Our take...
Contrary to the usual seasonal decline in devices shipped in second calendar quarter, iPod shipments were up 3.4 percent on previous quarter. Apple indicated that sales were dominated by Touch and Shuffle models and highlighted the price sensitivity of consumer demand for its portable media players. Specifically the company explained that the counter-seasonal number of iPod shipments was due to the slashing of the iPod Shuffle price in February 2008: the price for the 1GB model was lowered from $79 to $49 in the US; prices in other territories were cut as well.

This suggests that in many respects iPod users are polarising towards low-cost commodity MP3 players on one end (the Shuffle lacks a screen) and large-screen video-capable devices on the other. This polarisation is reflected in the changes to the iPod's average selling price (ASP) over the past few quarters. In Q2 2008 the ASP was $152, down 5 per cent on the previous quarter as a result of the Shuffle price cuts. However, ASP experienced a spike in late 2007 – early 2008 due to iPod Touch release.

Consumer migration from mid-tier iPod products has direct consequences for online content markets. Currently Apple dominates online movie and download-to-own TV markets worldwide, which is an outcome of a device-based strategy. Apple created a successful ecosystem between the iTunes Store (iTS) and its hardware products, which has been shown to encourage buying content. Consequently the polarisation means that the addressable markets for online music and online video (TV and movies) are developing at different rates and while both continue to expand, the addressable market for online video remains appreciably smaller. However the popularity of the iPod Touch, at the expense of its smaller screened cousins, means that a growing percentage of the iPod user base will be equipped with a device that is optimised for video.

In fact, Apple's 'other music revenues', amounting to $819m, have defied the usual pattern by exceeding revenues of the preceding fourth calendar quarter. Screen Digest believes much of this is attributable to the growth of iTS video downloads (included in 'other music revenues'), which followed the introduction of newly released movies to iTS on 1 May 2008. The company traditionally sees a significant spike in usage soon after the launch of new services in the iTS.

Portables continued to dominate the sales of Mac products (1.5m out of 2.5m units shipped this quarter were portables). Screen Digest predicts that portable computers will make up 60 percent of US PC sales by 2010. However, Mac desktop sales this quarter have grown at a faster pace of 49 percent as opposed to portables' 37 percent year-on-year, which is attributable to the release of a new version of iMac in April 2008.

Apple also disclosed that over the past year Mac has grown its share of overall US PC shipments from 15.4 to 19.5 per cent. As Screen Digest asserted before, Mac and iPod sales benefit from the "halo" effect, which contributes to out-of-season growth in shipments of both these product categories.