Skip to main content

This column was originally published on RealMoney on Feb. 15 at 9:34 a.m. EST. It's being republished as a bonus for readers.

The Walkman is a brand that has been widely regarded as dead and buried. However, the last few months have shown it was only resting in a shallow grave.

Sony Ericsson

brought out a Walkman phone series over the summer that connected in a big way with European consumers, reaching 3 million units in sales during the second half of 2005.

And on Tuesday at the GSM World Conference in Barcelona, Sony Ericsson extended the Walkman lineup in a truly impressive manner with the introduction of the W950 music phone, which should make it



leading challenger in 2006.

The iPod has cruised from strength to strength in the portable music player market, selling a towering 14 million units in the fourth quarter of 2005. However, it has not achieved domination in Europe and Asia because consumers in markets with fewer home PCs may be attracted to music distribution modes more closely linked to mobile handsets.

I believe the W950 could also find a healthy market among casual music fans who don't need the 60 GB of storage space in the top-end iPods, and who would welcome a multifunctional device that allows them to do more without having to lug around an additional piece of equipment.

A Different Battleground

I believe the rumors that Apple is about to launch a series of iPod players with wireless features: surely WiFi, probably Bluetooth, possibly mobile telephony. If and when that move happens, it will take Apple out of its comfort zone of glorified computer peripherals and into a whole new field of battle.

A tough field of battle.

Bundling and miniaturization is what phone manufacturers do best -- and they do it under intense pricing pressure. Phone vendors are used to bundling six to eight radio interfaces, miniaturizing the result and pressing the retail price down as rapidly as possible. This is an area in which Apple may encounter a steep learning curve.

Image placeholder title

The latest Walkman phone is a prime example of how tough the competition in music players with wireless features will be. The W950 combines GSM, W-CDMA, Bluetooth, an infrared port, an FM radio and a stellar color display in a package of only 113 grams. The W950 has only 4 GB of internal memory, so it still can't compete with heavy-duty iPods packing 30 or 60 GB. But this music phone is svelte indeed for a model that packs a QVGA-quality color screen and a multitude of connectivity features.

When it comes to consumers who prioritize either miniaturization/design or sheer memory capacity, Apple is still the clear choice -- the iPod nano with 4 GB of memory weighs 42 grams, less than half the W950. And the 30 GB iPod weighs 136 grams, a good weight for an abundance of memory.

Scroll to Continue

TheStreet Recommends

But what if there is a substantial market for music players that come combined with a mobile phone? For consumers who want a portable music player, but don't want to carry two devices?

Hybrid phones have flattened out the growth of both PDA and digital camera sales. (It's worth noting, though, that the portable video game console market hasn't suffered from mobile gaming so far.) The PDA market fizzled at 10 million units a year, but the market for PDA/phone hybrids hit more than 10 million units in the fourth quarter alone. We know that there are a lot consumers who are attracted to PDA functionality, but are unwilling to pay for and carry a dedicated PDA if they can have a hybrid device instead.

Combining a camera and a mobile phone was also a winning concept. Camera industry experts who scoff at the quality of camera phones are quite right -- they have been barely adequate. Two years ago, 0.3 megapixel camera phones were competing with 3 megapixel digital cameras. But the quality difference between camera phones and digital cameras keeps shrinking; for many consumers, the new 3 megapixel camera phones are an effective substitute for a 6 megapixel digital camera.

In Japan, digital camera unit sales growth has dropped below 5%; unit growth in the U.S. may stall in 2006. It's probably not a coincidence that Japan is a leading market for multimegapixel camera phones.

The quality gap between music phones and the iPod is also clearly shrinking. Just half a year ago, music phones typically offered 0.2 GB of memory. By next summer, 4 GB music phones will be the norm.

iPod development is advancing by leaps and bounds, but not as rapidly as music-phone development. Nowhere is there a faster pace of change than in the steamy jungle of the mobile-phone market, an evolutionary hothouse where new color display generations flicker every nine to 12 months.

Subsidized Prices

The key issue in 2006 for the W950 may be phone subsidy magic. Apple is a champion at luring consumers into paying premium prices for consumer electronics; the main expertise of a high-end phone specialist like Sony Ericsson -- a joint venture of






-- is bundling the functionality of several gadgets into one package and then getting an operator to subsidize the price to the equivalent of a night at the movies. Sony Ericsson's current high-end Walkmans sell for 10 to 30 pounds in the U.K. when purchased with a service package.

Will cheap, lightweight music phones with 4-10 GB of memory trump the iPod in some parts of the portable music market? I believe they will. Not at the miniature end, where nano iPods reign supreme. Not at the high end, where Apple offers both enormous amounts of memory and a great music-distribution service.

But in the fringes of the music-player market, where consumers watch their wallets and do not have collections of thousands of songs, Sony Ericsson and other phone brands will start doing some damage in 2006. They appeal to consumers who are already multitasking with their phones -- the kind who resisted PDAs and thought that carrying a digital camera and a phone was a hassle. The kind who would like to download five to 10 songs a month, but don't see the point of carrying a whole music library with them.

This segment of the market will, I believe, be big enough to put some serious margin pressure on Apple in 2006. The early demand for the Walkman series is clearly running ahead of expectations, and the W950 looks like a new benchmark product. Truly rabid fans of music already have iPods; casual consumers are going to be a whole different kettle of fish.

P.S. from Editor-in-Chief, Dave Morrow:

It's always been my opinion that it pays to have more -- not fewer -- expert market views and analyses when you're making investing or trading decisions. That's why I recommend you take advantage of our

free trial offer



premium Web site, where you'll get in-depth commentary


money-making strategies from over 50 Wall Street pros, including Jim Cramer. Take my advice --

try it now.

Tero Kuittinen is a senior product specialist for Nordic Partners, Inc., a pan-Nordic brokerage firm. Although Kuittinen is an employee of Nordic Partners, Inc., the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Nordic Partners, Inc., nor attributable to the company. At the time of publication, Kuittinen had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback;

click here

to send an email.