Sandisk quickly climbs up music charts
Sunnyvale firm takes advantage of its flash memory
Matthew Yi, Benny Evangelista, Chronicle Staff Writers
Monday, April 25, 2005
Everyone knows Apple Computer Inc.'s iPod is the king of portable digital music players.
But who holds the No. 2 spot in the burgeoning U.S. market? According to one research firm, it's not Sony, Samsung, RCA, Creative Labs or iRiver.
Try Sandisk Corp., a Sunnyvale firm that's mostly known for making flash- memory cards for digital cameras and handheld computers.
According to the NPD Group, which tracks retail sales in the United States, Sandisk had 6.2 percent of the digital audio player market in February. Granted, that was a distant second to Apple, which had a dominating 65.7 percent share of all digital audio players sold.
And Creative Technologies Ltd. still lays claim to the No. 2 spot worldwide, arguing that the NPD Group does not track sales from some of its retail channels, such as online outlets and Wal-Mart Stores Inc., the world's biggest retailer.
Still, Sandisk's quick rise to second place in January is startling, considering it began shipping digital audio players only in September. It started selling players outside the United States earlier this year.
"Sandisk first started looking at the MP3 player market last summer, and we saw it as an opportunity to sell more flash memory," said Eric Bone, Sandisk's director of product marketing.
So, within months, Bone's team not only came up with a game plan but also struck a deal with a contract manufacturer in South Korea that helped in designing the players and started selling them in Circuit City and Best Buy.
"The whole goal in the fourth quarter (of 2004) was to get the product out as fast as possible to take advantage of the holiday selling season," Bone said.
Sandisk pulled that off, even gaining valuable space in the two electronics retailers' circular ads for Black Friday, the day after Thanksgiving and the biggest shopping day of the year.
"In a month, we went from nothing to No. 1 in U.S. retail for (flash- memory-based) MP3 players," Bone said.
Sandisk was quickly dethroned in that segment of the market in February, a month after Apple introduced its own flash-memory-based iPod Shuffle. Apple, citing figures it received from NPD Group, said the Shuffle instantly grabbed 43 percent of the market for digital players that use flash memory to store music.
Sandisk's strategy is simple: Sell MP3 players at lower prices and use existing retail partnerships. Bone said primary cost savings come from the fact that Sandisk makes its own flash memory.
As for retail partners, Sandisk MP3 players are found in Circuit City, Best Buy, CompUSA, Sears and Kmart. It already has a working relationship with Costco and Radio Shack.
Last week, Sandisk said it had concluded a deal to sell some of its flash- memory cards for digital cameras and USB flash drives at Wal-Mart.
"Our marketing approach really is ... simple. We don't spend $50 million on a national campaign to bring attention to our product," said Greg Rhine, senior vice president of worldwide sales.
"When a customer is predisposed to buying a digital audio player and walks into a retailer, we want to be well presented on the shelf and stand out on the shelf."
Ross Rubin, director of industry analysis for NPD Techworld, said that approach is perfect for Sandisk, which "really doesn't have a brand name associated with entertainment or music or consumer electronics.''
"But people tend to underestimate their distribution,'' he said. "They have fantastic distribution for their memory cards. When you have that, it's easier to introduce new products related to that core offering.''
It may also cause competitors -- like Samsung Electronics, Creative Technologies and iRiver America of Milpitas -- that have mounted more- expensive marketing efforts to re-evaluate their strategies, Rubin said.
In March, Samsung, the South Korean electronics giant, declared it wants to become the No. 1 seller of portable digital audio players by 2007.
Creative Technologies has also declared war on Apple and poured millions of dollars into marketing its Zen Micro hard disk and MuVo flash-drive players.
Last week, the Singapore company, whose North American operation, Creative Labs, is headquartered in Milpitas, reported it had sold 2 million MP3 players for the second quarter in a row. Although sales revenue was up 65 percent from the same quarter a year before, net income was down 72 percent.
"There's got to be a certain amount of frustration associated with that for Creative,'' said Michael Gartenberg, a research director at JupiterMedia. "They've been in the market longer than either Sandisk or that other upstart company, Apple.''
A JupiterResearch report forecasts that MP3 players will be in 15 to 20 percent of U.S. households by the end of 2005, for the first time crossing a market penetration threshold that determines whether a device has become a mass consumer electronics product like DVD players and digital cameras.
But it's still an evolving market, so there's no guarantee Sandisk's current success won't be just a flash in the pan, Gartenberg said.
And it's still a market dominated and shaped by Apple, which has shifted the digital audio player "from a consumer electronics product to a cultural phenomenon with the uniqueness of the iPod brand.''
Sandisk's Rhine said his firm's MP3 business is here to stay. In fact, the company is getting ready to start selling a new line of music players that include slots for additional flash-memory cards for more music storage space.
"We are fully engaged in and driving (our) MP3 business," he said.
E-mail the writers at myi@sfchronicle.com or bevangelista@sfchronicle.com.
sfgate.com |
