Apple 2004 Annual Report Download - page 33

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experienced in all of the Company's operating segments and was driven by enhancements to the iPod, the introduction of the iPod
mini, increased expansion of the Company's iPod distribution network, and continued success of the iTunes Music Store due
largely to making it available to both Macintosh and Windows users in the U.S., U.K., France and Germany. Since inception of
the iPod product line in fiscal 2002, the Company has sold approximately 5.7 million iPods.
•
The Retail segment's net sales grew 91% to $1.2 billion during fiscal 2004 compared to 2003. This increase is largely attributable
to the increase in total stores from 65 at the end of 2003 to 86 at the end of 2004, as well as a 36% year-over-year increase in
average revenue per store. 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 U.S. and Japan, the Company
believes that a substantial portion of the Retail segment's net sales is incremental to the Company's 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 by 38% during fiscal 2004 compared to 2003 primarily due to an increase in net
sales of displays and other computer accessories. Net sales of other computer accessories include AirPort cards and base stations,
iSight digital video cameras, and third party hardware products. The increase in total net sales of peripherals and other hardware
is related to the overall increase in Macintosh unit sales and the introduction of new and updated peripheral products and was
experienced predominantly by the Company's Americas, Europe, and Retail segments.
•
Other music products consists of sales associated with the iTunes Music Store and iPod related services and accessories. Net sales
of other music products increased $242 million or 672% during fiscal 2004 compared to 2003. The Company has experienced
strong growth in sales of iPod services and accessories consistent with the increase in overall iPod unit sales for fiscal 2004. The
increased sales from the iTunes Music Store, which was originally introduced in April 2003, is primarily due to making the store
available for Windows in October 2003 and the introduction of the store in the U.K., France, and Germany in June 2004.
• Net sales of software rose $140 million or 39% during fiscal 2004 compared to 2003 due primarily to higher net sales of the
Company's Apple-branded software and in particular, higher net sales of the Company's operating system software, Mac OS X
version 10.3 "Panther," which was released in October 2003. Net sales of Panther accounted for approximately $74 million or
over 50% of the increase in software net sales for fiscal 2004 compared to 2003.
• The Company's U.S. education channel experienced year-over-year growth in net sales of approximately 19% for fiscal 2004
compared to 2003. Unit sales also increased by 10% during fiscal 2004 compared to 2003. The increase in U.S. education net
sales for fiscal 2004 relates primarily to a 40% year-over-year increase in higher education net sales and to a lesser extent the
Company's 3% growth in K-12 net sales.
The Company believes the U.S. K-12 education market remains challenging due to multiple factors including funding pressures
due to weak economic conditions, large budget deficits in many states, and increased competition particularly for desktop
computers. 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 trend will reverse.
• Service and other sales increased $37 million or 13% during fiscal 2004 compared to 2003. These increases are the result of
significant year-over-year increases in net sales associated with AppleCare Protection Plan (APP) extended maintenance and
support services, as well as increases in net sales associated with the Company's .Mac Internet service. Increased net sales
associated with APP are primarily the result of higher Macintosh unit sales and higher attach rates on APP over the last several
years.
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