Apple's iPod business collapses as revenue becomes a rounding error

Accounted for just 2% of Apple's record revenue for Q4 2013, but analysts don't see Apple killing off the music player

Apple's iPod business collapsed last quarter, with revenue plummeting 55% and the number of music players dropping by more than half compared to the same period the year before, the company said yesterday.

The iPod, which debuted nearly 13 years ago -- just a month after the 9/11 attacks -- had once been a major part of Apple's business and revenue stream, but it has increasingly fallen into such a hole that even CEO Tim Cook dismissed the line.

"I look at the business from a sell-through point of view less iPod, because I think all of us have known for some time that iPod is a declining business (emphasis added)," Cook said yesterday.

The iPod accounted for less than 2% of Apple's total revenue for the quarter, down from 4% the year before.

For the first time in more than a decade, the iPod's revenue was less than $1 billion, illustrating the hard times for the music player as smartphones and even tablets have hijacked its primary job of playing tunes anywhere, anytime.

For a company that prides itself on focusing its attention on a limited number of product lines, it seems odd that Apple continues to bother with such a puny business.

Or is it?

"I don't think they'll dump it," said Ezra Gottheil, an analyst with Technology Business Research, in a interview after Apple wrapped up its Q4 2013 earnings call with Wall Street. "Apple will keep it, if only so that it has that $50 gift. They have other low-volume products. And it's really not a negligible business. But I can see them trimming the product line, maybe dumping the iPod Touch."

The touch-screen, smartphone-style Touch is the most expensive iPod in Apple's inventory and the one most like an iPhone. It lists for between $229 and $399, depending on the amount of storage space. Other models Apple still sells include the $49 Shuffle, the $149 Nano and the $249 Classic.

Apple sold more than 6 million iPods altogether in the fourth quarter of 2013, but recorded just $973 million in revenue, for an ASP (average selling price) of $161, hinting that the higher-priced players continue to sell.

"It was telling that they didn't even mention it," said Carolina Milanesi, the strategic insight director of Kantar Worldpanel ComTech, of the Q&A portion of Apple's call discussing earnings. "I don't think that we'll see new [iPod] products. It's not really costing them anything, because they're not putting resources into it. But I think the iPod Touch as a device will need to exist."

The iPod was Steve Jobs' first foray beyond the Mac after his return to the company he co-founded. Even after the launch of the iPhone in 2007, the iPod helped keep the company solvent. In the fourth quarter of 2007, for example, the iPod generated 35% of Apple's total revenue, more than the Mac.

Two years before that, the iPod accounted for 51% of all Apple's revenue.

Apple doesn't see the iPod returning to those glory days.

"We would expect [iPod sales] to continue to decline year-over-year in the March quarter," said CFO Peter Oppenheimer yesterday.

Apple's declining iPod business generated just 2% of the company's total revenue last quarter, a far cry from the powerhouse iPhone, which produced a near-record 56%. (Data: Apple.)

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

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