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Friday, January 14, 2005, 08:30 am PT (11:30 am ET)

HP halts orders for Apple\'s iPod music players

Exclusive: Hewlett-Packard, which recently entered into a strategic alliance with Apple to deliver HP-branded versions of the iPod under name 'iPod+ HP', has stopped placing orders for the digital music players with Apple Computer, AppleInsider has learned.

Hewlett-Packard is reportedly quarreling with Apple over a lack of price protection offered with the iPods it manufacturers through the Mac maker, possibly explaining why the two companies have yet to set a date for the rollout of the HP-branded iPod photo.

Without a set price protection policy from Apple, HP will be vulnerable to sudden iPod price cuts that would leave it biting the full cost of those reductions. Apple currently offers HP no price protection, whatsoever, on the two models it currently sells.

"I find it striking that even a company that is larger than Apple, and has better distribution channels, can’t get anywhere with them in terms of protection of their business model in the event that price drops take place down the road," said one reseller.

As a result of the dispute, HP has reportedly refused to place any further orders for Apple's iPod. "HP won’t re-order manufacturing until Apple is willing to sit down at the table and agree to something that’s reasonable for both parties," a source close to the company said.

During Apple's Q1 2005 financial conference call on Wednesday, Apple CFO Peter Oppenheimer said that HP-branded iPods accounted for only 7% of the 4.58 million iPods sold during Apple's December quarter. Curiously, this figure rose just one percent from the previous quarter, even though both parties vouched that the December quarter would be marked by an increased presence of HP's iPod offerings.

HP's online store is currently out of stock of the 20GB iPod and retains only a limited supply of the 40GB iPod. Sales representatives for HPShopping.com confirmed that they ran out of 20GB iPods about a week ago and do not expect new shipments anytime soon.

Representatives from HP failed to return repeated phone calls for comment over the past 48 hours.

Apple Computer has a long standing policy of not communicating with AppleInsider, and hence declined to comment.