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July 19, 2006
Earnings Today, And Pressure on the iPod Profit Machine
Apple reports its quarterly earnings today after the bell. No big news is expected, but expectation is starting to build on the product front. The iPod nano is due for a refresh, and tales of the long-rumored "true video iPod" are starting to take on the appearance of being for real. Typicaly Apple doesn't tip its hand about forthcoming products during earnings calls unless there's a problem with a component supplier and the company expects a delay. No such rumors are making the rounds yet.
What is expected is that Apple's results will come in at the high end of its previously forecast range of about $4.4 billion in sales and about 40 to 42 cents a share of profit.
The pressure will be on Apple to keep the iPod profit machine humming along, especially with news of Microsoft's so-called "iPod killer" expected soon. Engadget recently published a photo of what that device may look like.
One story from EETimes says that Nvidia has beat out Broadcom for a slot in the so-called vPod, and further says its release has been delayed until early 2007. This would be bad news.
At least two analysts in recently memory have trimmed their iPod sales expectations for the quarter. Shaw Wu at American Technology Research reduced his forecast from 8.5 million to 8.2 million units, and Merril Lynch's Richard Farmer slashed his from 9.2 to 8.1 million.
At least one person has been calling 2006 as "the year the iPod died." That would be Tomi Ahonen, a self-styled tech analyst, author and lecturer at Oxford University, who emailed me this week to inform me that the "iPod downturn is terminal, not seasonal." His argument is interesting though I'm not sure I buy it, at least not entirely. His point -- which be blogged about in March -- is simple: Mobile phones are the next great digital music player. Phones that play music will get better at it, and consumers will shift their preference to carrying one device instead of two. Some 90 million MP3 capable phones are in use around the world, versus an installed based of 30 million iPods. (Again, this comes from his blog posting form March, so his numbers may be a tad dated by now.) What I think after the jump.
Ahonen's argument would be fine, but there are problems with the conclusion. First, he seems to be assuming that while mobile phones continue to evolve and get better over time -- which they will -- the iPod will remain essentially static. We know it won't. Additionally, there's problems with the model of getting music to the phone. Wireless service providers want to get a peice of the download action and thus boost the price per song. Apple has set the price bar pretty firmly at 99 cents (in the U.S.) and consumers are going to resist anything that goes above a buck a song, which a wireless download would require.
Well then there's side-loading, or the practice of loading MP3s directly to the phone from your PC or Mac. Look at your mobile phone and tell me how often you connect it to your personal computer. If its a Treo or a Blackberry or some other smart phone, then you probably do this regularly, but if its more typical mobile phone, then there's probably little need to go to the effort.
This doesn't preclude someone from figuring out how to make playing music on all wireless phones as easy as using an iPod and selling that idea the Motorolas, Nokias Samsungs and LGs of the world. But even then, they'd have to also sell it to all the service providers around the world as well.
Still, the long-term threat that the mobile phone represents to the iPod is real, and Apple knows it. This is why the rumors about the iPod phone are so persistent. But last I knew that product had run aground.
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Weren't people saying that mobile phones and PDAs will merge? Well, PDAs sales have dropped off and Treo/smart phones are selling but very few are actually using PDA functionality with those devices. In fact, people are just using their laptops instead of PDAs. It might well be the case that mp3 phones are the devices of choice in Asia but in the US all evidence points to the fact that people don't mind carrying an a specialized device for music and additionally, they want their cellphones to do the thing they are desgined to do: facilitate voice communication. No amount of wishing iPod dead is going to make it happen unless there is a device that marries usability, functionality, and value of two specialized appliances.
Posted by: Rajesh at July 19, 2006 11:22 AM
I don't know about the idea of a mobile phone actually being a serious threat to the iPod in its own market. Most mobile phones that play mp3's have two features that limit their useability as an mp3 player - first, you have to download music to them through your service privider - at least for most of them. Second, the amount of storage is very limited, compared to a 60 gig iPod. So even if you can down load directly from your PC, you still can't get more on it than the typical flash player. And don't even get me going on battery power. Yes, most mobile phones today have multiple days worth of standby - but start playing music constantly, and that'll start decreasing fast - make phone calls, too, and well, you can see where that's headed. Put an actual hard drive in it, like the iPod, and your battery's staying power is greatly reduced.
There may be a small hard core of folks for whom using a phone as an mp3 player works just fine, but I'd think that there are at lease some of those 90 million folks that have that model phone only got it because their service provider was selling it at a discount to new customers, and they could get it for $50. That doesn't mean all 90 million of them are using the download and music features of their phones...
Posted by: rahrens at July 21, 2006 07:40 AM