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During the holiday season, Apple further cemented its dominance in the estimated $6 billion digital media player market, and brushed aside a new entry from Microsoft (MSFT), the Zune.

Sales of the much-hyped Zune have flagged after an initial flurry in mid-November, when it was unveiled, according to market researchers.

"Zune was a non-event this holiday season," says Gene Munster, an analyst at Piper Jaffray. It called 40 retail stores — including Best Buy, CompUSA and Circuit City Stores — during the first week of December, and found that 70% of the stores recommended iPod to customers, compared with only 10% for Zune.

Zune was fourth among mobile media players with 1.9% market share in November, compared with 62% for Apple, according to researcher NPD Group. SanDisk and Creative Labs were second and third in market share, respectively.

Visits to the iTunes website on Christmas Day outnumbered those to Zune.net by 30-to-1, market researcher Hitwise says.

The fates of iPod and Zune underscore Apple's supremacy, and Microsoft's attempts to establish itself as the No. 2 player in the market. "Nobody, including Microsoft, expected Zune to compete with the iPod this holiday season," says Matt Rosoff, lead consumer analyst for Directions on Microsoft.

Despite its standing in the market, Microsoft has a long-term commitment to the digital-music player market, and there is plenty of room for more than one company to prosper, Microsoft says. Microsoft expects to meet its goal of selling 1 million units by June 30.

"With billions in the bank, Microsoft can subsidize weak Zune sales for years to come — as it did with Xbox," says Charles King, principal analyst at market researcher Pund-IT.

Microsoft is likely to release lower-priced Zune models early this year, NPD analyst Ross Rubin says.

Apple declined comment on its Macworld plans.

Speculation is that it could unveil an iPod with cellphone-like features; a model with a larger screen and higher resolution; or a cheaper iPod with greater capacity, says Joe Wilcox, editor of news blog Microsoft-Watch.com. He also expects news on Leopard, code name for Apple's latest operating system. Microsoft's Windows Vista OS becomes available to consumers in late January.

The emerging MP3 cellphone market could be lucrative for Apple, says King at Pund-IT. Despite an increasing number of phones that incorporate MP3 players, none is considered a must-have gadget, he says.

The buildup to Macworld comes days after Apple said an internal investigation of improper stock-option grants cleared CEO Steve Jobs and other current executives of any wrongdoing.

On Friday, Apple said it will restate its earnings by $84 million after taxes because of improper grants made from 1997 to 2002. Apple says it is cooperating with the Securities and Exchange Commission and the U.S. Attorney's Office in Northern California.

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