Apple's Success is No One Hit Wonder

CUPERTINO, California—July 13, 2005—Apple® today announced financial results for its fiscal 2005 third quarter ended June 25, 2005, reporting the highest revenue and earnings in the Company’s history. Apple posted a net quarterly profit of $320 million, or $.37 per diluted share, and revenue of $3.52 billion. These results compare to a net profit of $61 million, or $.08 per diluted share, and revenue of $2.01 billion in the year-ago quarter, and represent revenue growth of 75 percent and net profit growth of 425 percent. Gross margin was 29.7 percent, up from 27.8 percent in the year-ago quarter. International sales accounted for 39 percent of the quarter’s revenue.

Apple shipped 1,182,000 Macintosh® units and 6,155,000 iPods during the quarter (up over a million units sequentially from the previous quarter), representing 35 percent growth in Macs and 616 percent growth in iPods over the year-ago quarter.

• iTunes Store now represents about 5% of the U.S. music market. Almost 500 million songs sold.
• Over a million podcast subscriptions in first two days
• Apple store retail sales are up 56% with 12.2 million visitors last quarter
• Education market is up 16% to the highest level in 9 years
• Gross profit and net profit are at the highest levels in years.

First, we can discount the rumors of a couple of weeks ago that iPod sales are off. Au contraire. Inventories are within the planned 4-6 weeks of stock. The "better value" iPods launched two weeks ago -- lower price with color LCD and photo capability -- should continue to drive consumers to Apple.

The overall iPod ecosystem has no close competitors, period, as there are over 1,000 iPod-related products available. Apple in just a couple of years has become a force to be reckoned with in the entire music industry, as any artist with a chance at an iTunes Store song pane will tell you. This opens up opportunities for further differentiation.

The significant uptick in Mac sales is also fortuitous. But its not just the iPod halo effect: iPod has no impact on the K-12 education market, for instance.

With an entrenched position in music that is still expanding, a strong professional graphics and video market position, and renewed respect for the value and quality of the Mac line -- and that certainly includes OS X 10.4, Apple is on a roll.

The current quarter should be the strongest of the fiscal year, as Apple and the rest of the industry are in high gear chasing back-to-school sales.

All in all, an excellent quarter that shows Apple is back.