Troy Wolverton

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Apple Nano Not Yet a Mania

Troy Wolverton

Reviewers have been quick to praise Apple's (AAPL Quote) new ultraslim iPod, but consumers might be holding back.

Although some versions of the iPod nano are hard to come by at the company's retail stores, they're readily available through its Web site. And other versions are not only available, they appear to be less popular than the models they replaced.

"Our checks indicate good, but not great, initial sales," said Shaw Wu, an analyst with American Technology Research, in a report issued Tuesday. "We believe iPod nano is a great product ... but we believe [Apple] may need to make some changes to ensure its success as a high-volume product."

Many of Apple's retail stores have sold just a fraction of their initial shipment of iPod nanos, said Wu, whose firm does not do investment banking. Of the 1,800 to 2,500 nanos they received last week, many stores have sold 500 or fewer, he said.

Apple CEO Steve Jobs unveiled the iPod nano last week at a press event in San Francisco. A flash-based digital music player that holds up to 4 gigabytes of data, the nano immediately drew praise because it's far thinner and lighter than comparable products on the market.

Apple is offering four iterations of the nano: Consumers can purchase one with 2-GB of storage or 4-GB of storage in either a black or white shell. The black ones are outselling the whites by as much as 8 to 1, Wu said.

An informal survey of Apple stores by TheStreet.com on Tuesday appeared to confirm that some nanos are more popular than others. Of the 11 stores surveyed, all were sold out of the black 4-GB nanos. But all of those stores had 2-GB nanos of both colors in stock, and two of them had at least a few of the white 4-GB nano left. Most of the stores were still working through their first shipments.

A more bullish research note out Wednesday from Piper Jaffray said a check of 20 Apple retail stores reported that demand for the nano was "high" and no store in Piper's check had the black 4-GB nano in stock. Piper does and seeks to do business with companies covered in its research report.

But while the retail stores had run out of some versions, Apple's online store was promising to ship both versions of the 4-GB nano in one to three business days and both versions of the 2-GB nano within 24 hours.

That's in sharp contrast with previous iPod products. Soon after Apple released its flash-based iPod shuffles earlier this year, the company warned online customers of an order backlog of several weeks.

Likewise, Wu noted, Apple was sold out of iPod minis for nearly six months after it launched the devices last year. "We may be alone at this point, but we believe matching the super success of iPod mini may be a tough act for iPod nano to follow without some changes," said Wu.

But setting aside whether the nano will match the sales the mini posted last year, it may have trouble keeping up with current mini sales, particularly if consumers focus on how much storage space they are getting for their money. At the same $200 and $250 price points for the two nano versions, consumers can get 2-GB more storage on the iPod mini.

Indeed, on Amazon.com, the various nano versions were being outsold by at least one version of the iPod mini. The silver 4-GB iPod mini was the seventh-most popular item in Amazon's electronics department on Tuesday afternoon. The black 4-GB iPod nano was the top-ranked version of that device in the department, coming in at No. 16.

"We believe iPod nano may cause sticker shock as consumers are not getting more storage for their dollar as they are accustomed to," said Wu. "AAPL may need to either increase the storage capacity to match at least iPod mini ... or keep its storage capacities and cut the price by $50. We believe the former is more likely."

Apple's iPod is something of a double-edged sword for the company. Strong sales revived its fortunes and ignited the stock price. But, conversely, investors have sold off Apple's stock in the past on the sign -- or hints -- of weak iPod sales, and they could do so again.

An Apple representative didn't return a call seeking comment; shares of Apple were trading recently up 17 cents, or 0.3%, to $50.99.

Of course, Apple could be having greater success with the nano than Wu believes -- or than our informal survey indicates. That certainly was the case this summer, when analysts were predicting a slowdown in iPod sales; contrary to those forecasts, Apple posted strong year-over-year and sequential sales growth.

Store representatives generally did not know or wouldn't disclose to TheStreet.com how many nanos they had sold or received. It could be that Apple shipped a far greater number of 2-GB nanos than 4-GB ones and was thus better able to meet demand.

And the company could be better prepared to meet demand this time around than it has been with past product debuts. After drawing flack in the past for not being able to meet initial demand for hot products, Apple has indicated in recent months that it was trying to address that issue. Analysts reported that the company agreed to buy up to 40% of Samsung's NAND flash production to meet demand for the iPod nano.

In its note, the Piper analysts said they believed Apple would be able to meet nano production. If the one- to three-day shipping lead time of the iPod nano increases, the report said, "Apple would likely be selling more iPod nanos than their initial aggressive expectations."