Apple 2003 Annual Report Download - page 22

(c) Net sales of peripherals and other hardware include sales of iPod, Apple-branded and third-party displays, and other hardware
accessories.
(d) Net sales of software include sales of Apple-branded operating system and application software and sales of third-party software.
(e) Net sales per Macintosh unit sold is derived by dividing total Macintosh net sales by total Macintosh unit sales.
Fiscal Year 2003 versus 2002
Net sales increased $465 million or 8% during 2003 compared to 2002 while Macintosh unit sales declined 3% year
-over-year to
approximately 3 million units in 2003. Several factors have contributed favorably to net sales during 2003 including:
• The Retail segment's net sales grew to $621 million during 2003 from $283 million in 2002, an increase of 119%. While the
Company's customers may elect to purchase product from their local Apple Retail store rather than through other preexisting
sales channels in the United States, the Company believes that a substantial portion of the Retail segment's net sales is
incremental to total net sales. See additional comments below related to the Retail segment under the heading "Segment
Operating Performance."
• Net sales of peripherals and other hardware rose $384 million or 57% during 2003 compared 2002, which follows a
$287 million or 74% increase in 2002 as compared to 2001. The current year increase was primarily driven by the $202 million,
or 141%, year-over-year increase in iPod net sales to $345 million. All of the Company's operating segments experienced
substantial increases in iPod net sales and unit sales during 2003. iPod sales during 2003 were favorably affected by the
introduction of substantially redesigned new models, which are compatible with both Macintosh and Windows operating
systems and by the Company's introduction of its iTunes Music Store for the Macintosh operating system in April 2003. The
Company's iPod digital music player is sold by a variety of resellers, many of which do not currently market the Company's
Macintosh systems. The Company has expanded this distribution network during 2003, which has contributed to the current year
increase in iPod unit sales of 146%.
In addition to the iPod, the increase in net sales of peripherals and other hardware during 2003 also reflects an overall increase in
net sales of other computer accessories including AirPort cards and base stations, which facilitate wireless connectivity; third
party digital cameras and printers; and a number of portable computer related accessories.
• Although total Macintosh unit sales were down 3% in 2003, unit sales of the Company's portable systems were relatively strong
primarily due to the 69% or 247,000 unit increase in PowerBook unit sales, slightly offset by a 4% or 30,000 unit decrease in
iBook unit sales. The increase in PowerBook net sales of $468 million or 56% is due primarily to the success of the Company's
new 12-inch, 15-inch and 17-inch models that were introduced during 2003. The decline in iBook consumer portable sales
during 2003 is primarily due to a lower average price per unit. Portable systems represented 42% of all Macintosh systems sold
in 2003 versus 33% in 2002 and 31% in 2001, which reflects an overall industry trend towards portable systems.
• The Company's average net sales per Macintosh unit sold increased 2% to $1,491 in 2003 as a result of various changes in
overall unit mix towards relatively higher-priced PowerBook systems and an increase in direct sales primarily from the
Company's retail and online stores, offset by somewhat lower year-over-
year pricing on comparable Macintosh systems for most
of the Company's Macintosh product lines in response to industry pricing pressure, particularly with the Company's
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iBook consumer portable systems. PowerBook and Power Macintosh systems accounted for 42% of total unit sales in 2003
versus 36% in 2002.
• Net sales of software increased $55 million or 18% during 2003 compared to the prior year and reflects higher net sales of
Apple-branded application and server software and third-party software. Net sales of Apple-branded application and server
software increased due to the introduction of several new software titles during the year including Final Cut Express, iLife, and
Keynote, as well as from higher sales of software related to recent acquisitions including PowerSchool and Emagic. Growth in
net sales of third-party software during 2003 was particularly strong in the Americas Segment due to strong sales of software by
the Company's online store and its Retail segment.
• Service and other sales rose $69 million or 30% during 2003 and results from significant year-over-year increases in net sales
associated with AppleCare Protection Plan (APP) extended maintenance and support services, as well as the Company's Internet
related services. Increased net sales associated with APP are primarily the result of increasing attach rates over the last several
years. Increased net sales associated with Internet services are due to net sales from the iTunes Music Store introduced in
April 2003 and increased net sales of the Company's .Mac Internet service.