Analyst: ‘iPod Growth Will Continue Around 30% Year-Over-Year’

"Despite talk of market saturation, we believe iPod growth will continue at around 30% y/y," Piper Jaffray analyst Gene Munster wrote at the beginning of a new report he issued Tuesday. He added: "In the next 6 months the iPhone and iTV will add two more cylinders to the Apple growth engine."

Some pundits have expressed concern that iPod growth will plateau, or has already done so, but Mr. Munster used the cell phone market as a basis for comparison and concluded that "the iPodis market penetration is about 27.5%." He explained: "Note that we consider the worldwide cell phone market to be an overestimation of the iPodis addressable market. The Motorola handset ASP was at US$138 in the Jun-06 quarter, whereas the iPod ASP was at $185 (34% higher). That said, the cell phone market provides an aggressive proxy for the iPodis addressable market and as such it is beneficial for comparative purposes.

"According to IDC estimates, there will be1.8 billion wireless subscribers worldwide by the end of 2006. Given our estimation of 83.0 million iPod units shipped by the end of calendar 2006, the data represents a 3.9% worldwidemarket penetration for the iPod when the cellphone market is used as a proxy for the iPodis addressable market. In the U.S., IDC estimates a total of 201.4 million wireless subscribers by the end of 2006. We estimate that 80% of all iPods are sold in the U.S., which leads to an estimate of 55.3 million iPod owners in the U.S. by the end of 2006. Therefore, with the cell phone market as a proxy for the iPodis addressable market, the iPodis market penetration by the end of 2006 would be 27.5%."

Looking ahead, the analyst noted: "In the next 6 months, Apple will likely add 2 significant drivers to the growth engine: the iPhone and iTV. The mobile phone market represents a large potential supplement to iPod sales. Music-enabled phones are gaining popularity, but Apple will be the first to offer a unified solution with the design and usability of the iPod.

"The upcoming iTV will add a fourth driver to the growth engine: the living room, providing integrated operability between iTunes media content and televisions. Both the iPhone and the iTV represent initiatives that could add iPod-like growth to the Apple story."

He concluded: "We believe collectively the iPhone and iTV could add 15% to the Streetis CY07 revenue."

As the iPod embarked on a hockey stick-like growth curve, it was the sole revenue driver for Apple, Mr. Munster explained, but "now, iPod sales are translating to a resurgence in the Mac platform, as worldwide market share climbs to 2.8% (up from 2.1% in March 06)."

Mr. Munster retained his "Outperform" rating on Appleis stock, with a $99 price target. At 1:17 PM EDT on Tuesday, the companyis shares were selling for $80.59, down 1.06% for the day. The previously-moribund stock leaped from the low $70s to the upper $70s last week, after Apple announced previous quarter earnings and units shipped that exceeded Wall Street estimates. That trend continued on Monday, with Tuesdayis dip likely the result of some profit-taking.