Apple iPods: Are we saturated yet?

Following Apple's strong fiscal first quarter and conservative outlook the Monday morning quarterbacking is interesting. Some analysts think Apple was just being prudent with its disappointing (to analysts) second quarter outlook.

Following Apple's strong fiscal first quarter and conservative outlook the Monday morning quarterbacking is interesting. Some analysts think Apple was just being prudent with its disappointing (to analysts) second quarter outlook. Others see Apple as some sort of economic indicator, a take which is a complete joke. But one takeaway stood out: The maturation of the iPod market.

As a brief recap: Apple reported a great first quarter, but the outlook spooked investors. Now Apple's results (Techmeme) are being portrayed as evidence of a slowing economy, which is laughable. David Morgenstern asks whether Mac, iPhone and iPod sales are really an economic barometer? Short answer: Nope.

With that out of the way let's get to those iPod worries. Apple's iPod unit growth was 5 percent--in the holiday season. Now that's still 22.1 million iPods (the laws of large numbers are in play here). But Apple execs talked about the iPod being more than a music player signaling they want to reshape the worries a bit. Whatever category the iPod is in the fact is we all have three of them. Planned obsolescence only goes so far.

UBS analyst Ben Reitzes said the key for Apple is "the pace of the hand-off to the iPhone and Macs." In English that means Apple need the iPhone and new Macs to drive growth since iPod sales are slowing.

Reitzes wrote:

Even though iPod demand is clearly worrisome, Macs continue to surprise to the upside, driving higher sales of software and peripherals as well.

Reitzes then raised his earnings estimates a smidge due to Mac sales. He projects flat iPod unit growth in the second quarter.

And flat is not good. In the first quarter analysts were looking for iPod unit growth of 16 percent or so. They got 5 percent.

Bank of America Scott Craig said:

iPod units were below our expectations, up 5% year over year (Y/Y) versus our 16% Y/Y estimate, with the U.S. flat Y/Y. However, ASPs were significantly better than expected (up 11% Y/Y versus our estimate of a 3.4% decline), due to strong adoption of higher-ASP iPod Touch. The modest iPod unit growth, despite the benefit from the new product introductions and product refreshes in September, and seems to indicate that this is a maturing market.

Other commentary was very similar, but some analysts said product transitions and international growth can refuel iPod sales. The big questions: Are iPod sales representative of anything scary? Are iPods a signal the consumer is spending less? Is there a GDP hit here? Can a pink iPod nano save the economy?

I'm joking about those questions because they are silly. But they will be asked--a lot. The only thing iPod's unit growth reflects is that most folks have 3 of them already. And like Apple's outlook, that 3 iPod per user guesstimate is conservative.

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