Apple by the numbers: How is the iPod doing, really?

Lex Friedman
26 November, 2013
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Keeping track of how Apple is doing as a company is hard. The stock price goes up, the stock price goes down – often without any apparent reason. We hear one set of marketshare numbers for smartphones, tablets and computers one day, and an entirely different set the next. Apple is doing well, says one group of analysts, while another says Apple is doomed. So how is Apple doing, really?

To get some sense of the company’s health, we asked four writers to dig into four different sets of numbers: the ones that Apple itself publishes every quarter, as part of its required financial reporting, regarding the sales of its four principal product lines – Macs, iPhones, iPads and (yes, still) iPods. We asked those writers to look at those numbers over as long a period as they could, to see if they could extract some long-term signals from those short-term trends.

The bottom line: Apple is doing just fine, thanks, but it is also facing some very definite – and very dangerous – threats in each of those four product lines. Those threats make this period – the spring and summer of 2013, when the company is announcing and ship new products in at least three of its lines – one of the most crucial in the company’s history.

 

THE iPOD

i-pod

 

Though the iPod still generates billions of dollars in revenue for Apple each year, it’s clear that the portable digital music player’s heyday has passed – not that anyone in Cupertino is likely to be too concerned about that.

When the iPod debuted on October 23, 2001, it didn’t start out as a smash hit. It was not the first portable digital music player, of course, and it then worked only with the Mac. It also earned scorn from some people for having no wireless capability and for offering less space than its competitors. Apple sold just 125,000 iPods in its first few months.

But soon the iPod exploded in popularity. In 2002, Apple made PC- compatible iPods, added more storage capacity and lowered the prices. And in October 2003, two years after unveiling the first iPod, Apple shipped iTunes for Windows. Until then, PC customers had had to sync their iPods with third-party software. But iTunes’ tight integration with both the iPod and Apple’s nascent iTunes Music Store propelled the device to massive popularity.

In 2003, Apple sold just under a million iPods, for net revenue of US$345 million. Sales more than quadrupled the next year – Apple sold 4.4 million iPods for US$1.3 billion in revenue. In 2006, iPods accounted for US$7.7 billion – from more than 39 million units sold that year – making up a full 40 percent of Apple’s total revenue that year.

Then, something happened.

THE iPHONE JUGGERNAUT

Over the next two years, the iPod’s revenue would continue to grow: US$8.3 billion in 2007, over US$9.1 billion in 2008 – more than 50 million iPod units in each of those years. But while the iPod’s dramatic growth continued, the device’s impact on Apple’s overall business only shrank.

In 2008, it dropped from constituting 40 percent of Apple’s revenue (in 2006) to merely 28 percent.

That’s because Apple introduced another product in late 2007 that would blunt the iPod’s impact on the company – a little device called the iPhone. What helped drive Apple’s ascendancy, as one of the world’s most valuable companies, was the stunning amount of revenue generated by the iPhone.

In 2010, the iPhone and iPod began to cross paths in terms of their percentages of Apple’s overall revenue. The iPhone generated 39 percent of the company’s revenue that year, compared with the iPod’s 13 percent.

DROP IT LIKE IT’S HOT

In 2011, Apple sold 42.6 million iPods. The following year, it sold just 35.2 million. Even at these depressed numbers, however, it’s worth noting that the iPod still generated US$5.6 billion in revenue for Apple in 2012. That’s the kind of ‘declining’ business many companies would be happy to suffer.

But even though the iPod is still profitable, it’s dying. And Apple has no reason to fight its inevitable demise.

Instead of trying to artificially prop up the iPod market, Apple is simply focusing the bulk of its attention on the areas of its business the growth of which has not peaked.

That’s why the iPhone has a great music player and Apple has released iTunes Radio (as part of iOS 7 for US customers). These kinds of technologies sell more iPhones – and iPhones are substantially more profitable than iPods.

But that doesn’t mean Apple will stop making iPods any time soon. Even a company as rich as Apple won’t give up on a multibillion-dollar business until it’s forced to.

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