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Haven’t ruled out possibility of moving iPod to Windows, but it’s Mac today and Mac only. Third party efforts like MediaFour don’t have anything to do with Apple.
Conversion rate on retail stores lower than destination locations like Comp USA because there are more casual shoppers, since the stores are located in high traffic locations (malls) where people may not be instantly prepared to buy a computer.
Pro market has been negatively impacted by Mac OS X transition and according lack of “pro” tools like Photoshop. Apple expects by spring to see Pro market bounce back after apps like Photoshop are released for OS X.
Response to the new iMac has been very good in education.
CRT iMacs are “in there today” to answer sub-$1000 market. Apple recognizes need to continue to offer product that would cover that price point. CRT is necessary because flat panels can’t hit that mark; can’t predict if or when it’ll happen.
About 1 million copies of OS X sold since beta, 2 million systems shipped. Won’t project regarding future adoption.
Believes majority of 40 percent that bought a new Mac for the first time at the stores are Windows-switchers.
Below 25 percent of Power Mac line is going to consumers. Traffic to stores has been incredibly strong — stores are raring to have a better revenue quarter than last quarter.
Risk of iMac “cannibalizing” Pro line: Each system still has significant architectural differences; dual processor option, level 3 cache, expandability, more memory capacity, etc. “When you put all that together, it’s pretty significant.” Says there’s a chance that some pros might opt for iMac, but thinks that pros will stick with Power Macs.
19 of 27 stores open during quarter, not running at full efficiency. Average annualized per store revenue would at about $10 million.
Memory and flat panel prices have gone up, but are steady right now. Other than that, component costs are flat/down compared with previous quarters.
Education could be a continuing factor throughout the year, but Apple has considered that in its guidance. It’s entirely possible that education revenue could be flat to down slightly. Primary risk to quarter is the ramp of the new iMac. Such changes always invoke risk. Anderson doesn’t see it as component-driven, just as a possible unknown.
Anderson, on new stores in ’02: Clearly Apple will open a number of stores. Not prepared to give a target number, maybe in next few months they will. Oppenheimer: Very pleased with Comp USA Apple employee initiative. Continues to look to expand the program in Europe, as well. Improved both ASPs and growth margins because of beyond the box sales.
Peter Oppenheimer: International demand for quarter mix did not change much year over year, demand particularly strong in Europe.
Gross margins on new iMac on March quarter will be lower than on the old iMac. It’s Apple’s goal to strive towards getting new iMac’s gross margins equivalent to old, but “we’ve really aggressively priced” the new iMac, so doesn’t promise that company’s margin will be the same. “First order bit” is to drive iMac sales growth back to what it was a couple of years ago.
Economics of retail store: Apple believes with no other change than maturity of all stores opening that financial performance will improve in future quarter. Pre-opening store costs absorbed last quarter. As Apple opens more stores, that cost diffuses. Ron Johnson is strengthening the sales and service culture of the stores. Last quarter was also impacted by “aging iMac” and expects this quarter to be stronger. “I’m not even factoring in the economy,” said Anderson.
Responding to analysts: One time incremental costs related to air freighting iMacs to catch up with big customer backlog. Production inefficiencies also affect margins — new iMac is a big issue there. Continuing to make progress in education market, but lag effect is present in education funding due to economic pressures. Apple saw some “big deals” push out into this quarter. Not concerned about it, but cautioned that education deferrals are issues.
Emphasizes that March quarter will be about product transition. Remains optimistic for second half FY02 growth. #1: iMacs should trigger upgrades, robust pipeline of new products yet to come. #2: Mac OS X transition is gaining momentum too. #3: Most important pro apps should be available by spring. #4: Vision of “digital lifestyle” is beginning to take hold. #5: iPod very successful, #6: Retail stores will continue attract “the other 95 percent”
Apple’s balance sheet remains strong: $4.4 billion in cash and short term investments. Outlook: Expects revenue to be up sequentially in March quarter, earnings per share flat due to lower gross margins. Aggressive pricing on incremental temporary production costs (like freight, memory, flat panels), should result in a significant sequential decline gross margin.
30 percent gross margins. Operating expenses up due to increased promotions and retail initiative. $24 million expenses related to reductions in staff.
Apple’s retail stores “gain traction:” 27 new stores. $48 million in retail store revenue for the quarter. Overall pleased with retail strategy – 40 percent of new CPU customers in stores did not own a Mac before. Achieved twice display connect rate compared with previous efforts. 98 percent of customers would recommend to a friend.
Power Mac G4 sales slower than expected — blames economy.
Highest number of orders for iMac since the iMac first shipped in 1998. Doesn’t expect to be able to feed demand for the new configuration for quarter. Reiterated plans to keep CRT-based iMacs around to hit sub-$1000 price.
Portables – 40 percent of quarterly sales. PowerBook sales up because of new price point and Combo drives. 600,000 iBooks sold since last May. 700,000 of previous form factor sold over whole life cycle. Expects momentum to continue because of revised prices on iBooks as introduced last week, and new 14 inch iBook.
Anderson talked about deal with state of Maine about wireless computing initiative.
CFO Fred Anderson: 746,000 cpus were shipped. US$1.38 billion in revenue. Revenues below expectations because of iMac; old form factor and speculation were problems. Educational institutions concerned about funding also impacted.
Director of Investor Relations, Nancy Paxton opened call. Directed listeners to check Apple’s Web site for more info.
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