iPhone, iPod touch "cannibalizing" traditional iPod market

Peter Oppenheimer, Apple's chief financial officer, said the company had expected that consumers would lose interest in traditional MP3 players over time, and that was one of the reasons the iPhone platform was created.

"We expect our traditional MP3 players to decline over time," Oppenheimer said during Tuesday's earnings report conference call, "as we cannibalize ourselves with the iPod touch and the iPhone."

Later, Chief Operating Officer Tim Cook also used the word "cannibalization" to define the iPhone chipping away at traditional iPod sales.

Realizing that iPod sales would slow, Apple has lowered channel inventory of its lineup by about 400,000 units. Cook said this was partially due to the shrinking market for traditional MP3 players.

Together, the iPhone and iPod touch have sold 45 million units. Year over year, sales of the iPod touch increased 130 percent in the third quarter of the 2009 fiscal year.

"Customers continue to embrace this outstanding platform experience, which has been increasingly enhanced by the tremendous offering for the App Store," Oppenheimer said.

While Apple has portrayed a future of diminishing returns for traditional iPods, the market is hardly dying. In the third quarter, Apple sold 10.2 million iPods — more than the total number of sold iPhones and Macs combined.

Apple also controls 70 percent of the MP3 player market, and announced Tuesday that 50 percent of customers who buy an iPod are new to the brand.

"We have a great business that we believe will last for many, many years," Oppenheimer said of traditional iPods, "and which we will continue to manage well and offer the world’s most innovative products."