Apple ( AAPL) will let consumers download songs from its iTunes music service over Motorola ( MOT) cell phones, the company said late Monday night. The new technology will become available on all Motorola mass-market phones in the first half of 2005. In a morning note, Merrill Lynch analyst Steve Milunovich called the deal a "net positive for iPod," referring to Apple's portable music player. "iPods are the leading portable music player, iTunes is the leading on-line music seller, and it appears Apple understands it has to work with others to dominate the space. Apple could become the 'Microsoft' of music," concluded Milunovich, who has a buy rating on the stock. In the second quarter, Apple sold 860,000 iPods. Buzz over the expansive growth of iPods has helped resuscitate Apple shares over the past year. Since Apple's online music store iTunes hung out its shingle on April 28, 2003, the stock -- which had flatlined in the preceding months -- has vaulted 126%, rising from $13.86 to $31.26. Apple's shares have gained 46% year to date, bucking broader tech declines and outperforming the S&P 500 by 49%. The Cupertino, Calif.-based PC and gadget maker has been steadily pushing iPod technology into new markets. In June it began promoting an adapter that will allow drivers to play music from the device over audio systems in BMWs and Mini Coopers. Commenting on the Motorola link-up, Apple Chief Executive Steve Jobs said the mobile phone market, which is expected to grow to 1.5 billion global subscribers by year's end, offers "a phenomenal opportunity to get iTunes in the hands of even more music lovers around the world." He called Motorola "the ideal partner to kick this off." It was not clear if Apple might eventually offer iTunes through other leading handset makers. An Apple representative was not immediately available to comment.
Handset analyst Earl Lum of CIBC noted the latest cell phone partnership is likely to boost the cool quotient of Motorola phones, which have suffered from a lagging-edge reputation. The iTunes announcement "may strengthen the mid- to high-end platforms of Motorola relative to Nokias," he said in a note. The announcement marks the latest in an escalating tug-of-war in the online music business. Earlier Monday, in news that could mark a partial setback for Apple, rival RealNetworks ( RNWK) said it has developed software to let consumers play songs from its Rhapsody music store on Apple's iPods. That was an unsettling turn of events for Apple, which has marketed the iPod as a proprietary device that only plays music from its own shop. Earlier this year the company rejected an overture from RealNetworks to transform the iPod into an "open" platform that could play music from rival stores. Analysts said it's too early to gauge the takeaway from RealNetworks' new software offering. "Real could boost demand for the iPod but reduce music store sales," offered Milunovich, adding that he's waiting to see if Apple will sue Real. Others agreed that a lawsuit could be in the works. In Tuesday trading, Apple shares were up 88 cents, or 2.8%, to $32.14. RealNetworks was up 18 cents, or 3.3%, to $5.71.