Apple's upcoming $7 billion Christmas

Yesterday, I noted that Microsoft's agreement with Universal was really a way to tax Apple's massive iPod sales this holiday quarter. But I was a bit coy on the details of what I think that quarter is going to look like. Today, I thought I'd flesh out those details.

The top line: I predict Apple's sales this quarter will break $7 billion. That total will break down as follows:

Category	Units (in thousands)	Revenue (in millions)
Desktops	700	$976
Portables	1,200	$1,637
iPods	20,000	$3,300
Other (Software/iTunes/Periphs)	N/A	$1,102
Total	N/A	$7,015

The eye-catching number, of course, is the number of iPods: 20 million, worth roughly about $3.3 billion in revenue. Why those numbers? Because:

• Apple shipped 14 million last Q4. The last holiday season, Apple shipped more than double the number of iPods it has shipped the calendar third quarter of 2005. Similarly, my estimate here is slightly more than double the nearly 9 million Apple shipped in Q3 2006.


• iPod pricing now addresses more market segments. Last Christmas, the cheapest iPods were the newly released iPod shuffles, at price points of $99 and $129 for 120 and 250 song capacities. The hot product was the nano, but that started at $199 and traditional iPods started at $299. This year, iPod shuffles are available for $79, nanos for $149, and iPod videos for $249. Moving the price points down addresses a consumer segment who previously had considered iPods out of reach -- and it boosts demand among the existing customer segments. Yes, these lower prices decrease the average selling price, and that's reflected in our modest estimate of $3.3 billion in iPod revenue. But Apple will make up for those lower prices in higher sales volumes.


• Consumers now have more reasons to choose the market leader. Last year, the iPod was still all about music, with a little TV thrown in. This year, iPods address consumer interests from downloadable movies to jogging enthusiasts, all while not compromising the primary music function. And with thousands of iPod accessories and car integration kits available, Apple has moved to selling complete music solutions to fit a wider variety of needs.


• Apple retail stores will drive iPod demand. With more than 150 stores open, Apple has made it easy for people to buy iPods. And high-end environments such as New York's Fifth Avenue store, Tokyo's Ginza store, and London's Regent Street store now provide high-end consumers with a fashionable shopping experience unmatched by your local Best Buy. Retail is driven by proximity to consumers with money to spend, and Apple has positioned its stores and its iPods close to the majority of people for whom an iPod costs less than their average lunch.

Yes, the iPod is a mature product, and I'm sure we'll see new refreshes of both the product and the consumer experience next year. But mature products are the ones that make big dollars. Apple is well on its way to reaping the profits from five years of investments in music and retail. And because few other companies have invested as much for as long, it will also take years for anyone to dislodge it from its now dominant position.

I'll talk more about other aspects of my projection such as projected earnings next week. Meanwhile, I hope people with different or better data will share their insights in the comments. But from where I sit, Apple's iPod juggernaut is just looking better and harder to beat.

Full disclosure: I own some Apple stock.

Technorati Tags: Apple, Finance, Financial analysis, iPod, iTunes, Marketing, Opinion, Projections, Stocks, Stores, Zune