Gates Takes a Bite Out of Apple

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Is Apple Computer's (Nasdaq: AAPL) iPod headed for a fall? Microsoft (Nasdaq: MSFT) seems to think so, as Bill Gates waxed pessimistically about his rival's chances in an interview with Germany's Frankfurter Allgemeine Zeitung magazine this week.

Sure, you have to consider the source. Microsoft is trying to get its own fledgling digital music store off the ground and it's been working with wireless handset makers to help make a dent in the portable music player market. So it's only natural to be a little suspicious.

Then again, if you follow the Macintosh lifeline, it's easy to see how Apple's pride cost it crucial market share in its battle against IBM (NYSE: IBM) and its personal computer clones. Although Apple is experiencing a resurgence of popularity with its desktops right now, it obviously commands a much thinner slice of the overall computing market these days.

That brings us to the iPod. Everybody seems to have one, want one, or have one and want another. Apple owns two-thirds of the digital music player market, and its iTunes Music Store has sold hundreds of millions of legal song downloads. The company moved 5 million iPods this past quarter alone, and it has broadened its product offerings to include an iPod for almost any budget.

However, new music subscription offerings from Yahoo! (Nasdaq: YHOO), RealNetworks' (Nasdaq: RNWK) Rhapsody, and others may turn consumers' heads away from Apple. Over in the Rule Breakers discussion boards, fellow Fool Carl Wherrett -- who covers nanotechnology in our Rule Breakers newsletter service -- recently noted the impressive specs of the new Nokia (NYSE: NOK) Nseries cell phones.

"The N91 in particular looks like it's shooting straight for the iPod crown," Carl wrote. "4GB hard drive, 3G, global GSM, WiFi b/g, Bluetooth, USB mass storage, FM radio, and a claimed 12.5 hrs of battery time."

Apple fans will point to the company's unmistakable allure and argue that battles aren't won with spec sheets. Besides, the high-end iPods can really pack a wallop. Still, for many people, being able to make calls and tune in to their music on one appliance may be too convenient to ignore.

While the ball isn't exactly in Apple's court right now -- it's not as if the company has to broker deals with every handset maker or open up its platform's portability to other players and services -- it needs to be careful that it doesn't ignore the rest of the market.

Staying on top is hard work. Apple knows that from past experience.

Some other Apple headlines in the literary orchard:

• Apple did produce stellar quarterly results earlier this month.
• In Halloween 2002, while Apple was fetching a split-adjusted $7.35, I thought it would be more treat than trick.
• Check out some of the ultimate growth stocks that are making the cut in our Rule Breakers research service -- a free 30-day trial is yours for the asking.

Longtime Fool contributor Rick Munarriz thinks that an Apple a day will help keep the short sellers away. However, he does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.