Apple 2012 Annual Report Download - page 7

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Markets and Distribution
The Company’s customers are primarily in the consumer, SMB, 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 2012, 2011 or 2010.
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 personal computers and mobile
communication and media devices. These markets are highly competitive and include several large, well-funded
and experienced participants. The Company expects competition in these markets 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 markets 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’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 in which it competes. The
Company believes it offers superior innovation and integration of the entire solution including the hardware
(iPhone, iPad, Mac, and iPod), software (iTunes), online services (iCloud), 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.
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