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Here are some excerpts of note.
First the good news, and there's a lot of it:
Net sales during the first quarter of 2005 increased 74% or $1.484 billion from the same quarter in 2004.� Several factors contributed to this increase including:
� Net sales of iPods rose $955 million or 373% during the first quarter of 2005 compared to the year-ago quarter. Unit sales of iPods totaled 4.6 million in the first quarter of 2005, which represents an increase of 525% from the 733,000 iPod units sold in the year-ago quarter and exceeded the total number of iPods shipped in all of fiscal year 2004.� Strong iPod demand during the first quarter of 2005 continued to be experienced by all of the Company�s operating segments and was driven by several factors, including the introduction of the iPod photo and U2 special edition iPod during October 2004; better supply of critical iPod components; and increased expansion of the Company�s iPod distribution network. Since inception of the iPod product line in fiscal 2002, the Company has sold in excess of 10 million iPods.
� Net sales of Macintosh systems increased $336 million or 26% during the first quarter of 2005 compared to 2004; while unit sales of Macintosh systems increased by 217,000 units or 26% during the first quarter of 2005 compared to the year-ago quarter. These increases in net sales and unit sales were a result of strong demand for the Company�s consumer-oriented products, including the iMac and iBook. Net sales and unit sales of these consumer-oriented systems accounted for 57% and 70%, respectively of all Macintosh systems sold during the first quarter of 2005.�
Net sales of iMac and iBook increased 147% and 34%, respectively, during the first quarter of 2005 compared to the year-ago quarter.Unit sales showed year-over-year increases of 101% and 35% for iMac and iBook, respectively.�Strong results of the iMac were attributable to the introduction of the iMac G5 in September 2004 and increased availability of iMac G5 components in the first quarter of 2005, which also resulted in an increase in channel inventory to within the Company�s typical range. The Company�s iBook sales were also strong in the first quarter of 2005 due to the introduction of upgraded iBooks in October 2004 and holiday demand. The Company�s average net sales per Macintosh unit sold remained flat on a year-over-year basis as a result of changes in overall unit mix towards relatively lower-priced products, offset by an increase in direct sales.
� The Retail segment�s net sales grew to $561 million during the first quarter of 2005 from $273 million during the same period in 2004, a 105% increase. Macintosh unit sales increased 63% year-over-year in the first quarter of 2005. These increases are largely attributable to the increase in total stores from 73 stores at the end of the first quarter of 2004 to 101 stores at the end of the first quarter of 2005, as well as a 48% year-over-year increase in average revenue per store. While the Company�s customers in areas where the Retail segment has opened stores may elect to purchase from the Retail segment stores rather than the Company�s preexisting sales channels in the U.S., Japan, and the U.K., the Company believes that a substantial portion of the Retail segment�s net sales is incremental to the Company�s total net sales. See additional comments below related to the Retail segment under the heading �Segment Operating Performance.�
� Other music products consists of sales associated with the iTunes Music Store and iPod related services and accessories.� Net sales of other music products increased $130 million or 277% during the first quarter of 2005 compared to the year-ago quarter. The Company has experienced strong growth in sales of iPod services and accessories consistent with the increase in overall iPod unit sales for the first quarter of 2005. The year-over-year increase in sales from the iTunes Music Store relates to overall growth in the U.S. market and expanded availability of the iTunes Music store service, which in the first quarter of 2005 served 14 countries in North America and Europe compared to availability only in the U.S. during the first quarter of 2004.
� Net sales of peripherals and other hardware rose by 28% during the first quarter of 2005 compared to the year-ago quarter primarily due to an increase in net sales of displays and other computer accessories.� Net sales of other computer accessories include AirPort cards and base stations, iSight digital video cameras, and third-party hardware products. The increase in total net sales of peripherals and other hardware is related to the overall increase in Macintosh unit sales and the introduction of new and updated peripheral products and was experienced predominantly by the Company�s Americas, Europe, and Retail segments.
� The Company experienced year-over-year improvement in its U.S. education channel during the first quarter of 2005 with net sales and unit sales increasing by approximately 20% and 11%, respectively, from the same quarter in 2004.� Net sales generated in U.S. education for the first quarter of 2005 yielded the highest first quarter revenue level from this channel in 7 years.� Net sales from both the higher education and K-12 markets showed strong growth of 25% and 15%, respectively, in the first quarter of 2005 compared to the year-ago quarter.� These positive results were due in part to strong demand for the Company�s iMac G5 and iBook products.
� Service and other sales had a year-over-year increase of $33 million or 52% during the first quarter of 2005 compared to the same period in 2004.� These increases are the result of significant year-over-year increases in net sales associated with AppleCare Protection Plan (APP) extended maintenance and support services, as well as increases in net sales associated with the Company�s .Mac Internet service. Increased net sales associated with APP are primarily the result of higher Macintosh unit sales and higher attach rates on APP over the last several years.
[Editor's analysis: All good stuff here. Spectacular, really. And just wait until next quarter when results from the Mac mini and iPod Shuffle are factored in. Apple is on a rolleiflex with its consumer oriented products. CM]
Now for the not-so-good news:
Offsetting the favorable factors discussed above, the Company�s net sales during the first quarter of 2005 were negatively impacted by the following:
� Net sales and unit sales of the Company�s professional-oriented products, including the Power Macintosh and PowerBook, declined in the first quarter of 2005 compared to the year-ago quarter. The Company�s Power Macintosh net sales and unit sales declined 4% and 19%, respectively, while PowerBook net sales and unit sales declined 23% and 22%, respectively. The year-over-year decline in Power Macintosh is partially attributable to strong sales in the first quarter of 2004, which was the first full quarter of sales for the new Power Mac G5 that had been introduced at the end of the fourth quarter of 2003. In addition, the Company believes that the Power Macintosh decline in the first quarter of 2005 may have resulted from a shift in customer preference away from the single processor Power Mac G5 towards the iMac G5. The decline in PowerBooks is believed to be attributable in part to a shift to the new iBooks, which were announced in October 2004. The Company believes such movement between its product lines is typical after new product introductions.
[Editor's analysis: Or not. In my opinion, the iBook's success is based on its value for cost and extremely attractive, albeit now nearly four-year-old package. After all, the oldest PowerBook form factors (12" and 17") are nearly two years fresher than the iBook. The incremental iBook speed bumps and enhancements in October were great, but hardly anything so spectacular as to negatively impact PowerBook sales any more than the very presence of the iBook in the marketplace at any time has to obviously cannibalize some PowerBook sales. The iMac taking sales avay from the G5 Power Macs is a more plausible and probably accurate evaluation. The Power Macs are obviously suffering from having no major upgrades since they were released. The PowerBook's problem is not so much the iBook, but rather ongoing popular and punditry anticipation that a G5 PowerBook release is imminent, and the fact that the current G4 architecture seems to have hit something of a glass ceiling. The speed bumped and enhanced PowerBook line announced Monday offers the best power/value equation in PowerBook history, but the performance boost at the top end was a barely perceptible in practical terms 167 MHz. The cure for PowerBook sales blahs will have to be either the thus-far chimerical PowerBook G5 or at least something more exciting in a G4, perhaps Freescale's coming dual-core G4 processors. CM]
� Net sales of software decreased $32 million or 21% during the first quarter of 2005 compared to the same period in 2004 due primarily to higher net sales in the first quarter of 2004 that resulted from the October 2003 release of Mac OS X version 10.3 �Panther,� the Company�s current operating system software, partially offset by an increase in application software net sales. Net sales of Panther have been trending downward as customers await the upcoming release of Mac OS X version 10.4 �Tiger,� which is expected to be released by the Company in the first half of fiscal 2005.
[Editor's analysis] This statement is an acknowledgement of obvious reality. Panther is now widely regarded as a lame duck product, wonderful though it is. As I have advocated for years, in the waning months of an OS version's tenure, Apple should offer it for sale with a free upgrade to the new version. That probably wouldn't cost them many overall OS sales, and would flatten out the boom and bust cycle somewhat. CM]
You can down load the entire document here.
Charles W. Moore
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