March 17, 2003 12:49 PM PST

Low-priced iPod still 'temporarily' out

Apple Computer's lowest-priced iPod MP3 player has been largely unavailable for the past two months, a situation that the company has called "temporary" but that analysts worry has become all too permanent.

For weeks rumors swirled that Apple was on the verge of replacing its 5GB, entry-level model with a model that offered twice the capacity at the same price, $299. Instead, for much of the past two months the low-end model has been listed on Apple's online store as "temporarily unavailable," leaving the $399 10GB model as the cheapest iPod available.

The low-end model is also unavailable through most other outlets. Dell, which started selling the iPod in October, still lists the 5GB Windows iPod on its site, but quotes a waiting time of more than 3 weeks. Amazon has been stating for some time that "This item is not stocked or has been discontinued."

An Apple representative on Monday reiterated Apple's position that the 5GB models are "temporarily" unavailable and would not elaborate further.

The situation has frustrated some on Wall Street, including Needham analyst Charles Wolf, who sees the iPod as a potential billion-dollar market for Apple, if the company could expand, rather than contract, its lineup.

"If they could hit $199, they'd have a 25 percent share" of the market for MP3 players, Wolf said. "It would sell like crazy."

Dropping the price may or may not be an option for Apple. It is not clear whether Toshiba intends to keep making the 5GB drive used by the device.

In a statement to CNET News.com, Toshiba said it is still producing the 1.8-inch 5GB hard drive to meet customer demand, but said most customers are now looking to 10GB and 20GB drives. "As a result, we currently have limited demand for the 5GB capacity," the company said.

As for higher-capacity iPods, a new 40GB model had been expected to be available in limited quantities by now, but there are several reasons why Apple may have opted not to introduce new models.

First of all, the new drives might not be available in sufficient numbers. If they are, Apple might want to wait until it is ready to introduce a music service it is working on.

"It's also possible that they might have postponed any introduction until after the war," Needham's Wolf said.

As for the financial impact of being without a lower-priced device, it is hard to say.

"They left money on the table. I don't think it was dramatic, it may not even be material," Wolf said. Although competitors have been dropping prices on hard drive-based machines, it is a seasonally weak time for sales of MP3 players.

"Everything is kind of light right now," NPDTechWorld analyst Stephen Baker said.

Still, Apple has been losing some share as its machines have become pricier while competitors' models have become cheaper. "Their unit share is down somewhat from Christmas," Baker said.

It is also somewhat of a let down for consumers who are teased on Apple's online store with the pitch "iPod--from $299" only to find that the cheapest available model is $100 more.

Apple first introduced the 5GB iPod in October 2001, with the device first selling for $399 before its price dropped as higher-capacity models were added.

Although Baker believes the iPod can fetch somewhat of a premium over rivals because of its smaller size and unique design, he said Apple would be wrong to think that it doesn't need to bring prices down to remain competitive. Baker noted that Apple has at times tried to eliminate the low-end of its iMac line in favor of more feature rich models, a move that he says has cost the company market share.

"To ignore the entry-level price point is probably not a good idea for the long term." Baker said.

 

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