Just how do you translate "iPod" into Chinese or Hindi? That may be the question that Apple Computer ( AAPL) is pondering as it looks to expand sales of its popular digital music player. Its position in the U.S. dominant, but that means iPod sales growth is tied to the growth of the market here. Outside the U.S., though, the company owns just a small portion of the game. With the growth of that market expected to outpace the domestic arena, Apple could continue to post outsized sales growth for years to come -- depending on how well it convinces overseas consumers that the iPod is as hip to have in China or India as it is in the U.S. Here, the iPod has been a runaway success. Last year, nearly 73% of the digital music players sold at retail in the U.S. were iPods, according to NPD, up from 56% in 2004. The company's nearest competitor last year, SanDisk ( SNDK), held just 7% of the market. But success outside the U.S. has been limited. Research firm iSuppli, for instance, estimates that Apple's share of the worldwide market for digital music players, in terms of units shipped, was 24.9% last year. Because it measures sales at different points in the supply chain, iSuppli's numbers aren't necessarily compatible with those from NPD. But combining the two sets of figures indicates that Apple had roughly 16.5% of the digital music player market in terms of unit sales last year. An Apple representative did not return a call seeking comment. Although the U.S. market is growing at a rapid clip, the market outside the country is growing even faster. Retail unit sales of digital music players in the U.S. grew 170% last year, according to NPD, but worldwide shipments grew by nearly 270%, according to iSuppli.
That performance outside the U.S. should continue, predicts Ron Edgerton, CEO of SigmaTel ( SGTL), which provides the microprocessors found in digital music players such as the iPod shuffle. Edgerton predicts that unit sales of digital music players will grow 30% to 40% in the U.S. and Europe this year and around 50% in the rest of the world. "People look at China, Russia, India, Brazil: Those are all rapidly growing markets," Edgerton says. "India has a lot of growth
potential ." This isn't lost on Apple, which is already pushing the iPod overseas. For instance, the company has set up country-specific versions of its iTunes music store -- which works hand-in-hand with the iPod -- for Japan and more than a dozen countries and areas in Europe and Latin America. It seems to be having some success. Extrapolating from NPD's data and the company's own sales figures, about 57% of the iPods sold last year were to overseas customers. Meanwhile, the inference from the iSuppli and NPD data is that the company's share of the market outside the U.S. rose about 2 percentage points from about 14.4% in 2004. Of particular note is the company's record in Japan, where, despite intense competition from hometown electronics giants such as Sony ( SNE) and Matushita, Apple's market share jumped to 51.3% of the market last year from 32% the year before, according to data from research firm BCN as cited by BusinessWeek. But there's no guarantee the iPod will become as dominant overseas as it is here in the U.S. Indeed, some analysts foresee challenges ahead, particularly in developing countries with the fastest-growing markets. In China specifically, but in other emerging countries such as Russia, pirated music content with no software protections attached is widely available with little scrutiny from government authorities, notes Chris Crotty, an analyst for iSuppli. Part of Apple's success in the U.S. followed the crackdown here on unregulated sharing of music files on sites such as the original Napster, he says.
With pirated songs more difficult to come by, Apple has been able to tie in customers to music bought through its iTunes store, which can only be played on iPod music players. But "in a country like China, where you get all this content for free, it doesn't matter whose player you pick," says Crotty. As a result, many consumers in those countries are buying inexpensive digital music players, analysts say. Although Apple has a low-end player in the Shuffle, comparable unbranded players in China and other markets are sold at a fraction of the cost of the Shuffle, whose entry model costs around $70 in the U.S. Gartner predicts that the worldwide market for digital music players in terms of units produced will grow from about 130 million last year to about 200 million this year. "A lot of this is being driven by low-end players," says Jon Erensen, an analyst with market research firm Gartner. While Apple might want to compete in that market, it might not make sense for the company financially, he says. "When you get down to those prices, the margins get pretty thin," says Erensen. Still, even if Apple merely sticks to higher-end segments, the company has a chance to cash in. "It would love to get piece of that market, as long as it makes sense," Erensen says.