So the rumours were true after all, as we learned yesterday that Apple is indeed launching a cut-price iPod, to retail at $99 (£53), along with a budget "Macintosh computer for the masses", to be sold in the United States for $499 (£266).

The pressing question now is what the move downmarket will mean for Apple, a brand more usually associated with high-end electronics.

Analysts seem to agree that having invented a new must-have gadget in the iPod, it is wise for Apple to develop the range to accommodate all pockets. Hence the iPod Shuffle.

For one thing, the consumer electronics world moves fast and it is not as if the iPod, which was launched in 2001, is the newest kid on the block. Indeed, Apple's tetchiness with the media before yesterday's announcement could signal a chink in the company's confidence.

Apple will be uncomfortably aware that not all of the market got caught up in the Apple hype, as some analysts noted that iPod shipments in the forth quarter had failed to meet some of Wall Street's loftier expectations. Apple's stock closed lower by $4.40, or more than 6 percent, at $64.56.

To keep the buzz around the iPod, Mr Jobs has resorted to competing on cost - never an attractive prospect.

However, the launch of the 4GB iPod mini last year - which retails for around £180 and stores around 1,000 songs - had already shown that the move down the price bracket was part of Apple's thinking. Meanwhile, it seems likely that many of the people who were going to buy a flagship 60GB iPod for £430 have now done so. The new iPod Shuffle looks a logical next step.

The logic behind a new budget computer is trickier to stand up. The prospect of more competition in the low-end computer market yesterday led one Wall Street analyst to downgrade the sector's largest player. Shares in Hewlett-Packard, which accounts for more than half of the American desktop market, fell by nearly 5 per cent after Morgan Stanley gave warning over strengthening competition and "mediocre" demand.

Analyst Rebecca Runkle downgraded H-P to "underweight" from "equal weight," and trimmed her stock price target to $18 from $20. Doing so, she painted a pretty grim picture of the market into which Apple is launching itself.

Meanwhile, as other analysts have noted, there is a real danger that Apple will dilute its brand values by pitching itself against the like of Dell and H-P. For many of the Apple faithful, there is the temptation to equate cheap with nasty.

Indeed, to assuage such concerns, the company had downplayed speculation it would compete at the lower price range. "In terms of our pricing, I feel very good about where each of our product lines are priced," Peter Oppenheimer, Apple's finance officer, said last year.

Mr Jobs may have lauded the new computer as a "Mac for the masses" but the most convincing justification for the budget-computer strategy stems from the iPod.

Wall Street analysts, talking up Apple's stock, have made a great deal out of what they have called the "halo" effect. The theory says that music lovers tempted to Apple through the iPod might move to the brand when they come to trade in their PC. The Mac mini is designed to make this transition smoother.

Is it wise for Apple to place so much of its faith in the iPod? The iPod and iTunes have transformed Apple's business profile. Apple claims it retains a 70 per cent share of the market in legal downloads. The company recently said that users had bought more than 200 million tracks from iTunes, its download service, at 99 cents a time.

After several years of flat sales, Apple's turnover has doubled in 18 months to about $12 billion. The iPod has served Apple very well so far. Exploiting the iPod "halo" would seem wise. But Mr Jobs should beware of following a one-strand strategy down-market.

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