iMac, iPod, iConquered

For Apple Computer, will 2004 be remembered as a transformative year?

Yes, according to The Wall Street Journal, which said the Cupertino, Calif.-based company's fourth-quarter earnings "show how the company continues to change from a traditional computer maker to a digital-entertainment company, with a particular focus in digital music." USA Today concluded that "Apple has clearly become more than a computer company," while industry analysts told The New York Times that "Apple was transforming itself from a computer company into a digital music and entertainment company."

Fueling those declarations is that fact that Apple's iPod portable music player helped the company log $2.35 billion in revenue for the quarter -- the highest amount in nine years. Apple said yesterday that it sold 500 percent more iPods compared with last year's fourth quarter.

Apple is selling more iPods than its venerable line of Macintosh computers. The company shipped 836,000 Mac units during the quarter, compared with 2 million iPods. Only 860,000 iPods were shipped in the company's third quarter.

And the trend-setting computer maker expects robust iPod sales to continue. USA Today quoted Apple chief Steve Jobs's remarks on the iPod: "The market shares just keeping going up. The demand for the iPod is very strong, and we're ramping up our supply as fast as we can to get ready for the holiday quarter," Jobs said. The Los Angeles Times said "there's no sign that consumers will be changing their tune with the crucial holiday shopping season approaching, analysts said. A Piper Jaffray survey of 600 high school students found that after clothes, money and a car, the thing U.S. teenagers want most is an iPod."
• USA Today: Tiny iPod Hatches Mighty Quarterly Growth For Apple
• The Los Angeles Times: iPod Halo Effect Lifts Apple Profit (Registration required)

According to The Wall Street Journal, Apple execs "seemed taken aback at the takeoff of its digital-music business. Steve Jobs ... said the results had exceeded his expectations. He dubbed the music products' growth 'extraordinary' and said he was looking forward to a robust holiday-sales season." The newspaper said "[s]everal factors fueled the iPod business in the quarter. Apple was able to increase supplies of the iPod mini -- the compact, candy-colored version of the device -- in the U.S. over the past few months, and that model also was introduced internationally. Orders of the iPod mini had been backlogged for weeks. Apple declined to break out what percentage of its iPod sales were iPod minis. Hewlett-Packard Co., which has teamed up with Apple in digital music, also began distributing iPods through its world-wide network of retailers starting in late August. Apple said H-P's sales were 6% of iPod sales."
• The Wall Street Journal: Apple, Paced by Sales of iPods, Sees Profit and Revenue Surge (Subscription required)

Bloomberg reported that demand for the iPod, which hit the market in Oct. 2001, "helped Apple become the third-best performing stock in the Standard & Poor's 500 Index this year. 'It's shocking. I'm shocked, even being a bull,' said Gene Munster, an analyst at Piper Jaffray & Co. in Minneapolis. 'Now I wish I had been even more bullish.'" Recall that Munster is the analyst who produced the teenager wish-list survey that showed iPods ranking high on the list of teens' must-have items. And he is getting more bullish by the day. "I believe that there's something big going on in Apple," Munster told the San Jose Mercury News. "We're at an inflection point. I think it's going to be considered a more legitimate computing platform in the coming year."
• Bloomberg via The New York Post: iPod People Fuel Apple Rise
• The San Jose Mercury News: Strong iPod Sales Help Apple Double Profit (Registration required)

A shortage of key iPod parts may ensure stronger sales in the current quarter, according to the San Francisco Chronicle: "Despite the huge number of iPods sold, the makers of the tiny hard disk drives for the music player are having trouble keeping up with consumer demand, said Joel Wagonfeld, an analyst at First Albany Corp. 'The good news about that is that it bodes well for the next quarter as Apple has a big backlog,' he said."
• San Francisco Chronicle: Apple's Profit Doubles

Straying From the Pack

The Washington Post was one of the few media outlets to throw some cold water on the whole "Apple transformation" theme, noting that computer sales "still make up more of the company's bottom line. The iPod brought in $537 million in revenue for the quarter, compared with $1.2 billion in revenue from desktop and laptop computers such as the iMac and PowerBook. ... Sales of its desktop machines were down, largely as a result of a supply problem that pushed the debut of the latest iMac desktop past the back-to-school shopping season, but both its lines of laptops sold better."
• The Washington Post: iPod Helps Lift Apple's Fourth-Quarter Profit (Registration required)

And The Wall Street Journal managed to raise some questions about the continued dominance of Apple's online iTunes service. The newspaper noted that the company "faces stiffening competition in the online-music market, however. Heavyweight rivals such as Microsoft Corp. recently have entered the arena and have deep enough pockets to duke it out with Apple over the long term. But Mr. Jobs said Apple will continue to innovate to retain its leading market share, and noted that Microsoft's online-music store, which opened for business in early September, so far has just 1% market share. NPD Group Inc., which tracks sales of digital-music players, said Apple had a 61% share of the U.S. market for flash-based and hard-disk-based digital-music players in August."