The Company is exposed to the risk of write-downs on the value of its inventory and other assets, in addition to purchase commitment cancellation risk. The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated
demand, or for which cost exceeds net realizable value. The Company also accrues necessary cancellation fee reserves for
orders of excess products and components. The Company reviews long-lived assets, including capital assets held at its
suppliers’ facilities and inventory prepayments, for impairment whenever events or circumstances indicate the assets may not be
recoverable. If the Company determines that an impairment has occurred, it records a write-down equal to the amount by which
the carrying value of the asset exceeds its fair value. Although the Company believes its inventory, capital assets, inventory
prepayments and other assets and purchase commitments are currently recoverable, there can be no assurance the Company
will not incur write-downs, fees, impairments and other charges given the rapid and unpredictable pace of product obsolescence
in the industries in which the Company competes.
The Company orders components for its products and builds inventory in advance of product announcements and shipments.
Manufacturing purchase obligations cover the Company’s forecasted component and manufacturing requirements, typically for
periods up to 150 days. Because the Company’s markets are volatile, competitive and subject to rapid technology and price
changes, there is a risk the Company will forecast incorrectly and order or produce excess or insufficient amounts of components
or products, or not fully utilize firm purchase commitments.
The Company relies on access to third-party intellectual property, which may not be available to the Company on commercially reasonable terms or at all. The Company’s products and services are designed to include intellectual property owned by third parties, which requires
licenses from those third parties. In addition, because of technological changes in the industries in which the Company currently
competes or in the future may compete, current extensive patent coverage and the rapid rate of issuance of new patents, the
Company’s products and services can 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.
Based on experience and industry practice, the Company believes licenses to such third-party intellectual property can generally
be obtained on commercially reasonable terms. However, there can be no assurance the necessary licenses can be obtained on
commercially reasonable terms or at all. Failure to obtain the right to use third-party intellectual property, or to use such
intellectual property on commercially reasonable terms, can preclude the Company from selling certain products or services, or
otherwise have a material adverse impact on the Company’s business, results of operations and financial condition.
Apple Inc. | 2022 Form 10-K | 9
