Music phones to hurt iPod growth

A recent analysis by Reuters India suggests that Apple's biggest competitor may be mobile phones with the ability to play music, rather than other digital music player manufacturers. Sales of mobile phones that can store and play back music are climbing, which industry watchers say could dent the MP3 player market potential. "You have the ability to talk, take pictures and listen to music in one device. The convenience factor is big," said Simon Leung, senior vice president of Motorola Asia. Kirk Yang, a managing director and technology analyst at Citigroup's Asia Pacific operations, believes Apple will probably unveil an iPod that will function as a cellphone later this year in response to the music phone offensive. "The iPod with phone functionality is going to be a category killer," Yang said. [updated]

Analysts believe that Flash-based devices which store up to 1,000 songs are the most vulnerable to swelling music-enabled mobile phone sales. "The music phone is not going to significantly impact the high-end, high-capacity hard disk market but it will certainly have a major impact on the low-end flash market," said Peter King of Strategy Analytics.

Another analyst believes music phone sales could have the greatest impact overseas. "In Asia, there is a huge status symbol with the mobile phone where folks don't really think twice about spending $500 or $600 to buy the latest mobile phone but are not willing to spend $200 or $300 for an MP3 player," said Claudio Checchia of research firm IDC Asia Pacific.

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