Analyst on iPod growth

Apple's iPod business will likely grow in the future, according to one industry analyst, despite the company's lowest year-over-year unit growth rate in the product's history. "With the iPod user base as its foundation, Apple is establishing a Wi-Fi mobile platform that we believe will spark continued growth in the iPod segment," Piper Jaffray senior analyst Gene Munster wrote in a research note obtained by MacNN. "With 70 percent market share, we believe Apple is in the driver's seat in terms of transforming the portable music market into a portable computing market."

Market data shows that growth in the standalone MP3 player market is slowing down, with NPD data suggesting a decline in year-over-year spending growth from 131 percent in 2005 to 17 percent in 2006. Growth in 2007 dropped another 4 percent year-over-year, according to Munster.

"We are modeling for year-over-year iPod unit growth to stabilize at around 15 percent through 2009," he said. "The Street is expecting 4 percent year-over-year unit growth in March (vs. 5 percent year-over-year in December). In order to achieve this level of year-over-year iPod growth, we are expecting Apple to introduce cheaper, innovative iPods with Wi-Fi and multi-touch technology."

History shows that iPod growth is largely tied to the holiday shopping season as well as innovative iPods. Apple management last week referred to the iPod touch as the beginning of a mainstream Wi-Fi mobile platform during its financial results conference call.

"We believe that the iPod touch is the first of several internet-connected iPods that Apple is currently developing. internet connectivity enables applications like email and a Web browser to add significant value to the iPod lineup, which will drive incremental growth and spur the replacement cycle for current iPod owners," Munster explained. "With 70 percent market share, we believe Apple is positioned to transform the MP3 market into a portable computing market."

Apple managed to maintain a steady market share of around 70 percent over the last three years, which on a dollar share basis is higher -- growing from 71 percent in 2004 to 84 percent in 2007. During the first full month of iPod touch shipments, Apple saw its market share rise to 90 percent on a dollar share basis.

"We believe these numbers imply that, despite a slowdown in growth in the MP3 market, Apple's vision of the iPod lineup becoming a mainstream Wi-Fi mobile platform will have two results: First, it will spur growth in the portable media player market, particularly from the replacement cycle," the analyst said. "Second, if Apple is able to lower prices on Wi-Fi connected and possibly touchscreen iPods, it will be able to maintain or grow its leading market share position."

by MacNN Staff