In comments made during a conference call with analysts following the release of third-quarter 2009 financial results, Apple CFO Peter Oppenheimer noted that the company now views its iPod and iPhone business—“pocket products”—as comprising three segments: “traditional MP3 players,” “iPod touch,” and “iPhone,” and had internally forecasted year over year declines to occur in the traditional segment, one of the reasons the company developed the iPhone and iPod touch. “We expect decline to continue as we cannibalize ourselves” with the touchscreen devices, said Oppenheimer, though he noted that 50% of traditional iPod purchasers are people who are buying their first iPods, and suggested that these iPod models are not going away any time soon. According to Oppenheimer, unit sales declined in part based on reduction of channel inventory, as well as reduced sell-through of 4% year-over-year.

However, iPod touch sales grew “extremely well” in the quarter, representing 130% year over year growth, with the iPod continuing to have over 70% market share based on the latest NPD tracking information, and growth in nearly every territory it is being tracked in. iTunes sales of 8 billion songs were confirmed, with restatements of past figures: 1.5 billion downloads of Apps and 65,000 applications in the App Store. iPod touch sales are expected to grow considerably in the future.

Though Apple would not break out specific numbers on sales of the iPod touch and iPhone, COO Tim Cook noted: “As we made the changes, both the launch of the 3GS and the price reduction of the 3G, we saw a significant acceleration of total unit sales… as Peter alluded to, the iPhone 3GS is currently [supply] constrained in virtually every country we’re shipping in, so the demand for it is very robust.” Regarding sales to the corporate world, Cook said that interest is growing, in part due to the 3GS’s new hardware encryption and security features, and noted that almost 20% of the Fortune 100 have purchased 10,000 or more iPhone units, as have multiple government agencies.

The executives said that the App Store is now available in 77 countries and now reaches over 45 million total iPhone and iPod touch users. Apple is also looking to expand iPhone distribution within currently available countries where it makes sense to do so, and expand past the iPhone’s current 80 countries, including large ones. Notably, they had nothing to add on the situation regarding the iPhone in China, beyond the fact that it continues to be a priority and they hope to have the device available there within a year. The company also admitted that it is a “beginner” in markets where pre-paid phones dominate the market, saying that there are some opportunities available there, and that a “good” number of iPod touch users had upgraded to version 3.0. Finally, when asked about the movement towards $0.99 pricing in the App Store, Cook and Oppenheimer said that the company does have some ideas on how to improve the store experience, and they realize there is room for improvement, but that the developers set the price themselves, and are doing “good business” when deciding where best to set their prices.

Jeremy Horwitz

Jeremy Horwitz was the Editor-in-Chief at iLounge. He has written over 5,000 articles and reviews for the website and is one of the most respected members of the Apple media. Horwitz has been following Apple since the release of the original iPod in 2001. He was one of the first reviewers to receive a pre-release unit of the device, and his review helped put iLounge on the map as a go-to source for Apple news.