Is There Still Life in the iPod?

Of the few places where Apple's (Nasdaq: AAPL  ) armor shows chinks, iPod sales may be the most glaring. The Mac maker's music players don't sell as well as they used to:

Metric

Last 12 Months

FY 2009

FY 2008

iPods sold

51,438

54,132

54,828

iPod revenue

$8,360 million

$8,091 million

$9,153 million

Source: Securities and Exchange Commission filings.

This week, Apple begins a program to reverse the trend. A refreshed line of iPods ships this week, CNET's News.com reports.

Apple is borrowing from the success of the iPhone 4 and iPad in remaking its music players. For example, the new version of the iPod touch includes the FaceTime video calling feature for when users are connected on a Wi-Fi network.

The Touch also gets the 4's Retina display, high-definition video recording, and what's called Game Center -- an app Apple says acts as a sort of social gaming network for those who own iOS devices. Call it Ping for iGamers.

Apple's iPod nano also gets multitouch features while the iPod shuffle now sells for $49. Add it all up, and it's clear that CEO Steve Jobs isn't content to cede market share to Microsoft's (Nasdaq: MSFT  ) Zune or any other player.

More importantly, Apple seems to be taking these steps to protect the iPod from other iProducts. Consider how it positions the Touch. Because it's a device targeted especially toward gamers, the Touch isn't easily replaced by other smartphones. Or so Apple wants you to believe.

Competitors would prefer you think differently. Every major smartphone now includes a music player. It's become a checklist item for Google's (Nasdaq: GOOG  ) Android operating system and Research In Motion (Nasdaq: RIMM  ) BlackBerry devices. Nokia (NYSE: NOK  ) , meanwhile, has its own music store.

This week's iPod launch isn't likely to get a lot of press, but that might be a mistake. Apple is defying the industry by insisting the iPod remain a distinct product category -- separate from but in many ways equal to smartphones. Can the strategy succeed? I'm a skeptic, but as a shareholder, I'd also like to be wrong.

Now it's your turn to weigh in. Will this week's refresh help the iPod remain a distinct product category? Let the debate begin in the comments box below.

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Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 08, 2010, at 5:40 PM, mattack2 wrote:

    What units are those in?!?!!?

  • Report this Comment On September 08, 2010, at 7:41 PM, beetlebug62 wrote:

    To be completely fair, one should add in iPhone sales to the iPod ones, when doing a time comparison. Many people stopped buying iPods when they bought iPhones, as it included a great iPod, like I did.

  • Report this Comment On September 08, 2010, at 8:26 PM, Davewrite wrote:

    - Ipod sales still makes up a huge chunk of Apple's revenue.

    - The new iPod touch is especially important. Touches are extremely price competitive, they are way cheaper than iPhone when you consider the contracts. Apple makes $500-700 per iPhone (upfront price subsidized by contracts). The Touch with Retina display, two cameras is a steal and rivals can't match the price. Many people who want the features but don't want the expensive phone contracts can get it instead of the iPhone 4

    - The Touch has been called a 'training ground' for users who might later migrate to the iPhone or buy a iPad. Apple has stated one of its competitive advantages in marketing its products is that people are used to the iOS UI. A Touch is a relatively inexpensive way to enter the eco system. Phone contracts might cost over a thousand bucks over time.

    - Every Touch sale ads to marketshare for Apps, Music, Books, movies etc through iTunes. Besides revenue Market share means Developers. IPod Touch adds an additional one third to Apple's iOS users (which is often ignored by analysts collecting market share data). Developers is a key element to a platform thriving. Because of it's strong competitive pricing (see Above) the iPod Touch is Apple's iOS Trojan 'weapon'.

  • Report this Comment On September 09, 2010, at 11:18 AM, RobertC314 wrote:

    Sorry InfoThatHelp - you lost me somewhere in there. I did enjoy this little gem though:

    "Sonic booms from outer space escape our ears all the time"

    Physics say what?

    Anyway, does anyone really see a significant benefit to a new iPod touch? The list of upgrades from the current generation is really not particularly compelling: Higher resolution display and a front-facing camera?

    I do think a big upgrade would be a micro-SIMM. However, combine that with a VoIP app (either "approved" or jailbroken) and what incentive is there to buy an iPhone? They will end their exclusivity with AT&T well before that ever happens.

  • Report this Comment On September 12, 2010, at 3:57 AM, PapayaChunks wrote:

    ey Mr. Market, why so down on Apple? The iPod business is fully matured. The iPhone is losing inventory to similar devices. MacWorld was missing its usual superstar prospect. I tell you what, take this news and know that Apple has historically done its best when sentiment is low. Steve Jobs & Co. is my favorite IT pick for 2008. The downside has opened up value in the stock, and I feel they have bottomed!

    Looking further into the concerning issues. The iPhone was selling less because of Apple's push into the new iPod Touch, the analysts at Needham noted that "Apple would have sold close to four million iPhones in its absence." Add this to the fact that an estimated 25%-30% of iPhones were "unlocked" from AT&T, a number that actually benefits AAPL through the carrier's headache. While iPod sales were slowed, I feel that the mp3 device is merely in a transitioning phase, and interesting opportunities are now raised in mobile technology.

    I feel that AAPL may be a recession resistor. Mac business is healthier than ever, and single-handily offset losses in iPods. Investors are punishing high-end firms like Apple for any disappointments. The stock is 35% off its highs, trading at a premium 24-times-earnings compared to its peer's 32x and has a PEG of 0.7x. They've got the free cash flow we love ($6.78/share est. 2008) and its business segments have never looked healthier. People are hating on this company for no reason. As Warren Buffet puts it: "Be fearful when others are greedy, and greedy only when others are fearful."

    ----------------------------------

    Money without intelligence is like a car without a road.

    http://www.intelligentinvestingtips.com

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