Apple 2004 Annual Report Download - page 34

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Offsetting the favorable factors discussed above, the Company's net sales during fiscal 2004 were negatively impacted by the following:
• Net sales and unit sales of iMac systems were down 23% and 16%, respectively, during fiscal 2004 versus 2003. The decrease in
iMac net sales and unit sales was largely due to the delay in the introduction of the new iMac, based on the PowerPC G5
processor, primarily as a result of manufacturing problems experienced by IBM. The delays in the new iMac resulted in the
depletion of inventory of the old iMac flat panel prior to availability of the new iMac G5. The old flat panel iMac form factor
which was available during most of fiscal 2004, was nearly 3 years old by the time the new iMac G5 began shipping in
September 2004 and had experienced declines in sales as a result of the age of this product. The Company believes that sales of
iMac systems have also declined due to a shift in consumer preference to portable systems and competitor desktop models with
price points below $1,000. The Company introduced a new version of the eMac in April 2004 with a suggested retail price
starting at $799 aimed at the price sensitive customer.
•
Net sales and unit sales in the Company's Japan segment decreased 3% and 14%, respectively, during fiscal 2004 versus 2003.
The Company believes these declines relate to a shift in sales from the Japan Segment to the Retail segment as a result of the
Tokyo and Osaka store openings in fiscal 2004. Declines in Japan may also relate to delays in computer upgrades by certain
professional and creative customers pending release in Japan of certain Mac OS X native applications, such as Quark Xpress 6,
which did not become available until September 2004. When sales from the Japan retail stores are included in the results for the
Japan segment, the combined revenue in Japan resulted in a 3% year-over-year increase in fiscal 2004 as compared to 2003. See
additional comments below related to the Japan segment under the heading "Segment Operating Performance."
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 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 have elected to purchase product from their local Apple Retail store rather than through other
preexisting sales channels in the U.S., the Company believes that a substantial portion of the Retail segment's net sales was
incremental to total net sales. See additional comments below related to the Retail segment under the heading "Segment
Operating Performance."
• Net sales of iPods rose $202 million or 141% during 2003 compared to 2002. This increase was experienced by all of the
Company's operating segments. iPod sales during 2003 were favorably affected by the introduction of substantially redesigned
new models, which were compatible with both Macintosh and Windows operating systems. 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
expanded this distribution network during 2003, which contributed to the 2003 increase in iPod unit sales of 146%.
• The Company also experienced an increase in net sales of peripherals and other hardware totaling $164 million or 31% during
2003 compared to 2002, reflecting 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.
• Net sales of other music products, including sales associated with the iTunes Music Store and iPod related services and
accessories, increased $32 million or 800% during 2003 compared to 2002. This increase was due primarily to the introduction of
the iTunes Music Store for the Macintosh
31