Apple 2014 Annual Report Download - page 12

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 R&D. The Company 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 on 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; and the Company has a minority market share in the smartphone market.
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 and with business models that include content provided to users for free.
Some of the Company’s competitors 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 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 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 has been contracting and is dominated by computer makers using competing operating
systems, most notably Windows. In the market for personal computers and accessories, 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 been particularly intense as
competitors selling Windows-based personal computers have aggressively cut prices and lowered product margins. An
increasing number of Internet-enabled devices that include software applications and are smaller and simpler than traditional
personal computers compete for market share with the Company’s existing products. The Company’s financial condition and
operating results also depend on its ability to continually improve the Mac platform to maintain its functional and design
advantages.
There can be no assurance the Company will be able to continue to provide products and services that compete effectively.
Apple Inc. | 2014 Form 10-K | 10