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0000320193
20030812
10-Q
356
Peripheral Products Update iSight™ The Company introduced the iSight digital video camera and the beta version of its iChat™ AV software application in June 2003.
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10-Q
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Together they enable high-quality audio and video conferences between two Macintosh systems over broadband connections.
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10-Q
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iSight is a small, portable aluminum alloy camera with all audio, video and power provided by a single FireWire cable.
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10-Q
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iSight features a custom designed lens with auto-focus and a high-end CCD sensor to provide high-resolution images and full-motion video at up to 30 frames per second.
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10-Q
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iSight includes an integrated microphone that suppresses ambient noise for clear digital audio.
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10-Q
361
With its on-board processor, iSight automatically adjusts color, white balance, sharpness and contrast to provide high-quality images with accurate color reproduction in any lighting conditions.
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20030812
10-Q
362
iSight is designed to be center-mounted on the top of any computer screen and uses its integrated tilt and rotate mechanism to easily position the camera for natural, face-to-face video conferencing.
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20030812
10-Q
363
AirPort® Extreme™ AirPort Extreme is the Company’s next generation of Wi-Fi wireless networking technology based on the new ultra-fast 802.11g standard.
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20030812
10-Q
364
With speeds up to 54 Mbps, AirPort Extreme delivers almost five times the data rate of today’s 802.11b based products, yet is fully compatible with the millions of 802.11b Wi-Fi devices around the world.
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20030812
10-Q
365
AirPort Extreme Base Stations can serve up to 50 Macintosh and Windows users simultaneously, provide wireless bridging to extend the range beyond just one base station, and support USB printer sharing to allow multiple users to wirelessly share USB printers connected directly to the base station.
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10-Q
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AirPort Extreme was introduced in January 2003.
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10-Q
367
Displays In January 2003, the Company introduced the 20-inch Apple Cinema Display® and instituted significant price reductions on its 23-inch Cinema HD Display and its 17-inch Apple Studio Display®.
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10-Q
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The new 20-inch Apple Cinema Display features an active-matrix, liquid crystal display that incorporates a digital interface.
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20030812
10-Q
369
Software Products and Computer Technologies Update Mac OS® X Panther In June 2003, the Company announced Mac OS X version 10.3 “Panther,” the next major version of Mac OS X that is expected to ship by the end of calendar 2003.
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20030812
10-Q
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The fourth major release of Mac OS X in four years, Panther will incorporate many new features including a completely new Finder™; Exposé, a new way to organize windows and instantly see all open windows at once; FileVault, a new feature that secures the contents of a home directory with 128-bit AES encryption; and enh...
0001104659-03-017766/full-submission.txt
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20030812
10-Q
371
Additional new features in Panther include: • an enhanced Mail application that organizes email into convenient threads with drag-and-drop addressing and a Safari™-based engine for displaying HTML formatted email; • Fast User Switching, allowing users to share a single Mac and quickly switch between accounts without ha...
0001104659-03-017766/full-submission.txt
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20030812
10-Q
372
Preview leverages powerful improvements to Quartz filtering technology such as colorspace conversion, image sampling and compression for advanced PDF workflows; and • iChat™ AV, a desktop video conferencing solution for business, education and consumers.
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20030812
10-Q
373
Mac OS® X Panther Server In June 2003, the Company previewed Mac® OS X version 10.3 “Panther” Server, the next major release of the Company’s UNIX-based server operating system that makes it easy to deploy popular open source solutions for Macintosh, Windows and Linux clients.
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10-Q
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Panther Server includes powerful open source solutions and easy to use server management capabilities.
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10-Q
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New features in Panther Server include Automatic Setup for easily setting up multiple servers; Open Directory 2 for hosting scalable LDAP directory and Kerberos authentication services; Samba 3 for providing login and home directory support for Windows clients; and the JBoss application server for running powerful J2EE...
0001104659-03-017766/full-submission.txt
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20030812
10-Q
376
iChat™ AV The Company introduced the beta version of its iChat™ AV software application and the iSight™ digital video camera in June 2003.
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10-Q
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Together they enable high-quality audio and video conferences between two Macintosh systems over broadband connections.
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10-Q
378
iChat AV also features audio conferences over dial-up connections to the Internet.
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10-Q
379
iChat AV requires no set up or configuration beyond installing the software and plugging in a FireWire® video camera and microphone.
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0000320193
20030812
10-Q
380
Soundtrack The Company announced Soundtrack in July 2003.
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10-Q
381
Soundtrack, which is expected to be available in August 2003, is a royalty-free music production tool previously available only with Final Cut Pro® 4.
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20030812
10-Q
382
Soundtrack includes more than 4,000 royalty-free, professionally-recorded audio loops and sound effects, giving creative professionals such as video editors, DVD authors and web developers a powerful and easy-to-use tool to create high-quality music scores.
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20030812
10-Q
383
Soundtrack also ships with over 30 professional, high-quality audio plug-ins.
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10-Q
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Plug-ins like Platinum Verb, SpectralGate, Multiband Compressor and AutoFilter, enable users to combine effects with individual tracks to create sophisticated audio.
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10-Q
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Furthermore, Soundtrack’s support for Mac® OS X’s Audio Units plug-in architecture allows users to further expand their capabilities with additional third-party audio effects developed through the Company’s open-standard plug-in format.
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20030812
10-Q
386
Final Cut Pro® 4 Final Cut Pro 4, a major upgrade to the Company’s professional editing software for film and video, was announced in April 2003 and released in June 2003.
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20030812
10-Q
387
Final Cut Pro 4 software introduces RT Extreme for real-time compositing and effects, new interface customization tools, new high-quality 8- and 10-bit uncompressed formats, and full 32-bit floating point per channel video processing.
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10-Q
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Final Cut Pro 4 also includes three completely new integrated applications - Live Type for advanced titling, Soundtrack for music creation, and Compressor for full featured batch transcoding.
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20030812
10-Q
389
Safari™ 1.0 In June 2003, the Company introduced Safari™ 1.0, the Company’s new Mac OS® X compatible web browser that is capable of loading web pages rapidly.
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0000320193
20030812
10-Q
390
Safari uses the advanced interface technologies underlying Mac OS X and includes built-in Google search; SnapBack to instantly return to search results; a new way to name, organize and present bookmarks; tabbed browsing; and automatic “pop-up” ad blocking.
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20030812
10-Q
391
The Company also released a software development kit that allows developers to embed the Safari HTML rendering engine directly into their applications.
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20030812
10-Q
392
DVD Studio Pro® 2 The Company announced DVD Studio Pro 2 in April 2003.
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10-Q
393
It is a completely new DVD authoring product, rebuilt from the ground up with a new user interface, professionally designed and fully customizable templates, an innovative new menu editor, timeline-based track editing and a new software-based MPEG-2 encoder.
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20030812
10-Q
394
Shake® 3 Shake 3, an upgrade of the Company’s compositing and visual effects software, was announced in April 2003 and released in June 2003.
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20030812
10-Q
395
Shake 3 includes new Mac® OS X only features such as the Shake Qmaster network render management software and unlimited network rendering licenses which allow visual effects artists to easily distribute rendering tasks across a cluster of Apple’s Xserve rack servers or desktop Power Mac G4 computers for enhanced perfor...
0001104659-03-017766/full-submission.txt
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20030812
10-Q
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Shake 3 also includes new visual effects features available to Mac OS X, Linux and IRIX customers including motion-tracking and real-time broadcast preview.
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0000320193
20030812
10-Q
397
Final Cut® Express Final Cut Express, introduced in January 2003, is a new product based on Apple’s award-winning Final Cut Pro software.
0001104659-03-017766/full-submission.txt
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20030812
10-Q
398
Final Cut Express enables small business users, educators, students and advanced hobbyists to perform professional-quality digital video editing.
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0000320193
20030812
10-Q
399
Final Cut Express includes key features used by video editors such as the same interface and workflow as Final Cut Pro, powerful video editing tools, hundreds of special effects, and easy delivery of output to DVD, the Internet, or tape.
0001104659-03-017766/full-submission.txt
0000320193
20030812
10-Q
400
Keynote™ Keynote is the Company’s new presentation software introduced in January 2003 that gives users the ability to create high-quality presentations.
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0000320193
20030812
10-Q
401
Designed to be easy to use, Keynote includes professionally designed themes, advanced typography, professional-quality image resizing, animated charts and tables that can be created quickly, and cinematic-quality transitions.
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0000320193
20030812
10-Q
402
Keynote imports and exports PowerPoint, QuickTime®, and PDF files to simplify the creation and sharing of presentations.
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0000320193
20030812
10-Q
403
iLife™ Introduced in January 2003, iLife is the Company’s integrated suite of four digital lifestyle applications that features the Company’s iTunes®, iPhoto™, iMovie™, and iDVD™ software applications.
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20030812
10-Q
404
These applications are integrated to allow users to easily access their digital music, photos and movies from within each application.
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0000320193
20030812
10-Q
405
Business Outlook For the fourth quarter of 2003, the Company expects a high single-digit percentage increase in net sales from the third quarter and a slight sequential increase in quarterly earnings.
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0000320193
20030812
10-Q
406
The Company expects fourth quarter gross margin to be approximately 100 basis points lower than the third quarter due to lower Mac OS sales and increased manufacturing costs associated with the production ramp-up of new Power Mac G5 systems.
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0000320193
20030812
10-Q
407
Fourth quarter reported operating expenses are expected to be approximately $420 million.
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20030812
10-Q
408
This excludes approximately $10 million of software development costs related to development of Mac OS X Panther that the Company anticipates capitalizing during the fourth quarter.
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20030812
10-Q
409
The Company expects fourth quarter interest and other income, net to decline to approximately $10 million due to lower interest yields on the Company’s investment portfolio.
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0000320193
20030812
10-Q
410
The Company’s expects its effective tax rate to remain at 28% during the fourth quarter.
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0000320193
20030812
10-Q
411
The foregoing statements concerning the Company’s fourth quarter 2003 anticipated net sales, gross margin, operating expenses, interest and other income, net, effective tax rate, earnings, capitalized software development costs, Mac OS sales, and production ramp expenses are forward-looking.
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0000320193
20030812
10-Q
412
The Company’s actual results could differ.
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0000320193
20030812
10-Q
413
The Company’s future operating results and financial condition are dependent upon general economic conditions, market conditions within the PC industry, and the Company’s ability to successfully develop, manufacture, and market technologically innovative products in order to meet the dynamic conditions within the highl...
0001104659-03-017766/full-submission.txt
0000320193
20030812
10-Q
414
Some of the potential risks and uncertainties that could affect the Company’s future operating results and financial condition are discussed throughout this Item 2, including the discussion under the heading below “Factors That May Affect Future Results and Financial Condition,” and in the 2002 Form 10-K. Net Sales Net...
0001104659-03-017766/full-submission.txt
0000320193
20030812
10-Q
415
Certain net sales in 2002 fiscal periods related to recent acquisitions and Internet services have been reclassified from Other Segments net sales to Americas segment net sales to conform to the 2003 presentation.
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10-Q
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(b) Power Macintosh figures include server sales.
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10-Q
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(c) Net sales of peripherals and other hardware include sales of iPod, Apple-branded and third-party displays, and other hardware accessories.
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10-Q
418
(d) Net sales of software include sales of Apple-branded operating system and application software and sales of third-party software.
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20030812
10-Q
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(e) Net sales per Macintosh unit sold are derived by dividing total Macintosh net sales by total Macintosh unit sales.
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10-Q
420
Net sales during the third quarter of 2003 increased 8% or $116 million from the same period in 2002, and increased 4% or $193 million for the first nine months of fiscal 2003 compared to the same period in 2002.
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20030812
10-Q
421
Several factors have contributed favorably to net sales during both the third quarter and the first nine months of 2003 including: • Net sales of peripherals and other hardware rose $137 million or 93% during the third quarter of 2003 compared to the same quarter in 2002 and rose $238 million or 49% for the first nine ...
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10-Q
422
These increases are the result of significant year-over-year increases in quarterly and year-to-date iPod net sales experienced in all of the Company’s operating segments.
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10-Q
423
iPod sales during the third quarter of 2003 were favorably affected by introduction of substantially redesigned new models during the quarter and by the Company’s introduction of its iTunes Music Store.
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20030812
10-Q
424
Net sales of peripherals and other hardware during 2003 also reflect an overall increase in net sales of other computer accessories, the majority of which was experienced by the Company’s Americas, Europe, and Retail segments.
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20030812
10-Q
425
• Net sales of software rose $26 million or 41% during the third quarter of 2003 compared to the same quarter in 2002 and rose $73 million or 37% for the first nine months of 2003.
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20030812
10-Q
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These increases reflect higher net sales of Apple-branded application software, Mac OS X client and server software, and third-party software.
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20030812
10-Q
427
Net sales of Apple-branded software during the first nine months of 2003 was favorably affected by several new software titles including Final Cut Express, iLife, Keynote, and titles acquired by the Company from Emagic during the fourth quarter of 2002.
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20030812
10-Q
428
Growth in net sales of third-party software was particularly strong in the Retail segment for the third quarter and first nine months of 2003.
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20030812
10-Q
429
• Service and other net sales rose $19 million or 33% during the third quarter of 2003 compared to the same quarter in 2002 and rose $30 million or 17% for the first nine months of 2003.
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10-Q
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These increases are the result of significant year-over-year increases in quarterly and year-to-date net sales associated with AppleCare and related services and increases in net sales associated with Internet services.
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20030812
10-Q
431
Increased net sales associated with AppleCare are primarily the result of higher attach rates on AppleCare protection plans over the last several years.
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20030812
10-Q
432
Increased net sales associated with Internet services are due primarily to introduction of the iTunes Music Store during the third quarter of 2003 and increased net sales from the Company’s .Mac Internet service.
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10-Q
433
• The Retail segment’s net sales grew to $428 million during the first nine months of 2003 from $181 million during the same period in 2002, a 136% increase.
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10-Q
434
The Retail segment’s 2003 third quarter net sales rose $82 million or 130% from the third quarter of 2002.
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20030812
10-Q
435
While the Company’s customers in areas where the Retail segment has opened stores may elect to purchase from the Retail segment stores rather than the Company’s preexisting sales channels in the United States, the Company believes that a substantial portion of the Retail segment’s net sales is incremental to the Compan...
0001104659-03-017766/full-submission.txt
0000320193
20030812
10-Q
436
See additional comments below related to the Retail segment under the heading “Segment Operating Performance.” • Although total Macintosh unit sales were down 6% during the first nine months of 2003 compared to the same period in 2002, unit sales of portable systems have been relatively strong.
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PowerBook unit sales were up 71% and 43% during the first three and nine months of 2003 versus the same periods in 2002, respectively.
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10-Q
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iBook unit sales were up 12% and 3% during the first three and nine months of 2003 versus the same periods in 2002, respectively.
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Increased sales of portable systems reflect an overall trend in the industry towards portable systems.
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Portable systems represented a record high 46% of all Macintosh systems sold during the third quarter of 2003.
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Additionally, new PowerBook models introduced during the first six months of 2003, including two new form factors featuring 12-inch and 17-inch displays and the Company’s first portable product capable of burning DVDs, have been well received by customers.
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20030812
10-Q
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Offsetting the favorable factors discussed above, the Company’s net sales during the third quarter and first nine months of 2003 were negatively impacted by three notable factors.
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20030812
10-Q
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• Total unit sales of desktop systems fell 23% and 18% during the third quarter and first nine months of 2003 compared to the same periods in 2002.
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444
Unit sales of iMac systems were down 24% during the third quarter of 2003 versus the same quarter in 2002 and were down 15% for the first 9 months of 2003 compared to the same period in 2002. iMac sales have been negatively affected by the shift in sales away from desktop systems in favor of portables.
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Also, the current flat panel iMac form factor is in the seventh quarter of its life cycle.
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• Unit sales of Power Macintosh systems fell 20% during the third quarter of 2003 and 24% during the first nine months of 2003 compared to the same periods in 2002.
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These declines in unit sales of Power Macintosh systems are consistent with the declining sales of Power Macintosh systems experienced by the Company during recent years.
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In part, declines in Power Mac sales reflect the shift in sales to portable models, particularly PowerBooks.
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449
Also, the Company continues to believe that weak economic conditions over the past several years are having a pronounced negative impact on its professional and creative customers and that many of these customers continue to delay upgrades of their Power Macintosh systems due to the Company’s ongoing transition to Mac ...
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Additionally, some of the Company’s professional and creative customers may be delaying upgrades of their systems in anticipation of certain software vendors transitioning their professionally oriented Macintosh software applications, such as QuarkXPress, to run natively in Mac OS X.
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However, the Company did not experience the anticipated increase in Power Macintosh sales that it expected following the introduction of Adobe’s PhotoShop 7 for Mac OS X during 2002.
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• The Company has experienced ongoing weakness in its U.S. education channel during the first nine months of 2003.
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453
Net sales in U.S. education during the first nine months of 2003 were down approximately 3% from the same period in 2002.
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Further, although the Company was encouraged that unit sales in U.S. education grew 5% during the third quarter of 2003 compared to the same quarter in 2002, net sales for the quarter were slightly down on a year-over-year basis.
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10-Q
455
Despite the year-over-year increase in unit sales for the third quarter of 2003 in the U.S. education channel, net sales declined primarily as a result of a shift in mix away from higher priced Power Mac and iMac systems towards lower priced eMac and iBook systems.
0001104659-03-017766/full-submission.txt