Apple to conduct 'Let's Rock' event - new iPods and iTunes anticipated - price cut analysis

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By: switchtoamac at: 12:16 PM on September 9, 2008 | Comments (0)

If you haven't heard by now, Apple will be holding their "Let's Rock" media event today which kicks off at 10 a.m. Pacific (1 p.m. Eastern).  For the past several years, Apple has held media events in early September to unveil new iPods and iTunes versions to prepare customers for the end-of-year shopping season.  This year, we also expect significant price cuts across the iPod lineup.

iPod price cuts?
We believe that Apple will announce an a complete revamp of the iPod pricing structure.  Our analysis leads us to an expectation of at least a 10 percent price reduction across the iPod line.  We expect that the iPod touch will see a larger reduction (perhaps as high as 33 percent) to prevent the iPhone from eating into iPod touch sales.  If this occurs, you can expect to see the entry level iPod touch fall to between $229 to $199 from the current $299 price.

A key metric for Apple in the eyes of investors is iPod unit growth.  During fiscal year 2007, iPod unit sales increased 31% compared to 2006.  During fiscal year 2006, iPod unit sales increased 75% compared to 2005.  Apple will need to transition the pricing structure to keep year-over-year iPod unit growth strong and we believe that the only way to do this is to include new features while simultaneously reducing prices.  This will drive down margins moving forward but we feel that the move is necessary for Apple to maintain their market share lead.  Such action will serve as a strategic move ahead of the holiday season.

Prior iPod updates in September
September 5, 2007
September 12, 2006
September 7, 2005

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