and increased competition. 

Europe 

During 2005, net sales in the Europe segment grew $1.3 billion or 71% from 2004. Total Macintosh unit sales in Europe also experienced growth during the current year by increasing 47% in 2005 compared to 2004. Consistent with the Americas segment, Europe experienced strong net sales of desktop products, iPod, other music related products and services, and software and service sales. Demand in Europe during 2005 was particularly strong for the Company’s desktop computers, which experienced a year-over-year increase of 56%. Similar to the results of the Company’s other segments, net sales of iPods, peripherals and software were strong in 2005. 

Net sales in Europe rebounded in 2004 increasing $490 million or 37% from 2003. Total Macintosh unit sales in Europe also experienced growth in 2004 by increasing 13% compared to 2003. Consistent with the Americas segment, Europe experienced strong net sales across all product lines, except the iMac systems. Demand in Europe during 2004 was particularly strong for the Company’s Power Macintosh systems and portable Macintosh systems, which experienced year-over-year increases of 29% and 42%, respectively. Similar to the results of the Company’s other segments, net sales of iPods, peripherals and software were strong in 2004 over 2003. 

Japan 

Japan’s net sales and Macintosh unit sales were up 36% and 8%, respectively, during 2005 compared to 2004. Japan experienced increased net sales in desktop products, iPod, and other music related products and services. Desktop net sales and unit sales increased by 31% and 41%, respectively, and iPod sales increased by 220% during 2005 compared to 2004. The overall increase in net sales was partially offset by a decline in portable system net sales during 2005 compared to 2004, which the Company believes might be attributable to a shift in sales from portables to the new iMac G5 and Mac mini, and a shift to the Retail segment as a result of opening two additional stores in Japan during 2005. 

Japan’s net sales and Macintosh unit sales were down 3% and 14%, respectively, during 2004 compared to 2003, which lagged behind all of the Company’s other operating segments. These decreases in net sales and unit sales were believed to be attributable in part to a shift in sales from the Japan segment to the Retail segment as a result of the opening of two stores in Japan in 2004. In addition, such decreases may have been related to delayed computer system upgrades by some professional and creative customers who were awaiting the release of Quark XPress 6 for Mac OS X, which did not occur until September 2004. The decrease in net sales was partially offset by strong iPod and iBook sales during 2004 compared to 2003. 

Retail 

The Company opened 38 new retail stores during 2005, including 6 international stores in the U.K, Japan, and Canada, bringing the total number of open stores to 124 as of September 24, 2005. This compares to 86 open stores as of September 25, 2004 and 65 open stores as of September 27, 2003. 

Net sales of the Retail segment grew to $2.4 billion during 2005 from $1.2 billion and $621 million in 2004 and 2003,