Apple Quarter 2 – 2004 Conference Call recap

We will be updating this page with live coverage of Apple’s Quarter 2 -2004 Financial Results Conference Call:

– Apple achieved 29% year over year revenue growth
– “It is clear that Apple’s R&D investments are paying off.” – CFO Fred Anderson
– iPod contributed half of Apple’s growth
– Portables represent 48% of all Mac sales
– iBooks sold 201,000 units
– PowerBook sold 157,000 units
– PowerMac sold 174,000 units (low due to delayed Xserve)
– iMac sold 217,000 units
– 78 Apple Retail Stores now running (3.5 million average quarterly revenue per store)
– 5.7 million visitors in retail stores
– Apple plans an additional 10 stores throughout 2004, including London store
– CPU units grew 10% year-over-year with 18% revenue growth year-over-year
– Europe revenue up 33%, Americas up 27%.
– Outlook for Qtr 3: year-over-year double digit growth expected on gross revenue of $1.95 billion
– iPod gross margin was about 23%, gross margin should decline to around 20%
– Direct sales in quarter (online, retail, education) were 33% of revenue
– iPod now available in approximately 12,000 channels from 8,000; Best Buy pilot has run natural course. Apple is analyzing the Best Buy information to determine future direction
– iPod supply severely constrained. iPod leading to Mac switchers and adders from Windows users.
– Power Mac G5 volume: 174,000 units due to Xserve shipping delay (true sales over 194,000 units in the quarter) Mix of G5’s is substantially richer than G4. Pro video customers (broadcasters) adopting G5’s very quickly. Education market adopting Power Mac G5 very well, too.
– This was a great quarter for Apple
– Gross margins expected to remain flat for 3rd quarter
– Panther enters its third quarter. Selling “very well”
– iPod mini static issue: Apple is highly confident. Reports are isolated and an extremely small number. Please call Apple Care if you are having a problem
– Xserve backlog: Apple shipped very few Xserves due to delays. IBM is working very, very hard on G5 production. Apple hopes to catch up next quarter
– iPod drive supply contraints: iPod is in good supply. iPod mini is not in balance. Demand far exceeded planned supply. Balance expected to be achieved in supply/demand for iPod mini in fiscal 4th quarter
– Apple product cycle – no specifics on future products. Apple is comfortable with future product roadmap
– Apple is focused on opening new stores and increasing profitability of stores
– Adobe Creative Suite is about 15% of their total revenue – benefits PowerBook and Power Mac sales
– Publishing market slow to adopt Power Mac G5. Apple sees excellent opportunity going forward in this market
– IBM is the only holdup for Xserve at this time. Apple ramping to full Xserve production and will achieve supply/demand balance by end of Qtr 3.
– iTunes Music Store – most albums $9.99. A few are a bit higher as Apple is charged more by labels on specific albums
– Apple will not break out iPod vs. iPod mini sales for “competitive reasons”
– iTunes song sales totals will be released as Apple hits milestones
– Apple is working hard to increase Mac sales efforts in Japan
– Apple expects Apple Japan sales to improve in 3rd quarter
– iBook numbers 201,000 units – no seasonal decline. iBook G4 has been met with great customer response – dong well in consumer and education markets, iBook G4 looks positive in Qtr 3
– iLife ’04 sold over 400,000 standalone copies (not including bundled in CPU sales)
– Estimate 13% of sales to small and medium business up from 5% from Qtr 2 2003
– iPod retail channels expanded from 8,000 channels to 12,000 in quarter
– Anecdotal Windows switchers and adders in “increasing over time”
– HP to ship iPod in “summer.” HP has already shipped over 300,000 machines with iTunes pre-installed
– iPod mini delays due to “component restraint” not “manufacturing restraint”
– 15 GB free upgrade for iPod mini orders that have been quoted a date – available to a very small number of customers
– Pepsi iTunes giveaway and more info on iTMS sales will be given closer to one year anniversary of store
– Apple paid off 300 million in debt. Apple is now debt-free.
– Apple increased from 80 to 88 stores by the end of the year because the initiative is “going very well”
– Unit growth of Mac is up 5% year-over-year. Due to channel reduction efforts. Apple is focused on revenue more than market share.
– 4 days inventory in channel for quarter. Down from 6 days previous quarter
– iTunes Music Store generated a “small profit” in 2nd quarter
– HP and Apple “might decide to include the iPod mini in their deal” at a later date
– eMac should not generate any “margin hit” due to new config recently announced

— end of conference call —

31 Comments

  1. When results are poor, Apple states that fact. Analysts make sure and Apple has always been truthful at these meetings and very conservative as to future possible guidance. They had a very good quarter. Glad to hear the the mini problem may not be systemic. I just received notice that Apple is sending me a return carton to have my mini fixed, or most likely replaced.

  2. “Europe revenue up 33%”
    All increase due mainly to Euro going up around that much compared to the dollar.
    Would like to see a breakdown of actual sales for Europe per country and per item.

    PowerMac sales are a definite problem…need the new G5s.
    That�s when I�m placing an order.

  3. mike:

    If you have paid attention you would have known that even though G5 sales are slightly less then anticipated Apple has previously said they would never reach the sales levels of previous pro desktop CPUs. The market has changed. Professionals are buying laptops instead. Anyway, those that complain could help by purchasing a G5!

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