Apple 2012 Annual Report Download - page 11

development and/or manufacture products resulting in product delays; inability of customers, including channel
partners, to obtain credit to finance purchases of the Company’s products; and failure of derivative counterparties
and other financial institutions. Other income and expense also could vary materially from expectations
depending on gains or losses realized on the sale or exchange of financial instruments; impairment charges
resulting from revaluations of debt and equity securities and other investments; interest rates; cash balances; and
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, and the Company may be unable to compete effectively in these markets.
The Company’s products and services compete in highly competitive global markets characterized by aggressive
price cutting and 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 currently holds a significant number of patents and copyrights and
has registered and/or has applied to register numerous patents, trademarks and service marks. In contrast, many
of the Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures,
and emulating the Company’s products and infringing its intellectual property. If the Company is unable to
continue to develop and sell innovative new products with attractive margins or if competitors infringe on the
Company’s intellectual property, the Company’s ability to maintain a competitive advantage could be 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 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. Historically, consolidation in this market has resulted in larger competitors. Price competition has
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