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Analyst: iPod Tough Competition for Zune

Analyst: iPod Tough Competition for Zune

by , 11:10 AM EDT, September 29th, 2006

Microsoft's Zune media player offers similar features to Apple's iPod, and now will debut with a similar price tag, too. But that may not be enough to draw away iPod users, according to American Technology Research analyst Shaw Wu.

Mr. Wu comments "To us, the key question is whether Zune priced in-line with a vPod will take share with its bulkier form factor, same Windows UI and software currently available from 15-20 vendors, and inferior battery life."

The Zune player will likely see some success thanks to Microsoft's strong brand, but will lose money on each unit sold. Mr. Wu figures Microsoft is losing about US$50 on each player sold now that it lowered the price to $249.99 to compete with Apple's 30GB enhanced fifth generation iPod.

"We believe Microsoft not pricing lower demonstrates Apple's under-appreciated scale and supply chain strength where Microsoft will lose money (we estimate about $50 per Zune) vs. Apple's industry-leading iPod profitability in what we estimate to be an 18-22 percent gross margin and 8-11 percent operating margin," he said.

Microsoft won't be the only company to lose money thanks to the Zune. Companies like Creative, Sony, iRiver and Samsung will likely suffer from lower sales after the Zune hits store shelves.

Mr. Wu is maintaining his "Buy" rating and $91 target price for Apple stock. Apple is currently trading at $77.10, up 0.09 (0.12%).

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Observer Comments

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Close Name:WaRrK Posts: 22 Joined: 19 May 2004
Fri Sep 29, 2006 12:52 pm Subject:

"Microsoft is losing about US$50 on each player sold"

that's almost an incentive to buy one! Bring down the beast piece by piece...just...very slowly...


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Close Name:Guest
Fri Sep 29, 2006 1:11 pm Subject:

Buy two there...er well I was going to say "small" but they are not


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Close Name:Guest
Fri Sep 29, 2006 1:11 pm Subject:

Actually, I think they'd lose even more money if you DIDN'T buy one. After several months of no sales, they'd be forced to dump inventory for about $99 per unit just to recoup as much of their losses as they can.


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Close Name:Guest
Sat Sep 30, 2006 11:02 pm Subject: From SuckerDRM

"Zune - let M$ ---- you like iTune"
SuckerDRM


[edited by jinkies, who doesn't think your fascinating thoughts need to be expressed with implied profanity]


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