iPod: how big can it get?

[AppleInsider]

That's the title of a detailed research report on Apple Computer's iconic digital music players, in which analysts for Credit Suisse weigh the iPod's recent success against that of Sony's Walkman in the '80's and '90s in order to depict the player's overall opportunity for further growth.

Despite the iPod’s overwhelming popularity, the firm says investors are becoming increasingly concerned with its growth opportunities, competitive pressures, slowing product introductions, and the law of large numbers.

It estimates Apple's current iPod worldwide penetration rate of the consumer PC installed base to be a mere 10.3 percent, assuming only one iPod is tied to each personal computer. With nearly 90 percent of potential market share remaining and Apple's defensible competitive position, the firm believes the iPod will eventually surpass Sony's magical sales mark of 309 million Walkman and Discman players by the year 2009.

"For comparison, it took Sony over 10 years to sell 50 million Walkmans, while Apple reached the same milestone in half the time despite lower market share and stiffer competition," analyst Robert Semple wrote. "Incidentally, Apple’s ability to pull-through additional revenue from accessories and music downloads has enabled it to effectively expand its opportunity."

The analyst says Apple's shipments are currently tracking at approximately twice Sony’s comparative pace, despite the iPod having lower overall market share. He said, "the biggest difference between the two products remains the use of open standards, with Sony effectively delivering an industry standard product while Apple remains proprietary."

While history has shown that closed systems like the iPod are rarely prosperous for prolonged periods, Semple believes Apple to be an exception. Because consumer electronics are not expected to become as large of a commodity as personal computers, he sees Apple's competitive position as sustainable for the foreseeable future.

"We do not believe Apple can be unseated from its leadership position by attacks on the individual segments of its music business, be it iPod or iTunes," Semple said. "Rather, we believe there will need to be a complete solution offering seamless integration between the hardware and software."



The only potential competitor to meet such a challenge would be Sony, he said. Despite the electronic maker's uncertain music strategy, it's the only other company with the ability to offer the complete package of a music player, software interface, and personal computer.

Another factor that could fuel further iPod grow is an accelerating rate in which consumers are replacing their iPods with newer models. "Based on our estimate for the current iPod lifecycle to be 1.5 years, down from over two years, we believe the company will still be able to deliver attractive growth despite a decline in the number of new iPod users each year," Semple added. "The key takeaway is that if any company can accelerate its product replacement cycle, it becomes less dependent on new user penetration for growth. accelerate the replacement."

The analyst forecasts iPod units to grow 32 percent this year and 24 percent in 2007, despite an actual decline in the number of new iPod users each year. He estimates that between now and the year 2009, Apple’s iPod installed base penetration of the worldwide consumer PC installed base will gradually scale from 10 percent to 20 percent.



When iTunes and accessory sales thrown in, Semple calculates the actual impact to Apple from the average sale of a single iPod to be $253 of revenue and $61 of gross profit -- or total gross margin of 24 percent. On an individual basis, he believes Apple makes a 22 percent profit on iPods, 15 percent on iTunes and 60 percent on iPod accessories.

For each incremental one million iPods that Apple sells, Semple says the company generates and additional $253 million in sales and 3 cents in earnings-per-share. "The bottom line remains that Apple’s financial results are highly leveraged to iPod sales and we believe Apple is still in the early stages of product adoption," he wrote.

Looking ahead Credit Suisse, says flash-based players will drive overall market growth, as NAND flash costs are expected to decline approximately 50 percent per year, allowing digital music player makers like Apple to double storage capacity. The increased in storage and lower costs should enable additional functionality enhancements, such as photo and video on a smaller form-factor and competitive retail price points, the firm said.

Credit Suisse maintains an Outperform rating on Apple shares with a price target of $90.

[ View this article at AppleInsider.com ]

[mike12309]

i didnt really read to much, but the pie charts were certainly interesting. Notice how the 2005 worldwide Mp3 market share for Apple and Other increased at the loss of Creative, Iriver Etc... I think this points to the fact that the USA (creative/irivers base) is solidly Apple, and around the world they have less traction... even samsung, haha.

[Ireland]

Originally posted by mike12309
i didnt really read to much, but the pie charts were certainly interesting. Notice how the 2005 worldwide Mp3 market share for Apple and Other increased at the loss of Creative, Iriver Etc... I think this points to the fact that the USA (creative/irivers base) is solidly Apple, and around the world they have less traction... even samsung, haha.

There are still a lot of countries in the world without apple stores, Ireland for one! But lost of other countries in Europe too with no Apple stores.

[ctachme]

wait a second ... apple only has 26% marketshare?? I thought it had over 70% marketshare!!

[NateRiver]

LOL, those ugly graphs have MSOFFICE written all over them. Why not have some aesthetic sense? Grayscale is better than a splash of yellow and other loud colors....

Sorry, I know this is off-topic. But those graphs are fugly.

[SpamSandwich]

More proof that "analysts" do not a company (or a product) make.

[Lupa]

Originally posted by ctachme
wait a second ... apple only has 26% marketshare?? I thought it had over 70% marketshare!!

70% or so in the US. The 26% is a global figure.

[melgross]

The analysis seems to be about right. I wonder how deals like the one with Nike will play into this?

If Apple moves the iPod into areas they aren't in now, such as games. programs, book reader, etc, it will increase the interest in the device further.

[michaelb]

Am I the only who saw the headline in NetNewsWire and thought: "Here is a rumor on the SIZE of the next generation iPod, and it's going to be big!"

Something like the 8-pounder with a 10-inch screen that Super Secret Apple Rumors reported.

[mark2005]

Why do people keep thinking that Sony can compete on the whole package?

I mean, what software (or software interface) has Sony written that has been any good? And if Sony is just using WMP, that hasn't been and likely won't be good enough for a long time.

[mark2005]

And those graphs showing market share are certainly by units, not revenue.

Which means they include lots of cheap 64/128/256MB flash players, especially in 2004. Most of which have been put in drawers or in the trash.

And that accounts for why Other is such a big chunk of the market.

[melgross]

Originally posted by mark2005
Why do people keep thinking that Sony can compete on the whole package?

I mean, what software (or software interface) has Sony written that has been any good? And if Sony is just using WMP, that hasn't been and likely won't be good enough for a long time.

I think they mean that other than Apple, only Sony has the capacity to compete on the various levels. That doesn't mean that they can produce the inventiveness that they used to exhibit.

[meelash]

Originally posted by michaelb
Am I the only one...?

yep...

[sunilraman]

Notice that Sony is not even labelled in its own slice of marketshare of mp3 players. It's just lumped into "others". (I know I'm also talking about Macs now but anyway) Guess where the huge growth opportunities are, Apple? FREAKIN' OUTSIDE THE USA: THROW US FOREIGNERS A FREAKIN' BONE HERE MAN....

My crappy local "AppleCentre" has just one Intel iMac 17", one Intel iMac 20", one Intel Mac mini, a PowerBook 12", a PowerBook 15", one Sunflower iMac G4 and there was a PowerMac G5 on display with a MIDI keyboard hooked up to it but it dissapeared. iPods? Display models behind glass cases. No iPod nano, iPod shuffle, iPod video that you can physically play with and try out. Not a single MacBook Pro or MacBook in sight. WTF? Bloody stupid country I'm living in right now.

[fuyutsuki]

Does the figure for installed base of PC's worldwide include all of those drones in offices or have they adjusted it for home computers only? If so, I'd like to know the arithmetic they use to do that, it would be good to see which countries have the biggest work computer / home computer ratios (likely India and the like) for pointers for future PC and Mac growth.

Anyway, what I want to hear is when FLASH is coming to new MACS. I already have my 4gb nano thank you very much! (Which will be getting a new battery once it hits 18 months or whatever, I think I can live with it for a good few years)

[fuyutsuki]

Originally posted by sunilraman
[WTF

Bloody stupid country I'm living in right now. [/B]

Sounds like Scotland to me! Need Apple Stores - Stat!

[sunilraman]

Aye. More AppleStores in Euroland, for starters. Natalie Portman is from Israel?

[sandau]

Originally posted by sunilraman
My crappy local "AppleCentre" has just one Intel iMac 17", one Intel iMac 20", one Intel Mac mini, a PowerBook 12", a PowerBook 15", one Sunflower iMac G4 and there

hehe, Sunflower iMac still on display? Great scott! You should buy that thing, maybe they still have them in the box!

[sunilraman]

Originally posted by sandau
hehe, Sunflower iMac still on display? Great scott! You should buy that thing, maybe they still have them in the box!

Dude, I friggin' asked them how much they wanted for it. THEY DIDN'T WANT TO SELL IT AT ALL. Hence, I repeat, WTF? with Apple in South-East Asia. We have running water and electricity and broadband and stuff in the major cities, for goodness sake. Is my local "AppleCentre" so pathetic that they have to hang on to a Sunflower iMac G4? My god.

[e1618978]

My cell phone has a built in mp3 player that I never use - probably the other category includes lots of cell phone players.

[monkeyastronaut]

Originally posted by AppleInsider
The increased in storage and lower costs should enable additional functionality enhancements, such as photo and video on a smaller form-factor and competitive retail price points, the firm said.

I hope the Nano doesn't get much smaller/thinner. it's good like that. I might even say a little too fragile. I don't even use it outside of its protective case cause I'm afraid it could break easily.

[melgross]

Originally posted by monkeyastronaut
I hope the Nano doesn't get much smaller/thinner. it's good like that. I might even say a little too fragile. I don't even use it outside of its protective case cause I'm afraid it could break easily.

It's anything BUT fragile. It might scratch, but it won't break.