American Technology Research analyst Shaw Wu believes Apple will sell 7.1 million iPods in the current quarter and that the possibility of lower prices for consumers on certain models is highly possible.

Mr. Wu reported quarter-to-quarter sales are up some 15% but that the average selling price of iPods is coming under "greater than expected pressure".

In a note to clients obtained by The Mac Observer, Mr. Wu wrote, "We have noticed very aggressive pricing, particularly on 4GB iPod minis. 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.

"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," he wrote.

He wrote that he is more certain than ever that flash memory will replace the microdrive presently being used in 4 gigabyte (GB) capacity iPod mini's.

"We had previously thought that only 2 GB of flash was economically feasible to replace a microdrive," he wrote. "But now (we) believe that 4 GBs of flash at Apple's special discount to about $100 (versus the $185 market price) is very competitive with 4 GB microdrives. 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, AAPL's other flash supplier. Interestingly, we believe AAPL will also likely source from Hynix, adding a third flash supplier and thus further driving down pricing to protect its gross margin."

Looking forward, Mr. Wu said he "is hearing" that Apple will likely source components for future portable devices (including iPods) from Intel, Broadcom and Sharp. If true, the expansion of iPod component suppliers could put pressure on PortalPlayer and Sigmatel.

Mr. Wu repeated his 'Hold' recommendation on Apple's stock with a US$42 target price.