Apple Hits $1 Billion in Profit for 2005

Apple reported fourth quarter earnings Tuesday that exceeded expectations, though company shares still fell during after-hours trading.

Apple Computer Inc. reported Tuesday the financial results of its fourth quarter, which company chief financial officer Peter Oppenheimer characterized as "the highest annual revenue and net profit in the companys history, with Apple showing its first yearly profit of over $1 billion.

For the year, Apple saw net revenues of $13.93 billion, up 384 percent from fiscal 2004, and a net profit of $1.335 billion, up 68 percent over fiscal 2004.

International sales represented 40 percent of the quarters revenues. Gross margins rose to 28.1 percent compared to the year-ago number of 27 percent.

Year-over-year net profit increased more than fourfold from $106 million in the fourth quarter of 2004. Similarly, revenues grew $1.3 billion from $2.35 billion in the same time period.

Oppenheimer said that the net quarterly profit reached $430 million, which represented 50 cents per diluted share, and revenues of $3.68 billion.

This beat Apples own July estimates for the quarter of 32 cents of earnings per share and revenues of $3.5 billion.

A Thomson Financial survey of analysts had predicted $3.7 in sales and a profit of 37 cents per share.

As for unit sales, Oppenheimer said that in the quarter, Apple shipped 1.236 million Macintosh computers, which he characterized as "48 percent year-over-year growth in Mac shipments in Q4."

Over the fiscal year, he said, Apple shipped a total of 4.5 million Macs.

"We saw very robust Mac sales," Oppenheimer said. He broke this down to 634,000 iBook and PowerBook portables, which represented a 41 percent increase over the year-ago quarter.

Similarly, the sales of 602,000 desktop Macs equaled a 56 percent increase year-over-year. 202,000 of those desktops were low-cost Mac minis, though, which meant that the unit sales of Power Mac desktops actually declined.

This continued a trend of increasing Mac sales seen in the previous quarter.

However, Oppenheimer said that 40 percent of Apples total revenue came from its music business, which is split between sales of the iPod and Apples iTMS (iTunes Music Store).

Oppenheimer said that Apple sold 6.4 million iPod music players in the fourth quarter, which Oppenheimer said was the "tenth consecutive quarter of record iPod sales."

However, more than one million of those sales were of the iPod nano, which was introduced 17 days before the end of the quarter. Though Oppenheimer said that that proved the iPod nano was a "already a huge hit," without those sales the fourth quarter would have realized fewer total iPod sales than in the third quarter.

Oppenheimer added that the iPod dominated the digital music player market, holding over 75 percent market share. Likewise, he said that the iTMS had 80 percent of the global digital music market—"an 80 percent market share for legally sold and downloaded music."


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In addition, Oppenheimer said Apples education channel sold more units than ever, with a 31 percent increase in K-12 sales and a 38 percent rise in the higher education market.

Another bright point, Oppenheimer said, was the performance of the Apple retail stores. The retail chain brought in revenues of $663 million for the quarter, resulting in a $35 million profit.

For the year, retail store sales were $2.35 billion, for a $151 million profit.

Oppenheimer also pointed out that the chain of stores, which Apple expects to expand by about 35 to 40 locations in 2006, had 14.8 million visitors, which translated into 9,800 visitors per store per week, up from 7,400 visitors per store per week in fiscal 2004.

He also noted that more than 45 percent of customers buying Macs in the Apple retail stores were new Mac users.

Despite the news, Apple shares fell 11.8 percent in after-hours trading.


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