I Want My Video iPod

In its early weeks on the market, Apple's latest digital-media player is meeting with success -- so much so, that demand may be outstripping supply. Apple Computer (AAPL

) said on Oct. 31 that customers have snapped up more than 1 million of the video downloads that are playable on the company's video iPod, which hit the market two weeks ago. Some investors took the announcement as a suggestion that uptake of the new units is strong. Apple's share price jumped $3.12, or 5.7%, to $57.59 by market close on Oct. 31.

Apple hasn't yet said how many of the new players it has sold since the units started shipping Oct. 17, but clues are mounting that there simply aren't enough around. It's taking Apple between five and seven business days to fill online orders for the video iPod, according to the company's Web site.

"They can't seem to build them fast enough," says analyst Shaw Wu of American Technology Research in San Francisco. It's taking the company 1 to 3 days to fill orders for the 4-gigbyte nano and about 24 hours for the 2-gigabyte version as well as the smaller Shuffles.

COMPONENT HASSLES. Before the video iPod's unveiling, Apple Chief Financial Officer Peter Oppenheimer noted an imbalance between supply and demand for certain iPod products, saying that supplies of a specific component were causing a bottleneck. He spoke during an earnings conference call on Oct. 11 and declined to say which one (see BW Online, 10/12/05, "Apple: Unexceedable Expectations").

Analyst Vinita Jakhanwal of market-research firm iSuppli says that component is probably a light-emitting diode backlight used to brighten the display screen, and she reckons the constraint has carried over to the video iPod. "They're going into iPods, but they're also going into cell phones," Jakhanwal says. "The lead times for these backlights has gotten longer in recent weeks."

Apple has also been looking to qualify a second supplier for the small liquid crystal display screens that go into the unit, she says. Apple's current display supplier for the iPod is Toshiba-Matsushita Display, a joint venture of Toshiba (TOSBF

) and Matsushita Electric Industrial (MC

). "Adding a second supplier would certainly help meet demand," she says.

BULLISH PREDICTIONS. It's hard to draw conclusions about the number of units sold from the total of video iPods, says Steve Lidberg, an analyst at Pacific Crest Securities in Portland, Ore. "That number of downloads shows that Apple has built a very strong user base," he says. "But I think it's a mistake to tie downloads directly to use on an iPod."

But if you were to assume each new iPod owner has downloaded between 5 and 10 videos, you would probably arrive at a number somewhere between 100,000 and 200,000 units sold in the iPod's first few weeks on the market. "You put a hammer in your hand and you go looking for nails," says analyst Shawn Slayton of SG Cowen in San Francisco, who covers PortalPlayer (PLAY

), which supplies Apple with the iPod's audio chips. Apple shipped 1 million nanos in its first 17 days on the market.

Slayton expects Apple to sell between 7 million and 8 million of the video iPods in 2006.

ORDERS TO FILL. "I have a forecast for about 40 million high-capacity media players being sold next year," he says, referring to devices that can store at least 2 gigabytes of video and audio. "About 15 million of those will have hard drives, and I think 7 to 8 million of those will come from Apple, and the rest will come from other vendors."

Judging from its performance right out of the gate, the video iPod may be well on the way to meeting that mark -- assuming Apple can meet the demand.

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