After dominating their respective markets and seeing their sales multiply during the past year, the top two suppliers of MP3 music player semiconductors are introducing new chips targeting each other's markets.
PortalPlayer, the leading supplier of chips used for audio processing and other functions in MP3 players based on a hard disk drive, such as
Apple Computer's iPod, recently unveiled its first chips for players that store music in flash memory. Meanwhile
SigmaTel, the leading supplier of MP3 audio chips for flash-based players, such as those from
Creative Technologies, Dell and
Samsung, plans to introduce new chips for hard-disk players in the third quarter of 2005.
"Both companies are aiming at each others' markets," says iSuppli analyst Shyam Nagrani. "They had to, because that's the only way they could grow." Indeed, although the digital music market shows few signs of slowing, each company so thoroughly controls its own market segment that it would be difficult for either to gain much more market share. Despite competition from
Intel, Texas Instruments, Philips and others, iSuppli estimates, PortalPlayer chips are used in at least 80 percent of MP3 players based on hard disks and SigmaTel chips are used in more than 70 percent of flash-based players.
Apple is a big factor in both companies' success. PortalPlayer's chips have powered all of Apple's wildly successful iPod hard-disk players, which generated more than $1 billion in sales in 2004. PortalPlayer's sales have soared along with the iPod's, quadrupling from $21 million in 2003 to $93 million in 2004. SigmaTel, which sold chips mostly to other MP3 makers last year, nearly doubled its sales, from $100 million to $195 million, during 2004. But the company's recent deal to supply chips for Apple's new Shuffle flash-based players was key to its 26 percent sales growth in 2005's first quarter.
Analysts say the two companies have different strategies and strengths, and it's too soon to tell whether either will make inroads into the other's market. Carter Driscoll, a technology analyst with IRG Research, attributes PortalPlayer's success to its early, close relationship with Apple and to "very robust" software and development tools that help manufacturers quickly develop new, easy-to-use MP3 players. SigmaTel's strength, he says, is in squeezing numerous mixed-signal functions into compact, energy-efficient chips. Says Driscoll, "What SigmaTel does really well is integration and advanced battery and power-management features."
With their dominant market positions, PortalPlayer and SigmaTel are positioned to capitalize on continued strong industry growth. Market research firm Gartner estimates that worldwide MP3 player sales, which nearly tripled last year, from 14 million to 40 million units, should almost double again during 2005, to 75 million units (see chart, "MP3 Player Forecast," below). Many analysts expect Apple to sell 20 million of those units, up from 8.5 million in 2004.
Neither PortalPlayer nor SigmaTel will discuss their relationships with Apple, but both admit concerns about becoming too dependent on a single customer. Almost 90 percent of PortalPlayer's 2004 sales were to
Inventec Appliances, which builds MP3 players for Apple. Sigmatel's sales to
Asustek Computer, which builds Apple's MP3 flash players, rose from less than 10 percent to 27 percent of its business in the first quarter of 2005.
Both companies are trying to diversify with new products and customers. SigmaTel hopes to move into MP3-enabled cell phones, PDAs and image viewers over the long term. But for now, its most promising diversification opportunity is into hard-disk music players.
Its latest audio chips, the 3500 family, already has made modest inroads into that market in products such as the Rio Carbon MP3 player, from Tokyo-based
D&M Holdings. But barely 5 percent of SigmaTel's first-quarter 2005 sales came from chips for hard-disk players, and company officials admit that further progress will depend on the success of its upcoming 3600 chips. The 3600 line, to be introduced later in 2005, will allow video as well as music playback and will use industry-standard ARM9 processors instead of the company's previous proprietary processors.
PortalPlayer's new MP3 audio chips, introduced in March, include a version for flash players that's bundled into a system-in-package module with a power management chip from
Austriamicrosystems. Compared to the company's previous chips, it reportedly provides three times the battery life for music players. That's possible in part because of the chips' dual ARM7 cores, which conserve power by running most of the time at less than full speed.
Michael Maia, a PortalPlayer cofounder, says flash players using the new chips should reach the market in the second half of 2005. He expects SigmaTel to be a tough competitor but hopes to find a niche supplying chips for higher-end products while catering to a more select clientele than SigmaTel's 60 or more customers. Says Maia, "We're perfectly happy having just two dozen customers."
