July 13 (Bloomberg) -- Apple Computer Inc.'s iPod shipments probably dropped in the third quarter from the second, the first decline in more than two years and a sign the surge in demand for the music players may be waning.

Apple's profit in the quarter more than quadrupled to $274.2 million, or 31 cents a share, from $61 million, or 8 cents, a year earlier, according to the average estimate of 18 analysts surveyed by Thomson Financial. Sales likely rose 66 percent to $3.34 billion. The results would exceed Apple's forecast for profit of 28 cents and sales of $3.25 billion.

Apple, which made its name selling Macintosh computers, will say today iPod shipments dropped to 5.29 million in the three months ended in June from 5.31 million in the second, according to a Bloomberg News survey of eight analysts. Sales of the iPod, which generated almost one third of Apple's $3.24 billion in revenue, are up sixfold from 860,000 a year earlier.

``It's the law of large numbers,'' said Jim Grossman, who helps manage $63 billion in assets, including Apple shares at Thrivent Financial in Appleton, Wisconsin. Grossman said iPod unit sales will be the first number he looks for in the company's earnings report.

The drop in iPod shipments reflects a lack of new models and disappointing appetite for the shuffle player, a low-cost model unveiled by Chief Executive Officer Steve Jobs in January. Apple hasn't introduced a new iPod since the shuffle, choosing instead to cut prices and boost memory. Concern that the momentum may have stalled has driven shares down 6.5 percent since late May.

Shares of Apple rose 14 cents to $38.24 yesterday in Nasdaq Stock Market composite trading. Shares are up 19 percent so far this year, compared with a 9.8 percent decline in the Standard & Poor's 500 Index. Of 23 analysts tracked by Bloomberg, 16 recommend investors buy Apple stock. Seven suggest holding.

High Expectations

While Apple's profit has beaten estimates for six straight quarters, the company last quarter disappointed analysts with its forecast, sending the shares tumbling 14 percent.

``There were too many high expectations, and the naysayers wanted to say it was the first sign of a slowdown,'' Thrivent's Grossman said.

Analysts' estimates for iPod shipments range from 4.8 million to 5.55 million.

As shipments fall, Apple also is getting less for each gadget as it cuts prices to drive sales. June price cuts on the shuffle and Apple's most-costly white iPod, which now sells for $399 instead of $449, may lower the average price of the players to $175 this quarter, said Benjamin Reitzes, an analyst at UBS AG in New York.

The iPod mini and shuffle may have pushed the average price of the players down 35 percent to $188 from $290 a year earlier, Reitzes said.

Jobs, 50, declined to comment for this story.

Mac Gains

Sales of Mac computers helped offset slack iPod demand, JPMorgan Chase & Co. analyst Bill Shope in New York said. He was one of three analysts who raised their estimates last week. Shope also has the highest prediction for iPod shipments at 5.55 million.

Mac shipments probably surged to a five-year high of 1.14 million units in the quarter, Shope said. That's up from 1.07 million in the second period and the third straight quarter Mac shipments have topped 1 million machines.

Apple ranked as the fifth-largest maker of personal computers last year behind Dell Inc., Hewlett-Packard Co. Gateway Inc. and International Business Machines Corp., according to researcher Gartner Inc. The company's sales are growing twice as fast as the market.

Apple's biggest gains may have come from sales of its Tiger software, which carries a profit margin of more than 80 percent, about four times higher than the 20 percent Apple says it makes on iPods. First Albany Corp. analyst Joel Wagonfeld estimates Apple sold 2.8 million copies of Tiger, adding 5 cents to profit.

``The real reason we stick around and love this stock is we believe people are adopting the operating system,'' said Grossman, a Mac user since 2000. He owns eight models.

This Quarter

Analysts including Reitzes and Piper Jaffray's Gene Munster expect Apple to release new iPods during the back-to-school season that typically spans July, August and September. Munster predicts models of the mini with a fresh design.

The new products, and sales through new retailers such as Wal-Mart Stores Inc., may take sales in the current quarter to 6.23 million units, the highest number sold in a single period, Reitzes said.

Jobs, who has earned $1 a year in salary since returning in 1997 to the company he co-founded, didn't receive a bonus or stock in the year ended in September, after getting restricted shares valued at $74.8 million the year before. Jobs has a personal fortune of $3 billion, according to Forbes magazine.

Munster in Minneapolis, who rates the shares ``outperform'' and doesn't own them, expects the total number of iPods shipped to reach 35 million by yearend from 15 million as of March 31.

``When Apple comes out with new products, they have tremendous success,'' Munster said. ``That's what Steve Jobs needs to deliver.''

To contact the reporter on this story: Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net.

Last Updated: July 13, 2005 03:01 EDT