The Reason Behind Apple’s Stock Slide: The iPod’s Zero Growth

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This afternoon’s stock sell off after Apple reported some amazing Christmas numbers was initially puzzling. Apple had its best quarter ever — selling a record 2.3 million Macs — yet Wall Street dumped the stock in after hours trading.

Initial reports blamed the sell off on Apple’s cautious guidance for the current quarter. Plus there’s the receding economy, which will put a pinch on Americans’ gadget buying habits.

But here’s the reason: the iPod’s amazing growth has finally slowed to zero.

For the first time in six years, Apple’s key product saw no growth year-to-year in the crucial Christmas period. And there’s only one way to go form here: down.

Looks like the iPod gravy train is finally slowing, and from here on in, we’ll see declining year-on-year sales of Apple’s key gadget.

Chart: Silicon Alley Insider

Via: Infectious Greed

36 responses to “The Reason Behind Apple’s Stock Slide: The iPod’s Zero Growth”

  1. Dann says:

    I think the explanation is quite simple, and comes in parts.

    1) Most everyone who wants an iPod owns one already

    2) The new generation of iPods is simply too much for most consumers. $299 for 8GB? $349 for 160GB? My music and video library tops out at less than 45 gigs (not counting 30 gigs of .avi anime), so that means that I am pretty much forced to drop at least 250 for 80 gigabytes of iPod classic. Aren’t I just further ahead to buy a 60GB 5G iPod for less $$$ ? Or heck, even a iPod photo.

    To extrapolate: The shuffle is still the same, the nano is uninteresting, the touch is too pricey, and the classic is just more of the same, leaving the price-conscious consumer to be content with a cheaper, older system that performs just as well.

  2. Steve says:

    I was going to buy a 3G Nano, until I discovered that the two Apple universal docks, and corresponding Apple composite AV cables I bought for my 5G iPod Video will not work with the new Nano. Reason; The new Nano requires that the dock has an “Apple Blessed” chip in order to output video as do the Classic, iPhone, and iTouch. So that means that I have to spend at least $140 ($40 for each new Universal Dock bundled with Remote and $30 each for new Apple AV cables) to obtain the same in-home convenience of having iPods that can output video to both of my TVs before or after I spend the money for new iPod or iPhone hardware. So I have decided to sit tight with my 2G 8Gb Nano and 5G 60GB iPods. And let me add, so have my parents, and my sister and her children for exactly the same reasons. And to add insult to injury, Apple’s new movie rentals will not work with my 5G iPod.
    As much money as Apple is making, I am blown away by their greed in screwing us consumers with the “little details” in order to force hardware upgrades.

  3. Stuart says:

    Seems to me that the iPod market is like the mobile phone (cell phone) market in the UK: 95% of people who would ever buy one have bought one. So they need people to upgrade. My 16 year old daughter is on her third; I’m on my second. Upgrading will be enough to keep iPod sales pretty level in the US and Europe. They’ll need to look elsewhere, like India and China, for the growth they’re used to.

    Stuart
    (who is really really pleased with his iPod touch)

  4. PeterG says:

    Odd… Effectively owning the market and selling as many this year as last is now a bad thing. I mean, if practically everyone owns an iPod, and you are able to sell the same number from one year to the next, doesn’t that mean your product’s appeal is strong, and that your upgrades are compelling?

    I wish this world would come to the realization that unending growth is not possible (unless, of course, you keep discovering new alien worlds to buy your products.)

  5. Electroboy says:

    Not really a great surprise. The market is saturated and Apple are trying to sell variations on a theme. It’s difficult to stimulate new sales under these conditions. It was always going to happen with the iPod.

    The really interesting growth areas are now in Apple’s other products, where the iPod halo has drawn potential buyers in. Just look at the impressive Mac sales that quarter. The halo effect is obviously working. This is where Apple can start to make good money on items with a better margin than the iPod.

  6. Bram says:

    I really think its because it took people those 5-or-so years to get them, and now pretty much everyone has an iPod. Face it, the iPod is dying, while Macs, I believe are getting stronger.

  7. Parker says:

    I don’t think so, Tim. Unit sales are slowing, but REVENUE sales are not. Y/Y REVENUE was up 17% compared to 18% last year. Ok, thats slowing, but 1% is not very significant. That means that people aren’t buying the lower end iPods as much (where revenue is lower) and more people are buying the higher end (like the Touch).

    I will admit that I don’t think that Apple’s “We won’t update an older product generation after a new gen has come out” policy is working to their advantage here. I don’t think 5G iPod owners will go out and purchase a Classic to get movie rentals.

  8. Greg says:

    I agree with Dan, everyone who wants an iPod has one. That’s why their sales have been so high. Now that everyone has one, it is common sense for sales to flatten out.

    Oh and isn’t it a good thing if they are selling more Mac computers and laptops? Last I checked they were a tad more expensive then an iPod Nano.

  9. AaronS says:

    It might be of interest to point out the fact that while sales only grew 5%, revenue from the iPod grew 17%. This is compared to revenue for the iPod growing 18% in the year-ago-quarter (where sales grew 50%). So while sales are increasing at a slower rate (note that sales are still increasing), revenue increases are holding steady.

    It shows that iPod sales are moving towards more expensive models.

    This trend (of slower growth) is natural for a product hitting maturity. One shouldn’t be too surprised that it happened with the iPod. Fortunately for Apple they have the iPhone to swoop in and start the whole process over again.

  10. fred says:

    you’ve been kind of seriously negative lately, dude…. are you not getting enough coffee or sex or something? furthermore, why don’t you look to your OWN REPORTING on ALTERNATIVE reasons why iPod sales may not be growing like they used to? for instance, your story on fake iPods in Thailand: the iPod is so ubiquitous & desirable & wildly successful it has been copied & manufactured by everyone capable of doing so, sometimes copied EXACTLY & sold as Apple product all over Asia. there are no freaking laws over there to prevent this kind of thing. it is precisely where Apple WOULD be seeing growth in their market right this very minute if there were a way of preventing the counterfeiters from stealing Apple’s thunder.

  11. Bone says:

    5% growth on 21 million ipods means that Apple sold over ONE MILLION MORE iPods year over year in the quarter. 1M more on top 21M units does not match your statement of “slowed to ZERO” nor “saw no growth year-to-year”. Making those statements amounts to “poor journalism”.

    That being said, focusing on unit sales is to have your blinders on. To miss that the iPod revenue continued to grow steadily by adding 17% on the 18% a year ago is to miss that revenue per unit has gone up. This can translate to more profit which Apple has clearly achieved (57% growth). Which would you rather have?

    Unit sales are not the “gravy train” you speak of, profit is.

    Finally, it is amazing to think that a conservative forecast that expects to add 1.6B in revenue and over 100M in profit year-over-year, in a post Christmas quarter, during a recession is just unacceptable to investors.

    – Bone

  12. Jeff says:

    Plus, ALL of this analysis simply doesn’t count the iPhone as an iPod. Quick question: If everyone who was going to buy an iPod suddenly bought an iPhone instead, would that be good for Apple?

    Although the answer is yes, Wall Street just says “huh?”

  13. Andrew DK says:

    Ho-ly Christ.

    I can’t believe I’m actually going to have to spell this out.
    *sigh*

    Bone, you’re on the right track.
    Say iPod (unit) sales are increasing LINEARLY (focus now, that means if Apple sells 1 million MORE iPods EACH period) the % growth (which is the first derivative of iPod sales = f(time), that is, iPod sales as a function of time. Still with me? Good) will always be decreasing.
    That’s
    Just
    Math
    That’s right, MATH is the explanation, NOT “everyone who wants an iPod has one”. How the hell could they sell more iPods if everyone already has one? Did any one actually think about this?

    Fun fact #1: Even if Apple’s sales are better than just linear, say they sell MORE iPods this period over period than last period over period (eg last period we sold 1 million MORE, this period we sold 1.5 million MORE) the % growth can still decrease.

    Fun fact #2: Even if the % growth is constant at, say, 10% sales of iPods would be doubling every seven years, 19%, every four years and at the “modest” 50% last y/y, every year and a half.

    Does that put things in perspective for you all?

  14. Didier says:

    We have gotten to the point when everybody has an iPod or an iPhone. Kinda like the Stride Gum commercial “Please start chewing that second piece”

  15. Dann says:

    Now of course I’m not saying that the iPod has zero growth. Untrue! My explanation for the slower sales, however, is that most everyone has one, and a lot of the newly sold iPods are going to people who are upgrading; a significantly less percentage than those who bought one for the first time a year or more ago.

  16. imajoebob says:

    Church has the best explanation of why iPod growth has slowed. It’s sort of like being happy because your year-to-year weight gain (in percent) has gotten smaller each year – even as you gained more pounds every successive year.

    But I see a technical reason why the stock fell on Tuesday: it was a great performing stock, What? Yep, it’s been a great stock to own. If you were a smart investor, you had Apple as part of your diversified portfolio.

    But after Tuesday’s opening bloodbath, you decided it was time to dump your shares in Spacely Sprockets and Cogswell Cogs. The only problem is that selling them meant a margin call. And since most of your portfolio took a beating, selling the others would just compound the calls, you took your big winner and sold it for the cash. AAPL’s nearly doubled since you bought it last year, so you can afford to sell it to cash out of the dog stocks.

    Now you wait a couple days for all the suckers to panic – thinking that the numbers are actually bad, and you’ll buy it back for 15% less than you sold it. Depending on your mix, you might even end up making money from Tuesday’s slash and burn session.

    So I think a big part of the price decline was actually the success of Apple. The pros don’t buy and hold just to qualify for low capital gains taxes. They understand that you diversify to do more than simply balance the risk. And they make the real money off of lightweights who sell at the drop of a hat – or market sector.

  17. Andrew DK says:

    Dann, I agree that the % of upgraders/replacers could be decreasing. I, however, see this as a good sign (considering the y/y % growth is still positive) since if the upgrade/replace % is decreasing then % of new buyers is increasing by tautology.

    I believe growing the iPod user base is what really matters because, I would argue, current users are more likely to buy another iPod (or any Apple product) than those from competitors. So even if the upgrade/replace % is relatively steady the number of upgrade/replace sales will increase.

    This seams financially better for the long term than the scenario where the upgrade/replace is 100%, the user base is static and y/y growth is 0%. You see, if the % of upgraders/replacers is decreasing, then those y/y growth rates don’t seem so scary, because we know the user base is increasing.

    What I was trying to illuminate was that when you talk about growth percentages you have to remember that the percentage on small number doesn’t relate well to the same percentage on a large number. This is simply because the actual numbers you come out with at the end of those calculations are WAY different. That’s the power of compound interest (The greatest force in the universe. -Einstein). If Apple kept up those astronomical y/y growth sales they would soon have to sell more iPods in one period than there are humans on the planet.

  18. Tom P says:

    I wonder where the iPod can go from here. I just bought a $350 160GB iPod, and I am frankly underwhelmed by it. It is WAAAY too slow. Granted – the iPod OS is needlessly complex but I think any pocket computer is going to have a hard time keeping track of 120GB of music files.

    The future of iPod probably is in more features rather than more space.