From Hong Kong's Bless Mark, the BM201A features up to 2GB built-in memory, a card slot and two audio output ports.

Line is forecast to retain lead over HDD-based models. Card readers, color screens and video playback go mainstream.

Flash MP3 players still dominate the line and share more than 80 percent of total MP3 player output of the industry in Greater China, maintaining the lead over their HDD-based counterparts.

With plunging costs and skyrocketing capacities of flash memory chips, makers now offer models with gigabyte-capacity models at lower FOB prices.

Screens, either LCD or OLED, are also growing in size, enabling other functions such as photo browsing and video playback—particularly on models with full-color displays.

Because of rapid flash memory cost fluctuations, makers can only provide price quotes that exclude memory cost. Bare-bone models sell for as low as $6 and as high as $45, depending on key features such as display, formats supported and add-on functions.

Most makers do not see an encroachment of markets with popular portable electronics, such as mobile phones, which also integrate MP3 playback. They believe that most users will still prefer a dedicated portable audio player, rather than opt for an add-on feature.

	The A200, from mainland China's Netac, has 1.8in OLED display. It supports MP3/WMA/WAV/SMV formats and can be used as a car MP3 player.

The consistent decrease in flash memory costs and the development of higher-capacity chips now enable makers to create more affordable high-capacity models.

The mainstream flash storage capacity available from mainland China MP3 players is 128MB to 2GB. Models with 4GB flash memory are now also available in the market.

In Hong Kong, Bless Mark International Co. Ltd offers MP3 players with built-in flash memory and SD card slots. The company has models with up to 2GB memory. The company, however, said that customers find models with 2GB built-in memory too expensive. Most of its customers cap orders at 1GB. Due to these price constraints, it will be a while before 4GB models become feasible offerings. Bless Mark's mainstream MP3 players have built-in capacity ranging from 256MB to 512MB, but its most popular products are 512MB models.

Hotronic Ltd has 256MB to 2GB MP3 players, though 512MB models are its standard offerings. The company finds that 2GB is too high a memory capacity for most user needs, while 4GB is just too expensive.

Despite expanding capacities in memory cards, Hotronic believes that MP3 players with built-in memory will remain mainstream compared to models with only card slots. Furthermore, with flash chip capacity and cost going in extreme opposite directions, the company no longer foresees a market for HDD-based MP3 players.

In Taiwan, mainstream MP3 players have memory sizes from 512MB to 1GB. Makers forecast that mainstream MP3 players in 2007 will feature 1GB memory. They also said that 2GB models will become more popular in H2 2007. Models with 8GB memory capacity were to be available by the end of 2006, makers added.

High-end MP3 players from Taiwan typically have storage capacities larger than 4GB. For instance, Luxpro Corp.'s MP3 players can support up to 8GB of memory. These models' main features include color LCDs larger than 1.5in.

Luxpro's 8mm-thin Pico, powered by a built-in Li-ion rechargeable battery, features a 1.5in full-color display and a multi-key touch pad. It supports multilanguage OSD, user-friendly UI with smart playlist navigation, and multiple A/V support for files in MPEG-4 and M-JPEG formats.

Also from Taiwan, Micro-Star International Co. Ltd's P610 features a 1.8in TFT LCD, SRS WOW sound effect, single-key design and mirror finish on metal casing. The company has also developed a more advanced MP4/MP3 player, model D310. The unit supports DVB-T reception, and has a 4.2in screen, a remote control, and an SD/MMC card slot.

Ergotech Technology Co. Ltd's ET-UC84T features a 2in 65k-color TFT display, and supports up to 4GB of memory. It has a Mini SD card reader and multimedia functions, including e-book, photo album and gaming. The company's compact ET-U42PQ model features a 1.1in display and slide-type casing. A rechargeable built-in battery powers the unit.

	Model ET-UC84T, from Taiwan's Ergotech, features a 2in 65kcolors TFT display, and supports JPEG and MPEG-4 file viewing.

Along with the increasing memory capacities built into MP3 players, screen sizes are also becoming larger. And although monochrome and two-tone LCD and OLED panels are still used for lower-end units, more and more models are featuring full-color screens that support photo browsing and even video playback.

In mainland China, for instance, models with TFT-LCD, two-tone OLED and dot-matrix LCD panels can be found in the market. TFT and OLED displays typically come in 1.1in, 1.5in, 1.8in and 2.5in sizes.

Hotronic of Hong Kong believes that MPEG-4 is the next step for MP3 player makers. The company's MP4 players play AVI files as well as MP3 and WMA formats. The models feature OLED color screens. Its MP3 players feature monochrome LCDs, but come with seven-color backlights.

All of Bless Mark's MP3 players feature monochrome LCDs with different backlights. The company can also replace these with OLED displays, as long as customers agree to the higher price. Bless Mark also customizes the front panel of its product housings as required by buyers.

Taiwan makers likewise believe that video functions are a significant product trend in the line. According to Taiwan Research Institute (TRI), video function is forecast to be the driving force of MP3 players. The Market Intelligence Center (MIC) also noted that the expanded memory storage makes it possible to develop flash-based portable media players.

Most MP3 players run on AAA or AA battery, although most higher-end models—especially those with video playback capability—have been designed to operate on Li-ion or Li-polymer battery.

Aside from multifunction integration, the importance of the products' cosmetic design are also emphasized by mainland makers.

Many leading makers invest more than 50 percent of their R&D budget in mold-making and product design. "Our R&D on MP3 players will be focused on cosmetic design, increasing capability and multifunction design. Several car MP3 players with FM transmitter function would have been launched in 2006," said Andreas Yuan, sales manager at Netac Technology Co. Ltd. "Furthermore, 1.3MP camera will be introduced in some high-end models," he added.

	Model EM715, from mainland China's Yifang, features an FSTN display and SD/MMC card slot.

Because of thinning profit margins in the MP3 player business, many makers are now either adding MP4s/PMPs in their product line or are leaving the line completely to shift to MP4/PMP production. Mainland's Hatress Technology Co. Ltd, for example, plans to leave its MP3 player line to focus on developing MP4 players.

In mainland China, makers are looking at developing PMPs with 3.5in-or-larger display panels and supplementary features such as short movie recorder, DVB-T receiver, and GPS receiver and navigator.

Aside from MP3, WMA and WAV, other formats such as Ogg Vorbis, SMV, BMP, TXT, ASF, MTV/AMV, JPEG and GIF are also being supported by these PMPs. To offer wider options, makers offer models with FM stereo radio, FM recording, voice recording and gaming functions.

High-end MP3 players from Taiwan come with 3.5in or 4in displays, and are marketed as PMPs.

In contrast, Hong Kong maker Bless Mark focuses on basic flash MP3 players and has no plans of getting into MP4 players. It said it would only consider making MP4 players should demand warrant a monthly production of at least 10,000 units.

	Pico, from Taiwan's Luxpro, features a touch panel and a built-in Li-ion rechargeable battery. It is 8mm-thin.

High-end models, with display as large as 2.5in and support for more formats including ASF, JPEG, WAV and SMV, sell for as high as $45 each. Some models in this range adopt Philips solution.

Other solutions adopted by mainland China companies are from Actions, SigmaTel, ALi and Rock.

Hong Kong's Bless Mark believes that charging a little more for original housing designs pays off in the long run. It said that the device body alone without flash memory is priced at about $9. Flash memory cost, depending on the capacity, is added to that. All of the company's products are shipped by air to shorten delivery lead time and avoid flash memory cost fluctuation.

Bless Mark said that DRM support is essential in its current models. DRM is included in the chipsets used by the company, usually from SigmaTel or Actions. It prefers to use Hynix flash memory due to the company's ties with the supplier. It only uses Samsung flash memory when customers require it. Hotronic holds Sisvel licenses. It claims that not many of its clients require DRM support.

Hotronic expects 128MB MP3 players to fade away from the market soon, as the price difference between 128MB and 256MB MP3 players has narrowed to only $2. In 2007, it expects the price difference between 256MB and 512MB MP3 players to shrink to $3. A line-in feature adds about $2 more to end-product cost per unit.

Hotronic is anticipating a 30 percent to 40 percent drop in flash memory cost in 2007, leading to at least 25 percent plunge in end-product price.

In Taiwan, prices of MP3 players are projected to keep falling in 2007, depending mostly on the price fluctuation of flash memory chips. According to the interviewees, leading flash memory suppliers aim to push market demand of high-capacity memory chips by lowering their prices. Flash memory chips decrease by about 30 percent every six months. Taiwan makers sources flash memory chips from Samsung, Toshiba and Hynix.

Casing materials such as plastic and steel are purchased from mainland China and domestic suppliers. Makers said that an increase in raw material costs is not a major factor in pricing. They said that prices are dependent mainly on the cost of flash memory chips, which account for more than 70 percent of total production cost.

A non-memory mainstream model with only the housing, controller chips and LCD screen is quoted at about $8 to $10. Models with higher than 2GB or 4GB capacity are priced at about $20, while those that support MPEG-4 playback are priced higher than $50. Makers source MP3 controllers from Actions, SigmaTel, ALi and Sunplus.

After a decade-long development, mainland China now hosts 200 to 300 makers of MP3 players—almost the same number as of end-2005. Guangdong, which offers mature support industries for electronics manufacture, is the unassailable production hub of the industry with about 90 percent of mainland China's manufacturers being located in the province.

The strategic location that borders Hong Kong also provides MP3 player makers the convenience in sourcing imported components such as DSPs, flash memory chips, and OLED and TFT-LCD panels.

Hong Kong's MP3 player manufacturers are also companies that produce general A/V consumer electronics, including a few makers that have digital entertainment devices. The region had a large population of MP3 player makers in the past, but factors such as fickle flash memory costs, the emergence of so many MP3 player chipset solutions and competition from mainland China have weeded out most of them. Where there were up to 50 makers several years ago, there are now less than 30 active MP3 player manufacturers in Hong Kong. These include Hong Kong-invested makers, as well as overseas companies with Hong Kong sales offices.

The supply base may shrink even more with dropping flash memory costs, which is cutting into profit margins. On the plus side, the shakeout has left only companies that are serious about the MP3 player industry and know how to position their products to survive.

Hotronic does not believe that mobile phones with built-in MP3 playback are a threat to the market. As an example, it cited the fact that the digital camera market is going strong despite the proliferation of megapixel camera phones. Furthermore, MP3 playback drains the battery of much-needed power for phone calls.

Taiwan makers also noted that the product line's growth rate has been decreasing annually. MIC indicated that the global output volume of flash MP3 players was 38.45 million units in 2005, and was forecast to reach 48.54 million units in 2006, registering year-on-year growth of less than 30 percent. The growth rate in 2005 over 2004 was about 50 percent.

About 100 companies make up the supplier base of MP3 players in Taiwan. This number is expected to decrease because of keen competition and company consolidation.

Mainland China makers produced about 33 million units or $970 million worth of MP3 players in 2005, and shipped about 75 percent of the output to overseas markets. Flash memory models accounted for more than 95 percent of the production.

Hatress' MP3 player sales revenue reached $47 million in 2005, about 95 percent of which came from exports. Western Europe is the company's largest export market, accounting for 60 percent of its annual export sales, followed by North America with 20 percent and Eastern Europe with 10 percent. Other export markets are Southeast Asia and Central America.

The average monthly output of Shenzhen Yifang Digital Technologies Co. Ltd is 107,000 units of MP3 players. The company expected its MP3 player sales and export revenues to have increased by 79 percent and 65 percent, respectively, in end-2006.

Dongguan Digi-in Digital Technology Co. Ltd said its export sales in 2005 reach $25 million. The company estimated more than 50 percent growth rate in MP3 export volume in 2006, and targets an 80 percent growth in 2007 year-on-year. The company ships its products via Hong Kong and Shenzhen ports to Germany, India, Japan, Korea and Malaysia. Europe, which is its major overseas market, shares about 70 percent of its total sales.

Europe accounts for 60 percent of Bless Mark's exports. The rest are shipped to markets in South America and Southeast Asia. The Hong-Kong based company's presence in Europe is currently limited to Western Europe, but it hopes to break into Eastern Europe by finding a distribution partner in the region. For customers purchasing more than 100,000 units annually, Bless Mark grants exclusive distribution rights over a region.

Bless Mark observes a big change in the requirements of its customers in Europe. One to two years previously, Europe buyers were more concerned with design and quality over price. This has since changed with price as the new bottom line. Bless Mark is not eyeing the United States as a target market due to the low price levels required and the difficult order conditions.

For non-English-speaking markets, Hotronic works with its clients to provide the correct OSD. The customers provide the translation, while Hotronic takes charge of the in-house programming. It has this arrangement with clients in Japan, South Korea and Spain.

Makers interviewed for this report released 100,000 to 120,000 units of flash MP3 players every month in 2006. Annual output is expected to see a 30 percent increase in 2007.

In Hong Kong, Bless Mark has been making MP3 players for three years. It uses only in-house designs, both for circuitry and housing. The company maintains its design team in Hong Kong. It believes that this keeps its products in-tune with popular housing trends, and makes the company mindful about typical market needs. For instance, its products for the Europe market feature larger control buttons.

Bless Mark can produce up to 60,000 MP3 players in a month. At present, its actual monthly production is at 20,000 units.

Hotronic focuses on the gifts and premiums market. Because of this, lower-priced models are its bestsellers. The company uses public molds or original designs in its product housings, depending on buyer needs. About 80 percent of its products use public molds.

However, it stresses that despite using public molding, all of the internal circuitry is designed in-house. The company can add other features that other makers using the same mold cannot provide. For instance, its MP3 players have built-in line-in recording for direct conversion of CD tracks into MP3.

MP3 players account for 30 percent of Hotronic's total sales. The company has a 650sqm factory in Shenzhen's Bao'an district with 80 workers and two production lines, one of which produces its RoHS-compliant products.

Taiwan's Luxpro has more than five years' manufacturing experience and focuses on the production of MP3 players. It sold about 300,000 MP3 players in 2005, and projected sales volume to reach 500,000 units in 2006.

The company's sales of high-capacity MP3 players reached $30 million in 2005, and were projected to hit $60 million in 2006.

Up to 90 percent of Luxpro's sales revenue is derived from exports, especially from Japan, Europe and the United States. The company said it offers products with defective (NG) rate of less than 0.3 percent. Its MP3 players are certified with CE, FCC and BSMI approvals, and come with an 18-month guarantee.

MSI, one of the leading Taiwan makers that can offer a series of HDD-based and flash-based MP3 players, can produce more than a million units of MP3 and MP4 players per month. The company has complete in-house design and production capability—from ID, hardware design, software and mechanical design, PCB making, SMT, assembly, QC to packaging procedures.

Ergotech has a monthly capacity of 300,000 units, and sells 200,000 MP3 players per month on the average. It forecasts its sales volume will increase by about 40 percent to 50 percent in 2007 over 2006.