Apple on Monday reported better-than-expected profits and sales that smashed Wall Street's forecasts, lifted by record quarter sales of iPhones and Macs.

The result, according to analyst, is a continuous sign that the iPhone is cannibalizing iPod family. Ever since the June '07 introduction of the iPhone, there has been a marked deceleration of unit sales of iPods according to Broadpoint AmTech analyst Brian Marshall.

The iPhone has successfully integrated the functionality of an iPod into a sleek smartphone and has effectively rendered a significant portion of the iPod product family obsolete, Marshall told clients in a report after Apple's earnings.

Sales of iPhone rose by 7.25 percent from 6.9 million a year ago to 7.4 million, while that of iPod declined by 7.9 percent year over year to 10.1 million.

Marshall said the iPhone ramp is just in early innings, as it is now available in 80 more countries, including recently inking a deal to enter China. Cumulative shipments of the iPhone since its June '07 inception now total 33.7 million units.

Peter Oppenheimer, Apple's chief financial officer, said during its Q 3 report that the company had expected consumers would lose interest in traditional MP3 players over time, and that was one of the reasons the iPhone platform was created: to supplant the iPods and cause them to be redundant.

We expect our traditional MP3 players to decline over time, Oppenheimer said during Tuesday's earnings report conference call, as we cannibalize ourselves with the iPod touch and the iPhone.

Marshall expects the iPhones sales will reach 11.3 million units by next quarter and 7.3 million units by March 2010, and he predicts the iPod sales to be 19.83 million units during the holiday quarter and decline to 9.915 million units by March 2010.

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