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WSJ: Out of Tune: iPod Shortage Rocks Apple

http://online.wsj.com/article_print/0,,SB110314977967901339,00.html

Holiday shoppers hunting down an iPod better be patient.

Shortages of the hot portable music player from Apple Computer Inc. are common at major retailers across the country. Many of the most-popular models -- including some of the colorful, diminutive iPod minis and the 20-gigabyte white iPod -- are out of stock through Amazon.com Inc., Buy.comInc. and other Web sites.

Target Corp. stores in Chicago and the San Francisco Bay Area say they are out of many iPods, as does J&R Electronics Inc. , a big electronics store in New York. Best Buy Co. is out of most iPods on its Web site, although a company spokesman says the vast majority of its stores "have at least one" iPod in stock.

"Given how strong demand has been all year you would have thought [Apple] would have gotten every last one they could into stores," says Stephen Baker, director of industry analysis at market-research firm NPD Group. "I suspect they have. It may just be they can't build them fast enough."

Apple is contending with what appears to be immense demand for the gadget. The iPod line currently represents about a quarter of Apple's sales -- and the holiday season seems to be exceeding even the bullish expectations of many retailers and analysts. Gift hunters can still find iPods in a number of locations on- and offline -- most notably at Apple's own stores and its Web site -- but maybe not the exact model they are seeking.

"It's right up there with the most highly demanded products I've seen, and I've been in this business since '87," says David Weisman, senior director of home merchandising at Crutchfield Corp. of Charlottesville, Va., an electronics retailer with a Web site and stores in Virginia.

David Samuel, a high-tech entrepreneur, couldn't find a green iPod mini at a Best Buy store in California's Marin County last weekend. So he drove to a retail store operated by Apple at a nearby mall, where he found one. "It was an inconvenience," says Mr. Samuel, who was defeated in his goal to buy all his electronics gadgets at one store.

Apple, which has at least one contract manufacturer in Asia assemble the iPods, says it is working to remedy the shortfall. "To try to meet the high demand, we're making and shipping iPods as fast as we can," Apple said in a statement. "So, if one store has run out, you may find iPods in another authorized iPod reseller."

Or elsewhere. The spotty availability of the iPod has created a booming aftermarket for the devices on eBay Inc.'s auction site, where a pink iPod mini earlier this week fetched $380, or more than $130 above the music player's suggested retail price. In April eBay created an iPod category on its site in response to active trading of the gadgets among its users. In its first month, there were 3,000 iPod-related listings, according to an eBay spokesman. Now there are about 18,000 listings in the category.

Such iPod-mania suggests that Apple's manufacturing and distribution system hasn't kept pace with the company's larger-than-life marketing efforts for the device. The iPod has achieved near-cult status among its fans because of its elegant design, ease of use and cozy integration with the iTunes Music Store, from which Apple sells digital, downloadable copies of songs for 99 cents each. Apple now offers a broad spectrum of the devices, all of which can store thousands of songs, ranging from the $249 iPod mini to the $599 iPod photo, which also displays an owner's photos on its color screen.

The iPod line is now a crucial piece of Apple's business, accounting for 23% of Apple's $2.35 billion in revenue in its most recent quarter. Since it began offering them in October 2001, Apple has sold over 5.7 million iPods, more than a third of them in the company's latest reported quarter. In the holiday quarter alone, some analysts expect Apple to sell more than four million units.

Consumers have adopted the iPod faster than they did Sony Corp.'s Walkman in its early days, about six million of which sold in the Sony device's sixth year on the market, estimates Piper & Jaffray Co. analyst Gene Munster.

Apple, in contrast, has sold approximately the same number of iPods in about half the time. More than five million iPods, in contrast, were sold by its third year on the market, though the Apple product is still dwarfed by the 300 million Walkmans sold during that product's 20-year history.

Surprising to many analysts is the fact that the iPod is increasing its market share every month, even as it faces an onslaught of lower-priced and improved devices from rivals including D&M Holdings Inc.'s Rio, Dell Inc. and others. Apple's share of the market for digital-music players that store songs on hard disks rose to 92.7% in October, from 81% during the same month last year, according to NPD Group.

The iPod is a key attraction for Apple's chain of 100 retail stores, which are an increasingly important part of its business. The current broad availability of the iPod at Apple Stores hasn't gone unnoticed by some of the company's retail partners, who seem stuck with more limited supplies of the devices during the holidays. "There's no question in my mind they give priority to Apple Stores and Apple.com -- I don't want to go as far as to say 'hoarding,' " says Mr. Weisman of Crutchfield.

He says competing with electronics manufacturers in the retail business is a "new experience," though Crutchfield is also increasingly competing with other companies like Sony. An Apple spokeswoman declined to comment.