“Apple announced its first-ever $1 billion profit quarter [yesterday], an impressive milestone that’s a testament to the rise of iPod and the resurgence of the Mac. But the most important number for investors might be the slower holiday sales growth of the iPod compared to the year before,” Jon Fortt blogs for Business 2.0.
Fortt writes, “Mac fans will pummel me here for being overly critical, but these financial figures require a critical eye.”
Fortt writes, “Let me be clear here: iPod revenues are still growing quite a lot. In holiday 2006 they were up 50 percent (to 21,066,000) over the same quarter in 2005. But get this: In holiday 2005 iPod sales grew 207 percent (to 14,043,000), in holiday 2004 they grew 525 percent (to 4,580,000), and in holiday 2003 they grew 235 percent (to 733,000). Dropping to 50 percent is a dramatic slowdown.”
Fortt writes, “Why does it matter that iPod sales growth is slowing, if Apple sold 21 million of the things in calendar Q4 alone? Because stock price is all about momentum. The iPod has driven Apple’s growth to this point, and if Apple’s stock price is to move higher at a rate similar to how it has in the past, its sales will have to grow at a similar rate. So if the numbers aren’t coming from the iPod, where will they come from?”
Here are some possibilities, and some risks:
• The Mac
• Apple TV
• iPhone
Fortt writes, “Is that cause for investor alarm? Not necessarily. Every company that’s had a hit product goes through a cycle like this, when that product matures and a new one is coming to market. And Apple is well positioned to weather the transition, having built up its war chest of cash to $11.9 billion, after adding $1.75 billion last quarter alone. Given the iPod sales growth numbers though, I wouldn’t expect an uninterrupted upward slope on that stock chart.”
Full article here.
Fortt underestimates the power of tens of millions of iPod owners who will want the new, larger screen, higher-capacity, multi-touch iPods. Apple is well-positioned for the future and iPod unit sales growth was shockingly high in the holiday quarter, exceeding even the rosiest of Wall Street predictions. By the way, some say that the multi-touch UI is not just for iPhones and iPods.
Related articles:
Apple Financial Results Conference Call Q1-2007 Live Notes – January 17, 2007
Apple smashes Street, posts revenue of $7.1 billion and record net quarterly profit of $1 billion – January 17, 2007
He is right, though, to suggest that such growth isn’t sustainable. Apple is still poised to make lots of money and sell lots of gear, but this ride is not infinite. What is possible, though, is that Leopard is a really hot OS. Even though Mac sales have been good, there is some hint that people were waiting to buy after Macworld. Sales could pick up, too, if a direct comparison to Vista makes the Mac even more enticing.
here’s to hoping…
“As iPod sales growth matures, Apple looks to position company for future growth”
I recommend reverse cowgirl.
I want an iPhone without the phone. Rogers, the rumored Canadian carrier, does not have the geographical coverage most Canadians need. Sure, it has coverage where 75% of all Canadians live, but outside of the major population centers it does not exist.
I think there is a huge consumer market for an email/web browser/music-movie player device like a iPhone without a phone, you know, a wide screen iPod.
At some point this year, Apple will most likely release a new replacement version of the current high-end iPod.
It’s form factor will be that of a iPhone without the phone or internet functions.
For that matter they could also release one with everything but the phone.
In addition, I would be willing to bet that a G3 iPhone and for that matter a full blown iTablet is not that far off, given that this new Apple platform is limited only by what is programed into it and how many other form factors are all ready in the pipeline!
And I’m sure that the design group is still in high gear this morning.
this is quite a wrong criticism. The iPod re-shaped or re-invented a previously stagnant and tired market. Of course at the beginning it had 3-digits growth. It grew from nothing to millions in short time. Comparing 2006 results vs 2005 (50% growth: anyone would kill for that in IT industry) and saying it did not fared as well as in 2003 and 2004 concluding sales is slowing is wrong. What slowed (obviously because of much larger initial base to compare data with) is the percentual increase. In terms of actual sales the iPod actually is selling more and more.
There are lies, damned lies and statistics. This ‘criticized eye’ of the results are frankly silly if presented as “oh my, iPod sales are slowing down”: percentage growth is bounded to be lower (there is nothing that get slower in the process) all while sales units grow quarter and year after year.
From what I see, the important statistics is the iPod percentage presence in the market. That one grows. And it cannot grow past 100%. I hope this pundits realize that and will not one day come with “Apple is doomed. First it went from 50% of the market to 73%. Then it only got to 82% and today it slowed down to increase by a puny 90%. We forecasts troubles for Apple as the iPod growth clearly shows slowing down with time. We also announce that Apple will never be able to break the barrier of 100% of the market. You read it here first.”
How silly
Business 2.0 is a web site that seems to specialize in Apple hatred. Prior to yesterday’s quarterly report, they were the source of endlessly repeated FUD, spreading ancient articles republished to suppress AAPL. Take nothing they say as honest or reliable. Screw them, they are nothing but an anti Apple propaganda machine.
• The Mac
• Apple TV
• iPhone
These products are from 0-5% in their respective markets. If they barely grow they will not affect the existing share price. But if they grow even marginally in the computer, cable and mobile business the effect would be enough to have CEO’s throwing chairs…
Yea Baby!!!
Reverse Cowboy has always been my favorite.
iPod is slowing, but it’s nothing to worry about. They have a unbelievable 72% of the market. As market penetration goes up, as there are fewer and fewer people who don’t already own iPods, growth will slow. It’s natural and no cause for alarm.
Now, if some other MP3 manufacturer was catching up, that would be a worry. But Apple continues to pull away from the pack. When was the last time you heard a new player referred to as an “iPod killer”?
I thought stock price was all about revenue that the company can generate. Wow, it’s about momentum?!?!?
What a joke these anal-cysts are.
Mostly drivel in my opinion. Quoting units sales percentage growth and saying 525% good / 50% bad is ridiculous.
I would rather have 50% growth on top of 14M than 525% growth on less than 1M.
Even if iPod sales level out, Apple is still pulling in over $3B per year in iPod sales. But the potential for continued iPod sales growth is tremendous.
Geeeeezzzzzz!
Let me see if I have this right???
Apple did really great in sales, up each year by huge amounts… so we should sell!
As Apple does sell more and more iPods to happy customers, the market for new sales drops, so we should sell!!
Microsoft sucked slightly less than usual and has poured millions and millions into a dead horse….. so we should buy it!!!
PC sales down, Apple sales up so less sales to Microsoft and as more and more people look elsewhere than Microsoft for computers …. then we should expect a dying dinosaur to last forever and buy more Microsoft stock(we trust Monkey boy, don’t we??).
Yep, makes great sense to me. ????????? LOL
N.
Maybe I’m stupid, or more likely, don’t know enough economics, but this whole “we expect growth and nothing but growth” stuff just seems silly to me. How the heck is it possible to have eternal growth in a limited market? It’s obvious there’s a limit to how many iPods Apple can sell.
Maybe I’m stupid, or more likely, don’t know enough economics, but this whole “we expect growth and nothing but growth” stuff just seems silly to me. How the heck is it possible to have eternal growth in a limited market? It’s obvious there’s a limit to how many iPods Apple can sell.
————————
Wall Street is primarily concerned with growth… Of course, Apple can not sustain 200%-500% growth with the iPod, but neither can the stock..
The main reason we have seen such momentuous gains in AAPL over the last several years is largely in part to the fact that iPod growth was in the obscenely high 100% to 600% range. Well guess what? The stock also increased at obscenely high percentages.. So yes, the iPod’s growth may be maturing, and even though sales are stronger than they’ve ever been, the growth rate has slowed down.. It’s only natural for the stock to do the same. It’s nothing personal, it’s Wall Street 101.
I think part of the dip today is because analysts realize iPod growth is slowing and instead were putting more emphasis on the Mac showing bigger growth gains.. 1.6 million Mac shipments is good, but it’s still about 150,000 to 300,000 units shy of what some had expected and/or hoped for.
Of course AAPL is not stagnating by any means, In addition to the Mac and iPod, they have created an enitirely new platform and growth engine with the iPhone, which just may end up repeating the iPods success… Time will tell..
Anyway you look at it, Wall Street is primarily concerned about growth.. It’s not just Apple, it’s any stock. There is and always has been a direct corrolation between growth rate and stock price.
It seems like another way that the media has learned to put a negative spin on something positive. The iPod’s growth has slowed it you look at percentages, but in number of units sold it is still growing by leaps and bounds. For Apple to sell 525% more iPods this quarter than the 10 million it sold in the same quarter in 2005, they would have had to have sold 52.5 million in the quarter. Don’t think they could have produced that many if they wanted to.