What is It? Apple’s Dying Product Line Has Sales Bigger Than All of Facebook

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The generation that made Apple ( AAPL ) iPods famous moved on to other gadgets, and sales dropped hard as its core market moved from 20-something trendsetters to children deemed too young for iPhones. In many ways, it looks like a dying business. But what a brilliant way to go.

The iPod obliterated its competition years ago, and no other MP3 maker has yet come close to cracking its market share. Apple sold some $6.12 billion worth of iPods in the past 12 months, which puts it revenue-wise in the realm of PetSmart ( PETM ) and significantly above Facebook ( FB ). iPods were about 3% of Apple's overall revenues last quarter.

AAPL Revenue data by YCharts

The market itself for MP3 is disintegrating quickly as smartphones and tablets replace them for portable music and videos. Apple's net annual sales from iPod are down about 33% since 2008. They're down about 24% in the first nine months of the current fiscal year compared to the last.

Apple, however, is using this loss to its advantage. Many, many people who walked away from iPods simply picked up those other Apple products, iPhones (market share of about 43%) and iPads (market share of about 68%) These are the products that bring in the massive profit margins that make Apple shares soar. Apple iPhones sell for profit margins of about 58%, and iPads go at about 32% margins according to court documents filed in a patent case. The wide margins yield an enviable stock chart .

AAPL data by YCharts

Meanwhile, it's not likely that Apple's losing any money from its iPod division. (The company breaks out only sales for this unit.) In late 2010, market research company HIS iSuppli estimated Apple spent about $45 to make an 8G iPod Nano, which then sold for $149. That's a profit margin of about 70%. The price has dropped 13% to $129 since then, and there are other iPod models no one has bothered to deconstruct lately. But it's probably safe to say Apple still makes decent money here.

The shifting demographics for iPods also help the company by capturing future tech buyers at an impressionable age. Parents are far more likely to send a steady stream of money to iTunes for Junior's iPod than some other music site that requires time at the computer to set up. By the time he's ready for a smartphone, that iTunes button on the iPhone is a great sell. Net sales at the iTunes Store were up 31% in the most recent quarter over a year ago. That's mainly because of phone and tablet app sales. But sales of the stuff one can download to an iPod were up too, even with iPod sales way down, and iTunes remains the largest music seller in the U.S.

Actually, the iPod business may not be dead yet. Apple could use a cheaper-than-iPhone product to compete with less expensive smartphones coming on the market. Some followers believe Apple will introduce a new iPod touch - basically a smartphone without the phone - that will serve this market niche without debasing the iPhone brand.

The end of MP3 players does seem inevitable, later if not sooner. But at Apple, it's a pretty good death.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts , stock ratings and portfolio strategies .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: investing , Stocks

Referenced Stocks: AAPL , FB , PETM

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