Nov. 15 (Bloomberg) -- Hon Hai Precision Industry Co., the world's largest contract electronics manufacturer, declined to confirm or deny a newspaper report that it will make mobile phones with iPod music-player functions for Apple Computer Inc.

The company won a contract to make 12 million iPod handsets, the Commercial Times reported today, citing unidentified industry sources. Taipei-based Hon Hai doesn't comment on market rumor, spokesman Edmund Ding said, while Vincent Tong, at Hon Hai's handset-making unit, also declined to comment.

The introduction of a mobile phone that can access the popular iTunes online store may earn as much as $1.5 billion in annual sales for Apple, according to UBS AG. A model that Apple developed with Motorola Inc. last year disappointed some consumers who complained the phone could only hold 100 songs.

``Apple learned a lesson from the disappointment of its earlier iPod handset and so there should be a noticeable improvement for this new one,'' said Lin Mei-Ru, an analyst at Polaris Securities Co. in Taipei. ``I'd expect this new phone will hold a lot more songs.''

Apple plans to start selling the iPod phones in the first half of next year, the Commercial Times reported. Apple, based in Cupertino, California, doesn't comment on speculation, said spokesman Steve Dowling.

Shares of Hon Hai fell 0.4 percent to NT$226.50 by the 1:30 p.m. end of trading in Taipei. Foxconn International Holdings Ltd., Hon Hai's handset unit, advanced 1.3 percent to HK$26.45 in Hong Kong as of the 4 p.m. end of trading in Hong Kong.

More Songs

Motorola Chief Executive Officer Ed Zander said last October that the Schaumburg, Illinois-based company didn't make it clear enough to customers that the Rokr handset holds fewer songs than an iPod.

The Rokr can store 100 songs, while the iPod Nano, introduced on the same day last year, holds 1,000. Motorola introduced the Rokr phone for $249.99 with a two-year contract from Cingular Wireless LLC.

Apple's new iPod phone may sell for an average of $300, Benjamin Reitzes, a New York-based analyst at UBS, wrote in a Nov. 3 report. Shaw Wu, an analyst with American Technology Research in San Francisco, estimated in a Sept. 5 report that the average price of an iPod handset would be $200.

Hon Hai already makes iPod digital music players for Apple, and also produces components used in mobile phones.

Foxconn International, the world's biggest contract maker of cell-phones, provides manufacturing services to mobile phone companies such as Motorola and Nokia Ojy. Apple is not one of its existing customers, Foxconn spokesman Tong said.

To contact the reporter on this story: John Liu in Shanghai at jliu42@bloomberg.net

Last Updated: November 15, 2006 03:15 EST