Apple offers 2004 financial details

Apple Computer Inc.'s Form 10-K is a required annual filing with the United States Securities and Exchange Commission (SEC). The document outlines Apple's financial returns for its fiscal year 2004, which ended Sep. 25, 2004, and it gives some detail about how the company did this past year, how it thinks it's doing and what's to come.

That was the year that was

All in all, Apple's revenue painted a rosy financial picture for the company this past year. For the fiscal year 2004, Apple reported US$8.279 billion in net sales, $2.062 billion more than for FY2003, and more than $2.5 billion more than 2002. Net income for the year rose to $276 million, up from $69 million for 2003 and $65 million for 2002. That translated into diluted earnings for stockholders of $0.71 per share, up dramatically from previous years -- $0.19 for 2003 and $0.18 for 2002. Shareholders' equity in Apple rose to $5.076 billion, compared to $4.223 billion for 2003 and $4.095 for 2002. Apple ended 2004 with $5.464 billion in cash, cash equivalencies and short term investments, compared to $4.566 billion for 2003.

Of the $8.279 billion in net sales reported for FY04, Apple's Macintosh line -- Power Macs, PowerBooks, iMacs, eMacs and iBooks -- brought in $4.923 billion. The iPod brought in another $1.3 billion for the company in FY04. Its iTunes Music Store and other iPod-related accessories and services brought in another $278 million. The remainder came from sales of peripherals, software and services.

iPods and other music products and services accounted for 19 percent of Apple's total net sales in FY04. Both numbers were up dramatically year-over-year -- 279 percent for the iPod and 672 percent for other music products. It's little wonder, then, that Apple has sought to expand distribution of iPods from just Apple Stores and select retailers to department stores, discount stores and other retail locations.

Key changes in Apple's business for fiscal 2004 included a 10 percent growth in net sales of Macintosh systems -- $4.923 billion for FY04 versus $4.491 billion for FY03, although Apple notes that net sales per Mac unit sold remained pretty much flat year-over-year. iBooks and PowerBooks gained the largest momentum in 2004, showing 36 percent and 30 percent year-over-year growth.

IBM takes its lumps

While Power Macs trended upward this past year as well -- Apple sold 709,000 of them in FY04, 6 percent more than it did last year -- the company also admitted that Power Mac G5 supplies have been constrained in the second half of 2005 thanks to manufacturing problems attributed to IBM, the manufacturer of the PowerPC 970 CPU used in the systems. Constrained supplies mean less revenue than Apple might have otherwise expected, as the company exited its fourth quarter and the year with a backorder of systems, and probably saw a few cancelled orders too.

Apple saw a sharp decline in demand for its iMac and eMac systems for FY04 -- sales totaled 916,000 units, 16 percent less than last year. Working against both systems for the year was an aging form factor and a reliance on older technology -- the "G4" processor. Apple has since replaced the iMac with a new G5-based model, and early reports suggest the system is in fair demand, but pointed the finger at IBM there too, stating that the chip maker's manufacturing difficulties were to blame for the delay in the iMac G5's introduction as well.

Another market trend that's beyond IBM's control also caused less movement in Apple's desktop computer sales this past year: A continued migration towards portable systems. Fifty-one percent of all Macintoshes bought in FY04 were portable systems, compared to only 42 percent during 2003. That's higher than the industry average, and a trend that Apple believes is continuing throughout the personal computer industry.

iPod a shining star

Apple said unit sales of the iPod totaled 4.4 million in FY04, up 370 percent from the previous year -- and all told, Apple has sold 5.7 million iPods since first introducing them during its fiscal year 2002. The popularity of the iPod caused Apple to diversify its product line in FY04 with the introduction of the iPod mini, and this past October with the introduction of the iPod photo and iPod U2 edition, though neither of those latter devices impact Apple's FY04 figures.

Mac OS X v10.3 also impacted Apple's revenue numbers positively -- net sales of software rose $140 million, or about 39 percent, for FY04, and Apple attributes that primarily to the operating system upgrade. Those sales accounted for about $74 million in FY04 software revenue.

Apple saw a resurgence in the education market in 2004 -- the company's net sales in the education sector grew by 19 percent for the year. Unit sales increased by 20 percent. The U.S. education market's net sales for 04 came primarily from a 40 percent boost in higher education net sales -- cash-strapped K-12 school net sales grew too, but only about 3 percent for the year.

Depending on how you look at the numbers, it can be inferred that Apple's not as big in Japan as they were in 2003, but that comes with an important caveat. The company saw a 3 percent drop in net sales and a 14 percent drop in unit sales in Japan for FY04. In an interesting twist, Apple noted that this drop may be because revenue from its own retail stores is accounted as part of a different business segment -- its Retail segment, as opposed to the Japan segment. Apple said that if you include its Japan Retail Store revenue as part of the overall returns for the Japan segment, you'll see a 3 percent year-over-year increase.

Playing with the numbers aside, Apple admits that Japan "continues to be a challenge," citing the slow uptake in localized versions of key applications like QuarkXPress 6 as partly responsible for Japan's relatively poor results compared to the company's other operating segments. Quark Inc. didn't release a Mac OS X native version of QuarkXPress in Japan until September, 2004. Apple did take credit for strong interest in PowerBook and iPod models in the country, however.

Apple's retail efforts bear more fruit

Apple's retail segment -- its own branded brick and mortar retail stores -- reported a total of $1.185 billion in net sales for the fiscal year, up 68 percent over 2003. Apple opened a total of 21 new stores for FY04, including its first two international stores -- the Tokyo and Osaka, Japan locations. It exited the year with 86 stores and plans to have 100 open by the end of the calendar year. 2005 brings with it Apple's first round of "mini" store designs, which offer customers a smaller selection of hardware and software to choose from, but can reach retail customers in locations where Apple's larger stores couldn't fit.

Apple saw annualized revenue per store of $15.6 million -- up $4.1 million from 2003. Apple's retail store profits totaled $39 million for the year -- the first year the operating segment has been in the black. In addition to the higher revenue per store, Apple attributes this to the impact of opening new stores and an increase in net sales.

This story, "Apple offers 2004 financial details" was originally published by PCWorld.

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