TMO Reports - For Apple, Success Is Spelled 'i-P-o-d'

by , 8:00 AM EDT, April 15th, 2004

Who would have thought just three or four years ago that a handheld device would become such a big part of Apple's future? That's exactly what has happened, however, as Apple announced Wednesday that for the first time, the company sold more iPod and iPod mini portable digital-music players in the second-quarter than it did Macs.

The company reported record sales of 807,000 iPods for the quarter, up more than 900% from the prior year, bringing the total sold to about 2.8 million since the first model was introduced in October, 2001.

Referring to the iPod, Apple's chief executive Steve Jobs said in a prepared statement that the success of the iPod is at the core of the company's digital strategy. "We've done very well in innovating and creating new businesses, creating a US$1 billion business in a few years."

Extremely high demand for the iPod Mini, introduced in the United States in January, led Apple to delay the smaller model's international release to the end of July.

In-coming CFO Peter Oppenheimer told analysts iPod and iPod mini units accounted for about half of the company's 29% revenue growth came from iPod sales, on $264 million in sales.

"We shipped 10 times the number of iPod's compared to a year ago," Mr. Oppenheimer said. "We expect our strong (iPod) momentum to continue as we catch up with iPod mini demand and as HP launches their digital music player this summer."

Availability of the iPod mini is virtually at a standstill as Apple tries to get its hands on more components to manufacture as many units as possible to meet the overwhelming demand in the US. iPod mini demand is "far exceeding supply that we had planned," said Timothy Cook, Apple Executive Vice President of Worldwide Sales and Operations. He also noted that iPod minis currently have over a six week wait.

Apple said the iPod Mini has been in short supply due to the lack of an unspecified component, but the company said it hopes to be caught up to demand by the fourth-quarter.

"There is no manufacturing constraint at all," Mr. Cook said. "It is a component constraint. I'd rather not go into the details of that."

Mr. Oppenheimer said the company would not estimate how many iPod and iPod mini units would ship in Q3, only saying, "we expect to be very constrained and hope to catch up our balance supply in demand in the (fiscal) fourth quarter."

As an example of how desperate availability of the iPod mini has gotten, Mr. Cook admitted the company has been offering customers who can't get iPod minis a white, 15GB iPod at a special discount. "That's actually not an offer that is generally available," he said. "For a few customers that we quoted a date and then could not achieve it, we gave them an option to do that, but it's a very small number of customers."

Mr. Cook said supplies of the regular iPod are in "reasonable supply demand balance in every geography right now," and there appears to be very little cannibalization of white iPod sales by sales of the iPod mini.

He also said the company is continuing to expand the number of places selling iPod. "From the beginning of Q1 to the beginning of last October, we've now raised that from 8,000 to 12,000," Mr. Cook said. "About 80% of that expansion was outside the US...We're continuing to look for more quality channels (to sell iPods) and anticipate growing that more as we step through the year."

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