Apple Q2 results

Apple today held its second quarter earnings conference call for fiscal 2005. Apple CFO Peter Oppenheimer reported a Q2 profit of $290 million, on revenues of $3.24 billion -- the highest March revenue and net income in Apple's history. Oppenheimer cited "strong sales" of both Macs and iPods, resulting in a 530 percent increase in net income year-over-year. Apple's Mac business generated 62 percent of revenues, with over one million Macs shipped. Oppenheimer said this was the highest number of Macs shipped for any quarter in four years. The number of Mac sold was up 43 percent from the year-ago quarter.

Apple sold 608,000 desktop computers, and 462,000 laptops this quarter. Sales of iMacs, eMacs, and Mac minis nearly doubled from the year-ago quarter. Oppenheimer said the increase in Mac desktop and laptop sales is indicative of the iPod "halo effect." The number of customers who were first-time Mac buyers was approximately 40 percent, according to Apple. For portable sales, Apple reported 211,000 PowerBook and 251,000 iBook shipments. When asked about "well documented PowerBook issues" that could potentially impact sales, Oppenheimer said the trackpad-related issues were believed to be "isolated" and were now resolved. Apple was "very pleased" with PowerBook sales.

While Oppenheimer could not provide sales numbers of the Mac mini, he said the machine has been popular with both current Mac customers, as well as Windows "switchers." Apple reported between 64 and 72 percent growth in Europe and Japan. Oppenheimer said Apple was "very pleased" with results from Japan.

This quarter was Apple's strongest Q2 for education sales in five years. Higher education sales grew 43 percent, driven by iPod, iMac, and portable sales. K-12 sales were up only slightly, due to budget restraints facing public education.

Apple's music business generated 38 percent of its revenues, with over 5 million iPods shipped during the second quarter. Oppenheimer said iPod sales were approximately six times that of the year-ago quarter. Meanwhile, the iTunes Music Store reached 350 million total song sales by the end of the quarter. Despite increasing competition, Apple's iTunes Music Store is the "leading online music service" with a market share of above 70 percent. Oppenheimer said the Music Store operated "a little bit above break-even" for the quarter.

Oppenheimer said he felt the recent changes to the iPod lineup increased accessibility of the iPod photo, bringing it "within reach" of more customers. Additionally, Apple is now "competing in all segments" of the digital music player market, with its entrance into the low-cost flash music player business. Oppenheimer said Apple was the number one supplier of flash music players in the U.S., leading by a "wide margin." Apple reported a 43 percent share of the flash music player market, based on iPod shuffle sales for February. Oppenheimer said Apple had a 90 percent market share of hard-drive based music players. Overall market share of the digital music player market was around 70 percent.

HP-branded iPods accounted for less than 3 percent of total shipments. Oppenheimer reiterated HP's recent announcement that it would bring its iPod line up to date with Apple's. Apple is "very happy" to partner with HP on the iPod.

Apple's overall direct sales reached 48 percent, up from 44 percent last year. Apple had 103 stores open at the end of the quarter, and expects to have 125 open by the end of fiscal 2005 -- ten of which will be international stores. Oppenheimer reported overall traffic of more than 13 million people for its retail locations this quarter. Nearly 10,000 visitors per week were reported at each Apple Store location. Revenue reached $571 million for retail stores, or about $5.6 million per location, a 60 percent increase year-over-year. Apple retail locations did not experience a season decline this quarter, according to Oppenheimer.

When asked if his feelings on putting a G5 processor in a PowerBook had changed, VP Tim Cook reiterated his view that such an endeavor would be the "mother of all thermal challenges." Also on the topic of future products, Oppenheimer refused to comment on any future offerings form Apple, but said, "I don't think Apple could ever be out of ideas." He said innovation is "in the DNA" of the company.

Apple now has over $7 billion in cash. Looking ahead to the June quarter, Oppenheimer said Apple expected to report $3.25 billion in revenues. In summary, Oppenheimer said he was "very pleased with the results of Apple's first fiscal half," and the company is looking forward to the rest of the year. He said strategies put in place over the last few years, coupled with a strong product line, have "come together" to generate growth.

by MacNN Staff