Korea's ReignCom: Moving Up The MP3 Charts

Its flash-memory players are now at the top of their class in the U.S. Look out, iPod?

A year and a half ago, Yang Deok Joon was in big trouble. His startup, ReignCom Ltd., had been making portable CD and MP3 players for Santa Clara (Calif.)-based SonicBlue, but the U.S. company was crumbling. Giant U.S. retailer Best Buy Co. (BBY ), which sold SonicBlue's Rio players, was reluctant to carry the little-known South Korean maker's gadgets without the Rio brand.

Then in June, 2002, Best Buy agreed to take Yang's products -- but only if ReignCom could provide a player that stored music on flash-memory chips, something ReignCom had never made. The deadline: Sept. 20. Yang threw every engineer he had into the project, and by August had come up with a prototype that could hold 30 songs. "We made a huge bet," recalls Yang.

The bet paid off. ReignCom's iRiver models now account for a fifth of all flash-memory players sold in the U.S., according to market researcher NPD Group Inc. Yes, Apple Computer Inc.'s (AAPL ) iPod rules in the segment with hard drives, where prices range from $300 to $500. That's twice the cost of most flash-memory players, but the hard-drive units can hold up to 40 times as much music -- 10,000 or more songs. Not everyone wants so much capacity, however, and ReignCom has come out of nowhere to grab the top spot in sales of the less capacious flash-memory-based players. Worldwide, it sold 1.2 million last year. Revenues nearly tripled, to $193.3 million, in 2003, while profits jumped fivefold, to $36 million. Investors like the tune. Since listing in Seoul on Dec. 19, ReignCom shares have more than doubled, to $94.

ReignCom's MP3 push marks the first time a Korean company has seized the lead in sales of a digital device from the Japanese. And it shows the Koreans' ability to move up the economic food chain as China takes over more electronics manufacturing. Yang, who quit Samsung Electronics Co. in 1999 to found ReignCom, focuses on development and marketing and outsources production to a Chinese partner. "If we could have scores of companies like ReignCom, Korea would be dancing," says Na Ghi Hwan, a deputy director at the Commerce Ministry.

One key to ReignCom's success has been a flood of new products with features rivals can't match. ReignCom rolled out 12 music players last year, double the number of any of its competitors. The company was quick to introduce machines capable of playing songs downloaded in the multiple formats offered by various online music stores. And a year ago, ReignCom became the first company to offer 512-megabyte flash-memory players, which can hold about 125 songs. In October, it was first to market with a 1-gigabyte player holding 250 songs. "ReignCom has done a remarkable job in building up its brand name," says Woo Jung Ku, chief executive of Digitalway, a rival Korean MP3-player manufacturer.

Plenty of others are looking to get on the bandwagon. All the big Japanese consumer-electronics makers now offer players, as do Samsung and a host of smaller Korean rivals. Perhaps the biggest challenge, though, comes from Apple, which just introduced the iPod Mini. This $250 machine costs less than iRiver's top flash players but holds about four times as much music on its hard drive. In response, ReignCom in June started rolling out a line of hard-drive-based players. Although the gadgets cost slightly less than iPods, they're not as sleek, and iRiver sold just 73,000 of them last year. Now, ReignCom is one of five hardware makers working with Microsoft Corp. (MSFT ) to develop a handheld audio-video player capable of holding more than 100 hours of movies and thousands of songs. Sure, it's another big bet, but ReignCom has wagered heavily before -- and won.

By Moon Ihlwan in Seoul

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