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0000320193
20031219
10-K
552
•Unit sales of Power Macintosh systems fell 13% during 2003 compared to 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
553
For the first nine months of 2003 compared to the same period in 2002, unit sales of Power Macintosh systems decreased 24%, which is representative of the decline of Power Macintosh systems sales experienced by the Company during recent years and is also believed to be attributable to delays in purchasing pending the r...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
554
As expected, this trend reversed in the fourth quarter of 2003 with unit sales increasing 26% during the quarter as compared to the same period in the prior year due largely to the new Power Mac G5, which the Company introduced in June 2003 and began shipping at the end of fiscal 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
555
The decline in Power Macintosh sales over the last several years also reflects the shift in sales to portable systems, particularly PowerBooks.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
556
In addition, 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.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
557
Additionally, some of the Company's professional and creative customers may have delayed upgrades of their systems in anticipation of certain software vendors transitioning their professionally oriented Macintosh software applications to run natively on Mac OS X.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
558
Currently there are many applications that run natively on Mac OS X, including Adobe's PhotoShop 7 and QuarkXPress 6; however, there is no assurance that this will result in additional sales of Macintosh systems, particularly Power Macintosh units.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
559
•The Company has continued to experience ongoing weakness in its U.S. education channel during 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
560
Net sales and unit sales in U.S. education during 2003 were down 4% and 6%, respectively, as compared to 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
561
This decline was due to a decrease in K-12 sales, partially offset by an increase in higher education sales.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
562
Net sales declined primarily as a result of a continued shift in mix away from higher priced Power Macintosh and iMac systems towards lower priced eMac and iBook systems, although the Company did experience a significant increase in sales of its PowerBook systems primarily to higher education customers.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
563
Portable systems accounted for approximately 43% of total unit sales in the education channel during 2003, as compared to approximately 34% in 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
564
The Company's one-to-one (1:1) learning solutions are a complete solution consisting of an iBook portable system for every student and teacher along with a wireless network connected to a central server.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
565
The Company has experienced significant competition in 1:1 learning solutions and, accordingly, has experienced a lower sales price per unit, on average, in these transactions.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
566
The Company believes weakness in its U.S. education channel, particularly K-12, has been caused by multiple factors including funding pressures due to weak economic conditions, large budget deficits in many states, and increased competition particularly for desktop computers.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
567
Although the Company has taken steps, and will continue to take steps, to address weakness in the U.S. education channel, it remains difficult to anticipate when and if this negative trend will reverse.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
568
•The personal computer industry in general, and the Company specifically, continue to see relatively soft demand for their products.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
569
Sales of professional and consumer oriented Macintosh systems remain far below levels experienced in fiscal 2000 and earlier.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
570
Difficult global economic conditions during the past several years exacerbated by the economic and political uncertainties caused by terrorist activities and the associated international responses have clearly had a pronounced negative effect on the overall demand for the Company's products in virtually all of its mark...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
571
Further, growth in the overall personal computer industry has slowed due to the high market penetration of personal computers and a lengthening of consumer, creative, and business personal computer upgrade cycles.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
572
Fiscal Year 2002 versus 2001 Net sales increased $379 million or 7% during 2002 compared to 2001, while Macintosh unit sales were relatively flat year-over-year at approximately 3.1 million units.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
573
On a geographic basis, performance in the domestic market was relatively strong, especially when considering the performance of the Company's Retail segment, which operated during 2002 exclusively in the United States.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
574
However, the European and Japanese markets remained sluggish throughout 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
575
The Company's net sales in 2002 were positively influenced by a number of factors.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
576
•First, net sales from software, service, peripherals, and other sources rose $248 million or 26% in 2002 versus 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
577
This increase was driven by several factors including a 28% increase in combined third-party and Apple-branded software sales; $143 million in net sales of iPod, the Company's portable digital music player that was introduced in the first half of 2002; a 9% increase in the sale of computer accessories; and a 14% increa...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
578
The growth in software revenue was primarily the result of increased sales of third-party software in the Company's retail and online stores and expansion in recent years in the number of Apple-branded software titles.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
579
•Second, overall unit sales of Macintosh portable systems grew by 92,000 units or 10% in 2002 reflecting a general trend in the personal computer market away from desktop systems towards portable systems.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
580
During 2002, portable Macintosh systems represented 33% of total systems sales versus 31% in 2001 and 20% in 2000.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
581
Growth in this area has been most pronounced for iBook, the Company's education and consumer oriented portable Macintosh system.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
582
iBook unit sales increased 14% in 2002 and 9% in 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
583
•Third, the Company's Retail segment grew from 8 stores at the end of 2001 to 40 stores at the end of 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
584
The Retail segment's net sales grew from $19 million in 2001 to $283 million in 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
585
While the Retail segment may have cannibalized some net sales from the Company's preexisting sales channels in the U.S., the Company believed that a substantial portion of the Retail segment's net sales was incremental to the Company's total net sales.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
586
See additional comments below related to the Retail segment under the heading "Segment Operating Performance."
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
587
•Fourth, the Company's average unit pricing increased 3% during 2002 as a result of various changes in overall unit mix offset by somewhat lower pricing year-over-year on comparative Macintosh systems.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
588
Net sales per Macintosh unit sold during 2002 of $1,462 per unit reflected the shift in mix towards relatively higher-priced portable Macintosh systems and reflected the impact on net sales of the relatively higher-priced new iMac design introduced during 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
589
The impact of these changes in mix were offset by the decline in unit sales of relatively higher-priced Power Macintosh systems and by lower pricing on comparative Macintosh systems during 2002 for most of the Company's Macintosh product lines in response to industry pricing pressure.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
590
•Fifth, any comparison of net sales in 2002 versus 2001 must consider the effect of unusually low net sales during the first quarter of 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
591
This was attributable to several factors at the beginning of 2001, including continued deterioration in worldwide demand for personal computers, rebate programs and price cuts instituted by the Company during that quarter that cost the Company approximately $138 million, and a plan implemented by the Company during the...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
592
Offsetting the favorable factors discussed above, the Company's net sales in 2002 were negatively impacted by several notable factors.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
593
•First, unit sales of Power Macintosh systems fell 18% during 2002 as compared to 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
594
This followed a 35% decline in Power Macintosh unit sales in 2001 from 2000.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
595
The Company believed that weak economic conditions over the past several years had a pronounced negative impact on its professional and creative customers and that many of these customers continued to delay upgrades of their Power Macintosh systems due to the Company's ongoing transition to Mac OS X, its new operating ...
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
596
Further, the Company did not experience the anticipated increase in Power Macintosh sales that it expected following the introduction of Adobe's PhotoShop 7 during 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
597
Additionally, many professional users may have postponed upgrading their systems until after the introduction of Mac OS X Jaguar released in the fourth quarter of 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
598
Others may have delayed upgrading until after the availability of other professionally oriented software applications for Mac OS X such as QuarkXPress.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
599
•Second, despite the overall increase in net sales during 2002 in the Americas, the Company continued to see weakness in its U.S. education channel.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
600
Total net sales in this channel fell 15% in 2002 and 4% in 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
601
These declines were consistent with industry data that showed the Company losing market share in the U.S. education market in each of the last two fiscal years.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
602
The Company believed this weakness was caused by multiple factors, including increased price competition in this price sensitive market from the Company's competitors who sell Windows-based personal computers.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
603
Additionally, some of the Company's education customers appeared to be delaying technology purchases due to concerns about the overall impact of the weaker economy on their available funding.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
604
•Third, the personal computer industry in general and the Company specifically experienced soft demand for its products due to adverse global economic conditions, political uncertainties, and a lengthening of consumer, creative, and business personal computer upgrade cycles.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
605
Segment Operating Performance The Company manages its business primarily on a geographic basis.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
606
The Company's reportable operating segments are comprised of the Americas, Europe, Japan, and Retail.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
607
The Americas segment includes both North and South America, except for the activities of the Company's Retail segment.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
608
The Europe segment includes European countries as well as the Middle East and Africa.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
609
The Japan segment includes only Japan, except for the activities of the Company's Retail segment.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
610
The Retail segment currently operates Apple-owned retail stores in the United States and opened its first international store in Tokyo, Japan in the first quarter of 2004.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
611
Each reportable operating segment provides similar hardware and software products and similar services.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
612
Further information regarding the Company's operating segments may be found in Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements at Note 11, "Segment Information and Geographic Data."
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
613
Americas Net sales in the Americas segment during 2003 increased $50 million or 2% compared to 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
614
During 2003 and 2002, the Americas segment represented approximately 51% and 55%, respectively, of the Company's total net sales and represented approximately 54% and 56%, respectively, of total Macintosh unit sales.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
615
The results of the Americas segment are similar to the overall results of the Company as they reflect substantially lower unit sales and net sales of Power Macintosh systems and iMac systems, partially offset by increases in unit sales and net sales of PowerBooks.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
616
The net sales of the Americas segment, and the Company in total, also reflect substantially higher sales of peripherals, software, and services during 2003 compared to 2002 due primarily to higher sales of iPods and Internet services.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
617
The Americas segment has been negatively affected by weakness in its U.S. education channel.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
618
As noted above, total net sales and unit sales in the U.S. education channel during 2003 were down 4% and 6%, respectively, compared to the same period in 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
619
The Company believes this decline is caused by increased competition in the education market and by a reduction in spending by U.S. educational institutions due to federal and state funding concerns and tax revenue shortfalls resulting from the weak economy.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
620
Additionally, some of the decline during 2003 in net sales and unit sales of Macintosh systems in the Americas segment may be the result of the operation of the Company's Retail segment whose net sales, all of which occurred within the U.S., increased significantly during 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
621
Net sales for the Americas segment increased 3% or $94 million in 2002 compared to 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
622
The Americas segment was negatively affected by a decline in U.S. education sales in 2002 of $215 million.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
623
The Americas segment also experienced a 17% decline in Power Macintosh unit sales.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
624
However, outside of the U.S. education channel, unit sales of consumer desktop and portable systems rebounded from the substantial declines experienced in 2001, rising a combined 31% in 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
625
Sales of software, peripherals, and accessories were also up in the Americas during 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
626
Growth in unit sales of consumer oriented systems during 2002 in the Americas is somewhat attributable to the significantly depressed level of net sales experienced in the first quarter of 2001 as discussed above.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
627
However, growth in the Americas was somewhat negatively affected, particularly with respect to consumer-oriented systems, by the significant growth of the Company's Retail segment in the U.S. More than 70% of the Retail segment's Macintosh unit sales during 2002 were for iMacs and iBooks.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
628
Europe Net sales in Europe increased $58 million or 5% during 2003 as compared to 2002 while Macintosh unit sales declined by 5% during the same period.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
629
Europe's operating results were consistent with the trend experienced in the Americas and by the Company as a whole.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
630
Europe experienced weakened demand for Power Macintosh, iMac and iBook systems in 2003, partially offset by strong demand for PowerBooks whose net sales increased by 48% or $100 million from 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
631
Europe also realized increased sales of peripherals, software, and service, primarily attributable to higher sales of iPods, accessories and APP.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
632
Economic conditions in Europe remained weak throughout 2002, and the overall demand for the Company's products in that region remained flat during 2002 versus 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
633
Unit sales in Europe for 2002 reflect relatively stronger demand for consumer-oriented products, particularly iBook whose unit sales increased 27% in 2002, offset by declines in Power Macintosh unit sales.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
634
Japan Net sales in Japan decreased $12 million or 2% during 2003 as compared to the same period in 2002, the weakest year-to-date performance of any of the Company's operating segments.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
635
Japan's Macintosh unit sales were particularly weak in 2003, declining 12%, and were primarily attributable to lower sales of iMac and iBook systems, partially offset by an increase in PowerBook sales as well as higher sales of peripherals and other hardware.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
636
Japan's Macintosh unit sales remain significantly below the segment's historic levels due to current economic conditions that remain particularly negative in Japan.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
637
Net sales in Japan remained flat during 2002 versus 2001, with a slight decline in unit sales of 2%.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
638
Consistent with the Company's other geographic operating segments, during 2002 Japan showed growth in unit sales of consumer systems and a decline in unit sales of Power Macintosh systems.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
639
Japan's iMac unit sales increased 85% in 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
640
However, in the case of Japan the increase in iMac unit shipments in 2002 versus 2001 was primarily the result of the unusually depressed level of net sales experienced by the Company in the first quarter of 2001 as discussed above.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
641
Additionally, net sales in Japan on a sequential and year-over-year comparative basis generally worsened as 2002 progressed reflecting particularly poor economic conditions in Japan.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
642
Retail The Company opened 25 new retail stores during 2003, bringing the total number of open stores to 65 as of September 27, 2003, which compares to 40 open stores as of September 28, 2002 and 8 open stores as of September 29, 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
643
During the first quarter of fiscal 2004, the Company opened 9 additional stores including its first international store in the Ginza in Tokyo, Japan.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
644
The Retail segment's net sales grew to $621 million during 2003 from $283 million in 2002 and from $19 million in 2001.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
645
The $338 million or 119% increase in net sales during 2003 reflects the impact from opening 25 new stores in 2003, the full year impact of 2002 store openings, as well as an increase in average revenue per store.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
646
Total Macintosh sales increased by approximately $170 million of which $108 million related to year-over-year increases in PowerBook sales.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
647
The Retail segment has also contributed strongly to the increases in net sales of peripherals, software and services experienced by the Company during 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
648
During 2003, approximately 45% of the Retail segment's net sales came from the sale of Apple-branded and third-party peripherals, software and services as compared to 28% for the Company as a whole.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
649
With an average of 54 stores open during 2003, the Retail segment achieved annualized revenue per store of approximately $11.5 million, as compared to approximately $10.2 million based on an average of 28 stores open in 2002.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
650
As measured by the Company's operating segment reporting, the Retail segment improved from a loss of $22 million during 2002 to a loss of $5 million during 2003.
0001047469-03-041604/full-submission.txt
0000320193
20031219
10-K
651
This improvement is primarily attributable to the segment's year-over-year increase in net sales, which resulted in higher leverage on occupancy, depreciation and other fixed costs.
0001047469-03-041604/full-submission.txt