Apple (AAPL)

Fiscal Year 2006 versus 2005

Net sales during 2006 increased 39% or $5.4 billion from 2005. This increase was due in part to the fact that 2006 spanned 53 weeks while 2005 spanned 52 weeks. Several other factors contributed to these increases including the following:

•

Net sales of iPods increased $3.1 billion or 69% during 2006 compared to 2005. Unit sales of iPods totaled 39.4 million in 2006, which represents an increase of 75% from the 22.5 million iPod units sold in 2005. Strong iPod sales during 2006 reflected significant sales of both the hard-drive based iPod that supports video, first introduced in October of 2005 and the iPod nano, introduced in September 2005, as well as continued expansion of iPod distribution points. During 2006, the net

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sales per iPod unit sold decreased by 3% compared to 2005 primarily due to an overall decrease in average selling prices for all iPods as well as a shift in product mix to the iPod nano.

•

Mac net sales increased $1.1 billion or 18% during 2006 compared to 2005. Mac unit sales increased by 769,000 units or 17% during 2006 compared to 2005. These increases were mainly due to strong demand for the Intel-based MacBook and MacBook Pro systems and reflect a shift in product mix to portable products in all of the Company's operating segments. Net sales and unit sales of the Company's portable products increased 43% and 42%, respectively, during 2006 compared to 2005. Mac desktop net sales and unit sales both decreased by 3% during 2006 compared to 2005. The decrease in sales of the Company's Mac desktops was due to declines in sales of the Company's professional-oriented desktop products. The Company believes the decline in the Company's professional-oriented desktop products was due to customers delaying purchases of such products in anticipation of the release of the Intel-based Mac Pro, which did not begin shipping until August 2006, and updated software applications capable of running on Intel-based Mac computers, and the trend toward portable computers. A slight increase of 1% during 2006 in net sales per Mac unit sold was due to a shift in mix to higher-priced portable products, partially offset by price reductions on certain Mac systems.



•

Other music related products and services consists of sales associated with the iTunes Store and iPod services and accessories. Net sales of other music related products and services increased $986 million or 110% during 2006 compared to 2005. The increase was primarily due to increased net sales from the iTunes Store and Apple-branded and third-party iPod accessories and services. The increase in sales from the iTunes Store stemmed from significant growth in U.S. sales and the opening of the iTunes Store in Japan during August 2005 and Australia during October 2005. The increased sales from the iTunes Store were also attributable to the availability of videos, television shows, and feature-length movie downloads.



•

Net sales of software, service, and other sales increased $188 million or 17% during 2006 compared to 2005. The growth was primarily attributable to increased net sales of AppleCare Protection Plan ("APP") extended service and support contracts and application software, partially offset by a decrease in sales of Mac OS X. Mac OS X sales were particularly high in 2005 due to the release of Mac OS X Tiger in April 2005.

Offsetting the favorable factors discussed above, the Company's net sales during 2006 were negatively impacted by the following:

•

Net sales of peripherals and other hardware declined $26 million or 2% compared to 2005 primarily due to price decreases and a decrease in net sales of displays relating to a shift in mix from desktop to portable systems. The decrease in net sales of displays for 2006 is consistent with the overall decrease in unit sales of Mac professional desktop systems.

Fiscal Year 2006 versus 2005

Net sales during 2006 increased 39% or $5.4 billion from 2005. This increase was due in part to the fact that 2006 spanned 53 weeks while 2005 spanned 52 weeks. Several
other factors contributed to these increases including the following:

•

Net
sales of iPods increased $3.1 billion or 69% during 2006 compared to 2005. Unit sales of iPods totaled 39.4 million in 2006, which represents an increase
of 75% from the 22.5 million iPod units sold in 2005. Strong iPod sales during 2006 reflected significant sales of both the hard-drive based iPod that supports video, first
introduced in October of 2005 and the iPod nano, introduced in September 2005, as well as continued expansion of iPod distribution points. During 2006, the net

43

sales
per iPod unit sold decreased by 3% compared to 2005 primarily due to an overall decrease in average selling prices for all iPods as well as a shift in product mix to the iPod nano.










•

Mac
net sales increased $1.1 billion or 18% during 2006 compared to 2005. Mac unit sales increased by 769,000 units or 17% during 2006 compared to 2005. These
increases were mainly due to strong demand for the Intel-based MacBook and MacBook Pro systems and reflect a shift in product mix to portable products in all of the Company's operating segments. Net
sales and unit sales of the Company's portable products increased 43% and 42%, respectively, during 2006 compared to 2005. Mac desktop net sales and unit sales both decreased by 3% during 2006
compared to 2005. The decrease in sales of the Company's Mac desktops was due to declines in sales of the Company's professional-oriented desktop products. The Company believes the decline in the
Company's professional-oriented desktop products was due to customers delaying purchases of such products in anticipation of the release of the Intel-based Mac Pro, which did not begin shipping until
August 2006, and updated software applications capable of running on Intel-based Mac computers, and the trend
toward portable computers. A slight increase of 1% during 2006 in net sales per Mac unit sold was due to a shift in mix to higher-priced portable products, partially offset by price reductions on
certain Mac systems.




•

Other
music related products and services consists of sales associated with the iTunes Store and iPod services and accessories. Net sales of other music related products and
services increased $986 million or 110% during 2006 compared to 2005. The increase was primarily due to increased net sales from the iTunes Store and Apple-branded and third-party iPod
accessories and services. The increase in sales from the iTunes Store stemmed from significant growth in U.S. sales and the opening of the iTunes Store in Japan during August 2005 and Australia
during October 2005. The increased sales from the iTunes Store were also attributable to the availability of videos, television shows, and feature-length movie downloads.




•

Net
sales of software, service, and other sales increased $188 million or 17% during 2006 compared to 2005. The growth was primarily attributable to increased net
sales of AppleCare Protection Plan ("APP") extended service and support contracts and application software, partially offset by a decrease in sales of Mac OS X. Mac OS X sales were particularly high
in 2005 due to the release of Mac OS X Tiger in April 2005.

Offsetting
the favorable factors discussed above, the Company's net sales during 2006 were negatively impacted by the following:

•

Net
sales of peripherals and other hardware declined $26 million or 2% compared to 2005 primarily due to price decreases and a decrease in net sales of displays
relating to a shift in mix from desktop to portable systems. The decrease in net sales of displays for 2006 is consistent with the overall decrease in unit sales of Mac professional desktop systems.

Fiscal Year 2006 versus 2005

Net sales during 2006 increased 39% or $5.4 billion from 2005. This increase was due in part to the fact that 2006 spanned 53 weeks while 2005 spanned 52 weeks. Several other factors contributed to these increases including the following:

·       Net sales of iPods increased $3.1 billion or 69% during 2006 compared to 2005. Unit sales of iPods totaled 39.4 million in 2006, which represents an increase of 75% from 22.5 million iPod units sold in 2005. Strong iPod sales during 2006 reflected significant sales of both the hard-drive based iPod that supports video, first introduced in October of 2005 and the iPod nano, introduced in September 2005, as well as continued expansion of iPod distribution points. During 2006, the net sales per iPod unit sold decreased by 3% compared to 2005 primarily due to an overall decrease in average selling prices for all iPods as well as a shift in product mix to the iPod nano. From the introduction of the iPod in 2002 through 2006, the Company has sold approximately 68 million iPods.

·       Macintosh net sales increased $1.1 billion or 18% during 2006 compared to 2005. Macintosh unit sales increased by 769,000 units or 17% during 2006 compared to 2005. These increases were mainly due to strong demand for the Intel-based MacBook and MacBook Pro systems and reflect a shift in product mix to portable products in all of the Company’s operating segments. Net sales and unit sales of the Company’s portable products increased 43% and 42%, respectively, during 2006 compared to 2005. Macintosh desktop net sales and unit sales both decreased by 3% during 2006 compared to 2005. The decrease in sales of the Company’s Macintosh desktops was due to declines in sales of the Company’s professional-oriented desktop products. The Company believes the decline in the Company’s professional-oriented desktop products was due to customers delaying purchases of such products in anticipation of the release of the Intel-based Mac Pro, which did not begin shipping until August 2006, and updated software applications capable of running on Intel-based Macintosh computers, and the trend toward portable computers. A slight increase of 1% during 2006 in net sales per Macintosh unit sold was due to a shift in mix to higher-priced portable products, partially offset by price reductions on certain Macintosh systems.

·       Other music related products and services consists of sales associated with the iTunes Store and iPod services and accessories. Net sales of other music related products and services increased $986 million or 110% during 2006 compared to 2005. The increase was primarily due to increased net sales from the iTunes Store and Apple-branded and third-party iPod accessories and services. The increase in sales from the iTunes Store stemmed from significant growth in U.S. sales and the opening of The iTunes Store in Japan during August 2005 and Australia during October 2005. The increased sales from the iTunes Store were also attributable to the availability of videos, television shows, and feature-length movie downloads.

·       Net sales of software, service, and other sales increased $188 million or 17% during 2006 compared to 2005. The growth was primarily attributable to increased net sales of AppleCare Protection Plan (“APP”) extended service and support contracts and application software, partially offset by a decrease in sales of Mac OS X. Mac OS X sales were particularly high in 2005 due to the release of Mac OS X Tiger in April 2005.

Offsetting the favorable factors discussed above, the Company’s net sales during 2006 were negatively impacted by the following:

·       Net sales of peripherals and other hardware declined $26 million or 2% compared to 2005 primarily due to price decreases and a decrease in net sales of displays relating to a shift in mix from desktop to portable systems. The decrease in net sales of displays for 2006 is consistent with the overall decrease in unit sales of Macintosh professional desktop systems.

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Fiscal Year 2006 versus 2005

Net sales during
2006 increased 39% or $5.4 billion from 2005. This increase was due in part to
the fact that 2006 spanned 53 weeks while 2005 spanned 52 weeks. Several other
factors contributed to these increases including the following:

·       Net sales of iPods increased $3.1 billion or 69% during 2006
compared to 2005. Unit sales of iPods totaled 39.4 million in 2006, which
represents an increase of 75% from 22.5 million iPod units sold in 2005. Strong
iPod sales during 2006 reflected significant sales of both the hard-drive based iPod that supports video,
first introduced in October of 2005 and the iPod nano, introduced in September 2005,
as well as continued expansion of iPod distribution points. During 2006,
the net sales per iPod unit sold decreased by 3% compared to 2005 primarily due
to an overall decrease in average selling prices for all iPods as well as a
shift in product mix to the iPod nano. From the introduction of the iPod in
2002 through 2006, the Company has sold approximately 68 million iPods.

·       Macintosh net sales
increased $1.1 billion or 18% during 2006 compared to 2005. Macintosh unit
sales increased by 769,000 units or 17% during 2006 compared to 2005. These increases were mainly due to strong demand
for the Intel-based MacBook and MacBook Pro systems and reflect a shift in
product mix to portable products in all of the Company’s operating segments. Net
sales and unit sales of the Company’s portable products increased 43% and 42%,
respectively, during 2006 compared to 2005. Macintosh desktop net sales and
unit sales both decreased by 3% during 2006 compared to 2005. The decrease in
sales of the Company’s Macintosh desktops was due to declines in sales of the
Company’s professional-oriented desktop products. The Company believes the
decline in the Company’s professional-oriented desktop products was due to
customers delaying purchases of such products in anticipation of the release of
the Intel-based Mac Pro, which did not begin shipping until August 2006,
and updated software applications capable of running on Intel-based Macintosh
computers, and the trend toward portable computers. A slight increase of 1%
during 2006 in net sales per Macintosh unit sold was due to a shift in mix to
higher-priced portable products, partially offset by price reductions on
certain Macintosh systems.

·       Other
music related products and services consists of sales associated with the
iTunes Store and iPod services and accessories. Net sales of other music
related products and services increased $986 million or 110% during 2006
compared to 2005. The increase was primarily due to increased net sales from
the iTunes Store and Apple-branded and third-party iPod accessories and
services. The increase in sales from the iTunes Store stemmed from significant
growth in U.S. sales and the opening of The iTunes Store in Japan during August 2005
and Australia during October 2005. The increased sales from the iTunes
Store were also attributable to the availability of videos, television shows,
and feature-length movie downloads.

·       Net sales of software,
service, and other sales increased $188 million or 17% during 2006 compared to
2005. The growth was primarily attributable to increased net sales of AppleCare Protection Plan (“APP”) extended service
and support contracts and application software, partially offset by a
decrease in sales of Mac OS X. Mac OS X
sales were particularly high in 2005 due to the release of Mac OS X Tiger in April 2005.

Offsetting the
favorable factors discussed above, the Company’s net sales during 2006 were
negatively impacted by the following:

·       Net sales of peripherals and other hardware declined $26 million
or 2% compared to 2005 primarily due to price decreases and a decrease in net
sales of displays relating to a shift in mix from desktop to portable systems. The
decrease in net sales of displays for 2006 is consistent with the overall
decrease in unit sales of Macintosh professional desktop systems.

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