American Technology Research analyst Shaw Wu believes Apple will sell 7.1 million iPods in the current quarter.

The figure is up 15 per cent, quarter-on-quarter, but he warns that average selling prices in iPods may come under, "greater than expected pressure", he wrote in a note to clients obtained by Macworld UK.

Following recent meetings with Apple, Wu has repeated his "Hold" assessment on the company's stock with a $42 target price. He also notes recent price discounting on Apple's popular iPod mini range.

Flash-based iPods minis in sight?

"We have noticed very aggressive pricing, particularly on 4GB iPod minis", he said. "We believe part of the reason is that iPod inventories remain relatively high on an absolute basis and this aggressive promotion is to ensure sales in an otherwise slower consumer period."

The analyst also describes Samsung's "readiness" to reduce flash memory prices by up to 50 per cent. This revelation follows recent news that Apple has acquired 40 per cent of Samsung's flash memory output.

With this in mind he states he has, "higher conviction that flash will replace microdrives at 4GB capacities". Previously he has seen 4GB flash-based iPods as unfeasible, because of the cost of such memory.

Apple shuffles its deck

"Our sources tell us that Samsung was willing to drop its prices aggressively to lock in a marquee customer and win back some business from Toshiba, Apple's other flash supplier. Interestingly, we believe Apple will also likely source from Hynix, adding a third flash supplier and thus further driving down pricing to protect its gross margin," he added.

Looking forward, he states he "is hearing" that Apple will likely source components for future portable devices (including iPods) from Intel, Broadcom and Sharp.

This places present iPod component suppliers PortalPlayer and Sigmatel at some risk, in terms of any such shift's impact on their business.