“With the proliferation of flash memory based products and the increasing recording capacity of flash, we believe our patent holdings in this area are fundamental and valuable, particularly in the areas of content file management, optimal flash memory management, and in removable flash applications,” concluded Blakeley. “With the assistance of an intellectual property management partner, our strategy is to aggressively pursue licensing agreements with companies we believe have products utilizing our intellectual property.”

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Samsung Intros iPod Rival

iPod nano flash memory maker will debut its own player to vie with its customer’s.

March 3, 2006

Samsung Electronics supplies flash memory to Apple’s iPod nano but now plans on Sunday to introduce a rival to the device, attempting to mount a challenge to Apple’s supremacy in the digital music player market that has so far been unchecked.

Samsung is pricing the YP-Z5 player to compete with the iPod nano. Both players cost $199 for a 2-gigabyte (GB) model and $249 for a 4GB model. Apple also recently introduced a 1GB nano model for $149 (see Apple Intros 1GB iPod Nano). Apple’s 4GB model holds 1,000 songs.

The resemblances don’t end there. The YP-Z5 was designed by some of the same people who helped design the iPod.

Samsung turned to Iventor, a Palo Alto, California-based company led by a former Apple employee Paul Mercer. Four years ago, Mr. Mercer’s company, Pixo, helped create the software for the original iPod after he left Apple, according to The New York Times. Pixo was later acquired by Sun Microsystems.

Samsung is competing with the iPod by providing a larger color display on the device for displaying photo slide shows, as well as a longer battery time. The display measures 1.8 inches and the battery is rated at 35 hours.

The iPod nano, which Apple debuted last September, has a 1.5-inch display and a 14-hour battery time. The two devices weigh about the same, with the Z5 weighing 1.6 ounces and the nano 1.5 ounces. Samsung did not immediately respond to a request for comment.

Up Against iTunes

Samsung announced the YP-Z5 at the Consumer Electronics Show in Las Vegas in January (see Skype Expands Its Reach).

The player is designed to support Microsoft’s Plays For Sure technology so it can work with music services such as Napster, Yahoo Music, RealNetworks’ Rhapsody, and MTV’s Urge. But Samsung will still have to face Apple’s seamless integration of its iPod with its iTunes Music Store.

“Apple’s iPods have very basic features, but they’re very easy to use,” said Shawny Chen, digital audio analyst with the research firm Current Analysis. “Apple also has a complete digital audio solution for consumers. There isn’t a music store out there that can compete with the iTunes software.”

To come close to matching Apple’s success with the nano, Samsung will need to market the new player heavily.

“The strength of Apple is they spend so much money on marketing,” said Ms. Chen. “Samsung said late last year that they would increase their budget on advertising and marketing on Samsung MP3 players. Only time will tell what they will do with their ad campaign.”

Samsung hopes to overtake Apple’s lead in the digital audio player market by 2007. As of December 2005, Samsung was third in terms of retail presence.

Samsung, based in Seoul, plans to introduce the YP-Z5 player first in the United States, followed by Europe in March, and Asia in May, according to the Mail & Guardian Online.

Still, Samsung will face a dominant player in Apple in the MP3 player market. Samsung already makes MP3 players and it hasn’t whittled away much market share yet from Apple, which holds 80 percent of the market in the U.S. and over 50 percent globally.

Apple has also seen competition from other flash memory-based MP3 players, including SanDisk (see SanDisk Chases iPod). Flash-based players are also available from Creative Technology, iRiver, MobiBlu, Philips, and other companies.

Flash Investigation

Apple had signed up Samsung to produce flash chips for its iPod nano and iPod shuffle, and the two companies had agreed for Samsung to provide 40 percent of its NAND flash chips to Apple in a $3.8-billion deal.

But then South Korea’s Fair Trade Commission stepped in and began investigating the deal. The agreement fell apart last October (see $3.8B Apple-Samsung Deal Dies).

The following month, Apple signed a $1.25-billion deal with Samsung, Intel, Hynix Semiconductor, and Micron Technology to supply flash memory for its music players (see Apple Pays $1.25B for Chips). Intel and Micron also formed a joint venture, IM Flash Technologies, to produce the chips.

Samsung’s problems with the Fair Trade Commission didn’t end there, however. The South Korean FTC said Friday it would investigate allegations of collusion between Samsung and Hynix on the prices of memory chips in the U.S., and the effect that was having on the Korean market.

Nevertheless, Samsung will be able to benefit from its direct access to its own flash memory when it builds its music players.

“No matter at what price they sell their flash memory to Apple, they are able to beat that because they are the OEM [original equipment manufacturer] of their products,” said Ms. Chen. “Samsung will be able to offer a lower price than for the iPod. Apple sees that and doesn’t want to put all its eggs in one basket, so they’re dealing with other companies to provide NAND flash memory.”