iTrade Pro Forma Income Statement by chenmeixiu


									                                         iTrade Pro Forma Sales Projections

              Annual Unit Sales



Ipods Sold

                                                                                                      Unit Sales
                                                                                                      Unit Sales with iTrade



                           2002   2003          2004    2005       2006   2007     2008    2009
                                                          Fiscal Year

               Fiscal Year                        Unit Sales                     Unit Sales with iTrade
                                         2002                          381,000                            381,000
                                         2003                          939,000                            939,000
                                         2004                        4,416,000                          4,416,000
                                         2005                       22,497,000                         22,497,000
                                         2006                      41,043,000*                        41,043,000*
                                         2007                      65,668,800*                        72,571,904*
                                         2008                      78,802,560*                        89,847,527*
                                         2009                      86,682,816*                        99,936,776*

                 Percent Growth




Percent Grwoth

                                                                                          Percent Growth
                                                                                          Percent Growth with iTrade




                         2003    2004     2005      2006       2007     2008    2009
                                                 Fiscal Year

                  Fiscal Year             Percent Growth                Percent Growth with iTrade
                                   2003                          146%                                       146%
                                   2004                          370%                                       370%
                                   2005                          409%                                       409%
                                   2006                          82%*                                       82%*
                                   2007                          60%*                                       77%*
                                   2008                          20%*                                       24%*
                                   2009                          10%*                                       11%*


                          The slowdown in growth of iPod units sold is due to the fact that as the
                 product line expands, many people who already own the device will be unwilling
                 or financially unable to purchase a new one. Because the flagship iPod is already
                 in its fifth generation, most people who see the device as a necessity already own
                 one, leaving a smaller opportunity for future growth. This phenomenon will
                 continue to play a large part in the future sales outlook of the iPod.
  Additional Profit Generated by iTrade

         By essentially lowering the profit margins on new iPods that are obtained
  using the iTrade system, Apple can generate a large amount of incremental profit
  that they would not have achieved otherwise.





                                                           Total Additional Profit Attributable to iTrade
                                                           Profit Without iTrade



                 2007         2008         2009
                           Fiscal Year

  Note: Profit figures are based on the estimate that high capacity iPods constitute
  46.72% of total iPod sales figures during any given fiscal year.
                                                       Total Additional Profit Attributable to iTrade










                                      2007                                 2008                               2009
                                                                        Fiscal Year

                                                Additional Profit on Low Margin
Fiscal Year          Additional Units sold      Units                                                   Additional Profit on High Margin Units
              2007                6,903,104                            $120,804,324                                                    $345,155,213
              2008               11,044,967                            $193,286,919                                                    $552,248,340
              2009               13,253,960                            $231,944,303                                                    $662,698,009

                              Fiscal Year                Total Additional Profit Attributable to iTrade

                                              2007                                                          $465,959,537

                                              2008                                                          $745,535,260

                                              2009                                                          $894,642,312

                Due to the scarcity of data regarding unit sales component percentages per
                model, accurate predictions of revenue and cost of goods sold predictions cannot
                be made to the overall breadth of the iPod line. However, estimates can be made
                pertaining to unit sales growth and the additional profit attributable to the iTrade
                system, using the 46.72% estimate of high capacity iPod unit sales.
Logistic Growth Model of the iPod Unit Sales Curve

       The logistic growth model is essentially an S-curve outlining the growth of
a certain population over a period of time. By definition, growth in the earlier
stages begins as exponential, and then as competition arises, the growth rate
slows until halting at maturity.

        Due to the incredible proliferation of the iPod in culture and society, sales
of the units have experienced tremendous growth over the past few years.
However, recent sales figures foreshadow a diminishing growth rate in
subsequent years. The second quarter of fiscal 2006 was the first in which the
company experienced negative sales growth, indicating an overt trend that
threatens to extenuate the profits of Apple’s most successful product division.
Data and sales modeling suggests that the apex of such sales growth has been
reached, and that the company will continue to see a slowdown in sales until they
finally halt at maturity. This is characteristic of the logistic growth model. The
slowdown in sales can be attributed to a variety of factors:

      Most consumers who feel that the iPod is a necessary product in their lives
       have already made the purchase and have no need for another model.
      Most consumers who purchase their iPods keep them for at least two
       generations, so those that already own them will be less likely to buy a new
      The flagship iPod is already in its fifth generation, and as an increasing
       number of competitors and technological advances come to market, the
       iPod starts to sink into a sea of relative obscurity.
      Because it is a cultural phenomenon, the fad appeal of the iPod is
       inevitably destined to diminish. Nothing short of a massive, aggressive
       marketing campaign or boldly innovative new features at a lower price can
       perpetuate the impressive historical growth rates of iPod sales.
      The population in the U.S. grows at a lethargic pace of 1-2 percent per
       year, hardly enough to sustain the iPod unit sales growth rates. Sooner
       rather than later, the iPod market will begin to atrophy and there will no
       longer be any new customers to cater to.
      Because the most recently released fifth generation iPod has a video
       screen, many consumers feel that the limit of desirability of the units has
       almost been reached. Apple can only put so many new features on a
       product in order to increase sales. Also, future innovative features such as
       iCal collaboration, Bluetooth compatibility, WiFi, and others appeal to a
       small niche market of wealthy, innovative users who actually possess all of
       the technological devices to participate in their “digital lifestyle.”

    While the iPod sales machine slowly loses momentum, it requires a selling
strategy that will sustain adequate profit levels until the company develops a new
product to continue the evolution of the portable digital media market. iTrade
breathes new life into the product line while simultaneously introducing two
distinct levels of consumer into the market. The program provides for an
additional $2.1 billion of net profit over three years, which will be necessary for
the growing needs of the company.
    Apple has always been seen as a highly innovative company, and it is one of a
handful of its size that can continually bring entirely new products to the
marketplace. The success of the iPod in the eyes of the public will weigh heavily
on their future decisions to buy new products from Apple. Should the iPod take a
turn for the worst and buckle to the pressure of the market share, the highly-
dominant Windows user base will see yet another failure by a company that fails
to conform to standards. The possibility of the iPod market share shrinking from
the whopping 75% it is today to around 50% could prove disastrous for the
company’s profit margin as well as customer base. Apple cannot afford to remain
complacent in this area, and simply adding new features with each new
generation release will not be enough to secure its dominance in the market.
    Already, companies such as Sony and Microsoft have explicitly declared war
on the iPod, and Apple should not treat those threats with indifferent ears. IBM’s
introduction into the PC market nearly wiped Apple out in its early years, and
Apple looked down on them with condescension and arrogance. While Apple has
a market capitalization of $57.72 billion, Sony and Microsoft carry caps of
$47.36B and $236.16B, respectively. Both companies are highly competitive
internationally, and pose a very serious threat to the iPod dynasty. Although
Apple has a very significant head start in the music market, these other
companies have the management talent and the financial resources to make a
successful run at tearing down Apple’s dominant market share. As long as Apple
continues to open itself up to new ideas and innovation, they will remain at the
top of the portable media market for years to come.

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