Apple CFO talks about financials; the road ahead

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This afternoon Apple Chief Financial Officer Fred Anderson held a press conference to discuss Apple's financial results for its fiscal 2003 first quarter that ended December 28. He said that iMac, iBook and PowerBook sales were solid, but that the Power Mac pro lineup remained the weak point in the company's lineup. He also gave some indications as to what the company expects in the months ahead.

The company lost US$8 million, but sales and revenues were actually up. During the quarter Apple sold 298,000 consumer desktops, including 134,000 flat-panel iMacs, 106,000 eMacs, with the remainder being the older G3 iMacs. iBook sales were stimulated by the November revamping of the consumer laptop, including the $999 model. The iBooks accounted for one-third of Apple's computer sales in the education market.

PowerBook sales surged after the introduction of the 1GHz, SuperDrive pro laptop and accompanying price cuts, also in November. Over 100,000 PowerBooks were sold (the 12-inch and 17-inch models introduced last week didn't figure into the equation.)

"People like the strong value of the PowerBook announced last quarter," Anderson said. "That drove sell-through and revenue for the pro laptop line."

However, sales of Power Macs are down 25 percent from the year-ago quarter with only 158,000 systems being sold. Anderson blamed the poor sales on the tough economy and the lack of a Mac OS X version of QuarkXPress.

"We acknowledge that one of our biggest challenges is to get Power Mac sales back up to 200,000 units per quarter at least," Anderson said. "The management is very focused on the situation and have a number of plans going forward to enhance performance in the Power Mac area. We truly believe there's some pent-up demand among creative professionals. We think that the typical 24-36 month upgrade cycle has been elongated by the difficult economy."

As for Apple's rackmount server, the XServe, the company sold approximately 6,000 units during the quarter. Anderson said that Apple was pleased with the "initial start" of their server line and would be introducing their RAID storage product early this calendar year.

The iPod also remains very popular, with 216,000 units sold last quarter, with just over half of those sold to Windows users. The introduction of iPods at Best Buy stores helped spur sales, Anderson said. He also thinks Apple's retail efforts with CompUSA and its own stores are showing excellent results.

Anderson said that approximately 3.5 million people visited Apple retail stores in December; that's 600,000 visitors per week. And 50 percent of customers who bought computers didn't own Macs, up from 40 percent the previous quarter, according to Anderson. More good news comes from the 170 CompUSA stores that have Apple-badged employees on hand: they saw a 42 percent increase in Apple sales.

"We view our retail initiative as a key strategy," Anderson said. "It's key to growing our market share and driving the growth of the company. As long as we can open new stores that at least break even and help drive incremental growth with 'switchers,' we think that's the smart thing to do. We're taking our retail strategy a phase, a step, a year at a time."

Overall revenue was up 16 percent in the US, but down 3 percent in Europe and 24 percent in the Asia Pacific region. Anderson blamed dipping sales in Japan on that country's weak economy. Apple is anticipating that the revamped PowerBook line will spur sales in Japan, where laptops are very popular. The company also expects to see positive results from their move in placing approximately 70 Apple employees in the country's 60 highest volume resellers.

In the US, not counting education, revenues were up 21 percent year over year. And the school market doesn't look promising for 2003.

"We continue to remain cautious about the education market, particularly given the funding constraints in states such as California," Anderson said. "California is faced with looming budget deficits and it looks as if education will see cuts. The situation is the same in other states, too."

Despite this, Anderson is predicting a slight profit next quarter and better days ahead as Apple continues to invest heavily (about $500 million annually) in research and development. Apple will continue to keep investing in innovation through the economic downturn to keep their products ahead of the competition and "be ready for significant growth after the economy turns around," said Anderson.

"We're not going to mortgage our future for short term profit maximization," he added. "We feel we have the strongest lineup of products we've had in a long time, and we have an incredibly strong pipeline of future products coming. We want to be in a position where we've laid the foundation to gain market share as we come out of this economic downturn. We're committed to growing our business."

This story, "Apple CFO talks about financials; the road ahead" was originally published by PCWorld.

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