Apple shipping 100K nanos a day, mulls 1GB model

It's unclear how long the Cupertino, Calif.-based iPod maker has been manufacturing the players at the current rate, which would amount to approximately 9 million units per quarter.

In recent weeks Apple has made moves to increase its output of iPod nanos, which are the company's best selling items this holiday season. This included tapping former click-wheel supplier Synaptics to help supply components for click-wheels in the 2GB and 4GB nano.

Despite early and widely publicized concerns over the iPod nano's protective coating, the players have proven to be a hit with consumers and are sold out in most stores. The popularity of the iPod nano design may have even surprised Apple, which is now mulling an expansion of the product line to the lower tier of the flash-player market.

According to sources, last week members of Apple's marketing team wrangled over the release of 1GB iPod nano — essentially a 2GB nano sans half the flash memory — which the company recently showed to its business partners and considered for release early next year.

Some members of the team reportedly argued that 1GB iPod nano would occupy the same value space as a redesigned iPod shuffle, which Apple is expected to introduce at the Macworld Expo in San Francisco during the second week of January.

For a 1GB iPod nano to be successful in the digital music player market, sources say Apple would need to price the player aggressively at the $149.99 price point, which poses the question of whether the iPod maker could sustain its profit margins on such a model.

"I think the pricing may be tough at $149, but Apple has proven that customers are willing to pay for style over storage capacity," said one Wall Street analyst who asked not to be identified.

"Apple's profitability should improve as the price of NAND flash has been falling and from what I understand, the recent $1.25 billion in deals with 5 [NAND flash] suppliers through 2010 are favorable for Apple," the analyst said. "$149 for a 1 GB nano sounds economically feasible and may in fact be very profitable." 

The analyst added that Apple currently makes a larger profit from sales of the $199 2 GB nano than it does the 4 GB nano.

Meanwhile, both sources and analysts believe Apple could market its second-generation 512MB iPod shuffle for as little as $79.99.