Business | Technology
Low iPod sales sound warning bells
Apple shares fell sharply last week as weaker-than-expected iPod sales led several analysts to revise their expectations for turnover and earnings growth at the company.
- Financial Times
- Published: 00:19 January 26, 2008
London: Apple shares fell sharply last week as weaker-than-expected iPod sales led several analysts to revise their expectations for turnover and earnings growth at the company.
Investors, nervous following sharp slides in world equity markets last week, took fright after Apple issued a tepid forecast for the second quarter. The outlook - below most Wall Street expectations - sent shares in the company down more than 12 per cent in after-hours trading.
That slide continued on Friday as analysts expressed concern over weaker iPod shipments than had been hoped for.
By midday on Friday, shares in the computer company had fallen 17.2 per cent to $128.91, wiping out more than $26 billion from its market capitalisation overnight and extending a slide that had already seen the shares lose nearly a fifth of their value since they broke through $200 a share just a few weeks ago.
Apple said it had shipped just over 22.1 million iPods during the three months ended in December, up just five per cent over the same time last year.
While the slower growth was offset somewhat by a shift towards higher-priced models, the fact that iPod growth rates may be beginning to level off has started to sound warning bells.
"This represents the first quarter of less than double-digit unit growth for [the] iPod," wrote Richard Gardner, an analyst at Citigroup, in a research note.
"The Street is clearly concerned that iPod unit growth will deteriorate further in coming quarters, as consumer spending growth slows and [a] lack of compelling new product prompts customers to defer upgrades."
Engine of growth
The iPod has been the engine of Apple's share growth for more than four years, contributing to a 16-fold increase in Apple's market price since 2003. Sales of Macintosh computers, which account for the bulk of Apple's revenues, put in a strong showing in the first quarter, with unit growth up 44 per cent and revenues from Macs of 47 per cent.
Gene Munster, an analyst at Piper Jaffray, says Apple is likely to rely on Mac sales for most of its top-line growth this year - a situation that could be complicated if a recession crimps consumer spending, causing customers to delay purchases.
Meanwhile, any gap in Mac or iPod sales is unlikely to be offset this year by sales of the iPhone.
Apple said it had sold 2.3 million iPhones in the first quarter, bringing the total number of the devices sold since its launch in June to just over four million.
While that marks a solid start for Apple's much-vaunted mobile product, it is unlikely that iPhone sales will grow fast enough to offset possible slower growth in iPods for several more quarters.
Despite these concerns, most analysts are bullish. "Apple has fundamental and valuation underpinnings, which should allow the stock to outperform... longer term," says David Bailey at Goldman Sachs.
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