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Lower flash prices to boost MP3 players

As prices of flash memory continue to drop, the prospect of increased sales of digital-audio players improves.

Falling flash memory prices are improving the prospects for sales of digital-audio players that use the format to store music.

As flash continues to drop in price, analysts say, digital-audio player makers can better target the low-end segment of the market and can increase the amount of memory at little extra cost to consumers.

Consumer electronics giant Sony upped the ante Wednesday, slashing prices of its Memory Stick for the second time in 2001--this time by as much as 37 percent.

Other flash memory formats, including Secure Digital, SmartMedia and CompactFlash, have gone through similarly aggressive price drops this year in response to an inventory glut.

The current glut seemed like an impossibility last year when a shortage of flash memory drove up prices to nearly $2 per megabyte. By the end of this year, however, flash memory research firm Web-Feet Research expects prices to fall to 30 cents per megabyte from the current 40 cents per megabyte.

During last year's shortage, sales of consumer electronics devices, such as digital-audio players and digital cameras, were held back in part by high price tags related to the cost of flash memory. But the recent drop in flash prices is expected to alter the landscape--at least for digital-audio players.

Web-Feet Chief Executive Alan Niebel added that flash prices will likely plateau next year and that nothing except another major shortage will drive them back up. "Last year was an aberration. The lack of flash memory supply artificially drove up pricing," Niebel said.

Digital-audio players benefit
IDC analyst Bryan Ma expects the market for digital-audio players will be able to mature more quickly than it could have without the fall in flash prices. That's because more manufacturers will be able to target the low end of the market, pushing digital-audio players into the mainstream where sales volumes are significantly higher than among so-called early adopters.

As the prices drop for the low end of the market, digital-audio player manufacturers will continue to increase flash capacities and maintain current prices of products aimed at early adopters.

Currently, the average amount of flash that comes with digital-audio players is 64MB. But Ma said some manufacturers are beginning to push for up to 192MB. He added that last year the average amount straddled 32MB to 64MB and next year the average amount will be in the range of 64MB to 128MB.

At the beginning of this year, for example, Intel released one of the first digital-audio players--the Pocket Concert--that could store up to 128MB of music.

"Increasing memory is an inevitable trend," Ma said. And with price drops, he added, the digital-audio player market "will have better defined low and high ends."

Christine Battagliese, a Sony product manager for digital-audio players, agrees.

"Memory drives the cost of hardware and as prices come down, new markets open up," she said. "The idea in the future is also higher capacity Sticks in players."

Prior to Wednesday's cuts, 8MB to 128MB Memory Sticks ranged from $29 to $239. With the cuts, the same capacities run from $25 to $150. The price drop also affected Sony's MagicGate Memory Stick, which is a slightly more expensive flash memory card with an embedded chip. The chip allows MagicGate to transfer and play copyrighted content--something the plain Memory Stick can't do.

Battagliese added that the new price drop for MagicGate Memory Sticks led to a $50 price cut in Sony's Network Walkman from $349 to $299. The Network Walkman comes with 64MB of flash, which stores up to two hours of audio.

Cameras less affected
Although flash continues to fall in price, it is still not the cheapest form of storage and won't be the sole mode of increasing sales of digital-audio players. Hard drives and CD-rewritable discs are significantly less expensive per megabyte.

IDC data indicates that the market for digital-audio players with flash memory will grow 12 percent annually until 2005. But overall sales of MP3 players--including those using flash, hard drives or CD-RWs--are expected to grow 43 percent annually until 2005.

Still, flash offers important advantages over hard drives and CD-RWs. Players that use flash are considerably smaller than those that use hard drives or CD-RWs and are not susceptible to skipping.

The drop in flash memory prices, however, doesn't create as pretty a picture for consumers seeking digital cameras.

IDC analyst Chris Chute said he expects prices of digital cameras to come down slightly but that those reductions will be more the result of the overall growth of the market rather than the falling cost of flash.

Digital camera shipments grew 130 percent to 15.1 million units in 2000, compared with the previous year. By 2005, the total number of units shipped is expected to hit 39 million annually.

"Flash memory is but one of the major cost components in a camera, and the other components haven't come down as much, so it's unlikely to have a big effect," Chute said.