Dec 5, 2008

Business - iPod Shortage Could Crimp Apple's Christmas Cheer

Jennifer LeClaire

Apple's products are poised to be among the holiday winners. But could the shortages that plagued the Amazon Kindle and Nintendo Wii in their early days of production put a damper on Apple's sales?

According to a research note from Kaufman Bros. analyst Shaw Wu on Wednesday, Apple is tasked to keep up with the strong demand for iPods. That could lead to shortages during the holiday shopping season.

Wu isn't merely speculating. He pointed to's recent change for the shipping time of the 8GB second-generation iPod touch from 11 days to five weeks, while the 16GB model is available within three to five weeks. That puts both models out of the range of holiday shoppers.

Spot Shortages

"In addition, from our distribution and channel checks, iPod touch, iPod nano, and even iPod shuffle are seeing spot shortages on different colors and capacities across several retailers, including Best Buy, Target, Wal-Mart and," Wu wrote.

"Frankly, we find these sell-outs on iPods surprising given how difficult the macroeconomic environment is, putting a crimp on consumer spending," Wu continued. "From our assessment, we believe iPod is holding up better than most, due to its relatively low [price] and strong consumer understanding of the value it provides."

Apple Bucks Economic Trends?

Apple introduced a new iPod touch in September. At that time, Apple CEO Steve Jobs called it "the funnest iPod we've ever created." The new iPod touch is smaller and lighter than the original, with a new design that features a contoured metal enclosure with integrated volume control buttons and a brilliant 3.5-inch widescreen glass display.

"Even as some analysts were predicting a slowdown in iPod sales, we are seeing these shortages come into play, which may indicate that the iPod is doing better than some folks might have expected for the holidays," said Michael Gartenberg, vice president of mobile strategy for Jupitermedia.

Gartenberg is not surprised that there is a possible shortage of iPods, even though the economy is expected to cause consumers to pull back on spending this year. Consumers are still spending, he said, but they are being more careful about how they spend their holiday budget.

"In many cases, being more careful with holiday spending means investing in something consumers perceive as a premium product that they will be able to get a lot of use from over the life of the device and then perhaps even be able to pass off to someone else," Gartenberg said.

Apple Takes a Bite Out of Windows

Wu's assessment is that Apple could sell 21 million iPods this quarter. But Apple may also be losing opportunities from consumers who would have purchased an iPod. Microsoft's Zune and other competing digital media players could be the beneficiaries.

But Microsoft is still losing ground to Apple on another front: Operating systems.

Microsoft's Windows market share has dipped below 90 percent, Wu noted, while Apple's Mac OS X platform has climbed to 9.25 percent. That, he said, further validates his key investment thesis, which is this: "[Apple] is still an early platform adoption story with plenty of headroom for growth, driven by iPhone and Macs."

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