Apple 2012 Annual Report Download - page 15

With respect to its Mac products, the Company believes the availability of third-party software applications and
services depends in part on the developers’ perception and analysis of the relative benefits of developing,
maintaining, and upgrading such software for the Company’s products compared to Windows-based products.
This analysis may be based on factors such as the market position of the Company and its products, the
anticipated revenue that may be generated, continued growth of Mac sales, and the costs of developing such
applications and services. If the Company’s minority share of the global personal computer market causes
developers to question the Company’s prospects, developers could be less inclined to develop or upgrade
software for the Company’s products and more inclined to devote their resources to developing and upgrading
software for the larger Windows market.
With respect to iOS devices, the Company relies on the continued availability and development of compelling
and innovative software applications, which are distributed through a single distribution channel, the App Store.
The absence of multiple distribution channels, which are available for competing platforms, may limit the
availability and acceptance of third-party applications by the Company’s customers, thereby causing developers
to reduce or curtail development for the iOS platform. In addition, iOS devices are subject to rapid technological
change, and, if third-party developers are unable to or choose not to keep up with this pace of change, third-party
applications might not successfully operate and may result in dissatisfied customers. As with applications for the
Company’s Mac products, the availability and development of these applications also depend on developers’
perceptions and analysis of the relative benefits of developing software for the Company’s products rather than
its competitors’ platforms, such as Android. If developers focus their efforts on these competing platforms, the
availability and quality of applications for the Company’s iOS devices may suffer.
The Company depends on the performance of distributors, carriers and other resellers.
The Company distributes its products through cellular network carriers, wholesalers, national and regional
retailers, and value-added resellers, many of whom distribute products from competing manufacturers. The
Company also sells its products and third-party products in most of its major markets directly to education,
enterprise and government customers, and consumers and small and mid-sized businesses through its online and
retail stores.
Carriers providing cellular network service for iPhone typically subsidize users’ purchase of the device. There is
no assurance that such subsidies will be continued at all or in the same amounts upon renewal of the Company’s
agreements with these carriers or in agreements the Company enters into with new carriers.
Many resellers have narrow operating margins and have been adversely affected in the past by weak economic
conditions. Some resellers have perceived the expansion of the Company’s direct sales as conflicting with their
business interests as distributors and resellers of the Company’s products. Such a perception could discourage
resellers from investing resources in the distribution and sale of the Company’s products or lead them to limit or
cease distribution of those products. The Company has invested and will continue to invest in programs to
enhance reseller sales, including staffing selected resellers’ stores with Company employees and contractors and
improving product placement displays. These programs could require a substantial investment while providing
no assurance of return or incremental revenue. The financial condition of these resellers could weaken, these
resellers could stop distributing the Company’s products, or uncertainty regarding demand for the Company’s
products could cause resellers to reduce their ordering and marketing of the Company’s products.
The Company’s Retail segment has required and will continue to require a substantial investment and
commitment of resources and is subject to numerous risks and uncertainties.
The Company’s retail stores have required substantial fixed investment in equipment and leasehold
improvements, information systems, inventory and personnel. The Company also has entered into substantial
operating lease commitments for retail space. Certain stores have been designed and built to serve as high-profile
venues to promote brand awareness and serve as vehicles for corporate sales and marketing activities. Because of
their unique design elements, locations and size, these stores require substantially more investment than the
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