Money Mag: ‘iPod buzz masks problems stewing for Apple’

“The buzz on its wildly popular digital music box and swank storefronts mask an ebbing bottom line,” Stephen Gandel writes for MONEY Magazine (subscrption required for full article). “For Apple CEO Steve Jobs, these are triumphant times. The iPod is more than the most successful digital music player ever: It’s a cultural phenomenon — on a par with Sony’s Walkman — radically altering the way we buy and store music.

“This apparent success has lured many investors to jump on the Apple bandwagon. Its shares have risen 51 percent in the past year to a recent $23. If you love the company’s products — and what’s not to love about their ease of use and elegant design? — you might be tempted to buy Apple’s shares,” Gandel writes. “But behind the hype and buzz surrounding the iPod and Jobs, there are problems stewing at Apple.”

iPod and iTunes are “masking an ebbing bottom line, noting reduced CPU sales (resulting a shrinking marketshare), decreased profits (in part due to the lower-margin iPod and little-to-no profit at the iTunes Music Store), failure of the iPod to drive CPU sales, failure of the retail stores to increase marketshare, hidden retail store costs, no operational income, and little value in the stock,” MacNN reports.

Full article here.

MacDailyNews Take: We weren’t aware that the time limit had passed for iPod to drive Macintosh sales. Gee, and we thought it would take a bit longer. Silly us. Sure, Apple had hit a stagnant period (thanks, Motorola), but we see the company finally emerging from the doldrums. Watch and see.

42 Comments

  1. Sounds like another death knell to me. What I cannot fathom is that if the iPod is expected to bring in over $1 billion to a company with no debt, how can its position be that bad?

    And I also think that these people don’t understand the life cycle of a Mac. People who buy them use them longer than the Dells, eMachines, Gateways, and HPs. They should look at a purchase cycle over a longer period, say 5 years. Not the year to year that they are accustomed to.

  2. JadisOne: Do remember though that in the grand scheme of things, capitalism doesn’t care which product lasts longer. If you buy a $2000 Mac and use it for five years, instead of buying a $1000 PC ever two years, the PC companies make an average of $2500 over five years, while Apple only makes $2000. Add this all up, and Apple starts losing major bucks. Yea, Apple has a better product, but that doesn’t mean they’re immune from going bankrupt… (Although I do agree that with the most recent line of products, Apple is far from bankrupt).

  3. Sorry, but the ‘market share’ method for evaluating how a computer company is doing, is flawed.

    … and I am just too tired and busy to try to explain it to every ‘analyst’ out there.

  4. Market share is important. Maybe not as important as profit, or even sales, but it’s important. Market share can be used to increase sales, profits, power, erectio….uhh, almost everything a computer kingpin could want. Witness Microsoft. It’s market share of the OS market is allowing them years of income with no new product. It’s allowing them to wriggle out from their awful position: between their security rock and their monopolistic hard place.

    Microsoft’s market share is really their only selling point, and it may be good enough to last another 4 or 5 years until Longhorn. It’s certainly good enough to cause otherwise conscientious consumers to turn a blind eye to their crimes.

    Market share is really important.

  5. Everyone needs to email Steve and get him to stupefy the game makers so Apple can take over the market, the walls are already crumbling with the migration of XBOX, Sony Playstation (Gamecube already) to IBM PPC. Also, how about a kick ass Apple Office suite? Also, how about some commercials to push Powermacs and Powerbooks, ibooks? The retail stores are great for attracting people walking in malls. Get some cultural icons to do commercials advocating Macs

  6. Journalists only know a few story lines – one is that the “high flier” is about to fall. This storyline also makes the author sound real smart (look what I know that you don’t know).

  7. And now let’s look at a longer game, and imagine a different universe – one which perhaps explains why MS and its stooges (e.g. Thurrott) have such a bug up their collective asses about iPod.

    It’s 2004 and Apple have been selling 3G iPod for a year. They now introduce 4G iPod (rumored elsewhere today) and bequeath 3G to HP to sell to developing markets where HP has a more coherent presence. iPod mini becomes the ‘fashion’ digital music device with an average street price of $199. 4G becomes the new digital media ‘Swiss Army Knife’ with an average street price of $450. 3G takes new price point for HP at $249/$325/$375.

    contd�

  8. contd�

    It’s 12/31/2004: Apple and HP have combined to sell 5M iPods during 2004, and Apple has launched iTMS in nearly every major industrialised ‘wired’ economy, reaching a potential audience of over 1 billion people. iTMS sales have reached 200 million unit downloads, and are running at an annualised 360 million downloads/annum (3 million regular customers x 10 tracks/month). iTMS achieved it’s second 100 million tracks in just 200 days starting 11 June 2004, at an average 500,000 tracks/day – this was partially achieved by launching iTMS in three key markets on 04/28/04: Japan, UK and Canada.

    contd�

  9. MCCFR, Your last two posts seem fairly plausible. I don’t know if Apple & HP will sell five million, but then again, Apple sold one million in two quarters (and that’s Apple ALONE, and with a MUCH smaller sales channel than HP – then again, it could happen ” width=”19″ height=”19″ alt=”smile” style=”border:0;” /> ). The price points for the hPod also seem fairly realistic, and better yet, that puts the hPod’s pricing in line with the
    Dell DJ – 😀 . I hope that your predictions come true.

    Here’s to that universe you were talking about.

  10. contd�

    It’s 12/31/2005: Apple and HP have sold 8M iPods during 2005 and there are now 12 million ‘live’ iPods worldwide, with some 8M regular users of iTMS.
    Income from iPod sales during 2005 came to $2 billion and generated some $350M in gross profit. iTMS sold some 720 million tracks during 2005 (an average of 6 million customers downloading 10 tracks per month) generating just over $48M in profit for Apple/HP, of which Apple retained $32M. Apple’s music/media operations (iPod + iTMS) are now valued at over $10 billion as a stand-alone entity.

    During 2005, Apple introduces 5G iPod (Video + S/PDIF + immersive technology), and bequeaths 4G to HP to diffuse to other markets. 3G now completely amortised and being sold in new markets such as India and China for as little as $149.

    contd�

  11. These are facts and facts are the one thing that Apple users can not deal with.
    1. Apple is losing money on an operational basis.

    – any company in that situation will soon be out of business and/or will have to sell of its core business to a better ran corporation.

    2. NOBODY is going to buy a Apple when everyone knows that these are the facts.

    – maybe a few home consumers but nobody in the real IT world would invest a dime on a proprietary OS that is soon to fade away into the digital sunset.

  12. <<any company in that situation will soon be out of business and/or will have to sell of its core business to a better ran corporation.
    .>>

    And people have been predicting this demise for what now? A decade? You’re probably only the millionth “expert” to say that. Well, it still hasn’t happened yet and I wouldn’t hold my breath either if I were you. With $4.8 Billion in cash and ZERO debt, it will take a long time to burn thru all of that even if they didn’t make another cent (which certainly isn’t happening either)…

  13. Sputnik, I must say that of all the posts I’ve ever read on the subject of Apple, and it’s been quite a few, yours has to be maybe the most ignorant, baseless and ludicrous one ever I do believe. Congratulations because that really is saying something. It’s so bad it doesn’t even deserve a response, much less a rebuttal, but I couldn’t help mention that fact.

  14. If there are some downturns in G5 sales I think it is because everybody is saving their pennies to get one of the dual 3 gHz or a G5 laptop. I know I am personally planning on getting a G5 laptop. However, I don’t know if I will get it when it is first introduced. There have been really good incremental upgrades to all products within a few months after the initial introduction, then a leveling off. (I have a 30 gig iPod)

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