Apple's iPod Season Looms

There has been little activity out of Cupertino on the iPod front recently. But hints of new products are in the air

The waning of August has kids getting ready to go back to school—and Apple Computer watchers wondering when Steve Jobs is going to pull the next iteration of the iPod music and video player out of his turtleneck.

The company certainly had iPod-related news this week, though not the kind many consumers were looking for. On Aug. 23, Apple (AAPL) and Singapore-based Creative Technology (CREAF) settled a wide-ranging patent dispute, putting an end to five different lawsuits between them. Apple agreed to pay Creative $100 million for a license to use patented technology relating to how song menus are displayed on an MP3 player (see, 5/17/06, "Creative Technology Takes on Apple"). Meanwhile, Creative, which has been lagging badly in the MP3 market, will introduce iPod-compatible accessories.

While some analysts may be glad to see Apple move beyond the legal rift with Creative, the wait for the next iPod continues. The most recent addition to the family came in June, and that was just a revision of the old U2-Special Edition iPod. But there are intriguing hints that Apple's plans will ripen in the fall.


  First, there were the comments on Aug. 9 by Lions Gate Films (LGF) CEO Jon Feltheimer and the company’s president, Steve Beeks, concerning a movie download deal with Apple's iTunes unit. Feltheimer said Lions Gate has "delivery deals in place" with several digital media companies, including iTunes. Beeks went on to say that "We know when they are planning on launching," and that it would be announced before the end of 2006.

Other hints have come from Apple itself. During an earnings conference call on July 19, CFO Peter Oppenheimer suggested that the long-rumored iPod-phone is on the way. Asked about the inroads by many mobile-phone manufacturers with handsets that play music, he said, "We don't think the phones that are available today make the best music players. We think the iPod is. But over time that's likely to change, and we aren't sitting around doing nothing."

"I just about fell out of my chair when I heard him say that," says analyst Charles Wolf of Needham & Co. in New York. "I think it's conceivable that we might see an iPhone by the time of Macworld in January."


  While things appear quiet in Cupertino, other companies in the MP3-player space are firing what salvos they have to get whatever leverage they can against the market's domineering leader.

SanDisk (SNDK) has successfully leveraged its own ability to manufacture the flash memory chips used in MP3 players to climb into the No. 2 position in the U.S. market, and on Aug. 21, the company doubled the capacity of its Sansa line of players to 8 GB, with the top player priced at $250 (see, 5/8/06,"Will SanDisk Sour Apple's Tune?"). That gives it an advantage over Apple's 4-GB iPod nano, which sells for $249 with only half the capacity. Meanwhile Creative earlier this month launched a new entrant to its Zen line of players, this one dubbed the Neeon 2. Microsoft (MSFT) also has its Zune player due for release later this year.

Others are finding the waters too cold. On Aug. 23, Dell (DELL) officially killed off the last of its MP3 player line, the oddly-named $99 DJ Ditty, the Associated Press reported. Before that, Reigncom, the South Korean company behind the iRiver brand of players, said it was refocusing its emphasis away from music players and more toward handheld gaming.


  It isn't as if Apple has been idle. The company focused throughout most of 2006 on its Macintosh computer line, completing the transition to using microprocessors from Intel (INTC) and phasing out chips from IBM (IBM). That transition was completed with the introduction of the Mac Pro on Aug. 7, which leaves the marketing ground clear for a preholiday ramp of iPods sometime in the fall.

And then there's history. Last year, the iPod nano debuted on Sept. 7 and the video-capable iPod bowed on Oct. 12, a schedule that made both products strong players in the fourth calendar quarter—Apple sold a combined 14 million units in the quarter ended December 31, 2005. In fact the release schedule was so fast that CEO Steve Jobs was lampooned on Saturday Night Live, announcing one iPod after another over the course of two minutes, each replacing the "obsolete" one before it.

Analysts generally agree: There's no way Apple is going to sit out the fall quarter. "Don't confuse silence with having nothing to say," says analyst Michael Gartenberg at Jupiter Research. "That has never been the case with Apple."


  Needham's Wolf says he expects new iPod nanos to match the new SanDisk player at 8 GB and thinks we may also see a more video-centric portable player. Chris Crotty of market research firm iSuppli says he expects something like that as well. "My opinion is that by the end of the third quarter we will see a new flash-memory-based player with a bigger and better display than the nano," he says. "Then we'll see a hard-drive-based player with a landscape-oriented full-screen display."

New players might also be accompanied by something new on the home front. Apple has long been rumored to be working on a living-room product, something more elaborate than the iPod hi-fi speaker system announced in February. Gartner analyst Mike McGuire says this could see the light of day in time for the holiday season. "There have been rumors about a home stereo replacement, something that may carry the iPod brand name or might not," he says. "I tend not to believe they haven't been hard at work on something new."

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