Apple banks on digital media harvest

Apple Computer on Tuesday is expected to unveil a new portable product aimed at bolstering the company's strategy to make itself into a major player in home entertainment, sources and analysts said.

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The product, which is expected to be shown off during a keynote speech by CEO Steve Jobs at Macworld in San Francisco on Tuesday, will come with 802.11g and Bluetooth wireless capabilities and serve to make the Mac a more appealing "digital hub" than Windows XP PCs, according to sources. Machines with Windows XP Media Center Edition can be used to record TV shows, similar to digital video recorders (DVR) such as TiVo boxes, and catalog music and video.

What the product does exactly, however, remains shrouded in mystery. Some sources and analysts believe that it will be similar to the tablet computers released by Acer and others late last year. These are full-fledged portable computers complete with handwriting recognition and handwriting input.

Others, however, say it will be a device geared toward playing or capturing video. By incorporating both 802.11g and Bluetooth wireless capabilities, the device could connect to both upcoming Apple PCs (Apple has said it will support the 802.11g wireless networking standard) and the latest digital cameras and video recorders. A standard TV jack would allow the device to be hooked up to TVs as well and function as a DVR or as a bridge to let the TV act like a DVR.

Then again, it could be something entirely different, as the company has proven adept at confounding speculation preceding the convention before. An Apple representative would not comment on new products ahead of the show.

One thing that is not expected at the show are new computers. Because of a relatively modest inventory bloat, Apple is delaying new models, according to sources.

Analysts note that Apple has all the pieces in place to deliver a tablet-like computer. Such a computer, outfitted with Mac OS X 10.2, Apple's Inkwell handwriting recognition technology, iSync data synchronization capabilities and 802.11g and Bluetooth wireless would be a formidable entry.

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Bluetooth would remove the need for a docking station as the mouse and keyboard would connect wirelessly. With speeds up to 54 megabits per second (mbps), 802.11g wireless networking would allow the transfer of large data files or video without the need of cables.

"That kind of device would make a lot of sense," said NPD Techworld analyst Stephen Baker. "The idea of the digital hub is to try and tie a bunch of different product types together but provide a lot of mobility of your data--your TV entertainment data, your music data, your digital data. This kind of device would have that."

IDC analyst Roger Kay agreed. "If it were really cool it would generate a lot of buzz and maybe even a few sales."

A tablet computer, however, would be risky. These devices generally sell for more than $2,000, or more expensive than most notebook computers. Overall tablet sales in 2003 are expected to be fairly small: Gartner projected first-year Tablet PC portable sales of 425,000, or about 1 percent of the notebook market, while IDC said it could go up to 775,000.

Typically, Apple's "cool" products have done well when they are relatively cheap. The first iMac, targeted at new computer users, and the iPod music player have sold well. The cube, geared for professionals and carrying a corporate price tag, did not sell well. And sales of the the flat-panel iMac, which was unveiled at last years Macworld, have cooled after an initial flurry.

In a research note Monday, Morgan Stanley analyst Rebecca Runkle predicted Apple might release a "new portable system" at Macworld. Citing "supply-chain contacts," she described it as "a new portable line and not an updated form-factor version of the iBook or PowerBook lines. Our best guess is a tablet or a sub-notebook."

Apple's target is to sell 500,000 units this year, she wrote. "Sources suggest that 100,000 (to) 150,000 units can be produced in the March quarter."

iPod II
But some analysts don't believe the new product will be a tablet, but a successor to Apple's iPod music player. The new device would have video capabilities and possibly a touch screen and wireless capabilities. As such, the device would be similar to the portable video player unfurled by Intel last year. Sonicblue is currently marketing the Intel-designed device.

"I think any rumors about a tablet computer are a smokescreen for iPod II," said Richard Doherty, president of research firm Envisioneering Group.

Technology Business Research analyst Tim Deal agreed. "I wouldn't be surprised to see Apple introduce an iPod with touch-screen capabilities as well as additional applications to include cell-phone connectability and gaming as it continues to evolve into a fully functional PDA," he said. "A wireless iPod with bolstered display features would allow users to share and view digital (pictures) and videos on the fly."

Doherty said Apple has been working on a video-capable iPod-like device for some time. "Originally, Apple had planned to announce iPod II at Expo Tokyo," he said. In December, IDG canceled next month's Macworld Expo/Tokyo. "We think the product can be announced, if not shipped now," Doherty added.

The iPod II, in fact, is one of three principal pieces of hardware in Apple?s labs that Apple has shown analysts but not officially announced yet. The company is also working on computers that will contain IBM's 32-bit and 64-bit chip and a computer with a 3D screen, similar to the screens recently unveiled by Sharp. Of course, Doherty added that not everything in the lab eventually goes public.

Whether tablet or iPod, emphasis on video would be one of the new product's distinguishing features, Doherty said. Apple could further advance its digital media strategy around MPEG-4, the successor to the MPEG-2 format widely used for Hollywood movie DVDs.

"Nobody has better MPEG-4 tools than Apple," Doherty said.

The ripe and the unripe
During his keynote address Tuesday, Jobs also is expected to unveil new versions of the company's digital media programs, or "i" applications. But consumers will have to pay as much as $50 for new versions of iDVD, iPhoto and iMovie, which will be sold together as a bundle. Apple released new versions of iCal and iSync on Thursday.

Bluetooth and next-generation 802.11g wireless networking will be important parts of the Macworld announcements, sources said. Apple plans to release a new version of its AirPort wireless base station using 802.11g, as the company moves up from the slower 802.11b that moves data up to 11mbps.

Meanwhile, the Cupertino, Calif.-based company apparently has delayed launching new Macs ready for Macworld until later in January, while the company sells out stock left over from the holidays, according to sources. When available, some of the new Macs are expected to include support for 802.11g and Bluetooth wireless.

The "quarter's financial results will undoubtedly show weaker-than-usual holiday sales for Apple," Deal said of the decision to delay new Macs.

Inventory information from distributors Ingram Micro and Tech Data indicate Apple is sitting on modest inventory--anywhere from one to three weeks--in most product categories. But some products are considerably backordered, such as the 5GB and 10GB iPod for the Mac, AirPort base station and 15-inch flat-panel monitor. Based on similar past situations, the backorders would suggest new products are coming in these categories. But sources said to watch for Apple to drop the 15-inch flat-panel monitor as the company replaces the current 17-inch display and adds a new, 19-inch model. The new monitors could debut on Tuesday, but are more likely to appear when Apple announces new Mac models.

No matter what happens on Tuesday, "The innovation ratio will be much higher than Apple's 5 percent market share," Doherty said.