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iPod touch price cuts 'may not be enough' given conditions

Across the board price cuts announced by Apple on its iPod touch line of digital media players are "nice," but may not be sharp enough to drive a sales surge given economic conditions and the more aggressively priced iPhone 3G, according to one Wall Street analyst.

American Technology Research analyst Shaw Wu, who had previously recommended that investors reset their expectations for Tuesday's "Let's Rock" event, believes favorable commodity pricing on components such as NAND flash will allow Apple to absorb the new cuts without a material hit to its margins.

In fact, he suggests that the Cupertino-based company may even see some upside to margins in the coming quarters given its decision not to cut prices on the iPod shuffle. His concern, however, is that the new touch models are not priced aggressively enough for today's consumers, who may see more value in a $199 subsidized iPhone.

"As expected, the new second generation iPod touch has a slimmer form factor with lower price points of $229, $299, and $399, respectively for its 8 GB, 16 GB, and 32 GB models," Wu told clients. "While we are pleased to see lower pricing, we are concerned that price points may remain too high given the tough macroeconomic environment and relative to the 3G iPhone at $199 and $299."

Over at UBS Investment Research, analyst Maynard Um had a completely different take on the new price points for the touch, which he believed would not only make the players more accessible to a new range of customers, but also translate into increased earnings.

"We think [the] refresh of the iPod line is the necessary and appropriate strategy to maintain the firm’s dominant market share," Um said. "We expect the lower pricing to drive demand elasticity, and while the cost reductions could raise concerns about gross margins, we believe it will stimulate demand and benefit profits."

Both Um and Wu remain fairly bullish on shares of Apple, each maintaining Buy ratings on the stock with price targets of $195 and $220, respectively. They each agree that shares of the company have taken a beating recently as a result of broader market sentiment, not concerns over fundamentals.

"We continue to think Apple will benefit from further product refreshes, price elasticity and continued ramp of the iPhone," Um said.