iLounge

By Jeremy Horwitz

Editor-in-Chief, iLounge
Published: Wednesday, January 17, 2007
News Category: Apple

In its first-quarter 2007 Quarterly Results Conference Call, Apple Inc. executives provided additional insights into the domestic and international sales of iPods, growth of the iTunes Store, and the potential of both Apple TV and the upcoming iPhone. During his introductory remarks, Apple CFO Peter Oppenheimer noted that music products, including iPod, represented 57% of Apple’s total revenue, versus 59% in the preceding year’s quarter. The company maintained its MP3 leadership share in the U.S. market, boasting a 72% marketshare in December, according to NPD data, and extended its lead in every international territory for which it has market data. Very strong sales through the iTunes Store helped the company’s performance: “other music revenue” grew 29% over the same quarter last year, buoyed by doubled sales of iTunes Gift Cards. iTunes now accounts for 85% of the U.S. market for legal digital music downloads, according to Nielsen Soundscan.

Additional notes from the Conference Call, including Apple TV as the “DVD player of the 21st Century” and potential changes to iPhone before release, are now available below.

iPod Sales, Distribution and Pricing:

There are now 40,000 distribution points (stores) selling the iPod worldwide, versus 7,500 for the Macintosh, the latter number up 1,500 for the year. The bulk of the 40,000 - more than 50% - are outside the United States. Apple feels no need to change pricing at this point, as sales of 21 million iPods suggest that there’s nothing wrong in that department.

On international sales of the iPod, Apple COO Tim Cook said: “If you look at Europe in particular… we did grow iPod sales faster outside the United States, which was our goal if you recall, and as Peter talked about in his opening remarks, we had several countries that did exceptional. We now have five countries that are above 50% - and this is in addition to the United States - the UK, Switzerland, Canada, Australia, and Japan, and if you look at some of the other countries that we have put significant attention to, from an advertising point of view and a channel develoment point of view - France, Germany, Italy, Spain, Belgium, Sweden, Austria, Denmark - all gained between 10 and 20 points of share. And so we felt very, very good about how we did on both the Mac and the iPod internationally.”

In response to a question on seasonality of iPod sales: Apple expects seasonal jumps and dips, especially during the holidays, but feels partially able to control them via new product launches. “We’ve learned over the last few years that what really drives the MP3 market to new levels is innovative product launches and holiday season buying in the December quarter.”

iPhone:

In response to a question on whether the final version of iPhone might include 3G data services rather than 2.5G/EDGE:

“At this point, we are very much sold on the 2.5 EDGE network from Cingular, because it’s much more widespread and widely deployed in the U.S. We don’t comment on our roadmaps, etcetera, but obviously we’d be where the technology is, over time.”

Is the battery necessarily going to be sealed in? Will there be downloadable software applications? No specific response on these questions; “we’ll provide more details on the iPhone right before we begin shipping in June.”

On the potential for cannibalization of iPod by iPhone: “It’s too soon to tell. It’s hard to predict. But we believe that we’ve got a great line of iPods shipping today, with a very wide range of prices and capacities and form factors to meet a lot of different needs from different consumers. So we’ll see, and perhaps we’ll have more on this as we talk again next quarter.” Will there be a place for both products, or will they converge? “We’ll see. Again, the iPod has a significant line of different products with different price points and different capabilities.”

Lawsuit over the iPhone name? Apple again describes Cisco’s trademark position as “silly,” saying that if Cisco takes Apple to court over the name, “we’re confident we’ll prevail,” based on the difference between Cisco’s iPhone VoIP and Apple’s iPhone cell phone devices.

Apple TV:

Apple sees Apple TV as “the DVD player of the 21st Century,” and does not believe that it’s a niche product. “If you’re asking from a demand point of view, I think we’ll see as we move forward, it’s really too early to tell. From how we’re positioning the product, as Steve indicated in the keynote, we see this as the DVD player of the 21st Century, and so it’s clearly not a niche.”