Forget the iPhone! Apple Investors Should Be Focused On Spectacular iPod Growth

Apple (AAPL) investors have lately been worked up over the introduction of iPhone, which is yet another great product from Apple and expected to sell 10 million units in 2008. It sold 270,000 in the first two days of its introduction, which makes the 730,000 they are guiding to for the next three months seem conservative laughably low.

But with all the focus on iPhone, everyone seems to forget about the iPod. As I noted earlier, 21% growth for iPods was also borderline spectacular for a product many have all but forgotten and if anything expected to be cannibalized by iPhone. Oh, and who needs 10 million units in a year when the outdated, cannibalized iPod sold nearly that many in a quarter? Imagine what might happen if they actually came out with a new model.

You might not have to stretch your imagination for long. Think Secret thinks there is an iPod update on the horizon

Apple’s full-size iPod is being primed for an update that could arrive as early as the first-half of August, sources report. The revision will feature neither a touch-screen nor will run a scaled down version of Mac OS X like the iPhone, however—those updates are not scheduled until 2008.

Apple has been an amazing stock and the company continues to produce amazing products. With the stock performing as it has it is easy to see how investors may feel nervous. But it is also easy to see that with global handset units topping a billion per year, Apple can grow for a long time before gaining on even the meager 3% share it holds in the PC market.

AAPL 1-yr chart:

Comments

[Partners in Grime]

A crazy thing about the iPhone sales numbers is that it took almost two years for Apple to sell its millionth iPod!

[John Lazerow]

I'm focused on the SPECTACULAR growth of Macs. The stores are working well for Apple and the fact that there will be mini-stores in 300 Best Buys by year end should keep that trend alive. The Best Buys I have visited with Apple stores in them appear to be doing well. When asked, the mini-store Apple employees all tell me that newcomers to the platform represent anywhere from 70-90% of Mac sales at Best Buy. Interesting stuff.

[William Trent]

That's the thing with Apple. When every other company is saying this division stank but this one is doing ok, Apple is saying this division is on fire, and this other division is making the first one look like a refrigerator.

Amazing.

[Jon T]

Forget the iPhone!

Forget the iPod!

The really spectacular news is the comeback of the Apple Mac. This is the one has the potential to take AAPL statospheric because there has been a big take-up by the IT influencers. The heavy hitting bloggers are one example.

Macs have hardware and software that make other personal computers look like they are stuck in the 90's. And with Vista in place now until 2010 that isn't going to change.

[William Trent]

No doubt. But I don’t think anybody expected the iPhone to possibly cannibalize Mac sales, whereas the iPod was considered more at risk. That was really more my point.

[David Lentz]

I think it's a mistake to think of the iPhone and iPod as separate products that compete with each other. Much more useful to view them as different models within the same product family. They can share components, and in theory, the software that runs them -- at least in the case of the larger video iPods.

Thinking of the iPhone as a new high-end model of iPod allows one to see the ease with which the technologies used in the iPhone can slide down the line into other iPod models, and allows one to think about other extensions to the device family, like a variant optimized for use as a game player, like the Sony PSP or the Nintendo DS Lite.

When you share components across the product line, you drive down the cost of the components, lower development costs, and raise profitability. That's what a product family is all about.

Nobody talks about iPod nano's cannibalizing video iPod sales. iPhone-iPod competition is just as nonproductive a notion.

[charanischiu]

the merge of ipod, digital camera and mobile phone becomes an iphone that cover all kind of functions.

unless iphone comes out with different models or versions that satisfy everybody needs, otherwise each one of them itself (ipod, digital camera and mobile phone) will remain their sales volume.

[Andrew]

IPOD units sales maybe up, but rev/unit is flat or slightly down due to migration to lower prices. IMO the margins are still very high because lower priced IPODS have converted to cheaper NAND flash memory instead of mechanical drives.

Biggest driver of revenue growth has been the pent up demand in Europe, with cheaper $.

The biggest difference with Iphone and other premium products including Ipods is that people will buy only 1....regardless how much money an idividual has. This reduces the demand, especially at $500 to $600 price range. I believe Apple will sell 10mm Iphone by end of next year, but at a lower unit price.
As a reference, there are 11.3mm US households that make over $125K per year (2.3 avg person/household). there are 18.1mm US households that make over $100K per year (avg. 2.5 person/household).

Apples future success will depend on:
growth in the number of higher income households (globalization)
meaningful new product introductions
the ability to update existing products quickly enough to reduce replacement cycle (why do you think they don't have replaceable batteries in ipods and iphones).