Apple ships 2GB shuffle

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Apple on Tuesday confirmed that it’s shipping its new 2GB iPod shuffle. The new shuffle model costs $69.

The 2GB model can hold up to 500 songs encoded at 128Kbps using AAC format, according to Apple. Data is stored on flash memory.

The 2GB model is identical to its lower-capacity sibling; it still uses the clip-on design and circular control pad. It’s available in silver, blue, green, purple and red.

Apple announced the new 2GB model on February 19th, when it dropped the price of the 1GB shuffle from $79 to $49.

Analysts see the price cut as the Apple’s attempt to breathe new life into slowing iPod sales. Since its introduction in 2001, sales of the music player have climbed steadily. In its fiscal first quarter ended December 31, 2007, for example, Apple sold a record 22.1 million iPods. However, the growth rate of iPod sales has slowed. iPod sales for the first quarter grew 5 percent from the same period a year ago, versus 207-percent growth in the 2006 first quarter.

“The reduction in price of the Shuffle will likely stimulate the sales growth Apple needs in order to meet its projections,” said Tim Deal, senior analyst at market research form, Pike & Fischer. “However, the pricing change would likely have served it better if it had occurred during the holiday quarter.”

Still, lowering the price of the shuffle to $49 could make the device more appealing to consumers who, up until now, have balked at paying up for the music player. Ross Rubin, director of analysis at market-research firm NPD, thinks the lower priced shuffle could capture the price-conscious consumers who shop at mass merchants such as Wal-Mart.

Michael Gartenberg, vice president and research director at JupiterResearch, agrees: “The lower price-shuffle means the cost of entry for something called iPod is now below $50 which is important for capturing low-end mass market customers.” What’s more, Gartenberg added, a $49 shuffle not only exposes the device to more potential customers but gives Apple an in for selling them higher-priced models in the future.

Another factor in lowering the price of a product like the shuffle is the cost of the parts that make up the device. “The drop in price is likely a signal that the flash storage market is currently beneficial to the company,” Deal said. “Apple is significantly protective of its gross margins, and a drop in price usually signals favorable component conditions.”

Indeed, last week, analysts warned that weak demand for NAND flash memory could cause prices to plummet. NAND flash is used to provide the storage in the iPod shuffle, as well as the iPod nano, iPod touch, and iPhone.

But more storage for less price could also push Apple to reconsider its approach with devices like the shuffle. The newly shipping 2GB model just expands capacity, but customers might demand more features in the future. “At some point where a budget player can contain thousands of songs, we may see sheer capacity all but mandate a screen for navigation,” NPD’s Rubin said.

Updated at 2:30 p.m. PT to add analyst comments.

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