Apple 2011 Annual Report Download - page 9

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Supply of Components
Although most components essential to the Company’
s business are generally available from multiple sources, a number of components are
currently obtained from single or limited sources, which subjects the Company to significant supply and pricing risks. Many components are at
times subject to industry-
wide shortages and significant commodity pricing fluctuations. In addition, the Company has entered into various
agreements for the supply of components; however there can be no guarantee that the Company will be able to extend or renew these agreements
on similar terms, or at all. Therefore, the Company remains subject to significant risks of supply shortages and price increases that can materially
adversely affect its financial condition and operating results.
The Company and other participants in the mobile communication and media device, and personal computer industries compete for various
components with other industries that have experienced increased demand for their products. The Company also uses some custom components
that are not common to the rest of these industries, and new products introduced by the Company often utilize custom components available
from only one source. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’
yields have
matured or manufacturing capacity has increased. If the Company’
s supply of components for a new or existing product were delayed or
constrained, 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 materially 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
concentrated on the production of common components instead of components customized to meet the Company’s requirements.
Substantially all of the Company’
s hardware products are manufactured by outsourcing partners primarily located in Asia. A significant
concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations. Certain of these
outsourcing partners are the sole-sourced suppliers of components and manufacturer for many of the Company’
s products. 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 the
Company’s requirements for periods up to 150 days.
Research and Development
Because the industries in which the Company competes are characterized by rapid technological advances, the Company’
s ability to compete
successfully depends heavily upon its ability to ensure a continual and timely flow of competitive products, services and technologies to the
marketplace. The Company continues to develop new technologies to enhance existing products and to expand the range of its product offerings
through research and development, licensing of intellectual property and acquisition of third-
party businesses and technology. Total research and
development expense was $2.4 billion, $1.8 billion and $1.3 billion in 2011, 2010 and 2009, respectively.
Patents, Trademarks, Copyrights and Licenses
The Company currently holds rights to patents and copyrights relating to certain aspects of its iPhone, iPad, Mac and iPod devices, peripherals,
software and services. The Company has registered or has applied for trademarks and service marks in the U.S. and a number of foreign
countries. Although the Company believes the ownership of such patents, copyrights, trademarks and service marks is an important factor in its
business and that its success does depend in part on the ownership thereof, the Company relies primarily on the innovative skills, technical
competence and marketing abilities of its personnel.
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