iPod’s shrinking importance – Needham & Co

Apple’s iPod is becoming the poor relation as the company slugs away at promoting the iPhone, remarked Needham & Co. analyst, Charles Wolf, in a note to clients released this afternoon.

Wolf explained that in his opinion the two “most important aspects of Apple’s “Let’s Rock” event in San Francisco were Steve Jobs’ health and a software update for the iPhone.”

The analyst pointed out that an energetic Jobs may be a little slimmer than before (rather like the iPod range he was promoting), but slim needn’t mean grim.

“The iPhone 2.1 software update was the other crucial announcement in the event,” Wolf wrote. “The iPhone 3G has reportedly been plagued by dropped calls, poor battery life and crashes. Although we don’t know the extent of these problems or if they’ve had any impact on iPhone sales, it was crucial that Apple address these problems before they did. The update addresses all of these problems, although until the update arrives on Friday it’s unclear whether it entirely fixes them,” he added.

Wolf looked quickly at Apple’s other announcements: iTunes 8, the new iPod nano, a redesign for iPod touch and a new deal with NBC TV for iTunes, but described these as offering no particular surprises, “that were not speculated on in the hundreds of articles leading up to (the event).”

“We would rate the event a material positive because it did address the issue of Steve Jobs health and it did deliver a crucial software update for the iPhone insuring that sales of the device would not be impacted by the sporadic reports of its deficiencies, outlined above,” he added.

“As we’ve previously noted, it’s important to place the iPod in perspective. Through the iPod halo effect, it continues to convert Windows users to the Mac platform.

“But the product has reached the mature phase of its life cycle with annual sales of 50 million units, slowing to a high single/low double-digit growth rate.

“The iPod continues to gain share in markets abroad, most notably in Europe, where iPod sales dramatically lagged those in the US, and in China and other countries in the Asia Pacific region.

“We estimate that 20 million or more Windows users will
join the iPod nation annually over the next few years and potentially fall under the sway of the iPod halo effect, which is great for Mac sales.

“But the importance of the iPod in Apple’s product portfolio has definitely taken a back seat to the iPhone, which is targeting a market that’s 20 times larger than the music player market,” the analyst explained.

“We continue with our strong buy rating. We are maintaining our $240 price target.

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4 thoughts on “iPod’s shrinking importance – Needham & Co

  1. elder norm

    Hmmm, why this constant need to feel that unless a product is selling millions more than last year, its a failure.??????

    As long as Apple sells 70 % of the music players world wide each year, it will control the market. PERIOD. If thats 50 million a year or just 2 million a year. It DOES NOT MATTER.

    Now for Apple profits, its always nice when you sell more!!! But I assure you, the world will not end if Apple sells only 10 million iPods next year. ——– OH wait—–

    the iPhone and iPod touch are both iPods in a way. And sales of those items are climbing fast. They DEFINE who we will see the web mobilily. And they are iPods. So, THINK DIFFERENT just a little. After all, its a new world out there than when you were a child. Keep up, OK? 🙂

    Just a thought.
    en

  2. Jonny Post author

    Where in this report does it say failure?

    What is there about the notion that iPod is moving from being a novelty into being a commodity item, as tastes change toward different devices, led by the iPhone, with iPOd still attracting Windows users to the Mac – what is there about saying that that forces your knee-jerk pro-Apple mentalism, Mr. Elder Norm?

    Surely all this report says is that the change in habits favours Apple and the iPhone?

    Why the need to shoot the messenger?

    The world has gone mad.

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  4. multifonction

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