Microsoft is unlikely to dislodge Apple's market leadership in digital music, at least for the mid-term, according to American Technology Research analyst Shaw Wu.

Recent reports have indicated that Microsoft plans to launch its own branded music player and (potentially) music and movie download service. Despite the threat, Wu believes Apple's act is a hard one to follow.

In a note to clients received by Macworld UK, Wu warns that Microsoft's move into the digital music market will place the company in direct competition with many of its existing partners in the space.

"While the focus is on Apple and - no matter what Microsoft says - this move essentially puts Microsoft in direct competition with partners that it has worked with over the past three to four years, it's likely have a much larger competitive impact on Creative, Sony, Samsung, MTV Networks, and others," he warns.

The analyst observes that Apple has already shown that while the hardware space is highly competitive, the digital music sales offer little profit to operators. "It is yet to be seen if Microsoft can be profitable (and not to mention successful) in making portable hardware," he warns.

"The question is whether Microsoft is willing to fund another potential highly unprofitable business," he explains.

Apple's business model will be a challenge to imitate, he says, adding that Microsoft's competitor has a 50 million-strong installed iPod user base as well as at least 300 million iTunes users. The company's competitive advantages are largely defendable in user interface, industrial design, brand name, and supply chain.

More activity is predicted by Wu: "We believe Apple is pursuing a longer-term broader strategy beyond iPods," he points out. He rates Apple stock as a 'buy'.

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