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Apple cuts iPod Shuffle price, adds 1-GB Nano

Posted by iTech - 2006-02-14

Apple Computer Inc. on Tuesday cut the price of its cheapest digital music player, the iPod Shuffle, and launched a smaller-capacity version of its mid-priced iPod Nano.
 
The move by Apple, which has 70 percent of the U.S. digital music player market, is aimed at further consolidating a market that it leads, Apple executives said. The company also said it has now sold 12 million videos on its iTunes online store.

Apple has already sold more than 40 million iPods since their introduction in October 2001, and, in 2005 alone, sold more than 30 million of the popular items.

The price cuts could raise questions about whether Apple's profit margins will suffer, but American Technology Research analyst Shaw Wu said he was not concerned.

"The price of components have come down more than 70 percent, especially flash memory for the Shuffle," he said. "And the price of the Shuffle hadn't changed, so they were making a ton of profit off the Shuffle. So they're passing some of those savings on."

Asked whether Apple needed to cut prices for products that were already so popular, Wu said, "While iPods have a 70 percent share in the U.S., internationally its share is much lower at around 40 percent."

Cupertino, California-based Apple said the 512-megabyte Shuffle will now sell for $69, down from $99 previously. The 1-gigabyte model will sell for $99, down from $129.

The 512-megabyte version holds about 120 songs.

The new 1-gigabyte Nano, the sleek iPod model that won rave reviews from critics and consumers when it was introduced last September, was priced at $149.

The 2-gigabyte Nano sells for $199 and holds about 500 songs; a 4-gigabyte model sells for $249.

Greg Joswiak, head of iPod product marketing, in a telephone interview declined to comment on the lower prices' impact on iPod gross margins, he said the announcement was part of Apple's longer-term strategy. Apple Chief Financial Officer Peter Oppenheimer has said that average gross margin on all iPod models is 20 percent or more.

"It's fair to say this has been a planned move," Joswiak said when asked about gross margin impact.

Wu also said that recent studies suggest only a third of all U.S. households have a digital music player, suggesting that the market opportunity for the iPod is greater than its global market share suggests.

Apple shares rose 30 cents to $67.60 on Nasdaq. During the session they traded as high as $69.48, a gain of 3 percent. The shares fell nearly 13 percent over the previous four intraday trading sessions.

The stock trades at about 25 times its projected earnings per share before items for its fiscal year 2007 ending in September.



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