Thursday, December 23, 2004, 03:00 pm
Merrill Lynch: hard drive shortage likely constraining iPods
In a research report released late last month, Merrill Lynch analyst Steven Milunovich said Apple is expected to sell nearly 4 million iPods in the December 2004 quarter. The analyst also reiterated his 'buy' rating on Apple with a 12-month target price of $78.The report offered anecdotal observations about iPod sales in the US and Japan, Mac market share growth in 2005, and even more stock strength driven by "optimistic" sales numbers of the iPod. "We expect a strong iMac season to be followed by share gain in 2005," Milunovich wrote.
Offering strong evidence about the popularity of the iPod around the US and other countries, Milunovich said that despite the growing number of "iPod challengers," Apple's share in the digital player market is increasing. With Apple expected to enter the flash-based digital music player market in the near future, Apple could potentially double its iPod-based revenues, the report states.
Milunovich wrote that Apple could sell as many as 4.5-5.0 million iPods in an "optimistic" scenario, but supplies of iPod drives would likely stunt a further increase in sales. "We estimate that drive production for iPod in the quarter was about 4.2 million, which was augmented by 1.4 million drives in inventory," he said.
The report notes that demand for the iPod is strong and that it is the most searched item on Shopping.com, a popular comparison shopping site. Augmenting the prevailing notion of an iPod shortage, Milunovich said that Amazon.com was backordered on the 20GB model and was sold out of green and gold iPod mini models and that there were "spot shortages" of some of the models at other non-Apple retails. However, Apple retail and online stores were reported to have ample supply of the music players.
Merrill Lynch noted that Apple is strongly pushing the iPod in Japan where some trains are "plastered with Apple advertising." Tokyo's "Best Buy" counterpart, Bic Camera, is also reporting that the iPod is their hottest seller. Meanwhile, local consumer rankings for Sony's competitive HDD Walkmans are reportedly quite low.
The report noted that Apple's iPod market-share gains are also in part due to its retail strategy. "At the new store in London there was a line of 110 people waiting to pay last Saturday," Milunovich wrote. "The Sony store nearby was relatively empty."






Mr. Milunovich could simply sum everything up in one statement: "Despite any perceived strength of competitors to the iPod in the US and abroad, Apple has succeeded in turning the iPod into the de facto portable music player." The explicit and implicit marketing of the device is strong enough that anyone getting a non-iPod this Christmas will be disappointed. I agree that flash-based players will add more breadth to Apple's dominance in the market and in the hearts and minds of consumers.
I don't understand how competitors think that adding an FM antenna is a great feature. What listen radio I listen to is rarely ever in the FM spectrum. If you need to listen for traffic updates, just wait until you're in the car. The whole point of a music player that stores thousands of songs is to bypass the vast wasteland of music radio.