Q4 2005 Ends Apple's Best Year Ever

Apple reported healthy growth for the quarter ending in September, and all of 2005. During the Tuesday afternoon financial conference call, Peter Oppenheimer, Senior Vice President and Chief Financial Officer, commented "We are extremely proud to have just completed the best year in Appleis history."

During fiscal 2005, Apple generated almost US$14 billion in revenue, more than doubling revenue in the last two years, and pushing annual profit up over $1.3 billion. Sales for the quarter were $3.68 billion, up 50 percent from last year, with a net income of $430 million, up 306 percent from last year.

Focus on Macintosh

Mac sales for the quarter were very robust, generating 50 percent of the total revenue, up 28 percent from the same quarter last year. Apple shipped 602,000 PowerMacs and iMacs, and 634,000 iBooks and PowerBooks. Total Macs shipped for the year hit 4.5 million, up 38 percent. Channel inventories of Macs dropped lower than the expected four to five weeks because sales exceeded expectations.

"We were in the three-to-four [week] range and the reason for this is that the Mac sell-through exceeded our expectation," said Tim Cook, Senior Vice President of Operations. "What I would repeat is that Mac sell-through exceeded our expectations, and we are working very hard to get the inventory back up to a level that we want it to be."

Despite strong Mac sales, demand was actually down over the year. Apple attributed the decline to the fact that the Mac mini wasnit shipping at this time last year. Overall, desktop sales were up 56 percent this past year.

Mac OS X 10.4 (Tiger) continues to be the best selling operating system in Appleis history, and was in the mid $35 million range for the quarter.

Focus on Music

Appleis music business generated 40 percent of the quarterly revenue, up 133 percent from last year. iPod sales increased for the tenth straight quarter to 6.45 million units. Oppenheimer stated "According to the latest data available from NPD Tech World, iPods accounted for 75 percent of MP3 players sold during the U.S. during the month of August."

Apple shipped 22.5 million iPods for the year, up 409 percent from last year. iPod nano sales topped 1 million units in the first 17 days, and Apple is having a hard time keeping up with demand. Unfortunately, Apple isnit sure when component availability will catch up with manufacturing demand.

Over 1000 third-party iPod accessories are currently available, and Apple also expects that 30 percent of the new cars sold in 2006 will include iPod connectivity kits.

The iTunes Music Store, operating in 20 countries, represents over 85 percent of the global music market, and sells 1.8 million songs per day. Appleis domination in the digital music arena helped the iTunes Music Store show a profit last quarter, and Apple believes it is helping to drive up iPod sales.

Looking Forward

Although we wonit know what products Apple has in store for us until tomorrow, analysts are speculating that quarter 1, 2006 will be strong. Apple hinted today at new iPods and Mac products, both of which are likely to help the bottom line.

Even with the positive numbers Apple showed today, its stock price dropped. In after hours trading, it is trading at 46.60, down 4.99 (9.67%).

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