Apple 2013 Annual Report Download - page 15

of the Company’s hardware products. Any failure of these partners to perform may have a negative impact on the
Company’s cost or supply of components or finished goods. In addition, manufacturing or logistics in these
locations or transit to final destinations may be disrupted for a variety of reasons including, but not limited to,
natural and man-made disasters, information technology system failures, commercial disputes, military actions or
economic, business, labor, environmental, public health, or political issues.
The Company has invested in manufacturing process equipment, much of which is held at certain of its
outsourcing partners, and has made prepayments to certain of its suppliers associated with long-term supply
agreements. While these arrangements help ensure the supply of components and finished goods, if these
outsourcing partners or suppliers experience severe financial problems or other disruptions in their business, the
net realizable value of these assets could be negatively impacted.
The Company’s products and services may experience quality problems from time to time that can result in
decreased sales and operating margin and harm to the Company’s reputation.
The Company sells complex hardware and software products and services that can contain design and
manufacturing defects. Sophisticated operating system software and applications, such as those sold by the
Company, often contain “bugs” that can unexpectedly interfere with the software’s intended operation. The
Company’s online services may from time to time experience outages, service slowdowns, or errors. Defects may
also occur in components and products the Company purchases from third parties. There can be no assurance the
Company will be able to detect and fix all defects in the hardware, software and services it sells. Failure to do so
could result in lost revenue, significant warranty and other expenses, and harm to the Company’s reputation.
The Company relies on access to third-party digital content, which may not be available to the Company on
commercially reasonable terms or at all.
The Company contracts with numerous third parties to offer their digital content through the iTunes Store. This
includes the right to make available music, movies, TV shows and books currently available through the iTunes
Store. The licensing arrangements with these third parties are short-term and do not guarantee the continuation or
renewal of these arrangements on reasonable terms, if at all. Some third-party content providers and distributors
currently or in the future may offer competing products and services, and could take action to make it more
difficult or impossible for the Company to license their content in the future. Other content owners, providers or
distributors may seek to limit the Company’s access to, or increase the cost of, such content. The Company may
be unable to continue to offer a wide variety of content at reasonable prices with acceptable usage rules, or
continue to expand its geographic reach. Failure to obtain the right to make available third-party digital content,
or to make available such content on commercially reasonable terms, could have a material adverse impact on the
Company’s financial condition and operating results.
Some third-party digital content providers require the Company to provide digital rights management and other
security solutions. If requirements change, the Company may have to develop or license new technology to
provide these solutions. There is no assurance the Company will be able to develop or license such solutions at a
reasonable cost and in a timely manner. In addition, certain countries have passed or may propose and adopt
legislation that would force the Company to license its digital rights management, which could lessen the
protection of content and subject it to piracy and also could negatively affect arrangements with the Company’s
content providers.
The Company’s future performance depends in part on support from third-party software developers.
The Company believes decisions by customers to purchase its hardware products depend in part on the
availability of third-party software applications and services. There is no assurance that third-party developers
will continue to develop and maintain software applications and services for the Company’s products. If third-
party software applications and services cease to be developed and maintained for the Company’s products,
customers may choose not to buy the Company’s products.
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