Apple Computer Inc. (AAPL) shares fell 4 percent after a Needham & Co. analyst lowered his investment rating on the stock to "hold," saying much of the potential upside to the company's business is reflected in the current stock price.

"For valuation reasons, we're downgrading Apple from Buy to Hold," analyst Charles Wolf wrote in a note to clients. "With the stock now trading close to" $70, he wrote, "we believe that most of the upside is now captured in Apple's current share price."

Apple shares, which have more than tripled in value this year, fell $2.63, or 4 percent, to $62.58 on Nasdaq. The stock is down 8.4 percent from Nov. 29's $68.44, the shares' highest level since March 2000.

Much of the spectacular rise in Apple's stock price this year has been due to the success of the company's iPod (search) digital music player, which debuted in October 2001. Since then, Apple has sold more than 6 million of the devices.

In the company's most recent quarter, Apple sold more than 2 million iPods and said that results for its current quarter would top Wall Street estimates. The company is now selling more iPod and iPod mini players than it is its signature Macintosh computers.

In Apple's most recently reported quarter, iPod sales accounted for 23 percent of Cupertino, Calif.-based Apple's total revenue of $2.35 billion.

"It was the iPod, the diminutive hard drive portable music player, which began Apple's metamorphosis from a personal computer company to one targeting the much larger digital entertainment market," Wolf wrote in the note.

Apple co-founder, Chairman and Chief Executive Steve Jobs (search) had staked the company's future as being at the center of the "digital lifestyle," which has grown to include digital photography, music, home movies and the like.

"With all of the possible contributors to Apple's share price factored in — the iPod, a possible flash-based iPod and the widely discussed halo effect — our valuation model produces a fair price of $70 per share," Wolf wrote.

Apple executives have said that the "halo effect" — of consumers switching from Windows PCs to a Macintosh after buying an iPod — has had a favorable impact on sales. Apple rumor Web sites have in recent weeks discussed the likely introduction of a flash-based iPod at the company's Macworld convention in January.

Digital music players using flash memory chips are smaller than hard-drive devices and are typically cheaper but store fewer songs.

At current levels, Apple shares are trading at about 46 times its forecast earnings per share of $1.36 for its fiscal year ending September 2004, according to Reuters Estimates.

By comparison, shares of No. 1 PC maker Dell Inc., another richly valued technology stock, currently trade at about 27 times its forecast earnings per share of $1.56 for its fiscal year ending January 2006.

"After rising over three-fold since we upgraded Apple in June 2003, we now believe that most, if not all, of the company's future upside is captured in its current share price," Wolf concluded in his note.