by , 8:00 AM EST, November 3rd, 2004

Apple's U.S. market share of hard drive-based portable media players fell 5% in September to 87.3% as more consumers bought flash-based players and Hewlett-Packard with its branded iPod took share from Apple, according to numbers from the NPD Group research firm.

The numbers obtained first by The Mac Observer show that among hard drive-based players, Apple maintained its strong hold on the market with a 87.3% share, down from 92.0%, followed by HP in second with its iPod made by Apple at 3.6%. Combining the HP and Apple percentages, Apple controlled 90.9% of the market share, down 1.1% from August.

It is the first time HP has shown up in the market share rankings of digital multimedia players since it began selling the iPod in late August.

Finishing out the top five of hard drive-based players was Rio with a 2.8% share, up from 2.5%, Creative in fourth with 2.6% from 2.3%, and iRiver at 1.5% from 1.2%.

Combining flash-based and hard drive-based players together, Apple continues to have a commanding lead over every other player maker. Apple remains in first place with a 58.6% share, down from 65.8% in August. Second was Rio with 7.1%, up from 6.4%, iRiver at 6.2% from 5.6%, Digital Way at 4.4% from 4.2%, and Creative at 3.2%, unchanged. HP was seventh in the combined group with a 2.4% share.

When combined with HPs share, Apple controlled 61% of the market, or 4.8% less than in August. Apple sold a record two million iPods in its last quarter ending in September and has a lifetime total of more than 5.7 million sold.

Flash-based sales strong in September

Setting aside the addition of HP and its iPod share, much of Apple's slump in share was due to stronger sales in flash-based players in September than in August. NPD reported flash-based player sales grew 21% from the previous month while hard drive-based players grew at 12.2%.

"The September numbers were highly affected by the release of the fourth-generation iPod," NPD analyst Steven Baker told TMO. "That really 'goosed' the numbers. While the iPod is doing extremely well, expanding that market any more is extremely tough. It's about as high as you can go."

In comparison to the same period a year ago, hard drive-based players had a 409% increase while flash players were up just 4.6%.

Among market share for flash-based players only, iRiver was first with 18.8%, Rio was second with 18.6%, Digital Way came in third with 15.8%, RCA with 8.8% for fourth, and Samsung in fifth with 6.2%.

Players with flash-based media store information in solid state memory, much like the Random Access Memory (RAM) found in a Macintosh or other personal computers. While these devices are smaller, less expensive and use less power, they don't have the same large size storage capacity as portable media players that use a mechanical hard-drive and store upwards of 60 gigabytes of data. Flash-based devices storage in the range of 64 to 512 megabytes of data. The disadvantages of hard-drive based players is they require more battery power and are more expensive than flash-based players.

NPD does not break down player market share by model, so it not known how many consumers bought an iPod versus an iPod mini. Figures are based on retail sales and do not include sales from Apple online store operation. Also, because Dell does not sell its portable media players through retail stores but only online, Dell's products are not included in the market share results.

Looking forward

Mr. Baker said he believes that as time goes by, HPs strong distribution network will have a positive effect on its market share and a negative affect on Apple's. "Some of Apple's share is going to come down and end up with HP," he said. "It's tough to say how much right now, but much will depend on how well HP sales people do in the field in convincing retailers to stock their iPod and not Apple's."

For the upcoming holiday buying season, Mr. Baker believes the majority of Christmas presents will be hard drive-based.

"In August, sales of hard drive-based portable media players was about 70% versus flash-based at 30%. It will probably end up being 65% to 35% in favor of hard drive-based players."

Mr. Baker believes the more expensive hard drive-based portable media players will win out at Christmas because consumers are simply willing to spend more. "More expensive players are not necessarily a detriment at Christmas time," he said.

An Apple spokesperson did not return repeated phone calls requesting reaction to the market share results.