Apple Shuffles the Deck

If you're in the market for a low-end iPod, Apple Computer (Nasdaq: AAPL  ) has some sweet news for you. The company is introducing a $149 iPod nano (with half the capacity of the 2-gigabyte model that retails for $199) and is slashing the prices on its iPod shuffle players.

The iPod shuffle is now marked down to $69 (formerly $99) for the half-gig model and $99 (formerly $129) for the full-gigabyte model. The shuffle is light and compact, but does not have the benefit of a menu screen; as its name suggests, it shuffles through songs and podcasts in a random fashion.

As a sign of changing times, Apple shares rose this morning on the news. There was a time when lower prices used to send analysts scrambling, fearing tighter margins and price wars. These days, everyone understands what Apple is all about.

More iPods in place doesn't just mean the one-time sales. Those iPods are the catalyst for growing sales of digital downloads at its iTunes stores and a higher mainstream profile for the Apple brand. That increased public visibility has helped Apple sell more of its higher-margin computing products.

Yes, the iPod shuffle would make a decent shoehorn or doorstop, depending on your metaphor of choice. Taken literally, I'm guessing the shuffle would perform admirably as well on both fronts.

Cheaper iPods may be welcome news to you and me, but they're not so endearing to Apple's competitors. Companies such as Creative Technology (Nasdaq: CREAF  ) , Sony (NYSE: SNE  ) , and iRiver will need to react accordingly now that the lower end of the market just got lower. It won't be easy for them. They don't have the benefit of running a popular digital download store (though Sony owns one of the major music labels) or selling Macs to justify price cuts for the sake of moving product.

Apple sold 14 million iPods last quarter. Nobody else even came close. Since its inception, Apple has moved more than 42 million iPods and delivered 850 million iTunes tracks. It's quite the empire, and at $69, the iPod is now likely to penetrate even further into the mainstream. Granted, that market is less likely than the first wave of iPod adopters to pay for digital downloads or shell out four figures for their next computer, but Apple wouldn't mind more attention from the masses. There's strength in numbers.

Apple learned that the hard way when the Intel (Nasdaq: INTC  ) -powered PC market reduced it to a high-end niche player. Now, it's payback time. Apple controls the digital media player space, and this year Intel is fueling the Mac revolution, too.

How about that for the ultimate sign of changing times?

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


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