The following are raw notes taken in chronological order during Apple’s Q1 2004 financial results conference call:
– Begin Q1 2004 Conference Call.
– Apple CFO Fred Anderson, “We are very pleased with results.”
– Apple’s highest quarterly revenue in 4 years.
– 829,000 Macintosh units sold.
– 733,000 iPod units sold, $256 million in revenue, the clear number one-selling player on market.
– Panther upgrades, in particular, were strong.
– Portables accounted for 48% of all units shipped.
– Power Mac = 206,000 units.
– PowerBook = 195,000 units.
– iBook = 201,000 units.
– iMac (includes eMac) = 227,000 units.
– iTunes Music Store accounts for 70% of all legit music downloads.
– Anderson expects iTunes/iPod momentum to continue.
– Pepsi and Apple will launch 100 million song giveaway on Super Bowl Sunday.
– HP will sell rebranded iPod and install iTunes on HP consumer computers.
– Apple opened 8 retail stores (73 total) in quarter. Traffic totaled 5.3 million people during quarter.
– Tokyo store averages over $1 million sales per week.
– Two more Japan stores coming this year.
– Education sales up 8% year-over-year.
– Gross margin 26.7% for quarter.
– $462 million in operating expenses.
– $4 is pre-tax Akamai share sales.
– $4.8 billion cash in hand.
– Outlook: Q2 2004, Apple expects third consecutive quarter of double digit growth year-over-year. Gross margins expected to be 27.5%. Apple plans to retire $300 million in debt and become a debt-free company.
Questions:
Higher warranty expenses due to? PowerBook 15-inch and iBook.
HP music deal? Apple is “incredibly optimistic,” said Anderson. “Will drive business for iTMS and iPod.”
White spots on PB 15-inch displays? Anderson: Apple has resolved the problem. Customer should contact service if they experience white spots.
Any product availability concerns? Anderson: Even though Apple increased supply of iPods, we were unable to meet demand. $270 million total revenue for iPod and peripherals for quarter.
PowerMac G5 sales? Anderson: Dual processor is stronger than expected.
iPod distribution? Anderson: we have much broader distribution. We are pleased with distribution. Available at over 8,000 outlets worldwide.
Extra costs for Power Mac G5? Peter Oppenheimer, Senior Vice President, Finance: new model (dual 1.8 GHz) and cancelations of purchases to buy new model introduced some costs.
Peter Oppenheimer on component costs: LCDs = prices should be flat. Memory (RAM) = prices should decrease. Expect lower Panther software sales.
Could HP deal reduce Mac sales? Will you do this type of thing “in other areas?” Anderson: Great opportunity to drive iPod and iTMS sales. Apple retains advantage over Windows – customers may choose Mac to get the other iLife applications (iPhoto, iDVD, GarageBand, and iMovie). iTunes gives Windows users a taste of what could be. There is a reason to want Macs. No plans to migrate other iLife apps to Windows.
iPod sales effect to gross margin? Will Apple license more broadly in light of HP deal? Anderson: iPod and iTMS will be brought to a greater number of customers. Will not speculate on future licensing deals with other companies or HP in particular.
Anderson: Panther OS acceptance was incredible. We have almost 10 million OS X users now. When a new OS comes out, large numbers of users upgrade.
iPod mini, does it carry higher or larger margins? iPod gross margins better than expected during quarter. Favorable component costs helped revenues. Gross margins will decrease with HP “iPod” and iPod mini, but margins will be close to 20%.
Notebook component availability? Oppenheimer: we were able to meet demand on both iBook and PB models.
Inventory in channel? Anderson: Down 6% over preceding quarter. Apple shoots for 4 to 5 week range of inventory in channel – we were close to 4 weeks at end of quarter.
PowerMac G5 and iMac sales out of line (lower)? Anderson: 2003 the year of the notebook. Shift away from desktops to portables is happening. iMac priced above “sweet spot” of $1,000 – impacted sales.
Creative professional market? Anderson: We have the ingredients for improved Pro sales.
Education market, particularly K-12? Down “just slightly” up 8% in education overall.
Update on Best Buy iPod sales? Oppenheimer: we were very pleased. CPU sales in about 50 Best Buys – no comment on any changes to that number.
Sales of Panther details? Anderson: 20 million of installed base able to upgrade to Mac OS X. 50% is now running some version of Mac OS X.
iPod sales internationally vs. domestically? Anderson: 2/3rds of all sales were in U.S.
Anderson: we are shooting for 80 Apple retail stores by September 2004. Ginza store costs more than a store in Buffalo, but it makes more, too.
Is Apple sharing expenses with Pepsi? Anderson: Non-disclosure agreement in effect – we’ve incorporated into our guidance any effect that promotion will have.
G4 to G5 upgrade outlook? We will see strong transition to G5 in Pro arena. 200,000 PowerMacs per quarter is our target going forward? Majority of PowerMac sales are to installed base.
Anderson: High priority to expand Power Mac G5 product family. If reducing margins is required, it will be considered. We are more aggressive on G5 than Power Mac G4 pricing to drive sales.
Non-CPU sales = 37% percent of total revenue. iPod was 13% of total revenue for company. Other peripherals accounted for 24%.
Anderson: Power Mac sales were up at a double digit rate Q1 vs. Q4. We believe we can sell about 200K units per quarter going forward.
Anderson: we feel comfortable with our product prices in all product families.
Any surprises this quarter? Anderson: positives were iPod over-performance. Record PowerBook sales and Panther were also highlights of the quarter.
Anderson: Retail store did great job and online store – both did better business than expected.
– End Q1 2004 Conference Call.
Debt free by mid-Feb! And Billions in the bank! Doesn’t get any better.
I experience black spots sometimes. I guess Apple can’t help me on that. ;'[
pkradd, are you serious? If so is it in the corners of the screen?
Debt free is good!!!
i don’t know how this stuff works but, if ipod mini margins are like 20% then it costs apple $200 to make one, right?
so i guess people will have to wait a while for $199 ipod and stop blaming apple.
good. i already ordered my mini so i dont want anybody getting a better deal :p
first question says about higher warranty expenses…. we all know about the 15″ white spots… but i guess this is the first thing that i have seen that Apple is kind of sort of saying they have had problems with the ibooks…. Maybe if they would fix the problems with the ibooks the first time, they wouldn’t have so much expense on them… sorry just a little bit bitter about my ibook going out for the 2nd time…..
“i don’t know how this stuff works but, if ipod mini margins are like 20% then it costs apple $200 to make one, right?”
I think 20% for iPod mini is too high. The margin for iPod is higher than 20%, so for the overall margin to be pushed down to 20%, the margin of iPod mini and HPod must be less than 20%, i.e. it costs Apple more than $200 to make iPod mini. Here is the quote from Anderson:
“Gross margins will decrease with HP “iPod” and iPod mini, but margins will be close to 20%.”
Ahh that is music to the ears…
But us everyday Mac users can do our part as well. How? By promoting our OS X against the likes of Wintel, by participating in Folding@home.
It’s a distributed computing project supported by Apple and run by the Stanford University. It computes protein folding in the background to cure many diseases (like Mad Cow, etc) and just uses your spare CPU power, it doesn’t even slow down heavy duty games. So one can run it all the time, even 24/7 and set their display to sleep. Perfectly safe and uploads/downloads while you online.
Dual processor machines can really see performance because one can run 2 or more console versions simultaneously. (Ask at our forums how to properly run multiple versions.)
Check it out and join our Team Mac OS X #1971, we are in the top 30 Folding Teams worldwide and advancing towards the top.
It’s sort of like a OS competition and it supports a good cause, so please join in and get involved!
http://teammacosx.homeunix.com/
http://www.stanford.edu/group/pandegroup/folding/
” iMac priced above “sweet spot” of $1,000 – impacted sales.”
I am glad they acknowledge this. Maybe they’ll do better with the next generation?
Nobody,
Nope. Buy an eMac then. Anderson specifically said, “we feel comfortable with our product prices in all product families.”
The iMac is now the mid-range Mac line. It has been since the eMac was released to all customers. The eMac is the low-end, under $1,000 machine. And a damn good one, too.
I like to find those Mac critics and Mac bashers like Mike Melone and alike who,when Steve Jobs came back five years ago,were saying the dooms and glooms of Apple’s imminent demise and smack them on their heads with a 20th anniversary G5 iMac. Five years later, even going through a recession, Apple is still alive, growing and kicking butts! Where are those critic writers now? Freelancing for Microsoft writing propaganda?
“pkradd, are you serious? If so is it in the corners of the screen?”
No, not serious.
If those whining about the MINI iPOD price would bother to educate themselves before talking out their collective asses, they would realize that the cost of the Hitachi 1″ drive alone is over $150.00 wholesale.
Apple is lucky to be getting 22% margin at $249.00 right now. This is why the those crying for a $199.00 or less priced MINI are so out of touch with reality.
The bad news is that they also reported that only less than 50% of users have converted to OS X. For an OS that has been around for 3 years or so, I’d say that is a pretty dismal conversion rate. What are they doing about converting MORE THAN 50% of of their intalled base to OSX? And, while we are on the subject, who are these people? Are they still using a Mac Classic too?
The conversion will come when the G5 is in the iMac (and eMac?). By the end of year?
” width=”19″ height=”19″ alt=”smile” style=”border:0;” />
Debt free isn’t an ideal when the cost of borrowing is low. However, it probably sounds good for anyone who maxed out their card on Apple’s overpriced product line.
Macster, my old Mac was marginal for OS X, so I am going to jump on the Panther bandwagon with a new G5 machine this year for home use. I also get a new G5 PowerMac at work in just a few weeks to replace my G4/450, so my future is looking bright!
Seriously, I expect that a lot of people that *could* theoretically install MacOS X have marginal G3 machines with older graphics cards. Others may have a good bit invested in classic applications and are uncertain how they will work under MacOS X. There are also a lot of Wintel users out there still running Win98. Same basic idea, I think. If it works, stick with it until the upgrade is compelling (and likely with a new system purchase).
macster wrote:
“What are they doing about converting MORE THAN 50% of of their intalled base to OSX? And, while we are on the subject, who are these people?”
A lot of these people are graphic shops that have invested in Mac’s and got things tweaked just right. After all it takes time to teach people to come up to speed and once there they get stuck.
Some people are like robots, “I do this now right?” Having to retrain these people is a daunting task, especially when there isn’t a whole lot to upgrade entire departments to newer machines to run Mac OS X, software is still basically the same, just more bells and whistles and more upgrade costs.
Mac’s have a excellent return on investment as well, there are still shops using Mac SE’s!!!! That’s all they need, it still works, so why bother buying new?
A lot of people are using Windows ME!
Why? All they do is surf the net, do simple things etc., when they start getting shut out of web sites, watch them upgrade in a hurry.
I plan on keeping my Dual 2 Ghz G5 for several years, if Apple comes out with a whiz bang OS that requires the latest machines to run it on. It may be several years before I would bother buying a new machine.
I will just deal with what I have.
The poor conversion rate to OS X is probably due to a Mac’s unusually long lifespan. To email Aunt Sally, write to your congressman, make a poster to sell the old sofa, and browse the internet (even with highspeed access), you don’t need anything more than a G3 with OS 9.
Less than 1 year ago, my father replaced his green “hockey puck” mouse with the newer one, only because he liked the one on my mother’s G4 Mac. Otherwise it worked fine. He recently brought his G3 into an Apple store to resolve some quirky problems, and $65 and 4 hours later his ol’ Mac runs like new. But, being the kind son, I have upgraded them, both, to Panther, but it really wasn’t necessary for what they do, and they definitely wouldn’t have gone to OS X if it were up to them. “Why fix it if it ain’t broke?!”
Perhaps, Apple is making their computers too good!
Fred Mertz,
Nope, I am happy with my 15″ 800MHz iMac I bought a year and a half ago. If I want another computer, I’d go for a Powerbook.
I am just commenting the fact that Anderson acknowledged that iMac was priced above the “sweet spot”, that is, Apple lost some sales because of it. While he said they were comfortable with it, it does not mean they cannot do better.
The iMac priced above the sweet spot doesn’t mean lost sales for Apple. It means eMac and iBook sales for Apple. Above that price range is where the iMac fits.
“Debt free isn’t an ideal when the cost of borrowing is low. However, it probably sounds good for anyone who maxed out their card on Apple’s overpriced product line.”
LOL. Joe, you really are the Prince of Trolls
” width=”19″ height=”19″ alt=”grin” style=”border:0;” />
Dave, you are right! A statement like Joe’s makes for a good long lasting laugh!
Keep it up Joe: you are reaching Ron excellency
“The iMac priced above the sweet spot doesn’t mean lost sales for Apple. It means eMac and iBook sales for Apple. Above that price range is where the iMac fits.” – Nagromme
He said it impacted sales. It could mean eMac and iBook sales for Apple, but judging from discussion boards, it does seem that Apple lost some sales. All I am saying is, Apple may want to get to that “sweet spot”. Isn’t that where everybody wants to be in?
” width=”19″ height=”19″ alt=”smile” style=”border:0;” />
dave and seahawk, I really do try hard. Thanks for feeding me!
That’s my pleasure Joe. It’s almost like having a pet hamster.