The Wall Street Journal reports that major retailers are seeing iPod shortages across the country. The paper says that iPod minis and 20GB iPods are out of stock at Amazon.com, Buy.com and other Web sites, while retailers such as Target, J&R Electronics, and Best Buy are all having trouble keeping up with demand. “Given how strong demand has been all year you would have thought [Apple] would have gotten every last one they could into stores,” says Stephen Baker, director of industry analysis at market research firm NPD Group. “I suspect they have. It may just be they can’t build them fast enough.”
Apple’s iPod photo contains updated firmware that blocks songs downloaded from the RealNetworks music store from being played on the device, according to CNET News.com. “The move could render tunes purchased by many iPod owners unplayable on their music players. For the last four months, RealNetworks has marketed its music store as the only Apple rival compatible with the iPod, following the company’s discovery of a way to let its customers play their downloaded tunes on Apple’s MP3 player. Apple criticized RealNetworks’ workaround, dubbed Harmony, as the ‘tactics…of a hacker,’ and warned in July that RealNetworks-purchased songs would likely ‘cease to work with current and future iPods.’”
Toshiba today announced an 80GB version of its 1.8-inch hard drive that should eventually find its way into Apple’s iPod range. The company, which makes the drives found in current iPods, said the 80GB units would ship in the third quarter of 2005. “The Japanese manufacturer didn’t mention any customers by name of course, but having supplied Apple with micro hard drives to date, it seems likely the relationship will continue with the new, higher capacity,” reports The Register. A thinner and lighter version of the company’s 1.8” 40GB hard disk has also been introduced, and is likely to find its way into digital music players.
Toshiba has reportedly agreed to supply Apple with flash memory chips—presumably for the much-rumored flash iPod. China Daily reports that Yasuo Morimoto, senior executive vice president at Toshiba, has confirmed his company will start selling the memory chips to Apple “early next year.” Merrill Lynch analyst Steve Milunovich expects Apple to introduce a cheaper flash memory-based iPod at Macworld Expo in January. Toshiba currently supplies Apple with the 1.8-inch hard drives that the company uses in its 4G iPods.
At this week’s UBS Media Week Conference in New York, two executives took aim at Apple’s iPod. Andrew House, VP of Sony Computer Entertainment America, said he plans to first get the company’s Playstation Portable (PSP) in the hands of consumers as a gaming device and then use it to sell music and video downloads. The device uses a proprietary Sony storage disc format that can store about 2GB worth of content. “In the portable space, there are devices that are a necessity, like a cell phone, and there are devices that are indulgences,” House said. “The iPod fits very much into the indulgence and status category and that is where we are going to go head-to-head with PSP.”
Meanwhile, Warner Music Group CEO Edgar Bronfman said in a separate presentation at the conference that he sees a large opportunity to sell the label’s music on mobile phones, which he expects will hold as much as 1,000 songs like the iPod mini. “Eventually, the greatest competition [for the iPod] comes from the wireless network providers,” Bronfman said. “If my cell phone—or one of those 1.3 billion cell phone users as opposed to the five million iPod users—can give me the same kind of functionality as the iPod, that’s the biggest competition.”
In its annual report (SEC form 10-K) filed Friday with the Securities and Exchange Commission, Apple summarized several iPod and iTunes related details. The company said it sold a total of 4.4 million iPods in fiscal 2004, a 370 percent increase from the 939,000 iPods sold in fiscal 2003. Apple reported that net sales of iPods rose $961 million or 279 percent during fiscal 2004 compared to the previous year. Since it was first introduced in fiscal 2002, Apple has sold approximately 5.7 million iPods. Apple said net sales of other music products, which consists of sales associated with the iTunes Music Store and iPod related services and accessories, increased $242 million or 672 percent during fiscal 2004 compared to previous year.
“Strong demand for the iPods during fiscal 2004 continued to be experienced in all of the company’s operating segments and was driven by enhancements to the iPod, the introduction of the iPod mini, increased expansion of the iPod distribution network, and continued success of the iTunes Music Store due largely to making it available to both Macintosh and Windows users in the U.S., U.K., France and Germany,” Apple said in the filing.
In a move aimed squarely at iPod, Sony today introduced the NW-HD3 Network Walkman, its first hard disk-based player to support the popular MP3 song format. The 20GB device is the successor of Sony’s first hard disk Walkman (introduced earlier this year), which only supported the company’s proprietary Atrac file format. Sony claims that the NW-HD3, which now comes in four new colors, plays 2.5 times longer than the iPod on a single charge, and can hold several thousand more songs thanks to the Atrac compression. However, the new Walkman will sell for approximately 30 pounds more than the iPod. It will be available in the UK before Christmas at 249 pounds ($462.70) and elsewhere in Europe in early 2005 at 369 euros ($489). The NW-HD3 will also go on sale in Japan this month for around ¥42,000 ($408.76). There is no word yet on US plans.
Merrill Lynch analyst Steve Milunovich expects Apple to introduce a flash memory-based iPod in early 2005, possibly in January at Macworld Expo. In a research note obtained by iLounge, Milunovich said that he is looking for the new flash iPods to be priced in the $149 to $199 range. He notes that the flash MP3 market is five times the size of the hard drive player market in units and about two times its size in revenue. “This is a market Apple should want to participate in because it will pull new customers into the iPod/iTunes ecosystem,” Milunovich said. “We believe consumers will hesitate to switch once they become accustomed to the iPod’s scrollwheel or have purchased a number of iTunes (which only work on iPods). The land grab is on.”
Apple CEO Steve Jobs told the Los Angeles Times this week that the iPod’s popularity will endure because it’s more than just a pop culture icon. “I don’t think we’re seeing trendiness here,” Jobs said of the iPod. “I think we’re seeing a product that’s truly revolutionizing the way we listen to music. We didn’t sell 2 million of them last quarter because it’s trendy, we sold 2 million last quarter because it’s a phenomenal product that’s reinventing the way people enjoy music.”
Needham & Co. analyst Charles Wolf expects Apple to sell 13.3 million iPods in 2005 and an impressive 23.5 million iPods in 2006. He is also looking for 100 million Windows users to own iPods by 2008. In a research note to clients, Wolf said that a flash-based iPod could be “an opportunistic move to quickly capture an even higher share of the portable music player market.” He also suggests that iPod mini drive production costs could now have fallen by a third (the costs decline as yields increase, because overheads are spread across more units). “Apple should have sufficient margin to reduce the price of the mini from $249 to $199 once supply catches up with demand,” Wolf said.
Apple today released iPod Updater 2004-11-15, which includes iPod mini Software 1.2 for iPod mini and iPod software 3.0.2 for Click Wheel iPods. This update brings the following to iPod mini: compatibility with iTunes 4.7; the ability to create and delete multiple On-The-Go playlists; the ability to shuffle and play your song library with one click; an option to select reading playback speed for audiobooks; the ability to hear Click Wheel clicker through headphones; and improved disconnect performance when syncing. iPod Updater 2004-11-15 offers compatibility with iTunes 4.7 and improved USB 2.0 connectivity for Click Wheel iPods. Apple said this update contains the same software versions as iPod Updater 2004-10-20 for all other iPod models.
Apple’s iPod U2 Special Edition ($349.00) is now available for purchase in bricks-and-mortar Apple Stores, and iLounge has exclusive first pictures of the newest iPod’s packaging and pack-ins. Our full gallery will go up shortly, but for now, click on Read More for a collection of eleven shots to tide you over.
Shipments of the U2 iPod to fulfill Apple Store online pre-orders commenced several days ago, with anticipated delivery dates over the next several days. As noted in our earlier news stories and the iLounge Buyers’ Guide 2004, each U2 iPod includes a $50 coupon towards the purchase of The Complete U2, a digital box set of U2 music from iTunes, and a fold-out poster including photographs of the band. Other than its packaging, black casing, red Click Wheel and band-engraved back, the U2 iPod is the same as a 20GB fourth-generation iPod, and includes standard white accessories.
View the U2 iPod gallery
In an apparent attempt to unify its iPod product names, Apple has tweaked the name of its iPod Photo to iPod photo (lower case “p”). The product’s name now matches that of the iPod mini. Apple’s Web site appears to have been quietly made over to reflect the name change. According to readers, Apple resellers and members of the Apple Consultants Network received confirmation of the change from the company earlier today.
BusinessWeek’s Alex Salkever is expecting Apple to unveil a flash memory-based iPod that will hit shelves “sometime next year.” Salkever says the flash iPods would sell for significantly less than the current hard drive-based iPods, allowing Apple to reach new consumers who balk at the higher prices. “iPod, which clocked 3.2 million units sold in the last quarter, is logging an annual sales rate of roughly 13 million units. That leaves Apple plenty of room to maneuver if it wants to assault the flash player market… If Apple could sell just 5 million flash IPods in the next year at prices between $120 and $199, that would likely generate revenues of between $600 million and $1 billion. It would certainly push Apple closer to its goal of rejoining the $10 billion revenue club in the next two years. Add it all up, and the flash iPod hardly looks like a flash in the pan.”
In his latest article for The Independent, Charles Arthur asks whether Apple would be smart to open up the iPod to developers in order to secure the device’s long-term dominance. “The hardware add-on market is fiercely energetic, with more than 300 accessories. But that’s only half the story. Lots of independent programmers would love to write their own games and applications for the iPod. Imagine spreadsheet and document readers or mapping systems. The only limit is imagination and there’s little shortage of that around the iPod. Those programs would make the machine even more useful to its buyers and an even bigger source of revenue for companies, which would thus have a vested interest in the iPod’s continued existence. In technology parlance, the iPod would become a ‘platform’—just like Windows, Linux and OS X on personal computers.”
Online retail giant Amazon.com has quietly launched a new store dedicated to Apple’s iPod and iPod-related accessories. “Introducing the new Apple iPod Store at Amazon.com, your one-stop shopping destination for everything iPod,” reads a promotion on the retailer’s site. “You’ll find iPods, iPod minis, and the accessories to trick them out.” Unlike Apple’s new iPod Store, Amazon’s store appears to be a work in progress as it currently lacks many accessories.
Merrill Lynch analyst Steven Milunovich has raised his iPod sales estimates for Apple’s December quarter from 3 million units to 3.5 million units based on stronger international sales and increased supply of drives. “December could be particularly strong as the new iPod Photo is getting glowing reviews, and the competition still lags in ease of use,” Milunovich said in a research note obtained by iLounge. “Hitachi’s HDD division (HGST) should increase its 1-inch production by 50 percent in October. HGST is Apple’s main supplier for the iPod Mini. Toshiba, the major suppler for the white iPod, saw its 1.8-inch drive production almost double in September. Also, scrollwheel supplier Synaptics has a bullish outlook.”
A Rolling Stone article reveals that rock band U2 accepted no money for Apple’s iPod+iTunes ad that features its new single “Vertigo.” The band will, however, get royalties on the special edition U2 iPod. U2 manager Paul McGuinness said, “The commercial was an attractive idea because iTunes was already selling our music, and the amount Apple will spend for airtime is out of reach for the record business.” In the article, U2 lead singer Bono called the iPod “the most interesting art object since the electric guitar in terms of music.”
Calling the iPod “nothing more than an enormous marketing success,” CNBC’s Robert Walberg says there is only one direction for the player’s market share to go—lower. “Of course, one problem with the iPod’s market share is that it pretty much has only one way to go—down. In the end, the iPod is nothing more than an enormous marketing success. Sure, it was groundbreaking at first. But today you can find a number of similar products from other leading PC and consumer electronics companies, most at equal or better prices. The company’s iTunes and add-on strategy are likely to keep iPod No. 1 for years to come. Still, it’s tough to sustain a near monopoly in a commodity-based business.”
Apple’s U.S. market share of hard drive-based music players fell nearly 5% in September to 87.3%. The decline was attributed to an increase in sales of flash-based players and the first time inclusion of the HP-branded iPod in the numbers. “Among hard drive-based players, Apple maintained its strong hold on the market with a 87.3% share, down from 92.0%, followed by HP in second with its iPod made by Apple at 3.6%,” reports The Mac Observer. “Combining the HP and Apple percentages, Apple controlled 90.9% of the market share, down 1.1% from August. Finishing out the top five of hard drive-based players was Rio with a 2.8% share, up from 2.5%, Creative in fourth with 2.6% from 2.3%, and iRiver at 1.5% from 1.2%.”