“The iPod shows why Apple Computer is a great company. With elegant hardware and friendly software, Apple’s portable player made a profitable business out of digital music — a trick that had eluded record labels and such erstwhile leaders as Sony, Microsoft, Real Networks, and Napster,” Bill Alpert writes for Barron’s.

“Some Apple bulls argue that the shares could go 50% higher, noting how Apple has held its turf against the “iPod killers” of Sony and the digital-music schemes of Microsoft. Little noticed by these iPod zealots, however, is a looming threat from overhead with a footprint as large as the continent: Wireless phone companies are teaming up with the music industry to make most mobile phones into music players,” Alpert writes. “In the last year, the iPod has become Apple’s best-selling product, bringing in a third of revenues for the Cupertino, Calif., firm. The iPod ‘halo effect’ has lit up interest in Apple’s Macintosh computer and Apple’s stock.”

“[High] expectations [for Apple] don’t seem to take into account the coming year’s introduction of music-player cellphones,” Alpert writes. “…if handsets become good enough music players — says Jeffrey Hallock, marketing vice president for Sprint — how may people will want to carry two devices? Along with their wallet, after all, the thing people always carry is a cellphone… For sure, Apple hasn’t stopped innovating. The next versions of the iPod will reportedly feature Wi-Fi connectivity, allowing podsters to engage in super-distributing to their friends. Motorola stands ready to announce handsets that tap into iTunes.”

Full article here.

MacDailyNews Take: “Motorola stands ready to announce handsets that tap into iTunes,” is all Alpert writes of Apple’s move into mobile handsets, but it is perhaps the most important line in his long article. The article concludes with a quote from Musiwave chairman Gilles Babinet (Musiwave is a full-track download service, under contract with 34 telephone companies worldwide) who actually claims to be Apple’s main rival and predicts that Apple’s share of the digital music business could shrink from 90% to just a few percent. “They may be in a dead-end strategy,” he says of the iPod. Keep dreaming, Gilles.

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