AmTech: Apple must upgrade iPods
updated 10:30 am EST, Wed January 23, 2008
AmTech: Upgrade iPods
Apple must substantially upgrade its iPods in order to rescue sales, says Shaw Wu of American Technology Research. While revenue growth from iPods was 17 percent in the last quarter, the fastest of the past four, the company only sold approximately 22 million iPods, when consensus views were predicting 24 to 25 million. This likewise represents a mere 5 percent growth year-over-year, in spite of the fact that Apple recently made major changes by introducing the Touch and adding video to the Nano.
The solution, Wu suggests, is to substantially improve the value of iPods, as they may be facing cannibalization from cellphones, which are increasingly supportive of at least basic media player functions. A recent study indicated that phones are used for as much of 83 of mobile music listening in the US, UK, France, Germany, Italy and Spain. The damage may be offset for Apple by high iPhone sales, which have doubled sequentially to 2.3 million.
Looking ahead to the end of 2008, AmTech is now forecasting annual revenue of $31 billion, with an EPS of $5; the firm previously expected $30.8 billion in revenue and a $5.10 EPS. The new 2009 forecast has shrunk as well, shifting from $35.7 billion and $6.10 to $35.2 billion and $5.95. The price target for Apple stock has been reduced to just $175, when it was once $210.
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Daniel Eran Dilger's take
"Lost in the Numbers. It’s hard to be too upset about Apple’s iPod sales. It sold 22,121,000 iPods, which while only five percent more units compared to the winter quarter last year, represented 17 percent higher revenues. That’s because Apple brought a more powerful and expensive iPod to market, the iPod Touch. Brisk sales of the higher end model bumped up revenues and profits and raised the average selling price of iPods in general. Apple enjoyed the highest growth rate in revenue for the iPod in a year.
Consumers enjoyed the best iPod ever. In addition to the new Touch, Apple also released the new video playing Nano, converting its product lineup into one than can play both music and video purchased from iTunes. More recently, they can also handle rented movies as well. Perhaps the company knows what its doing after all.
Another secret that seems to have slipped through the fingers of every analyst on the planet is that the iPhone is also an iPod. It’s essentially an iPod Touch with a camera and a mobile phone. Apple sold 2.3 million iPhones in the winter quarter, so if you add those into the iPod units, you arrive at 24.4 million iPods, which is what analysts were looking for, albeit in the wrong column of the report.
The other difference between the iPhone and the standard iPods is that the iPhone generates steady, subscription-accounted income as well as a share of mobile operator service fees. The nibbling cannibalization of iPod sales by the iPhone is kindest competition Apple could hope for."