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Thursday, August 05, 2004, 12:40 pm PT (03:40 pm ET)

Apple details more layoffs as part of restructuring

In a regulatory filing with the Securities and Exchange Commission on Thursday, Apple Computer acknowledged an out of court settlement in its trademark infringement dispute with TIBCO Software and said that it plans to layoff an additional 74 employees as a result of the closure of its Sacramento manufacturing facility.

The SEC filing also disclosed several other interesting corporate details and provided an update on net and unit sales for the company in 2004.

Notes of interest

  • Since inception of the iPod product line in fiscal 2002, Apple has sold approximately 3.7 million iPods.

  • In the fourth quarter of fiscal 2004, the Apple will spend approximately $5 million in R&D costs related to the development of Mac OS X 10.4 "Tiger."

  • Research and Development costs increased by 4% and 2% for the third quarter and first nine months of 2004, respectively, due to increased R&D headcount to support expanded R&D activities and employee salary merit increases. The company said that it believes that focused investments in R&D are critical to its future growth and competitive position in the marketplace and expects to continue to invest heavily in R&D to remain competitive.

  • In the fourth quarter of fiscal 2004, Apple expects to incur restructuring charges of approximately $5 million primarily related to vacating certain European sales office space.

  • Apple will layoff another 74 employees as a result of the closure of the company's Sacramento manufacturing facility, which was initiated in the second quarter of 2004.

  • Apple said that it pays substantial fees to obtain the rights to offer to its customers third party music, but acknowledged that its licensing arrangements with third-party content providers are short-term in nature and do not guarantee the future renewal of these arrangements at commercially reasonable terms, if at all.

  • As of June 26, 2004, Apple retained $4.966 billion in cash, cash equivalents, and short-term investments, representing an increase of $400 million over the same balances at the end of the last fiscal year

  • The company's total capital expenditures were $117 million during the first nine months of fiscal 2004, $69 million of which were for retail store facilities and equipment related to the Company's Retail segment and $48 million of which were for corporate infrastructure, including information systems enhancements and operating facilities enhancements and expansions.

  • Apple reiterated its sentiments on IBM's manufacturing problems with the G5 processor, claiming that the issues have caused a delay in the shipment of various products and will likely constrain certain product shipments during the fourth quarter of 2004. The company also claimed that the "inability of IBM to remedy these problems in a timely manner, avoid significant manufacturing problems in the future, and to deliver to the Company microprocessors in sufficient quantities with competitive price/performance features could further constrain shipments of products containing the G5 processor and could adversely affect the Company's results of operations and financial condition."

  • On June 28, 2004 Virgin Mega filed a complaint against Apple France with the French Competition Council alleging that the Company has wrongfully refused to license Fairplay DRM technology to competitors. Virgin is seeking "Interim Measures," pending the determination of the merits of the case. Apple said a hearing on Virgin's request for such measures will likely be heard in October or November 2004.


Sales

Apple said that net sales during the third quarter of 2004 increased 30% or $469 million and were up 32% or $1,437 million for the first nine months of fiscal 2004. Several factors contributed to these increases including:

  • Total Macintosh system net sales increased $169 million or 15% during the third quarter of 2004 and $400 million or 12% during the first nine months of 2004. Meanwhile unit sales also increased 14% and 10% for the three and nine months periods ended June 26, 2004. Apple's sale of 876,000 Macintosh units in its third quarter of 2004 represented the highest quarterly unit shipment in over 3.5 years. Unit sales of the Company’s professional desktop and portable systems for the first nine months of 2004 also increased 24% and 34%, respectively.

  • Net sales of iPods rose $138 million or 124% during the third quarter of 2004 and increased $545 million or 243% in the first nine months of 2004.

  • Apple's Retail segment's net sales grew 86% to $270 million during the third quarter of 2004 and grew by 89% to $809 million in the first nine months of the year. These increases are largely attributable to the increase in total stores from 59 at the end of the third quarter of 2003 to 80 as of June 26, 2004, as well as a 31% year-over-year increase in average revenue per store.

  • Net sales of peripherals and other hardware rose by 30% and 41% for the three and nine months ended June 26, 2004, respectively, primarily due to an increase in net sales of displays and other computer accessories.

  • Net sales of other music products increased 508% and 800% for the three and nine months ended June 26, 2004, respectively.

  • Net sales of software rose $23 million or 26% during the third quarter of 2004, and increased $118 million or 43% for the first nine months of 2004.

  • Apple's U.S. education channel experienced year-over-year growth in net sales of approximately 16% during the third quarter and 18% for the first nine months of 2004, resulting in the company’s highest U.S. education channel revenue in three years. Educational unit sales also increased by 4% and 6% for the three and nine month periods ended June 26, 2004.

  • Apple service and other sales rose 39% and 9% for the third quarter and first nine months of 2004, respectively. Apple said these increases are the result of significant year-over-year increases in net sales associated with AppleCare Protection Plan, extended maintenance and support services, and an increases in net sales associated with the company's .Mac Internet service.


Offsetting the favorable factors mentioned above, Apple said that its net sales during the third quarter and first nine months of 2004 were negatively impacted by the following:

  • Net sales and unit sales of iMac systems were down 22% and 15%, respectively, during the third quarter of 2004 versus the same quarter in 2003. This same pattern of decline was also experienced in the first nine months of 2004 with decreases of 23% and 18% in net sales and unit sales, respectively. The company also said that sales of flat panel iMac systems have been negatively affected by a shift in consumer preference to portable systems, sub-$1000 PCs and the aging flat panel iMac form factor.

  • Due to the manufacturing problems at IBM, the company could not secure sufficient supply of G5 processors to launch its new iMac G5 as originally scheduled and now plans on announcing and shipping the new iMac in September.

  • Net sales in the Company's Japan segment increased 2% for the third quarter on a year-over-year basis, and decreased 5% for the first nine months of 2004. Unit sales in Japan were down 4% and 11%, respectively during the third quarter and first nine months of 2004.