American Technology Research analyst Shaw Wu is concerned that iPod nano sales, while good, aren’t great.

In a note to clients obtained by Macworld, Wu recommends investors hang on to (“Hold”) the stock, with a target price of $42 (current price, $50.82).

He also describes “checks” with industry and channel sources that reveal: “Good, but not great initial sales of iPod nano”.

The new iPod has only just reached market and consumers continue to buy Apple’s outgoing iPod mini, benefiting from Apple’s new end-of-line prices.

Critical acclaim faster than sales

He describes his information (based on six days of data) on iPod nano sales as: “Surprising given the consensus view from both the investment community and technology reviewers that the iPod nano would be a big success”.

Wu claims that some Apple retail stores: “Have sold only 200-500 of their initial 1,800-2,500 iPod nano allocation and that black models are outselling the white ones by 5-to-1 - in some cases as high as 8-to-1. Compared to its best-selling predecessor iPod mini, which was sold out for nearly six months following its launch, iPod nano is so far readily available at Apple stores, its online store, and starting to show up elsewhere.”

Supply and demand

When Apple launched the iPod mini in January 2004 the product was criticized for its 4GB storage, but was hard to get hold of for six months, while Apple ramped-up production.

However, Apple CEO Steve Jobs has called the launch of the iPod nano the “largest” in his company’s history, as Apple attempts to avoid supply shortages.

Despite this, Wu remains concerned, saying: “We may be alone at this point, but we believe matching the super success of iPod mini may be a tough act for iPod nano to follow without some changes”.

He describes the device as a “great product” that combines good features from across Apple’s music player range, warning: “Apple may need to make some changes to ensure its success as a high-volume product”.

He suggests raising capacities to match the 4GB and 6GB iPod minis, or a $50 price reduction. “We believe the former is more likely”, he said.

“We believe Apple is well-positioned in both the PC and MP3 markets, but we find the risk-reward at current valuation levels uncompelling,” Wu concludes.