By Matt Andrejczak & John Shinal, MarketWatch

Last Update: 8:08 PM ET Sept. 7, 2005

SAN FRANCISCO (MarketWatch) -- Investors will be paying close attention to companies that supply components to Apple Computer Inc. after the iPod maker said it would replace its most popular model with a smaller, sleeker device.

Apple Chief Executive Steve Jobs said yesterday that the company will replace the midrange iPod mini, which uses tiny hard disks to store digital music, with a new iPod nano that uses so-called flash memory technology for storage.

Apple`s (AAPL: news, chart, profile) move to terminate the use of disk drives in its 2-gigabyte and 4-gigabyte iPods is a small setback for Seagate Technology and Hitachi Ltd., said Krishna Chander, senior storage analyst at iSuppli, a research outfit.

Seagate Technology (STX: news, chart, profile) and Hitachi (HIT: news, chart, profile) make the 1-inch drives that power the 2GB, 4GB and 6GB iPod minis. Those firms could still benefit if Apple rolls out other, larger iPod versions that incorporate hard drives.

Chander thinks Apple will continue to ``position its iPod products with flash and hard disk drives,`` adding that Apple may be working on an 8GB iPod that uses a disk drive.

What`s more, Seagate and Hitachi have not built up huge inventory in their warehouses. Also, there is a market shortage of 1-inch and 2-inch drives that can be used for other computing applications, such as laptops, he added.

Samsung Electronics, which will supply flash-memory components for the new iPod nano, is a clear winner, several analysts said.

Apple`s decision to use flash memory in its 2GB and 4GB iPods might undercut Maxtor Corp. (MXO: news, chart, profile) Maxtor is still working on a 1-inch disk drive product, according to Chander.

It`s unclear what Apple`s moves will mean for PortalPlayer Inc. (PLAY: news, chart, profile) , Synaptics Inc. (SYNA: news, chart, profile) and SigmaTel Inc. (SGTL: news, chart, profile) , which make controllers for the iPod shuffle, the least expensive product in the line.

PortalPlayer makes the software and chips that help manage the files on portable music players, while Synaptics makes the scrolling-wheel technology