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Monday, August 21, 2006

More Headaches For Apple

Stocks: (SNDK)(AAPL)

Sandisk has just announced that it will drop the price of its MP3 player to $249.99 according to the Wall Street Journal. The player has about double the storage capacity of the comparably priced Apple iPod. Sandisk is second in market share for digital media players after Apple. A distant second.

But, Apple is now faced with a slew of competition for its iPod.

Microsoft will launch the Zune player before the holidays and has indicated that it is prepared to spend hundreds of millions of dollars to promote the new device and its music download service. Microsoft has the advantage of its Window Media Player being the most popular format for music and video playback on the internet. It is a substantial edge for getting consumers to transfer files from their PCs to the Zune.

Creative, a Singapore based electronics company, has a product that competes with the iPod. Although the market share for its MP3 player is small, the company has sued Apple for patent infringement on the interface used by customers to access their music files. While Wall St cannot handicap the ability of Creative to win the suit, it is another question mark in an expanding list of uncertainties about the Apple product.

Apple is nothing without the iPod. Mac sales are fine, but on a good day, they are 4% to 5% of the global PC market.

Investors may forget that before the iPod took off, Apple was a $7 stock. In January it hit $86.40 and now trades at $68.

The threat that Sandisk and Microsoft represent are not that the iPod will lose its place as the No. 1 media player. But, with more well-financed competition, iPod unit sales growth could slow and price wars become much more likely. Apple faces lower margins and less rapid growth for the iPod.

With the new and less expensive players hitting the market for the holidays, and Apple's options backdating issues, it is surprising that the stock has stay above $60. And the prospects of that are becoming less and less likely.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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