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Apple Sets Pace in Consumer Electronics

Posted by inet - 2005-12-18

SAN JOSE, Calif. - Five years ago, Apple Computer Inc. was barely an afterthought in the halls of electronics companies. Not anymore.
With its best-selling iPods and landmark licensing deals with music and television moguls propelling new ways of consuming digital media, Apple now is the pacesetter.

"In the consumer electronics world, there's always talk now about Apple, the way people used to talk about Sony," said analyst Richard Doherty of The Envisioneering Group. "At the water cooler or in boardrooms, they're asking, 'What is Apple doing next?' or 'How do we stay out of their way?'"

If anything, the company's momentum accelerated in 2005. It gave us the iPod shuffle, the Mac mini, the nano, the video-playing iPod, a new iMac with a remote control and TV shows for sale on its iTunes online store.

Steve Jobs, Apple's rainmaker, was even parodied in a "Saturday Night Live" sketch, evidence of how the Cupertino-based outfit is ingrained in pop culture like no other tech company.

In the skit, an actor impersonating the chief executive (sporting black turtleneck and jeans, of course) introduces three iPods within minutes of each other. Each device makes its predecessor obsolete — from the iPod Micro to the iPod Pequeno, and finally the iPod Invisa, which though invisible can still hold 8 million songs and every picture ever taken.

Apple is characteristically mum on the products it has in store for 2006, but analysts and observers say there's no question rain is on its way. The only debate is on how strong a downpour.

Different varieties of the iPod are reported in the works by sites run by Apple afficionados. Perhaps an iPhone, or an iPod-cell phone hybrid.

There is considerable speculation that iPods will get wireless Internet connectivity. Analysts also expect a bigger display at some point for better video viewing.

As Apple works to make its computers digital multimedia hubs, the book-sized Mac mini introduced in early 2005 is predicted to get features that will make it fit more comfortably in a living room. Add an iPod dock or a TV tuner, for instance, and it could serve as a home's music hub and a TiVo-like digital video recorder.

The slimmer iMac that Apple introduced in the fall — complete with a remote control and "Front Row" software that lets users access their music, photos and video from across the room — suggests Apple is readying to step deeper into the media center arena.

Home media servers, computers designed to control digital music, video and TV consumption, are starting to pick up in sales, with about 5 million shipped worldwide in 2005, according to IDC analyst David Daoud.

The nascent market is dominated by a variety of machines that run Microsoft Corp.'s Windows Media Center Edition operating system. But there's little consumer excitement, certainly not matching the thrill that followed the debut of Apple's original iPod in 2001. Apple sold 22.5 million iPods in the 2005 fiscal year that ended in September, bringing cumulative iPod sales to more than 28 million.

The Web site ThinkSecret.com, which has correctly revealed some of Apple's previous products before launch — to the ire of Apple and its lawyers — reports from unnamed sources that Apple will unveil in January an upgrade of "Front Row," allowing users to stream content purchased from the Internet without storing it on a computer hard disk. If true, it could mark yet another Apple coup in digital content delivery mode.

Apple's recent breakthrough offer of selling television shows on iTunes for viewing on computers or its newest iPods is already expected to spur online distribution of video.

Many expect Apple to sign more deals with TV networks in 2006, expanding its video portfolio much as it did with music and thereby swelling its coffers.

Eddy Cue, Apple's vice president of applications, wouldn't discuss future products but explained Apple's modus operandi.

"The key thing is we could bring three things to the table all at once — the hardware, the software and the service," he said. "And we integrate those so it's an easy, compelling experience for consumers."

Few other companies are similarly equipped.

Those that are, such as Sony Corp., have failed to make a dent in Apple's crushing dominance in the portable player and online music markets.

The streak of innovative products in 2005 sent Apple soaring to an all-time high of nearly $14 billion in revenue, more than double what it had two fiscal years ago. Its stock was also on a tear in 2005, and now trades at more than double the 52-week low of $30.80 on Dec. 21, 2004.

Apple's planned move to use microprocessors from Intel Corp. — the world's largest chipmaker and Microsoft's entrenched partner — is also adding fuel to upside reports on Wall Street.

Sales of computers, still Apple's biggest revenue generator, could get a boost if Apple scales down prices with the help of lower-priced Intel chips.

Citing the possibility Apple might introduce an Intel-based laptop as early as January, Citigroup analyst Richard Gardner recently raised his Apple PC unit shipment estimates from 5.1 million to 5.5 million for the 2006 fiscal year. He was also bullish on expected sales of the video-playing iPod, estimating Apple's revenues would be up 46 percent from fiscal 2005.

Apple has also recently made market share inroads in the United States, according to IDC. After years of hovering between a 2.5 and 3.7 percent share of the U.S. PC market, the company finally cracked 4 percent in the first half of 2005, Daoud said.

Apple's market share of PC shipments was 4.4 percent in the third quarter, an increase of 43 percent from the year ago period, while the overall PC market expanded by only 2 percent, he said.

As many as 1 million of the 4.5 million computers Apple shipped in fiscal 2005 were from Windows users switching platforms — a sign of a "halo effect" from iPod sales and Apple's growing retail presence, said Needham & Co. analyst Charlie Wolf.

The iPod's continued success notwithstanding, Wolf thinks the strength of Apple's performance in 2006 "will depend on how well they convert Windows users to the Mac."

Indeed, all eyes are on Apple.

"Apple is moving faster than ever and we expect them to move at an even faster pace next year," Doherty said.

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