Cracked IPod Nano Screens to Be Replaced

Apple Computer Inc., responding to consumer complaints that the screen on its sleek, recently introduced iPod nano cracks too easily, said Wednesday that it would replace defective units.

Also on Wednesday, Merrill Lynch analyst Richard Farmer lowered his rating on Apple shares to “neutral” from “buy,” saying that sales growth could slow in coming months and that comparisons to year-earlier periods could become more difficult.

“When everyone knows everything is going right for a company, sentiment is hard to improve,” Farmer wrote in a note to clients about Apple and its highflying stock.

Cupertino, Calif.-based Apple introduced the nano with great fanfare three weeks ago, and Chief Executive Steve Jobs expects it to become the bestselling iPod. The nano replaced the iPod mini, the previous bestseller in the line.

“It is a real but minor issue involving vendor quality problems,” an Apple spokesman said of the cracked screens, noting that fewer than one-tenth of 1% of nanos sold had been affected.

In its most recent quarter, Apple sold 6.2 million iPods, accounting for about a third, or $1.1 billion, of the company’s revenue in the period.

Apple introduced the iPod nano in two versions: a 2-gigabyte model selling for $199 and a 4-gigabyte model for $249. The iPod line commands about 75% of the market for digital music players.

Apple shares fell $2.36, or 4.4%, to $51.08. The stock, after more than tripling in 2004, has risen 59% this year.