Toshiba Shares Rise After Deal to Make Microsoft Zune

Aug. 28 (Bloomberg) -- Toshiba Corp. shares rose after Microsoft Corp. chose Japan's largest chipmaker to produce its Zune digital music player that will compete with Apple Computer Inc.'s iPod.

Shares of Toshiba gained 1 percent to 783 yen as of the 3 p.m. close on the Tokyo Stock Exchange.

Toshiba, which sells music and video players that use Microsoft's Windows software, filed with the U.S. Federal Communications Commission for approval of the device on Aug. 24. Microsoft confirmed the filing and Toshiba's role in the project.

Microsoft, the world's largest software maker, is working with Toshiba to get the device in stores for the holidays. The Redmond, Washington-based company plans to invest hundreds of millions of dollars over the next several years in a bid to dent Apple's 77 percent share of the $4 billion U.S. market for digital music players.

The FCC filing included a photo of the device, which is white with a black-trimmed screen and a black-trimmed, white wheel. Zune will have a 30-gigabyte hard drive, a three-inch screen, and an FM radio and be available in three colors, black, white and brown, according to the Toshiba filing.

Apple has sold more than 58.9 million players since Chief Executive Officer Steve Jobs introduced the gadget in October 2001, including 8.11 million units in the quarter ended July 1.

Microsoft Selects Toshiba to Provide Zune Hardware

Microsoft has chosen Toshiba to provide the hardware for its next-generation digital music player, Zune. Slated to make its debut by year's end, Zune is intended to slice some of the success Apple has had with its tightly-integrated music

Microsoft (Nasdaq: MSFT) has signed up Toshiba to provide the hardware for its pending iPod challenger, known as Zune.

In a certification submission to the Federal Communications Commission , Toshiba, maker of the industry-praised GigaBeat player, indicated the new Zune device would pack 30 gigabytes of music, photos and more, and would be capable of streaming to a limited number of other devices.

The device will also reportedly feature a 3-inch screen, FM radio and 802.11, or WiFi , wireless functionality.

Toshiba's FCC filing also suggested that the Zune player will feature music and image sharing capabilities and will have the ability to stream content to other compatible devices.

Learning a New Zune The selection of Toshiba, which has experience in making solid consumer electronics, to make the Zune is a logical one. A tremendous challenge lies ahead, though, in taking on Apple (Nasdaq: AAPL) and its iPod-iTunes combination. That firm now owns an estimated 80 percent of the digital music player market.

Slated to make its debut by year's end, Zune is intended to slice some of the success Apple has had with its tightly-integrated music service and players, which now come in 60-gigabyte and video-capable versions with 2.5-inch screens.

Microsoft and Toshiba will have their work cut out for them, however, according to Gartner (NYSE: IT) Research Vice President Mike McGuire.

"In theory, [Microsoft] might be able to come up with something that makes a dent," McGuire told TechNewsWorld. "But it's going to take a lot to do that."

Microsoft has much to manage with its different endeavors, particularly its next-gen Windows Vista operating system, he noted. In order to take significant market share, Microsoft's device and service will have to sing from the start, he said.

Integration between the Zune player and compatible Zune music service will be crucial, just as such integration has been key to Apple's iPod-iTunes success, McGuire remarked.

Building Better It is clear that Microsoft is trying to use the same strategy that Apple did, focusing on tight integration and usability, Yankee Group Senior Analyst Mike Goodman told TechNewsWorld.

However, actually executing the strategy will be a challenge. Microsoft must go beyond making a player and service that is as good as Apple's, he added.

"Their challenge is building one better than Apple's," Goodman concluded.