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Wednesday, January 12, 2005, 05:00 pm PT (08:00 pm ET)

Notes of interest from Apple's Q1 2005 conference call

Apple today posted a net profit of $295 million, or $.70 per diluted share for its first financial quarter, the highest quarterly profit and revenue in Apple's history. Some notes of interest from the conference call with Apple CFO Peter Oppenheimer and vice president Tim Cook:

  • Apple shipped 1,046,000 Macs during the quarter, its highest quarterly CPU shipment in over 4 years.

  • Apple shipped 456,000 iMacs and eMacs (combined), up 101% year-over-year to $620 million in revenue.

  • iBook shipments totaled 271,000 iBooks, up 35% year-over year to $297 million in revenue.

  • PowerMacs and Xserves combined to sell 167,000 units, a decrease of 19% year-over-year to $381 million in revenue.

  • The company sold 152,000 PowerBooks, down 29% year-over-year to $307 million in revenue.

  • iPod sales rose to 4.58 million units, up 525% year-over-year, raking in a total of $1.2 billion in revenue.

  • Apple's other music-related product accounted for $177 million in revenue, an increase of 277% year-over-year.

  • Peripherals and 'other' Apple products generated $284 million in revenue, up 28% year-over-year.

  • Software sales totaled $213 million, which was inline with the $213 million Apple generated from software sales in its year ago quarter.

  • Apple's America-based CPU unit shipments totaled 467,000 for the quarter, delivering $1.637 billion in revenue, an increase of 26% and 77% in terms of year-over-year unit shipment and revenue, respectively.

  • In Europe, Apple moved 320,000 CPU units, accounting for $847 million in revenue. This represents an increase in unit shipments and revenue of 33% and 66% year-over-year, repressively. However, from a sequential standpoint, Apple's European unit shipments and revenue increased at a phenomenal 106% and 100%, respectively.

  • Apple's Japan-based CPU sales for the quarter topped 64,000, bringing in revenues of $185 million. This represents a decrease in units of 17% year-over-year, but an increase of 18% in revenue.

  • Apples remaining segments accounted for 67,000 CPU unit shipments and $260 million in revenue, a year-over-year increase of 10% and 90% in units and revenue, respectively.

  • Hewlett-Packard iPod sales for the quarter represents only 7% of total iPod shipments, but as part of its agreement to market the iPod, HP has to date loaded iTunes on over 8 million consumer products. Apple and HP have yet announced a release date for the HP-branded iPod Photo.

  • Apple Retail sales rose to $561 million for the quarter, up 49% from the previous quarter, and 105% year ago quarter. This breaks down to revenues of approximately $5.9 million per store, and a total retail profit of $45 million for the quarter. The stores catered to over 10.7 million visitors during the quarter, averaging 8,700 people per store per week. New-to-Mac sales at the stores represented over 40% of its CPU sales.

  • Apple expects to be operating 125 retail stores by the end of 2005. Of the two dozen stores that will open in the new year, 10 will be launch in countries other than the US. The company said its new 'mini' and London-based stores have so far exceeded their expectations.

  • Apple's new London retail store saw 450,000 visitors in first seven weeks.

  • Apple saw its strongest Q1 education quarter in 7 years, as higher education sales increased by 25% on strong demand for iMac and iBooks.

  • Gross margins for the quarter were above Apple's guidance at 28% due to an improved commodity environment and higher revenues that allowed the company to leverage production costs.

  • Apple has witnessed consumers buying further up the iMac line (to the higher end models), a trend they did not necessarily anticipate, but welcome.

  • Apple's operating margin increased to 11.5 percent from 3.7 percent, mainly due to very strong CPU sales and record demand for its products.

  • Apple said its direct sales (retail, online, US education, iTunes Music Store) were higher than forecast at 45% of total sales.

  • Apple's gross margins on the new iPod shuffle and Mac mini are below Apple's average and equivalent to the eMac. iPod margins were close to 20% for quarter, while iPod shuffle margins will be below 20%.

  • Apple has achieved a supply and demand balance with its iMac G5 and PowerMac G5 products, with the exception of the 2.5GHz PowerMac model. The company said it is 'very happy' with IBMs progress in regards to G5 component supplies, as was expected. It expects to achieve a supply and demand balance on the 2.5GHz PowerMac G5 by end of the current quarter.

  • The iTunes music store was slightly profitable in Dec, but Apple refused to provide specifics in this area.

  • The company said it is focus on total Apple CPU sales, which overall are growing at two times the current industry growth rate, and not the individual breakdowns of each CPU-based product.

  • In response to Apple's introduction of its iWork production suite and how this may effect its relationship with Microsoft, Peter Oppenheimer said: "Apple has sold AppleWorks alongside Office for almost a decade now."

  • Due to its dramatic increase in revenue, Apple's tax rate has recently risen 3 points to 31% and is expected to remain in that bracket throughout the fiscal year.

  • Virtually all the iMac G5 models shipped last quarter were air-freighted from overseas. Previously Apple has stated it incurs an approximate $40 to $50 charge for this service, per unit. Apple will continue to air-fright 'some' iMacs during the current quarter.

  • Apple has no intention of bringing more third party monitors, keyboards, and mice to its stores supplement the Mac mini, which lacks those peripherals. Apple believes the target audience for the Mac mini already posses these items.

  • Apple is happy with server sales. It would love to have them higher, but they are happy with them. The company refused to offer a breakdown of Xserve unit sales, which are included in the PowerMac mix of 167,000 units. AppleInsider believes Xserve unit shipments accounted for less than 10% of this figure.

  • Apple does not expect to again see quarterly PowerMac unit shipments in excess of 200,000, as a good majority of users are switching to the iMac G5.

  • Apple retains 6.64 billion in cash.

  • For Apple to produce a PowerBook equipped with a G5 processor would be the "mother of all thermal challenges," chief financial officer Peter Oppenheimer said. Oppenheimer was hesitant to comment further and stopped short of saying a PowerBook G5 was out of the question. But folks, lets not forget that during a similar conference call 3 months ago, Oppenheimer also said Apple had decided not to compete in the sub-$800 PC market and instead would focus its efforts on its booming music business — obviously a statement that has proven to be far from accurate given the company's recent introduction of $499 Mac mini. Still, that's not to say that the company isn't experiencing major roadblocks with the G5 PowerBook, which we believe it is. We suggest not reading too far into statements of this nature. In the meantime, AppleInsider reiterates its belief that in the coming weeks Apple will introduce new PowerBook models that sport G4 processor upgrades to 1.5 and 1.67GHz.