Apple Lays Off 74, Unit Sales Up, Reported Profits Threatened

| Apple Stock Watch

Appleis 10-Q SEC filing for the fiscal 3rd quarter of 2004 was released today. The 10-Q filing offers the most comprehensive look at Appleis financial and operational health available to the public. Included in the filing is the news that Apple laid off 74 employees during the quarter, saw the best Mac unit sales in 3.5 years, and would have seen significantly lower reported profits had the company expensed stock options for its employees.

Restructuring and layoffs

Apple took a charge of US$0.7 million for staff reductions during the quarter as the company laid off 74 people in "non-essential sales and marketing positions primarily in the Americas segment." The charge also included costs of laying off 9 people at the end of the prior quarter.

During the past several years, Apple has been steadily reducing headcount in its corporate operations, while increasing its retail headcount, with the total headcount remaining steady.

Apple also reported US$7.2 million in other restructuring charges during the quarter. Most of the charges are directly related to the already announced closure of its former Sacramento, CA manufacturing operations. The charges include US$1.9 in severance costs for Apple employees, and another US$5.3 million for writing off manufacturing assets. The company expects to save US$2 million every quarter from closing the plant.

Unit sales up

Apple noted in the filing that the sale of some 876,000 Macs during the quarter marked the biggest quarterly Mac sales in 3.5 years. Mac sales were up 14% year over year during the quarter, and Apple noted that net sales per Mac unit sold increased 2% for the quarter, as well as for the first 9 months of Appleis fiscal year.

Most of the increase came as Apple saw sales continue to shift towards higher-priced Mac portables and Power Mac G5s, and away from the iMac, this despite lower prices in both Power Macs and PowerBooks. Apple also noted that a larger percentage of direct sales from its Web site and brick and mortar stores contributed to the increase in price per units sales.

Other sales information:

  • Appleis retail sales grew 86% year over year to US$270 million. Apple attributed the sales increase to the number of stores open from 59 to 80, and a 30% increase in revenue per store.
  • Net sales for peripherals and other hardware rose 30% year over year. The company attributed the increase to higher sales of displays and "other accessories," which includes AirPort cards and base stations, iSight video cameras, and third party products available through Appleis retail and Web stores.
  • Software sales rose US$23 million year over year, primarily attributed to brisk sales of Panther.
  • As reported in July, Apple has had to delay introduction of a G5 iMac.

For more sales information, read TMOis coverage of Appleis quarterly conference call, which was held in July.

Expenses ahead

With the debate over whether corporations should be required to expense options still raging, Apple made the point of noting that its quarterly profits of 26 cents per share would have been reduced to 9 cents a share under proposed rules.

Part of the point of the 10-Q filing is to warn shareholders and potential shareholders of problems that might lie ahead. Appleis corporate stance on expensing options has been that the company was waiting for finalized rules governing expensing options to be approved.

Appleis own shareholders approved a proposal that "requested" Appleis management begin expensing its options during its annual shareholder meeting this past April.

At the time, Apple said, "The Board and management appreciate and take seriously the views expressed by the Companyis shareholders. The Company decided not to expense the value of employee stock options until the FASB finalizes its new accounting standard on the matter, which will play a significant role in determining the fair value of and accounting for employee stock options."

Other important points

  • Apple increased R&D spending yet again to US$125 million during the quarter. This represents a smaller percentage of Appleis total revenue -- 6.2%, down from 7.8% -- due to increases in that revenue. The increase in spending represents a 4% increase over the 120 million Apple spent in the July quarter of 2003.
  • Apple earned US$15 million in interest on its investments, which was partially offset by US$3 million in "other expenses" relating to its investments.
  • Appleis cash holdings increased to US$4.97 billion.

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