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Challengers Nip At Apple's iPod

Lauren, 11, saunters nonchalantly past a Discovery Channel store and a Gymboree clothing store at the mall. Then suddenly, the girl's eyes light up and she pulls her mother into an Apple Computer Inc. retail shop.

Together, they ogle the colorful selection of iPod Mini audio players. "I want this one," Lauren says excitedly, pointing to a green one. Her older sister, 14, already has a blue one.

The pair walk out empty handed but later the girl's mother, Mary Lynn Robinson of Menlo Park, hints, "Well, Christmas is coming."

Indeed it is, and at least a dozen other music players are angling to steal sales away from Apple's wildly popular iPod line.

In the past month, five companies have unveiled their latest iPod challengers — portable music players with hard disks that can store anywhere from 1,000 to 10,000 songs.

There's Dell Inc.'s new Pocket DJ, Virgin Electronics' Player, Creative Labs Inc.'s Zen Micro, iRiver America Inc.'s H300, and Archos Inc.'s Gmini XS200.

"Everyone is trying to get a bite out of Apple's piece of the pie," said Susan Kevorkian, analyst at market research firm IDC.

But Apple always has more tricks up its sleeves.

Many analysts expect the Cupertino-based company to introduce an iPod upgrade Tuesday at an invite-only event featuring the rock band U2.

There's speculation it could be a new iPod with a color screen and a larger 60-gigabyte capacity equipped to handle photos and video; a special U2 edition; or one based on flash memory instead of a hard disk, giving it far less capacity but a more affordable price.

Apple was not the first to introduce a high-capacity hard-disk portable music player — Archos was. But Apple's October 2001 launch of the sleek, white iPod defined the market.

Today, Apple rules the field, riding high with a gizmo that's both fashion chic and a cultural icon.

The company sold a record 2 million units in its last quarter ending in September and has a lifetime total of more 5.7 million. Brisk back-to-school sales pushed Apple's share of the hard-disk player market in the United States to 92 percent in August, up from 82 percent the year before, according to NPD Group.

Worldwide, Apple enjoyed a 54 percent chunk of hard-disk unit shipments in 2003, maintaining a strong lead in a market predicted to grow to 25.5 million units in 2008, up from 2.7 million units shipped in 2003, according to IDC.

Analysts say Apple could continue to dominate but expect that its market share will erode amid the slew of new arrivals that are matching the iPod's storage capacity, nearing it in style and ease of use, adding extra features like an FM tuner or voice recorder and, in some cases, undercutting Apple in price.

The competition also includes players introduced earlier this year from Samsung Electronics Co., Sony Corp., and MP3 player pioneer, Rio Audio.

For their part, Samsung, Sony and Virgin have brand and style cachet — not to mention deep pockets. Rio and Creative, smaller companies, have earned points in user-friendliness, while Dell and Archos are offering lower prices for the capacity.

"There's no way they could sustain more than 70 percent share over time," NPD analyst Stephen Baker said of Apple. "That's very very difficult to do especially when the product is based on a commoditized component, the hard drive."

Here's how the competition stacks up, according to Baker: "Rio has a long history in the market. Creative has a strong pipeline of products. You can't count Samsung out. We can't forget Sony — that they'll eventually find some market for these products with a strong design and distribution channel, and Dell will bludgeon everybody with price."

But the challengers face a daunting task as they battle to nip at Apple's reign. In August — NPD's latest available figures — Rio and Creative ranked a very distant second and third place in U.S. market share, with 2.4 percent and 2.3 percent respectively.

Apple, meanwhile, has expanded into other foreign markets and continually introduced new features and slimmer models with longer battery life. It introduced the diminutive 4-gigabyte iPod Mini in January for $249 and unveiled the fourth-generation, 20- and 40-gigabyte models of the iPod in July, lowering their respective prices by $100 to $299 and $399.

To sustain its market lead, IDC's Kevorkian said, "Apple is going to have to keep innovating at the same price point, or introduce other products that are less expensive, and offering a flash-based player will be an easy way to do it."

The portable player battle also is largely affected by the online music store wars because some of the players, such as Apple's and Sony's, are designed to cart songs purchased only from their chosen download services — the iTunes Music Store and Sony Connect, respectively.

The vast majority of others support the pay-per-download and subscription services that are based on Microsoft Corp.'s Windows media format and copy-protection technologies.

But for now, Apple's iTunes dominates the online music market, too.

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