Apple Trots Out Smaller iPod Nano, Cuts Price on Shuffles

Apple Computer Inc. (AAPL) on Tuesday cut the price of its cheapest digital music player, the iPod Shuffle, and launched a smaller-capacity version of its mid-priced iPod Nano, sending its shares up as much as 3 percent.

Apple, which controls 70 percent of the U.S. digital music player market, said the 512-megabyte Shuffle will now sell for $69, down from $99 previously. The 1-gigabyte model will sell for $99, down from $129.

The 512-megabyte version holds about 120 songs.

The new 1-gigabyte Nano, the sleek iPod model that won rave reviews from critics and consumers when it was introduced last September, was priced at $149.

The 2-gigabyte Nano sells for $199 and holds about 500 songs; a 4-gigabyte model sells for $249.

The price cuts raised questions about whether Apple's profit margins would suffer, but American Technology Research analyst Shaw Wu shrugged off such concerns.

"The price of components have come down more than 70 percent, especially flash memory for the Shuffle," he said. "And the price of the Shuffle hadn't changed, so they were making a ton of profit off the Shuffle. So they're passing some of those savings on."

Asked whether Apple needed to cut prices for products that were already so popular, Wu said, "While iPods have a 70 percent share in the U.S., internationally its share is much lower at around 40 percent."

He added that recent studies suggest only a third of all U.S. households have a digital music player, suggesting that the market opportunity for the iPod is greater than its market share suggests.

Apple shares were up 93 cents to $68.23 in morning Nasdaq trade after rising as high as $69.48 earlier in the session. The shares fell nearly 13 percent over the previous four intraday trading sessions.