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Apple disclosures and supplier risk?
Thursday, January 26, 2012

Quick Note from Apple’s 10-Q filed last night. 

Note 6 – Commitments and Contingencies
Concentrations in the Available Sources of Supply of Materials and Product

The company was less forthcoming with their information this time around compared to last year.  Last year, they talked openly about risk of various components including issues with respect to DRAM suppliers and LCD suppliers.  The latest disclosure is much less explicit.  

Quick notes:  2011 disclosure had 536 words while the 2012 disclosure has 420 words.  No mentions of LCD’s, DRAM or any other component supplier issues in 2012.  Thailand floods anyone??  China labor issues??  oh boy! 

Text below:

From 2012 Q1 Disclosures
Note 6 – Commitments and Contingencies
Concentrations in the Available Sources of Supply of Materials and Product

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, which subjects the Company to significant supply and
pricing risks. Many components that are available from multiple sources are at times subject to industry-wide shortages
and significant commodity pricing fluctuations. In addition, the Company has entered into various agreements for the supply
of 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 can
materially adversely affect its financial condition and operating results.

The Company and other participants in the mobile communication and media device, and personal computer industries also compete
for various components with other industries that have experienced increased demand for their products. The Company also uses some
custom components that are not common to the rest of these industries, 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.

 

Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are primarily located 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 manufacturer 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.


____________________________________________________________________



From 2011 Q1 Disclosures
Note 6 – Commitments and Contingencies
Concentrations in the Available Sources of Supply of Materials and Product


Although most components essential to the Company’s business are generally available from multiple sources, certain
key components including but not limited to microprocessors, enclosures, certain liquid crystal displays (“LCDs”),
certain optical drives and application-specific integrated circuits (“ASICs”) are currently obtained by the Company
from single or limited sources, which subjects the Company to significant supply and pricing risks. Many of these and
other key components that are available from multiple sources including but not limited to NAND flash memory, dynamic
random access memory (“DRAM”) and certain LCDs, are subject at times to industry-wide shortages and significant commodity
pricing fluctuations. In addition, the Company has entered into certain agreements for the supply of key components including
but not limited to microprocessors, NAND flash memory, DRAM and LCDs at favorable pricing, but there is no guarantee that
the Company will be able to extend or renew these agreements on similar favorable terms, or at all, upon expiration or otherwise
obtain favorable pricing in the future. Therefore, the Company remains subject to significant risks of supply shortages and/or
price increases that can materially adversely affect its financial condition and operating results.


The Company and other participants in the personal computer, and mobile communication and media device industries also compete
for various components with other industries that have experienced increased demand for their products. In addition, the Company
uses some custom components that are not common to the rest of these industries, 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 a key single-sourced component for a new or existing product were delayed or constrained, if such components were available only
at significantly higher prices, or if a key 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 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 decided to concentrate on the production of common components instead of components customized to meet the Company’s requirements.

Substantially all of the Company’s Macs, iPhones, iPads, iPods, logic boards and other assembled products are now manufactured by
outsourcing partners, primarily in various parts of Asia. A significant concentration of this outsourced manufacturing is currently
performed by only a few outsourcing partners of the Company, often in single locations. Certain of these outsourcing partners are
the sole-sourced supplier of components and manufacturing outsourcing for many of the Company’s key products including but not limited
to final assembly of substantially all of the Company’s hardware 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 ranging
from 30 to 150 days.


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