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Fred Anderson Speaks: Education & Consumer Market Share Gains, More Government Sales, & Much

Fred Anderson Speaks: Education & Consumer Market Share Gains, More Government Sales, & Much More

by , 4:15 PM EDT, September 3rd, 2003

Fred Anderson spoke today at the 2003 Technology Conference, hosted by Citigroup and Smith Barney. The audience was comprised of analysts, and the presentation was Webcast through Veracast in order to comply with SEC regulations regarding disclosure of information to investors. During the presentation, Mr. Anderson covered a variety of issues, including new information not previously available.

When covering the many products Apple has released in recent months, Mr. Anderson revealed that Safari has been downloaded some 5 million times. Safari is Apple's Mac-only browser based on several open standards, and the open source KHTML rendering engine. Safari was released as a public beta in January of 2003.

During the June quarter, Apple sold 304,000 iPods, which contributed US$111 million in revenue to the company. Mr. Anderson reiterated a commitment to releasing iTunes for Windows, including the iTunes Music Store (iTMS), by the end of the calendar year. Steve Jobs announced during the April unveiling of the iTMS that the company would release the iTMS for Windows by the end of 2003, but since that time, several competitors have unveiled somewhat similar services for the Windows market. This has lead to calls from some for Apple to hurry up and release the Windows version. Just today, BusinessWeek published an editorial saying that Apple would be best served by releasing the Windows version ASAP, but Mr. Anderson reiterated the original time from of "by the end of this year."

Also relating to the iPod, Mr. Anderson said during a later question and answer breakout session at today's 2003 Technology Conference that "Best Buy is doing a great job" selling iPods. Mr. Anderson deferred comment on how well the Best Buy pilot program to resume selling Macs is going.

Mr. Anderson also said that Apple would be opening seven more Apple retail locations by Thanksgiving of this year (November 27th). Thanksgiving begins the holiday buying season in the US, and the seven new stores would bring to 70 the total number of brick and mortar stores. During the breakout session, Mr. Anderson said that Apple will not open as many stores as Gateway has with its Gateway Country Stores. Gateway currently has 170 retail locations.

In December of 2002, Apple announced that there were some 85 million US residents living within 15 miles of an Apple retail location. That was when the company had 13 fewer locations open than it does today. Mr. Anderson said that though Apple has not commissioned another survey to determine local populations, that there was now a "significant number of the American population" living near those stores, suggesting that it much higher than last year's 85 million people.

Interesting, perhaps, to Apple's retail partners was the revelation that Apple was committed to "controlling more and more of the point of sale." As evidence of that, Mr. Anderson pointed to the 300 third party stores around the world that currently have an Apple paid and trained employee working Apple's products. Mr. Anderson said there were 170 such stores in the US, 40 in Europe, and 90 in Japan. He also said that those stores with Apple employees have shown substantial growth since the company placed the employees in the stores. In the past, Apple has faced difficulties getting their products properly represented in third party retailers (not counting Apple's fleet of VARs), which is what this program is intended to rectify.

Wrapping up the look at retail operations, Mr. Anderson said that Apple has seen significant gains in consumer market share. In Apple's own retail locations, Mr. Anderson iterated the figure he gave during the June quarter's conference call that 50% of Mac system buyers were new to the Mac platform. At the time, he said that Apple called all customers new to the platform "Switchers." As a whole, he said that Apple's share of the consumer market had risen to 3.5% in the June quarter, up from 1.5% in the June quarter of 2001.

Apple also gained market share during the last quarter in the education space, an area where Apple has given up market share during the last several years. Mr. Anderson said that the company's share of the education market rose to 16% during the June quarter, up from 15% the prior quarter.

More importantly, from Apple's standpoint, the company claimed some 30% of the portable segment of the education market, up from 24% the prior year. Looking forward, Mr. Anderson says that projections say that desktop systems sales to education will be flat through 2007, with the portable market rising throughout the same period. According to the CFO, this gives the company an edge going forward, and is why Apple has focused more strongly in selling portables to schools. Specifically, Apple expects to see more efforts to get a portable to every student in many school districts, and he called Apple a "first mover" in such efforts.

In the breakout session, Mr. Anderson touched on this in more detail. While the statewide placement of iBooks for 7th and 8th graders throughout Maine, and the Henrico County, Virginia school district deal were big news, Mr. Anderson says that Apple has signed more than 100 smaller one-to-one deals in other systems that the company will not publicize. He also said that there are other major systems with whom Apple is negotiating, intimating that some may be state-wide deals. He refused requests for more specifics on such possible deals.

Looking ahead, Mr. Anderson said that preliminary results suggested that test scores in Maine and Henrico County Virginia had improved with those students who had laptops, which Apple hopes will help the company sell more portables in the future.

In Apple's other markets, Mr. Anderson said that there were signs the creative markets, Apple stronghold, had finally reached a bottom, and were beginning to rebound. Mr. Anderson cited surveys that said customers in those markets who were looking to buy new computers in the next year were 75%-90% likely to buy new Macs. If so, that would represent market share gains for Apple in that space. This was across six major market segments, including DV editing, graphic design, advertising, and two different publishing markets. The health of the creative markets is of huge importance to Apple as it buys the company's professional offerings, which have higher price tags, and bigger margins. Mr. Anderson also cited the addition of the Power Mac G5 to Apple's lineup, and a Mac OS X-native version of QuarkXPress as major factors contributing to growth for Apple in this space.

Apple is also looking for growth in small businesses. Mr. Anderson ticked off several aspects of the Mac platform that made the Mac the right platform for those businesses with 1-25 employees. He said that Macs were not prone to viruses that affect Windows users, offered little to no training costs, have the iApps, FileMaker Pro, MS Office, QuickBooks, AirPort Extreme, and that Mac OS X was based on industry standard networking protocols. He did not offer specifics on how Apple would get this information out to customers.

At the same time, Fred Anderson said that Apple's lower Total Cost of Ownership (TOC) made the Mac ideal for the Enterprise market. He said that Enterprise and government IT shops were used to Unix, and that there was a lot of brand new interest in Apple in this space. He said specifically that Apple's government sales had risen 50% during each of the last two quarters.

Lastly, Fred Anderson was asked about Steve Jobs' compensation, and the reports that said he was the highest paid CEO from 2000-2002. Mr. Anderson defended the CEO's compensation, pointing out that Mr. Jobs' total cash compensation has been US$1 per year. He also suggested that looking at compensation for 2000-2002 conveniently overlooked earlier years when Mr. Jobs received no compensation, saying that many of the articles critical of this compensation "talk about factors that don't pertain."

The Vercast Web site says that the two sessions (Main, Breakout) will be available as on-demand archives "shortly."

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