Just how long can the iPod keep playing that upbeat tune?

That is the question investors and analysts are pondering as Apple Computer prepares to report fiscal third-quarter results after the market closes on Wednesday.

Triple-digit sales growth for Apple's iconic digital music player sent the company's share price soaring more than 200 per cent in 2004. But Apple rattled the market three months ago with guidance that was not quite optimistic enough.

Now, with Apple's share price hovering about 16 per cent below its high earlier this year, Wall Street will be looking to Apple for signs that demand for the iPod will pick up going into the back-to-school and holiday shopping seasons.

There are a number of indicators that suggest the digital music player market is cooling. Apple rival Creative Technology, the Singapore group, recently warned of lower-than-expected demand.

Apple recently cut prices on two of its music player models, including the iPod, a move the company said would help it capture market share. Some observers believed the price cuts pointed to slowing demand.

More telling, perhaps, is the fact that consumers can actually find iPods in stock at Apple retail stores a far cry from the waits that customers faced just a few months ago. Apple also now promises free same-day shipping for all iPods ordered on the internet.

“There seemed to be a slowdown in this quarter. There is more product available in the channel,” says Shyam Nagrani, consumer electronics analyst with industry research firm iSuppli. “Either Apple upped production a lot or sales are slower.”

Optimists, on the other hand, argue that the overall digital music player market is still growing and consumers will once again tune into the iPod in the second half of 2005.

For the quarter just ended, most analysts estimate Apple will have sold 5.4m-5.5m units. That would be a huge increase from 860,000 units sold in the same period last year but only a slight gain on the 5.3m units sold in the second quarter.

Apple is expected to report earnings of 31 cents per share on $3.33bn in revenue, according to Thomson First Call. That compares with 9 cents per share on sales of $2bn in the same period last year.

While some investors remains skittish, Gene Munster, analyst at Piper Jaffray, believes iPod sales will take off again, reaching a total of 35m units by the end of 2005, more than double the cumulative tally at the end of the last quarter.

“I don't think they've peaked yet. I think we are seeing seasonal factors as opposed to doom and gloom for the product category,” says Timothy Deal, analyst at Technology Business Research.

Analysts also argue that the buzz surrounding the iPod will continue to draw consumers to the company's computers. Keith Bachman, analyst at Banc of America Securities, expects Apple's PC shipments to increase as much as 28 per cent over last year.

But Barry Jaruzelski, analyst at Booz Allen Hamilton, said it would be hard to imagine iPod sales not slowing after the music player's growth last year.

“It's going to run its course just like any other successful product. As the iPod goes through its natural maturation curve, the question is: how is Apple going to fill the gap?” he asks.

Some analysts suggest Apple should launch an iPod Shuffle with an LCD screen. Others argue Apple ought to introduce iPods with new capabilities and functions, such as a handheld computer, satellite radio, wireless e-mail capability and a phone.

Such a step would seem counter-intuitive for Apple, which has a reputation for simply designed and easy-to-use products. But with a share price that is still richly valued, Apple must find one way or another to keep the music playing.

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