product margins to gain or maintain market share. The Company’
s financial condition and operating results can be adversely
affected by these and other industry-
wide downward pressures on gross margins. Principal competitive factors important to the Company include
price, product features, relative price/performance, product quality and reliability, design innovation, a strong third-
party software and
peripherals ecosystem, marketing and distribution capability, service and support, and corporate reputation.
The Company is focused on expanding its market opportunities related to mobile communication and media devices. These industries are highly
competitive and include several large, well-
funded and experienced participants. The Company expects competition in these industries to
intensify significantly as competitors attempt to imitate some of the features of the Company’
s products and applications within their own
products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer. These
industries are characterized by aggressive pricing practices, frequent product introductions, evolving design approaches and technologies, rapid
adoption of technological and product advancements by competitors, and price sensitivity on the part of consumers and businesses.
The Company’
s digital content services have faced significant competition from other companies promoting their own digital music and content
products and services, including those offering free peer-to-
peer music and video services. The Company believes it offers superior innovation
and integration of the entire solution including the hardware (iPhone, iPad, Mac, and iPod), software (iTunes), and distribution of digital content
and applications (iTunes Store, App Store, iBookstore and Mac App Store). Some of the Company’
s current and potential competitors have
substantial resources and may be able to provide such products and services at little or no profit or even at a loss to compete with the Company’
s
offerings.
The Company’s future financial condition and operating results depend on the Company’
s ability to continue to develop and offer new
innovative products and services in each of the markets it competes in.
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