5.3 Million iPods Sold in 1Q05

April 15, 2005

Technology

Apple dropped its sales bomb – and it’s a big noisemaker. According to published results, Apple sold 5.3 million iPods during 1Q05 (second quarter of the Apple fiscal year). But the thud came in the form of the revenue drops associated with the increased sales. Overall, iPod revenue per unit dropped by 16%.

Why the difference? Well, Apple didn’t provide enough information to make the reasons clear. Indeed, Apple made it a point _not_ to report where the revenue came from. So increased iPod sales and decreased revenue probably was a result of a major (and possibly unexpected) shift in iPod purchasing habits. By that, I suspect that iPod Shuffle sales were far higher than expected. That is good. But the sales were not (exclusively) incremental unit sales. Rather, iPod Shuffle purchases may very well have displaced iPod mini, iPod, and iPod Photo sales – thus damaging revenue projections. And the fact that Apple did not report the results per product in the iPod family lends credibility to that assertion.

If my speculation is correct, then Apple may be faced with the good news before the bad news. The good news is the unit sales increases. But if the sales were for the Shuffle, then the bad news is that they shifted their market towards the more commoditized end. This is good and bad. If true, expect the other flash player manufacturers to step up the competition. In this end of the market, Apple does not have a feature or price advantage – only a brand advantage.

So I expect other suppliers to ramp up competition. And I expect Apple to shoot back with something new. I expect the knee-jerk response to be some form of firmware update to provide more distinctiveness (and brand allegiance) to the Apple iTunes family. But I am having difficulty guessing what that might be. Given the current design, there is very little that can be done on the player side. But I wonder if there might be something to be done with iTunes or at the ITMS channel. Again, this is just speculation. But expect to see something (e.g., a new rev?) soon and expect folks like Samsung to ramp up the price pressure on flash-based players.

For more information on the subject, check out Jupiter Research’s entry on their Microsoft Monitor site. Jupiter expects a very serious push by the PlayforSure crowd. I just love it when competition makes things faster, better and cheaper!

-CyclingRoo-

-Update-
Apple stock took a pounding despite the amazing sales results. Maybe other folks are curious about the 16% revenue decline as well.

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