Can the Touch Revive Apple’s iPod Sales?

Investors are all in a tizzy that Apple is only promising them a 30 percent growth, year over year, in its first quarter revenue. But looking at the company’s fourth quarter 2007 results, it’s clear that the company is doing very very well.

Of all the blizzard of statistics that get thrown out on an earnings call, here’s the one that cuts through the clutter: $3 billion. That’s the amount of cash Apple stuffed in its bank accounts during the last three months of the year, giving it $18 billion in reserves.

Apple makes computer hardware and consumer electronics, two of the most competitive, low-margin businesses around. It continues to invest in rather innovative technologies (albeit more in refining them rather than inventing them). And it still makes a hefty profit margin year after year.

If there was one potential weak spot in the numbers it is with the iPod: Unit sales were flat in the United States, indicating that the market may have become saturated.

Still, the story isn’t that bad. Apple says it has maintained its market share for music players in the United States and it is growing share in Europe and Asia.

Most interestingly, while overall iPod sales of 22 million increased by only 5 percent worldwide, revenue grew at a faster 17 percent rate, to $4.0 billion. The reason is the growth of the iPod Touch, which costs $299 or $399, more than other iPod models.

On the conference call with investors, Apple executives described the Touch, which can surf the Web over a Wi-Fi connection, as a new sort of device that will open a new market.

“We view the iPod market as bigger than the market for simple music players,” said Peter Oppenheimer, Apple’s chief financial officer. “We believe one of the iPod’s future directions is to become the first mainstream Wi-Fi mobile platform.”

I’m not so sure how many people will want a connected device that’s not their phone, but it will be interesting to see what Apple does next now that it describes the Touch as a platform for mobile computing.

A couple of other tidbits from the call:

* The sales of Macintosh computers, 2.32 million worldwide in the quarter, were better than the company expected.

* The number of Best Buy stores that sell Macs will increase double to 600 in the next six months.

* The company implied that Apple TV was no longer a hobby, now that it has movie rentals as well as purchases. “We think we have it right this time,” Mr. Oppenheimer said. He declined to discuss the financial impact of movie rentals in particular, other than to repeat the company’s strategy to run the iTunes store “a little above break even” in order to spur hardware sales.

http://bits.blogs.nytimes.com/2008/01/22/can-the-touch-revive-apples-
ipod-sales/index.html?ref=technology