A flood of cheap iPods hits local music makers

Korean MP3-player manufacturers, once the leaders of the global personal audio market, are struggling to survive fierce competition from Apple Computer Inc., which has cut into their sales at home and abroad. Apple Computer Inc. and other companies have slashed their prices in an attempt to dominate the world market, prompting many local companies to scramble for ways to remain competitive or simply to survive. One of the struggling Korean companies is MPIO Co., which ranks among the nation’s top five MP3-player manufacturers. “We are at a point between life and death,” said Woo Jung-ku, the MPIO president, in an interview with Yonhap News Agency. “In the current business environment, only a few brands will be able to survive. We need to focus on differentiating ourselves to remain competitive.” MP3 music players, based on an enhanced audio-compression technology with a high sound quality, have been a huge hit since their debut in the late 1990s. In less than a decade, MP3 players ended years of dominance by the Walkman, a cassette player by Japanese electronics giant Sony Corp. According to an industry estimate, the global MP3 market expanded from $23 billion in 2003 to $58 billion in 2005, with about 74 million units sold last year. Korean companies, including the global heavyweight ReignCom Ltd., and dozens of other smaller ones, led the world market, accounting for 33 percent of global sales in 2003. But their dominance was threatened when Apple Computer launched a price war, unveiling popular new models of its iPod brand last year. The brands iPod Shuffle and iPod Nano appealed to cost- and designconscious consumers with their cheap prices and stylish appearance. The success of Apple’s iPod music players was helped by Samsung Electronics Co.’s substantial price cut for flash memory chips, a core part of the models. Critics claimed that Samsung sold the chips to Apple as much as 50 percent cheaper than the spot price of flash memory chips at the time. Apple’s global market share surged to 35 percent last year. Korean makers recently saw their combined share plunge to 20 percent from 33 percent in 2003. “Last year was a nightmare for us,” Mr. Woo said. “We had nothing at our disposal to fight a brand like iPod, which was backed by low prices and high-profile brand power.” MPIO, which depends on overseas shipments for 90 percent of its revenues, posted a net loss of 21 billion won ($21.7 million) last year. MPIO is not alone. ReignCom, the market leader, also felt the pinch and announced recently that it would go out of the MP3 player business. Some experts warn that the harsh market conditions could last for some time, as Apple and cheap brands from China will continue to pressure Korean MP3-player makers. Mr. Woo, however, said that he still has reason to believe the market will turn around soon. Flash memory chip prices have dropped from around $55 to $25, a cut that will enable MPIO to compete with Apple on an equal footing, he said. Apple bought its memory chips for around $20. But Mr. Woo put more emphasis on efforts to differentiate to stay alive in the market, where technological prowess is relatively level. “Functions will make little difference in appealing to consumers. Design is more important in determining the success of products,” Mr. Woo said.