Apple Computer's ( AAPL) iPod has revolutionized the digital music business. Now, some observers wonder if the hip consumer gadget could do the same for Apple itself.

Most investors still treat iPods and Apple's related online music venture as a sidelight to the flagship computer business, which accounted for 63% of Apple's sales in the latest quarter.

But Merrill Lynch analyst Steve Milunovich argues the iPod could help put Apple back on the consumer tech map and "become relevant again thanks to its tech know-how and strong brand." (Apple sold 2% of worldwide computer units in 2003, according to Gartner Dataquest and Merrill Lynch.)

In a recent note Milunovich predicted iPod sales could approach $1 billion in the current fiscal year, or about 13% of Apple's projected annual sales of $7.5 billion. iPods have mostly drawn rave reviews, although some consumers have complained about the device's sticker prices and short battery life.

As for the financial takeaway, Milunovich believes iPods will contribute 15 cents of Apple's projected total EPS of 50 cents for fiscal year 2004. His firm, Merrill Lynch, has done recent investment banking for Apple.

No other analyst has published such a detailed analysis of how iPods could affect Apple's bottom line. But several say Milunovich's revenue forecast is not unreasonable, given iPod hardware revenues totaled $256 million in Apple's December quarter.

Fortuitously, sales of the portable music players have taken off amid the expansion of Apple's retail store base. The company has opened 76 retail stores since May 2001, and there's reason to believe iPods are attracting more foot traffic to the outlets, where customers will be exposed to Apple's sleekly displayed, consumer-friendly computers.

Milunovich believes the music players could even create a "halo effect" that prompts Windows users to switch to Macs, though not all investors would agree.