Analyst: Zune Underwhelming, Start of a Civil War

August 29th, 2006 at 3:00 PM - Apple Stock Watch by Jeff Gamet

American Technology Research analyst Shaw Wu offered his perspective on Microsoftis iPod competitor, the Zune media player, and called the device underwhelming. The Zuneis entrance into the music player market is also far more likely to put competitive pressure on Microsoftis current music player partners instead of Apple, and will be like starting a civil war among the iPod competitors.

Mr. Wu said "We are frankly underwhelmed by the specs (technical and aesthetics/design) on the much-hyped Zune device, at least on a competitive basis versus Appleis market leading iPod+iTunes. Microsoft had hinted of an all-new design from the ground up, but from our analysis, it appears that the Zune is essentially a repackaged Toshiba Gigabeat that has seen limited success." He added "At this point, we believe this could end up being another classic case of over promising and under delivering by Microsoft."

Microsoftis decision to go after the high end of the portable music player market cuts out at least 75 percent of the potential market, too. By marketing a 30GB hard drive-based device that includes an FM tuner and Wi-Fi capabilities along with a US$300 price tag, it is missing out on the market segment thatis dominated by the iPod nano, iPod shuffle, SanDisk, and Sony Walkman phones.

Although an exciting feature, the Zuneis Wi-Fi capabilities may do more harm than good for the music player. Thanks to Wi-Fi power requirements, the Zune will likely get 3-6 hours battery life. In comparison, a typical iPod runs for 10-14 hours.

Microsoftis current music player partners are likely to see the biggest impact once the Zune hits store shelves. Mr. Wu commented "We believe the biggest issue with Microsoftis entrance into the portable media space is that it puts it in direct competition with its partners, all of whom support Microsoftis Windows Media format... Microsoftis action could also make partners think twice before deciding to work with Microsoft on future projects. We view Microsoftis entrance into portable media hardware akin to a civil war, much like if it entered the PC hardware market to compete with partners DELL, Hewlett-Packard, and Lenovo."

Appleis position in the digital music player market is likely to remain strong, especially since its competitoris copy-cat tactics have not been able to match the iPod+iTunes combination.

Mr. Wu expects Apple will introduce new and updated iPod models later in September or in October. The iPod, he said, is positioned to be the Walkman of the 2000is.

American Technology Research is maintaining its "Buy" rating for Apple stock. The companyis stock is currently trading at US$67.13, up 0.65 (0.98%).

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