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Fri, 02 Dec 2005 Apple 10-K reveals success as secret sauce

Jonny Evans

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Apple's Mac unit sales have increased 27 per cent while average prices have fallen 7 per cent, Apple's Form 10-K reveals.

The filing confirms success in almost every Apple strategy.

Total Mac net sales increased $1.4 billion or 27 per cent during 2005 compared to 2004, the company discloses in its regulatory filing. Mac unit sales climbed 1.2 million units or 38 per cent during 2005 compared to 2004.

Apple is also enjoying a 21 per cent year-on-year growth in higher education, and 11 per cent growth in the K-12 education markets.

iPod halo confirmed

Net sales of iPods rose $3.2 billion or 248 per cent during 2005 compared to 2004. Unit sales of iPods totalled 22.5 million in 2005, which represents an increase of 409 per cent from the 4.4 million iPod units sold in 2004, Apple said.

"Apple believes that the success of the iPod is having a positive impact on Mac sales by introducing new customers to Apple's other products," the company observed.

Net sales of other music related products and services increased $621 million or 223 per cent during 2005 compared to 2004, it said. These include iTunes Music Store sales.

Retail segment booming

Apple's retail segment continues to boom. The company opened up 38 new bricks-and-mortar retail stores in 2005, expanding operations internationally into Canada, Japan and the UK. Retail sales grew almost double, to $2.4 billion during 2005. Annualised revenue per store reached $22.4 million. This gathered income of $151 million during 2005, compared to $39 during 2004.

During 2005, net sales in the Americas segment grew 64 per cent or $2.6 billion compared to 2004, primarily because of significantly-higher iPod sales, the company said.

Apple's European business is also booming. Net sales in the Europe segment grew $1.3 billion or 71 per cent from 2004. Total Mac unit sales in Europe grew 47 per cent, year on year. Desktop computer sales climbed 56 per cent in Europe, Apple said.

It seems Apple is beginning to regain lost ground in Japan, where net sales and Mac unit sales climbed 36 per cent and 8 per cent, respectively, during 2005 compared to 2004. "Japan experienced increased net sales in desktop products, iPod, and other music-related products and services," Apple reveals.

Desktop unit sales were up 41 per cent and iPod sales increased by 220 per cent, year on year in Japan.

R&D and marketing raised, more stores planned

Apple will spend roughly $390 million for capital expenditures in fiscal 2006, compared to $260 million in fiscal 2005. $210 million of this will be used for expanding its retail segment.

The company also intends raising its research and development (R&D) spending. "To remain competitive, the Company believes that increased investment in R&D and marketing and advertising is necessary to maintain and extend its position in the markets where it competes," it said.

R&D expense amounted to approximately 4 per cent of total net sales during 2005 down from 6 per cent and 8 per cent of total net sales in 2004 and 2003, respectively. "This decrease is due to the significant increase of 68 per cent in total net sales in 2005," Apple said.

All the same, Apple's total R&D expenditures in 2005 totaled $534 million in 2005, an increase of more than 9 per cent from 2004.

Apple spent $287 million on advertising in 2005, compared to $206 million it spent in 2004.

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