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8/17/2006
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Apple iPod Rules, But Rivals Are Ramping Up

Cell phone makers are getting into the game, ramping up production of handsets that can store and play downloaded music.

Apple Computer dominates the portable music player market, but increasing competition is not expected to let the iPod maker rest easy, a research firm said Thursday.

The iPod accounted for 76.6 percent of all portable music players shipped from January through June, compared with 75.3 percent the same period a year ago, the NPD Group said. Apple's closest competitor SanDisk accounted for 8.9 percent of the market, followed by Creative Labs, 3.7 percent; Samsung, 2.3 percent and Sony, 2.2 percent.

Apple has held three fourths of the market for about two years, dipping slightly in December because of heavy discounting by SanDisk for the holiday season, NPD analyst Ross Rubin said.

While Apple has yet to show an Achilles heel, many big companies are hoping to make it sing the blues. First are cellular phone makers who are ramping up production of handsets that can store and play music downloaded from the wireless network or a PC. Those companies include LG Electronics, which recently launched the Chocolate phone; and Motorola, which this year said it would offer a music phone that supports Microsoft's Windows Media player. Motorola sells the Rokr and Slvr phones that can play music downloaded from Apple's iTunes music store.

Handsets today lack the ease of use features of the iPod, and can't match the device's tight integration with iTunes. That, however, is expected to change as carriers pressure manufacturers for phones with better music support, and launch their own online music stores. Verizon Wireless and Sprint, for example, both have their own Web stores that can download music to a PC.

Carriers in the past have favored keeping subscribers on the networks to buy music and video. That strategy, however, is changing.

"There's recognition (among carriers) that if they want to entrench the mobile phone as the center of the consumer's digital life, then they'll have to offer flexibility," Rubin said.

Finally, Microsoft is getting ready to launch this year its own digital music player and online store under the Zune brand. Given Microsoft's hefty cash reserve, its entry is expected to have an impact.

"Anytime you have a company entering the market with billions of dollars in the bank, you have to consider them a credible threat," Rubin said. "They view music as a strategic piece of their broad consumer media strategy."

That strategy includes the Xbox video game console and the Windows Media Center that turns a PC into a digital video recorder.

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