Filing Information: December 2008, IDC #215784, Volume: 1, Tab: Vendors Consumer Markets: Audio: Market Analysis

M A R K E T AN A L Y S I S

W o r l d w i d e a n d U . S . P o r t a b l e M e d i a P l a y e r 2 0 0 8 � 2 0 1 2 F o r e c a s t a n d A n a l y s i s

Susan Kevorkian

I D C O P I N I O N

In 2008, total worldwide portable media player (PMP) shipments will be virtually flat over 2007, growing just 0.2% year over year to 200.5 million units as consumer demand wanes because of market saturation, economic concerns, and subsequent cuts to household consumer electronics spending. U.S. shipments are expected to decline 1.3% in 2008 for the first time to 50.5 million units. In addition, IDC finds:

! Worldwide PMP shipments will fall in 2009 for the first time to 191.4 million units, declining 4.5% year over year.

! As the forecast progresses and flash memory increasingly dominates as the storage medium of choice for manufacturers, and as flash memory prices continue to fall, worldwide flash-based PMP average selling prices (ASPs) will decline precipitously from $115.2 in 2008 to $71.5 in 2012.

! Video will be an important secondary driver of PMP acquisition and usage, but audio, in particular music, will continue to be the primary driver. The degree of this trend will vary by region.

! WLAN connectivity � in particular WiFi � will be deployed on nearly 20% of all PMPs worldwide in 2012. Many connected PMPs � including Apple's iPod touch today � will have the technology specifications to qualify as mobile Internet devices (MIDs) and as such will help bolster consumer interest in and demand for the emerging MIDs category. Successful connected PMP vendors will not merely incrementally improve on the experience of using a PC-dependent PMP, but will offer a superlative user interface and service access experience.

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T A B L E O F C O N T E N T S

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In This Study 1 Methodology ............................................................................................................................................. 1 Situat ion Overview 1 Key Trends in the Portable Media Player Market ..................................................................................... 1 Worldwide and U.S. Unit Shares .............................................................................................................. 3 Future Outlook 4 Forecast and Assumptions ....................................................................................................................... 4 Market Context ......................................................................................................................................... 18 Essential Guidance 20

Learn More 20 Related Research..................................................................................................................................... 20

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L I S T O F T A B L E S

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1 Worldwide and U.S. Flash- and HDD-Based Portable Media Player Shipments Share by Vendor, 2007................................................................................................................................ 4

2 Key Forecast Assumptions for the Worldwide and U.S. Portable Media Player Market, 2007�2012 ................................................................................................................................... 4

3 Worldwide Portable Media Player Shipments by Storage Medium, 2005�2012 ......................... 10

4 Worldwide Portable Media Player Revenue by Storage Medium, 2005�2012 ............................. 10

5 Worldwide Flash-Based Portable Media Player Shipments by Media Format Supported, 2005�2012 .................................................................................................................................. 11

6 Worldwide HDD-Based Portable Media Player Shipments by Media Format Supported, 2005�2012 .................................................................................................................................. 12

7 Worldwide Flash-Based Portable Media Player Shipments by Region, 2005�2012 ................... 13

8 Worldwide HDD-Based Portable Media Player Shipments by Region, 2005�2012 .................... 14

9 Worldwide and U.S. WLAN-Enabled Portable Media Player Shipments, 2005�2012 ................. 15

10 U.S. Portable Media Player Shipments, 2005�2012 ................................................................... 16

11 U.S. Portable Media Player Revenue, 2005�2012....................................................................... 16

12 U.S. Flash-Based Portable Media Player Shipments by Media Format Supported, 2005�2012 .................................................................................................................................. 17

13 U.S. HDD-Based Portable Media Player Shipments by Media Format Supported, 2005�2012 .................................................................................................................................. 17

14 Worldwide and U.S. Portable Media Player Average Selling Value by Storage Medium, 2005�2012 ................................................................................................................................... 18

15 Worldwide Portable Media Player Shipments, 2007�2012: Comparison of December 2007 and December 2008 Forecasts ................................................................................................... 19

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L I S T O F F I G U R E S

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1 Worldwide Portable Media Player Shipments 2007�2012: Comparison of December 2007 and December 2008 Forecasts .................................................................................................... 19

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I N T H I S S T U D Y

M e t h o d o l o g y

The data, analysis, and conclusions in this study were created from IDC's extensive primary and secondary research resources, combined with the expertise of multiple IDC analysts and representatives from a variety of areas related to the portable media player market. The process of developing IDC's portable media player forecast included interviews with device manufacturers, technology vendors, retailers, online and mobile media service providers, and other players in the ecosystem. IDC also took recent survey research into consideration, and it conducted product testing whenever possible to assess portable media players firsthand.

The following IDC research groups and programs provided significant input in terms of technology and market trends:

! Broadband Markets and Technologies

! Consumer Markets: Home Networking

! Consumer Markets: Video

Key data points from IDC's 2008 Consumer Markets: Audio Survey informed this study. Several secondary sources, including publicly available financial statements, also helped in the development of this forecast.

Note: All numbers in this document may not be exact due to rounding.

S I T U AT I O N O V E R V I E W

2007 was another banner year for the portable media player market, with more than 200.1 million players shipped worldwide. Worldwide shipments in 2008 are expected to be nearly flat year over year, growing 0.2% over 2007 to 200.5 million units.

K e y T r e n d s i n t h e P o r t a b l e M e d i a P l a y e r M a r k e t

The following sections discuss key technology trends that defined the portable media player market in 2007 and 2008.

Video Support

This is an important feature in PMPs not only from the standpoint of device functionality and aesthetics, but also access to a wider selection of compatible content, beyond music and other types of audio. The growing number of sources for compatible TV, film, and user-generated content only supports video functionality in PMPs. In 2007, more than 40% of the combined worldwide flash- and HDD-based PMP units supported video, with that percentage expected to grow to 60.3% in 2008.

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In the United States, demand for and usage of video in PMPs is significant, yet still lags that of audio. As we see in our U.S.-fielded 2008 Consumer Markets: Audio Survey data, 60% of all survey respondents ranked video support as an important factor in the device selection process (this percentage represents those respondents who answered 6�10 on a scale of 1 to 10 with 10 being most important), and 50% reported using their PMP to play back video for an hour or more per week. This contrasts with 91% of respondents in the same survey who reported that audio quality was an important factor and 94% who reported using their PMP to play back music or other audio content for an hour or more per week.

But it's important to note that younger U.S. consumers � 13- to 17-year-olds � are much more likely than other age groups to seek out and use video functionality, with 76% reporting video being an important feature in their selection process and 79% spending an hour or more per week watching video on their PMP. This data points to the need in the United States to support video in PMPs, yet in the context of audio-focused devices rather than video-focused devices that are primarily marketed as video players. As 13- to 17-year-old consumers age, and sources of video content proliferate online and elsewhere, we expect that the demand for video on portable devices, including PMPs, will persist.

WLAN-Enabled PMPs

WiFi-enabled PMPs appeared in 2006 in the United States with start-up MusicGremlin's player and service, with distribution through Amazon but limited marketing. Microsoft's Zune was launched later in the same year in the United States with a splash but received a lukewarm reception from consumers. Haier America's ibiza Rhapsody shipped in late 2007 in the United States accesses RealNetworks' Rhapsody service via WiFi, while Slacker's device that shipped in 2008 supports Slacker's free and premium Internet radio services exclusively. But it was the launch of the WiFi-enabled iPod touch in September 2007 that put WLAN connectivity in PMPs on the map, with 4.83 million WiFi-enabled PMPs shipping worldwide that year, mainly in the United States. Table 9 outlines our forecast for worldwide and U.S. WLAN-enabled PMPs.

Simply adding a WiFi chipset to a PMP doesn't revolutionize the user experience. But intuitive and attractive device software, user interface, and related services offered together with WiFi can offer ease and immediacy in content discovery and consumption not possible with PC-dependent PMPs. For example, the iPod touch offers not only connectivity to the iTunes WiFi Store, but also to a host of third-party applications from the App Store � including entertainment-oriented ones such as Pandora for free Internet radio � that users can tailor to their tastes. Zune was slower to develop its connectivity features, initially only enabling Zune-to-Zune contact via WiFi but now allows direct to Zune Marketplace connectivity along with terrestrial FM radio support and discovery features and is ripe for more changes at a minimum to develop its music and video capability, but even better to capitalize on Xbox content and, potentially, productivity functionality borrowed from the Windows Mobile platform. As WiFi-enabled PMPs have evolved, the feature sets of some, like the iPod touch, now intersect with those of mobile Internet devices (MIDs), which are portable, connected devices that offer a range of functionality, including entertainment and productivity applications, full Web access, and connectivity. IDC does not expect

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truly Internet-centric MIDs to develop into a market of tens of millions of units during the next few years. This is because we believe that portable CE will integrate access and online applications as appropriate, at the same time that smartphones will continue to leverage the Internet, related applications, and widgets to fill in this burgeoning need. This provides an innovation path for PMP vendors, as well as for other established portable electronics products, that can offer this emerging feature set to maintain or grow units and preserve margin.

W o r l d w i d e a n d U . S . U n i t S h a r e s

The worldwide and U.S. unit shares are as shown in Table 1. Further:

! Apple led the market in 2007 with 26.3% market share worldwide, and nearly 50% of the U.S. market for flash- and HDD-based devices combined, a lead that was boosted in September 2007 with a major overhaul to the iPod line that included the introduction of the flagship, WiFi-enabled iPod touch, a device marketed as a portable media player but one that shares a platform (minus carrier connectivity) and applications with the iPhone. It also included a new nano, and a newly redesigned and branded HDD-based iPod, the classic.

! SanDisk introduced new flash-based players in 2007, with the Sansa Connect, based on Zing's connected device platform, as well as the video-enabled Sansa View. The company maintained a 3% worldwide market share and held the number 2 share position in the United States.

! Samsung introduced the YP-P2 and YP-T10 PMPs in late 2007, both with Bluetooth support, enhancing a line that was already solid if unimaginative. Samsung maintained a 1.6% share worldwide in 2007 and declined slightly in the United States year over year to 2.3%. With more attention and resources, Samsung's portable media player line could be a stronger contender worldwide and in the United States, but currently takes a back seat to Samsung's higher-profile TV and handset lines.

! Sony's introduction of the video-enabled NWZ-A810 and NWZ-S610 series, with support for MP3 and Windows Media Technologies in 2007 was a promising turnaround for a company whose portable audio player strategy had long been stymied by an overreliance on proprietary technologies. The introduction helped the company make gains in the worldwide PMP market and modest gains in the United States, with 2% share, against strong competitors.

! Creative Technology's business struggled overall during 2007, as evidenced by the company's voluntary NASDAQ delisting in September 2007. In the PMP market, the company held on to a 1.5% share worldwide but did not rank in the top 5 vendors in the United States.

! White box portable media player vendors continued to collectively hold a strong position in the worldwide PMP market in 2007 due to a combination of unit volume and obscure business practices designed to keep them under the radar to avoid paying technology license fees. We estimate that this group includes 75�100 vendors, mainly based in Asia, offering low-priced, nonbranded players

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via nontraditional CE channels. We believe white box vendors accounted for 20�25% of shipments worldwide in 2007 and that there was some consolidation in this market during 2008, but this group's role in the low-end PMP market will remain active in 2009.

T A B L E 1

W o r l dw i d e a n d U . S . F l a s h - a n d H D D - B a s e d P o r t a b l e M e d i a P l a y e r S h i pm e n t s S h a r e b y V en do r , 2 0 0 7 ( % )

Worldwide United States

Apple 26.3 47.8

SanDisk 3.0 7.7

Samsung 1.6 2.3

Creative 1.5 �

Sony 1.1 2.0

Microsoft Zune � 2.0

Other 66.5 38.2

Source: IDC, December 2008

F U T U R E O U T L O O K

F o r e c a s t a n d A s s u m p t i o n s

Key forecast assumptions are listed in Table 2.

T A B L E 2

K e y F o r e c a s t A s s u m p t i o n s f o r t h e W o r l dw i d e a n d U . S . P o r t a b l e M ed i a P l a y e r M a r k e t , 2 0 0 7 � 2 0 1 2

Market Force IDC Assumption Impact

Accelerator/ Inhibitor/ Neutral

Certainty of Assumption

Economic conditions

An economic downturn and recession in major markets, including the United States and Western Europe, will curtail

Moderate. Consumer budget tightening will reduce demand for PMPs in what is an increasingly saturated market.

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T A B L E 2

K e y F o r e c a s t A s s u m p t i o n s f o r t h e W o r l dw i d e a n d U . S . P o r t a b l e M ed i a P l a y e r M a r k e t , 2 0 0 7 � 2 0 1 2

Market Force IDC Assumption Impact

Accelerator/ Inhibitor/ Neutral

Certainty of Assumption

spending on portable media players and other consumer electronics, particularly those priced over $200.

increasingly saturated market.

PC penetration The PC will continue to be the primary source of content for portable media players during the forecast period. WiFi-enabled PMPs, including Apple's iPod touch and Microsoft's Zune, allow users to download or stream content directly to the device without using a PC as an intermediary and will represent 6.3% of PMPs in 2008 and 19.4% in 2012. The portable media player market will remain partly constrained by the installed base of PCs, particularly in emerging markets.

High. The correlation between PMP adoption and usage and PC penetration is high. Worldwide PC shipments are expected to grow from 269.1 million units in 2007 to more than 450 million in 2012.

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Broadband penetration

Broadband Internet access facilitates content acquisition via PC by speeding up the process of downloading media files and facilitating efficient streaming for on-demand music services.

High. Broadband access is a key driver in online music service adoption and usage. Greater accessibility to compatible media from a range of sources will help to drive PMP adoption. Worldwide consumer broadband is expected to increase from 333.1 million households in 2007 to more than 500 million in 2012.

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Media content Content for playback on portable media players � music as well as video � will be available through multiple sources, including mobile and online media services and physical media.

High. The availability of media through a diverse assortment of sources will be an essential driver of portable media player demand and usage.

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P2P networks and other sources of unauthorized content

Free, unauthorized music and video will continue to be available during the forecast period through peer-to-peer file sharing networks and other

Moderate. The availability of free media content online will help to drive demand for portable media players and is a key driver for media companies

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T A B L E 2

K e y F o r e c a s t A s s u m p t i o n s f o r t h e W o r l dw i d e a n d U . S . P o r t a b l e M ed i a P l a y e r M a r k e t , 2 0 0 7 � 2 0 1 2

Market Force IDC Assumption Impact

Accelerator/ Inhibitor/ Neutral

Certainty of Assumption

sharing networks and other online sources.

key driver for media companies to develop compelling legitimate sources of content.

Digital rights management (DRM)

DRM technology will be deployed by portable media player vendors to support DRM-protected audio and video content acquired through online and mobile media services.

Moderate. Paid online media services are a key source of content for all types of portable media players. Until recently, most music distributed through paid online media services was DRM protected, but that is changing as more online music services offer DRM-free, MP3-encoded content. DRM support in PMPs is nonetheless expected to persist to support protected video downloads, including FairPlay-protected iTunes Store video and audio content and WMT-protected media from subscription-based services (Napster, Rhapsody and Zune Marketplace). DRM protection can be a source of confusion and frustration for consumers because not all DRM formats are decoded by all devices; by the same token, DRM-free content removes an important hurdle to adoption and usage.

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Flash memory The cost per megabyte of flash memory is forecast to fall from $0.008 in 2007 to $0.00035 in 2012. Device vendors will offer flash in capacities ranging from sub-1GB to 64GB+ as the forecast progresses.

High. Falling flash memory prices will enable manufacturers to use flash as a substitute for hard drive storage in 16GB+ devices beginning in late 2007. This will be the case with audio-focused PMPs as well as video-focused PMPs.

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T A B L E 2

K e y F o r e c a s t A s s u m p t i o n s f o r t h e W o r l dw i d e a n d U . S . P o r t a b l e M ed i a P l a y e r M a r k e t , 2 0 0 7 � 2 0 1 2

Market Force IDC Assumption Impact

Accelerator/ Inhibitor/ Neutral

Certainty of Assumption

Hard drive storage The HDD-based PMP segment is expected to be discontinued by 2011, if not earlier, as the cost of flash continues to fall, enabling storage densities formerly only provided by hard drive storage � upward of 64GB later in the forecast period.

High. As the forecast period progresses, the HDD-based PMP category will be displaced by flash in high-capacity devices that support video as well as photo and audio formats. 1.8in. hard drive form factors are expected to be deployed in high-capacity video-focused portable multimedia players through 2010.

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WLAN connectivity Deployment of 802.11 and other wireless technologies on PMPs adds convenience and immediacy to content acquisition by eliminating the need for a PC. Bluetooth deployment will primarily enable wireless earphone and headphone connections.

Moderate. WiFi deployment will steadily increase during the forecast period as chipsets become more power efficient, interference problems are addressed, and technology costs fall to enable wireless content transfers between portable devices and PCs, and directly from IP-based media services. The device manufacturers that succeed at offering WiFi-enabled devices will be those that also invest in building or buying device software to offer a smooth and intuitive user experience that is as good or better than that of getting content from a PC.

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Video Video support will become increasingly common on portable media players as the forecast period progresses, with 41.3% of worldwide PMPs supporting video in 2007 and 81% in 2012.

High. As technology costs decline and color displays become more common, video support will be deployed on PMPs at all price tiers. However, the degree of support will vary, with higher-end devices supporting H.264, MPEG-4, as well as a variety of other formats and lower-end devices supporting simpler formats, such as motion JPEG.

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T A B L E 2

K e y F o r e c a s t A s s u m p t i o n s f o r t h e W o r l dw i d e a n d U . S . P o r t a b l e M ed i a P l a y e r M a r k e t , 2 0 0 7 � 2 0 1 2

Market Force IDC Assumption Impact

Accelerator/ Inhibitor/ Neutral

Certainty of Assumption

Multimedia-enabled handsets

This category includes handsets with software- and hardware-enabled multimedia support. Shortcomings of devices in this category � battery life, soft- and hard-key navigation, and user interface � will be improved during the forecast period, making these devices viable substitutes for PMPs for a segment of users.

High. Handsets are ubiquitous portable devices for users worldwide, and those with multimedia capabilities are uniquely positioned as substitutes for media-centric PMPs. Apple's iPhone, which builds on iPod's features, not only has improved the experience of consuming multimedia on a handset but has raised the bar high for competitors in the multimedia-enabled handset space.

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Regional forecast: EMEA

Western Europe will be the dominant market in EMEA for PMPs, followed by Eastern Europe.

High. The EMEA portable flash player market will shrink slightly beginning in 2009, reflecting Western European market saturation and the global economic downturn, and the portable jukebox market is expected to shrink throughout the forecast period as device vendors favor flash memory for PMPs. European country-specific paid online media services with localized content libraries and falling prices on players in both categories will be key demand drivers during the forecast period.

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T A B L E 2

K e y F o r e c a s t A s s u m p t i o n s f o r t h e W o r l dw i d e a n d U . S . P o r t a b l e M ed i a P l a y e r M a r k e t , 2 0 0 7 � 2 0 1 2

Market Force IDC Assumption Impact

Accelerator/ Inhibitor/ Neutral

Certainty of Assumption

Regional forecast: Asia/Pacific (including Japan)

South Korea, Japan, and China will be key markets in the Asia/Pacific region throughout the forecast period.

High. Demand for portable flash players in Asia/Pacific will be inhibited by multimedia-enabled mobile phones supported by wireless media services during the forecast period. This region leads the world in demand for video-enabled MP4 flash players. The HDD-based portable market, which has always been stymied in Asia/Pacific by consumer preferences for small, light, and portable flash-based players, is expected to shrink throughout the forecast period as device vendors favor flash memory for PMPs.

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Regional forecast: Rest of world

This region includes Canada and Latin America. Recessionary conditions leading to reduced consumer spending and market saturation (particularly in Canada) will lead to shipments shrinking beginning in 2009.

Moderate. Demand for low-cost, minimally featured PMPs is expected to persist in both Canada and Latin America throughout and beyond the forecast period.

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Legend: #$$$$ very low, ##$$$ low, ###$$ moderate, ####$ high, ##### very high

Source: IDC, December 2008

Tables 3 and 4 show worldwide PMP shipments and revenue, respectively, by storage medium. Total combined worldwide flash- and HDD-based PMP shipments will peak in 2008 at more than 200.1 million units before declining for the first time in 2009 to just over 191.4 million units. Flash-based shipments will shrink beginning in 2009 after peaking at 188.2 million units in 2008, as global demand slackens due to saturation and challenging economic conditions cause consumers to cut back on consumer electronics and entertainment spending. Total worldwide PMP revenue will fall dramatically from $25.1 billion in 2008 to $10.9 billion in 2012, a -16.9% CAGR, primarily due to the declining cost of flash memory during the forecast period.

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T A B L E 3

W o r l dw i d e P o r t a b l e M e d i a P l a y e r S h i p m en t s b y S t o r a g e M e d i u m , 2 0 0 5 � 2 0 1 2 ( M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Flash 101.5 155.0 183.9 188.2 181.7 172.4 162.7 152.5 -3.7

Growth (%) NA 52.8 18.6 2.3 -3.5 -5.1 -5.6 -6.3

HDD 20.9 21.2 16.2 12.3 9.8 7.1 � � NA

Growth (%) NA 1.7 -23.7 -24.0 -20.6 -27.3 NA NA

Total 122.4 176.3 200.1 200.5 191.4 179.5 162.7 152.5 -5.3

Growth (%) NA 44.0 13.5 0.2 -4.5 -6.2 -9.3 -6.3

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

T A B L E 4

W o r l dw i d e P o r t a b l e M e d i a P l a y e r R e v en u e b y S t o r a g e M e d i u m , 2 0 0 5 � 2 0 1 2 ( $ M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Flash 12,874 19,304 22,806 21,670 20,845 19,394 14,728 10,905 -13.7

Growth (%) NA 50.0 18.1 -5.0 -3.8 -7.0 -24.1 -26.0

HDD 6,401 6,288 4,703 3,426 2,613 1,818 � � NA

Growth (%) NA -1.8 -25.2 -27.2 -23.7 -30.4 NA NA

Total 19,275 25,592 27,509 25,096 23,458 21,212 14,728 10,905 -16.9

Growth (%) NA 32.8 7.5 -8.8 -6.5 -9.6 -30.6 -26.0

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

The HDD-based PMP segment will continue to shrink in 2008 as key vendors � including Apple, SanDisk, Microsoft, and white box vendors � focus on flash storage for PMPs. Hard drives will be phased out of PMPs by 2011 as flash memory increasingly displaces hard drives in portable consumer electronics, including PMPs.

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Tables 5 and 6 show worldwide flash- and HDD-based PMP shipments segmented by audio or video support. As video technology implementation costs have declined steadily and major vendors, such as Apple, have added video support across product lines, the rate of deployment of video support in PMPs has grown quickly from 11.5% in flash-based PMPs in 2006 to more than 66% of flash-based players projected in 2009. Yet, particularly in the United States and Western Europe, vendors are typically combining video with audio in devices that are primarily marketed as music players, rather than focusing on offering video-focused portable video players. Taking the United States as an example, consumer research points to music being a primary demand driver for PMP acquisition and usage, with video being an important secondary one.

IDC believes that as the forecast progresses, demand for audio-only devices such as the iPod shuffle from Apple and inexpensive, low-capacity audio-only devices from no-name brands will persist, with 19% of flash-based PMPs supporting audio formats and 81% supporting video by 2012. Photo as a feature in PMPs, in combination with audio, has largely disappeared. Vendors offering devices with color displays are more likely to bypass photo and go directly to video support, given competitive technology costs for video implementation.

T A B L E 5

W o r l dw i d e F l a s h - B a s ed P o r t a b l e M e d i a P l a y e r S h i pm en t s b y M e d i a F o r m a t S u p po r t e d , 2 0 0 5 � 2 0 1 2 ( M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Audio 99.3 137.2 115.9 79.0 61.8 50.0 39.1 29.0 -24.2

Growth (%) NA 38.1 -15.5 -31.8 -21.9 -19.1 -21.9 -25.8

Share (%) 97.9 88.5 63.0 42.0 34.0 29.0 24.0 19.0

Video 2.2 17.8 68.1 109.1 119.9 122.4 123.7 123.5 12.7

Growth (%) NA 727.6 281.7 60.4 9.8 2.1 1.0 -0.1

Share (%) 2.1 11.5 37.0 58.0 66.0 71.0 76.0 81.0

Total 101.5 155.0 183.9 188.2 181.7 172.4 162.7 152.5 -3.7

Growth (%) NA 52.8 18.6 2.3 -3.5 -5.1 -5.6 -6.3

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

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T A B L E 6

W o r l dw i d e H D D - B a s e d P o r t a b l e M e d i a P l a y e r S h i p m en t s b y M e d i a F o r m a t S u p po r t e d , 2 0 0 5 � 2 0 1 2 ( M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Audio 15.5 3.0 1.6 0.6 0.2 � � � NA

Growth (%) NA -80.5 -46.4 -62.0 -68.3 NA NA NA

Share (%) 74.2 14.3 10.0 5.0 2.0 � � �

Video 5.4 18.2 14.6 11.7 9.6 7.1 � � NA

Growth (%) NA 237.9 -19.9 -19.8 -18.1 -25.8 NA NA

Share (%) 25.8 85.8 90.0 95.0 98.0 100.0 � �

Total 20.9 21.2 16.2 12.3 9.8 7.1 � � NA

Growth (%) NA 1.7 -23.7 -24.0 -20.6 -27.3 NA NA

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

Tables 7 and 8 show flash- and HDD-based device shipments by region. The United States, EMEA, and Asia/Pacific regions will all decline slightly as a percentage of the worldwide total due to slowing demand. The United States will account for 23.2% of worldwide flash player shipments in 2008. But saturation in the U.S. market, and lack of demand for video-focused PMPs to compensate for declines in the audio-focused PMP market, will lead to the U.S. percentage of the worldwide total to decrease slightly during the forecast period to 23% by 2012.

Table 9 outlines IDC's forecast for WLAN � primarily WiFi-enabled PMPs during the forecast period. Until mid-2007, they were a U.S.-based phenomenon, then Apple's iPod touch began shipping to regions outside of the United States during 2H07. As shown, WiFi-enabled PMPs are expected to represent 6.3% of total worldwide shipments in 2008 and 19.4% in 2012. The percentage could increase during the outer years of the forecast if technology costs, including software for connected PMPs, fall more quickly than projected; if major manufacturers support WiFi connectivity more aggressively, in midrange as well as high-end devices; and if more compelling services and applications emerge to support WiFi connectivity in PMPs.

©2008 IDC #215784 13

T A B L E 7

W o r l dw i d e F l a s h - B a s ed P o r t a b l e M e d i a P l a y e r S h i pm en t s b y R e g i o n , 2 0 0 5 � 2 0 1 2 ( M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

United States 23.6 36.0 42.8 43.7 42.0 39.7 37.4 35.1 -3.9

Growth (%) NA 52.4 18.8 1.9 -3.9 -5.3 -5.8 -6.3

Share (%) 23.3 23.3 23.3 23.2 23.1 23.1 23.0 23.0

EMEA 33.9 51.2 60.3 61.3 58.9 55.5 52.2 48.8 -4.2

Growth (%) NA 50.9 17.9 1.7 -4.1 -5.7 -5.9 -6.6

Share (%) 33.4 33.0 32.8 32.6 32.4 32.2 32.1 32.0

Asia/Pacific 31.1 47.3 56.1 57.2 55.2 52.2 49.3 46.1 -3.9

Growth (%) NA 52.3 18.6 2.0 -3.5 -5.4 -5.6 -6.6

Share (%) 30.6 30.5 30.5 30.4 30.4 30.3 30.3 30.2

ROW 12.9 20.5 24.7 26.0 25.6 24.9 23.8 22.6 -1.8

Growth (%) NA 59.4 20.1 5.3 -1.4 -2.7 -4.6 -5.0

Share (%) 12.7 13.3 13.4 13.8 14.1 14.5 14.6 14.8

Total 101.5 155.0 183.9 188.2 181.7 172.4 162.7 152.5 -3.7

Growth (%) NA 52.8 18.6 2.3 -3.5 -5.1 -5.6 -6.3

Notes: Asia/Pacific includes Japan. ROW includes Canada and Latin America. See Table 2 for key forecast assumptions.

Source: IDC, December 2008

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T A B L E 8

W o r l dw i d e H D D - B a s e d P o r t a b l e M e d i a P l a y e r S h i p m en t s b y R e g i o n , 2 0 0 5 � 2 0 1 2 ( M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

United States 8.4 9.5 8.3 6.8 5.5 4.0 � � NA

Growth (%) NA 14.2 -12.7 -17.8 -19.2 -27.3 NA NA

Share (%) 40.0 44.9 51.4 55.6 56.6 56.6 � �

EMEA 6.7 6.8 4.9 3.7 2.9 2.1 � � NA

Growth (%) NA 1.7 -27.2 -25.3 -22.0 -27.3 NA NA

Share (%) 32.0 32.0 30.5 30.0 29.5 29.5 � �

Asia/Pacific 5.1 3.3 2.0 1.5 1.2 0.9 � � NA

Growth (%) NA -35.4 -39.7 -24.0 -22.3 -27.3 NA NA

Share (%) 24.4 15.5 12.3 12.3 12.0 12.0 � �

ROW 0.8 1.6 0.9 0.3 0.2 0.1 � � NA

Growth (%) NA 113.9 -41.1 -72.1 -29.9 -27.3 NA NA

Share (%) 3.6 7.6 5.9 2.1 1.9 1.9 � �

Total 20.9 21.2 16.2 12.3 9.8 7.1 � � NA

Growth (%) NA 1.7 -23.7 -24.0 -20.6 -27.3 NA NA

Notes: Asia/Pacific includes Japan. ROW includes Canada and Latin America. See Table 2 for key forecast assumptions.

Source: IDC, December 2008

©2008 IDC #215784 15

T A B L E 9

W o r l dw i d e a n d U . S . W L A N - E n a b l e d P o r t a b l e M e d i a P l a y e r S h i pm en t s , 2 0 0 5 � 2 0 1 2 ( M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Worldwide � 0.6 4.8 12.6 16.8 22.6 26.2 29.6 43.7

Growth (%) NA NA 738.1 161.1 33.1 34.6 16.1 12.9

Share (%) � 0.3 2.4 6.3 8.8 12.6 16.1 19.4

United States � 0.6 3.5 6.4 10.4 11.5 12.4 12.8 29.6

Growth (%) NA NA 505.9 83.3 62.1 10.9 8.1 2.7

Share (%) � 1.3 6.8 12.7 21.8 26.3 33.2 36.4

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

Tables 10 and 11 show shipments and revenue, respectively, for the U.S. PMP market. In 2008, the total U.S. market is expected to shrink slightly � down by 1.3% over 2007 � to 50.5 million units because of waning consumer demand due to market saturation, belt tightening due to recessionary economic conditions, and a shrinking HDD-based PMP category for which flash-based shipments do not compensate. In the United States, branded products represent a higher percentage of device shipments than in other parts of the world, compared with white box PMPs, and Apple is more dominant, commanding nearly 50% of unit share compared with less than 30% globally. Total U.S. PMP revenue is expected to decline dramatically at a -24.2% CAGR from $8.5 billion in 2008 to $2.5 billion in 2012.

Tables 12 and 13 show the U.S. flash- and HDD-based PMP markets segmented by audio and video support. Video is not expected to be a primary driver of PMP purchases and usage, contrary to what we believed when video-enabled PMPs first emerged, and we expect this to remain the case during the forecast period. But for those who do use video functionality on a PMP, online video sources offering a comprehensive selection of TV, film, and user-created content will become available during the forecast period to support that behavior.

Table 14 outlines the ASPs for the forecast period. Portable flash ASPs represent a weighted average product mix, which varies year to year based on flash density mix. In general, falling prices are driven by declining component costs to manufacturers.

16 #215784 ©2008 IDC

T A B L E 1 0

U . S . P o r t a b l e M e d i a P l a y e r S h i p m en t s , 2 0 0 5 � 2 0 1 2 ( M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Flash 23.6 36.0 42.8 43.7 42.0 39.7 37.4 35.1 -3.9

Growth (%) NA 52.4 18.8 1.9 -3.9 -5.3 -5.8 -6.3

HDD 8.4 9.5 8.3 6.8 5.5 4.0 � � NA

Growth (%) NA 14.2 -12.7 -17.8 -19.2 -27.3 NA NA

Total 32.0 45.6 51.2 50.5 47.5 43.8 37.4 35.1 -7.3

Growth (%) NA 42.4 12.3 -1.3 -6.0 -7.9 -14.5 -6.3

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

T A B L E 1 1

U . S . P o r t a b l e M e d i a P l a y e r R e v en u e , 2 0 0 5 � 2 0 1 2 ( $ M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Flash 3,000 4,488 5,312 5,027 4,815 4,470 3,387 2,508 -13.9

Growth (%) NA 49.6 18.3 -5.3 -4.2 -7.2 -24.2 -26.0

HDD 6,401 6,288 4,703 3,426 2,613 1,818 � � NA

Growth (%) NA -1.8 -25.2 -27.2 -23.7 -30.4 NA NA

Total 9,401 10,776 10,015 8,453 7,428 6,288 3,387 2,508 -24.2

Growth (%) NA 14.6 -7.1 -15.6 -12.1 -15.3 -46.1 -26.0

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

©2008 IDC #215784 17

T A B L E 1 2

U . S . F l a s h - B a s e d P o r t a b l e M e d i a P l a y e r S h i pm e n t s b y M e d i a F o r m a t S u p po r t e d , 2 0 0 5 � 2 0 1 2 ( M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Audio 23.6 33.0 27.5 18.2 14.6 11.8 9.2 6.8 -24.4

Growth (%) NA 39.6 -16.6 -33.6 -20.0 -19.2 -22.0 -26.1

Share (%) 99.9 91.5 64.2 41.8 34.8 29.7 24.6 19.4

Video 0.0 3.1 15.3 25.4 27.4 27.9 28.2 28.3 13.0

Growth (%) NA 12,855.9 400.5 65.7 7.7 2.1 1.0 0.2

Share (%) 0.1 8.5 35.8 58.2 65.2 70.3 75.4 80.6

Total 23.6 36.0 42.8 43.7 42.0 39.7 37.4 35.1 -3.9

Growth (%) NA 52.4 18.8 1.9 -3.9 -5.3 -5.8 -6.3

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

T A B L E 1 3

U . S . H D D - B a s ed P o r t a b l e M e d i a P l a y e r S h i pm e n t s b y M e d i a F o r m a t S u p po r t e d , 2 0 0 5 � 2 0 1 2 ( M )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Audio 6.3 1.0 0.7 0.3 0.1 0.0 � � NA

Growth (%) NA -85.0 -21.4 -63.5 -79.8 -63.7 NA NA

Share (%) 76.0 10.0 9.0 4.0 1.0 0.5 � �

Video 2.0 8.6 7.6 6.6 5.5 4.0 � � NA

Growth (%) NA 328.2 -11.7 -13.3 -16.7 -26.9 NA NA

Share (%) 24.0 90.0 91.0 96.0 99.0 99.5 - -

Total 8.4 9.5 8.3 6.8 5.5 4.0 � � NA

Growth (%) NA 14.2 -12.7 -17.8 -19.2 -27.3 NA NA

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

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T A B L E 1 4

W o r l dw i d e a n d U . S . P o r t a b l e M e d i a P l a y e r A v e r a g e S e l l i n g V a l u e b y S t o r a g e M e d i u m , 2 0 0 5 � 2 0 1 2 ( $ )

2005 2006 2007 2008 2009 2010 2011 2012 2007�2012 CAGR (%)

Flash 126.9 124.5 124.0 115.2 114.8 112.5 90.5 71.5 -10.4

Growth (%) NA -1.8 -0.4 -7.1 -0.3 -2.0 -19.6 -21.0

HDD 306.6 296.2 290.3 278.4 267.5 256.0 � � NA

Growth (%) NA -3.4 -2.0 -4.1 -3.9 -4.3 NA NA

Note: See Table 2 for key forecast assumptions.

Source: IDC, December 2008

M a r k e t C o n t e x t

The latest forecast, presented here, differs from the December 2008 forecast (see Worldwide Portable Media Player 2007�2011 Forecast Update, IDC #210126, December 2007) in the following ways (see Table 15 and Figure 1):

! Worldwide PMP shipments are slightly lower in 2007, and it decreases by nearly 40 million units in 2011 due to the combined effects of declining demand resulting from market saturation and reduced consumer electronics budgets stemming from the impact of the global economic crisis that is expected to continue throughout and possibly beyond 2009.

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T A B L E 1 5

W o r l dw i d e P o r t a b l e M e d i a P l a y e r S h i p m en t s , 2 0 0 7 � 2 0 1 2 : C o m p a r i s o n o f D e c e m b e r 2 0 0 7 a n d D e c e m b e r 2 0 0 8 F o r e c a s t s ( M )

2007 2008 2009 2010 2011 2012

December 2008 forecast 200.1 200.5 191.4 179.5 162.7 152.5

Growth (%) NA 0.2 -4.5 -6.2 -9.3 -6.3

December 2007 forecast 200.6 212.4 216.9 212.8 202.5 �

Growth (%) NA 5.9 2.1 -1.9 -4.8 NA

Note: See Worldwide Portable Media Player 2007�2011 Forecast Update (IDC #210126, December 2007) for previous forecast.

Source: IDC, December 2008

F I G U R E 1

W o r l dw i d e P o r t a b l e M e d i a P l a y e r S h i p m en t s 2 0 0 7 � 2 0 1 2 : C o m p a r i s o n o f D e c em be r 2 0 0 7 a n d D e c em b e r 2 0 0 8 F o r e c a s t s

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012

(M)

December 2008 forecastDecember 2007 forecast

Source: IDC, December 2008

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E S S E N T I AL G U I D A N C E

These recommendations apply to the PMP market during the current forecast period:

! Device vendors: Any firm contemplating entering the PMP market faces an uphill battle against an established and dominant market leader, an entrenched group of second-tier competitors, and declining consumer demand and revenue. The low end of the market is dominated by a combination of white box vendors and low-end products from name brands, including Apple's $49 1GB iPod shuffle and SanDisk's $39.99 1GB Sansa Clip and its new $34.99 slotMusic player (price includes a 1GB slotMusic microSD card). But as the MIDs market takes shape � whether as a single device category or one in which similar Internet-centric specifications are shared by devices marketed in a variety of categories � IDC believes that there is room in the high end of the PMP market for competitively priced, entertainment-focused connected PMPs that may also include productivity functionality and offer superior user experience and connectivity to entertainment and other services.

! Media service providers: Demand for video support on and video content for PMPs is expected to vary by region during the forecast period, with higher levels of demand and usage expected in Asia/Pacific than in the United States or Western Europe. Service providers will need to tailor their content offerings accordingly, to appeal to local tastes, commuter and traveler segments, and access to pirated video content. Globally, music is expected to remain the more important driver to PMP acquisition and usage than video, but with 81% of PMPs expected to support video by 2012, there are and will continue to be opportunities to appeal to video-enabled PMP users with more extensive content libraries, DRM-free video content, and combined music and video promotion among other vehicles.

L E AR N M O R E

R e l a t e d R e s e a r c h

! Nokia Comes With Music, But Does It Go Far Enough? (IDC #215183, November 2008)

! Portable Media Players: From WiFi to MIDs? (IDC #lcUS21453208, September 2008)

! Apple Buffs Up iPod and iTunes and Brings on the HDTV and Videogame Content (IDC #214224, September 2008)

! Worldwide Portable Media Player 2007�2011 Forecast Update (IDC #210126, December 2007)

©2008 IDC #215784 21

C o p y r i g h t N o t i c e

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