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February 20, 2008, 12:42 pm

Analysts: Effect of iPod shuffle price cut is a wash

picture-80.pngMore iPods will leave the store at a lower average sales price, for no net gain.

That, in a nutshell, are the conclusions of Piper Jaffray’s Gene Munster and American Technology Research’s Shaw Wu today as they assess the reshuffling of Apple’s (AAPL) entry-level iPod line on Tuesday, when the company cut the price of the 1GB iPod shuffle from $79 to $49 and introduced a new $69 2GB shuffle. See here.

Munster notes that that $79 price point was remarkably durable, having held for more than 500 days. That’s pretty impressive, considering that after the shuffle first appeared three years ago at $149, its price dropped every five to eight months. He now expectsipod-chart.png the average selling price of a shuffle to fall from $67 to $55 while iPod unit sales increase 15% — neutralizing the effect of the price cut. He’s standing pat with his estimate of 11.3 million iPods sold in the March quarter.

Wu points out the obvious: that if Apple had cut its shuffle prices before Christmas, not after, it might not have missed its consensus sales numbers by 2 or 3 million iPods. But he’s a great believer in price elasticity, and he expects the new entry point will bring in new customers to the tune of 500,000 to 1 million extra units per quarter. “However,” he concludes, “we are not changing our estimates as our iPod unit assumptions were arguably aggressive prior to this price cut and we frankly remain concerned with US consumer spending trends.”

One thing on which Munster and Wu don’t agree is where Apple’s share prices are headed. Munster, always bullish, is sticking to the $250 target he’s maintained since last October. By contrast, Wu in late January dropped his 6-12 month target from $210 to $175, and he’s sticking with that.

Well said Joanne. Don’t listen to negative comments. That’s why the markets are where they are right now, because people are guided by negative comments and pessimistic opinions. Start thinking positively and things will change.

Posted By Gaston, Netherlands : February 29, 2008 7:40 am

I’ve got an old, first gen shuffle that still works marvelously. I’ve also got a shiny little green shuffle. I love my first gen just because I can plug it directly into my USB port to recharge, instead of having to hassle with a dock. The reason I’ve got a shuffle is that I don’t want/need hundreds of songs. I put about 50 on, and change them every few days. One GB is more than enough for me.

Posted By Joanne, Edmonton Alberta : February 26, 2008 6:01 pm

Dont pay attention to the negativity. Buy apple everything!! Even the stock is a bargain. Mac Book Pro almost does the dishes. The track pad is going to outsell the mouse in an inertial-velocity bromodrosis “super” track pad. Buy now sometimes they upgrade for free like others have said. Trust an “Apple” a day. It’s magic and makes people happy gift!! People will like you for buy them a genuine Apple product

Posted By Alex, Boca Raton, FL : February 26, 2008 12:08 pm

I received a shuffle as a gift. within 30 days of getting it the charging base broke. I took it to an apple store not knowing I had to make an appointment, they tried many times to send me away, not because they where helping other people (i went to the people standing around talking even though there where customers in the store), after showing them the problem they took my item back. came back about 15 mins later and said this is not our fault so we cannot do anything for you, if you would like to buy a new base its $30. thats half the price of a new one. the product was still under warrenty but they wanted me to prove to them that it was a product defect, I told them the only way to do that was take it appart. they said that would invalidate the warrenty. take it appart they wont replace it, only way to prove it was not my fault is to take it apart. whats up with that. they offered nothing except a copy of their warrenty to prove that they didnt have to do anything. i read the warrenty and was amazed they anybody would buy a product where even the manufacture doesnt believe in it. if you buy a product made by apple read your warrenty… of course by the time you read it you are already out of luck. Once people start realizing what junk apple makes they are going to drop.

Posted By X : February 25, 2008 2:05 am

dude i am sick of you bashing apple. You have no idea what you are talking about. they reduced cost to push more product so they can bash estimates and get stock price back retard.

Posted By dave ny : February 24, 2008 9:22 pm

Analysts with regard to Apple don’t have a clue. I totally agree with Nodack in Arizona. I am surprised that the analysts can’t see the all too obvious successes of Apple whether reading the growing number of happy Apple customers on blogs, visiting busy Apple retail stores, seeing Apple products everywhere, and reading the financial reports. Apple’s growth will be incredible. I suggest you buy Apple stock during this business cycle which has brought down the entire market. This is the opportunity of a lifetime!

Posted By Ron Estrada, Greensboro, Georgia : February 21, 2008 7:48 pm

I’ve had the same shuffle since they came out 3 years ago, and as mentioned by another user, I have washed, dropped, banged it into gym equipment will little ill effect. I recently thought of getting the newer smaller version because of the clip on the back and smaller size, but backed off because of the price (1gb for $80 didn’t seem like a great deal) but I’d take a 2gb for $70.

Posted By Aaron, West Branch, MI : February 21, 2008 4:37 pm

Nobody mentioned the long lines at the Apple Store to get things fixed because there is no such thing. You said it yourself that they make you make an appointment. You break the G key on your laptop. You make an appointment for noon so you show up a little early and qalk around the store. They call your name at noon and you walk up to the counter. The guy or gal takes your laptop into the back and returns a few minutes later with your laptop fixed. You ask the guy how much and he says “nothing”. If it is something major that they can’t fix there and it is still under warranty they will send it away to be fixed and most likely give you a loaner. If your warranty is past and your hard drive fails then you are out of luck with any company on the planet Earth. Apple gave you 10% off a new one after your warranty expired? Show me any other company that will do that. You could have bought a MS Zune and then you wouldn’t have to worry about making an appointment at their store because they don’t have one you can physically go to.

Posted By Nodack Phoenix AZ : February 21, 2008 1:48 pm

Personally I think its really smart that Apple waited until after the Christmas season to launch the new shuffle. During the Christmas buying season most people will buy regardless. Besides, news regarding the state of the economy only started to build up after most of the Christmas buying was done. The new shuffles should help to keep consumers buying in an uncertain economy and in a quarter that traditionally is not a typical consumer buying one.

Posted By JT, Singapore : February 21, 2008 8:10 am

funny how no one mentions the long lines at the apple customer service to fix broken gear. you have to make an appointment to get anything fixed. they also don’t repair their own products… ie hard drives on ipods…atleast let me pay to get it fixed..nope. they don’t even work on them. they give you 10% off a new one ..in exchange for your $300 paper weight..not even an apology.

Posted By formerly frustrated, in orange county : February 21, 2008 2:13 am

$49 is an easy way to push excess inventory out the door. 2GB @ $69 is the $79 and 1GB iPod Shuffle will be phased out by/in March.

Posted By innerdaemon : February 20, 2008 2:47 pm

Let us no forget the pull to Mac desktop and laptops that the new iPod purchasers will experience. Stopped at our Apple Store this past week and counted well over 100 shoppers experiencing the greatness of Apple products. Young and old and everywhere in between were happily buying–it looked a lot like the Christmas season crush! Another great quarter is on the way so now is the time to buy more Apple stock and get set to reap your rewards in April!

Posted By George Jacob, Holland, Michigan : February 20, 2008 2:08 pm

It is possible that Apple will drop the 1GB shuffle after they have sold their stock in a couple of weeks or months. So that leaves the 2GB shuffle at $69, only 10 dollars less than it was. With lower flash memory costs it is possible that Apple still makes about the same margin. They will add new customers to the Apple family, and that’s exactly what they want. Because most of those customers will like the Apple environment and will upgrade or buy other Apple stuff. Apple is so good at marketing these days…

Posted By Hugo van der Vlist, Ommeren, Netherlands : February 20, 2008 1:56 pm

Analysts = Someone paid to guess.

The two professional analysts differed wildly in their predictions for Apple. How is that so? Because nobody on this planet can accurately predict the future. They can guess all day, but in my experience you are better off picking the opposite of the experts.

I use common sense when it comes to stocks. The economy in my experience has a big effect on stock prices and right now all stocks are taking a hit with fears of reccesion. I have been reading several articles written by “analysts” predicting doom for Apple just as I have been for over 20 years now. How many of those analysts predicted Apple’s success a few years ago? Try 0%. It’s easier to wait until you see a trend and then jump on the band wagon as most do.

Bottom line is Apple has been on a serious roll coinciding with the return of Steve Jobs. The stock had reflected that butt kicking until the recession fears of late that has struck all stocks for the most part across the board. I do my own analyzing and right now Apple is at the top of the food chain in regards to making cutting edge hardware and software. They just posted a record quarter that was 56% higher than the year before that was a record. In other words, Apple isn’t going anywhere regardless of the economy and they are still selling boatloads of product and they have boatloads of cash in the bank to weather any storm. The stock market can freak out for awhile and analyst can write articles about missing iPhones, price cut meanings and little kids writing iPhone code in their bedrooms all they want but IMHO it has no bearing whatsoever on Apple’s future success. If they ever lose their job maybe they can go around chasing celebs trying to get upskirt pictures. It seems like it would be the job most similar to their previous one. :)

Posted By Nodack Phoenix AZ : February 20, 2008 1:45 pm

Personally I think this will result in more people buying a shuffle as a SECOND iPod. Because your main iPod is pretty cool, but an iPod shuffle is really handy for exercise and jogging and other activities where you don’t want to have to look at a screen.

And speaking of a wash, my iPod shuffle survived the laundry last year, earbuds and all. I still use it with no problems.

Posted By Kev Orng, Waterloo, Ontario, Canada : February 20, 2008 1:38 pm

Why does this author not mention the indirect boost to Apple’s revenues by way of increased sales on iTunes? Doesn’t almost every new iPod customer (i.e., not someone who already owns a video iPod, etc.) make purchases on iTunes?

Posted By Ira (Roseland, NJ) : February 20, 2008 1:09 pm

I wonder how many shuffle buyers go on to upgrade to more expensive iPod models

Posted By Rob, NY : February 20, 2008 1:04 pm

Tell them to put the money where their mouths are and start buying and stop talking. Their price targets are at 250 and 175. You think we have room to grow. Talk is cheap Shaw and Gene. It’s time you put out your wallets on Apple!

Posted By brian, tn : February 20, 2008 1:01 pm
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Philip Elmer-DeWittSilicon Valley veterans like to joke that Steve Jobs must be surrounded by a reality distortion field; if you get too close to him, you start to believe what he's saying. Thanks to the success of the iPod, the launch of the iPhone and the renewed interest in the Mac, Apple has made believers out of millions of customers - and made a lot of investors rich. But Philip Elmer-DeWitt believes that an ounce of skepticism never hurts when writing about the company. He should know. He's been covering Apple - and watching Steve Jobs operate - since 1982, first for Time Magazine, then for Business 2.0, and now for Fortune.
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