IPod Touch Ascendant as Traditional IPod Sales Fall

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Apple's record-setting quarterly financial results, released Tuesday, point out that the economic and marketing powerhouse that was the iPod has been eclipsed. The traditional iPod isn't dead, not by a long shot, but its days of explosive growth are over -- replaced by the growth of the iPod touch and the iPhone.

With the exception of the annual orgy of holiday iPod sales, Apple's iPod numbers have grown every quarter. But during the third financial quarter of 2009, Apple sold 10.2 million iPods -- 800,000 less than both the previous quarter and the same quarter a year ago. Though 10 million is a whole lot of iPods, this marks the first time in the past five years (and perhaps ever -- my spreadsheet only goes back to FY 2005) that iPod sales have dropped year-over-year. In the past two years there's been a gradual slowdown of iPod unit sales momentum; with this quarter, the momentum has officially stopped.

Just as notable is the fact that the iPod product line generated $1.49 billion in revenue, compared to $1.69 billion for the iPhone -- the first time that iPhone revenues have eclipsed the iPod on Apple's income statements.

While Apple doesn't usually break out sales figures for individual products, during Tuesday's conference call with analysts, Apple Chief Financial Officer Peter Oppenheimer went out of his way to say that the iPod touch itself did "extremely well in the quarter, growing more than 130 percent" compared to the year-ago quarter. In other words, while iPod sales in general fell 7.2 percent compared to last quarter, the iPod touch was selling like gangbusters.

That's good news for the iPhone OS-based iPod touch, which is clearly the future of the iPod product line. But it also means that sales of the "traditional MP3 player" segment of Apple's product line were even worse than the 7.2 percent figure, since that number is buttressed by the iPod touch sales boost.

Oppenheimer admitted that the company saw these sales declines coming.

"This is one of the original reasons we developed the iPhone and the iPod touch," he said. "We expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod touch and the iPhone. However, we have a great business that we believe will last for many years and which we will continue to manage well and offer the world's most innovative products."

Oppenheimer said that despite the drop in traditional iPod sales, the products still perform a useful function as an introduction to the iPod line for first-time buyers. He said that Apple's internal research suggests fully half of the people buying traditional iPods are first-time buyers, even in high iPod market-share countries such as the U.S., Japan, Australia, and the United Kingdom.

Overall, the iPod product line still rules the roost in terms of market share. Oppenheimer pointed to the most recent market-share figures from NPD Group, which indicate that Apple still holds 70 percent of the MP3 player market.

But in the long run, the direction is clear: Traditional iPods are on their way out, eclipsed by a new red-hot generation of products: the iPod touch and iPhone.

This story, "IPod Touch Ascendant as Traditional IPod Sales Fall" was originally published by Macworld.

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