Until last year, the competition in the global portable music player market has virtually been Apple Computer versus everyone else, especially when it comes to high-capacity hard disk drive (HDD) models. Apple, whose flagship computer business has been lackluster, sold roughly 10 million HDD-based iPods through the end of 2004, and 4.5 million iPods just in the final quarter of last year. The U.S. computer maker claimed to have captured over 60 percent of the global digital music player market in 2004. Although Apple claims to be the leader in the United States, Japan and Western Europe, it is not clear whether it commands such a large share globally, as accurate sales data on MP3 players in China, India, Latin America, Eastern Europe and even South Korea and Taiwan are hard to obtain. In 2005, the U.S. firm seeks to aggressively go after the lower-end flash player market with its first flash model, the iPod Shuffle, which sells at half the price of existing products of rival vendors. It holds about 120 songs. Apple reportedly aims to sell 30 million iPods worldwide this year, but the company refuses to provide a specific target for 2005 Rising Competition Local MP3 player makers anticipate the Korean market will grow to some 3.5 million units this year from 1.8 million last year. Contrary to major foreign digital music player markets such as the U.S. and Japan, where HDD-based devices dominate 60-70 percent of the market, flash players command 70-80 percent of the Korean market. The three largest Korean brands --ReignCom's iRiver, Samsung Electronics' Yepp and Cowon System's iAUDIO -- control an estimated 80 percent of the domestic MP3 player market. ReignCom, parent company of Korea's largest MP3 player maker iRiver, said it sold 1.1 million MP3 players at home last year, capturing nearly 60 percent of the market. Due to the much stronger foothold of local brands, foreign competitors, especially Apple, have had a tough time in the Korean market. Apple has a small share in the Korean MP3 player market, but looks to emerge as the third-largest supplier in the Korean market this year. Its entry into the flash-based MP3 player market with ultra-cheap, 125,400 won (value added tax included) 512-megabyte iPod Shuffle has already sent shockwaves among Korean portable digital jukebox vendors, triggering a price war. In response to Apple's iPod Shuffle, Korean manufacturers have introduced aggressive price cuts on their flash players since mid-January, sacrificing their profitability. The price cut was possible with lower flash memory prices and local makers predict they will be able to stay profitable even after the price cut as international flash memory prices are projected to continue to fall in the coming years. ReignCom slashed sale prices of its flash-based models by up to 25 percent worldwide. Cowon, the third-largest MP3 player supplier in Korea after ReignCom and Samsung Electronics, also lowered sale prices of its 11 flash memory players in the Korean and Japanese markets recently and will extend the price cut to other foreign markets as well. Spurred by Korean manufacturers' bold price cuts, Apple got off on the wrong foot in Korea by hastily carrying out a price-cut policy. Apple's Korean unit announced on Feb. 1 that it would lower sale prices of its HDD-based iPods only in Korea to counter the price cuts by its Korean counterparts, but in less than two weeks, Apple called the cuts off and put back original price tags. Then on Feb. 24, Apple headquarters reannounced massive price cuts for its old iPod versions, while unwrapping its new iPod Mini and iPod Photo models in Korea, confusing Korean iPod enthusiasts. Following the markdown, the price of the 60-gigabyte iPod Photo, old HDD model with a color LCD, was slashed to 530,000 won from 792,000 won and the 4-gigabyte iPod Mini to 230,000 won from 341,000 won. Local manufacturers previously anticipated that the iPod Shuffle could be a bestseller in foreign markets but it would not turn out to be a huge hit here as Korean consumers are more inclined toward feature-packed devices, but many Korean consumers are charmed by sleek designs and the cheaper prices of the iPod series. Apple's iPod Shuffle lacks features such as a display and a FM radio tuner. 'We cannot figure out by how much our market share has increased in Korea after the launch of new iPods, including the Shuffle, and the price cut,' said Kim Mi-roo, marketing assistant of Apple Computer Korea. 'But after the price cut, we sold more 4-GB iPod Minis than 1-GB iPod Shuffles, since the HDD-model has more memory and features than the flash model with the price difference being only 50,000 won,' she said. The aggressive price cut attempt by Apple shows the company's eager desire to get a firm grip on the Korean market, the base camp of ReignCom and Samsung, and it seems to be working well. Korea accounted for a little less than 10 percent of the global MP3 player market last year. Looking Abroad Apple, which has been a portable jukebox market leader since introducing the iPod in late 2001 and iPod Mini in early 2004, however, will face much tougher competition in the global market this year as Korean manufacturers are gearing up to make aggressive inroads into foreign markets. The four biggest domestic MP3 player manufacturers, including MPIO, expressed their strong determination to preempt the global portable digital music player market with the onset of 2005. The four companies, which shipped out more than 4 million MP3 players worth some 450 billion won last year, have combined export targets of between 10 million-13.5 million units this year. Their aggregate export revenue is expected to top 1 trillion won in 2005. ReignCom plans to make a full-scale entry into major MP3 markets this year, especially the U.S. The company last December introduced H10, an HDD-based portable digital music player with a 1.5-inch color LCD targeted at Apple's iPod Mini. H10 supports various features, including an electronic book and digital photo album viewer, voice recording and FM tuner. ReignCom's iRiver shipments amounted to 2.8 million units last year, 1.7 million units of which were sold in the overseas market. The company estimated that its global market share reached 13.7 percent in 2004. According to ReignCom's estimate, the global MP3 player supply reached 24 million units in 2004, 16 million units of which were flash-based MP3 players. ReignCom said it commanded 17.5 percent of the flash player market last year and 6 percent of the HDD-based player segment. This year, ReignCom aims to sell 5.5 million iRivers worldwide and grasp 20 percent of the global HDD-based portable jukebox market. It plans to export 3.5 million portable music players this year. The company plans to market some 14 new MP3 players and portable multimedia players (PMPs) in the latter half. ReignCom plans to launch a full-fledged marketing campaign in the U.S., Japan and Europe to take some of Apple's market share in the HDD-based player market. Even Apple and Samsung employees admit to the high technological competitiveness of iRiver. 'There is no change in our sales target for 2005 even after Apple's extensive price cut and Samsung Electronics' commitment to become a top player in the MP3 player market. We will continue to move on,' said Donald Kim, public relations manager of iRiver. ReignCom raised its sales target for 2005 by over 60 percent to 780 billion won from 485 billion won in 2004. Cowon Systems plans to export 600,000 units this year, effectively tripling its export goal from last year's 200,000 units. The company's MP3 player exports surpassed the $10-million mark for the first time last year. The MP3 player maker plans to more than double its annual production to over 1 million units this year from last year's 400,000 units and boost its domestic sales of iAUDIO to 500,000 units. Cowon plans to make inroads into emerging markets in Latin America and the Middle East this year. The company expects its annual sales to double to 155 billion won this year from 79 billion won last year. Cowon plans to roll out a portable multimedia player (PMP) soon and a digital multimedia broadcasting (DMB) mobile handset in the latter half of this year. MPIO, which reaped more than 90 percent of its 85 billion won annual sales from exports, raised its sales target for 2005 by 78 percent from a year earlier. It plans to boost its sales volume in the U.S. by adding large discount chains to its distribution channels while extending its presence in Latin America, Japan, Taiwan, Hong Kong and Russia. The Ambush As the MP3 player business hots up, Korea's top two consumer electronics makers, Samsung Electronics and LG Electronics, have emerged as a new variable in both global and domestic markets. Samsung Electronics is currently the second-largest MP3 player supplier in Korea. The electronics giant sold 1.7 million units in 2004. It has raised its worldwide sales target to over 5 million units for this year. Samsung hopes to hit the ball out of the park in the global MP3 player market with the hotly anticipated new Yepps or -- a flash-based fashionable and wearable MP3 player, the YP-F1, a cheaper version of the YP-W3, HDD-based PMP YH-J70, a smaller HDD-based PMP YH-J50, and two flash models, YP-T8 and YP-D1, as well as the HDD PMP YH-820. The company plans to grasp 10 percent of the U.S. HDD-based MP3 player market this year. The limited edition Yepp YP-W3, a white gold-plated MP3 pocket watch with a diamond trim and scratch-resistant sapphire crystal, sold like hotcakes. All 200 units of the 1-gigabyte flash player, which support various music file formats including OGG, WMA and MP3, priced at 900,000 won a piece, were sold out in just three days. With colorful, top-of-the-line products and aggressive and differentiated marketing campaigns, Samsung Electronics seeks to replicate the success of Anycall with Yepp, promoting the MP3 player to the position of a world-leading brand. Stimulated by the success of the iPod and eager to regain its position after lagging behind venture startup ReignCom, Samsung is striving to add portable music players into its flagship businesses. Samsung developed Anycall into the world's third best-selling cellular phone brand after Nokia and Motorola in just one decade. 'Samsung Electronics has set its worldwide MP3 player sales target to over 5 million units this year. By shoring up our digital audio device business, we will grow into the world's top MP3 player vendor by 2007,' said Ahn Tai-ho, senior executive director of Samsung Electronics and CEO of Samsung Bluetek, earlier this month. Samsung Bluetek is a wholly owned subsidiary of Samsung Electronics that manufactures digital audio device and home theater systems. Samsung Electronics said it would secure a 25-30 percent global market share and 50-55 percent of the domestic MP3 player market by 2007. Samsung Electronics sold a total of 1.7 million MP3 players in 2004. Samsung's strong resolution to win back the No. 1 title from ReignCom would be a nightmare for all MP3 player makers across the world, including Apple, as the combination of unrivaled technical prowess in digital devices and flash memory chips, LCDs and strong brand power, coupled with its rich capital and human resources, could create tremendous competition. LG Electronics, which demonstrated its capability to grow into a top-tier digital appliance maker at the Consumer Electronics Show in Las Vegas last month, is also strengthening its MP3 player business. The company introduced its first PMP model, the Xfree MP3 brand MF-HE700 last month. The two electronic heavyweights' full-fledged entry into the market, coupled with the entry of Japanese audio device giants -- Sony and Panasonic -- the already cutthroat market competition is anticipated to further intensify. 'The competition among MP3 player makers has just begun and it will grow more fierce in the future. Instead of relying on price competitiveness, Korean manufacturers should compete with foreign rivals with improved design and functions while exerting efforts to improve brand power,' said Kim Sung-hwan, a senior research fellow with LG Economic Research Institute.