“Apple knowingly gave up as many as 1.5 million iPhone sales during the holiday quarter to establish the future of the iPod as a mobile device, according to investment note issued on Monday by Needham & Co.,” Aidan Malley reports for AppleInsider.

“Analyst Charlie Wolf bases his observations around statements made by Apple chief operating officer Tim Cook during the iPod maker’s latest quarterly results conference call; the executive referred to the iPod touch as becoming a ‘mainstream Wi-Fi mobile platform’ rather than just a touchscreen version of the iPod. The company’s willingness to reduce the feature and price gaps between the iPhone and iPod touch indicates that it’s ready to trade short-term losses for long-term growth of the iPod as a general device, especially among existing iPod owners trading up from older players,” Malley reports.

“The increased support for the iPod touch may also be a calculated risk that future iPhone updates will negate any immediate hits to the current product’s success. Needham predicts that Apple will release an upgraded, 3G-capable iPhone at the same price in the summer and will drop the price of the current model to $299 at the same time, also dumping current iPod touch prices to $199 and $299,” Malley reports.

Full article here.

During the company’s conference call, Apple executives, stated at least three separate times that, to paraphrase, “Apple established iPod touch which has the potential to become the very first mainstream mobile platform running all kinds of applications.”