Apple (AAPL)

Apple, Inc. engages in the design, manufacture and marketing of personal computers and related software, services, peripherals, and networking solutions. The Company also designs, develops, and markets a line of portable digital music players along with related accessories and services, including the online sale of third-party audio and video products.

The Company’s products and services include the Macintosh line of desktop and portable computers, the Mac OS X operating system, the iPod line of portable digital music players, the iTunes Store, a portfolio of peripherals that support and improve the Macintosh and iPod product lines, a portfolio of consumer and professional software applications, various other service and support offerings, and the Xserve and Xserve RAID server and storage products. In addition, the Company sells various third-party Macintosh and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and supplies through its online and retail stores.

Segments

The Company’s operating segments include the Americas, Europe, Japan, and Retail. The Americas, Europe, and Japan segments do not include activities related to the Retail segment. The Americas segment includes both North and South America. The Europe segment includes European countries as well as the Middle East and Africa. The Retail segment operates Apple-owned retail stores in the U.S., Canada, Japan, and the U.K. Other operating segments include Asia-Pacific, which includes Australia and Asia except for Japan, and the Company’s subsidiary, FileMaker, Inc. Each geographic operating segment provides similar hardware and software products and similar services.

Hardware Products

The Company offers a range of personal computing products, including desktop and notebook computers, server and storage products, related devices and peripherals, and various third-party hardware products. The Company’s Macintosh systems, excluding servers and storage systems, features the Company’s Mac OS X Version 10.4 Tiger and iLife suite of software for digital photography, music, movies, and music and website creation.

Macintosh Computers

During 2006, the Company introduced new Intel-based models of the MacBook Pro, MacBook, Mac Pro, iMac, and Mac mini computers. Intel-based Macintosh systems feature a native version of Mac OS X Version 10.4 Tiger, including the Rosetta translation technology, which allows PowerPC-based Macintosh applications to run on Intel-based Macintosh computers. The Company’s transition to Intel microprocessors for Macintosh systems was completed in August 2006, and its transition for Xserve was completed in November 2006.

MacBook Pro: The MacBook Pro family of notebook computers is designed for professionals and consumer users. Introduced in January 2006, the MacBook Pro includes either 15-inch or 17-inch widescreen display, a built-in iSight video camera, Front Row with the Apple Remote, and the MagSafe power adapter. MacBook Pro models include Intel Core 2 Duo processors at 2.16GHz or 2.33GHz, ATI Mobility Radeon X1600 graphics, 667MHz DDR2 main memory, a Serial ATA hard drive, and a slot-loading double-layer SuperDrive. MacBook Pro features a 1-inch aluminum enclosure and includes AirPort Extreme wireless networking, Bluetooth 2.0+EDR, Gigabit Ethernet, two or three USB 2.0 ports, FireWire 400 and 800 ports, combination analog and optical digital audio input and output ports, a DVI video-out port, an ExpressCard/34 slot, scrolling trackpad, and backlit keyboard.

MacBook: The MacBook is designed for consumer and education users. Introduced in May 2006, the MacBook includes a 13-inch widescreen display, a built-in iSight video camera, Front Row with the Apple Remote, and the MagSafe magnetic power adapter. MacBook models include Intel Core 2 Duo processors at 1.83GHz and 2.0GHz, Intel integrated GMA 950 graphics, 667MHz DDR2 main memory, a Serial ATA hard drive, and a slot-loading Combo optical drive or double-layer SuperDrive. Offered in either black or white, MacBook includes built-in AirPort Extreme wireless networking, Bluetooth 2.0+EDR, Gigabit Ethernet, two USB 2.0 ports, one FireWire 400 port, combination analog and optical digital audio input and output ports, a mini-DVI video output port, and scrolling trackpad.

Mac Pro: The Mac Pro desktop computer is targeted at business and professional users and is designed to serve the performance, expansion, and networking needs of the Macintosh user. Introduced in August 2006, the Mac Pro features two Intel Xeon dual-core processors running up to 3.0GHz, each with 4MB of shared Level 2 cache and independent 1.33GHz front-side buses, 667MHz buffered memory, and a 256-bit wide memory architecture. The Mac Pro also features a direct attach storage solution for snap-in installation of up to four 750GB Serial ATA hard drives for a total of 3TB of internal storage and support for two optical drives to simultaneously read and/or write to CDs and DVDs. Mac Pro includes three PCI Express expansion slots and one PCI Express graphics slot to support double-wide graphics cards. The Mac Pro also includes dual Gigabit Ethernet ports, optical digital input and output ports, analog audio input and output ports, and multiple FireWire 400, FireWire 800 and USB 2.0 ports.

iMac: The iMac desktop computer is targeted at consumer and education markets. Introduced in January 2006 and updated in September 2006, the Intel-based iMac is offered with an integrated 17-inch widescreen LCD display, 512MB or 1GB of 667MHz DDR2 memory expandable to 2GB or 3GB, a 1.83GHz or 2.0GHz Intel Core 2 Duo processor, Intel integrated GMA 950 or ATI Radeon X1600 graphics, and a 160GB Serial ATA hard drive. The iMac is also offered with a 20-inch or 24-inch widescreen LCD display, 1GB of 667MHz memory expandable to 3GB, a 2.16GHz processor, ATI Radeon X1600 or NVIDIA GeForce 7300 GT graphics, and 250GB Serial ATA hard drive. All models include a built-in iSight video camera, mini-DVI video-out port, multiple USB 2.0 and FireWire ports, built-in Gigabit Ethernet, and AirPort Extreme 802.11g wireless networking. Majority of the models also include built-in Bluetooth 2.0+EDR, the Apple Remote, and a slot-loading double-layer SuperDrive.

Mac mini: In February 2006, the Company introduced the Intel-based Mac mini that includes Front Row with the Apple Remote. The new Mac mini offers 512MB of 667MHz memory expandable to 2GB and either a 1.66GHz or 1.83GHz Intel Core Duo processor. Mac mini includes built-in Gigabit Ethernet, AirPort Extreme 802.11g wireless networking, Bluetooth 2.0+EDR, and a total of four USB 2.0 ports. Mac mini includes a DVI interface and a VGA-out adapter to connect to various displays, including televisions, and features both analog and digital audio outputs.

Xserve and Xserve RAID Storage System: Xserve is a rack-mount server product designed for setup and remote management of intensive input/output (I/O) applications, such as digital video, high-resolution digital imagery, and databases. In November 2006, the Company began shipping Xserve, a 64-bit server featuring Mac OS X Server 10.4 on two Intel Xeon dual-core processors running at 2.0GHz, 2.66GHz, or 3.0GHz, with support for up to 32GB of memory. Xserve includes PCI Express and independent 1.33GHz front side buses with 4MB of shared Level 2 memory cache. Two eight-lane PCI Express expansion slots provide up to 2GB of throughput each to support fibre channel, networking, and graphics cards. Xserve supports up to 2.25TB of hot-plug storage. The Company’s Xserve RAID storage system delivers up to 7TB of storage capacity and also expanded support for heterogeneous environments. The dual independent RAID controllers with 512MB cache per controller offer throughput of approximately 385 Mbps.

Music Products and Services

The Company offers its iPod line of portable digital music players and related accessories to Macintosh and Windows users. The Company also provides an online service to distribute third-party music, audio books, music videos, short films, television shows, movies, and iPod games through its iTunes Store. In addition to the Company’s own iPod accessories, various third-party iPod compatible products are offered, including portable and desktop speaker systems, headphones, car radio solutions, voice recorders, cables and docks, power supplies and chargers, and carrying cases and armbands.

iPod: The iPod is the Company’s hard-drive based portable digital music player and was updated in September 2006. The iPod is offered in a 30GB model capable of holding up to 7,500 songs, 25,000 photos, or 75 hours of video, and an 80GB model capable of holding up to 20,000 songs, 25,000 photos, or 100 hours of video. The iPod features up to 20 hours of battery life and includes a 2.5-inch color screen that can display album artwork, photos, and video content including music videos, video and audio podcasts, short films, television shows, movies, and games. Other key features of the iPod include a calendar, contact utility, and data storage capability. The iPod features the Company’s patent-pending Click Wheel, a touch-sensitive wheel with five push buttons for one-handed navigation.

The iPod also includes the Company’s Auto-Sync technology that automatically synchronizes and updates the iPod’s digital music and other content whenever it is connected to a Macintosh or Windows computer via USB. iPods work with the Company’s iTunes digital music management software (iTunes software) offered for both Macintosh and Windows-based computers.

iPod nano: In September 2006, the Company introduced the second-generation version of its flash-memory-based iPod nano featuring an aluminum body and up to 24 hours of battery life. The iPod nano is offered in 2GB, 4GB and 8GB configurations and in various colors.

iPod shuffle: In September 2006, the Company introduced a new version of its flash-memory-based iPod shuffle. The new iPod shuffle features an aluminum design and a built-in clip. The new iPod shuffle contains one gigabyte of flash memory capable of holding up to 240 songs and provides up to 12 hours of battery life. iPod shuffle works with iTunes and its patent-pending AutoFill option that automatically selects songs to fill the iPod shuffle from a user’s iTunes library.

iTunes Store: The Company’s iTunes Store, offered for both Macintosh and Windows-based computers, is a service that allows customers to find, purchase, and download third-party digital music, audio books, music videos, short films, television shows and movies, and iPod games. The iTunes Store also features the Podcast Directory that allows customers to search for and download audio programs to their computers and automatically receive new episodes over the Internet. Customers can search the contents of the store catalog to locate works by title, artist, or album, or browse the entire contents of the store by genre and artist. The iTunes Store serves customers in 22 countries.

The iTunes Store is integrated with iTunes software allowing customers to preview, purchase, download, organize, share, and transfer digital content to an iPod using a software application. The iTunes Store offers customers a range of personal rights to the third-party content they have purchased. Content purchased through the store may also be used in certain applications, such as iPhoto, iMovie, and iDVD. Additional features of the iTunes Store include gift certificates that can be sent via e-mail; prepaid music cards; an ‘allowance’ feature that enables users to automatically deposit funds into an iTunes Store account every month; online gift options that let customers give specific content to anyone with an email address; parental controls; and album reviews.

Peripheral Products

The Company sells various Apple-branded and third-party computer hardware peripheral products directly to end-users through its retail and online stores, including printers, storage devices, computer memory, digital video and still cameras, and various other computing products and supplies.

Displays: The Company manufactures a family of widescreen flat panel displays, including the 30-inch Apple Cinema HD Display, a widescreen active-matrix LCD with 2560-by-1600 pixel resolution, the 23-inch Apple Cinema HD Display with 1920-by-1200 pixel resolution and the 20-inch Apple Cinema Display with 1680-by-1050 pixel resolution. These displays feature built-in dual FireWire and dual USB 2.0 ports and use the DVI interface for a digital connection with the Company’s new Mac Pro, MacBook Pro, and MacBook systems. The Cinema Displays feature an aluminum design with a bezel, suspended by an aluminum stand that allows viewing angle adjustment.

Software Products and Computer Technologies

The Company offers a range of software products for education, creative, consumer, and business customers, including Mac OS X, the Company’s proprietary operating system software for the Macintosh; server software and related solutions; professional application software; and consumer, education, and business oriented application software.

Operating System Software: Mac OS X is built on an open-source UNIX-based foundation. The new version, Mac OS X Tiger, is the fifth release of Mac OS X. Tiger incorporates Spotlight, a desktop search technology that lets users find items stored on their Macintosh computers, including documents, emails, contacts, and images; and Dashboard, a way to access information, such as weather forecasts and stock quotes, using a new class of mini-applications called widgets. Mac OS X Server version 10.4 is the server version of the Mac OS operating system.

Server Software and Server Solutions: In April 2006, the Company introduced Apple Remote Desktop 3, its third generation desktop management application. Apple Remote Desktop 3 is a Universal application, meaning that it runs natively on both Intel and PowerPC-based Macintosh computers (Universal) for asset management and remote assistance that enables Spotlight searches across multiple Tiger systems and includes approximately 30 Automator actions for automating repetitive system administration tasks, a Dashboard Widget that provides observation of remote systems, and AutoInstall for installing software automatically on mobile systems when they return online.

Xsan, the Company’s enterprise-class Storage Area Network (SAN) file system, is a 64-bit cluster file system for Mac OS X that enables organizations to consolidate storage resources and provide multiple computers with concurrent file-level read/write access to shared volumes over Fibre Channel. Xsan can be used in heterogeneous environments that include Windows, UNIX, and Linux server operating system platforms.

Professional Application Software: In March 2006, the Company introduced Final Cut Studio 5.1, its High Definition (HD) video production suite. Final Cut Studio features Final Cut Pro 5, Soundtrack Pro, Motion 2, and DVD Studio Pro 4.

Final Cut Pro 5.1, the new version of the Company’s video editing software, includes editing tools that work natively with majority of formats, from Digital Video (DV) and High Definition Video (HDV) to fully uncompressed HD. Final Cut Pro 5.1 enables users to view and cut from multiple sources in real time, group up to 128 sources together into multi-clips, then add or subtract cameras at any time.

DVD Studio Pro 4 is the new version of the Company’s professional DVD authoring application. With DVD Studio Pro 4 users can author Standard Definition (SD) or HD DVDs in a graphic interactive environment. DVD Studio Pro 4 includes Compressor 2, a video and audio compression application. Compressor gives users control over encoding, including the ability to encode various clips in one batch operation to various formats including H.264.

Motion 2 is a real-time motion graphics software application that enables Final Cut Pro editors to add motion graphics to their projects. Motion 2 features interactive animation of text and graphics for DVD motion menus, video or film in real time, and output rendering by built-in GPU acceleration at 8-bit, 16-bit, or 32-bit float film. With Motion 2’s design tool, Replicator, users can automatically generate and animate multiple copies of a graphic, shape, or movie.

Soundtrack Pro is an audio editing and sound design application that gives audio and video professionals a way to edit, mix, and repair audio. Soundtrack Pro features a waveform editor with Action Layers that allow users to re-order, bypass, or change any edit, effect, or process. Find-and-Fix features identify and repair common audio problems such as background noise, pops, clicks, and hum. An integrated multitrack mixer allows editors to apply common effects to multiple tracks and group common tracks. Soundtrack Pro also features approximately 50 professional plug-ins for enhancing sounds, and approximately 5,000 music and sound effect loops.

In February 2006, the Company introduced Logic Pro 7.2, a Universal version of its music creation and audio production software. Logic Pro 7.2 is used by musicians around the world and by professionals in music production and film scoring. It combines digital music composition, notation, and audio production facilities in one product and includes software instruments, such as Sculpture, a component-modeling based synthesizer; UltraBeat, a drum synthesizer with built-in step sequencer; and digital signal processing (DSP) plug-ins including Guitar Amp Pro, a guitar amplifier simulator. Along with workflow enhancements, mastering plug-ins, and support for Apple Loops, Logic Pro 7 adds distributed audio processing, a technology that allows professionals to utilize multiple Macintosh systems to expand available DSP power via an Ethernet network.

Consumer, Education, and Business Oriented Application Software:

iLife ’06: In January 2006, the Company introduced iLife ‘06, an upgrade to its consumer-oriented digital lifestyle application suite, which features iWeb, iPhoto 6, iMovie HD 6, iDVD 6, GarageBand 3, and iTunes.

iWeb is a new application in the iLife ‘06 suite. iWeb allows users to create online photo albums, blogs, and podcasts and customize websites using editing tools.

iPhoto is the Company’s consumer-oriented digital photo software application. iPhoto 6 adds new photo management and editing features, supports up to 250,000 photos, and introduces Photocasting. Photocasting allows .Mac users to share and automatically update photo albums over the Internet with anyone who uses a Macintosh or Windows-based computer.

iMovie HD is the Company’s consumer-oriented digital video editing software application. iMovie HD 6 includes new real-time effects that uses Core Video technology, which uses the computer’s video card’s graphics processing unit to deliver hardware acceleration to preview video effects. iMovie HD 6 also provides a solution to make video podcasts, which can be published with iWeb, and includes audio enhancement tools and sound effects.

iDVD is the Company’s consumer-oriented software application that enables users to turn iMovie files, QuickTime files, and digital pictures into DVDs that can be played on consumer DVD players. iDVD 6 allows users to take content shot with HDV and widescreen DV cameras and author custom DVDs with widescreen menus, movies, and high resolution slideshows. iDVD 6 features 10 new Apple-designed menu themes in both widescreen (16:9) and standard (4:3) formats.

GarageBand is the Company’s consumer-oriented music creation software application that allows users to play, record and create music using an interface. With GarageBand, recorded performances, digital audio and looping tracks can be arranged and edited to create songs. GarageBand 3 allows users to record, produce, and publish through iWeb their own podcasts, including artwork, sound effects, and music jingles.

iLife ‘06 also includes iTunes, the Company’s digital music jukebox software application that allows users to purchase various digital content available through the Company’s iTunes Store. iTunes organizes content using searching, browsing, and playlists, and also includes features, such as iMix playlist sharing and provides integration with the family of iPods. In September 2006, the Company introduced iTunes 7, the new version of its iTunes software. iTunes 7 delivers new features, such as album and Cover Flow views of music, television shows, and movies, enabling users to find titles in their library as well as casually browse through titles they already own.

iWork ’06: In January 2006, the Company introduced iWork ‘06, a new Universal version of the Company’s suite of productivity software designed to help users create, present, and publish documents and presentations. iWork ‘06 includes Pages 2 and Keynote 3.

Pages gives users the tools to create letters, newsletters, reports, brochures and resumes with typography, multiple columns, footnotes, tables of content and styles. Pages 2 features mail merge with Mac OS X Address Book, which allows users to personalize documents by dragging and dropping individual contacts into documents using templates with predefined fields. Pages 2 also features new templates for newsletters, flyers, posters, school reports, scrapbooks, brochures, business proposals, and invoices. Pages 2 allows users to insert tables that have basic calculation functionality within any document and users can export their Pages 2 document to other formats.

Keynote is the Company’s presentation software that gives users the ability to create presentations, portfolios, interactive slideshows, and storyboards. Keynote 3 offers additional ways to create presentations and interactive slideshows. It features new cinematic transitions, including vertical and horizontal blinds, revolving door, and swoosh. A new view mode, Light Table, allows users to view an entire presentation and reorganize slides using drag and drop.

Final Cut Express HD enables users to capture, edit, and output DV and HDV over a FireWire cable, and supports Digital Cinema Desktop with multiple displays. In May 2006, the Company introduced a Universal version of Final Cut Express HD 3.5. Features introduced in this version include Dynamic RT for real-time playback of multi-stream effects, Soundtrack 1.5 with a suite of audio production tools, and LiveType 2.1 with animated text and titles.

In March 2006, the Company introduced Logic Express 7.2, a Universal version of the Company’s streamlined version of Logic Pro 7.2 that provides a basic set of professional tools to compose and produce music for students, educators, and hobbyists. It has high-resolution audio of up to 24-bit/96kHz, the adaptive self-configuring track mixer, and 32-bit floating-point math. Logic Express 7 comes with support for projects from GarageBand, offering users a migration path to audio production.

FileMaker, Inc., a wholly owned subsidiary of the Company, develops, publishes, and distributes desktop-based database management application software for both Macintosh and Windows-based computers. The FileMaker Pro database software and related products offer relational databases and desktop-to-web publishing capabilities. In July 2006, the Company introduced FileMaker Pro 8.5, a Universal version of its database management application. New features of FileMaker Pro 8.5 include FileMaker Web Viewer, which allows for a live web browser to be put into a database.

Internet Software and Services

Safari: Safari, the Company’s Mac OS X compatible web browser, uses the interface technologies underlying Mac OS X and includes built-in Google search; SnapBack to instantly return to search results; a way to name, organize and present bookmarks; tabbed browsing; and automatic ‘pop-up’ ad blocking.

QuickTime: QuickTime, the Company’s multimedia software for Macintosh or Windows-based computers, features streaming of live and stored video and audio over the Internet and playback of audio and video on computers. QuickTime 7 features H.264 encoding and can automatically determine a user’s connection speed. QuickTime 7 also delivers multi-channel audio and supports audio formats, including AIFF, WAV, MOV, MP4 (AAC only), CAF, and AAC/ADTS.

The Company offers various other QuickTime products. QuickTime 7 Pro, a suite of software tools, allows creation and editing of Internet-ready audio and video files. QuickTime 7 Pro allows users to create H.264 video, capture audio and video, create multi-channel audio, and export multiple files while playing back or editing video.

.Mac: The Company’s .Mac offering is a suite of Internet services that provides Macintosh users with a set of Internet tools. .Mac services include: HomePage, for personal web sites; iDisk, a virtual hard drive accessible with Internet access; .Mac Sync, which keeps Safari bookmarks, iCal calendars, Address Book information, Keychain (passwords), and Mac OS X Mail preferences up-to-date across multiple Macintosh computers and available via web browser when users are away from their Mac; .Mac Mail, an ad-free email service; and Learning Center, featuring tutorials for certain software applications. The new version of .Mac includes .Mac Groups, a service that helps members communicate, coordinate schedules, and stay in sync with private groups of friends or colleagues; an updated version of .Mac Backup software that allows members to archive the content of their iLife Home folder; and combined iDisk and email storage of up to 1GB for individuals and 2GB for families.

Wireless Connectivity and Networking

AirPort Extreme: AirPort Extreme is the Company’s Wi-Fi wireless networking technology. AirPort Extreme is based on the 802.11g standard, which supports speeds up to 54 Mbps, and is compatible with Wi-Fi devices that use the 802.11b standard. AirPort Extreme Base Stations can serve up to 50 Macintosh and Windows users simultaneously, provide wireless bridging to extend the range beyond one base station, and support USB printer sharing to allow multiple users to wirelessly share USB printers connected directly to the base station.

AirPort Express: AirPort Express is the 802.11g mobile base station that can be plugged directly into the wall for wireless Internet connections and USB printing. Airport Express also features analog and digital audio outputs that can be connected to a stereo and AirTunes music networking software that works with iTunes, giving users a way to wirelessly stream iTunes music from their Macintosh or Windows-based computer to any room in the house. AirPort Express features a single piece design weighing 6.7 ounces.

Other Connectivity and Networking Solutions

Mac OS X includes capabilities for Bluetooth technology. Bluetooth is a standard for wirelessly connecting computers and peripherals that supports transmission of data at up to 3 Mbps within a range of approximately 30 feet. Bluetooth technology for Mac OS X lets customers wirelessly share files between Macintosh systems, synchronize and share contact information with Palm-OS based PDAs, and access the Internet through Bluetooth-enabled cell phones. Bluetooth is built into majority of Macintosh models.

Bonjour, the Company’s zero configuration networking technology, is based on open Internet Engineering Task Force (IETF) Standard Protocols, such as IP, ARP, and DNS and is built into Mac OS X. This technology uses networking protocols and zero configuration technology, including Ethernet or 802.11-based wireless networks like the Company’s AirPort products. The source code for this technology also includes software to support UNIX, Linux, and Windows-based systems and devices.

The Company developed FireWire, a high-speed serial I/O technology for connecting digital devices, such as digital camcorders and cameras to desktop and portable computers.

Product Support and Services

AppleCare offers a range of support options for the Company’s customers. These options include assistance that is built into software products, printed and electronic product manuals, online support, including product information as well as technical assistance, and the AppleCare Protection Plan. The AppleCare Protection Plan is a fee-based service that typically includes three years of phone support and hardware repairs, web-based support resources, and user diagnostic tools.

Significant Events

The company has entered into the mobile phone business by offering a gadget that's controlled by touch, plays music, surfs the Internet and runs the Macintosh computer operating system. It also unveiled a TV set-top box that allows people to send video from their computers to their televisions.

Suppliers

The Company's suppliers include Agere Systems, Inc., Ambit Microsystems Corporation, Amperex Technology Limited, ASUSTeK Corporation, ATI Technologies, Inc., Atheros Communications, Inc., AU Optronics Corporation, Broadcom Corporation, Chi Mei Optoelectronics Corporation, Cypress Semiconductor Corporation, Hitachi Global Storage Technologies, Hon Hai Precision Industry Co., Ltd., Intel Corporation, Inventec Appliances Corporation, LG. Phillips Co., Ltd., Matsushita, NVIDIA Corp., PortalPlayer, Inc., Quanta Computer, Inc., Renesas Semiconductor Co., Ltd., Samsung Electronics, Sony Corporation, Synaptics, Inc., Texas Instruments, and Toshiba Corporation.

Customers

The Company’s customers are primarily in the education, creative, consumer, and business markets. During 2006, the Company sold its products to elementary and secondary schools, higher education institutions, and individual customers.

History

The Company was founded in 1976. It changed its name from Apple Computer, Inc. to Apple, Inc. on January 9, 2007.