IPod Explosion Puts PC Makers on Alert

Having gotten the expected surge of interest with the launch of the lower-cost Mac mini at Macworld, Apple has since been the subject of gossip, criticism and critical comments from PC industry leaders in recent days.

In a widely publicized interview with tech industry publication silicon.com, Dell CEO Kevin Rollins responded to recent pro-Apple buzz with great skepticism, characterizing the iPod as a "fad."

"I believe that 'one product wonders' come and go," said Rollins, who compared the current iPod rage to the Sony (NYSE: SNE) Walkman boom of the early '80s. "You have to have sustainable business models, sustainable strategy."

Stiff Competition

Taken in context, however, Rollins' comments may be a bit disingenuous. His dig at the iPod may in fact be predictable, given that Dell has its eyes on the same market. Dell's "Digital Jukebox" competes directly with the standard iPod, offering similar product specs and a comparable price.

Consumer electronics manufacturers of all stripes are eyeing the iPod's rise hungrily. MP3 player manufacturer Creative Technology Ltd. says global sales of portable digital music players are expected to rise 40 percent this year. The company projects that key MP3 competitors including itself, Apple and Samsung will collectively sell 35 million MP3 players this year, according to Reuters.

Apple continues to fight for leadership in the MP3 player market, most recently with the iPod Shuffle, a flash-memory MP3 player which starts at US$99 for a model 512 MB of RAM.

Despite determined competition, iPod sales growth continues to outpace Apple's powerful competitors. Apple shipped 4.58 million iPods during its first fiscal quarter of 2005, which ended in December 2004. This represents a striking 525 percent increase in iPod sales over the same quarter last year.

Threat to PC Makers?

While Dell's Rollins spoke out decisively on the subject of the iPod, he didn't bother to address the launch of the Mac mini, an ultra-compact desktop coming in at a PC-comparable $499 retail.

The mini, which comes loaded with Apple's digital lifestyle application suite iLife, comes with either a 1.25 GHz or 1.42 Ghz PowerPC G2 processor, ATI (Nasdaq: ATYT) Radeon 9200 graphics with 32 MB of dedicated DDR memory and an 80 GB hard drive for storing digital media.

Dell's failure to attack the Mac mini may come, in part, because few inside or outside Dell expect the mini to make meaningful inroads in the PC market. After all, as of third-quarter 2004, Dell owned 18 percent of the PC marketplace, while Apple controlled less than 2 percent, notes Loren Loverde, director of PC research with technology research giant IDC.

Limited Effects

"There's a good potential for the mini to move Apple sales, but it's not going to boost Apple's [PC] market share to five or ten percent," Loverde says.

Analysts do expect the lower-cost mini to pull some fence-sitting users into the Apple camp, particularly those who are diving into the digital lifestyle in earnest for the first time. "In some ways, it's the same old story," says Ross Rubin, director of industry analysis for NPD Techworld. "The Mac is attractive gift-wrapping for Apple's software. So now Apple is offering it in a convenient trial-size."

But over time, the iPod/Mac mini one-two punch may be a more powerful consumer lure than PC giants like Dell and HP/Compaq expect, says Ben Sawyer, a digital media analyst with New York, NY-based research firm K-Town Group. "Because consumers are going digital through the iPod, they're thinking that maybe the Apple is better for them," Sawyer says. "The iPod is making people more curious about the Mac. And then they're more likely to buy."