The Company designs, manufactures and markets mobile communication and media devices and personal computers, and sells a variety of related software, services, accessories and third-party digital content and applications. The Company’s products and services include iPhone®, iPad®, Mac®, Apple Watch®, AirPods®, Apple TV®, HomePod™, a portfolio of consumer and professional software applications, iOS, macOS®, watchOS® and tvOS™ operating systems, iCloud®, Apple Pay® and a variety of other accessory, service and support offerings. The Company sells and delivers digital content and applications through the iTunes Store®, App Store®, Mac App Store, TV App Store, Book Store and Apple Music® (collectively “Digital Content and Services”). The Company sells its products worldwide through its retail stores, online stores and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and resellers. In addition, the Company sells a variety of third-party Apple-compatible products, including application software and various accessories, through its retail and online stores. The Company sells to consumers, small and mid-sized businesses and education, enterprise and government customers. The Company’s fiscal year is the 52- or 53-week period that ends on the last Saturday of September. The Company is a California corporation established in 1977.
The Company is committed to bringing the best user experience to its customers through its innovative hardware, software and services. The Company’s business strategy leverages its unique ability to design and develop its own operating systems, hardware, application software and services to provide its customers products and solutions with innovative design, superior ease-of-use and seamless integration. As part of its strategy, the Company continues to expand its platform for the discovery and delivery of digital content and applications through its Digital Content and Services, which allows customers to discover and download or stream digital content, iOS, Mac, Apple Watch and Apple TV applications, and books through either a Mac or Windows personal computer or through iPhone, iPad and iPod touch® devices (“iOS devices”), Apple TV, Apple Watch and HomePod. The Company also supports a community for the development of third-party software and hardware products and digital content that complement the Company’s offerings. The Company believes a high-quality buying experience with knowledgeable salespersons who can convey the value of the Company’s products and services greatly enhances its ability to attract and retain customers. Therefore, the Company’s strategy also includes building and expanding its own retail and online stores and its third-party distribution network to effectively reach more customers and provide them with a high-quality sales and post-sales support experience. The Company believes ongoing investment in research and development (“R&D”), marketing and advertising is critical to the development and sale of innovative products, services and technologies.
The iPhone is a smartphone company based on Multi-Touch technology and the iOS operating system, with features such as email, Internet access, multimedia playback and the ability to launch software applications. The iPhone includes Siri®, an intelligent assistant, and Apple Pay, Touch ID® and Face ID® on their respective devices. In September 2018, the company introduced three new iPhones. The iPhone Xs and Xs Max are equipped with a Super Retina ™ OLED display, a stainless steel and glass screen, faster processors and improved cameras, and have been available since September 2018. The iPhone XR is equipped with a Liquid Retina ™ LCD display in an all-aluminum screen and glass design, and has been available since October 2018. The company's smartphone line also includes the iPhone 8, 8 Plus, 7 and 7 Plus models. iPhone works with iTunes Store, App Store, Book Store and Apple Music to purchase, organize and play digital content and applications.
iPad is a line of multifunctional tablets of the company based on the iOS operating system, which includes iPad Pro®, iPad and iPad mini®. The iPad includes Siri, Apple Pay and Touch ID. In March 2018, the company released a new 9.7-inch iPad with Apple Pencil® support. In October 2018, the company introduced a new version of the iPad Pro, as well as a new Apple Pencil and Smart Keyboard Folio ™. The new iPad Pro models with a diagonal of 11 inches and 12.9 inches are equipped with a Liquid Retina LCD display made of aluminum and glass, and are equipped with a face identification function. The iPad works with iTunes Store, App Store, Book Store and Apple Music to purchase, organize and play digital content and applications.
Mac is a line of desktop and portable personal computers based on its macOS operating system. Mac includes Siri and supports Apple Pay, as well as Touch ID on their respective devices. The company's desktop computers include 21.5-inch iMac®, 21.5-inch iMac with Retina® 4K display, 27-inch iMac with Retina 5K display, iMac Pro®, Mac Pro®, and Mac mini®. The company's laptop computers include MacBook®, MacBook Air®, MacBook Pro® and MacBook Pro with the Bar Bar ™ touch panel. In October 2018, the company introduced a new MacBook Air with Retina display and Touch ID, as well as a new Mac mini with improved performance.
iOS is a mobile operating system of the Company that serves as the basis for iOS devices. IOS devices are compatible with both Mac and Windows personal computers and Apple iCloud services. In September 2018, the company released iOS 12, which includes improved performance and responsiveness, new augmented reality capabilities, and expressive communication features, as well as introducing Siri Shortcuts, enabling Siri to intelligently connect with third-party applications.
macOS is an open source UNIX-based desktop operating system that provides an intuitive and integrated computer experience. ICloud support is built into macOS, so users can access content and information from a Mac, iOS devices and other supported devices, as well as access downloaded content and applications from the iTunes Store. MacOS Mojave, released in September 2018, is the 15th major release of macOS and for the first time makes available applications such as News, Shares, Voice Notes and Home on Mac. macOS Mojave also adds improvements to the desktop and Finder®, such as Dark Mode, and represents a complete redesign of the Mac App Store.
watchOS is the company's operating system for Apple Watch. In September 2018, the company released watchOS 5, which helps users stay healthy and keep in touch with new features, including activity sharing competitions, automatic workout detection, advanced running functions, Walkie-Talkie, Apple Podcasts, and third-party applications on the Siri dial.
tvOS is the company's operating system for Apple TV. The tvOS operating system is based on the company's iOS platform and allows developers to create new applications and games specifically for Apple TV and deliver them to customers through the Apple TV App Store. tvOS includes Siri features that allow you to search for applications and services. In September 2018, the company released tvOS 12, which supports enhanced sound quality and provides additional content with a high 4K dynamic range (“HDR”).
Digital Content and Services
The iTunes Store, available for iOS devices, Mac and Windows personal computers and Apple TV, allows customers to purchase and download or stream music and TV shows, rent or purchase movies and download free podcasts. The App Store, available for iOS devices, allows customers to discover and download apps and purchase in-app content. The Mac App Store, available for Mac computers, allows customers to discover, download and install Mac applications. The TV App Store allows customers access to apps and games specifically for Apple TV. The Book Store, available for iOS devices and Mac computers, features e-books from major and independent publishers. Apple Music offers users a curated listening experience with on-demand radio stations that evolve based on a user’s play or download activity and a subscription-based internet streaming service that also provides unlimited access to the Apple Music library.
iCloud is the Company’s cloud service which stores music, photos, contacts, calendars, mail, documents and more, keeping them up-to-date and available across multiple iOS devices, Mac and Windows personal computers and Apple TV. iCloud services include iCloud Drive®, iCloud Photos, Family Sharing, Find My iPhone, iPad or Mac, Find My Friends, Notes, iCloud Keychain® and iCloud Backup for iOS devices.
The Company offers a range of support options for its customers. These include assistance that is built into software products, electronic product manuals, online support including comprehensive product information as well as technical assistance, AppleCare + (“AC+”) and the AppleCare® Protection Plan (“APP”). AC+ and APP are fee-based services that extend the coverage of phone support eligibility and hardware repairs. AC+ offers additional coverage for instances of accidental damage and is available in certain countries for certain products. Additionally, AC+ with theft and loss protection is available for iPhone in the U.S.
Apple Pay is the Company’s cashless payment service available in certain countries that offers an easy, secure and private way to pay. Apple Pay allows users to pay for purchases in participating stores accepting contactless payments and to pay for purchases within participating apps on qualifying devices. Apple Pay accepts credit and debit cards across major card networks and also supports reward programs and store-issued credit and debit cards. In December 2017, the Company released an update to iOS 11 and watchOS 4 introducing Apple Pay Cash in the U.S., allowing peer-to-peer payments using Apple Pay.
Apple TV connects to consumers’ TVs and enables them to access digital content directly for streaming video, playing music and games, and viewing photos. Content from Apple Music and other media services is also available on Apple TV. Apple TV allows streaming digital content from Mac and Windows personal computers through Home Sharing and from compatible Mac and iOS devices through AirPlay®. Apple TV runs on the Company’s tvOS operating system and is based on apps built for the television. Additionally, the Apple TV remote features Siri, allowing users to search and access content with their voice. The Company offers Apple TV and Apple TV 4K®, which supports 4K and HDR content.
Apple Watch is a personal electronic device that combines the watchOS user interface and technologies created specifically for a smaller device, including the Digital Crown®, a unique navigation tool that allows users to seamlessly scroll, zoom and navigate, and Force Touch, a technology that senses the difference between a tap and a press and allows users to access controls within apps. Apple Watch enables users to communicate from their wrist, track their health and fitness through activity and workout apps, and includes Siri and Apple Pay. In September 2018, the Company introduced Apple Watch Series 4, with a new design including a larger display and thinner case, and featuring new health monitoring capabilities.
The Company also sells AirPods, Beats® products, HomePod, iPod touch and other Apple-branded and third-party accessories. AirPods are the Company’s wireless headphones that interact with Siri. In February 2018, the Company released HomePod, a high-fidelity wireless smart speaker that interacts with Siri and Apple Music.
The markets for the Company’s products and services are highly competitive and the Company is confronted by aggressive competition in all areas of its business. These markets are characterized by frequent product introductions and rapid technological advances that have substantially increased the capabilities and use of mobile communication and media devices, personal computers and other digital electronic devices. Many of the Company’s competitors that sell mobile devices and personal computers based on other operating systems seek to compete primarily through aggressive pricing and very low cost structures. The Company’s financial condition and operating results can be adversely affected by these and other industry-wide downward pressures on gross margins. Principal competitive factors important to the Company include price, product and service features (including security features), relative price and performance, product and service quality and reliability, design innovation, a strong third-party software and accessories ecosystem, marketing and distribution capability, service and support and corporate reputation.
The Company is focused on expanding its market opportunities related to personal computers and mobile communication and media devices. These markets are highly competitive and include many large, well-funded and experienced participants. The Company expects competition in these markets to intensify significantly as competitors attempt to imitate some of the features of the Company’s products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer. These markets are characterized by aggressive price competition, frequent product introductions, evolving design approaches and technologies, rapid adoption of technological advancements by competitors and price sensitivity on the part of consumers and businesses.
The Company’s services also face substantial competition, including from companies that have significant resources and experience and have established service offerings with large customer bases. The Company competes with business models that provide content to users for free. The Company also competes with illegitimate means to obtain third-party digital content and applications.
The Company’s future financial condition and operating results depend on the Company’s ability to continue to develop and offer new innovative products and services in each of the markets in which it competes. The Company believes it offers superior innovation and integration of the entire solution including the hardware (iOS devices, Mac, Apple Watch and Apple TV), software (iOS, macOS, watchOS and tvOS), online services and distribution of digital content and applications (Digital Content and Services). Some of the Company’s current and potential competitors have substantial resources and may be able to provide such products and services at little or no profit or even at a loss to compete with the Company’s offerings.
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 services, and to expand the range of its offerings through R&D, licensing of intellectual property and acquisition of third-party businesses and technology.
The Company currently holds a broad collection of intellectual property rights relating to certain aspects of its hardware devices, accessories, software and services. This includes patents, copyrights, trademarks, service marks, trade dress and other forms of intellectual property rights in the U.S. and a number of foreign countries. Although the Company believes the ownership of such intellectual property rights 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.