Apple’s (NASDAQ:AAPL) iPod and Microsoft’s (NASDAQ:MSFT) Zune are two of the most well-known portable media players. We believe that the global portable media player market will continue to decline as a result of cannibalization from mobile phones and that the impact of this decline on the stocks of Apple and Microsoft is small.
40% Decline in Portable Media Player Market
We forecast that global portable media markets will decline by 40% from 180 million units in 2009 to 108 million units by the end of Trefis forecast period.
Although we expect that Apple’s iPod market share will increase from 29% in 2009 to 32% over this period, the decline in the overall market implies that iPod unit sales will decline from about 52 million units in 2009 to about 35 million by the end of our forecast period.
Mobile Phones Cannibalizing Portable Media Players
Mobile phones are increasingly incorporating the features found in media players and the demand for mobile phones is much higher than that of media players. This could mean that the media player market could decline even faster than we forecast as many mobile phone buyers replace their phones every few years.
We expect global sales of mobile phones to increase from 1.24 billion units in 2009 to 1.83 billion by the end of Trefis forecast period, implying a yearly growth rate of around 6%. This means that demand for mobile phones in 2009 was 7x greater than demand for portable media players and that this ratio will increase to 17x based on our forecasts.
8 Smartphones for Every Portable Media Player
We expect even faster growth within the smartphone segment of the overall mobile phone market. We forecast smartphone unit sales will grow from 187 million in 2009 to 787 million by the end of Trefis forecast period, implying a yearly growth of around 18%. This means that the number of smartphones sold in 2009 was comparable to the number of media players sold but that this will change over our forecast period as smartphone sales outnumber media player sales 8 to 1.
New Windows Phone 7 Smartphones to Cannibalize Zune
Microsoft recently introduced the Windows Phone 7 mobile operating system and Windows Phone 7 based smartphones are slated to be made available to consumers on during the 2010 holiday season. The new Windows mobile operating system incorporates the features found on Microsoft’s Zune portable media player. Just as the iPhone siphoned off some demand for Apple’s iPods, we expect Windows Mobile 7 based phones to do the same for Microsoft’s Zune.
iPod 3% of Apple’s Stock and Zune Less than 3% of Microsoft’s Stock
Due to the diminishing portable media player market, we estimate that the iPod constitutes about 3% of Apple’s stock and that Zune constitutes less than 3% of Microsoft’s stock. The portable media player market could decline even faster than we forecast and be nearly eliminated if prices on smartphones like the iPhone and upcoming Windows Mobile 7 based phones decline significantly.
You can modify our forecasts for the portable media player market below to see how Apple’s stock could be impacted if the market declines even more than we forecast. You can also modify the same forecast to see its impact on Microsoft here.
For additional analysis and forecasts, here is our complete model for Apple’s stock and our complete model for Microsoft’s stock.
