Is Apple in Trouble with the iPod?

As strange as it may sound, Apple could be facing a problem with the iPod. This icon of the mp3 player has cemented the company’s reputation in the field of innovation and fueled its financial success for years. However, those days may be coming to an end.

Most people who want an iPod already have one and see little need to upgrade or change it in any way. Therefore, it is not surprising to expect a decline in sales of this device compared to the same period last year, for the first time since 2001. It seems that the peak time of this revolutionary product has passed and the market is saturated. The question is: What can Apple do about it? Analysts expect that the number of iPods sold will fall by 12% in 2009, to 48 million units, which is a significant drop considering that the average growth of this device was nearly 200% in 2006 and 2007, only to fall to just six percent last year.

Nevertheless, Apple’s other businesses are quite healthy as the iPhone and Mac are selling excellently. In fact, iPod sales are likely being eroded by the iPhone, which, in addition to being a mobile phone, also serves as a music player. However, the decline of the iPod means that others must take on its burden and make up the difference, which could prove difficult in worsening global consumption and recession conditions. Wall Street has high expectations for Apple, and analysts predict a revenue growth of 15% this year, to $37 billion, making the task significant, while judging by Apple’s stocks, investors are no longer so confident in the once untouchable player. Many institutional investors are selling Apple shares, including Goldman Sachs and Invesco. David Klaskin, Chief Investment Officer at Oak Ridge Investments, reports a halving of his company’s stake in Apple.

‘With the maturation of the iPod, the iPhone is gaining importance,’ he says. ‘However, the phone is, on the other hand, also more expensive when you consider service costs.’ Apple’s stock recorded a 50% drop last year, to $96. On its part, the company is trying to keep the iPod fresh, primarily by shifting the focus to the iPod touch, with a design similar to the iPhone, but without phone capabilities. In one commercial, Apple calls it ‘the most fun iPod ever,’ as it can run thousands of games, in addition to music and video. Apple still dominates the U.S. market for music players with a huge share of 70%. Its biggest benefit these days likely stems from the fact that it helps sell Macs, as some research suggests a trend of switching to Mac among Windows PC users after they start using some Apple music player.

Their share of the personal computer market in America is growing and reached 9.1% two months ago, which is a huge jump, considering that this share was 3.2% five years ago. ‘The iPod still attracts Windows users to Mac,’ says Charles Wolf, an analyst at Needham&Co. ‘And that is extremely important for Apple.’