Oct. 11 (Bloomberg) -- After clothes, money and a car, an iPod is what U.S. teenagers want most this holiday season.

A survey of 600 high school students by Piper Jaffray & Co. analyst Gene Munster found Apple Computer Inc.'s digital player No. 4 on their wish list. And the iPod wasn't even among the items Munster suggested -- the kids wrote it in.

``It was really surprising,'' said Munster in an interview from his office in Minneapolis. ``They didn't say music player. They said iPod. Teens want to be cool, they want their music, and the iPod is a cool way for them to get their music.''

Demand for the iPod, unveiled by Chief Executive Steve Jobs in October 2001, has helped make Apple the third-best performing stock in the Standard & Poor's 500 Index this year. A surge in iPod sales will help Apple report a 25 percent gain in fourth- quarter sales, according to analysts surveyed by Thomson Financial. The results, slated to be released Oct. 13, would be the fifth straight period revenue growth exceeded 15 percent.

The iPod, the fastest growing product at Cupertino, California-based Apple, has reduced the company's reliance on PCs. Music products, including iPod sales, accounted for 16 percent of Apple's $2.01 billion in revenue in the third quarter, up from 8 percent a year earlier.

Apple shares surged 83 percent this year, compared with a gain of less than 1 percent in the S&P 500, and are trading near their highest levels since Sept. 28, 2000, when the shares closed at $53.50. The stock fell 56 cents to $39.06 in Nasdaq Stock Market composite trading on Oct. 8.

Analysts expect fourth-quarter profit, excluding some costs, of 18 cents a share in the period ended Sept. 25, the average of 21 estimates in a Thomson Financial survey. Sales probably reached $2.15 billion, their highest level since the quarter that ended Jan. 1, 2000.

Surging Sales

Jobs, 49, built the recent success around the white iPod and a ``mini'' version released in February that comes in five colors. Apple has sold 3.72 million of the players, including 860,000 in the third quarter alone. iPod revenue more than doubled to $249 million in the third quarter from a year earlier.

The success of the devices has made the iPod a target for competitors from Japan's Sony Corp. to PC king Dell Inc. of Round Rock, Texas. So far, Jobs has beaten them back because the iPod, which works with its iTunes software and online music store, adds up to a combination other manufacturers have not been able to mimic, Piper Jaffray's Munster said.

``Style matters, simplicity matters, experience matters,'' Munster said. ``That's what Apple sells, and that's what they're doing different from everyone else.''

Market Share

The iPod had an 82 percent share of the market in U.S. retail stores in the 12 months ended in August, up from 64 percent in the same period a year earlier, and 33 percent two years ago, according to Port Washington, New York-based NPD Group Inc.

Sales of players that use computer hard disks as storage, like the iPod, will increase almost fivefold to 10.4 million units this year from 2.1 million in 2003, according to In- Stat/MDR, a market researcher based in Scottsdale, Arizona. Devices that play MP3 digital music files will surge to 52.4 million units by 2007, up from about 18 million this year, In- Stat/MDR said.

Tempted to Sell

``The iPod is still in its infancy on a global basis,'' said John Buckingham, President of Al Frank Asset Management in Laguna Beach, California, which manages $500 million and owns 102,000 Apple shares. He bought an iPod for his wife from Apple's Web site three months ago. She likes it enough that she won't let him use it, he said.

Future gains in the stock may be limited, Buckingham said. Apple shares are selling for 60 times its projected earnings, compared with 28 times for Dell Inc. and 14 times for Hewlett- Packard Co.

``The problem is that valuation is being stretched,'' Buckingham said of Apple shares. ``I bought the stock at $14 and if it goes up a couple more I might be tempted to take some off the table.''

Apple may surprise investors when it reports earnings, Merrill Lynch & Co.'s Steven Milunovich and Joel Wagonfeld of First Albany Corp. said in notes last week. They expect Apple to beat the 18-cent average estimate by 1 cent.

Sales of the iPod overseas and a redesigned version of the iMac, released in mid-September, drove sales in the quarter, Milunovich said. He anticipates sales of $2.2 billion, suggests investors buy the stock. He said he doesn't own the shares.

Apple began shipping the mini overseas in July, after Apple delayed its release to meet demand in the U.S. Retailers such as Costco Wholesale Corp. and Sears Roebuck & Co. have begun carrying the player, helping bolster sales, Milunovich said.

H-P's iPod

Hewlett-Packard started shipping its own version of the device in September. Hewlett-Packard, based in Palo Alto, California, sells in 110,000 stores in 173 countries.

Investors are betting that customers who bought an iPod, which range in price from $249 for the mini to $399 for a 40- gigabyte version, might also be more willing to spend $1,299 or more on the company's latest iMac.

The iPod's ``halo effect'' will drive holiday sales of the iMac, Milunovich said. He estimates the company will ship 270,000 iMacs in the fiscal first quarter, a 19 percent jump from last year.

``You get evangelists for Apple and the Macintosh growing,'' said Munster, whose enthusiasm for his own iPod led him to buy his first Apple PC two years ago. ``All their core products get a tailwind for the next two years because the iPod is the avenue for customers to go to Apple stores and see other Apple products.''

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

Last Updated: October 11, 2004 03:03 EDT