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Semico expects the market for such devices to grow at least 130 percent annually, from 10 million units and $100 million in revenue this year to 50 million units and $3.8 billion in revenue by 2006.
That's despite the proliferation of recordable CD drives, which use media with more space and much lower prices, noted Jim Handy, a Semico analyst.
"Something that puzzles me is why the CD-Rs aren't more popular than they are," he said. "It's hard to rationalize...A lot of it is the cool factor. (USB drives) are a whole lot neater to have around than a little CD."
Handy said USB drives should provide a major boost to NAND, a new, lower-cost version of flash memory that can store data but can't execute software instructions.
"NAND give you a cheaper price for just doing data storage," he said. "NAND is really just starting, and something like this could really push it forward."
Handy expects prices for USB drives to be around $15, with the amount of storage available at that price gradually increasing from 16MB to 32MB or more.