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IDC Sees Pressure on Apple's iPod Dominance; Flash Player From Apple?

TMO Reports - IDC Sees Pressure on Apple's iPod Dominance; Flash Player From Apple?

by , 11:00 AM EDT, September 22nd, 2004

Market research firm IDC is forecasting Apple Computers dominance in the portable jukebox market of MP3 players with the iPod and iPod mini will see increased pressure in the years to come as prices dive for flash-based players and more competitors produce higher capacity, cheaper and easier to use devices based on one-inch hard drives.

IDC predicted Tuesday that as one-inch hard drives - categorized as portable jukebox devices - become more popular and prices fall, Apple's number one spot as jukebox worldwide shipment leader will be challenged by its competitors.

"Apple has done a tremendous job with the iPod," Susan Kevorkian, senior analyst for the Consumer Markets division of IDC, told TMO. "They've done things other competitors haven't matched. But as those competitors improve their products and component prices fall, Apple will see their lead erode slowly."

In 2003, IDC said Apple controlled over 50% of the jukebox market. Portable music player maker Creative Technology Ltd. was second with 16.5% of unit shipments worldwide. IDC does not forecast future market share for individual companies.

IDC believes that flash-based portable players will overtake portable and home MP3 CD/MiniDisc players in terms of unit shipped by the end of this year to become the top selling MP3-type player, according to details of IDC's Worldwide Compressed Audio Player Forecast 20042008 report obtained by The Mac Observer and not available to the general press.

"The price of flash-based players is falling very quickly," Ms. Kevorkian said. "They currently have the highest per-megabyte cost, but that is quickly coming down. As a result, their dominance as the most best selling portable players will increase over time."

Portable jukebox devices will see strong growth, but will not move out of its third place position ahead of MP3 CD/MiniDisc players or flash-based players anytime before 2008, the report said.

As the popularity of flash-based players increases, price will fall, Ms. Kevorkian commented. In 2003, the average price of a flash-based MP3 player was US$117. By 2008, prices for flash-based players will be just below $100.

Flash-based players use the same memory technology found in digital cameras. These players range in capacity 32 to 512 megabytes or even one gigabyte of memory, which can hold between one and ten hours of music, depending on how music is encoded. Flash-based players tend to be much more compact and have no moving parts, so their batteries last longer and they are a good choice for active people because music will not skip as on a hard drive-based player.

1-Inch drive a future factor for Apple

Ms. Kevorkian said the one-inch miniature hard drive will play an increasing role in the jukebox device market as more competitors to Apple's iPod resort to the high capacity, small form factor drive.

"The one-inch hard drive's small size and higher capacity will be popular over time.," she said. "The trend we're seeing is hard drive makers are now focusing more of their attention on getting their products in consumer electronics. As this happens and you see competitors to the iPod - like Creative, Samsung, iRiver - use the one-inch drive, they'll be able to compete more aggressively in price, capacity and performance with Apple. That could have an affect on Apple's current dominance in the portable music player market."

One-inch hard drives are currently available in 4 gigabyte capacities and reports are that over the next few years 6, 8 and even 10GB sizes will be available from hard drive manufacturers like Toshiba and Hitachi.

iPod-like pricing heading south

Ms. Kevorkian commented that as the use of one-inch hard drives grows, prices will fall and consumers will benefit.

"We're projecting the average price of portable jukebox devices to be below $200 by 2007," she said. "This will be an important driver for all companies playing in this space, including Apple. The portable music player market is a very price sensitive market. Anything that can lower price will help sell more product."

At present, Apple's lowest priced hard-drive based player is the iPod mini at $249 that uses a 4 gigabyte hard drive holding up to 70 hours of music.

Apple interested in flash-players?

Ms. Kevorkian commented that as flash-based players continue to grow in popularity and capacity, Apple might consider entering the flash-based player market.

"Flash-based players are going to become more popular as prices fall and capacity increases. While jukebox players are also coming down in price and growing in capacity, it will not happen at the same rate. So, it might be in Apple's best interest to consider this market," Ms. Kevorkian said. "Apple is known for its design, its interface and its ease of use. I can see Apple taking that proven experience and playing a role in this space. But they have to match their competitors pricing to gain market share. That could be tough."

Ms. Kevorkian cautioned she has no knowledge Apple is even contemplating an entry into the flash-based player market, but said that over time Apple might see a compelling reason to do so.

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