attributable to introduction by the Company of the iMac, a moderately priced Macintosh system designed for the education and consumer markets. Sales of iMac accounted for 33% or 278,000 of the total Macintosh units shipped in the fourth quarter. While the Company did experience year-over-year growth in Macintosh unit shipments in the fourth quarter of 1998 as compared to the same period in 1997 of 182,000 units or 28%, net sales for the same period declined $58 million or 4%, reflecting the overall decline in the average revenue per Macintosh system discussed above. During the fourth quarter of 1998, the Company's product mix continued to shift towards products incorporating the Power Macintosh G3 microprocessor. Sales of G3 powered Macintosh systems accounted for approximately 98% of Macintosh units shipped during the fourth quarter of 1998 as compared to 84% during the prior quarter. Net sales of imaging and display products decreased by $10 million to $117 million in the fourth quarter of 1998 compared with the prior quarter reflecting the continuing phase-out of most imaging and many display products. 

International sales represented 45% of net sales in 1998 compared with 50% of net sales in 1997 and 52% of net sales in 1996. International net sales declined $920 million or 26% in 1998 compared to 1997, while over the same time frame, domestic net sales declined by 6% or $220 million. The decline in international net sales is primarily due to decreased revenue in the European and Japanese markets as a result of significant decreases in Macintosh unit sales and the average revenue per Macintosh system. Overall sales in the European and Japanese markets were negatively affected during the fiscal year by the lack of available consumer oriented products at various times during 1998. Sales in Asia, including Japan, were also negatively affected by the region's continuing economic problems, declining 34% or $536 million during 1998 compared to 1997. 

BACKLOG 

In the Company's experience, the actual amount of product backlog at any particular time is not a meaningful indication of its future business prospects. In particular, backlog often increases in anticipation of or immediately following introduction of new products because of overordering by dealers anticipating shortages. Backlog often is reduced once dealers and customers believe they can obtain sufficient supply. Because of the foregoing, backlog should not be considered a reliable indicator of the Company's ability to achieve any particular level of revenue or financial performance. Further information regarding the Company's backlog may be found below under the subheading "Product Introductions and Transitions" included under the heading "Factors That May Affect Future Results and Financial Condition." 

GROSS MARGIN 

Gross margin increased as a percentage of net sales during 1998 to 25% compared to 19% in 1997. This increase is primarily the result of a shift in revenue mix towards the Company's higher margin Power Macintosh G3 systems and newer PowerBook G3 systems, the low volume of lower margin consumer products shipped during the first three quarters of 1998, and the