Apple: Time To Scrap The iPod

| About: Apple Inc. (AAPL)


The iPod posted an extremely dismal 53% drop in sequential change in revenue, and a 54% drop in units sold for the most recent quarter.

Since 2009 the iPod has been on a steady downward trajectory.

With the release of the iWatch, the iPod series could be scratched as the iPod Nano becomes cannibalized by the more wearable and functional iWatch.

Apple's (NASDAQ:AAPL) second quarter earnings report shows there's a lot that the multibillion-dollar company needs to worry about.

Nose-Diving iPod Sales

In a recent report, Apple Inc. presented its second quarter earnings' "unaudited summary data", and the picture it presented wasn't much like what people might have expected. With sequential change in the negative around the globe, except for Greater China, the tech giant must have been more relieved than proud at seeing their year-on-year figures, which were mostly positive. Yet, the report showed some clear weak links that could be responsible for Apple's less-than-perfect performance.

The iPod, for one, posted an extremely dismal 53% drop in sequential change in revenue, and a 54% drop in units sold. Apple enthusiasts would argue that the drop in sales from the first quarter onwards is characteristic of the company, as the following bar chart shows:

Source: iPod Sales since 2002 Apple Inc

The above bar graph shows the units of iPod in millions, sold each year since 2002. The upward shoot in units sold during each year's first quarter is definitely quite evident. However, so is another thing: the steady decline in comparative sales every year since the peak in 2009. While the total units of iPod sold in the first quarter of 2013 was still above 12 million, in 2014's corresponding quarter (not shown on the chart) they had fallen to 6.05 million. And three months later, they were down to 2.76 million, which was 51% less than the same quarter last year. The message seems to be quite clear: people don't want iPods, anymore. And the reason is simple.

What the iPhone did to the Classic, the iWatch could do to the Rest

Back in 2007 when the iPhone first generation smartphone was released, the iPod was possibly the most popular of Apple's products. But with the steady improvement in the iPhone, people soon began to realize that they were better off investing their money in the phone than the music player - especially since the phone came with an inbuilt music player. Even today, there is nothing that the iPod Touch offers, which even the iPhone 5s cannot offer - except for the Nike (NYSE:NKE)+ built-in support. As far as the smaller devices are concerned, the only reason Apple users would've bought an iPod Nano 6th generation or Shuffle was their better portability. But it seems that even that edge is going to get evened out very soon.

The reason behind the fall of the Nano and Shuffle could be the release of the iWatch, which is expected to release in October this year. Even though rumors about an Apple smartwatch have been doing the rounds for quite some time now, the recent acquisition of TAG Heuer's sales director by Apple Inc. has all but confirmed the rumors, despite the company's verbal silence on the topic. The iWatch is expected to be 1.3 inches in size, have 4-5 days of battery life and have biometric sensors, along with other features. The physical description of the watch is in the neighborhood of the iPod Nano 6th generation; while the former is worn on the wrist, the latter can be clipped onto clothes. Although it remains to be seen whether the iWatch would have an in-built music player or not, there is good reason to expect a smart company like Apple to incorporate an audio player in a device that's meant to be worn on fitness excursions. It is also likely that Apple would integrate Bluetooth capabilities allowing users to wirelessly tap in to the iWatch and listen to iTunes or Beats streaming service. Thus, should the iWatch have all that the smaller iPod models have to offer - portability being the chief quality - Apple should expect their iPod sales to decline even farther than they did in Q2 2014 once their iWatch is out in the market.

So why not scratch a device out altogether that has been reporting declining sales for five straight years? Why not invest in better projects that would ensure better returns to the company - and its shareholders - than the iPod? Apple Inc. CEO, Tim Cook definitely needs to do some brainstorming, and soon.

Disclosure: The author is long AAPL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.