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Apple's Front-Runner Challenge

Apple (AAPL - Get Report) has raced to the front of the digital music market with its iPod line. But some are wondering how long it can stay in the pole position.

"We're still at the very early stages of this transition" to digital music delivery, said Mike McGuire, who covers the online music market as a research director at GartnerG2. "The game ain't over by a long shot."

How the competition ultimately turns out should have big implications for Apple's stock over the long term. Its shares tripled last year as booming iPod sales -- now more than one-third of the company's revenue -- revved up the company's earnings -- and its potential prospects. The stock's run has left it trading at a sharp premium to rivals such as computer industry leader Dell (DELL - Get Report).

Should anything slow the iPod's momentum, Apple's stock -- which has been a momentum trader's dream -- could also begin to drag.

Apple's iPods held 82% of the market for hard drive-based digital music players last year, said Shyam Nagrani, an analyst at industry research firm iSupply. But the company likely will see its share slip in coming years, he said.

"There's no company in this world that can maintain 80% market share forever," Nagrani said.

Indeed, the iPod already faces serious challengers and the competition is likely to heat up in the near future. Last week, for instance, Dell rolled out a line of new music players that cost significantly less than similarly equipped iPods. Dell's announcement came one day after Apple unveiled several new iPod models and slashed the price of its top-of-the-line iPod photo.

In addition, earlier this year, Microsoft (MSFT - Get Report) showed its interest in the market at the CES trade show by touting a slew of new devices that use its Windows Media technology. And Sony (SNE - Get Report), one of the longtime leaders in portable music devices with its Walkman series, recently reorganized its digital music efforts to better compete with Apple.

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