Apple Execs: Mac Sales Improving; iPod Sales Must Fall in Q2

Following results of a $295 million fiscal first quarter profit, Apple Computer executives told analysts Wednesday Mac-based sales and revenue did "better than expected" in the Christmas fiscal first quarter and iPod sales were up so high, they all but have to go down in the current quarter.

Among highlights of the call were these...

Mac unit shipments increased 26% in the quarter compared to a year ago, according to Peter Oppenheimer, Appleis Senior Vice President and Chief Financial Officer, "representing two times the most recently forecasted market rate of growth."

  • Mr. Oppenheimer said that after such a strong 2004 Christmas season, he expects iPod sales to go down at least buy double digits. He gave examples of how digital cameras and PC sales have come down some 50% after previous Christmas quarters, but would not predict by how much he thinks iPod sales will fall in the current quarter.
  • Mr. Oppenheimer said revenue music-based revenue grew 358% compared to a year ago. The company shipped 4,580,000 iPods in the previous quarter, surpassing the total number sold in all of 2004.
  • Apple retail stores had $561 million in revenue in the quarter, the company said, averaging $5.91 million for each of its 65 stores, worldwide. Retail stores had $45 million in profit.10.7 million people visited the stores, total in the quarter, translating 8.7 thousand visitors, per store, per week.
  • Mr. Oppenheimer said Apple plans to end fiscal 2005 with 125 retail stores, worldwide.
  • U.S. education unit sales grew 11% in the quarter, while revenue grew 20%, year-to-year.
  • Gross margins for the quarter were 28.5%, mainly because of "a more favorable commodity environment," Mr. Oppenheimer commented.
  • Mr. Oppenheimer said he is projecting fiscal Q2 revenue at $2.9 billion, and diluted earnings per share of "about 40 cents," he said. Apple expects gross margins to be about 27.25%.
  • What will profit margins be on the new Mac Shuffle and Mac mini? Mr. Oppenheimer said under 20% and around 25%, respectively.
  • Mr. Cook was asked if Apple will form new mass retail partnerships in the U.S. with retailers like Best Buy or Circuit City to sell the Mac mini. Mr. Cook refused to discuss the issue, but from his comments, didnit rule out the possibility in the future.
  • Mr. Oppenheimer said the iTunes Music Store operates at "just over break even." He said the cost structure within the music store is "very, very high" and that the objective is not to sell music as much as sell iPods that the music will play on.
  • Mr. Cook said Apple has had "dramatic improvements" in making sure there are no supply constraints of iPod products, as it went from selling 2 million units in the fourth quarter to 4.58 million in the first quarter. He wouldnit predict the future, but said "we will do whatever we view as necessary to get a supply at the level we desire."
  • Apple will air freight the new Mac mini shipments from Asia for an undetermined period, Mr. Cook said. He also acknowledged G4 iMacs will continue to be shipped via expensive air freight until at least the end of the second quarter.
  • Mr. Cook said that at the low-end of the Power Mac family, "a large percentage" of those customers bought the G5 iMac in the fourth quarter. He did not give a specific percentage.
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