Apple has filed its Form 10-K Annual Report – the audited document required by the SEC and sent to shareholders at the end of each fiscal year.

The document reports the financial results for the year and includes comments on the outlook for the future.

The document states that several factors have "contributed favorably" to net sales during 2003. These factors include net sales growth in the Retail segment and the year-over-year increase in iPod net sales.

Apple states: "iPod sales during 2003 were favorably affected by the introduction of substantially redesigned new models", it also credits the introduction of its iTunes Music Store for the Macintosh operating system in April 2003 as a supporting factor.

Apple also expanded its distribution network during 2003 – now the iPod is sold by a variety of resellers, "many of which do not currently market The Company's Macintosh systems".

Although total Macintosh unit sales were down 3 per cent in 2003, Apple states that portable sales were "relatively strong primarily due to the 69 per cent or 247,000 unit increase in PowerBook unit sales", this was "slightly offset by a 4 per cent or 30,000 unit decrease in iBook unit sales".

Apple attributes the increase in PowerBook net sales to the success of the new 12-inch, 15-inch and 17-inch models. The decline in iBook sales is "primarily due to a lower average price per unit", says Apple.

Portable systems represented 42 per cent of all Macintosh systems sold in 2003 versus 33 per cent in 2002 and 31 per cent in 2001, this "reflects an overall industry trend towards portable systems", says the company.

Apple's average net sales per Macintosh unit sold increased 2 per cent to $1,491 in 2003. This was as a result of "various changes in overall unit mix towards relatively higher-priced PowerBook systems and an increase in direct sales", but offset by lower pricing on most of Apple's Macintosh product lines "in response to industry pricing pressure".

Net sales of software increased $55 million or 18 per cent during 2003. The increase was due to the introduction of Final Cut Express, iLife, and Keynote, as well as from higher sales of software related to recent acquisitions including PowerSchool and Emagic, says Apple.

Apple also experienced increased net sales associated with Internet services – namely the iTunes Music Store and increased net sales of Apple's .Mac Internet service.

Negative impact

Apple states that its net sales during 2003 were negatively impacted by a number of factors. These included a decline in iMac sales.

Apple admits: "The current flat panel iMac form factor was in the eighth quarter of its life cycle by the end of 2003 and did not experience significant enhancements until the release of the 20-inch flat-panel iMac in November 2003."

The decline in unit sales of Power Macintosh systems is "representative of the decline of Power Macintosh systems sales experienced by the Company during recent years and is also believed to be attributable to delays in purchasing pending the release of the Power Mac G5", according to Apple. This trend "reversed" in the fourth quarter of 2003 following the introduction of the new Power Mac G5.

Apple suggests the decline in Power Macintosh sales over the last several years "also reflects the shift in sales to portable systems, particularly PowerBooks". Apple also blames the "weak economic conditions over the past several years" that are having a "pronounced negative impact on its professional and creative customers".

Additionally, 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", says Apple.


Net sales in Europe increased $58 million or 5 per cent during 2003 as compared to 2002 – but Macintosh unit sales declined by 5 per cent during the same period.

Like the US, Europe experienced weakened demand for Power Macintosh, iMac and iBook systems in 2003, partially offset by strong demand for PowerBooks. Europe realized increased sales of peripherals, software, and service, primarily attributable to higher sales of iPods, accessories and APP, according to Apple.