Apple has published its Form 10Q – a 64-page executive summary detailing its business in the last quarter, as required by US regulators the Securities and Exchange Commission.
The report repeats several announcements made by the company April 14, when it announced that its earnings per share had tripled with a $46 million net profit on $1.909 billion revenues. This was the company's third consecutive quarter of strong growth.
Notes accompanying Form 10-Q lend interesting insight on the company. Selected highlights follow:
Apple saw good iLife and Mac OS X 10.3 Panther sales in the quarter. These products: "accounted for approximately $13 million and $65 million of the increase in software net sales for the three and six month periods ended March 27, 2004, respectively."
iMac leaving the fleet?
Sales of the company's iMac – once the flagship of the fleet – continue to disappoint. Apple's executives warned: "Sales of flat-panel iMac systems, which have a suggested retail price starting at $1,299, have been negatively affected by 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."
Innovation and change drive IT, so Apple's executive statement that: "Also, the current flat panel iMac and eMac form factors are approximately 2 years old, which continue to contribute to declining net sales", indicate some activity to boost the line.
Accepting that the PC industry is highly competitive, Apple is focusing on "entering into strategic alliances with other companies to brand and sell its products and services", and increasing distribution.
"Apple intends to continue focusing on creating innovative products and services aligned with its digital hub strategy, whereby the Macintosh functions as the digital hub for digital devices including the iPod, personal digital assistants, cellular phones, digital video and still cameras, and other electronic devices," the company said.
Apple's musical milkshake
Apple is currently focused on market opportunities related to digital music distribution and related consumer electronic devices including iPods. The company faces increasing competition from other companies promoting their own digital music distribution services, free peer-to-peer music services, emerging companies, and larger companies that may have greater resources, including technical and marketing resources, and supplier relationships. Failure to effectively compete could negatively affect the company's operating results and financial position.
"There can be no assurance that the company will be able to provide products and services that effectively compete in these markets or successfully distribute and sell digital music outside the US."
Apple "pays substantial fees to obtain the rights to offer to its customers this third-party music", the company says.
Apple's research and development spending is flat, and has dropped to 6 per cent, rather than 8 per cent, of net sales, the company said: "The company continues to believe that focused investments in R&D are critical to its future growth and competitive position in the marketplace and expects to continue to invest heavily in R&D to remain competitive."
The filling reveals Apple has sold its "remaining non-current investments in public companies", EarthLink and Akamai.
Retail expansion plans
"The company's total capital expenditures were $79 million during the first six months of fiscal 2004, $48 million of which were for retail store facilities and equipment related to the company's retail segment and $31 million of which were for corporate infrastructure, including information systems enhancements and operating facilities enhancements and expansions."
Capital expenditure this year's anticipated to rise to "approximately $190 million", $110 million of which is pigeon-holed for the "expansion of the retail segment and the remainder for normal replacement of existing capital assets and enhancements to general information technology infrastructure".
On education, Apple writes: "Education customers appear to be delaying technology purchases due to concerns about the overall impact of the weaker economy and state budget deficits on their available funding".
No more war
Violence is often cited as being bad for business. Apple's management observes: "War, terrorism or public health issues, whether in the US or abroad, have caused and could continue to cause damage or disruption to international commerce by creating economic and political uncertainties that may have a strong negative impact on the global economy, the company, and the company's suppliers or customers".
On the importance of third parties, Apple warns: "Microsoft's interest in producing application software for the Mac OS may be influenced by Microsoft's perception of its interests as the vendor of the Windows operating system. Discontinuance of Microsoft Office and other Microsoft products for the Macintosh platform would have an adverse effect on the net sales and results of operations".
Apple will be gearing for a June harvest, the company admits: "Apple generally sells more products during the third month of each quarter than it does during either of the first two months, a pattern typical in the personal computer industry," it says.
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