Coming Soon: Music Player Bargains?

Apple Computer's decision to cut the price of its IPod Shuffle last week may be just a foretaste of the bargains to come for people buying a digital music player, analysts and vendors say.

Those looking to buy a new media player may find even better bargains in the months ahead thanks to several factors, including increased competition, falling component costs, and fire sales on older models as vendors introduce new devices. In short, August may be one of the best times in recent years to find music-player bargains.

Apple cut the price of its 1GB IPod Shuffle last week to $129 from $149 in the U.S. A spokesperson for Apple in Japan would not say why the prices were reduced.

Other companies appear ready to follow Apple's move.

Reigncom, which makes the IRiver portable music players, normally follows Apple's price moves, says Anna Kim, a spokesperson for the company. Reigncom has also been keeping a watch on plunging flash memory prices, a key component in media players, and expects to pass on savings from those price cuts to consumers.

"We hope [flash memory] prices drop all summer so we can add more memory for a lower price," Kim says.

Falling Prices

Prices for the most widely-used flash memory chips in music players--1 gigabit and 2 gigabit NAND chips--have been on the decline for months. One reason the 1 gigabit parts have been falling in price is that they are reaching the end of their life. The 2 gigabit chips, which can hold twice as many songs, are quickly becoming the most popular NAND chips in the industry.

Consumers can also thank chip makers such as Samsung Electronics and Micron Technology for the falling component prices, since their production increases have helped saturate the market, weighing down prices.

The 2 gigabit flash memory chips are currently priced at around $11 each, compared to $18 in the first quarter of the year, according to Merrill Lynch. The financial services firm predicts that the chips will fall another 31 percent in price between July and September, and more later in the year.

"The price decline has just started. Who knows when it will stop?" says Sun Chung, a memory chip analyst at Nomura Securities in Seoul.

The window of opportunity to benefit from the cheap flash prices may be small, however. When chip makers start to feel the pain from lower prices they will likely slow production to avoid losses, pushing prices higher again.

A spell of weak demand for MP3 players at the moment could also prod vendors into offering deeper discounts later in the year.

Creative Technology, the second biggest maker of MP3 players after Apple, said last week that softer-than-expected demand for music players and lower selling prices would cause it to miss sales targets for its current quarter.

It didn't say why it had been forced to cut prices for its MP3 players, but analysts say an industry-wide "dads and grads" sales promotion in June had been a big disappointment. Vendors had hoped people would buy music players as gifts for graduating students and for Father's Day. Instead, sales were weak, leaving some companies holding excess inventory that they need to get rid of.

Several companies plan to introduce new music-player models in August, just ahead of the back-to-school sales season. Vendors typically offer discounts on older lines when they introduce new ones, another reason why it should be a buyer's market for music players in the coming months.

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