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Zune sales are on target says MRST

Microsoft Corp., facing speculation that sales of its Zune portable media player have been underwhelming since its premiere last month, said Wednesday that it expects to sell 1 million Zunes by the middle of next year.

The technology giant introduced the $249.99 Zune just before the holiday shopping season. It marked the latest twist in the MP3 player market, which has been dominated by the iPod, made by Cupertino's Apple Computer Inc., with about 75 percent of the market share, according to the NPD Group.

The Zune's 1 million figure "is spot on with where we thought we'd be," said Bryan Lee, corporate vice president of Microsoft's entertainment group. "Apple is the market leader. We didn't expect to beat them this holiday, but we wanted to be relevant and we wanted a chance to grow. I think we are on plan.

"Over time, the market share will sort itself out," Lee added.

Apple has sold over 65 million iPods since their premiere five years ago. From July through September of this year, it sold more than 8.7 million iPods for $1.56 billion in revenue. This autumn, it released a new iPod shuffle and iPod nano, as well as an updated iPod video and new movie download service. Rumors are already circulating about whether it will unveil a new iPod during the Macworld conference next month.

Microsoft said it opted to focus on the high-end segment of the MP3 player market when it developed the Zune, which holds 30 GB of music, photos and videos and comes in only one model, in contrast to less-expensive devices such as the $79 iPod shuffle. And it is trying to set itself apart by offering a wireless feature that lets users beam a song from one Zune to another, something the iPod can't do.

NPD, which compiles sales data from retailers such as Best Buy and Circuit City, said the Zune ranked No. 2 in unit sales during its first week in stores, but fell to fifth during the second week -- the week of Thanksgiving and Black Friday, the first day of the holiday shopping season.

The Zune faced intense day-after-Thanksgiving sale promotions. SanDisk's Sansa, which has largely held the distant No. 2 spot behind the iPod, slashed prices and rose to a 39.3 percent share in unit sales for that week, according to NPD.

Apple, whose sales at its Apple retail stores were not included in the analysis, hung onto the No. 1 spot with 39.4 percent. Creative and Memorex were No. 3 and No. 4 with 3.1 percent and 2.8 percent, while the Zune tied Disney, which sells a line of kid-friendly MP3 players, for the No. 5 spot, with 2.1 percent.

Despite the fall in ranking, Microsoft said that unit sales of the Zune have been steady.

"In terms of building customer awareness and getting retail presence, it (the Zune) was a good launch," Ross Rubin, an analyst with NPD, noting Microsoft's MP3 player hasn't been around long enough for there to be enough data to paint a complete picture.

But the Zune has received mixed reviews, as well as complaints about problems from consumers about installing the Zune software on computers.

Whether it will be able to upend the MP3 player market remains to be seen, said Tim Bajarin of Creative Strategies. "It doesn't have anywhere near the cachet and cool factor that Apple has," he said. "Microsoft has a very difficult road ahead of them, given the amount of competition in the MP3 player field." -s|t


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