Not surprisingly, the star of Apple’s better than expected financial quarter was the new flat panel iMac. This despite heavy demand and rising component prices that chewed into profits.
“The highlight of the quarter was the introduction of the new iMac,” Apple Chief Financial Officer Fred Anderson said. “It generated rave reviews and tremendous customer demand. We exited the quarter with a significant backlog of orders, but we expect to meet the current orders this quarter.”
Apple hopes to alleviate the backlog by May. However, shipping the vast amounts of units (220,000) it has this quarter hasn’t been easy.
At one point the company’s manufacturing plants were cranking out 9,000 to 10,000 iMacs per day, far ahead of Apple CEO Steve Jobs’ Macworld Tokyo forecast of making 5,000 units per day. However, maintaining this level of production isn’t feasible, Anderson said.
“In a 90-day quarter, making 5,000 per day would be a total of 450,000 units,” he said. “We can’t maintain that.”
However, Apple is hoping to maintain the current pricing structure, after adding US$100 per unit to the originally announced iMac prices.
The prices of flat panels soared and the cost of DRAM tripled. However, both components seem to have stabilized, Anderson said. The company is expecting flat panel prices to remain stable, or at least not jump more than $10 per unit, over the next several months. Memory prices have also stabilized, even dipping a bit.
“Going forward, we think that memory pricing peaked in quarter two at levels three times their lowest rate in quarter one,” Anderson said. “Looking at quarter three, we see moderate price decreases in April, then feel they’ll continue to be flat. Flat panel prices throughout the third quarter should be up very slightly.”
Also cutting into Apple’s profits was the fact that the company had to bite the bullet on component increases for iMacs ordered at the original prices. And the company has been air freighting them to customers to fulfill demand. Anderson expects the freighting costs to decline throughout the coming months as iMac supply catches up with demand.
But even with the price hike, there’s been no fallout in iMac sales, the CFO added. He’s hoping the company’s gross margins will be better for the September quarter, when Apple should see the “full benefit” of the higher price tag and stabilized component costs. The company is also working on ways to keep prices low, such as changing the manufacturing process of certain sub-assemblies and switching geographical locations for some component production.
Meanwhile, sales of the new iMac stay strong throughout world. And don’t snub your nose at the original CRT iMac model just yet. Approximately 152,000 of those shipped last quarter.