Apple Takes Early Lead in Digital Music Wars

Update from 9:23 a.m. EST

Apple(AAPL Quote - Cramer on AAPL - Stock Picks) shares gained Thursday after the company reported surprising strength for its iPod Mini digital music player, introduced in February.

Demand for the slimmed-down version of its coveted music player has been "much stronger than expected" since it started shipping in February, "far exceeding the total planned supply through the end of June," Apple said in a statement. As a result, the company pushed back the worldwide availability of the product to July from April so it can boost manufacturing.

Apple shares were recently up $1.03, or 4%, to $26.53.

Thursday's news appeared to relieve investors who worried Apple might have priced the Mini too high. At $249, it costs about the same as a similar device from Dell(DELL Quote - Cramer on DELL - Stock Picks), but with less storage. Some observers had expected a version in the $100 range.

"The iPod Mini is a huge hit with customers in the U.S. and we're sure it will be the same worldwide once we can ramp up our supply in the July quarter," Apple said in a release.

In practical terms, the delay in the overseas rollout is less of a setback than it may appear. Apple's online music store, which is the only service compatible with iPods, isn't yet available for European users. In fact, no pan-European music download service exists yet, due to the patchwork of copyright laws that companies must first negotiate before setting up shop.

"You don't want to get the [iPod] hardware out too far ahead of the availability of the store," said Mike McGuire, research director in the media group at Gartner G2, the business strategy research group. Both Apple and Roxio's (ROXI Quote - Cramer on ROXI - Stock Picks) Napster have said they plan to enter the European market later this year.

Meanwhile, robust consumer adoption of iPod Minis should only reinforce the position of iTunes, Apple's music store. "Once someone has an iPod, they're not changing from iTunes because iTunes is designed to serve iPod users. All the other services are not compatible" with iPods, said Scott Kessler, an analyst who follows Internet software and services stocks for Standard & Poor's Equity Research.

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