Merrill Lynch: iPod shuffle could take top spot in flash market soon

In a research note to clients on Wednesday, Merrill Lynch analyst Steven Milunovich said Apple’s new iPod shuffle could take the top position in the flash-based MP3 player market in the next few quarters. “If Apple can ramp up production, Apple could take the No. 1 position in the flash market in the next couple of quarters. If Apple hits 5 percent share this quarter, that could be 300,000 units,” Milunovich said. “If it takes off, the number could be much higher, possibly passing the 1million mark.”

Milunovich pointed out that Apple currently has 65 percent of the total digital music player market, compared to flash’s 29 percent share. According to research from IDC, the flash player market has three times the units as the hard-disk drive-based (HDD) music player market, but about the same revenue ($2.3-2.5 billion). “Now that 4.5 million HDD iPods were sold last quarter (possibly 2 million in December), it was time for Apple to attack the next market with a lower cost flash-based iPod shuffle,” the analyst said.

Milunovich dismissed the notion that consumers will balk at the lack of a display on the iPod shuffle. “Some have indicated that the lack of a display will be an issue, but we are less concerned,” he said. “The $99 version holds 120 songs and the $149 holds 240—does one really need a display with that few songs? We believe this is a better option than a 60-song version with a display for $149. If a display is need then one needs to move up to he HDD iPods at $249+. We believe this also ensures that cannibalization will be limited while snaring more in the iTune/iPod net.”

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