Apple Inc. 2009 Fiscal Year 10-K Summary
Business Context and Reporting Period
This filing is the Annual Report on Form 10-K for Apple Inc. for the fiscal year ended September 26, 2009. Apple designs, manufactures, and markets personal computers (Mac), mobile communication devices (iPhone), portable digital music and video players (iPod), and related software, services, and peripherals. The company operates through four reportable segments: Americas, Europe, Japan, and Retail, with additional operations in Asia Pacific and FileMaker.
Key Financial Metrics
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Net Sales | $36,537 million | $32,479 million | +12% |
| Gross Margin | $13,140 million (36.0%) | $11,145 million (34.3%) | +1.7 pts |
| Operating Income | $7,658 million | $6,275 million | +22% |
| Net Income | $5,704 million | $4,834 million | +18% |
| Diluted EPS | $6.29 | $5.36 | +17% |
| Operating Cash Flow | $10,159 million | $9,596 million | +6% |
| Cash & Marketable Securities | $33,992 million | $24,490 million | +39% |
| Long-Term Debt | $0 | $0 | N/A |
Material Changes vs. Prior Period
- iPhone Growth: iPhone revenue surged 266% to $6.75 billion, driven by the launch of the iPhone 3GS and expanded distribution. Unit sales increased 78% to 20.7 million.
- Mac Performance: Total Mac net sales declined 3% to $13.78 billion despite a 7% increase in unit sales. This was due to a 10% decrease in average selling prices and a shift in mix toward lower-priced desktops.
- iPod Decline: iPod net sales decreased 12% to $8.09 billion, with unit sales flat year-over-year. Average selling prices dropped 11% due to price reductions on new models.
- Services Growth: Revenue from other music-related products and services (primarily iTunes Store) grew 21% to $4.04 billion.
- Margin Expansion: Gross margin percentage improved to 36.0% from 34.3%, attributed to lower commodity costs and favorable sales mix, partially offset by price reductions.
Guidance, Outlook, and Risks
- Margin Outlook: Management expects gross margin percentage to decrease in future periods compared to 2009 levels, anticipating margins of about 34% in the first quarter of 2010. This is due to product transitions, flat or reduced pricing on new products, and potential cost increases for key components.
- Capital Expenditures: The company anticipates utilizing approximately $1.9 billion for capital asset purchases in 2010, including $400 million for retail facilities.
- Key Risks:
- Supply Chain: Reliance on single or limited sources for key components (microprocessors, LCDs, NAND flash) creates supply and pricing risks.
- Competition: Intense price competition in the PC and mobile markets, particularly from Windows-based competitors.
- Legal: The company is defending over 47 patent infringement cases, 27 of which were filed in fiscal 2009.
- Foreign Currency: A strengthening U.S. dollar negatively impacts foreign currency-denominated sales and earnings.
Investor Verification Checklist
- Verify the sustainability of iPhone growth rates given the 266% year-over-year increase and the shift to subscription accounting for handset revenue.
- Monitor the impact of the anticipated gross margin compression to ~34% in Q1 2010 against rising component costs.
- Assess the concentration risk in the supply chain, specifically regarding sole-sourced components and manufacturing partners in Asia.
- Review the status of ongoing patent litigation, particularly the 27 cases filed in 2009, for potential financial impact.
- Confirm the company's ability to maintain Mac unit growth despite declining average selling prices and a shift to lower-priced desktops.