Apple 2002 Annual Report Download - page 21

the Company's products in virtually all of its markets. Further, growth in the overall personal computer industry has been slowed due to the
high market penetration of personal computers and a lengthening of consumer, creative, and business personal computer upgrade cycles. In
short, the Company believes that expansion in the overall market for personal computers has for the most part stalled and that growth awaits a
combination of economic recovery and technological advancements.
Net sales decreased $2.6 billion or 33% during 2001 compared to 2000, while Macintosh unit sales fell 32% from 2000. Demand for all of the
Company's products in all of the Company's geographic operating segments was negatively impacted throughout 2001 by unfavorable global
economic conditions. On a year-over-year basis, net sales and Macintosh unit sales were down in all of the Company's geographic operating
segments, and net sales and unit sales by product were down for each Macintosh product category except iBook. In addition to general
economic conditions, two other primary factors contributed to the decline in net sales during 2001. First, as discussed below, the Company
executed a plan during the first three quarters of 2001 to reduce substantially the level of inventory in its distribution channels. As a result of
these efforts, the Company's Macintosh channel inventory fell by approximately 450,000 units during the first nine months of 2001. Second,
the Company believes that many of its professional users were delaying upgrades of their Power Macintosh systems due to the Company's
ongoing transition to Mac OS X, its new operating system, and in anticipation of software vendors transitioning their Mac applications to run
natively in Mac OS X.
Several positive factors combined to partially mitigate the overall decline in net sales during 2001. The net sales per Macintosh unit sold
remained relatively strong during 2001 after adjusting for the $138 million impact to net sales of the rebate programs and price cuts instituted
by the Company during the first quarter of 2001, falling only about 2.5% from 2000. The relatively strong per unit sales in 2001 reflects
somewhat lower year-over-year pricing on comparative systems, offset by a shift in overall sales mix toward higher-priced portable systems.
Also, the Company experienced very little shift in the mix of overall combined unit sales of relatively lower-priced consumer and education
Macintosh systems, iMac and iBook, and their higher-priced professionally oriented equivalents. Combined unit sales of iMac and iBook
systems accounted for 58% of total Macintosh unit sales in 2001 and 60% in 2000. Second, combined unit sales of portable systems, iBook and
PowerBook, actually rose 2% during 2001 despite the negative economic climate and the overall decline in unit sales. Not only does this
increase in portable system sales reflect a general industry shift toward portable systems, it is also specifically attributable to the strong demand
for redesigned iBooks introduced during the third quarter of 2001 and for the Titanium PowerBook G4 which was introduced during the second
quarter of 2001. Third, a small decline in net sales
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in the U.S. education market during 2001 compared to 2000 was partially mitigated by a 7% increase in U.S. education unit sales during 2001.
First quarter 2001 net sales decreased 57% to $1.007 billion compared to the same quarter in 2000 and decreased 46% from the fourth quarter
of 2000. Both the year-over-year and sequential declines in net sales during the first quarter of 2001 were attributable to several factors,
including continued deterioration in worldwide demand for personal computers and rebate programs and price cuts instituted by the Company
during the quarter that cost the Company approximately $138 million. In addition, the Company implemented a plan during the first quarter to
reduce substantially the level of inventory in its distribution channels from the amounts at the end of fiscal 2000 to lower levels by the end of
the first quarter of 2001. The Company ended fiscal 2000 with substantially more inventory in its distribution channels than planned due to the
lower than expected sell-through of the Company's products during the fourth quarter of that year. The Company reduced Macintosh channel
inventory during the first quarter by approximately 300,000 units. These factors contributed to the 52% year-over-year decline during the first
quarter in total Macintosh unit sales that were experienced across the Company's entire product line. These factors also reduced the net sales
per Macintosh unit sold (a function of total net sales associated with Macintosh units and total Macintosh CPU unit sales) during the first
quarter of 2001 to $1,476, a decline of approximately 12% from the same period in 2000.
Segment Operating Performance
The Company manages its business primarily on a geographic basis. The Company's reportable operating segments include the Americas,
Europe, Japan, and Retail. The Americas segment includes both North and South America, except for the Company's Retail segment. The
European segment includes European countries as well as the Middle East and Africa. The Japan segment includes only Japan. The Retail
segment operates Apple-owned retail stores in the United States. Each reportable geographic operating segment provides similar hardware and
software products and similar services. Further information regarding the Company's operating segments may be found in Part II, Item 8 on this
Form 10-K in the Notes to Consolidated Financial Statements at Note 11, "Segment Information and Geographic Data."
Americas
Net sales for the Americas segment increased 3% or $92 million in 2002. As discussed above, the Americas segment was negatively affected
by a decline in U.S. education sales in 2002 of $215 million. The Americas segment also experienced a 17% decline in Power Macintosh unit
sales. 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. Sales of software, peripherals, and accessories were also up in the Americas
during 2002. 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 discussed above. 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.