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The deal will secure Apple a lion's share of the supply of the NAND chips that it uses in the iPod nano. Flash memory is reported to be in short supply, not least because Apple is believed to have secured around 40 per cent of Samsung's total output for the second half of 2005.

Apple is also said to be looking to sign supply deals with Hynix Semiconductor and Toshiba. The company is also rumoured to be seeking a partner to produce Flashchips in the US.

iPod sales are expected to hit record levels in this quarter, as nano supply catches up with demand. Piper Jaffray analyst Gene Munster has reiterated his estimate

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that Apple may ship more than 37 million players. The company's share price again reached a record level yesterday, peaking at $63.08 at one stage.

Apple's boom time contrasts sharply with the performance of Dell. The world's largest PC maker announced a 28 per cent fall in profits, while Apple has had successive record quarters.

Dell's chief financial officer Jim Schneider conceded that the iPod had played its part in attracting new customers to the company's computers - the so-called 'halo effect'.

'Apple has come out with a nice product and I think it's really turned their company around,' he said, while admitting that his company's own offerings have fallen short.

'We're obviously not competing very well,' he said.

Dell recently overhauled its range of 'DJ' MP3 players, none of which are currently available in the UK.

However it is going to be hard-pressed to unseat the iPod. A Piper Jaffray survey of 50 US retail stores found that sales people are more likely to recommend an iPod or iPod nano than they were in June, with Creative's players the next-best choice.