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Five Force Industry Analysis Essay

The Company distributes its products principally through third-party computer resellers. The Company is also continuing its expansion into new distribution channels, such as mass merchandise stores, consumer electronics outlets and computer superstores, in response to changing industry practices and customer preferences. The Company’s products are sold primarily to business and government customers through independent resellers, value-added resellers and systems integrators; to home customers through independent resellers and consumer channels; and to education customers through direct sales and independent resellers. In order to provide products and service to its independent resellers on a timely basis, the Company distributes its products through a number of Apple distribution and support centers. Business customers account for the largest portion of the Company’s revenues. Business customers are attracted to the Macintosh in particular for a variety of reasons, including the availability of a wide variety of application software, the reduced amount of training resulting from the Macintosh’s intuitive ease of use, and the ability of the Macintosh to network and communicate with other computer systems and environments.

Apple personal computers were first introduced to education customers in the late 1970’s. In the United States, the Company is one of the major suppliers of personal computers for both elementary and secondary school customers, as well as for college and university customers. The Company is also a substantial supplier to institutions of higher education outside of the United States. In the United States, the Company’s formal commitment to serve the federal government began in 1986 with the formation of the Apple Federal Systems Group. Although the Company has contracts with a number of U.S. government agencies, these contracts are not currently material to the Company’s overall financial condition or results of operations. Presently, the United States represents the Company’s largest geographic marketplace. The Apple USA organization, based in Campbell, California, focuses on the Company’s sales, marketing, and support efforts in the United States. Products sold in the United States are primarily manufactured in the Company’s facilities in California, Colorado, and Singapore, and distributed from facilities in California and Illinois. Approximately 45% to 46% of the Company’s revenues in recent years has come from its international operations.

The Company has two international sales and marketing divisions, consisting of the division and the Apple Pacific division. The Apple Europe division, based in Paris, France, focuses on opportunities in Europe as well as in parts of Africa and in the Middle East. Products sold by the Europe division are manufactured primarily in the Company’s facility in Cork, Ireland. The Apple Pacific division, based in Cupertino, California, focuses on opportunities in Japan, Australia, Canada, the Far East, and Latin America. Products sold by the Pacific division are manufactured primarily in the Company’s manufacturing and assembly facilities in California, Colorado and Singapore. A summary of the Company’s Industry Segment and Geographic Information may be found in Part II, Item 8 of this Form 10-K under the heading “Industry Segment and Geographic Information”, which information is hereby incorporated by reference. Raw materials

Although raw materials, processes, and components essential to the Company’s business are generally available from multiple sources, certain key components are currently obtained from single sources. For example, certain microprocessors used in many of the Company’s products are currently available only from Motorola, Inc. Any availability limitations, interruption in supplies, or price increases relative to these and other components could adversely affect the Company’s business and financial results. Key components and processes currently obtained from single sources include certain of the Company’s displays, microprocessors, mouse devices, keyboards, disk drives, CD-ROM drives, printers and printer components, ASICs and other custom chips, and certain processes relating to construction of the plastic housing for the Company’s computers. In addition, new products introduced by the Company often initially utilize custom components obtained from only one source, until the Company has evaluated whether there is a need for an additional supplier. In situations where a component or product utilizes new technologies and processes, there may be initial capacity constraints until such time as the suppliers’ yields have matured.

Materials and components are normally acquired through purchase orders, as is common in the industry, typically covering the Company’s requirements for periods from 90 to 180 days. However, the Company continues to evaluate the need for a supply contract in each situation. If the supply of a key single-sourced material, process, or component to the Company were to be delayed or curtailed, its ability to ship the related product utilizing such material, process, or component in desired quantities and in a timely manner could be adversely affected. The Company’s business and financial performance could also be adversely affected, depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternate source. The Company believes that the suppliers whose loss to the Company could have a material adverse effect upon the Company’s business and financial position include, at this time, Canon, Inc., General Electric Co., Hitachi, Ltd., IBM, Motorola, Inc., Sharp Corporation, Sony Corporation, Texas Instruments, Inc., Tokyo Electric Co., Ltd., and/or their United States affiliates, and VLSI Technology, Inc. However, the Company helps mitigate these potential risks by working closely with these and other key suppliers on product introduction plans, strategic inventories, and coordinated product introductions.

The Company believes that most of its single-source suppliers, including most of the foregoing companies, are reliable multinational corporations. Most of these suppliers manufacture the relevant materials, processes, or components in multiple plants. The Company further believes that its long-standing business relationships with these and other key suppliers are strong and mutually beneficial in nature. The Company has a supply agreement with Motorola, Inc. (see Exhibit 10.B.12 hereto). The agreement with Motorola continues for five years from January 31, 1992 unless otherwise mutually agreed in writing by the parties. The Company single-sources microprocessors from Motorola. The supply agreement does not obligate the Company to make minimum purchase commitments; however, the agreement does commit the vendor to supply the Company’s requirements of the particular items for the duration of the agreement. The Company has also from time to time experienced significant price increases and limited availability of certain components that are available from multiple sources, such as dynamic random-access memory devices. Any similar occurrences in the future could have an adverse effect on the Company’s operating results. Item 2. Properties

The Company’s headquarters are located in Cupertino, California. The Company has manufacturing facilities in Fountain, Colorado, Sacramento, California, Cork, Ireland, and Singapore. As of September 30, 1994, the Company leased approximately 5.2 million square feet of space, primarily in the United States, and to a lesser extent, in Europe and the Pacific. Leases are generally for terms of five to ten years, and usually provide renewal options for terms of up to five additional years. Certain of these leased facilities are subject to the Company’s restructuring actions initiated in the third quarter of both 1993 and 1991. The amount of space leased by the Company may decline in the future as the leases for facilities subject to restructuring actions are terminated pursuant to agreements with landlords or expire as scheduled. The Company owns its manufacturing facilities in Fountain, Colorado, Cork, Ireland, and Singapore, which total approximately 920,000 square feet. The Company also owns a 450,000 square-foot facility in Sacramento, California, which is used as a manufacturing, service and support center.

The Company also owns the research and development facility located in Cupertino, California, and a centralized domestic data center in Napa, California which approximate 856,000 and 158,000 square feet, respectively. Outside of the United States, the Company owns a facility in Apeldoorn, Netherlands, which is used primarily for distribution, totaling approximately 265,000 square feet, in addition to certain other international facilities, totaling approximately 553,000 square feet. The Company believes that its existing facilities and equipment are well maintained and in good operating condition. The Company has invested in additional internal capacity and external partnerships, and therefore believes it has adequate manufacturing capacity for the foreseeable future.

The Company continues to make investments in capital equipment as needed to meet anticipated demand for its products. Information regarding critical business operations that are located near major earthquake faults is set forth in Part II, Item 7 of this Form 10-K under the heading “Factors That May Affect Future Results”, which information is hereby incorporated by reference. Information regarding the Company’s purchase of its remaining partnership interest in Cupertino Gateway Partners, formed for the purpose of constructing the campus-type office facility that is now wholly owned by the Company, may be found in Part II, Item 8 of this Form 10-K under the heading “Commitments and Contingencies”, which information is hereby incorporated by reference.

“Other countries” consists of Canada and Australia. Prior year amounts have been restated to conform to the current year presentation. Net sales to unaffiliated customers is based on the location of the customers. Transfers between geographic areas are recorded at amounts generally above cost and in accordance with the rules and regulations of the respective governing tax authorities. Operating income (loss) by geographic area consists of total net sales less operating expenses, and does not include an allocation of general corporate expenses. The restructuring charge and adjustment recorded in 1993 and 1994, respectively, are included in the calculation of operating income (loss) for each geographic area. Identifiable assets of geographic areas are those assets used in the Company’s operations in each area. Corporate assets include cash and cash equivalents, joint venture investments, and short-term investments. 1995

Approximately 45% to 48% of the Company’s revenues in recent years has come from its international operations. The Company has two international sales and marketing divisions, consisting of the Apple Europe division and the Apple Pacific division. The Apple Europe division focuses on opportunities in Europe as well as in parts of Africa and in the Middle East. Products sold by the Europe division are manufactured primarily in the Company’s facility in Cork, Ireland. The Apple Pacific division focuses on opportunities in Japan and Asia; Australia and New Zealand; and the Caribbean region. Products sold by the Pacific division are manufactured primarily in the Company’s facilities in California, Colorado and Singapore.

The Company distributes its products through third-party computer resellers, and is also continuing its expansion into various consumer channels, such as mass merchandise stores, consumer electronics outlets and computer superstores, in response to changing industry practices and customer preferences. The Company’s products are sold primarily to business and government customers through independent resellers, value- added resellers and systems integrators; to home customers through independent resellers and consumer channels; and to education customers through direct sales and independent resellers. In order to provide products and service to its independent resellers on a timely basis, the Company distributes its products through a number of Apple distribution and support centers. Raw materials

Although certain raw materials, processes, and components essential to the Company’s business are generally available from multiple sources, key components and processes currently obtained from single sources include certain of the Company’s displays, microprocessors, mouse devices, keyboards, disk drives, printers and printer components, application- specific integrated circuits (“ASICs”) and other custom chips, and certain processes relating to construction of the plastic housing for the Company’s computers. Any availability limitations, interruption in supplies, or price increases relative to these and other components could adversely affect the Company’s business and financial results. In addition, new products introduced by the Company often initially utilize custom components obtained from only one source, until the Company has evaluated whether there is a need for an additional supplier.

In situations where a component or product utilizes new technologies and processes, there may be initial capacity constraints until such time as the suppliers’ yields have matured. Materials and components are normally acquired through purchase orders, as is common in the industry, typically covering the Company’s requirements for periods from 90 to 180 days. However, the Company continues to evaluate the need for a supply contract in each situation. If the supply of a key single-sourced material, process, or component to the Company were to be delayed or curtailed, its ability to ship the related product utilizing such material, process, or component in desired quantities and in a timely manner could be adversely affected. The Company’s business and financial performance could also be adversely affected, depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternate source. The Company believes that the suppliers whose loss to the Company could have a material adverse effect upon the  Company’s business and financial position include, at this time, Canon, Inc., General Electric Co., Hitachi, Ltd., IBM, Motorola, Inc., Sharp Corporation, Sony Corporation, Texas Instruments, Inc., and/or their United States affiliates, and VLSI Technology, Inc. However, the Company helps mitigate these potential risks by working closely with these and other key suppliers on product introduction plans, strategic inventories, and coordinated product introductions.

The Company believes that most of its single-source suppliers, including most of the foregoing companies, are reliable multinational corporations. Most of these suppliers manufacture the relevant materials, processes, or components in multiple plants. The Company further believes that its long-standing business relationships with these and other key suppliers are strong and mutually beneficial in nature. The Company has also from time to time experienced significant price increases and limited availability of certain components that are available from multiple sources. Any similar occurrences in the future could have an adverse affect on the Company’s operating results. The Company has a supply agreement with Motorola, Inc. (see Exhibit 10.B.12 hereto). The agreement with Motorola continues for five years from January 31, 1992 unless otherwise mutually agreed in writing by the parties. The Company single-sources certain microprocessors from Motorola. The supply agreement does not obligate the Company to make minimum purchase commitments; however, the agreement does commit the vendor to supply the Company’s requirements of the particular items for the duration of the agreement.


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