Apple unveils Exciting but Expected iPod revamp, Stock suffers

The consumer electronics world held its collective breath today as Steve Jobs took the stage to show off Apple's (AAPL) new line of iPods for the holiday season. It's been almost 2 years since a total redesign of the flagship iPod, so most were expecting dramatic changes.

However, Jobs and Apple already changed the world this year! It was called the iPhone. A revolutionary device that ushered in a new era of interfacing, technology, entertainment and mobile communications. To think the company could pull another wonder out of its hat so soon was a stretch. But try they did and the results were astounding, but due to iPhone fever over the past 8 months, expected.

The focus on video and portable video is very apparent in the new line of iPods as the popular iPod Nano has become shorter, wider and sports a 2 inch screen capable of playing videos. The existing iPod received an interface refresh, was branded as iPod Classic and got a bump from 30GB & 80GB to 80GB & 160GB varieties. Perfect for that consumer going on vacation for a month with a load of music and video to hold on the go. The big announcement awaited the new flagship iPod and it came in the flavour of the now called iPod Touch, which incorporates many technologies seen first in the iPhone but without the mobile phone features.

The iPod Touch comes in 8GB & 16GB varieties and is built on the same Mac OS X platform that iPhone users are now familiar with. The most exciting part of iPod Touch is that it keeps the iPhone's wifi capabilities and packs the Safari Wed Browser. This allows iPod users the ability to connect to wifi networks and surf the Internet with their devices. Truly a remarkable thing, but in perspective analysts and investors have seen it before with the introduction of the iPhone 8 months prior.

Ringtones for the iPhone! Another eagerly anticipated feature that is now a reality. With the next version of iTunes, users will be able to use selected iTunes tracks and pay an additional $0.99 to chop up a 30 second portion into a ringtone for use with the iPhone. A great feature, all in all cheaper than other ringtones but nothing unexpected or truly groundbreaking here.

Now the news that's totally new. With the new iPod Touch comes the Wifi-based iTunes music store, which allows iPodders to buy music on the go through wireless networks. These tunes will sync up to their computers seamlessly when the iPod is reconnected to the computer at a future date. A deal with Starbucks was announced also, but seemed to confuse as to what "Free wifi" really means within Starbucks Coffee Houses. The assumption is that iPod & iPhone users (iTunes wifi is coming as an iPhone update soon) will be able to surf the iTunes music store for free, featuring specific Starbucks Music content, but would have to pay for other wireless surfing when sitting at a Starbucks.

Investors headed for the exits in excessive profit taking. Apple's fall from 52-week highs with the market led to a bottom in the 100s that begot a rise to $145 over the last weeks that was built on the hype that this event would bring more revolutionary products. Showcasing expected innovations did not appease the hype machine. Shares fell 5% to around 136 even as Apple announced a whopping 33% price cut for the 8GB iPhone (from $599 to $399). Perhaps investors saw this as a sign that demand was not as brisk as anticipated but I view it as Apple wanting to have a truly remarkable and record breaking Christmas shopping season as its lineup of media and communications devices fit neatly in market segments. With the iPhone price cut and the new iPod Touch model pricing of 8GB for $299 and 16GB for $399 the company has 2 flagship products that are sure to succeed over the holidays.

iPod sales broke 20Million units last holiday season and are expected to jump close to 25Million this holiday season. The injection of new iPods can only help the company reach these lofty expectations. The kicker still is the growth in video downloads as almost 100Million TV Shows have been downloaded to date. However only the flagship Video iPod had those capabilities while the most popular Nano models did not. This year that changes drastically and the full iPod line, with the expectation of the screen-less Shuffle, is now able to watch downloaded videos. Gonna be a rough season in that market for NBC if they can't make amends with Apple over iTunes contract negotiations.

While Apple still has some downside risk given the expected product announcements I believe its limited and only in the short term. The back to school computer season is reportedly very strong and the holidays appear to be ready to break records again as the company shifts its product line to video-centric Mac OS X based devices. The iPhone price cut is sure to spur sales and its only a matter of time until deals are crafted completely in Europe. Apple has so far this summer gone in line with general market trends and if fears resume from the credit crisis the stock will likely follow south. But for keen investors the opportunity is here again as Apple crafts new short term bottoms following this announcement. This opportunity is too good to pass up given company prospects going forward.

Disclosure: Author is long AAPL