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Notes of interest from the Apple FY 04 fourth quarter conference call

post #1 of 15
Thread Starter 
Overall, Apple Computer achieved a superb fourth quarter, shattering the street's expectations by some 8 cents a share. Some notes of interest from the conference call with Apple CFO Peter Oppenheimer and vice president Tim Cook:

Apple achieved its highest Q4 revenue in 9 years and closed out its 04 fiscal year with its highest annual revenue in 8 years.
Apple shipped over 2,016,000 iPods during the quarter, with Hewlett-Packard iPod shipments accounting for just 6% of total iPod sales (or approximately 121,000 units).
Apple has shipped 5.7 million iPods since its inception, which compares to 300 million Sony Walkmans sold during the 80s-90s.
In the US, Apple's iPod retains 65% market share of digital music players and over 90% market share of players based on a hard drive.
Apple generated $98 million in revenue from its iTunes Music Store and other iPod-related services during the quarter.
For the quarter, US revenue was $1.196 billion (up 29%), European revenue was $423 million (up 31%) and Japan revenue was $175 million (up 2%).
Overall, Mac based revenue was up 9% year-over-year.
The quarter marked the biggest education quarter for Apple in four years.
Shipments of portable Macs topped 450,000 units, including 238,000 iBooks and 213,000 PowerBooks.
PowerMac G5 and Xserve G5 shipments totaled 156,000 units, though Apple did not provide a breakdown of the two.
The company shipped a total of 173,000 eMacs (up 19%) but only 56,000 flat-panel iMacs due to supply constraints associated with the G5 processor.
Shipments of both the new iMac G5 and the PowerMac G5 were constrained due to ongoing supply constraints associated with the G5 processor. However, the company is enthusiastic over progress made in this area by chip supplier IBM.
In September Apple shipped twice as many G5s as it did in the July and August quarters combined. The company believes it will see a leveling of supply and demand for the G5 by the end of Q1 05, with the exception of the 2.5GHz G5 processor.
Apple confirmed that it will open six mini retail stores this Saturday, and said that the smaller sized outlets will allow the company to showcase its products to more people, in "interesting new locations."
The company's first European flagship retail store will open on Regent Street in London this November with additional international retail stores to follow in UK and Japan soon after.
Apple has decided not to compete in the sub-$800 PC market and instead will focus its efforts in its booming music business and related products. "We don't think we can make a lot of money there."
Apple's total direct sales--online, retail, US education, and music--accounted for 52% of the company's total world-wide revenue, fueled by strong performance from its retail and online stores. This figure is up from 43% year-over-year.
Apple's Retail segment reported record revenues of $376 million, representing 95% year-over-year growth. Profits from the segment totaled an approximately 18 million.
The number of Apple Retail store visitors increased 34% from the previous quarter to 7.8 million in Q4, up from 5.8 million.
With an average of 81 stores operating during the quarter, per store revenue rose to 4.6 million per store, up from 3.1 million from the year ago quarter.
Apple now boasts 4 unique retail store formats and plans to close out the 2004 calendar year with 100 operating stores.
45 to 50% of CPU buyers at Apple's retail stores remain PC converters or those new to the Macintosh.
Best Buy is considered a "very important partner" to Apple and is doing a "fabulous job" selling the iPod.
Apple retains a cash-pile of $5.564 billion, which is up approximately 500 million from the previous quarter.
During the previous quarter, all new iMac G5s were air freighted from Asia. This practice is expected to continue throughout the current quarter, costing the company between $40 to $50 per unit.
Apple sold $213 million worth of software and $271 million in peripherals and other hardware.
Apple remains focused on "marketing" the iPod rather than offering a slew of enticing holiday promotions.
Apple is working on more marketing campaigns similar to the current U2 iPod campaign, which should turn up in the coming weeks.
Apple expects revenues for its Q1 05 (holiday) quarter to reach $2.8 to $2.9 billion.
post #2 of 15
all in all great figures, only the CPU sales are rather dull. Apple might not like to compete in the sub-$800 market, but I believe they hurting their business model in the long run.

Now, with the boost from iPod sales would be the time to invest in ways to develop and sell a bread-and-butter machine like the LC series of long ago.
post #3 of 15
As much as I myself would like to see Apple offer a low-cost computer, the eMac is already pretty cheap - and a good value. I "sold" a friend on buying an eMac and she was very pleasantly surprised when I showed her all the software that was included, before I even installed *anything*.

Obviously, these recent profit figures prove that Apple knows what it's doing, so I'm just going to let them keep on keepin on!
post #4 of 15
It's been a tough 12 months for Apple and I'm delighted with how they are doing - especially since my 20" G5 iMac has been delivered.

It's a new year now and I can only see things improving. You know Steve J will not let everyone sit back and relax!

IBM will continue to improve G5 chip deliveries and there are going to be upgrades to current platforms, including the iPods.

Tiger before to long. Maybe a new iLife, with an additional app. Hell, they might even update AppleWorks!

It's going to be an exciting year.
Ken
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Ken
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post #5 of 15
One other comment I noted in the phone call recording was that question which was asked about the flash player market as opposed to all HD based iPods. The Apple guy said that he saw some opportunities in that market but that he can't comment on what they might be working on there.

Sounds like they *might* just make a flash based player? Who knows...
post #6 of 15
Quote:
Originally posted by SBCMac
One other comment I noted in the phone call recording was that question which was asked about the flash player market as opposed to all HD based iPods. The Apple guy said that he saw some opportunities in that market but that he can't comment on what they might be working on there.

Sounds like they *might* just make a flash based player? Who knows...

It's about high time Apple starts taking the flash-based market serious. Those gadgets are no longer confined to the 64MB space, but are approaching a realm where they are just good enough for a lot of uses.

Once you can fit 100 to 200 songs on one, they are an interesting alternative for workout, jogging, biking - activities where a HD based solution is less than ideal and where you hardly need 1000 tunes to choose from.

The appearance of USB stick devices which can be loaded via Finder or Windows explorer and play mp3s is another thread on the horizon, since about any manufacturer will include mp3-playback eventually which will result in falling prices. Those will never be better than the iPod, but they might be good enough for some people.
post #7 of 15
"Apple retains a cash-pile of $5.564 billion, which is up approximately 500 million from the previous quarter."

When I was reading some of the details in an early reports of Apple's quarterly results, I thought that's what I was reading... that Apple's nest egg was now in the $5.5 Billion range, up from about $4.96 Billion in reports earlier this year.

I was just curious, and thought one of the business people here could explain to me how this works, and why Apple would do it... Do they have some assets that have grown dramatically in value? Have they just dumped a cool $500 million left over from their day-to-day operations into a bank account with a high interest rate? How do they do it... why do they do it?

We've all seen the benefit from this "cushion" in previous quarterly statements - the interest from it boosts Apple profits. I would just like a clearer picture on how it works.
post #8 of 15
Quote:
Originally posted by gankaku
"Apple retains a cash-pile of $5.564 billion, which is up approximately 500 million from the previous quarter."

When I was reading some of the details in an early reports of Apple's quarterly results, I thought that's what I was reading... that Apple's nest egg was now in the $5.5 Billion range, up from about $4.96 Billion in reports earlier this year.

I was just curious, and thought one of the business people here could explain to me how this works, and why Apple would do it... Do they have some assets that have grown dramatically in value? Have they just dumped a cool $500 million left over from their day-to-day operations into a bank account with a high interest rate? How do they do it... why do they do it?

We've all seen the benefit from this "cushion" in previous quarterly statements - the interest from it boosts Apple profits. I would just like a clearer picture on how it works.

gankaku,
you post a good question. I'm an apple investor and from what I have read this is in money market accounts and other short term cash investments, so it is about as liquid as cash. I am very impressed with their ability to guard their cash because it is important for unforeseen events and special opportunities. Like you suggested it does add to the bottom line, just like investments in Akamai and Earthlink and Samsung did. I do, however, think they should use some of that cash to buy up more software and hardware developers. In particular Adobe and maybe some part of Nvidia or ATI. The G5 is a fine chip, it just needs code that is optimized for it. With better video drivers and a better photoshop finetuned for panther and tiger, apple computers would be significantly faster.

Apple's numbers are very good news though. The ipod strategy is working. Apple will never become a Compaq but it can get a marketshare far greater than BMW, to which it is often compared. As somebody else pointed out the sub-$800 computer market is not very profitable. All those PC cpu boxes made by everyone else for $500 can never be Apple's market. The new imac is pretty darn close to perfection though. It is still not a sub-$1K computer, but about as close as Apple will get to providing elegance, great software and great performance. Apple will never be able to compete on price. Its the design and the experience that everybody wants, and for those who are willing to pay the 15-25% premium, they get a beautiful computing experience.

Sure I'd love to see a headless mac like the cube again, but if apple offers such a model they will canabalize their powermac and xserve sales. Imagine the computing potential of ten $500 G5 1.6Mhz "cubes" in parallel processing. I'm all for it, but it will hurt apple, at least in the short-term. If the ipod and itunes strategy pays off and actually grows cpu market share, then apple may be willing to cut margins and therefore prices because they will make revenue on volume.

So to come back to your question on cash, I think it makes sense for Apple to have a huge reserve. As a consumer I like to purchase beautiful, easy to use machines, that give me great computing experience value, if at a slightly higher price entry point. As an investor, I don't want them wasting money on short-term frivoloties. I want them investing smartly and decisively for the long-term so I can continue to buy computers I love. I think their numbers prove that their strategy is paying off.
post #9 of 15
Quote:
Originally posted by ptnyc
gankaku,
you post a good question. I'm an apple investor and from what I have read this is in money market accounts and other short term cash investments, so it is about as liquid as cash. I am very impressed with their ability to guard their cash because it is important for unforeseen events and special opportunities. Like you suggested it does add to the bottom line, just like investments in Akamai and Earthlink and Samsung did. I do, however, think they should use some of that cash to buy up more software and hardware developers. In particular Adobe and maybe some part of Nvidia or ATI. The G5 is a fine chip, it just needs code that is optimized for it. With better video drivers and a better photoshop finetuned for panther and tiger, apple computers would be significantly faster.

Desktop publishing is no longer a market for growth for Apple IMO. They are where they are and can't bring anything new to the table like that have in audio and video and the consumer markets in recent years. Adobe would be a massive purchase and would not result in a good enough return.

Plus, Apple already has the pieces themselves to make a photoshop alternative, and as of Tiger so will every other developer.
post #10 of 15
Quote:
Originally posted by applenut
Desktop publishing is no longer a market for growth for Apple IMO. They are where they are and can't bring anything new to the table like that have in audio and video and the consumer markets in recent years. Adobe would be a massive purchase and would not result in a good enough return.

Plus, Apple already has the pieces themselves to make a photoshop alternative, and as of Tiger so will every other developer.

applenut, you are probably right about desktop publishing being not much of a growth market. Purchasing adobe would be a way to ensure that photoshop, illustrator, and indesign run screamingly well on MacOS at the expense of Windows, hopefully encouraging migration to apple hardware. Apple has already bought some music and effects companies and ceased windows development. It's a little ugly business practice, but it assures that mac programs run at least as fast as their windows counterparts. I think hardware costs are high on the mac side because of smaller volume. Similarly dual platform applications like photoshop I still believe are optimized more for windows than mac, simply because of the resources. I doubt MS office runs faster on a comparable pc, just like its browser. I think audio and video and web are the future, like you say, and hopefully apple will be optimizing their OS and hardware to make such digital content creation faster and easier.
post #11 of 15
The economy moves in cycles and Apple's cash cushion will allow them to get through downturns without cutting back on areas that are important to them - like R & D.

The other important factor is that it allows them to invest, heavily if necessary, in the future when they see it is important for their long term growth.

I believe that too many companies rely on lines of credit for their safety net and am delighted to see Apple having cash in hand as theirs. It only protects their (and our) future.
Ken
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Ken
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post #12 of 15
Quote:
Apple retains a cash pile of $5.564 billion


In technology companies, stock options are a popular way to compensate directors and employees for work done for the company. There is no immediate cash payment from the company and it is considered to be deferred, future, compensation.

In companies like Microsoft and Apple, the number of stock options is usually equal to 25% of issued, publicly traded stocks. As stock options are converted to stocks, they are either bought back by the company at market value or a pre-determined value, or added to the number of stocks issued by the company.

The company will create a cash reserve to cover the cost of buying back stock options, for otherwise it would reduce the value of existing stocks by increasing the number of stocks entitled to receive dividends and share profits.

Steve Jobs is the highest paid CEO in America through his stock options. One should remember that Steve Jobs and the Apple Board of directors oppose the new rules of accounting that would require stock options to be declared as an expense, thereby reducing to zero the quarterly profits of many companies listed on the NASDAQ stock exchange.

What are the profits of Apple, once stock options are listed as an expense? And the 5.5 billion cash reserve is not available to finance expansion, distribute among stockholders, but must be considered as needed to cover the cost of buying back stock options.

Sorry to rain on your parade.


Pierre
post #13 of 15
Quote:
Originally posted by ouragan
What are the profits of Apple, once stock options are listed as an expense? And the 5.5 billion cash reserve is not available to finance expansion, distribute among stockholders, but must be considered as needed to cover the cost of buying back stock options.

Sorry to rain on your parade.


Pierre

Good point, Pierre. I have voted for apple to expense the stock options, but to no avail. (At least they are debt free.) The greatest asset Apple has is Steve Jobs; he is also their greatest vulnerability. The guy is overpaid for sure, but he is Apple's talking head to the world. His cancer scare hopefully made it clear to the company that management needs to train successors to lead with his kind of vision.

Unlike Microsoft and IBM, Apple is still very much a growth company and even as a stockholder I would prefer that the cash be invested in R&D and acquisitions and as a hedge against cashed out stock options rather than dispersed as a dividend. As Apple stock hits new highs now and through next quarter, employees and management may be tempted to cash out. That cash may be sorely needed.
post #14 of 15
In a minor, curious, if just slightly interesting footnote, Apple has posted their financial results report in the iTunes Music Store.

http://phobos.apple.com/WebObjects/M...istId=27032834

(Yes, it's a free download)
post #15 of 15
Quote:
Originally posted by ouragan
Steve Jobs is the highest paid CEO in America through his stock options.

The stock options he got quickly became worthless - he now has 'real' stocks AFAIK.
JLL

95% percent of the boat is owned by Microsoft, but the 5% Apple controls happens to be the rudder!
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JLL

95% percent of the boat is owned by Microsoft, but the 5% Apple controls happens to be the rudder!
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