January 8, 2004 12:40 PM PST

HP, Apple harmonize on iPod

SAN FRANCISCO--Hewlett-Packard said Thursday that it will start selling an HP-branded version of Apple Computer's iPod this summer as part of a broad expansion into consumer electronics.

Apple will manufacture the player, which will not have the iPod name but will have the same design and features as Apple's third-generation iPod players, Phil Schiller, senior vice president at Apple, said in an interview. Also, the HP music player will come in "HP Blue," he said.

"The way we look at it, HP will be reselling an iPod device," said Schiller, who noted that the device will display the Apple logo at start-up and will work with all of the accessories made for the white-hued Apple varieties.

In addition, HP will start preinstalling Apple's iTunes on its consumer PCs and desktops. HP previously said it planned to enter the digital music player and music store business, though sources familiar with the company's plans said partners would likely be involved.

With the new arrangement, Apple has sent a bold signal that it is willing, in the right circumstances, to expand beyond its long-held proprietary strategy.

"It's major news for Apple to essentially (build) a product for a Wintel competitor. That really says a lot about the perception of Apple in the market right now," said Tim Deal, an analyst with Technology Business Research.

Apple only recently began offering a Windows version of iTunes, with CEO Steve Jobs proclaiming that "hell froze over," six months after unveiling the Mac version of the service. The company also has been quietly working with several companies to boost the number of add-ons that attach to the iPod.

The new deal comes amid a broader announcement from HP of a number of consumer electronics products.

HP said it will introduce an "entertainment hub" that will serve as a central point to store and manage digital music, photos and movies. The company also announced 42-inch plasma and 30-inch TV LCDs (liquid crystal display) screens and confirmed its plans to offer digital projectors to consumers to use as part of a home theater system. The company also said it will incorporate more strict content protection in future PCs and announced a new technology, dubbed LightScribe, for adding label information directly onto a CD or DVD.

Schiller said HP brings a large sales and marketing effort centered around digital entertainment and has a large customer base. "HP has a lot of customers, and they are a great company, a big company," he said. "They'll promote this iPod-based device and the iTunes music store."

The deal with HP involves only the traditional iPod design and not the new iPod Mini models, which use a 1-inch hard drive that has 4GB of storage, Schiller said; though, he added, that's "obviously something we can look at in the future."

Schiller would not say whether Apple may look to craft similar deals with other computer or electronics makers. While that part of the deal is not exclusive, Schiller said HP's promotion of the iTunes Music Store through its PCs is a "multiyear, exclusive" deal.

HP CEO Carly Fiorina said the company considered a number of alternatives before signing on with Apple. "We explored a range of alternatives to deliver a great digital music experience and concluded (that) Apple's iPod music player and iTunes music service were the best by far," Fiorina said in a statement. "By partnering with Apple, we have the opportunity to add value by integrating the world's best digital-music offering into HP's larger digital-entertainment system strategy."

Seeking a bigger audience
Apple chief Jobs said the move will ensure that more consumers use iPods.

"Apple's goal is to get iPods and iTunes into the hands of every music lover around the world, and partnering with HP, an innovative consumer company, is going to help us do just that," Jobs said in a statement. "As the industry balkanizes by offering digital music wrapped in a multitude of incompatible proprietary technologies, consumers will be reassured in getting the same unparalleled digital music solutions from both HP and Apple, two leaders in the digital music era."

On its own, Apple has sold more than 2 million iPods, including 730,000 last quarter.

HP and Apple did not say how much the HP-branded iPod will cost or how much storage capacity it will offer, but the companies said it will be "competitively priced to other digital music players currently available."

Meanwhile, Deal, the technology analyst, wondered exactly how much Apple has to gain on the iPod front by working with HP.

"The thing I question is, is Apple not able to reach that (iPod unit) volume on its own, and what hit do its margins take? I don't see how (Apple) is really going to benefit, since it's doing all right, as it is."

But offering iTunes software on the millions of PCs that HP sells could push Apple toward a greater overall mass of customers, making the service more profitable than it is now, he said.

The company also stands to gain from greater sales of iPod hardware. And if nothing else, "it's a testament to Apple's lead in digital-music distribution," Deal said. "It definitely says a lot about the amount of respect that Apple, as a company, is due, in regards to this."

CNET News.com's John Spooner contributed to this report.

 

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