Last week Apple and Microsoft released their fourth quarter MP3 player sales figures, which Apple chooses to call its first quarter for some odd reason, and the numbers were a startling contrast. On one hand you had Microsoft with a 54 percent drop off in sales from the fourth quarter last year. On the other, you had Apple, selling a record number of iPods (again).

Somewhere Steve Ballmer must be banging his head against a wall wondering if his company will ever catch a break, while Steve Jobs convalesces contentedly knowing his company continues to grow in spite of economic conditions that would suggest that people would stop buying expensive little gadgets.

Microsoft Zunes Out

I have to admit I've never been a fan of the Zune design--just looks clunky to me--but I've read reviews and I know it has some interesting features, particularly its integration with the popular XBox 360. But Microsoft had to be flinching when it learned that Zune sales had dropped off the charts in the fourth quarter of 2008 losing more than half of its previous year fourth quarter sales. According to this article on New Media Update that translates into $100M in less revenue. That doesn't bode well for the device itself and could suggest that Microsoft will be getting out of the MP3 device business very soon.

Apple Takes Off

Apple, meanwhile continues to do what Apple does and that's make money hand over fist, economy be damned. Macworld reports that Apple sold 22.7 million ipods for the quarter, which translates into growth of 3 percent over last year, which itself was a record sales quarter. It wasn't all glowing as Macworld points out, since last year's sales increased 5 percent, but given economic conditions, and compared to Microsoft's sales, I'm sure Apple will take it and say 'thank you very much.'

What's more iPod has a lock on MP3 player market share. According to Macworld it breaks down as follows:

"Oppenheimer said that Apple enjoyed a market share topping 70 percent for MP3 players in December, according to figures from NPD Group. He also noted gains in international markets where the iPod market share exceeds 70 percent in the United Kingdom and Australia, 60 percent in Japan, and 50 percent in Canada. The iPod saw year-over-year gains in France, Germany, Italy, and Spain, as well."

And it wasn't just MP3 players that did well, overall Apple made more than $10B for the quarter, topping 10B for the first time ever for a quarterly sales number, and this in the midst of the worst economic crisis in 50 years. Remarkable.

Analyst Are Wrong

Many analysts predicted that iPod sales would slide, partly because of iPhone sales (which includes iPod functionality) and partly because of economic conditions, but it hasn't happened as sales continue an upward trend in a variety of markets across the globe. Meanwhile Ed Oswald writes in the Technologizer blog that Microsoft insists the Zune is just fine, but numbers clearly don't lie, and what we have here is a clear contrast between two rival companies heading in opposite directions.

Michael Gartenberg has an interesting idea in a November post in his Mobile Devices Today blog. He suggests Microsoft could save Zune by decoupling the platform from the player and getting out of the hardware business. Gartenberg says:

"Is Zune dead? No, I don't think so but I do think it could be evolving beyond being a runner up to Apple to a credible story for Microsoft to tell, linking the desktop and mobile device space and of course, becoming and integral part of Windows Mobile."

Read the whole Gartenberg post to learn more.

ms marketed the zune poorly

you cant buy it in europe at all

Let me start this comment by saying I am an Apple fanboy and proud of it. I believe the iPod is wonderful and the future is the iPod Touch not the iPhone. I dislike MS and have removed all MS software from the 4 Macs running in my home. I would love to see Ballmer have to admit the Zune is a failure and kill the project.

OK that said let me correct a couple things in the article.

YOU state that Zunes "sales" where off 54% but actually it was Zune "revenue" that was down 54%. MS did say that part of the reason for the drop in revenue was do to lower sales but MS does not - like Apple does - release actually Zune sales numbers. There are many other factors that can cause a drop in revenue besides a lower sales - as you will see when I correct your iPods sales statements - the biggest being a lowering ASP (Average Sale Price) of the units sold. This is still not to say the Zune sold well, it actually had a terrible quarter, and sales of actual units did drop year over year just not 54%.

Next you talk about iPod sales and yes you are right actual "sales" number for the iPod where up 3% year over year, but what you don't mention is the iPod "revenue" was down 16%. The bulk of the drop in revenue can be attributed to a lower ASP, but since Apple sells the iPod worldwide some other factors also can cause a lower revenue even with higher unit sales - ie: currency exchange - taxes and duties - ect.

So basically your article compares Zune "revenue" to iPod "sales" which made the iPod look better than it actually did. It was still a record quarter for iPod "sales" but not for iPod "revenue".

Kirasaw:
You're absolutely right that Zune numbers numbers include the entire platform including the store and I thank you for correcting me. But the article I link to does say the overall decrease in revenue reflects a decrease in device sales.

If we were actually comparing both platforms, you can imagine what the numbers for Apple would have looked like had we included iTunes revenue with their overall ipod sales.

I'm not sure where you get the information that overall iPod revenue was down, but even if it was, overall Apple revenue was record setting as was iPod unit sales.

Anyway you slice it (if you'll pardon the expression), the Zune had a disastrous quarter while Apple did startling well.

Thanks again for your detailed comments. I appreciate the feedback and I should be more careful in how I report these numbers.

Ron

Ron

Here is a link to Marketwatch's web-page that did a good job of breaking down Apple's Q1 2009 financial statement.

http://www.marketwatch.com/news/story/ipod-mac-sales-lead-apple/story.aspx?guid=%7B784B2A3D%2DD084%2D45A4%2DBEDF%2DFE4ECD7C038A%7D&siteid=yhoof

Here is the quote about iPod revenue:

During the quarter, Apple reported it sold 22.7 million iPods. But while shipments rose 3% from a year ago, iPod revenue fell to $3.37 billion, down 16% from a year ago. from MarketWatch

Hi:
Thanks for sending the link. It shows how you can get a different take depending on what you read, and with numbers it's always easy to make them look the way you want them to look, but I think that my basic premise still holds.

Thanks again for taking the time to comment and for following up with a link with additional information. It's helpful to everyone reading the post or following the comments.

Regards,
Ron

Some clarification, I hope. If Zune related revenue dropped by 54% or $100 million then they had around $200M last year and around $100M this year.

According to Apple's quarterly financials (http://media.corporate-ir.net/media_files/IROL/10/107357/09/AAPL_10Q_Q1FY09.pdf) they had iPod revenue of $4.38 BILLION this year and $4.8 BILLION last year. So yes, even though unit sales were up, overall revenue was down because Apple averaged $148 per unit sold compared to $181 last year.

Unfortunately for competitors, people are filling in the iPod "gap" with iPhones. Once you buy an iPhone there is no need to buy an iPod or any other MP3 player. iPhone unit sales almost doubled from 2.3 million to 4.3 million and iPhone and related products and services rocketed from $241 million to $1.247 billion, more than quadrupling!

Add that all together and you have a staggering $5.62 billion revenue stream for the iPod/iPhone/iTunes sector of Apple's business. In comparison, Zune's $100 million decline is literally a rounding error.

Syntmeister,
Thanks for the additional data.

Ron

Quote: Let me start this comment by saying I am an Apple fanboy and proud of it. I believe the iPod is wonderful and the future is the iPod Touch not the iPhone. I dislike MS and have removed all MS software from the 4 Macs running in my home. I would love to see Ballmer have to admit the Zune is a failure and kill the project.

I totally agree with this comment, If I chose not to own an iTouch, I would buy a creative labs Zen over a Zune.