Apple Forms iPod Division, Realigns Some Execs

The Cupertino, Calif.-based vendor disclosed the moves in an internal company e-mail sent by CEO Steve Jobs, Apple spokesman Steve Dowling confirmed. Plans call for the iPod division to be led by Jon Rubinstein, Apple's senior vice president of hardware engineering. In addition, Timothy Cook, executive vice president of worldwide sales and operations, will head the revamped Mac division, and Tim Bucher, who now leads Mac system development, will direct Mac hardware engineering.

"This organizational refinement will focus our talent and resources even more precisely on our industry-leading Macintosh computers and the wildly successful iPod," Apple said in a prepared statement. Dowling declined to disclose further details about the moves, including whether the new company units would have their own profit-and-loss statements.

The nearly three-year-old iPod, along with the iTunes digital jukebox software and iTunes Music Store online music service, has emerged as Apple's hottest product in years and rejuvenated the company's brand image--as well as its revenue.

In its fiscal 2004 second quarter ended March 27, Apple reported a 29 percent year-over-year revenue gain and a profit of 12 cents per share, largely due to the booming iPod business. Roughly 807,000 iPods were sold during the period, a 909 percent increase from unit sales a year earlier. In comparison, Apple sold 749,000 Mac computers during the quarter, marking the first time that iPod unit sales eclipsed Mac shipments. Altogether, the iPod accounted for $264 million of Apple's revenue in its 2004 second quarter, compared with $1.16 billion for Mac computers. A year before, iPod sales totaled just $31 million.

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The iTunes Music Store has played a big role in the iPod's success. In late April, Apple launched the third generation of the pay-per-song service, which capped off its first year in business with total sales of more than 70 million songs. And earlier this month, Apple said the latest iteration of the store sold a record 3.3 million songs in its first week.

What's more, a blossoming iPod accessories market is leading the music player in new directions. Attachments for the iPod now include voice recorders, media readers and interfaces for digital cameras, remote controls, portable speakers and FM transmitters for car audio, and a few industry observers expect Apple to eventually enable video functionality. Some consumers and IT professionals also have used the device's hard disk--which ranges from 15 Gbytes to 40 Gbytes (4 Gbytes for the iPod mini)--for data storage and computer startup.

Despite iPod's success, Apple has labored to bolster its inconsistent Mac sales, which could be the company's impetus for the reorganized Mac division. In Apple's fiscal 2004 second quarter, iBook and Power Mac (including server products) led the way in unit sales with year-over-year gains of 51 percent and 12 percent, respectively. The iMac/eMac and PowerBook lines saw respective unit-sales declines of 15 percent and 5 percent during the period.

Some Wall Street analysts say Apple must stimulate Mac computer sales to maintain healthy profit margins, no matter how well the iPod business performs. Apple said gross margin in its 2004 second quarter was 27.8 percent, down from 28.3 percent in the year-ago period. While the Xserve product family--which includes server, RAID, SAN and cluster offerings--has generated some buzz in the channel within certain vertical markets, some industry observers say sales of the high-end Power Mac G5 desktop have been disappointing and that the all-in-one iMac G4 desktop needs refreshing.

A welcome jolt for Mac sales could come at Apple's 2004 Worldwide Developers Conference in San Francisco late next month. At the event, Jobs is scheduled to deliver a keynote address that includes a preview of Tiger, the code name for the next major release of the Mac OS X operating system. Apple shipped the current version of its Unix-based OS--Mac OS X 10.3, code-named Panther--last October. At the start of 2004, Apple said more than 10,000 applications ran natively on OS X and that by the end of the first quarter the company expected the number of active OS X users to reach 10 million, or about 40 percent of its installed base.