TBR 1Q11 Apple Inc. Report
 

TBR 1Q11 Apple Inc. Report

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Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company ...

Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company performance in professional services, networking and mobility, computing and hardware, and software on a quarterly basis, leveraging our data to create industry benchmarks and landscapes that provide a business perspective on leaders and laggards and their business plans. We are experts in the business of technology.

Apple is driving revenue growth by becoming a phone company, targeting the rapidly growing smartphone market to supplement its PC business. iPhone sales accounted for 49.9% (or $12.3 billion) of Apple’s 1Q11 revenue, driven by global carrier expansion and increased distribution.

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TBR 1Q11 Apple Inc. Report TBR 1Q11 Apple Inc. Report Presentation Transcript

  • Technology Business ResearchAccelerating Customer Success Through Business Research TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .
  • COMPUTER BUSINESS QUARTERLYSMApple Inc.First Calendar Quarter 2011Second Fiscal Quarter 2011 Ended Mar. 25, 2011 TBR OUTLOOK – POSITIVE TBR SCORE (0-10 SCALE)  6.60Publish Date: May 11, 2011Authors: Ezra Gottheil (ezra.gottheil@tbri.com), CBQ Senior AnalystEmily Searles, CBQ Research Analyst TBR T ECH N O LO G Y B U SI N ES S R ES E AR C H , I N C .Content Editor: John Spooner, Director, Computers and Storage
  • Contents TBR Company Analysis Company Data Models 3 TBR Position 22 Income Statement 4 Executive Summary 23 Balance Sheet 6 Strategy Overview 24 Segment Revenue Model 8 Scenario Discussion 25 Unit Shipments & ASP Model 11 Corporate SWOT Analysis 26 Operating Expense Model 12 Financial Model Strategy 27 Revenue by Customer Model 16 Go-to-Market & Product Strategies 28 PC Revenue Model 17 Alliance & Acquisition Strategies 29 Geographic Model 18 Geographic Overview 30 Financial Strategy Graphs 19 Resource Management Strategy 32 Resource Management Graphs 21 Organizational Structure 34 Future Outlook Graph 35 Alliances Table 36 Product Portfolio Table 39 About TBR3 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • TBR Position TBRiPhone will remain the growth engine for Apple, driving revenue andcorporate profitTBR Assessment Corporate Strategic Objectives Apple is driving revenue growth by becoming a Dominate awareness with innovative products and phone company, targeting the rapidly growing aggressive marketing. Apple leverages its reputation for smartphone market to supplement its PC business. products and service to drive growth and margins. iPhone sales accounted for 49.9% (or $12.3 billion) iPhone revenue rose 126%, causing gross margin to rebound of Apple’s 1Q11 revenue, driven by global carrier to a near-record 41.4%. The increased proportion of revenue expansion and increased distribution. from the iPhone, which TBR believes is Apple’s most profitable hardware product line, was the principal reason for the gross margin increase. Maintain its premium market position in all product lines. Apple competes in the higher end of each market APPLE 1Q11 PERFORMANCE VS. EXPECTATIONS for PCs, handsets, tablets and media players.(In $ Billions) Consensus Guidance Actual TBR believes Apple is leveraging its new A5 dual-coreRevenue $ 23.4 $22.0 - $24.8 $ 24.7 processor, found in the iPad 2, to differentiate its high-Operating Income N/A N/A $ 7.9 performance tablet. The unique processor, which powersEPS $ 5.37 $4.85 - $5.98 $ 6.40 the iPad 2’s numerous upgrades, will promote premium pricing as the tablet market becomes saturated. TBR expects Apple to leverage its processor technology across all of its APPLE 2Q11 GUIDANCE AND EXPECTATIONS product lines.(In $ Billions) TBR Estimate Consensus Guidance Be a retail leader: Apple Stores are a strategicRevenue $ 24.0 $ 23.8 $20.9 - 26.6 differentiator, driving sales and margins whileOperating Income $ 7.1 N/A N/A strengthening customer relationships with consumersEPS N/A $ 5.25 $4.15 - 6.08 and very small businesses. Apple is targeting very small businesses (VSBs) with its new Joint Venture program available through Apple Retail Stores. TBR believes the new program will allow Apple to gain greater control over its customers’ experiences by limiting third-party interaction.4 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Executive Summary TBRWith accelerating iPad and iPhone growth, Apple will continue itsmultipronged strategy to drive sales globallyTBR assessment of Apple’s two-year strategic outlookKey Takeaways Strategic OutlookFinancial: iPhone, iPad and Mac revenues will • Apple will invest to maintain a supply of keycontinue to provide strong revenue growth for Apple, components, such as screens for its iPad. This ensureswith iPhone generating triple-digit growth in greater an adequate supply of iPads, while blockingChina. competitors from obtaining components. As a result, RIM’s PlayBook was delayed due to componentGo-to-market: TBR believes Apple’s growth of its shortages, allowing Apple a greater lead in theretail presence, carriers expansion and the iPhone enterprise tablet market.“white” upgrade will drive iPhone revenue in 2Q11. • iOS and an increasing base of App Store client devicesResource: Apple will leverage its retail stores as a will provide a core around which Apple can buildsupport network to drive adoption of Apple devices additional digital hub products and diversify itsand maintain control over its customer experience. revenue stream. • Despite high entry prices, Apple will continue to gain PC market share. • Though Android will inevitably erode Apple’s market share in smartphones, the company will remain a major player in the rapidly growing market. • Apple’s percentage of revenue from the Americas and EMEA will decrease as the iPhone and iPad expand the company’s presence in other markets.5 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Executive Summary TBRRapid revenue growth, due to the continued success of iPhone 4 andthe introduction of iPad 2, places Apple ahead of its peers Company Average Standard Company Average StandardFINANCIAL METRICS TBR Score Figure in Class Deviation/2 GO-TO-MARKET METRICS TBR Score Figure in Class Deviation/2 Annual revenue per salesperson* 4.70 $4,781 $5,994 $4,240Revenue (in $ Millions) 8.06 $24,667 $12,081 $5,287 Cost per revenue dollar 6.53 $0.03 $ 0.08 $ 0.03Gross Margin 5.48 41.4% 37.1% 9.0% Cost per margin dollar 7.75 $0.07 $ 0.22 $ 0.06SG&A (% of revenue) 7.24 7.1% 17.5% 4.6% Channel expense as a % of S&M expense 5.02 21.2% 21.3% 9.0%Sales & Marketing (% of revenue) 6.98 5.2% 13.9% 4.3% Marketing expense as a % of S&M expense 2.86 46.0% 27.1% 8.9%General & Admin (% of revenue) 7.05 1.9% 3.7% 0.9% Annual sales expense per sales employee* 6.15 $140 $270 $113R&D (% of revenue) 6.55 2.4% 7.2% 3.1% Annual marketing expense per marketing employee* 6.92 $143 $287 $75Total operating expenses (% of revenue) 7.40 9.5% 25.9% 6.8%Operating Margin 8.80 31.9% 11.6% 5.3% TOTAL AVERAGE TBR SCORE 5.63Net Margin 8.58 24.3% 8.0% 4.6%Revenue Growth YTY 10.00 82.7% 18.5% 11.8% TBR SCORING SUMMARY:Gross Profit YTY change 9.84 81.7% 23.4% 12.0% 1Q10 2Q10 3Q10 4Q10 1Q11SG&A YTY change 1.62 44.5% 10.1% 10.2% Financial Model Strategy: 6.51 6.34 6.17 6.45 6.93Sales & Marketing YTY change 1.16 55.2% 12.3% 11.2%General & Admin YTY change 3.70 21.8% 4.3% 13.4% Go-to-Market & Services Strategies: 5.97 5.93 5.95 5.63 5.63R&D YTY change 2.70 36.4% 12.5% 10.4% Resource Management Strategy: 7.14 6.86 6.81 7.01 6.89Total operating expenses YTY change 4.48 11.1% 6.8% 8.2% TOTAL AVERAGE TBR SCORE: 6.53 6.37 6.28 6.39 6.60Operating income YTY change 4.70 97.9% 348.7% 841.4%Net Income YTY change 4.72 94.8% 747.8% 2326.6%TOTAL AVERAGE TBR SCORE 6.45 Company Average Standard Rapid revenue growth driven by strong customerRESOURCE MANAGEMENT METRICSDays sales outstanding TBR Score 7.98 Figure 21.2 in Class Deviation/2 46.5 8.5 demand across Apple’s product portfolio enabledTurns on inventory 10.00 63.7 18.5 8.4 the company to come out ahead of CBQ peers inDays inventory outstandingFixed asset turnover 7.47 4.90 5.7 16.3 36.6 17.6 12.5 12.6 the financial, go-to-market and resourceDays cash outstanding 4.64 106.7 91.6 41.8 management metric categories in 1Q11.Total asset turnover 4.77 1.1 1.1 0.2Debt/asset ratio 8.45 0.3 0.6 0.1Current ratio 5.88 1.9 1.6 0.4 KeyReturn on assets 9.44 24.3% 8.1% 3.7% Represents an area where Apple is currently challenged versus peersReturn on equity 5.28 37.8% 30.6% 25.4% Represents an area where Apple is outperforming its peersHeadcount growth YTY 1.58 33.2% 6.3% 7.9%Annual revenue per employee 8.10 $1,837 $728 $357 Represents an area where Apple is neither significantly outperformingAnnual G&A expense 5.67 $220 $261 $62 nor underperforming its peersAnnual R&D expense per developer 3.55 $443 $304 $95TOTAL AVERAGE TBR SCORE 7.016 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Strategy Overview TBRApple’s iPhone and iPad propelled corporate revenue and increasedbrand recognition for Apple devices across all product lines Function Key Strategies TBR Assessment Drive rapid growth of a loyal  Apple is leveraging the success of its iPhone and iPad products Overall customer base for premium to attract new customers to Mac and Apple TV through cross- products. selling opportunities. Apple has tolerated margin declines in iPhone and iPad to  Margins rebounded in 1Q11 due to the increase in iPhone Financial increase its customer base, sales a percentage of total revenue. The iPhone accounted for driving revenue and unit 49.9% of Apple’s revenue, up from 39.1% in 4Q10. growth. • Apple uses its chain of retail  Apple’s retail effort builds cross-sales, control over brand stores to provide an image, training, service and support, for which customers are attractive sales and service willing to pay premium product prices. environment that increases  Apple is successfully leveraging its retail stores to engage Go to customer identification with with new customers in China. Market the company.  Apple’s product-oriented advertising, aimed at consumers, is • Apple stays focused on the also intended to appeal to VSBs to drive commercial growth. consumer market and Apple is augmenting this relationship through the creation of allows consumers to pull its “Joint Venture,” a customer service program aimed at products into businesses. assisting VSBs with their Apple devices. Key:  Working: Short-term impact expected on bottom / top line  Not working: No major impact or differentiation expected7 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Strategy Overview TBRApple leveraged alliances and acquisitions to bolster products Function Key Strategies TBR Assessment Alliance & Apple forms alliances and,  Apple is forming partnerships to serve large enterprise Acquisition to a lesser degree, makes customers of the iPhone and iPad. acquisitions to remain competitive, delivering  Apple sought acquisitions and alliances in 1Q11 that comprehensive product augmented iTunes by boosting data available through iBooks ecosystems and serving and acquiring the iCloud.com domain, which TBR believes is a customers. stepping stone for enhancing Apple’s cloud presence. Operations & Apple works with suppliers and ODMs to  Apple’s tight control of SKUs helps the sales and branding Global deliver products, including process and enables immediate product availability with Delivery a comparatively large minimal inventory. Model number of customized  Outside the Americas and EMEA, Apple relies on providers for components. Its large iPhone sales and the channel for computing products, but is volumes help drive expanding its retail network worldwide. favorable deals. Resources & Apple retains its earnings Investment and aims for capital  Apple’s management of its reserves is conservative; the preservation. The company suffered minimal losses in the recent stock market company has a reserve of decline, but is now earning low returns. $66 billion in cash and  While Apple invests diligently in products, the scale of any negotiable securities, such investment is tiny compared to its $66 billion cash and which it says it is holding marketable security reserve. for strategic opportunities. Key:  Working: Short-term impact expected on bottom / top line  Not working: No major impact or differentiation expected8 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Scenario Discussion TBRApple blurs the line between a PC and phone company, as the iPhonebecomes a revenue powerhouse and drives corporate strategyScenario Discussion: The smartphone market’s rapid growth is driving Apple’s revenue through iPhone salesScenario SWOT Assessment • Apple is almost a phone company: TBR believes Apple isStrength: iPhone 4 remains in high demand benefiting from holding a major share of the smartphone market that is both large and growing rapidly. For mostthrough carrier expansion in the U.S. and customers, a phone is essential, exceeding the perceivedinternationally. need of a PC or tablet. Apple is capitalizing on the productWeakness: CDMA network with Verizon limits inelasticity of smartphones (as compared to PCs) to driveU.S. costumers from international use. revenue, which was $12.3 billion, or 49.9% of Apple’s totalOpportunity: Apple will continue to attack the revenue compared to 39.1% in 4Q10. To expand itsrapidly growing smartphone market for addressable iPhone market, Apple expanded iPhone carriersrevenue growth. globally to Verizon, SK Telecom in Korea and Saudi Telecom in Saudi Arabia.Threat: Customer anticipation of iPhone 5 will • Less expensive 3GS iPhones drove sales: iPhone sales werecause purchase delays in 2Q11. also aided by the "very popular" $49 iPhone 3GS. With a much lower purchase price, and the availability of limited data plans for half the monthly subscription rate of the original unlimited plan, the iPhone now enjoys the sales advantage of a lower price tier, while profits to Apple for these equally-subsidized units are almost as large as for the iPhone 4. • Verizon propels iPhone growth: The role of the Verizon deal in iPhone growth is shown in Apples 155% increase in U.S. iPhone revenue. As Verizon customers come off their current contracts, TBR expects Apple to enjoy rapid iPhone revenue growth for at least the next three quarters.9 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Scenario Discussion TBRiPad 2’s large consumer base and well-developed applications willdrive “carry in” adoption among businessesScenario Discussion: Consumer influence will bring the iPad into the business space, driving unit sales andrevenue in 2011Scenario SWOT Assessment • To combat the flood of tablet devices pouring into the market,Strength: Apple’s iPad has the majority share TBR believes Apple will push hard into the commercial space, leveraging consumerization of IT and its well-developed Appof the tablet market, with first mover Store. The iPad holds the majority consumer market share, withadvantage. Android devices making only a small impact in consumer tabletWeakness: Lacks Flash web-browsing, 4G sales in 1Q11; however, we believe vendors will begin to releasecompatibility and mini-USB ports. tablets targeting specific business verticals in 2H11, driving downOpportunity: Push B2B solutions for high- Apple’s commercial market share.tech firms that require mobile efficiency. • TBR believes the effort to expand in business will driveThreat: Android, WebOS, and Windows 7 continued momentum for the iPad. Apple will leverage thetablets specifically targeting the business introduction of business applications, seamless integration and consumer appeal to drive the iPad into the enterprise space.space. Additionally, “carry in” adoption has prompted software vendors to provide products that support iPad integration. Oracle released Business Intelligence software that supports both the iPad and iPhone. • iPad revenue decreased 38% sequentially, as unit sales dropped from 7.3 million in 4Q10 to 4.7 million in 1Q11 due to the seasonality of the consumer tablet market and the transition to the iPad 2. Anticipation of the iPad 2 suppressed demand for the iPad 1, leading to what acting CEO Tim Cook called "staggering“ demand for iPad 2, which led to a shortage in supply. TBR believes the iPad still has enormous momentum and will help drive rapid Apple growth throughout 2011.10 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Scenario Discussion TBRApple’s iPhone is a success in China and is knocking on the door ofemerging marketsScenario Discussion: Apple will use China as a test bed for emerging market strategy and further global expansionScenario SWOT Assessment • Apple will duplicate success to drive growth: Apple‘s iPhone is driving revenue growth and Mac sales in greater China, asStrength: Customer support in the retail space, consumers expand their ownership of Apple products after beingcoupled with brand recognition, is driving iPhone introduced to the iPhone. TBR believes Apples across-the-boardsales in greater China. growth is more than just a "halo effect," or a strong brand. AppleWeakness: Past years of revenue stagnation in has established, for its customers, a different set of expectationsAsia-Pacific. about service and support, especially where the company reaches its customers through its retail system. TBR expects Apple willOpportunity: Apple will use its China model to leverage the iPhone and iPad as entry-level consumer products,pursue growth in other emerging markets. coupled with customer support to launch its growth in otherThreat: Humanitarian issues at Foxconn in China emerging markets.could damage Apple’s brand recognition, which is • Greater China is Apple’s fastest-growing iPhone market: With Apple’s success in China, TBR believes the company will expanda large driver of sales. aggressively into other emerging markets. After years of stagnation in emerging markets, Apple has, over the last four years, used its iPhone and iPad to rapidly generate revenue in the Asia-Pacific region, especially in "greater China," which includes China, Hong Kong and Taiwan. iPhone revenue from greater China rose 250% year-to-year in 1Q11 with total revenue increasing to "just under $5 billion," which is almost one-fifth of its business. The strategy’s success is reflected by the 76% increase in Mac unit sales in Asia-Pacific, where Macs did not do well in the past because of high entry prices. In the earnings call, acting CEO Cook said China is a test bed for Apple’s emerging market strategy.11 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Corporate SWOT Analysis TBRApple is leveraging customer support and brand image to expandglobally and outpace Android device adoption Corporate SWOT Analysis Strengths Opportunities • iPhone 4 remains in high demand through carrier • Apple will continue to attack the rapidly growing expansion in the U.S. and internationally smartphone market for revenue growth • Apple’s iPad has the majority share of the tablet • Push B2B solutions for high-tech firms that require market, with first mover advantage mobile efficiency • Customer support in the retail space, coupled with • Apple will use its China model to pursue growth in brand recognition, is driving iPhone sales in greater other emerging markets China • Start a new business in mobile and Internet payments (4Q10 report) Weaknesses Threats • CDMA network with Verizon limits U.S. customers • Customer anticipation of iPhone 5 will cause from international use purchase delays in 2Q11 • iPad lacks Flash web-browsing, 4G compatibility and • Android, WebOS, and Windows 7 tablets that mini-USB ports specifically targeting the business space • Past years of revenue stagnation in Asia-Pacific • Humanitarian issues at Foxconn in China could • Prices for entry-level Macs are far higher than damage Apple’s brand recognition, which is a large competitors’ entry prices (1Q09 report) driver of sales12 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Financial Model Strategy TBRRecord-breaking sales of iPhones and Macs drives substantialyear-to-year revenue growthRevenue Performance and Strategies TBR 1Q11 Revenue: $24.7 billion, 82.7% YTY APPLE TWO-YEAR REVENUE AND GROWTH $30,000 90% • 1Q11 was record-breaking for Apple in terms of first quarter revenues, led by iPhone sales, which reached Revenue Growth Year-to-year 80% Revenue ($ millions) $25,000 70% 18.6 million units, a 113.1% year-to-year growth. $20,000 60% 50% • Mac revenues were strong, with sales rising 27.8% $15,000 40% YTY despite the lack of growth in the PC market $10,000 30% overall. $5,000 20% • The iTunes Store also had a record-breaking quarter, 10% pulling in nearly $1.4 billion in revenue from sales of $0 0% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est. music, video, iOS apps and e-books. Demand for iPads 2Q11 exceeded production capacity and also boosted Revenue Y/Y Growth Rate revenues in 1Q11. SOURCE: TBR AND APPLE Revenue and Growth Outlook TBR APPLE REVENUE BY REGION • We expect a small drop in revenues from $24.7 billion $30,000 $25,000 in 1Q11 to $24 billion in 2Q11 due to seasonality. APAC $6,445 • TBR anticipates Apple will gain revenue from the in $ millions $20,000 $15,000 $6,569 enterprise sector, as more companies adopt iPhone EMEA $2,891 and iPad technology and develop business-specific $10,000 $4,302 $11,652 apps. $5,000 Americas $6,306 • Revenue generated from Mac sales is expected to $0 1Q10 1Q11 remain strong, especially highly portable models such Calendar Quarter as MacBook Air, which continue to grow significantly SOURCE: TBR AND APPLE in emerging markets.13 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Financial Model Strategy TBRApple’s iPhone contributed a higher percentage of revenue, leadingto improved gross margins Cost & Margin Performance and Strategies 1Q11 Operating Expense: $2.3 billion • Gross margin for 1Q11 was 41.4%, an increase of 290 basis points Cost of from the previous quarter which is Services, attributed to strong sales of Gross iPhones combined with lower-than- profit expected costs. • TBR predicts gross margin will be 39.2% of revenue in 2Q11. • Apple’s SG&A expense dropped from nearly $1.89 billion in 4Q10 to $1.76 billion in 1Q11, a 7.0% TBR APPLE PROFITABILITY AND GROWTH SG&A sequential decline. 50% 90% • We estimate SG&A expense will 40% rise 2.1% from 1Q11 to $1.8 billion in 2Q11. Revenue Growth 60% Margins 30% 20% • Operating margin was an all-time 30% Operating high, at nearly $7.9 billion and 10% Margin representing 31.9% of revenue, up 0% 1Q10 2Q10 3Q10 4Q10 1Q11 0% and from 29.3% in the previous quarter. Gross Margin Operating Margin Outlook • TBR expects operating margin to Net Margin Revenue Growth Year-to-Year decrease slightly in 2Q11 to 29.2%. SOURCE: TBR AND APPLE14 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Financial Model Strategy TBRWhile the iPhone contributed to the retraction of iPod revenue,product maturity will continue to limit iPod growth Segment Revenue Performance and Strategies Segment Financials TBR APPLE SEGMENT CONTRIBUTIONS 100% iPhone sales reached 18.6 million units, drivenPercent of Total Revenue 80% $5,445 $5,334 $8,822 $10,468 $12,298 iPhone by carrier expansion in the U.S., Asia and the 60% Middle East. $3,188 $4,925 40% $5,512 $9,464 $6,070 20% $4,866 $5,441 $6,009 $6,809 $6,299 Strong sales in Asia and the popularity of 0% Mac MacBook Air and MacBook Pro pushed Mac 1Q10 2Q10 3Q10 4Q10 1Q11 sales to 3.8 million units. iPhone iPod, iPad & iTunes PCs, SW, Svcs, & Peripherals SOURCE: TBR AND APPLE Apple sold 4.7 million iPads due to TBR APPLE PERCENT REVENUE BY SEGMENT iPad international expansion and the introduction 60% of the iPad 2. Percent Revenue 50% 40% Despite the iPod touch, the iPod continues to 30% show maturity and saturation with a 17.2% iPod 20% year-to-year decline in unit shipments to 10% 9 million units. 0% Peripherals revenue increased 22.9% year-to- PCs, SW, Svcs, & Peripherals iPod, iPad & iTunes iPhone Peripherals year to $580 million, driven by iPhone and SOURCE: TBR AND APPLE iPad accessories. 15 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Financial Model Strategy TBRWhile consumer sales dominated Apple’s revenue, enterprise adoptionof its devices will position the company for strong commercial growth Segment Revenue Performance and Strategies Segment Financials • Consumer revenue was $19.5 billion in 1Q11, compared to $10.4 billion in 1Q10. Consumer revenue nearly doubled over the past four quarters due to the success of the iPhone 4 and Consumer the iPad. • Mac consumer revenue rose 38.8% year-to-year, due to strong sales of MacBook Air, especially in greater China. • Apple’s revenue growth from business and creative professional customers continued a trend of acceleration, reaching $1.8 billion in 1Q11, up from Commercial 1.4 billion in 1Q10. • Consumerization of IT is driving the iPhone and iPad into enterprise, albeit at a slower rate than consumer adoption.16 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Go-to-Market & Product Strategies TBRiPad 2’s A5 processor packs a secret recipe for gaining market shareand maintaining premium pricingNew Product Development: Apple unveiled the iPad 2 in early March, touting a thinner, lighter design with anenhanced set of features powered by its A5 processorKey Takeaways • TBR believes Apple’s unique and somewhat mysterious A5Apple’s distinctive A5 processor will differentiate processor for the iPad 2 will allow the company to maintainthe iPad in the tablet market. premium pricing. As the tablet market quickly becomesiPad 2 hosts a variety of upgrades, contributing saturated with commodity tablets and manufacturers race toto market share expansion. compete on price, TBR believes Apple will leverage the A5’sApple’s supply chain remained intact after the exclusive technology to maintain high margins.devastating earthquake in Japan. • The dual-core A5 processor design contributes to the host of new features on the iPad 2 that will boost Apple’s market share and premium brand recognition. The iPad 2 has increased processing power without compromising battery life, which still stands at up to 10 hours, as well as faster web browsing. • Apple licenses ARM architecture to build its own processor; however, only about 50% of the A5 processor exhibits typical ARM architecture, with the remaining 50% completely unique to Apple. • After its March 25 launch, demand for the iPad 2 quickly exceeded supply, leaving customers to endure a two- to three- week wait for the device. Despite high demand, TBR believes SOURCE: APPLE Apple’s supply chain will only be marginally affected throughout 2011 by the earthquake in Japan.17 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Alliance & Acquisition Strategies TBRApple is positioning for future growth with cloud and VSBs to expand intonew marketsMap of alliance, acquisition and development synergies TBR expects Apple will look to alliances and acquisitions expand outside the consumer hardware space, into cloud and business specific services. Internal Development • Apple is targeting VSBs with its new Joint Venture Acquisitions • Apple formed “Joint program available through Apple Retail Stores. TBR • iCloud.com domain Venture” to target believes the new program will allow Apple to gain acquisition will be service and support greater control over its customers’ experiences by used for iTunes the needs of VSBs. limiting third-party interaction. cloud-storage. • Apple formed an alliance with Random House in 1Q11 to deliver more content to iPad and iPhone users and continue expansion of its App Store. In early March, Apple announced an alliance with Random House Inc. Alliances which will add 17,000 “iBooks” to the iBookstore, which • Random House Inc. alliance enables consumers to download titles to iPhones and will accelerate Apple’s iPads. The alliance with all six major trade publishers iBooks availability. will allow Apple to distribute over 200,000 books. • OnForce alliance will • Apple’s alliance with OnForce will change the way support non-warranty Apple handles its non-warranty customer support calls. customer calls. Previously handled by the Apple Consultant Network (ACN), a group of Apple certified consultants, the task will now be handed of to OnForce, allowing Apple Alliances and acquisitions accelerate Apple’s efforts tighter control over the quality of customer support. to expand in new markets, product areas and TBR believes the consistency of quality support will geographies, positioning the company for growth. improve through this structural change, but will leave a wake of disgruntled Apple “ambassadors.”18 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Geographic Overview TBRContinued iPhone and iPad global expansion – particularly in emergingmarkets – will provide 2Q11 revenue growth TBR APPLE REVENUE BY REGION TBR Conclusions $30,000 • TBR believes Apple will bolster the sales $25,000 APAC of its portable products on a global basis – $6,445 in $ millions $20,000 especially iPhones, iPads and MacBooks. $15,000 $6,569 EMEA $2,891 • We believe Apple’s growth in China will $10,000 $4,302 $11,652 lead to the pursuit of further expansion in $5,000 $6,306 Americas emerging markets. $0 1Q10 1Q11 Calendar Quarter SOURCE: TBR AND APPLE Americas EMEA APAC and Japan EMEA saw positive Overall, Mac sales in APAC were The Americas comprised 38% of growth in iPhone and up 76% YTY. China contributed Apple’s revenue, up from 34% in Mac sales in 1Q11. nearly $5 billion to Apple’s 4Q10. Growth was primarily Key Increased Mac sales may revenues, up about four times YTY. driven by iPhone sales doubling Strategies be the result of a halo In Japan, Apple has engaged in YTY in the Americas. The entry effect related to the considerable negotiations to into Verizon Wireless in the U.S. higher iPhone/iPad prevent supply disruptions caused was a positive growth driver. adoption. by the March earthquake.19 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Resource Management Strategy TBRApple production remains secure following the Japan earthquake, with noforeseen disruption in the supply chain through 2011Resource Management Strategy • As a byproduct of the massive earthquake in APPLE EFFICIENCY METRICS (IN $000S) TBR Japan, a shortage and price hike in components 1Q10 1Q11 for electronics is imminent. Apple is tapping its Revenue per Employee $1,427 $1,837 large cash reserves to secure an adequate supply S&M Employee Expense per head $154 $140 of iPad and iPhone components from Japanese R&D Employee Expense per head $385 $443 manufacturers to prevent shortages for its G&A Expense per G&A head $244 $220 consumers. TBR believes this will negatively affect Revenue per Salesperson $4,130 $4,781 profit margins to a slight degree, but will be necessary to meet demand. • Senior Vice President of Mac Software Engineering Bertrand Serlet has left Apple. Serlet will be replaced by Craig Federighi, Apple’s VP of APPLE PROFITABILITY AND GROWTH Mac software engineering. Apple has not TBR indicated if Federighi will be a long-term 50% 90% replacement. 40% Revenue Growth 60%Apple Capital Investments Margins 30% Apple’s North Carolina datacenter will likely host 20% 30% the company’s next venture into the cloud 10% market. TBR believes Apple will use the 0% 0% datacenter to host a web-based video service that 1Q10 2Q10 3Q10 4Q10 1Q11 could rival Netflix. The video service would also Gross Margin Operating Margin drive sales of Apple products. Net Margin Revenue Growth Year-to-Year SOURCE: TBR AND APPLE20 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Resource Management Strategy TBR Apple’s headcount continued to grow in 1Q11 due to increases in customer support, product development and retail expansion Headcount Strategies Headcount drivers and changes • Sales & Marketing – Apple’s Sales & Marketing headcounts continue to grow as a result of its new focused expansion into emerging markets. • General & Administrative – Apple’s G&A employee base rose year-to-year to support business growth. • Research & Development – Expansion in product lines and model upgrades, such as the anticipated 2011 release of the iPhone 5, caused Apple to increase R&D headcount 26.8% year-to-year. • Service & Support – Apple’s Service & Support segment increased year-to-year as Apple leverages itsTBR APPLE HEADCOUNT Manufacturing and Other direct sales approach to gain new customers and 55,000 725 1,950 penetrate the very small business market. 50,000 Marketing 45,000 2,025 2,900 • Retail – Apple continued investing in its retail 650 40,000 1,750 5,200 Sales headcount ahead of other business functions in 1Q11 35,000 1,830 to support retail in the U.S. and China.Headcount 2,550 9,300 30,000 General and Administrative 4,100 25,000 20,000 8,120 Research and Development Keep on the radar 15,000 28,500 Service and Support Low-Cost Regions – We expect Apple to grow its retail 10,000 5,000 19,000 headcount as the company continues to invest in retail Retail 0 stores. 1Q10 1Q11SOURCE: TBR AND APPLE 21 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Organizational Structure TBRApple, Inc. Organizational Chart Steve Jobs CEO Timothy D. Cook Peter Oppenheimer Acting CEO Senior Vice President Chief Operating Officer and Chief Financial Officer Bruce Sewell Jonathan Ive Senior Vice President Senior Vice President and General Counsel Industrial Design Philip W. Schiller Ron Johnson Senior Vice President Senior Vice President Worldwide Product Retail Marketing Craig Federighi Scott Forstall Senior Vice President Senior Vice President Software Engineering iPhone Software Sina Tamaddon Bob Mansfield Senior Vice President Senior Vice President Applications Mac Hardware Engineering22 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Income Statement TBR APPLE, INC. Consolidated Statement of Income TBR (i n $ Thous a nds ) CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11 FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Es t. 3Q11 Net Sales $13,499,000 $15,700,000 $20,343,000 $26,741,000 $24,667,000 $24,000,000 Cost of Sales 7,874,000 9,564,000 12,832,000 16,443,000 14,449,000 14,600,000 Gross Profit 5,625,000 6,136,000 7,511,000 10,298,000 10,218,000 9,400,000 SG&A 1,220,000 1,438,000 1,571,000 1,896,000 1,763,000 1,800,000 R&D 426,000 464,000 494,000 575,000 581,000 600,000 Operating Income 3,979,000 4,234,000 5,446,000 7,827,000 7,874,000 7,000,000 Other Income (Expense) 50,000 58,000 14,000 136,000 26,000 70,000 EBITD 4,029,000 4,292,000 5,460,000 7,963,000 7,900,000 7,070,000 Income Taxes 955,000 1,039,000 1,153,000 1,959,000 1,913,000 1,775,000 Net Income $3,074,000 $3,253,000 $4,307,000 $6,004,000 $5,987,000 $5,295,000 AS A PERCENTAGE OF REVENUE Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 58.3% 60.9% 63.1% 61.5% 58.6% 60.8% Gross Margin 41.7% 39.1% 36.9% 38.5% 41.4% 39.2% SG&A 9.0% 9.2% 7.7% 7.1% 7.1% 7.5% R&D 3.2% 3.0% 2.4% 2.2% 2.4% 2.5% Operating Margin 29.5% 27.0% 26.8% 29.3% 31.9% 29.2% Gain from Sale of Investment 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Other Income (Expense) 0.4% 0.4% 0.1% 0.5% 0.1% 0.3% EBITD 29.8% 27.3% 26.8% 29.8% 32.0% 29.5% Income Taxes 7.1% 6.6% 5.7% 7.3% 7.8% 7.4% Net Margin 22.8% 20.7% 21.2% 22.5% 24.3% 22.1% YEAR-TO-YEAR CHANGE Net Sales 48.6% 61.3% 66.7% 70.5% 82.7% 52.9% Cost of Goods Sold 44.3% 66.3% 80.7% 77.3% 83.5% 52.7% Gross Profit 55.1% 54.1% 47.1% 60.6% 81.7% 53.2% SG&A 23.9% 42.4% 47.8% 47.2% 44.5% 25.2% R&D and Engineering 33.5% 36.1% 38.0% 44.5% 36.4% 29.3% Operating Income 71.3% 60.9% 47.8% 65.7% 97.9% 65.3% Other, Net -20.6% -3.3% -68.9% 312.1% -48.0% 20.7% EBITD 68.9% 59.4% 46.4% 67.4% 96.1% 64.7% Income Taxes 24.7% 20.3% -3.7% 42.0% 100.3% 70.8% Net Income 89.8% 78.0% 70.1% 77.7% 94.8% 62.8% SEQUENTIAL CHANGE Net Sales -13.9% 16.3% 29.6% 31.5% -7.8% -2.7% Cost of Goods Sold -15.1% 21.5% 34.2% 28.1% -12.1% 1.0% Gross Profit -12.3% 9.1% 22.4% 37.1% -0.8% -8.0% SG&A -5.3% 17.9% 9.2% 20.7% -7.0% 2.1% R&D 7.0% 8.9% 6.5% 16.4% 1.0% 3.3% Operating Income -15.8% 6.4% 28.6% 43.7% 0.6% -11.1% Other, Net 51.5% 16.0% -75.9% 871.4% -80.9% 169.2% EBITD -15.3% 6.5% 27.2% 45.8% -0.8% -10.5% Income Taxes -30.8% 8.8% 11.0% 69.9% -2.3% -7.2% Net Income -9.0% 5.8% 32.4% 39.4% -0.3% -11.6% SOURCE: TBR AND APPLE23 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Balance Sheet TBR APPLE, INC. Consolidated Balance Sheets TBR (i n $ Thous a nds ) CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 ASSETS Current Assets Cash & Short-term Investments $ 23,155,000 $ 24,288,000 $ 25,620,000 $ 26,977,000 $ 29,234,000 Accounts Receivable 2,886,000 3,447,000 5,510,000 6,027,000 5,798,000 Inventory 638,000 942,000 1,051,000 885,000 930,000 Deferred Tax Assets 1,142,000 1,216,000 1,636,000 1,724,000 1,683,000 Other Current Assets 4,515,000 6,140,000 7,861,000 8,314,000 9,352,000 Total Current Assets 32,336,000 36,033,000 41,678,000 43,927,000 46,997,000 Long-term marketable securities 18,549,000 21,551,000 25,391,000 32,730,000 36,533,000 Property, Plant, Equip. (Net of Dep.) 3,504,000 3,990,000 4,768,000 5,868,000 6,241,000 Other, Net 2,668,000 3,151,000 3,346,000 4,217,000 5,133,000 Total Assets $ 57,057,000 $ 64,725,000 $ 75,183,000 $ 86,742,000 $ 94,904,000 LIABILITIES AND EQUITY Current Liabilities Accounts Payable 5,666,000 8,469,000 12,015,000 14,301,000 13,714,000 Accrued Expenses 4,021,000 4,452,000 5,723,000 5,953,000 7,022,000 Total Current Liabilities 12,229,000 15,612,000 20,722,000 23,795,000 24,327,000 Other non-current liabilities 4,539,000 4,981,000 5,531,000 7,065,000 7,870,000 Total Liabilities 17,709,000 21,614,000 27,392,000 32,076,000 33,427,000 Stockholders Equity Common Stock & PIC 9,553,000 10,133,000 10,668,000 11,502,000 12,326,000 Retained Earnings 29,670,000 32,870,000 37,169,000 43,050,000 49,025,000 Other 125,000 108,000 (46,000) 114,000 126,000 Total Stockholders Equity 39,348,000 43,111,000 47,791,000 54,666,000 61,477,000 Total Liabilities & Equity $ 57,057,000 $ 64,725,000 $ 75,183,000 $ 86,742,000 $ 94,904,000 FINANCIAL RATIOS Cost of Sales 2.64 2.31 2.01 1.85 1.93 Days Sales Outstanding 19.24 19.76 24.38 20.28 21.15 Turns on Inventory 51.89 48.43 51.51 67.95 63.69 Days Inventory Outstanding 7.03 7.54 7.09 5.37 5.73 Fixed Asset Turnover 16.32 16.76 18.58 20.11 16.30 Days Cash Outstanding 154.38 139.23 113.35 90.79 106.66 Total Asset Turnover 0.97 1.03 1.16 1.32 1.09 Debt/Asset Ratio 0.23 0.26 0.29 0.29 0.27 Current Ratio 2.64 2.31 2.01 1.85 1.93 Return on Assets 21.5% 21.9% 22.3% 23.5% 24.3% Return on Equity 31.9% 32.7% 33.8% 36.0% 37.8% Employees 38,000 42,250 46,600 51,000 50,600 Revenue/Employee $1,426,522 $1,496,926 $1,582,651 $1,715,671 $1,836,724 SOURCE: TBR AND APPLE24 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.24
  • Appendix – Segment Revenue TBR APPLE REVENUE MODEL TBR CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11 FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Es t. 3Q11 Total Revenue $ 13,499,000 $ 15,700,000 $ 20,343,000 $ 26,741,000 $ 24,667,000 $ 24,000,000 Gross Profit $ 5,625,000 $ 6,136,000 $ 7,511,000 $ 10,298,000 $ 10,218,000 $ 9,400,000 Gross Margin 41.7% 39.1% 36.9% 38.5% 41.4% 39.2% REVENUE BY PRODUCT Notebook $ 2,228,000 $ 3,098,000 $ 3,194,000 $ 3,699,000 $ 3,535,000 $ 3,600,000 MacBook Air & Pro $ 1,530,000 $ 2,125,000 $ 2,117,000 $ 3,175,000 $ 2,900,000 $ 2,950,000 MacBook $ 698,000 $ 973,000 $ 1,077,000 $ 524,000 $ 635,000 $ 625,000 Desktop $ 1,532,000 $ 1,301,000 $ 1,676,000 $ 1,731,000 $ 1,441,000 $ 1,375,000 Mac Pro $ 162,000 $ 153,000 $ 248,000 $ 291,000 $ 281,000 $ 275,000 iMac/Mac mini $ 1,300,000 $ 1,075,000 $ 1,350,000 $ 1,400,000 $ 1,150,000 $ 1,100,000 Total Computer $ 3,760,000 $ 4,399,000 $ 4,870,000 $ 5,430,000 $ 4,976,000 $ 4,975,000 Peripherals $ 472,000 $ 396,000 $ 477,000 $ 593,000 $ 580,000 $ 495,000 iPod $ 1,861,000 $ 1,545,000 $ 1,477,000 $ 3,425,000 $ 1,600,000 $ 1,400,000 iPhone $ 5,445,000 $ 5,334,000 $ 8,822,000 $ 10,468,000 $ 12,298,000 $ 11,880,000 Software and Services $ 634,000 $ 646,000 $ 662,000 $ 786,000 $ 743,000 $ 750,000 iTunes Revenue $ 1,327,000 $ 1,214,000 $ 1,243,000 $ 1,431,000 $ 1,634,000 $ 1,500,000 PRODUCT MIX (PERCENTAGE OF TOTAL REVENUE) Notebook 16.5% 19.7% 15.7% 13.8% 14.3% 15.0% MacBook Air & Pro 11.3% 13.5% 10.4% 11.9% 11.8% 12.3% MacBook 5.2% 6.2% 5.3% 2.0% 2.6% 2.6% Desktop 11.3% 8.3% 8.2% 6.5% 5.8% 5.7% Mac Pro 1.2% 1.0% 1.2% 1.1% 1.1% 1.1% iMac/Mac mini 9.6% 6.8% 6.6% 5.2% 4.7% 4.6% Total Computer 27.9% 28.0% 23.9% 20.3% 20.2% 20.7% Peripherals 3.5% 2.5% 2.3% 2.2% 2.4% 2.1% iPod 13.8% 9.8% 7.3% 12.8% 6.5% 5.8% iPhone 40.3% 34.0% 43.4% 39.1% 49.9% 49.5% Total Hardware Revenue 85.5% 88.2% 90.6% 91.7% 90.4% 90.6% Software and Services 4.7% 4.1% 3.3% 2.9% 3.0% 3.1% iTunes Revenue 9.8% 7.7% 6.1% 5.4% 6.6% 6.3% Total Non HW Revenue 14.5% 11.8% 9.4% 8.3% 9.6% 9.4% YEAR-TO-YEAR REVENUE GROWTH Notebook 17.0% 39.5% 10.5% 34.1% 58.7% 16.2% MacBook Air & Pro 104.0% 25.0% -4.9% 47.7% 89.5% 38.8% MacBook -39.5% 87.1% 61.7% -13.8% -9.0% -35.8% Desktop 45.1% 14.7% 53.9% 2.3% -5.9% 5.7% Mac Pro -49.5% -45.2% -14.2% 44.1% 73.5% 79.7% iMac/Mac mini 91.2% 34.4% 82.4% -1.8% -11.5% 2.3% Total Computer 27.0% 31.2% 22.4% 22.0% 32.3% 13.1% Peripherals 32.2% 16.5% 22.0% 26.4% 22.9% 25.0% iPod 11.8% 3.6% -5.5% 1.0% -14.0% -9.4% iPhone 124.4% 74.3% 91.5% 87.7% 125.9% 122.7% Total Hardware Revenue 55.7% 67.8% 74.9% 76.6% 93.2% 57.2% Software and Services 1.3% 21.9% 2.0% 24.6% 17.2% 16.1% iTunes Revenue 26.5% 26.7% 22.1% 22.9% 23.1% 23.6% Total Non HW Revenue 17.1% 25.0% 14.3% 23.5% 21.2% 21.0% SOURCE: TBR ESTIMATES AND APPLE25 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Units and ASPs TBR APPLES UNIT SHIPMENTS AND ASPs TBR CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11 FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Es t. 3Q11 UNIT SHIPMENTS Notebook 1,796,000 2,468,000 2,643,000 2,907,000 2,751,000 2,800,000 MacBook Air & Pro 1,137,000 1,556,000 1,582,000 2,395,000 2,330,000 2,380,000 MacBook 659,000 912,000 1,061,000 512,000 421,000 420,000 Desktop 1,147,000 1,004,000 1,242,000 1,227,000 1,009,000 1,005,000 Mac Pro 50,700 48,500 77,600 85,000 72,000 70,900 iMac/Mac mini 1,083,300 942,000 1,150,000 1,135,000 935,000 910,000 Total Computer 2,943,000 3,472,000 3,885,000 4,134,000 3,760,000 3,805,000 iPod 10,885,000 9,406,000 9,051,000 19,446,000 9,017,000 8,500,000 iPhone 8,752,000 8,398,000 14,102,000 16,235,000 18,647,000 18,100,000 YEAR-TO-YEAR UNIT GROWTH Notebook 28.5% 40.7% 16.6% 36.6% 53.2% 13.5% MacBook Air & Pro 250.9% 23.9% -3.1% 53.7% 104.9% 53.0% MacBook -38.6% 83.1% 67.4% -10.2% -36.1% -53.9% Desktop 40.2% 18.3% 57.8% -0.6% -12.0% 0.1% Mac Pro -56.5% -50.8% -24.4% 55.1% 42.0% 46.2% iMac/Mac mini 56.8% 27.3% 70.9% -2.7% -13.7% -3.4% Total Computer 32.8% 33.4% 27.3% 23.0% 27.8% 9.6% iPod -1.2% -7.9% -11.1% -7.3% -17.2% -9.6% iPhone 130.7% 61.3% 91.4% 85.8% 113.1% 115.5% AVERAGE SELLING PRICE Notebook $ 1,241 $ 1,255 $ 1,208 $ 1,272 $ 1,285 $ 1,286 MacBook Air & Pro $ 1,346 $ 1,366 $ 1,338 $ 1,326 $ 1,245 $ 1,239 MacBook $ 1,059 $ 1,067 $ 1,015 $ 1,023 $ 1,508 $ 1,488 Desktop $ 1,336 $ 1,296 $ 1,349 $ 1,411 $ 1,428 $ 1,368 Mac Pro $ 3,195 $ 3,155 $ 3,196 $ 3,424 $ 3,903 $ 3,879 iMac/Mac mini $ 1,200 $ 1,141 $ 1,174 $ 1,233 $ 1,230 $ 1,209 Blended Computer ASP $ 1,278 $ 1,267 $ 1,254 $ 1,313 $ 1,323 $ 1,307 iPod $ 171 $ 164 $ 163 $ 176 $ 177 $ 165 Y/Y GROWTH - AVERAGE SELLING PRICE Notebook -8.9% -0.8% -5.3% -1.8% 3.6% 2.4% Desktop 3.5% -3.0% -2.5% 2.9% 6.9% 5.6% Blended Computer ASP -4.4% -1.7% -3.8% -0.8% 3.6% 3.2% iPod 13.1% 12.5% 6.3% 8.9% 3.8% 0.3% SOURCE: TBR ESTIMATES AND APPLE26 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Operating Expense TBR APPLE OPEX MODEL (IN $ THOUSANDS EXCEPT HEADCOUNT) TBR CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11 FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Es t. 3Q11 Total Revenue $ 13,499,000 $ 15,700,000 $ 20,343,000 $ 26,741,000 $ 24,667,000 $ 24,000,000 SG&A Expense $ 1,220,000 $ 1,438,000 $ 1,571,000 $ 1,896,000 $ 1,763,000 $ 1,800,000 Sales & Marketing Expense $ 830,000 $ 1,028,000 $ 1,136,000 $ 1,421,000 $ 1,288,000 $ 1,320,000 General & Administrative Expense $ 390,000 $ 410,000 $ 435,000 $ 475,000 $ 475,000 $ 480,000 Research and Development $ 426,000 $ 464,000 $ 494,000 $ 575,000 $ 581,000 $ 600,000 SALES & MARKETING EXPENSE BREAKOUT Sales Expense $ 500,000 $ 550,000 $ 625,000 $ 695,000 $ 695,000 $ 675,000 Sales Salary and Commissions $ 326,000 $ 369,440 $ 400,000 $ 435,000 $ 422,500 $ 409,801 Partner and Channel Spending $ 174,000 $ 180,560 $ 225,000 $ 260,000 $ 272,500 $ 265,199 Marketing Spending $ 330,000 $ 478,000 $ 511,000 $ 726,000 $ 593,000 $ 645,000 Marketing Salary/expenses $ 62,413 $ 64,350 $ 66,288 $ 68,225 $ 70,163 $ 72,100 Advertising & Programs $ 267,588 $ 413,650 $ 444,713 $ 657,775 $ 522,838 $ 708,097 Total Sales & Marketing Expense $ 830,000 $ 1,028,000 $ 1,136,000 $ 1,421,000 $ 1,288,000 $ 1,320,000 SPENDING AS A PERCENTAGE OF REVENUE Total SG&A Expense 9.0% 9.2% 7.7% 7.1% 7.1% 7.5% Sales & Marketing Expense 6.1% 6.5% 5.6% 5.3% 5.2% 5.5% Sales Expense 3.7% 3.5% 3.1% 2.6% 2.8% 2.8% Partner and Channel Spending 1.3% 1.2% 1.1% 1.0% 1.1% 1.1% Marketing Spending 2.4% 3.0% 2.5% 2.7% 2.4% 2.7% Advertising 2.0% 2.6% 2.2% 2.5% 2.1% 3.0% General & Administrative 2.9% 2.6% 2.1% 1.8% 1.9% 2.0% Research and Development 3.2% 3.0% 2.4% 2.2% 2.4% 2.5% YEAR-TO-YEAR GROWTH Total SG&A Expense 23.9% 42.4% 47.8% 47.2% 44.5% 25.2% Sales & Marketing Expense 29.0% 53.8% 60.3% 58.4% 55.2% 28.4% General & Administrative 14.1% 20.1% 22.8% 21.5% 21.8% 17.1% Research and Development 33.5% 36.1% 38.0% 44.5% 36.4% 29.3% CORPORATEWIDE HEADCOUNT Non-Retail 19,000 19,850 20,100 21,000 22,100 22,450 Sales 1,830 1,880 1,920 2,000 2,025 2,050 Marketing 1,750 1,800 1,850 1,900 1,950 2,000 General and Administrative 2,550 2,600 2,630 2,700 2,900 2,900 Research and Development 4,100 4,300 4,600 5,000 5,200 5,250 Service and Support 8,120 8,600 8,400 8,700 9,300 9,500 Manufacturing, Distribution, and Other 650 670 700 700 725 750 Retail 19,000 22,400 26,500 30,000 28,500 28,500 Total Employees 38,000 42,250 46,600 51,000 50,600 50,950 SOURCE: APPLE AND TBR ESTIMATES27 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Revenue by Customer Segment TBR APPLE REVENUE BY CUSTOMER SEGMENT TBR CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11 REVENUE (IN $ THOUSANDS) Total $13,499,000 $15,700,000 $20,343,000 $26,741,000 $24,667,000 $24,000,000 Consumer $ 10,389,100 $ 12,025,470 $ 15,683,980 $ 21,324,445 $ 19,473,115 $ 18,900,725 Education $ 1,461,840 $ 1,783,185 $ 2,131,010 $ 2,327,465 $ 2,213,445 $ 2,165,525 Education: K-12 $ 473,180 $ 620,550 $ 707,260 $ 677,155 $ 574,295 $ 554,375 Education: University $ 988,660 $ 1,162,635 $ 1,423,750 $ 1,650,310 $ 1,639,150 $ 1,611,150 Professional $ 1,648,060 $ 1,891,345 $ 2,528,010 $ 3,089,090 $ 2,980,440 $ 2,908,750 Creative Professional $ 864,430 $ 908,710 $ 1,138,055 $ 1,323,110 $ 1,264,340 $ 1,226,150 Business $ 783,630 $ 982,635 $ 1,389,955 $ 1,765,980 $ 1,716,100 $ 1,682,600 Total $ 13,499,000 $ 15,700,000 $ 20,343,000 $ 26,741,000 $ 24,667,000 $ 23,975,000 PERCENTAGE OF TOTAL REVENUE Consumer 77.0% 76.6% 77.1% 79.7% 78.9% 78.8% Education 10.8% 11.4% 10.5% 8.7% 9.0% 9.0% Education: K-12 3.5% 4.0% 3.5% 2.5% 2.3% 2.3% Education: University 7.3% 7.4% 7.0% 6.2% 6.6% 6.7% Professional 12.2% 12.0% 12.4% 11.6% 12.1% 12.1% Creative Professional 6.4% 5.8% 5.6% 4.9% 5.1% 5.1% Business 5.8% 6.3% 6.8% 6.6% 7.0% 7.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 99.9% Note: Includes revenue from all sources and product groups. SOURCE: TBR ESTIMATES28 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – PC Revenue TBR APPLE PC REVENUE BY CUSTOMER SEGMENT TBR CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11 REVENUE (IN $ THOUSANDS) Total $13,499,000 $15,700,000 $20,343,000 $26,741,000 $24,667,000 $24,000,000 PC Revenue $3,760,000 $4,399,000 $4,870,000 $5,430,000 $4,976,000 $4,975,000 Consumer $2,296,450 $2,625,560 $2,879,330 $3,470,395 $3,187,905 $3,179,125 Education $811,130 $1,056,765 $1,169,530 $1,079,605 $1,016,245 $1,010,125 Education: K-12 $307,280 $464,250 $536,410 $470,305 $375,845 $367,625 Education: University $503,850 $592,515 $633,120 $609,300 $640,400 $642,500 Professional $652,420 $716,675 $821,140 $880,000 $771,850 $760,750 Creative Professional $477,760 $478,690 $571,005 $574,720 $554,620 $542,500 Business $174,660 $237,985 $250,135 $305,280 $217,230 $218,250 Total $3,760,000 $4,399,000 $4,870,000 $5,430,000 $4,976,000 $4,950,000 PERCENTAGE OF PC REVENUE Consumer 61.1% 59.7% 59.1% 63.9% 64.1% 63.9% Education 21.6% 24.0% 24.0% 19.9% 20.4% 20.3% Education: K-12 8.2% 10.6% 11.0% 8.7% 7.6% 7.4% Education: University 13.4% 13.5% 13.0% 11.2% 12.9% 12.9% Professional 17.4% 16.3% 16.9% 16.2% 15.5% 15.3% Creative Professional 12.7% 10.9% 11.7% 10.6% 11.1% 10.9% Business 4.6% 5.4% 5.1% 5.6% 4.4% 4.4% Total 100.0% 100.0% 100.0% 100.0% 100.0% 99.5% PC PERCENTAGE OF TOTAL REVENUE Consumer 17.0% 16.7% 14.2% 13.0% 12.9% 13.2% Education 6.0% 6.7% 5.7% 4.0% 4.1% 4.2% Education: K-12 2.3% 3.0% 2.6% 1.8% 1.5% 1.5% Education: University 3.7% 3.8% 3.1% 2.3% 2.6% 2.7% Professional 4.8% 4.6% 4.0% 3.3% 3.1% 3.2% Creative Professional 3.5% 3.0% 2.8% 2.1% 2.2% 2.3% Business 1.3% 1.5% 1.2% 1.1% 0.9% 0.9% Total 27.9% 28.0% 23.9% 20.3% 20.2% 20.6% YEAR-TO-YEAR GROWTH Consumer 36.0% 32.9% 29.4% 32.4% 38.8% 21.1% Education 20.7% 30.8% 12.7% 1.9% 25.3% -4.4% Education: K-12 13.0% 45.4% 24.7% 5.1% 22.3% -20.8% Education: University 25.9% 21.2% 4.1% -0.4% 27.1% 8.4% Professional 8.8% 25.5% 14.5% 14.4% 18.3% 6.1% Creative Professional 5.9% 25.9% 25.1% 13.4% 16.1% 13.3% Business 17.7% 24.9% -4.0% 16.4% 24.4% -8.3% Total 27.0% 31.2% 22.4% 22.0% 32.3% 12.5% SOURCE: TBR ESTIMATES29 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Geography TBR APPLE REVENUE AND SHIPMENTS BY GEOGRAPHY TBR CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11 FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Es t. 3Q11 UNIT SHIPMENTS Americas 971,000 1,358,000 1,460,000 1,360,000 1,217,000 1,290,000 EMEA 899,000 914,000 978,000 1,245,000 995,000 1,000,000 Japan 129,000 129,000 118,000 162,000 155,000 140,000 Asia Pacific 338,000 394,000 455,000 516,000 596,000 625,000 Retail 606,000 677,000 874,000 851,000 797,000 800,000 Total 2,943,000 3,472,000 3,885,000 4,134,000 3,760,000 3,855,000 APPLE REVENUE BY GEOGRAPHY (IN $ THOUSANDS) Americas $ 4,993,000 $ 6,227,000 $ 7,186,000 $ 9,218,000 $ 9,323,000 $ 9,120,000 EMEA $ 4,050,000 $ 4,160,000 $ 5,458,000 $ 7,256,000 $ 6,027,000 $ 6,000,000 Japan $ 887,000 $ 910,000 $ 1,401,000 $ 1,433,000 $ 1,383,000 $ 1,200,000 Asia Pacific $ 1,886,000 $ 1,825,000 $ 2,732,000 $ 4,987,000 $ 4,743,000 $ 4,560,000 Retail $ 1,683,000 $ 2,578,000 $ 3,566,000 $ 3,847,000 $ 3,191,000 $ 3,120,000 Total $ 13,499,000 $ 15,700,000 $ 20,343,000 $ 26,741,000 $ 24,667,000 $ 24,000,000 PERCENTAGE OF TOTAL REVENUE Americas 37% 40% 35% 34% 38% 38% EMEA 30% 26% 27% 27% 24% 25% Japan 7% 6% 7% 5% 6% 5% Asia Pacific 14% 12% 13% 19% 19% 19% Retail 12% 16% 18% 14% 13% 13% Total 100% 100% 100% 100% 100% 100% YEAR-TO-YEAR CHANGE IN REVENUE Americas 27% 39% 37% 51% 87% 46% EMEA 63% 66% 69% 44% 49% 44% Japan 51% 63% 121% 83% 56% 32% Asia Pacific 172% 160% 157% 175% 151% 150% Retail 22% 73% 75% 95% 90% 21% Total 49% 61% 67% 71% 83% 53% SOURCE: TBR ESTIMATES AND APPLE30 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Financial Strategy Graphs TBR TBR MAC UNIT GROWTH YEAR-TO-YEAR 5,000 60.0% 3,885 4,134 3,805 In $ Thousands 4,000 3,760 50.0% 3,472 2,943 40.0% 3,000 30.0% 2,000 20.0% 1,000 10.0% 0 0.0% 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11 Units Shipped Growth in Unit Shipments SOURCE: TBR AND APPLE31 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Financial Strategy Graphs TBR32 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Resource Management Graphs TBR33 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Resource Management Graphs TBR34 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Apple Future Outlook Graph TBR35 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Apple Retail Partnerships TBR Apple Alliances Company Details Random House, Inc. has made its full catalog of 17,000 e-books available on Apple’s Random House, Inc. iBookstore. Apple transitioned to Intel microprocessors in 2006. Intel provides significant technical Intel assistance to Apple. NVIDIA Provides chipset with integral GPU for notebooks Hon Hai Hon Hai manufactures Apple’s iPods and iPhones. HBO Premium HBO TV shows are available through iTunes. Major movie studios Movies are available for download rental the same day as DVD availability. AT&T AT&T is a wireless operator for iPhones in the United States. Verizon Verizon is a wireless operator for iPhones in the United States. Apple Mac “store-within-store” sections are becoming available in an increasing Best Buy number of Best Buy locations. Disney Apple offers exclusive Disney content through iTunes. Fox Entertainment Apple and FEG make hit Fox television programs available for purchase. Group36 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Apple Product Lineup TBRApple’s Product Portfolio: Notebooks MacBook Pro Creative pro, video editing and desktop publishing notebook; starting price: $1,799 for 15-inch 2.0 GHz $2,199 for 15-inch 2.66 GHz Full size $2,499 for 17-inch 2.2 GHz MacBook AirModel Lineup Ultra-light notebook for travel; starting price: $999 for 11-inch 1.4 GHz Thin-light $1,299 for 13-inch 1.86 GHz MacBook Pro 13-inch Creative pro, video editing and desktop publishing notebook; starting price: $1,199 for 2.3 GHz $1,499 for 2.7 GHz Entry-level MacBook - 13 inch Consumer/Education; starting price: $999 for 2.4 GHz Price and Functionality37 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Apple Product Lineup TBRApple’s Product Portfolio: Desktops and Servers Mac Xserve Rack-mounted file & print/web server; starting price: Performance $2,999 for Quad-Core Mac Pro High-end desktop for creative professionals, video editing and desktop publishing; starting price:Model Lineup $2,499 for Quad-Core Value/Mainstream $3,499 for 8-Core $4,999 for 12-Core iMac All-in-one consumer and professional desktop; starting price: $1,199-$1,499 for 21.5-inch 3.06 GHz - 3.2GHz $1,699 for 27-inch 3.2 GHz $1,999 for 27-inch 2.8 GHz Quad-Core Mac mini Value consumer desktop; starting price: Entry $699 for 2.4 GHz : 320 GB $999 for 2.66 GHz : 500 GB Price and Functionality 38 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
  • Appendix – Apple Product Lineup TBRApple’s Product Portfolio: iPad, iPods and iPhones iPad 3G iPhone 4 iPhone 3GS Portable web/app tablet; Smartphone & web/app Smartphone and web/app platform; starting price: platform; Web/App Platform starting price (after subsidy): $629 for 16 GB starting price (after subsidy): $49 for 8 GB $729 for 32 GB $199 for 16 GB $829 for 64 GB $299 for 32 GB Apple TV iPad iPod Touch Online movie and TV show Portable web/app tablet; Portable web/app platform; rentals and streaming of starting price: starting price: online and PC content; $499 for 16 GB $229 for 8 GB starting price: $599 for 32 GB $299 for 32 GBModel Lineup $99 $699 for 64 GB $399 for 64 GB High-Capacity iPod Classic High-capacity music and video player; starting price: $249 for 160 GB iPod Nano Flash music and video player; starting price: $149 for 8 GB $179 for 16 GB Flash iPod Shuffle Aimed at flash market; starting price: $49 for 2 GB Price and Functionality 39 Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.
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