updated 06:50 pm EDT, Wed October 13, 2004
Apple fiscal Q4 highlights
Apple today revealed some interesting notes about the company's financials in its quarterly conference call. Apple confirmed the opening of new "mini" Apple Stores, talked about an expanded marketing campaign with U2, noted strong education sales, increases in iPod revenue, continued G5 chip constraints during the September quarter, and more. We have detailed notes and highlights from the call.
- Apple said that its restructuring charges were related to vacating sales offices in Europe, as previously noted. Its strong sales were driven by surging iPod, retail, and laptop revenue. Apple's operating expenses were $501 million--or about $16 million higher than expected due to variable costs related to higher revenue. Apple has about $5.564 billion in cash and short term investments--up by about $500 million from the prior quarter. Apple's 2004 revenue was the highest annual revenue in 8 years and it quadrupled its income from the previous year.
- Apple shipped 836,000 Macs, including 451,000 portables during the quarter, an 44% increase portable units from the year-ago quarter. Mac-based revenue grew 9%, while Mac hardware revenue grew by 3% over the year-ago quarter. Mac-based revenue includes Macs as well as both consumer/Pro software. Apple's music-based revenue was up 370% and it shipped six times as many units as the year-go quarter and two-times as many as the previous quarter. The company shipped a total of 173,000 eMacs (up 19%) and 56,000 flat-panel iMacs, but overall iMac shipments were constained due to G5 processor constraints. HP accounted for 6% of all iPods sold in the September quarter.
- Apple said that decreased sales in desktops was due to G5 processor constraints from IBM. Apple had expected to see supply/demand balance for its dual-1.8GHz and dual-2.0GHz Power Macs, but said that it was unable to achieve that during the quarter. As expected, Apple was not unable to ship enough dual-2.5GHz Power Mac G5s to meet demand. Due to the G5 processor constraints, the company's overall inventory was below the expected 4-week inventory level.
- Apple's operating margin was at 5.4%, up from 1.8% in the year-ago quarter. Apple's direct revenue, which includes sales from the Apple Store and its education sales was 52% of total worldwide revenue--up from 43% in the year-ago quarter. Apple's revenue was up 29% in the Americas (excluding Apple retail) and 39% with US retail sales included. Apple Japan saw a 12% increase in revenues when both Apple retails were included (versus 2% without retail).
- Apple said it had an average of 81 stores opening during the September quarter, which generated $376 million in revenue for an average revenue per store of $4.6 million--up from $3.1 per store in the year-go quarter. Apple earned $18M profit in its retail operations for 4.8% of its total revenue. It saw an additional $68 million manufacturing profit associated with its retail operations. During the quarter, 7.8 million people visited Apple Stores or 7,400 per store per week. This compares with 5,300 per store per week in the year-ago quarter.
- Apple said that ended the quarter with 87 stores open, including two international stores in Osaka and Tokyo. It said that it expects to have 100 stores open by the end of the calendar year, including its third international store in London (expected to open in November) and six new "mini" stores, which are expected to open later this week.
- Education saw a 19% increase in unit sales and 21% increase in revenue--Apple's biggest education quarter in four years. Apple saw a 9% increase in the K-12 sector, despite a weak funding environment and a strong 34% increase in higher education, driven largely by sales of portables.
- Apple said it expected $2.8 - $2.9 in revenues for the first fiscal quarter of 2005 with about $0.39 to $0.42 per share in profit. Gross margins were expected to stay in the 27-28% range, as commodity pricing would help offset lower-margin on iPods, as the company sold more iPod mini and sold more to HP. The company also said that higher mix of direct sales and more retail revenue would help gross margins. Going forward, Apple hoped that its operating expenditures would grow at a rate 50% to 60% of its overall growth rate and that it was hoping to acheive a 6% operating margin on revenues of $10 billion and 7% on $11 billion in revenues.
- Apple said that it expected to balance the supply and demand for all of its G5-based products, except the high-end dual-2.5GHz Power Mac G5. It expects to ship a significantly larger quantity than in the September quarter, but said that constraints may prevent a complete supply/demand balance. Apple said it will continue to air-freight the iMac G5 during the December quarter, costing it between $40 and $50 per unit--as it did during the Septembe quarter.
- The iPod mini will see a marked increase in sales in the December quarter, due better availability of the 1.8-inch drive. Apple declined to say whether it would meet demand. Apple said it exited the September quarter with overall worldwide demand for both its iPod and iPod mini and with a "significant backlog" in virtually every country.
- Apple said that it had no plans to compete in the sub-$800 desktop arena and was using that R&D money toward music and other projects.
- Apple's Motion stimulated sales of Power Macs in the video industry, but continued supply problems made it difficult to gauge demand for its products. Apple also expected that the introduction of Logic 7 would help drive CPU sales among audio professionals. Apple said it also saw strength in the Sci/Tech industry, but was able to meet demand for its Xserves during the September quarter. Apple said that it had setup a small sales force and was working with the channel to help drive sales into markets that were concerned about virus/security issues, but that it was too early tell whether these environmental factors were helping drive Mac sales.
- Apple said that "halo effect" helped it sell its Macs. Over 50% of its Mac sales at retail stores were to first-time PC buyers or users new to the Mac platform. Apple said that this number has remained relatively consistent--in the mid-40s and low-50s--for over three years, though one may have expected it to decline and thus in part, was driven by the success of the iPod.