Microsoft's release of new Zune portable media players are more likely to cannibalize non-Apple players than affect sales of Cupertino-based company's own devices, according to American Technology Research senior analyst Shaw Wu. "As we have long believed, we view the Zune as more of a competitive threat to its Windows Media partners including SanDisk, Sony, Samsung, LG, Verizon, Toshiba, and Philips as opposed to Apple and iPod," Wu wrote in a research note obtained by MacNN. "To us, the portable music player space is divided into two camps—iPod + iTunes (the de facto industry standard) and everyone else." The analyst notes that while Microsoft now has a more competitive product line, it still has no answers to iPhone, iPod touch, and most importantly the new top-selling "fat boy" iPod nano. Wu still maintains his 'buy' recommendation for Apple shares with $185 price target, and says that Apple is set to buck the trend once again despite potential softness in U.S. consumer spending.

"Interestingly, Microsoft is matching Apple with similar price points at $249, $199, and $149. We believe Microsoft is unable to undercut Apple due to Apple's world-class supply chain which gives it access to the lowest cost components, manufacturing, and distribution," Wu explained. "We believe Microsoft will need to price much more aggressively in order to stand a chance against Apple."

The analyst predicts that Zune will likely continue to see modest success due to the Redmond-based company's vast resources and strong brand name, but will do so at the expense of its Windows "partners."

Wu recommends purchasing Apple shares on pull-backs, and sees an upside to $185 in 6-12 months. The analyst also thinks Apple's key competitive advantages remain in the form of a strong brand loyal consumer base combined with its integrated hardware, software, and service model. Further advantages serving Apple are its proprietary interface technologies like the iPod's click-wheel and iPhone's multi-touch display, while unique and pleasant customer experiences within Apple retail stores serve to round out the company's edge over competitors.