Ipod Nano will be best-selling model ever, says Jobs

SAN FRANCISCO - When Apple Computer CEO Steve Jobs introduced the iPod Nano on September 7, he predicted it would be the best-selling iPod model ever.

That is a strong statement, considering the Nano is only Apple's second device to incorporate flash memory instead of a hard drive. It is an even stronger endorsement of flash-based technology from a company that until this year declined to use it in a single product.

Jobs' newfound enthusiasm for the memory format indicates the extent to which the digital music industry has pinned its hopes for mass-market appeal on flash-based players. Though hard-drive and micro-hard-drive devices have dominated the MP3 player market, flash-memory performance, price and popularity are all improving at such a clip that some analysts believe it will overtake the hard drive in the very near future.

Flash-based devices store content on a chip, which unlike a hard drive contains no movable parts. This means flash players use less battery power -- 30 times less --than hard-drive players, as well as being much smaller and extremely durable.

The trade-off is that flash memory chips have a limited storage capacity and a higher price than their hard-drive counterparts, which boast 10 times the capacity at half the cost.

Plunging prices

But flash costs are dropping dramatically. According to semiconductor research firm iSuppli, the price-per-megabyte cost for flash memory has fallen 56 per cent in the last year. The firm projects the price will fall an additional 47 per cent by next year and then another 33 per cent by 2007.

Memory capacity also is improving. Samsung plans to begin mass-producing 16GB flash-memory chips by the end of next year and points to a 32GB prototype on the horizon.

This improvement in flash technology is one reason Apple replaced the micro-hard-drive-based iPod Mini with the flash-based Nano.

The Mini came in 4GB and 6GB models for $200 and $250, respectively. The Nano offers 2GB and 4GB models at the same price points.

"We don't look at it from a standpoint of hard drive and flash," says Stan Ng, director of iPod product marketing. "We try to look at the whole lineup to bring a lot of new customers in."

Analysts believe the falling flash prices are key to the evolution of the MP3 player as a mass-market device. Jupiter Research estimates there will be 56 million MP3 players in the world by 2010, and more than half will be flash devices that hold 1,000 songs or less, with about 5GB.

"Flash-device sales will surpass hard-drive sales," Jupiter Research analyst David Card says. "But the technology is not important. What's important is reaching a certain capacity at a certain price point at a certain size."

Wasted space

Research suggests that most owners of hard-drive-based devices that can hold 10,000 songs or more do not come close to using the full storage capacity. According to Card, only about 20 per cent of iPod users have more than 1,000 songs on their players. No surprise then that MP3 device manufacturers, including Apple, are counting on smaller and cheaper devices to drive the digital music player market forward.

"Apple changed its product strategy more rapidly than we thought it would," Card says.

Sony is also using flash in its well-received Walkman Bean MP3 player line, offering 1GB of storage for about $180, and flash is widely featured in its Network Walkman line. Samsung says it is making flash-based devices the centerpiece of its digital strategy going forward.

"Flash gives us more room for design and for making the products more portable and smaller," says Peter Weedfald, senior VP of sales and marketing for Samsung's Consumer Electronics group.

These size and design benefits must combine with low price if portable digital music devices are ever going to trump portable CD players, analysts say.

"If you could get a device that had enough capacity to be interesting, with good battery life and cool form factor, and sell (it) for $50, this market will explode," Card says. "It's pretty easy to imagine a flash-based device in a year or two hitting those kinds of price points."

- REUTERS