Apple 2015 Annual Report Download - page 8

The Company uses some custom components that are not commonly used by its competitors, and the Company often utilizes 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 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.
While some Mac computers are manufactured in the U.S. and Ireland, 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 $8.1 billion, $6.0 billion and $4.5 billion in 2015, 2014 and 2013, 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 such ownership, 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 2015, the Company’s domestic and international net sales accounted for 35% and 65%, 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.”
Apple Inc. | 2015 Form 10-K | 6