Who Cares About the iPod?

Of all the things that investors need to be worried about heading into Apple's (Nasdaq: AAPL  ) quarterly report on Tuesday, the last thing that they need to be losing any sleep over is the tech giant's iPod business.

"No kidding, Rick," you spit back at your monitor -- but that mindset apparently isn't universal.

Fortune's Philip Elmer-DeWitt appeared to be in worrywart mode on Friday, compiling all of the major analyst projections in his usually insightful "Apple 2.0" column.

Gathering 43 analysts' unit-sale estimates, he finds that the consensus points to an average 7.2% year-over-year decline in the number of iPods sold this past quarter.

This would be problematic if this was, say, 2004, but it's immaterial now. For those still unconvinced of the triviality of this particular metric, let's go over a few of the reasons this doesn't matter.

1. It's all about the iOS, baby
Elmer-DeWitt points out that iPod sales peaked when Apple sold 22.7 million iPods during the 2008 holiday quarter. Have you noticed sluggish financial performance at Apple over the past three years? Of course not. The iPod's slow fade has been more than offset by the rapid ascent of the iPhone and iPad.

Isn't an iPhone an iPod touch that makes calls? Isn't an iPad a super-sized iPod touch? All three devices run on Apple's proprietary iOS, and this is the only growth that matters. In fact, it should be fairly obvious that selling pricier iPads and contract-tethered iPhones is more important than the lowly iPod. This is like worrying that McDonald's is selling fewer cups of coffee now that it's moving more lucrative lattes, cappuccinos, and iced mochas.

Apple revealed last month that there were 200 million iOS devices out in the wild, a figure that's doubled over the past year. It's the growth that matters in the App Store world we live in these days.

2. Smartphones are Swiss army knvies
It's not just handheld media players that the iPhone in particular and smartphones in general are replacing. Why do you think Cisco (Nasdaq: CSCO  ) shut down its Flip camcorder line three months ago, and image-sensor specialist OmniVision (Nasdaq: OVTI  ) moves more on smartphones than digital cameras these days? As smartphones and even feature phones roll out with better-quality cameras, there's less of a reason to carry around a standalone unit.

Handsets from Apple and those fueled by Google's Android have been on fire since around the time that iPod sales peaked. Yet even so, the iPod remains the undisputed champ among portable media players. It's holding up better than its competition.

The second leading maker is SanDisk (Nasdaq: SNDK  ) , the flash-memory giant that's expected to post a dip in year-over-year profitability later this week. Microsoft's (Nasdaq: MSFT  ) virtually discontinued Zune runs a distant third.

3. See you on the bottom line
Even if the iPod were still relevant, and not the transitory technology that it's become, Apple's earnings growth would be the ultimate vindicator.

Analysts see Apple's profitability growing 65% to $5.80 a share in its latest quarter, a figure that, I should add, continues to inch higher with every passing week. It also bears pointing out that Apple has routinely smashed through Wall Street's income targets with ease over the past few years.

These are the same analysts who, on average, see iPod unit sales taking another hit this quarter. They're baking these metrics into modeling Apple's profitability, and they still see a company that's growing considerably faster than its cheap earnings multiple in the teens.

In short, don't fret the iPod's decline. Celebrate it!

Disagree with Rick? Do you think the iPod is still a needle mover for Apple? Share your thoughts in the comments box below.

The Motley Fool owns shares of Google, Microsoft, Cisco, and Apple and has created a bull call spread position on Cisco. Motley Fool newsletter services have recommended buying shares of Cisco, Apple, Microsoft, and Google and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is starting to see more Apple products creep into his home lately. He owns no shares in any of the companies in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (8) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On July 17, 2011, at 12:08 PM, RagingBullish wrote:

    Not exactly sure what you mean when you state that "Even if the iPod were still relevant, and not the transitory technology that it's become....", but I would argue that it's still highly relevant and nowhere near some kind of transitory technology or passing fad, because it's just a flat-out awesome product, and for serious music lovers like myself it's become an indispensable one, as the quality of sound is fantastic and it's durabilty is incredibly good. I have 3 iPods, and like I say, those are considered indispensable by me.

    I was traveling in my car last week and accidentally dumped a cup of coffee all over everything, including my wife and my iPod which was lying on the center console (DOH!), and I dried it off right away and sure enough it didn't miss a beat (and I had DRENCHED it in hot coffee), so I have nothing but positives to say about the iPod as a product and I think it's just absolutely awesome.

    The market is nowhere near saturated either in my opinion. My 6 year old daughter badly wants an iPod. I think she's still a little bit too young to take care of that reliably yet, but when she's 7 or 8 and a bit more careful I will surely buy her one, and the same goes for my 4 year old son and soon to be born second daughter.

    Ya'll can have your smart-phones. I'll keep my iPods. :)

  • Report this Comment On July 17, 2011, at 12:16 PM, DurrahCell wrote:

    The iPod is Not a needle mover, the IPhone is and the IPAD is a door opener to the Apple Experience. Most of the new Mac business is coming from Microsoft Converts who bought and loved IPAD. After buying the IPAD for my family, I bought their Stock.

  • Report this Comment On July 17, 2011, at 2:02 PM, Oldfool103 wrote:

    Even though I had my first taste of the non-DOS world on a PowerMac in the late 90s and loved it, I just had to have Windows for all of that open access. It took years before I finally replaced my Discman with an iPod and began to find my way back to Apple. Once my Nano dies, I am likely to buy a 3GS as a $100 iPod, hopefully with a Pay as You Go phone plan to accompany it, and there will be one less iPod in the world.

  • Report this Comment On July 17, 2011, at 3:27 PM, ConstableOdo wrote:

    I'm still using my many years-old iPod 30GB. I'd opened it up a year ago to replace the battery, but otherwise it's in perfect condition. It still works very well for playing music and that won't change. A good product is a good product. The click-wheel concept is excellent. So, even though that's not what most consumers desire, I'm actually going to purchase another iPod Classic with 160 GB and it will be used for nothing but music. I probably am an exception, but who knows, maybe the iPod decline will stop at some point and Apple will just have a steady but unspectacular music player business. I don't think Apple should drop the iPod line at all. Too many people think in extremes. If Apple doesn't sell something that's in super-demand, then it's thought they should just drop it. It shouldn't have to be that way.

  • Report this Comment On July 17, 2011, at 4:29 PM, makelvin wrote:

    The iPod market will continue to slowly decline; but it will bottom out at some point and stay there. The iPod market will never completely die out since there are just way to many music lovers that like to have a dedicated device for playing just music.

    I know many people who have these new smartphones like the iPhone that can also play music really doesn't use them for playing music. This is because they don't want to drain their battery for listening to music and end up not been able to get their phone calls or data access to the Internet.

  • Report this Comment On July 17, 2011, at 10:17 PM, BlueB wrote:

    Haven't touched my ipod since getting my iphone, my ipod mini works for the gym and not looking at replacing unless it fails.

    If it dies, I'll buy another Apple product. I imagine this is a case for a ton of users.

  • Report this Comment On July 17, 2011, at 10:39 PM, jpollockuque wrote:

    Convenience.....I'd rather leave my iPod in the car than my phone.....

    Not exactly why but I use my nano, iPod, iPhone, and iPad all for different reasons and situations...for me, one hasnt replaced the other....

    Similar to durracell, when I started using their products in september of 2010, I bought their stock.

    Unlike my numerous laptops (windows based) I haven't had 1 issue to deal with from my kids iPads. No spilled drinks, no slow running, no lock-ups.....nothing!

    While iPods might not be a huge mover as before, they will hang around for a while...

  • Report this Comment On July 18, 2011, at 7:45 PM, jekoslosky wrote:

    "This is like worrying that McDonald's is selling fewer cups of coffee now that it's moving more lucrative lattes, cappuccinos, and iced mochas."

    Nice analogy.

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