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For six years, the Internet Nexus served as my technology blog, but I've since started blogging at the SuperSite Blog instead. If you're looking for the blog, please head there. --Paul

Saturday, December 20, 2003

Apple annual report: Down and out in Cupertino

Apple posted its annual report for fiscal year 2003 this week and it predictably makes for interesting reading. It's amazing how dry, sobering and believable this report is, compared to the often comic public statements its executives make.

Here are a few things that stand out.

Net sales were flat in America but up 8 percent overall to $6.2 billion. Macintosh system sales fell from 3.101 million units in 2002 to 3.012 million in 2003, a 3 percent decline; this is particularly bad as PC sales for 2003 are up significantly (11 percent, according to IDC, to 152 million units) over the previous year, meaning Apple has lost market share again, accounting for just 1.98 percent of the overall PC market in 2003. The company was at 2.02 percent in 2002.

Despite strong promotions for the expensive PowerMac G5, PowerMac sales fell 10 percent year-over-year, as did iMac (15 percent) and iBook (18 percent) sales; only PowerBook sales were up year over year (a whopping 56 percent). Apple sold 939,000 iPods, short of its goal of 1 million; iPod net sales were $345 million, a drop in the proverbial bucket. Apple notes that "total unit sales of desktop systems fell 15% during 2003 compared to 2002. iMac systems unit sales declined 16%." Also alarming: "The Company has continued to experience 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."

Regarding its retail operations, Apple reported that it opened 25 new stores in 2003, bringing its total to 65. However, Apple still lost money on its retail stores: $5 million in 2003, which is a bit better than the $22 million loss it reported during 2002, I guess.

In its one true attempt at chicanery in the report, Apple sugar-coats and tap-dances around the performance of its iTunes Music Store, which is not an individual line item. Instead, the iTunes Music Store is listed as part of "Service and other sales," which rose 30 percent in 2003 to $296 million. But note how Apple reveals that most of this figure comes from AppleCare Protection Plan extended warranty sales: "Service and other sales [improvements] result 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." The company's Internet-related services include iTunes Music Store and .Mac (which is also not called out as a separate item for obvious reasons). But let's reword Apple's statement to be more succinct: "Service and other sales include APP, which posted significant year-over-year increases in net sales; the iTunes Music Store; and .Mac". I think it's pretty clear from this report that Apple makes no money on iTunes Music Store or .Mac.

Apple's R&D expense increased 6 percent (or $25 million) to $471 million in 2003, as compared to 2002. The company's liquid cash assets are largely the same as they were last year, about $4.5 billion.

[ Posted at 3:12 PM | Permalink ]