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MP3 Player Sales to Skyrocket - Industry Trend or Event

MILLIONS OF CONSUMERS ARE HOOKED ON MP3 technology and sales of portable digital music players will go through the roof over the next few years. MP3 player sales will soar from $126 million in 1999 to $1.25 billion by the end of 2002, providing a wealth of opportunities for home electronics OEMs and component manufacturers. Several trends will spur growth of the portable digitalmusic player market:

More available hardware -- Over the past 12 months, more than 50 manufacturers announced new portable music players.

Greater storage capacity--The density of flash cards, the most common storage media for MP3 players, is steadily increasing. Most players now offer 64Mbytes of storage or about one hour's worth of music.

More storage options--Cheaper alternatives to flash cards, hard-disk drives and Iomega's Clik drives are becoming available.

More digital music files-Legal or not, Napster, Gnutella, and other file-sharing sites have increased awareness and availability of digital music.

S3 Inc., which purchased Diamond Multimedia last year, dominates the MP3 player market with its Rio line of products. Other manufacturers including RCA, Creative Labs, and Sony are beginning to challenge S3. Ultimately, the leaders of the industry will be the manufacturers with the channel distribution that's most balanced between the bricks-and-mortar and online models.

All MP3 players contain similar components, the most expensive of which are the microprocessor/DSP and the flash memory card. The two largest and most aggressive silicon suppliers for MP3 players are Texas Instruments Inc. and Cirrus Logic.

Flash memory remains the de facto choice for MP3 storage. Over the past year, however, shortages of flash cards and rising prices may have stunted the overall growth of the MP3 player market. Manufacturers are beginning to turn to hard disk drives and Iomega's Clik drives to increase storage capacity.

The MP3 player market is concentrated in North America with more than 90 percent of worldwide shipments last year occurring in the United States and Canada. Over the next few years, MP3 player sales will increase in concert with increasing worldwide Internet-access penetration levels.

But even with the increased availability of these alternative storage technologies, flash cards will continue to dominate the market. The density of flash cards in MP3 players will rise steadily over the next few years. By 2004 most players shipped will contain 256Mbyte or 512Mbyte cards.

Meanwhile, MP3 technology will proliferate as manufacturers integrate it into other electronics devices. For example, Samsung offers a cell phone with a built-in MP3 player, Good Technology recently announced a portable music player module that slips in the back of a Handspring Visor PDA, and Casio makes a combination wristwatch/MP3 player.

Michael Paxton is the senior analyst for multimedia and Digital TV for Cahners In-Stat.