iPod on long road downhill as iPhone halo effect kicks in
A new forecast has the iPod's influence on Apple dropping steadily over the next few years as the iPhone cannibalizes its sales and generates a halo around the Mac.
The change partly reflects a saturation of the market but is ultimately about the iPhone, Wolf says. At $200, the iPhone is now thought to almost certainly cannibalize a significant portion of iPod sales, especially for high end users who would otherwise have chosen one of Apple's more expensive stand-alone players.
That drop, in turn, will reportedly have a cascading effect on the iPhone itself. With more users buying the iPhone merely in place of an iPod rather than alongside it, sales of the handset in the long-term should also take a tumble relative to earlier predictions. While still positive, Needham now expects 8.5 million iPhones to be sold in the US this year and 14 million in 2009, leaving international shipments to play a major part in meeting Apple's 10 million-unit goal for 2008.
"Our previous shipment forecast was unrealistically high," Wolf says.
However, even with reduced early shipments and a lower price, Apple isn't expected to have any problem using the iPhone to grow its business. A cost analysis of the 8GB iPhone suggests that the company spends just $175 to produce and sell an iPhone 3G, leaving Apple with a roughly 60 percent margin on each unit that it sells to AT&T at an estimated $400 unsubsidized price.
The margin is twice as much as Apple is believed to have made on the original iPhone and would help soften the blow from the absence of monthly carrier revenue.
Apple's switch in pricing strategy also has the potential to increase share independently of the price. As the phone maker is no longer tied to a particular subscription model, roughly 15.6 million iPhones could sell outside of the US in 2009, including to customers on prepaid services that are more popular in some areas.
American share could also go up as other carriers are given access to the phone through the new model, which specifically detaches Apple from AT&T. "In a world where the iPhone is subsidized just like other smartphones, AT&T no longer brings anything unique to the table," Wolf says.
This also discounts the wildcard of the App Store, which could drive more users to the iPhone but is described as impossible to gauge with the store still under wraps until July.
The presence of the iPhone should also create a second halo effect that Needham analysts hadn't previously anticipated, Wolf explains. While the decline of the iPod will mitigate some of the impact, relatively few iPhone owners outside of the US are likely to already own iPods and will thus be exposed to Apple's products for the first time, filling in where the iPod stopped short.
Such added exposure leads Wolf to boost his very long term estimates for Mac sales, which could now climb to as many as 44 million computers by 2017 and could already create an upside as early as 2009, when the iPhone's effect should first become clear.
70 Comments
Tons people are always going to want an iPhone and a smaller ipod for the gym and whatnot. And even if they decide to make small iPhones people will want the bigger one for video and browsing.
Here's what Apple needs to work out next: A simple way to have multiple phones on the same account. So I can take my nano-phone to the gym and my iPhone classic on my trip to Switzerland. Both phones need to be operable without me having to move a cumbersome card or anything like that. Maybe they'd have to make it so only one works at a time - but that's what I want. I don't want to have to be stuck with a single iPhone.
Well, the problem is now that the iPhone is too cheap, it's definitely gonna cannibalize some iPod sales. Apple seriously needs to bring down the iPod Touch price. No wonder they're giving them away in the back-to-school promo, they need to generate interest in them now that they're basically a stripped down and more expensive iPhone (except for the 32GB model of course, which offers the extra storage the 16GB iPhone doesn't).
I'm not sure what to make of such offerings, I do hope no one makes business decisions based on such.
There are lots of reasons to want a device that is an iPod but does not have a built in phone. The rather stiff sales of Touch is a testament to the attractiveness of even a storage limited device. That doesn't even take into account the people that have several devices and make sue of them all.
Frankly Apple still has an opportunity to blow iPhone 2. If people see it as being way to restrictive with respect to Android platforms Apple will have a lot of catching up to do.
It is interesting that the market seems to already think that iPhone 2 will be a smash hit. It certainly can be right now so don't get me wrong on that note. The difference is that alternative hardware will be coming on line right about the time Iphone 2 starts to move in volume. If any of those presents a viable platform Apple will have to make some mid course corrections.
Dave
Well, the problem is now that the iPhone is too cheap, it's definitely gonna cannibalize some iPod sales. Apple seriously needs to bring down the iPod Touch price. No wonder they're giving them away in the back-to-school promo, they need to generate interest in them now that they're basically a stripped down and more expensive iPhone (except for the 32GB model of course, which offers the extra storage the 16GB iPhone doesn't).
If they move the Classic line into Touch territory and keep the larger HD sizes, this would mitigate any iPhone cannibalization.
"That drop, in turn, will reportedly have a cascading effect on the iPhone itself. With more users buying the iPhone merely in place of an iPod rather than alongside it, sales of the handset in the long-term should also take a tumble relative to earlier predictions."
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I don't understand this sentence. It makes no sense. Does it?
And while I'm on it, when will these analyst fools get their head around the fact the iPhone IS an iPod - with a *phone* in it. It fulfills exactly the same function as the iPod, ie. to drive consumers to the Mac platform and earn Apple $$$.