tbr 1q11 apple inc. report

TBR

TECHNOLOGY BUSINESS RESEARCH, INC.

Technology Business ResearchAccelerating Customer Success Through Business Research

TBR


Apple Inc.

COMPUTER BUSINESS QUARTERLYSM

Publish Date: May 11, 2011Authors: Ezra Gottheil ([email protected]), CBQ Senior AnalystEmily Searles, CBQ Research AnalystContent Editor: John Spooner, Director, Computers and Storage

First Calendar Quarter 2011Second Fiscal Quarter 2011 Ended Mar. 25, 2011

TBR OUTLOOK – POSITIVE TBR SCORE (0-10 SCALE)

6.60

TBR

Apple 1Q11 | Computer Business Quarterly ©2011 Technology Business Research, Inc.3

Company Analysis3 TBR Position4 Executive Summary6 Strategy Overview8 Scenario Discussion11 Corporate SWOT Analysis12 Financial Model Strategy16 Go-to-Market & Product Strategies17 Alliance & Acquisition Strategies18 Geographic Overview19 Resource Management Strategy21 Organizational Structure

Company Data Models22 Income Statement 23 Balance Sheet24 Segment Revenue Model25 Unit Shipments & ASP Model26 Operating Expense Model27 Revenue by Customer Model28 PC Revenue Model29 Geographic Model30 Financial Strategy Graphs32 Resource Management Graphs 34 Future Outlook Graph35 Alliances Table 36 Product Portfolio Table39 About TBR

Contents

TBR


TBR Position

iPhone will remain the growth engine for Apple, driving revenue and corporate profit

(In $ Billions) Consensus Guidance ActualRevenue 23.4$ $22.0 - $24.8 24.7$ Operating Income N/A N/A 7.9$ EPS 5.37$ $4.85 - $5.98 6.40$

(In $ Billions) TBR Estimate Consensus GuidanceRevenue 24.0$ 23.8$ $20.9 - 26.6 Operating Income 7.1$ N/A N/AEPS N/A 5.25$ $4.15 - 6.08

APPLE 1Q11 PERFORMANCE VS. EXPECTATIONS

APPLE 2Q11 GUIDANCE AND EXPECTATIONS

TBR Assessment Corporate Strategic ObjectivesApple 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.

Dominate awareness with innovative products and aggressive marketing. Apple leverages its reputation for products and service to drive growth and margins.

iPhone revenue rose 126%, causing gross margin to rebound to a near-record 41.4%. The increased proportion of revenue 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 for PCs, handsets, tablets and media players.

TBR believes Apple is leveraging its new A5 dual-core processor, found in the iPad 2, to differentiate its high-performance tablet. The unique processor, which powers 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 product lines.

Be a retail leader: Apple Stores are a strategic differentiator, driving sales and margins while strengthening customer relationships with consumers 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.

TBR


TBR assessment of Apple’s two-year strategic outlook

Key TakeawaysFinancial: iPhone, iPad and Mac revenues will continue to provide strong revenue growth for Apple, with iPhone generating triple-digit growth in greater China.Go-to-market: TBR believes Apple’s growth of its retail presence, carriers expansion and the iPhone “white” upgrade will drive iPhone revenue in 2Q11.Resource: Apple will leverage its retail stores as a support network to drive adoption of Apple devices and maintain control over its customer experience.

Strategic Outlook• Apple will invest to maintain a supply of key

components, such as screens for its iPad. This ensures an adequate supply of iPads, while blocking competitors from obtaining components. As a result, RIM’s PlayBook was delayed due to component shortages, allowing Apple a greater lead in the enterprise tablet market.

• iOS and an increasing base of App Store client devices will provide a core around which Apple can build additional digital hub products and diversify its 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.

Executive Summary

With accelerating iPad and iPhone growth, Apple will continue its multipronged strategy to drive sales globally

TBR


Rapid revenue growth, due to the continued success of iPhone 4 andthe introduction of iPad 2, places Apple ahead of its peers

Rapid revenue growth driven by strong customer demand across Apple’s product portfolio enabled the company to come out ahead of CBQ peers in the financial, go-to-market and resource management metric categories in 1Q11.

Key ■ Represents an area where Apple is currently challenged versus peers ■ Represents an area where Apple is outperforming its peers

■ Represents an area where Apple is neither significantly outperforming nor underperforming its peers

Executive Summary

FINANCIAL METRICS TBR ScoreCompany

FigureAverage in Class

Standard Deviation/2

Revenue (in $ Mill ions) 8.06 $24,667 $12,081 $5,287Gross Margin 5.48 41.4% 37.1% 9.0%SG&A (% of revenue) 7.24 7.1% 17.5% 4.6%Sales & Marketing (% of revenue) 6.98 5.2% 13.9% 4.3%General & Admin (% of revenue) 7.05 1.9% 3.7% 0.9%R&D (% of revenue) 6.55 2.4% 7.2% 3.1%Total operating expenses (% of revenue) 7.40 9.5% 25.9% 6.8%Operating Margin 8.80 31.9% 11.6% 5.3%Net Margin 8.58 24.3% 8.0% 4.6%Revenue Growth YTY 10.00 82.7% 18.5% 11.8%Gross Profit YTY change 9.84 81.7% 23.4% 12.0%SG&A YTY change 1.62 44.5% 10.1% 10.2%Sales & Marketing YTY change 1.16 55.2% 12.3% 11.2%General & Admin YTY change 3.70 21.8% 4.3% 13.4%R&D YTY change 2.70 36.4% 12.5% 10.4%Total operating expenses YTY change 4.48 11.1% 6.8% 8.2%Operating 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

RESOURCE MANAGEMENT METRICS TBR ScoreCompany



Days sales outstanding 7.98 21.2 46.5 8.5Turns on inventory 10.00 63.7 18.5 8.4Days inventory outstanding 7.47 5.7 36.6 12.5Fixed asset turnover 4.90 16.3 17.6 12.6Days cash outstanding 4.64 106.7 91.6 41.8Total 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 0.4Return on assets 9.44 24.3% 8.1% 3.7%Return on equity 5.28 37.8% 30.6% 25.4%Headcount growth YTY 1.58 33.2% 6.3% 7.9%Annual revenue per employee 8.10 $1,837 $728 $357Annual G&A expense 5.67 $220 $261 $62Annual R&D expense per developer 3.55 $443 $304 $95


GO-TO-MARKET METRICS TBR ScoreCompany



Annual revenue per salesperson* 4.70 $4,781 $5,994 $4,240Cost per revenue dollar 6.53 $0.03 0.08$ 0.03$ Cost per margin dollar 7.75 $0.07 0.22$ 0.06$ Channel expense as a % of S&M expense 5.02 21.2% 21.3% 9.0%Marketing expense as a % of S&M expense 2.86 46.0% 27.1% 8.9%Annual sales expense per sales employee* 6.15 $140 $270 $113Annual marketing expense per marketing employee* 6.92 $143 $287 $75


1Q10 2Q10 3Q10 4Q10 1Q11

Financial Model Strategy: 6.51 6.34 6.17 6.45 6.93Go-to-Market & Services Strategies: 5.97 5.93 5.95 5.63 5.63Resource Management Strategy: 7.14 6.86 6.81 7.01 6.89TOTAL AVERAGE TBR SCORE: 6.53 6.37 6.28 6.39 6.60

TBR SCORING SUMMARY:

TBR


Function Key Strategies TBR Assessment

OverallDrive rapid growth of a loyal customer base for premium products.

►Apple is leveraging the success of its iPhone and iPad products

to attract new customers to Mac and Apple TV through cross-selling opportunities.

Financial

Apple has tolerated margin declines in iPhone and iPad to increase its customer base, driving revenue and unit growth.

► Margins rebounded in 1Q11 due to the increase in iPhone

sales a percentage of total revenue. The iPhone accounted for 49.9% of Apple’s revenue, up from 39.1% in 4Q10.

Go to Market

• Apple uses its chain of retail stores to provide an attractive sales and service environment that increases customer identification with the company.

• Apple stays focused on the consumer market and allows consumers to pull its products into businesses.

►

Apple’s retail effort builds cross-sales, control over brand image, training, service and support, for which customers are willing to pay premium product prices.

Apple is successfully leveraging its retail stores to engage with new customers in China.

Apple’s product-oriented advertising, aimed at consumers, is also intended to appeal to VSBs to drive commercial growth. Apple is augmenting this relationship through the creation of “Joint Venture,” a customer service program aimed at assisting VSBs with their Apple devices.

Strategy Overview

Key: Working: Short-term impact expected on bottom / top line Not working: No major impact or differentiation expected

Apple’s iPhone and iPad propelled corporate revenue and increased brand recognition for Apple devices across all product lines

TBR


Function Key Strategies TBR Assessment

Alliance & Acquisition Apple forms alliances and,

to a lesser degree, makes acquisitions to remain competitive, delivering comprehensive product ecosystems and serving customers.

►

Apple is forming partnerships to serve large enterprise customers of the iPhone and iPad.

Apple sought acquisitions and alliances in 1Q11 that augmented iTunes by boosting data available through iBooks and acquiring the iCloud.com domain, which TBR believes is a stepping stone for enhancing Apple’s cloud presence.

Operations & Global Delivery Model

Apple works with suppliers and ODMs to deliver products, including a comparatively large number of customized components. Its large volumes help drive favorable deals.

►

Apple’s tight control of SKUs helps the sales and branding process and enables immediate product availability with minimal inventory.

Outside the Americas and EMEA, Apple relies on providers for iPhone sales and the channel for computing products, but is expanding its retail network worldwide.

Resources & Investment Apple retains its earnings

and aims for capital preservation. The company has a reserve of $66 billion in cash and negotiable securities, which it says it is holding for strategic opportunities.

►

Apple’s management of its reserves is conservative; the company suffered minimal losses in the recent stock market decline, but is now earning low returns.

While Apple invests diligently in products, the scale of any such investment is tiny compared to its $66 billion cash and marketable security reserve.

Strategy Overview

Key: Working: Short-term impact expected on bottom / top line Not working: No major impact or differentiation expected

Apple leveraged alliances and acquisitions to bolster products

TBR


Scenario Discussion: The smartphone market’s rapid growth is driving Apple’s revenue through iPhone sales

Scenario SWOT AssessmentStrength: iPhone 4 remains in high demand through carrier expansion in the U.S. and internationally.Weakness: CDMA network with Verizon limits U.S. costumers from international use.Opportunity: Apple will continue to attack the rapidly growing smartphone market for revenue growth.Threat: Customer anticipation of iPhone 5 will cause purchase delays in 2Q11.

• Apple is almost a phone company: TBR believes Apple is benefiting from holding a major share of the smartphone market that is both large and growing rapidly. For most customers, a phone is essential, exceeding the perceived need of a PC or tablet. Apple is capitalizing on the product inelasticity of smartphones (as compared to PCs) to drive revenue, which was $12.3 billion, or 49.9% of Apple’s total revenue compared to 39.1% in 4Q10. To expand its addressable iPhone market, Apple expanded iPhone carriers globally to Verizon, SK Telecom in Korea and Saudi Telecom in Saudi Arabia.

• Less expensive 3GS iPhones drove sales: iPhone sales were 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 Apple's 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.

Scenario Discussion

Apple blurs the line between a PC and phone company, as the iPhone becomes a revenue powerhouse and drives corporate strategy

TBR


Scenario Discussion: Consumer influence will bring the iPad into the business space, driving unit sales and revenue in 2011Scenario SWOT AssessmentStrength: Apple’s iPad has the majority share of the tablet market, with first mover advantage.Weakness: Lacks Flash web-browsing, 4G compatibility and mini-USB ports.Opportunity: Push B2B solutions for high-tech firms that require mobile efficiency.Threat: Android, WebOS, and Windows 7 tablets specifically targeting the business space.

• To combat the flood of tablet devices pouring into the market, TBR believes Apple will push hard into the commercial space, leveraging consumerization of IT and its well-developed App Store. The iPad holds the majority consumer market share, with Android devices making only a small impact in consumer tablet sales in 1Q11; however, we believe vendors will begin to release tablets targeting specific business verticals in 2H11, driving down Apple’s commercial market share. • TBR believes the effort to expand in business will drive

continued momentum for the iPad. Apple will leverage the introduction of business applications, seamless integration and consumer appeal to drive the iPad into the enterprise 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.

Scenario Discussion

iPad 2’s large consumer base and well-developed applications will drive “carry in” adoption among businesses

TBR


Scenario Discussion: Apple will use China as a test bed for emerging market strategy and further global expansion

Scenario SWOT AssessmentStrength: Customer support in the retail space, coupled with brand recognition, is driving iPhone sales in greater China.Weakness: Past years of revenue stagnation in Asia-Pacific.Opportunity: Apple will use its China model to pursue growth in other emerging markets.Threat: Humanitarian issues at Foxconn in China could damage Apple’s brand recognition, which is a large driver of sales.

• Apple will duplicate success to drive growth: Apple‘s iPhone is driving revenue growth and Mac sales in greater China, as consumers expand their ownership of Apple products after being introduced to the iPhone. TBR believes Apple's across-the-board growth is more than just a "halo effect," or a strong brand. Apple has established, for its customers, a different set of expectations about service and support, especially where the company reaches its customers through its retail system. TBR expects Apple will leverage the iPhone and iPad as entry-level consumer products, coupled with customer support to launch its growth in other emerging markets.

• Greater China is Apple’s fastest-growing iPhone market: With Apple’s success in China, TBR believes the company will expand 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.

Scenario Discussion

Apple’s iPhone is a success in China and is knocking on the door of emerging markets

TBR


Corporate SWOT AnalysisStrengths• iPhone 4 remains in high demand through carrier

expansion in the U.S. and internationally• Apple’s iPad has the majority share of the tablet

market, with first mover advantage• Customer support in the retail space, coupled with

brand recognition, is driving iPhone sales in greater China

Opportunities• Apple will continue to attack the rapidly growing

smartphone market for revenue growth• Push B2B solutions for high-tech firms that require

mobile efficiency• Apple will use its China model to pursue growth in

other emerging markets• Start a new business in mobile and Internet

payments (4Q10 report)

Weaknesses• CDMA network with Verizon limits U.S. customers

from international use• iPad lacks Flash web-browsing, 4G compatibility and

mini-USB ports• Past years of revenue stagnation in Asia-Pacific• Prices for entry-level Macs are far higher than

competitors’ entry prices (1Q09 report)

Threats• Customer anticipation of iPhone 5 will cause

purchase delays in 2Q11• Android, WebOS, and Windows 7 tablets that

specifically targeting the business space• Humanitarian issues at Foxconn in China could

damage Apple’s brand recognition, which is a large driver of sales

Corporate SWOT Analysis

Apple is leveraging customer support and brand image to expand globally and outpace Android device adoption

TBR


Record-breaking sales of iPhones and Macs drives substantial year-to-year revenue growthRevenue Performance and Strategies

1Q11 Revenue: $24.7 billion, 82.7% YTY

• 1Q11 was record-breaking for Apple in terms of first quarter revenues, led by iPhone sales, which reached 18.6 million units, a 113.1% year-to-year growth.

• Mac revenues were strong, with sales rising 27.8% YTY despite the lack of growth in the PC market overall.

• The iTunes Store also had a record-breaking quarter, pulling in nearly $1.4 billion in revenue from sales of music, video, iOS apps and e-books. Demand for iPads exceeded production capacity and also boosted revenues in 1Q11.

Revenue and Growth Outlook

• We expect a small drop in revenues from $24.7 billion in 1Q11 to $24 billion in 2Q11 due to seasonality.

• TBR anticipates Apple will gain revenue from the enterprise sector, as more companies adopt iPhone and iPad technology and develop business-specific apps.

• Revenue generated from Mac sales is expected to remain strong, especially highly portable models such as MacBook Air, which continue to grow significantly in emerging markets.

Financial Model Strategy

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Est.2Q11

Reve

nue

Grow

th Y

ear-

to-y

ear

Reve

nue

($ m

illio

ns)

APPLE TWO-YEAR REVENUE AND GROWTH

Revenue Y/Y Growth Rate

SOURCE: TBR AND APPLE

TBR

$6,306 $11,652

$4,302

$6,569 $2,891

$6,445

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

1Q10 1Q11

in $

mill

ions

Calendar Quarter

APPLE REVENUE BY REGION

APAC

EMEA

Americas


TBR

TBR


Apple’s iPhone contributed a higher percentage of revenue, leadingto improved gross margins

Cost & Margin Performance and Strategies

1Q11 Operating Expense: $2.3 billion

Cost of Services, Gross profit

• Gross margin for 1Q11 was 41.4%, an increase of 290 basis points from the previous quarter which is attributed to strong sales of iPhones combined with lower-than- expected costs.

• TBR predicts gross margin will be 39.2% of revenue in 2Q11.

SG&A

• Apple’s SG&A expense dropped from nearly $1.89 billion in 4Q10 to $1.76 billion in 1Q11, a 7.0% sequential decline.

• We estimate SG&A expense will rise 2.1% from 1Q11 to $1.8 billion in 2Q11.

Operating Margin and Outlook

• Operating margin was an all-time high, at nearly $7.9 billion and representing 31.9% of revenue, up from 29.3% in the previous quarter.

• TBR expects operating margin to decrease slightly in 2Q11 to 29.2%.


0%

30%

60%

90%

0%

10%

20%

30%

40%

50%

1Q10 2Q10 3Q10 4Q10 1Q11

Reve

nue

Grow

th

Mar

gins

APPLE PROFITABILITY AND GROWTH

Gross Margin Operating Margin

Net Margin Revenue Growth Year-to-Year


TBR

TBR



Segment Revenue Performance and Strategies

Segment Financials

iPhoneiPhone sales reached 18.6 million units, driven by carrier expansion in the U.S., Asia and the Middle East.

MacStrong sales in Asia and the popularity of MacBook Air and MacBook Pro pushed Mac sales to 3.8 million units.

iPadApple sold 4.7 million iPads due to international expansion and the introduction of the iPad 2.

iPodDespite the iPod touch, the iPod continues to show maturity and saturation with a 17.2% year-to-year decline in unit shipments to 9 million units.

PeripheralsPeripherals revenue increased 22.9% year-to-year to $580 million, driven by iPhone and iPad accessories.

While the iPhone contributed to the retraction of iPod revenue, product maturity will continue to limit iPod growth

0%

10%

20%

30%

40%

50%

60%

Perc

ent R

even

ue

APPLE PERCENT REVENUE BY SEGMENT

PCs, SW, Svcs, & Peripherals iPod, iPad & iTunes iPhone


TBR

$4,866 $5,441 $6,009 $6,809 $6,299

$3,188 $4,925 $5,512 $9,464 $6,070

$5,445 $5,334 $8,822 $10,468 $12,298

0%

20%

40%

60%

80%

100%

1Q10 2Q10 3Q10 4Q10 1Q11

Perc

ent o

f Tot

al R

even

ue

APPLE SEGMENT CONTRIBUTIONS

iPhone iPod, iPad & iTunes PCs, SW, Svcs, & Peripherals


TBR

TBR



Segment Revenue Performance and Strategies

Segment Financials

Consumer

• 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 the iPad.

• Mac consumer revenue rose 38.8% year-to-year, due to strong sales of MacBook Air, especially in greater China.

Commercial

• Apple’s revenue growth from business and creative professional customers continued a trend of acceleration, reaching $1.8 billion in 1Q11, up from 1.4 billion in 1Q10.

• Consumerization of IT is driving the iPhone and iPad into enterprise, albeit at a slower rate than consumer adoption.

While consumer sales dominated Apple’s revenue, enterprise adoptionof its devices will position the company for strong commercial growth

TBR


New Product Development: Apple unveiled the iPad 2 in early March, touting a thinner, lighter design with an enhanced set of features powered by its A5 processorKey TakeawaysApple’s distinctive A5 processor will differentiate the iPad in the tablet market.iPad 2 hosts a variety of upgrades, contributing to market share expansion.Apple’s supply chain remained intact after the devastating earthquake in Japan.

• TBR believes Apple’s unique and somewhat mysterious A5 processor for the iPad 2 will allow the company to maintain premium pricing. As the tablet market quickly becomes saturated with commodity tablets and manufacturers race to compete on price, TBR believes Apple will leverage the A5’s exclusive technology to maintain high margins.

• 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 Apple’s supply chain will only be marginally affected throughout 2011 by the earthquake in Japan.

Go-to-Market & Product Strategies

SOURCE: APPLE

iPad 2’s A5 processor packs a secret recipe for gaining market share and maintaining premium pricing

TBR


TBR expects Apple will look to alliances and acquisitions expand outside the consumer hardware space, into cloud and business specific services.• Apple is targeting 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.

• 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. which will add 17,000 “iBooks” to the iBookstore, which enables consumers to download titles to iPhones and iPads. The alliance with all six major trade publishers will allow Apple to distribute over 200,000 books.

• Apple’s alliance with OnForce will change the way Apple handles its non-warranty customer support 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 tighter control over the quality of customer support. TBR believes the consistency of quality support will improve through this structural change, but will leave a wake of disgruntled Apple “ambassadors.”

Alliance & Acquisition Strategies

Internal Development• Apple formed “Joint

Venture” to target service and support the needs of VSBs.

Alliances• Random House Inc. alliance

will accelerate Apple’s iBooks availability.

• OnForce alliance will support non-warranty customer calls.

Acquisitions• iCloud.com domain

acquisition will be used for iTunes cloud-storage.

Alliances and acquisitions accelerate Apple’s efforts to expand in new markets, product areas and geographies, positioning the company for growth.

Map of alliance, acquisition and development synergies

Apple is positioning for future growth with cloud and VSBs to expand into new markets

TBR


Americas EMEA APAC and Japan

Key Strategies

The Americas comprised 38% of Apple’s revenue, up from 34% in 4Q10. Growth was primarily driven by iPhone sales doubling YTY in the Americas. The entry into Verizon Wireless in the U.S. was a positive growth driver.

EMEA saw positive growth in iPhone and Mac sales in 1Q11. Increased Mac sales may be the result of a halo effect related to the higher iPhone/iPad adoption.

Overall, Mac sales in APAC were up 76% YTY. China contributed nearly $5 billion to Apple’s revenues, up about four times YTY. In Japan, Apple has engaged in considerable negotiations to prevent supply disruptions caused by the March earthquake.

Geographic Overview

Continued iPhone and iPad global expansion – particularly in emerging markets – will provide 2Q11 revenue growth

TBR Conclusions• TBR believes Apple will bolster the sales of

its portable products on a global basis – especially iPhones, iPads and MacBooks.

• We believe Apple’s growth in China will lead to the pursuit of further expansion in emerging markets.

$6,306 $11,652

$4,302

$6,569 $2,891

$6,445

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

1Q10 1Q11

in $

mill

ions

Calendar Quarter

APPLE REVENUE BY REGION

APAC

EMEA

Americas


TBR

TBR


Resource Management Strategy

Resource Management Strategy• As a byproduct of the massive earthquake in

Japan, a shortage and price hike in components for electronics is imminent. Apple is tapping its large cash reserves to secure an adequate supply of iPad and iPhone components from Japanese manufacturers to prevent shortages for its consumers. TBR believes this will negatively affect 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 Mac software engineering. Apple has not indicated if Federighi will be a long-term replacement.

Apple Capital InvestmentsApple’s North Carolina datacenter will likely host the company’s next venture into the cloud market. TBR believes Apple will use the datacenter to host a web-based video service that could rival Netflix. The video service would also drive sales of Apple products.

Apple production remains secure following the Japan earthquake, with no foreseen disruption in the supply chain through 2011

APPLE EFFICIENCY METRICS (IN $'000'S)1Q10 1Q11

Revenue per Employee $1,427 $1,837

S&M Employee Expense per head $154 $140

R&D Employee Expense per head $385 $443

G&A Expense per G&A head $244 $220

Revenue per Salesperson $4,130 $4,781

TBR

0%

30%

60%

90%

0%

10%

20%

30%

40%

50%

1Q10 2Q10 3Q10 4Q10 1Q11

Reve

nue

Grow

th

Mar

gins

APPLE PROFITABILITY AND GROWTH

Gross Margin Operating Margin

Net Margin Revenue Growth Year-to-Year


TBR

TBR


Headcount StrategiesHeadcount 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 its direct sales approach to gain new customers and penetrate the very small business market.

• Retail – Apple continued investing in its retail headcount ahead of other business functions in 1Q11 to support retail in the U.S. and China.

Keep on the radarLow-Cost Regions – We expect Apple to grow its retail headcount as the company continues to invest in retail stores.

Resource Management Strategy

Apple’s headcount continued to grow in 1Q11 due to increases in customer support, product development and retail expansion

19,000 28,500

8,120

9,300 4,100

5,200

2,550

2,900

1,830

2,025

1,750

1,950

650

725

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

1Q10 1Q11

Head

coun

t

APPLE HEADCOUNTManufacturing and Other

Marketing

Sales

General and Administrative

Research and Development

Service and Support

Retail


TBR

TBR


Steve JobsCEO

Philip W. Schiller Senior Vice President

Worldwide Product Marketing

Timothy D. CookActing CEO

Chief Operating Officer

Jonathan Ive Senior Vice President Industrial Design

Bruce Sewell Senior Vice Presidentand General Counsel

Peter Oppenheimer Senior Vice Presidentand Chief Financial Officer

Ron Johnson Senior Vice President Retail

Craig FederighiSenior Vice President Software Engineering

Bob MansfieldSenior Vice PresidentMac Hardware Engineering

Scott ForstallSenior Vice PresidentiPhone Software

Sina TamaddonSenior Vice President

Applications

Organizational Structure

Apple, Inc. Organizational Chart

TBR


Appendix – Income StatementAPPLE, INC.Consolidated Statement of Income(in $ Thousands)

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11Net 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 $5,295,000AS A PERCENTAGE OF REVENUENet 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 CHANGENet 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 CHANGENet 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%


TBR

TBR


Appendix – Balance SheetAPPLE, INC.Consolidated Balance Sheets (in $ Thousands)

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11ASSETSCurrent 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 EQUITYCurrent 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 RATIOSCost 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


TBR

TBR


Appendix – Segment Revenue

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11Total 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 PRODUCTNotebook 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 GROWTHNotebook 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 APPLE

APPLE REVENUE MODEL TBR

TBR


Appendix – Units and ASPs

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11UNIT SHIPMENTSNotebook 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 18,100,000YEAR-TO-YEAR UNIT GROWTHNotebook 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 PRICENotebook 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 PRICENotebook -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%


APPLE'S UNIT SHIPMENTS AND ASPs TBR

TBR


Appendix – Operating Expense

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11Total 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 BREAKOUTSales 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 REVENUETotal 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 GROWTHTotal 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 ESTIMATES

APPLE OPEX MODEL (IN $ THOUSANDS EXCEPT HEADCOUNT) TBR

TBR


Appendix – Revenue by Customer Segment

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11REVENUE (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 REVENUEConsumer 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 ESTIMATES

APPLE REVENUE BY CUSTOMER SEGMENT TBR

TBR


Appendix – PC Revenue

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11REVENUE (IN $ THOUSANDS)Total $13,499,000 $15,700,000 $20,343,000 $26,741,000 $24,667,000 $24,000,000PC 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 $4,950,000PERCENTAGE OF PC REVENUEConsumer 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%


Professional 17.4% 16.3% 16.9% 16.2% 15.5% 15.3%


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 REVENUEConsumer 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%


Professional 4.8% 4.6% 4.0% 3.3% 3.1% 3.2%


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 GROWTHConsumer 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%


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 ESTIMATES

APPLE PC REVENUE BY CUSTOMER SEGMENT TBR

TBR


Appendix – Geography

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 Est. 3Q11UNIT SHIPMENTSAmericas 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 REVENUEAmericas 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 REVENUEAmericas 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%


APPLE REVENUE AND SHIPMENTS BY GEOGRAPHY TBR

TBR


Appendix – Financial Strategy Graphs

2,9433,472

3,885 4,134 3,760 3,805

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0

1,000

2,000

3,000

4,000

5,000

1Q10 2Q10 3Q10 4Q10 1Q11 Est. 2Q11In

$ T

hous

ands

MAC UNIT GROWTH YEAR-TO-YEAR

Units Shipped Growth in Unit Shipments


TBR

TBR


Appendix – Financial Strategy Graphs

TBR


Appendix – Resource Management Graphs

TBR


Appendix – Apple Future Outlook Graph

TBR


Apple AlliancesCompany Details

Random House, Inc. Random House, Inc. has made its full catalog of 17,000 e-books available on Apple’s iBookstore.

Intel Apple transitioned to Intel microprocessors in 2006. Intel provides significant technical 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.

Best Buy Apple Mac “store-within-store” sections are becoming available in an increasing number of Best Buy locations.

Disney Apple offers exclusive Disney content through iTunes.

Fox Entertainment Group Apple and FEG make hit Fox television programs available for purchase.

Appendix – Apple Retail Partnerships

TBR


Apple’s Product Portfolio: Notebooks

Price and Functionality

MacBook - 13 inchConsumer/Education;

starting price:$999 for 2.4 GHz

MacBook Pro 13-inchCreative pro, video editing and desktop

publishing notebook;starting price:

$1,199 for 2.3 GHz$1,499 for 2.7 GHz

Full

size

Entr

y-le

vel

Thin

-ligh

tMacBook 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 $2,499 for 17-inch 2.2 GHz

MacBook AirUltra-light notebook for travel;

starting price:$999 for 11-inch 1.4 GHz

$1,299 for 13-inch 1.86 GHz

Mod

el L

ineu

pAppendix – Apple Product Lineup

TBR


Mod

el L

ineu

p


Mac miniValue consumer desktop;

starting price:$699 for 2.4 GHz : 320 GB

$999 for 2.66 GHz : 500 GB

iMacAll-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

Perf

orm

ance

Entr

yVa

lue/

Mai

nstr

eam

Mac XserveRack-mounted file & print/web server;

starting price:$2,999 for Quad-Core

Mac ProHigh-end desktop for creative professionals,

video editing and desktop publishing;starting price:

$2,499 for Quad-Core$3,499 for 8-Core

$4,999 for 12-Core

Appendix – Apple Product Lineup

Apple’s Product Portfolio: Desktops and Servers

TBR


Mod

el L

ineu

p


Flas

hH

igh-

Capa

city

Web

/App

Pla

tfor

m

iPod Shuffle Aimed at flash market; starting price:

$49 for 2 GB

iPod NanoFlash music and video player;

starting price:$149 for 8 GB

$179 for 16 GB

iPod ClassicHigh-capacity music and video player;


iPod TouchPortable web/app platform;


$299 for 32 GB$399 for 64 GB

iPhone 4Smartphone & web/app

platform;starting price (after subsidy):

$199 for 16 GB$299 for 32 GB

iPhone 3GSSmartphone and web/app platform;

starting price (after subsidy):$49 for 8 GB

iPadPortable web/app tablet;

starting price:$499 for 16 GB$599 for 32 GB$699 for 64 GB

iPad 3GPortable web/app tablet;

starting price:$629 for 16 GB$729 for 32 GB$829 for 64 GB

Apple TVOnline movie and TV show

rentals and streaming of online and PC content;starting price:

$99

Appendix – Apple Product Lineup

Apple’s Product Portfolio: iPad, iPods and iPhones

TBR


About Us

Technology Business Research is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, networking equipment, wireless, portal and professional services vendors.

Serving a global clientele, TBR provides timely and accurate market research and business intelligence in formats that are tailored to clients’ needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996.

To learn how our analysts can address your unique business needs, please visit our website or contact us today.

Contact Us

[email protected] Merrill DriveHampton, NH 03842USA

This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. This report is not a recommendation to purchase securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce.

mailto:[email protected]

http://www.tbri.com/

TBR

©2012 Technology Business Research Inc.

Technology Business ResearchTechnology 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.

“I never go into a negotiation with a vendor until I have reviewed TBR’s quarterly reports. Understanding a vendor’s profit margin by business unit gives me an information edge in formulating my negotiation strategy and has saved my organization countless dollars!” – Telecom End User

“We are using Technology Business Research’s operational metrics and management consulting taxonomy to drive our growth strategy and resources for our management consulting business…”

- Top 5 Global Technology Company

2

TBR

©2012 Technology Business Research Inc.

For more information on accessing new TBR reports please contact James McIlroy at [email protected] or at 603-758-1813

Follow our analysts on @TBRincRead out analysts’ commentaries at @TBRincNewsroom

Watch our recorded webinars at http://www.youtube.com/user/TBRIChannel?feature=mhee

3

mailto:[email protected]

http://www.youtube.com/user/TBRIChannel?feature=mhee