Apple 2014 Annual Report Download - page 9

While the Company manufactures some Macs in the United States, substantially all of the Company’s hardware products are
currently 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 R&D, licensing of intellectual property and acquisition of
third-party businesses and technology. Total R&D expense was $6.0 billion, $4.5 billion and $3.4 billion in 2014, 2013 and
2012, respectively.
Patents, Trademarks, Copyrights and Licenses
The Company currently holds rights to patents and copyrights relating to certain aspects of its hardware devices, accessories,
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 has accumulated a large
portfolio of issued patents around the world. The Company holds copyrights relating to certain aspects of its products and
services. No single patent or copyright is solely responsible for protecting the Company’s products. The Company believes the
duration of its patents is adequate relative to the expected lives of its products.
Many of the Company’s products are designed to include intellectual property obtained from third parties. It may be necessary
in the future to seek or renew licenses relating to various aspects of its products, processes and services. While the Company
has generally been able to obtain such licenses on commercially reasonable terms in the past, there is no guarantee that such
licenses could be obtained in the future on reasonable terms or at all. Because of technological changes in the industries in
which the Company competes, current extensive patent coverage and the rapid rate of issuance of new patents, it is possible
that certain components of the Company’s products, processes and services may unknowingly infringe existing patents or
intellectual property rights of others. From time to time, the Company has been notified that it may be infringing certain patents
or other intellectual property rights of third parties.
Foreign and Domestic Operations and Geographic Data
During 2014, the Company’s domestic and international net sales accounted for 38% and 62%, respectively, of total net
sales. Information regarding financial data by geographic segment is set forth in Part II, Item 7 of this Form 10-K under the
subheading “Segment Operating Performance,” and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial
Statements in Note 11, “Segment Information and Geographic Data.”
While substantially all of the Company’s hardware products are currently manufactured by outsourcing partners that are
located primarily in Asia, the Company also performs final assembly of certain products at its manufacturing facility in Ireland.
The supply and manufacture of a number of components is performed by sole-sourced outsourcing partners in the U.S., Asia
and Europe. Margins on sales of the Company’s products in foreign countries and on sales of products that include
components obtained from foreign suppliers, can be adversely affected by foreign currency exchange rate fluctuations and by
international trade regulations, including tariffs and antidumping penalties. Information regarding concentration in the available
sources of supply of materials and products is set forth in Part II, Item 8 of this Form 10-K in the Notes to Consolidated
Financial Statements in Note 10, “Commitments and Contingencies.”
Apple Inc. | 2014 Form 10-K | 7