Compressed Music To Continue Expansion

In portable audio, the music might be compressed, but the sales won't be. Sales of MP3-type headset portables, including flash- and HDD-based models, will grow at double-digit rates, while sales of portable audio's mainstay, the headphone CD player, will continue to slide, suppliers said.

Volume leaders in the second half and fourth quarter will be 128MB flash-memory portables and 20GB HDD portables, although 5GB HDD models will post more rapid gains than their higher capacity counterparts simply because 5GB models weren't available in 2003, suppliers said.

Headphone CDs that play compressed-music formats will continue to increase their share of the declining headphone CD market, and the planned launch of Sony's first two HDD portables during the summer will help drive HDD sales and stimulate competition with market-share leader Apple in this segment, suppliers noted.

For the full year, CEA projects a 34 percent gain in factory-level MP3 unit sales to 4.06 million and a 26.9 percent gain in dollar volume to $538 million. Headset MP3 dollar volume will get close to exceeding dollar sales of headphone CD players, which will post a 9.8 percent decline to $686 million on 15.6 million units, CEA forecasts show.

Headphone CDs that play MP3 or other compressed-music files will account for up to 40 percent of headphone-CD unit sales, Panasonic projects, up from 35 percent in 2003. Models from less-known brands start at $29, said Panasonic product specialist Yong Lee, but models from major brands start at $49, she said.

In flash-memory portables, Lee believes the $79 to $89 128MB models will be the key volume sellers in the fourth quarter, compared to the year-ago period when 64MB models were going for that price. At $99, added RCA's business development director Rich Phipps, consumers will get at least 128MB of memory.

Although flash-memory models will continue to post gains, they will lose share to HDD models, whose dollar share hit 35 to 40 percent at the factory level in 2003 and will get "very close" to accounting for a majority of compressed-music portable sales in 2004, Phipps said. Panasonic's Lee sees HDD dollar volume doubling in 2004.

Of that volume, 20GB models will be the top sellers in the fourth quarter, but the 5GB minidrive "is the direction," Lee said. "A thousand songs is the hot spot.' Apple, Rio and Creative play in this segment.

Gains in flash-memory and HDD unit gains would be even greater, suppliers lamented, if it weren't for shortages of flash memory and other components.

Also in the second half, consumers could find more HDD models that store both audio and video if supporters of Microsoft's Portable Media Center platform get their products off the ground as planned. In the meantime, however, at least two companies — Philips and Archos — will play in this segment in the fourth quarter. Both companies' models record and display video transferred from a PC or recorded from a TV or other video source, but next-generation Archos 20GB and 80GB models due in July add the ability to time shift TV programming from a home entertainment system. They will retail at a suggested $549 and $799, respectively.