Details from Apple's Q2 2005 conference call

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Apple today posted a net profit of $290 million, or $.34 per diluted share, for its second fiscal quarter of 2005, which it said was the highest March quarter for revenue and income in the company's history. Some notes of interest from the conference call with Apple CFO Peter Oppenheimer and vice president Tim Cook:

  • For the quarter, Apple shipped 1,070,000 Macs, or approximately 24,000 more than its December holiday quarter. This represented the highest number of Macs shipped for any quarter in four years. These figures consist of the following:
  • 467,000 iMacs, eMacs and Mac minis (combined), representing a 92% increase in revenue and a 115% increase in units, year-over-year.
  • 251,000 iBooks, a 25% increase in both revenue and units shipped from the year-ago quarter.
  • 141,000 Power Macs and Xserves (combined), a 19% decline in units and an 8% decline in revenue.
  • 211,000 PowerBook models, a 34% and 23% jump in units and revenue, respectively.
  • During the quarter Apple shipped over 5,311,000 iPod digital music players, accounting for just over $1B in revenue. This represents a 558% increase in unit shipments from the year-ago quarter, and a 284% surge in revenue.
  • The company's other music related products — iTMS, iPod services, and accessories — accounted for $216M in revenue, up 260%.
  • Peripherals and other hardware products increased in revenue by 18% to $280M.
  • Meanwhile, revenues from software also rose 28% to $239M in revenue.
  • Apple's revenues in the Americas, Europe, and Japan were up 64%, 57%, and 64%, respectively. Likewise, unit shipments for these operating segments also rose 32%, 48%, and 24%.
  • Apple's Mac sales represented 62% of its total revenue, up 27% from the year-ago quarter.
  • Apple's music-related sales accounted for 38% of its quarterly revenue, up over 280% from the year-ago quarter.
  • In February, an NPD metric rated Apple #1 in the MP3/Music player business, with a 70% share.
  • The same metric rates Apple as having 90% share of the HDD-based players, and a resounding 43% share of the flash-based player market in February, the first month the iPod shuffle was readily available. This figure is eye-catching, considering that before February Apple retained absolutely no share of the flash market.
  • For the quarter, Hewlett-Packard iPod sales accounted for only 3% of Apple's total iPod shipped. Apple said HP will continue to distribute re-branded iPods in US, noting that HP yesterday expanded its iPod offerings to include Apple's new 30GB and 60GB iPod photos.
  • In general, iPod sales to Windows users were said to have a strong impact on Apple's growth rate.
  • Apple is working on 4-6 weeks of iPod inventory, which is said to be at "normal levels."
  • Apple last week passed the 350M threshold for iTunes music downloads. According to a recent Nielsen SoundScan rating, Apple holds 70% of the digital music download market.
  • Once again, Apple said the iTunes Music Store operated at a little over break-even.
  • The quarter was Apple's strongest second quarter for education sales in five years, with a 25% rise in revenue and 21% rise in units. Higher education sales grew 43%, driven by iPod, iMac, and portable sales. K-12 growth lagged at 5%.
  • Apple's Retail segment accounted for $42M in profit on revenues of $571M. This represents a sequential increase of $10M, but a slight decline in profit from the previous quarter ($45 million).
  • With an average of 102 Stores open during the quarter, average store revenue came in at $5.6M, down slightly from $5.9M the previous quarter. However, this figure is up from $3.5M during the year-ago quarter (a 60% increase).
  • Retail stores saw a combined 13 million visitors, or 9,800 visitors per store per week.
  • Apple spent 16 million on its retail initiative during the quarter and opened two new stores.
  • In response to a question on the status of a Power Book G5, Apple VP Tim Cook said, "I still think it's the mother of all thermal challenges... I haven't changed my view on that."
  • CFO Peter Oppenheimer said increased in Mac desktop and laptop sales are indicative of the iPod "halo effect." The company claims that 40% of customers who purchased a Mac during the quarter were first-time Mac buyers.
  • Apple raised its tax rate 1 percentage point from 32% to 33% due to higher overall income and gross margins.
  • Gross margins for the quarter were higher than expected at 29.8%, above guidance of 27-28%.
  • Apple's cash increased by $600M to $7.05B.
  • The company does not see its revenue growing at recent rates for the long term, but hopes to sustain growth of 15%.
  • By end of the March quarter, Apple was on supply/demand balance with all iPod models.
  • Apple downplayed the recent and "well documented" PowerBook TrackPad issues. One Apple exec said there were some "isolated issues," but he "thinks" they have been corrected. Customers experiencing issues with their new PowerBook TrackPad should call AppleCare, he said. Oppenheimer also said that lead times for PowerBooks rose for a short time due to demand exceeding supply.
  • While Apple was unwilling to break out Mac mini sales figures from the reported iMac mix, the company said the mini has been popular with both current Mac customers, as well as Windows "switchers."
  • Apple said its "Made for iPod" logo program was the results of having over 500 iPod accessories on the market and growing. The company would not comment on royalties sought through the program, saying the terms of the licensing agreements are confidential. Apple hopes the program will improve helps tech support and allow authorized products make it to market faster.
  • Operating expenses came in at $556M, which was lower than guidence. Apple attributed this to a better commodity environment, a higher mix of direct sales, and a superior mix of products with powerbooks and accessories.
  • Apple incurred some airfreight charges during the quarter, but no more than what was planned as part of its standard logistics model. The June quarter is expected to follow the same pattern.
  • Merrill Lynch analyst Steve Milunovich asked the Apple execs if they could hint at Apple's future product plans, or if he was certain Apple was developing another product to the caliber of the iPod. Either Cook or Oppenheimer responded, "If I gave you any sense of that, I wouldn't be sitting here next conference call." The comment was followed by one of the execs saying Apple will never run out of product ideas, as it's embedded in the company's DNA.
  • Apple would not hint at any upcoming Power Mac revisions, saying only that the Power Mac line is essential to its Pro users and that Apple would continue to announce "great things" with the product line.
  • Apple's accessories sales were impressive, which the company attributed to its direct business and great products like HD displays and AirPorts. Apple executives said accessories are now a "focus area" of the company.
  • Apple shipped some Mac minis to Best Buy last quarter, which went on sale in early April. Just last week, the electronics retailer launched in its circular a feature on the Mac mini.
  • Apple said, as part of its strategy, it continues to look for other distribution channels that will help attract new customers and offer a high-quality buying experience.
  • For its outlook on the June quarter, Apple expects earnings of 28 cents per diluted share on revenue of $3.25B. Gross margins should come in at approximately 28.5%, with operating expenses rising about $35M to $600M — half of which is related to the capitalization of Mac OS X 10.4 Tiger. The tax rate for the quarter is expected to be 32%.

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