Apple 2012 Annual Report Download - page 8

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, including those that are available from multiple sources,
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 markets for mobile communication and media devices and personal
computers also 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 an outsourcing partner 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 that are located
primarily 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 manufacturers 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 its 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 $3.4 billion, $2.4 billion, and $1.8 billion in 2012, 2011, and 2010,
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.
The Company regularly files patent applications to protect innovations arising from its research, development
and design, and is currently pursuing thousands of patent applications around the world. Over time, the Company
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