Will Apple flash iPod rock market?

As rumors of an Apple flash iPod swirl, rivals say they hope a product by the Mac maker will ignite overall sales. Photos: iPods everywhere

When IBM entered the PC market in 1981, Apple Computer took out a full-page newspaper ad welcoming its rival.

Today, with Apple reportedly poised to debut its first flash-memory-based music player after rocking the market for hard-drive devices with the iPod, some competitors are taking a similar laissez-faire stance.

"Welcome to the party," said Thomson Vice President David Arland, whose RCA brand is among the top three in U.S. retail sales.

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What's new:
With Apple widely expected to unveil a flash iPod in January, rivals say they expect the Mac maker's product to give them a boost as well.

Bottom line:
Analysts say hard-drive models will hold a large share of the MP3 player market as customers seek to accomplish additional tasks with their gadgets. But with Apple's iPod success record, many expect an Apple flash player to make a huge market splash.

More stories on the iPod

Apple, of course, ended up ceding the bulk of the PC market to IBM and other PC makers. But Thomson and others say they hope an Apple flash player will ignite sales for all concerned.

"When they've come in, they've always raised the water level," said Dan Torres, Rio's vice president of product marketing. "That's good for the industry."

Torres sees a flash iPod as a fait accompli, noting that suppliers in Asia have said Apple has been making purchases consistent with the development of a flash music player.

"We've been monitoring this for a while," Torres said. "We believe that it is not a rumor; we believe it is very true."

Apple is widely expected to announce a flash iPod at Macworld in January. But for now, the company has declined to comment.

Today, the flash market overall is larger in units than the hard-drive market, but it's split among a number of players. The largest share of the U.S. retail market over the past year belongs to iRiver, followed by Rio and RCA. Other players include Nike/Phillips, Samsung and Creative Technologies.

Tapping a 'tremendous market'
Arland and others say there is room for more than just Apple.

"While Apple has enjoyed remarkable success with the iPod, even with all of that, fewer than one in 10 households has an MP3 player, so there is a tremendous market," Arland said.

Apple was also not the first to offer hard-drive-based players when it debuted the first iPod in October 2001, but it now commands the lion's share of that market. In the U.S. retail market, the iPod accounted for more than 80 percent of sales in the 12 months ended this October, according to The NPD Group. That's up from about two-thirds market share in the same period a year ago and a 40 percent share in its first year.

Financial analysts predict Apple would sell millions of flash iPods in short order. Bear Stearns analyst Andy Neff predicted earlier this month that Apple will sell 6 million units in the current fiscal year and 13.5 million the following year, but at $160, a lower average price than Apple gets for its iPods (which retail from $249 for the iPod mini to $599 for the 60GB iPod Photo).

Looking ahead to next year, Neff forecasts Apple may be able to grab 30 percent of the 34 million players that market researcher IDC estimates will sell next year.

One challenge for Apple may reflect the words of the company's own CEO, Steve Jobs, who has characterized the current market for flash-based players as made up largely of products people get as gifts and never use.

But the landscape may be shifting, thanks in large part to memory becoming available at lower prices and in higher capacities.

"We're finally seeing individual flash devices now at the 8 gigabit (1GB) density, which is starting to get pretty significant," said Michael Maia, co-founder and vice president at Portal Player. "With that, in terms of just the economics, it's going to help get the prices down."

Forcing Apple's hand
PortalPlayer, whose chip powers the iPod, has historically focused only on the hard-drive market. But as flash capacities have grown, the company now has its eye on the flash market, an area where it will compete against chipmakers such as SigmaTel, which is rumored to be powering the flash iPod.

Many of today's flash players have no screen, or only a one- or two-line display that can show the current track and basic settings. Such players haven't needed an elaborate mechanism to navigate songs, because most players only held a few albums' worth of music.

"What we see, though, is a performance segment, or a mid- to high-end segment, that's going to be different," Maia said.

NPD analyst Stephen Baker said that flash will carve out a larger slice of the market, likely forcing Apple's hand.

"They have to get into it eventually," he said. "If you look at the reasons for success of the (4GB iPod) mini and the price value curve in flash, at

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