Apple 2004 Annual Report Download - page 36

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several years had a pronounced negative impact on its professional and creative customers. 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.
• The Company experienced ongoing weakness in its U.S. education channel during 2003. Net sales and unit sales in U.S.
education during 2003 were down 4% and 6%, respectively, as compared to 2002. This decline was due to a decrease in K-12
sales, partially offset by an increase in higher education sales. 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.
Portable systems accounted for approximately 43% of total unit sales in the education channel during 2003, as compared to
approximately 34% in 2002.
Segment Operating Performance
The Company manages its business primarily on a geographic basis. The Company's reportable operating segments are comprised of the
Americas, Europe, Japan, and Retail. The Americas segment includes both North and South America, except for the activities of the Company's
Retail segment. The Europe segment includes European countries as well as the Middle East and Africa. The Japan segment includes only Japan
and excludes revenue from the Company's own retail stores in Japan, which is included in the Company's Retail segment. The Retail segment
operated Apple-owned retail stores in the U.S. and Japan during fiscal 2004. 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 Item 8
of this Form 10-K in the Notes to Consolidated Financial Statements at Note 11, "Segment Information and Geographic Data."
Americas
During fiscal 2004, net sales in the Americas segment grew 26% or $838 million compared to fiscal 2003. The increase in net sales during 2004
was primarily attributable to the significant year-over-year increase in iPod sales as well as strong sales of peripherals, software, and services.
This increase was partially offset by a shift in sales to the Retail segment, which had 84 stores in the U.S. as of the end of fiscal 2004. Macintosh
unit sales also increased by 4% in fiscal 2004 compared to 2003, driven primarily by strong sales of portable and Power Macintosh systems,
partially offset by continued weakness in iMac sales. During 2004 and 2003, the Americas segment represented approximately 49% and 51%,
respectively, of the Company's total net sales and represented approximately 51% and 54%, respectively, of total Macintosh unit sales. As noted
above, the Company experienced an increase in U.S. education channel net sales of 19% for fiscal 2004 compared to 2003. Strong U.S.
education net sales for the current year relate primarily to strength in higher education net sales that resulted from a successful back-to-school
selling season with strong demand for the Company's portables. This strength drove year-over-year growth in net sales of 40% for the higher
education channel during fiscal 2004. The Company's K-12 net sales grew year-over-
year by 3% during fiscal 2004, despite the challenges in the
K-12 market from continued budget constraints and increased competition, due to the Company's continued focus and success with delivering
1:1 education solutions.
Net sales in the Americas segment during 2003 increased $50 million or 2% compared to 2002. 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. 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. The net sales of the Americas segment, and the Company in total, also reflect substantially higher sales of iPods, peripherals,
software, and services during 2003 compared to 2002. The Americas segment had been negatively affected by weakness in its U.S. education
channel during 2003. Total net sales and unit sales in the U.S. education channel during 2003
33