Blame it on iPod's Near Zero Growth

The story behind the story at Apple (AAPL) is not over-conservative guidance -- and so I'm not sure why people keep repeating that gotcha mantra about Steve Jobs guiding down every year at this time -- it is the declining growth in Apple's key product, the iPod. While the law of large numbers says that monster growth can't continue forever, at least not in absolute numbers, it is something else altogether for year-over-year Christmas unit iPod growth to approach zero -- which is what is happening right now:

Comments

[Hugo van de...:]

Apple still made 17% more on iPods, the absolute numbers are not the only thing you need to look at, they are selling more expensive iPods like the iPod touch. That's good!

2008 Jan 23 11:09 AM

[FreeRange:]

Since when is 5% growth "near 0", especially with a business this size? Other companies would kill for that kind of growth. If Apple hadn't seen the 17% iPod revenue gain, this still would have been a $200M revenue increase. But with the sale of more expensive units, they realized an almost $600m iPod revenue gain. Also, iPods are NOT the primary driver the market thinks they are - Macs are now taking over that space as they saw a 47% gain y/y. iPod is driving Mac sales and will continue to do so as wintel users switch over in droves. Apple is still firing on all cylinders and still has tremendous growth potential domestically and internationally.

2008 Jan 23 11:41 AM

[FreeRange:]

BTW - y/y percentages are a false measure when you look at total revenue which should have also been charted. Here are the Dec. 2004 ipod revenue numbers and just the 1st qtr 2008 INCREASE in ipod revenue is about HALF of TOTAL ipod revenue in the that time - "The company reported that it sold more than 4,580,000 iPods during the quarter, representing a 525 percent increase in iPod units compared to this time last year. All iPod models brought in more than $1.2 billion in revenue for Apple during the quarter."

2008 Jan 23 11:50 AM

[Prudent Guy:]

Yet another individual who doesn't understand the relationships between unit growth, revenue growth, and margins. Go back to finance 101 and then get back to us.

2008 Jan 23 12:10 PM

[citetez:]

When Apple sold its second iPod its sales had doubled. The sale of the third was a disappointment because sales growth had dropped off dramatically.

2008 Jan 23 12:34 PM

[luisVs:]

law of diminishing returns is not the law of large numbers!

en.wikipedia.org/wiki/...

en.wikipedia.org/wiki/...

2008 Jan 23 12:37 PM

[FreeRange:]

Pah-leeze - trying to take a very limited "technocrat" approach instead of looking at the entire Apple ecosystem is misleading at best. The point is that their are more factors at play than just rate of unit growth of just one product, and then also NOT including revenue and margin growth for that product in that analysis, as you state, is just plain wrong and misleading, And then not taking into account that products' relationship with all of Apple's products and services generating revenue is even worse.

2008 Jan 23 01:12 PM

[Prudent Guy:]

FreeRange,

My comment was directed at the author, not you. I agree that there is more to just Apple than iPod; valuing it just based on iPod numbers is extremely myopic. My point was that even if you JUST look at the iPod numbers, the author is a dunce.

(Anyway, the problem is people's interpretation of their low guidance.)

2008 Jan 23 03:00 PM

[jmmx:]

5% unit sales is "approaching zero" growth only in comparison to the triple digit rates of the past. When you combine this with the fact that there was a 17% growth rate in revenue we see that this is still good performance. It is also not a surprise as anyone could see we were headed in that direction.

My question is - why don't you post the accompanying graph of unit sales of Mac computers which is the inverse of this, and with still only (very roughly) 6% worldwide market share - there is plenty of room to grow.

If you want to look at trends, it is clear that revenue from computer sales will most likely overtake that of iPods in the coming year.

Interesting point to note: Q1 2007 had Mac growth Year/Year of 28% (units) and 40% revenue. This year we have 44% and 47%. This shows fantastic growth in the high end systems.

This bloody pessimistic market takes a glass that is 99% full and calls it 3/4 empty!

IMHO

2008 Jan 23 03:19 PM

[FreeRange:]

Pah-leeze: My sincere apologies. You're right, the author is a dunce!

2008 Jan 23 03:20 PM

[jmmx:]

OMG - AN APOLOGY IN A MAC BLOG!!

What's this world coming to!

:-)

2008 Jan 23 03:48 PM

[DavidK:]

Apple has told us the future of the iPod is moving to a wi-fi type of player. Watch the evolution of the iPod and how it will drive replacement of older existing models. Saturation maybe but look at how people replace their phones. There has not been a real change in the device in a while. I believe we are about to see it ala the touch.

2008 Jan 23 10:57 PM

[NickB:]

Hang on a minute I think everyone forgets the iPhone is an Ipod so if you just add the raw number of 2.3 million not forgetting its not all over the world like the ipod is currently you are at your 25 million now you easily have double digit growth.

2008 Jan 24 03:54 PM

[KenC:]

In regards to Nick's comment, I did buy an iPhone instead of an iPod Touch or Classic.

What's interesting is that while the price of an iPhone vs a Touch or Classic is not that far different, Apple probably recognizes $250 less revenue, in the quarter of sale, if a buyer chooses an iPhone over a Touch or Classic, due to the way revenue is recognized. It's possible that $500Million less revenue was recognized in this quarter, if all 2Million domestic iPhones were sold instead of Touchs or Classics. That's a big number.

2008 Jan 24 07:55 PM