Fears that MP3 enabled mobile phones will steal market share from the iPod, and a competitor's concerns about reduced demand for digital music devices, caused Apple's share price to fall last night.

Apple's share price fell last night after Creative cut its sales outlook. Creative's concerns follow reports of expected competition from mobile phones with MP3 players.

The report from Informa Telecoms and Media recently predictd that by 2010, mobile music will be worth $11.3bn, with nearly $6.8bn worth of realtones - mobile phone ringtones that sound like a real song rather than digitised music - sold by the end of the decade. This report, coupled with a Barron newspaper report that concluded that as more mobile phone companies add the capability of downloading and playing music, sales of the popular iPod digital media device will slow, caused Apple's share price to fall.

The Barron report said that by 2006, many new handsets will carry software, circuitry and data storage for portable music. It said this will let people download songs from personal computers, like iPods, but also download music via a wireless connection to competing music services, writes E-Commerce News.

"While optimists think Apple could sell 45 million iPods next year, mobile-phone makers will be selling more than 750 million handsets," wrote Barron's Bill Alpert.

However the mobile phone companies owe Apple credit for creating the market. According to Informa Telecoms and Media analyst Jessica Sandin there's a direct link between the popularity of real music ringtones and the number of iPods flying off the shelf, writes Silicon. She said: "Soon there will be more phones capable of playing music out there than iPods. iPods have helped in terms of consumer experience - getting them used to using and downloading music," she said.

It should be noted that the popularity of mobile phones with digital cameras has not caused sales of digital cameras to decline dramatically.

Creative accounting

In April, Creative said it expected to earn fourth-quarter revenue of between $330 million to $360 million, which would represent a 65 per cent to 80 per cent increase over the same quarter in 2004. However, the company has now lowered its revenue forecast to $300 million, which represents a 50 per cent increase over the same period last year.

"Based upon its revised guidance, Creative expects to report an operating loss for the period," it said in a statement.

Apple's stock fell 1.75 per cent to $37.10 following Creative's news.

But one analyst suggested that Apple may be the real reason Creative is experiencing reduced sales. Piper Jaffray senior analyst Gene Munster said: “We believe that iPod’s continued dominance of the portable audio market, especially as shuffle gains market share for flash-based players, is likely having an impact on Creative,” reports iPodlounge.

It's not all doom and gloom however. Lehman Bros. raised its fiscal 2006 earnings estimates for Apple to $1.32 from $1.30 per share, citing continued expansion of distribution with the likes of HP and Wal-Mart Stores.

The broker warned that Apple will be temporarily locked in a trading range "until a meaningful new product cycle emerges or proof that PC is growth is coming from "halo" effect rather than price point expansion and channel fill," writes MarketWatch.