“We did a long-term supply agreement with Toshiba,” Cook explained. “As a part of that, as part of the terms and conditions, we paid them $500 million as a pre-pay earlier in the quarter. You know, we view Flash as a very key component for us because as you know we use it in so much on so many of our products and also we are a reasonable percentage of the user of Flash on a worldwide basis.”

Indeed, Apple (AAPL) sells millions of NAND flash-enabled devices each year, so many that its needs often constrain supply for the entire market. In 2005, the company arranged to purchase up to 40 percent of Samsung Electronics’ holiday NAND output for use in it iPods. In July of last year Apple bought 50 million 8Gb-equivalent NAND flash chips from Samsung, forcing the company to reduce its supply to other customers.

Then, this past April, Apple ordered 100 million 8Gb–or one-gigabyte (1GB)–chips from Samsung, once again causing flash supplies to tighten. Now we have this $500 million prepayment, which, according to sources, will keep Apple in NAND for about three months.

Great news for Toshiba, which has been suffering mounting losses in the midst of tougher competition, and for the NAND market as well. As Tim Cook said yesterday, “The NAND market has now begun to stabilize and we expect it to move towards a supply/demand balance.”

In an investment note issued this morning, Munster estimated that the company sold 750,000 iPhones over the weekend–25 percent fewer than the one million units of the iPhone 3G model Apple sold during the launch of that device last July, but 50 percent more than the 500,000 he originally predicted.

“The only true benchmark for judging the launch of the iPhone 3G S will be the time it takes Apple to sell 1 million units. Apple sold 1 million 1st generation iPhones in 74 days and 1 million iPhone 3G units in 3 days. We are uncertain whether or not Apple will announce the 1 millionth iPhone 3G S; regardless, we are increasingly confident in our 5 million iPhone unit estimate for the June 09 quarter following the price drop of the iPhone 3G from $199 to $99 in early June and the launch for the iPhone 3G S, where interest in the device surpassed our expectations.”

A few other points worth noting from Munster’s note. The analyst surveyed 256 customers at Apple (AAPL) stores in New York and Minneapolis over the weekend about their preferred OS, the size of the iPhone they were purchasing and the phones from which they were upgrading, among other things (see table below; click to enlarge). In the 256, he found a mix of 66 percent Mac users and 34 percent PC, similar to what he found last year (61 percent Mac, 39 percent PC).

Of those surveyed, 43 percent purchased the high-end 32-gigabyte iPhone 3GS, less than the 66 percent of buyers who purchased the 16GB iPhone 3G last year. And 56 percent were upgrading from an old iPhone–up from 38 percent last year. “We believe this shows Apple is developing brand loyalty not enjoyed by other mobile phone makers,” Munster notes.

“At the outset of the company’s iPhone initiative, one of Apple’s goals was to develop the kind of brand loyalty it has developed among Mac and iPod customers, and we believe they are succeeding thus far. As the footprint expands, and loyalty expands as well, Apple will increasingly enjoy a base of customers who regularly upgrade to the newest version of the mobile phones the company releases in what appears to be an annual cycle.”

Now comes word that the company’s appetite has been renewed–and doubled. Industry sources tell DigiTimes that Apple has placed an order for 100 million 8Gb (1 gigabyte) chips from Samsung, an order so large it is reportedly causing a supply shortage. If correct, the DigiTimes report could lend a bit of credence to rumors of a low-end iPhone. Unless, of course, Apple plans to use them for something else entirely, (a single, massive 100 million gigabyte iPhone?)–also a distinct possibility.

Either way, contract prices for flash memory are likely to rise to unpleasant levels in the near future.

The device is largely as expected–an iPhonish-looking thing with both GPS and Wi-Fi, 1GB of permanent flash memory, a 2-megapixel camera, full HTML browsing, 3G support on GSM networks with HSDPA access and, of course, the BlackBerry’s one-trick killer app: instant, secure email. That’s a compelling combination for business users and casual ones not easily swayed by the iPhone’s hype juggernaut as well. Indeed, Citigroup analyst Jim Suva says it could boost RIM’s quarterly shipments by 200,000 to 400,000.

But perhaps not without a bit of struggle. The BlackBerry Bold won’t ship until as late as August, which means Apple (AAPL) could beat it to market with the enterprise-friendly 3G iPhone it’s rumored to be uncrating at its Worldwide Developer’s Conference in June. Which has got to worry RIM. After all, the first-generation iPhone had claimed a 28% market share by the fourth quarter of 2007. That’s still less than the BlackBerry, which holds about a 41% market share, but the iPhone hasn’t even been on the market a year.

Well, if this rumor proves true, Canada really will have to declare a national day of mourning for the BlackBerry (RIMM). When Apple (AAPL) CEO Steve Jobs uncrates the 3G iPhone a few months from now, presumably at the company’s WWDC conference in June, the device’s price may draw more oohs and ahs than its feature set.

Fortune claims AT&T (T) plans to knock $200 off the cost of a new iPhone for customers who sign two-year contracts. If that is indeed AT&T’s intention, the 8-gigabyte version of the device would likely price out at $199, the 16-gigabyte model at $399. Which is a pretty compelling value proposition given that the device will soon support Microsoft (MSFT) Exchange and run Spore, Salesforce (CRM), AIM from AOL (TWX) and a host of other third-party apps.

No wonder Apple execs seemed so comfortable reiterating the company’s goal of selling 10 million iPhones in 2008. At $199, they might be able to hit that number without the Asian markets.

Yesterday the creators of the popular ZiPhone jailbreak discovered in the latest test firmware for iPhone developers a reference to Infineon’s (IFX) SGOLD3H chipset–a chipset that supports 3G wireless broadband of up to 7.2 Mbit/s.

Now “industry sources” cited by TG Daily are claiming that the next-gen iPhone that runs on that chip will debut at WWDC. And there’s more. The device will be slimmer than its predecessor (by about 2.5 mm) and it will be offered in least two configurations at current price points: an 8GB version for $399 and a 16GB $499.

This morning Apple (AAPL) refreshed both its MacBook and MacBook Pro lines, adding Intel’s Penryn Core 2 Duo chipset (up to 2.4 GHz for the MacBook and up to 2.6 GHz for the MacBook Pro). As Apple’s flagship portable, the MacBook Pro now boasts the same multitouch trackpad found in the MacBook Air and an LED backlighting option for the 17-inch model. All but the low-end MacBook feature a two-gigabyte RAM, with a build-to-order option that allows for their upgrade to a four-gigabyte RAM. New Macbooks are priced from $1,099 to $1,499, new MacBook Pros from $1,999 to $2,799.

Odd way to promote your iPod challenger, don’t you think? Apologizing for its mediocrity. “It was just so-so on the software side. I’m sure a year from now we’ll do even better.” And hey, thanks for the $250. We know you could have put it toward an iPod.

Anyway …

As expected, Microsoft unveiled an update to its line of Zune music players yesterday, adding its first flash memory-based models and debuting a new Wi-Fi feature that will automatically synchronize music, photos and videos with PCs in homes with Wi-Fi networks. The company plans to peddle the flash version of Zune with four gigabytes of storage and one with eight gigabytes for $149.99 and $199.99, respectively. A Zune with an 80-gigabyte hard-disk drive will sell for $249.99. All three will arrive at market on November 13th.

Accompanying the new players is Zune Social, an online community where Zune users can keep tabs on one another’s musical tastes and, in a perfect Microsoft world, discover new content they can sample and purchase. “The whole idea behind Zune is much broader than the devices themselves,” J Allard, vice-president of design and development in Microsoft’s Entertainment and Devices Division, told the New York Times. “The conditioned thought is around a portable device being the center point of the experience, when in fact it’s not. It really is about how do we start taking Zune beyond that device.”

In a post to the Zune Insider Web log, Microsoft’s Cesar Menendez said the price cut was a scheduled one, and not a flaccid cry for attention in a whirlwind of Apple announcements. “It’s part of the normal product life cycle, something we’ve had on the books for months,” Menendez wrote. “We just got some research back and customer satisfaction with the 30-gigabyte device is really high (around 94%), and we expect even more consumers will now want to discover the Zune experience at the new lower price.”

The price drop comes after Mindy Mount, the corporate vice president and CFO of Microsoft’s entertainment and device division, gave the Zune a slightly above-average grade for its performance at market to date. “We all feel that last year was a good, solid effort for first year,” she said. “I’d give it a B-. Some things were really great.”

And others, how to put this delicately, … not so great.

That was one iPhone early adopter’s crass assessment of his feelings of self-worth, after Apple unexpectedly cut the price of the device by a third–just two months after it arrived at market. At an unveiling of a new line of iPod music and video players in San Francisco yesterday, CEO Steve Jobs said Apple was dropping the price of its 8-gigabyte iPhone from $599 to $399 to drive sales of the device over the crucial holiday selling period. “The customer-satisfaction numbers for the iPhone are off the charts,” Jobs said. “The customer-sat[isfaction] numbers are higher for the iPhone than for any Apple product ever. They love it. But we want to make the iPhone even more affordable for even more people this holiday season. So we’re going to do something about that today. We’re not going to sell it for $599 anymore.”

Now price cuts for cellphones aren’t unusual. Samsung’s Blackjack and Motorola’s Razr both saw rapid price cuts following their respective debuts. But neither was launched into a market of monomanaical loyalists willing to camp out on a sidewalk overnight just to be among the first to own one–many of whom are today feeling a bit used. “Over time I have owned a 3G iPod, original Shuffle, iBook G4, iMac, new Shuffle, 4G iPod, video iPod, iPod mini and now the iPhone,” one wrote in a post to everythingiPhone. “I can see updates to the product line being made over time, but $200 in two months is a kick in the nads to EVERYONE who bought an iPhone.”

Perhaps, especially if the cut was made possible not by a sudden drop in component prices but a calculated overpricing conceived to exploit early-adopter demand. But ultimately, those who don’t think the iPhone was worth $599 when it debuted probably shouldn’t have bought it. “That’s technology,” Jobs told USA Today. “If they bought it this morning, they should go back to where they bought it and talk to them. If they bought it a month ago, well, that’s what happens in technology.”

One last point worth noting here: Early adopters probably aren’t the only folks to be taken aback by the sudden and precipitous drop in the iPhone’s price. Apple’s rivals in the handset market must be absolutely reeling. Here they were scrambling to produce iPhone-like, and iPhone-lite devices they believed would compete with a $600 phone they could easily underprice. Now, they’ve got to compete with a $399 device that is perhaps one of the best examples of Apple’s design and engineering prowess. And they’ve got to do it in time for the holiday shopping season …

“We expect Apple will enable video features on the Nano line for the first time, and the capacities will likely range from 2GB to 8GB,” Piper Jaffray analyst Gene Munster wrote in a research note published this morning. “The iPod may also be dramatically improved. Though we are less certain of the specifications for the new sixth generation iPod, it may closely resemble the iPhone (without calling features). Specifically, we expect the sixth gen iPod to be a widescreen device with multitouch technology. It may also have Wi-Fi capability and the capacity could be as high as 160GB. Apple will likely raise the lowest iPod price point back up to $299 (from $249). The fifth gen iPod is the longest-lasting iPod model ever; it was released nearly two years ago and refreshed with high capacities and a lower price last September.”

Also making the rounds are rumors that Sept. 5 will see The Beatles appearing on iTunes. Seems the title Apple has chosen for the event–”The Beat Goes On”– also happens to be the closing line of the band’s final press release.

Spring is here and Leeds play Chelsea tomorrow and Ringo and John and George and Paul are alive and well and full of hope. The world is still spinning and so are we and so are you. When the spinning stops – that’ll be the time to worry, not before. Until then, the Beatles are alive and well and the beat goes on, the beat goes on.”

Coincidence? Who knows. As Apple 2.0’s Philip Elmer-DeWitt notes, it was Sonny and Cher, not the Beatles, who made “The Beat Goes On” famous. That said, Apple has been hinting at a deal to distribute the Fab Four’s music for some time now. During the 2007 Macworld keynote address CEO Steve Jobs cued up the song “Lovely Rita” from the Beatles’ “Sgt. Pepper’s Lonely Hearts Club Band.” Coincidence, or another of Apple’s marketing master strokes? Again, who knows. At the time Apple dismissed Jobs’s selection of music as a matter of taste. “Anyone can rip their own CD,” said Eddy Cue, Apple’s vice president for iTunes. “Steve’s a huge Beatles fan–huge. He rips and burns.” A plausible explanation, but one that could have just as easily been smoke and mirrors as well. We’ll find out which on Sept. 5.

UPDATE: Word on the street has it that the Beatles will not play a role in next week’s announcement. Guess we’ll have to make do with Sonny and Cher …

To keep you abreast of tech news while he’s away, we’re compiling a daily digest of 10 must-read tech stories. We’re calling it the Tech 10 and it appears below.

1. Retailing behemoth Wal-Mart will sell digital-music downloads on its Web site without copy protection, Reuters reports. The so-called digital-rights management software insisted on by some record labels can stymie where the average user plays the songs.
2. Taking on the juggernaut of iTunes, MTV and RealNetworks are forming an online digital music venture called Rhapsody America. According to The Wall Street Journal, Verizon Wireless has signed on as mobile distributor of the joint content.
3. Adobe Systems’ warhorse Flash Player is getting a makeover named “Moviestar.” The update, says InfoWorld’s Paul Krill, will bring high-definition video technology to downloads, affording clearer and smoother playback of images.
4. Increasingly popular online video site Metacafe got a shot in the arm in the form of $30 million in financing. VentureBeat reports that the latest cash infusion was led by new investors Highland Capital Partners and DAG Ventures.
5. Acknowledging it did bad (though not evil), Google announced last night that it would make credit-card refunds, rather than Google Checkout credits, to those owed after the company terminated its download-to-own/rent service of Google Videos. PC Magazine disclosed that the search giant will also allow users an additional six months to watch the videos they have already downloaded.
6. Fretting over security and productivity concerns, half of all companies in a recent survey are blocking employees’ access to Facebook. The poll of 600 workers by online security firm Sophos also found that two-thirds of all employees believe their colleagues are revealing too much information on the social-networking site, exposing them to cybercriminals bent on data theft and their companies to network hackers.
7. Bebo, the U.K.-centric social-networking site, has announced a partnership with Microsoft on a new instant-messaging service. According to Webware, the Windows Live Messenger hookup is only that–and not a signal of any impending acquisition.
8. Joining the social-networking parade, online business network CollectiveX has launched Groupsites. According to Michael Arrington of TechCrunch, the new product opens up the buttoned-down service to allow users to create social profiles as well.
9. Upping the ante in the competition for giving laptop users more memory, Toshiba announced today that it will release a 320-gigabyte hard drive for its laptops by the end of the year. According to IDG News Service, for users of multimedia laptops–where storing video is paramount–the extra space will come as a welcome feature.



10. In a bow to color choice and the sexes, researchers have found that there’s truth in the the time-honored (if sexist) adage that girls like pink, boys like blue. Reporting on a study from two scientists at Newcastle University, the Independent did not confirm whether the findings were borne out in colors chosen by men and women for iPod skins.

–posted by Associate Editor John Sullivan