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Apple iPod Touch will cannibalize iPhone

Wednesday, September 5, 2007  |  0 comments
Apple’s iPod Touch will cannibalize the iPhone. My hunch is that most folks that bought the iPhone keep the phone part as an afterthought. Take a Wi-Fi enabled iPod, toss in a browser and the differences between the iPod and iPhone stop at the phone.

What’s really notable about the iPod Touch is that it totally reverses conventional thinking. When the iPhone launched the idea was that the iPhone would cannibalize iPod sales. As this plays out it’s going to be quite the opposite.

Analysts notes are already trickling in. Here are a few notable thoughts:

TBR believes the new iPod touch is the first instance an important new product category, the mobile content platform. With aggressive iPod touch pricing and a radical price reduction of the iPhone, Apple is lowering the entry barrier for this new type of device. At the same time, the new line of iPods will rejuvenate the iPod line which had seen revenue growth flatten in recent quarters. And direct access to iTunes will strengthen Apple’s position in the content distribution market.

Apple announced a partnership with Starbucks, through which users can used the Starbucks Wi-Fi hotspots for free access to the iTunes store. Starbucks’ Wi-Fi network is provided by T-Mobile and normally requires paid user subscription. TBR believes that, in addition to boosting Starbuck’s coffee sales, the iPod Touch will greatly increase the market for Wi-Fi hotspots and should provide a boost to T-Mobile’s hotspot business.

Bank of America:
To us, the most significant product announcements concerned the iPhone - 8GB now $399 vs. prior $599 and 4GB discontinued (likely less than 25% of mix). We believe the 8GB price reduction signals (1) unit sales are not living up to heightened original expectations and the ASP is now more in-line with other smart phones (2) possible positioning of its portfolio for a C4Q07 global (i.e. including the U.S.) launch of a 3G iPhone (vs. 2.5G now). Net, a lower than expected blended ASP likely in F2008 and F2009.

JP Morgan:
Overall, the event was largely in line with expectations with the exception of the price cut on the iPhone. This, coupled with the lower prices and higher capacities across the iPod line, suggests that gross margins could come under near-term pressure.



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