Apple 2014 Annual Report Download - page 8

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
accessories 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 many 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 (iOS,
OS X and iTunes), online services and distribution of digital content and applications (iTunes Store, App Store, iBooks Store
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.
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. In addition, the Company competes for various components
with other participants in the markets for mobile communication and media devices and personal computers. Therefore, many
components used by the Company, including those that are available from multiple sources, are at times subject to industry-
wide shortage and significant pricing fluctuations that could materially adversely affect the Company’s financial condition and
operating results.
The Company uses some custom components that are not commonly used by its competitors, 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.
The Company has entered into agreements for the supply of many 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 could materially adversely affect its financial condition and
operating results.
Apple Inc. | 2014 Form 10-K | 6