Are iPod's Hard Drive Days Numbered?

With prices of flash memory chips dropping fast, Apple is likely to make the switch from hard drives to flash for all its music players

by Arik Hesseldahl

When the first Apple (AAPL) iPod music player came to market about six years ago, it was unusual for a variety of reasons, but chief among them was the fact that it used a hard drive. Though the market for MP3 players was still in its infancy, most instead relied on flash memory chips rather than hard drives to store their music.

Apple, of course, went on to change the music player business—and the music business itself—over the course of the next few years. IPod models multiplied, evolving into today's five-device lineup: the shuffle, nano, classic, touch, and iPhone.

But now evidence is mounting that hard drive-based iPods may be on their way to extinction. At least that's one conclusion you might draw from an analysis of the components inside the latest iPod classic (the sixth iPod model to feature a hard drive) by market research firm iSuppli.

Cost Considerations

Unveiled by Apple (BusinessWeek.com, 9/6/07) Chief Executive Officer Steve Jobs on Sept. 5, the classic is largely unchanged from the two-year-old model it replaces, the first to support video (BusinessWeek.com, 10/13/05). The one major change is storage capacity. The top-of-the line classic tops out at 160 gigabytes, double that of the previous top model.

Apple's new focus on video content—four models now play video and the iTunes store has been selling downloadable TV shows and movies for about two years—raises an interesting question. Why isn't the iPod with the biggest and best screen, the iPod touch, also the one with the highest storage capacity? While the classic comes in models with 80 GB or 160 GB of storage, the touch uses flash memory chips and comes in capacities of just 8 GB and 16 GB. "It seems odd to me to that Apple didn't take the best display and the highest-capacity hard drive and combine them into a single product," says iSuppli analyst Chris Crotty.

One reason that Apple appears to be veering in this design direction, accepting lower storage capacities for now on all but the classic, is the downward trajectory of flash memory prices.

Based on iSuppli's teardown analysis, the 80-GB hard drive in the new classic costs Apple $78, or roughly the same cost as the 30-GB drive in an iPod two years ago. But while hard drive costs are falling, flash memory prices are declining even more steeply. The 8 GB of flash inside a new nano now costs Apple about $48 (BusinessWeek.com, 9/18/07). That's only slightly more than half as much as flash memory cost just a year ago, and a little less than a mere 2 GB of flash fetched two years ago.