Intel delves deeper into consumer electronics

Intel is moving deeper into the consumer electronics market with a handheld audio player and portable Internet devices, but analysts question whether the company will find success.

On Tuesday, the Santa Clara, Calif.-based chipmaker unveiled the Pocket Concert Audio Player, which can play songs recorded in MP3 or Windows Audio Player formats. The device also contains an FM radio.

At the Consumer Electronics Show in Las Vegas later this week, Intel CEO Craig Barrett will also show off two products that could come out later this year. One is a WebTablet, a portable screen for surfing the Internet. The other is a ChatPad for sending instant messages and email, similar to the BlackBerry pagers from Research In Motion.

A number of PC manufacturers have set their sights on the device market. Even software giant Microsoft plans to come out with a video game console. It remains to be seen, however, whether these companies can take their manufacturing know-how, low cost structures and established brand names into a field traditionally dominated by Sony and other large Asian manufacturers.

The Pocket Concert Audio Player, whose release was reported earlier, could easily become a case study. Intel can pack in more flash memory--the chips that store music in audio players--than other manufacturers for less money, because Intel makes its own flash memory.

Intel's foray into electronics Bryan Ma, analyst, IDC

The Pocket player comes with 128MB of flash memory and costs $299, or $349 with a docking station that lets owners plug it into a car or home stereo. By contrast, the Nomad 2 audio player from Creative Labs sells for $237 at retail but comes with only half the storage capacity.

Some success
Intel also makes the technology for hooking up audio players to PCs through a universal serial bus (USB).

"The bulk of the cost of manufacturing MP3 players is in flash and USB," Richard Doherty, an analyst at the Seaford, N.Y.-based Envisioneering Group said last month. "That's 95 percent of the cost right there."

At $299, the MP3 player is "the first we?ve seen with 128MB of memory at a good price," said P.J. McNealy, a senior analyst at Gartner. "Intel is at the edge of what I think is a terrific opportunity, which is to get out from behind being a components manufacturer."

Still, it is uncertain whether teens and young adults will look to the Intel brand for an audio player. So far, Intel's consumer initiatives have met with some, but certainly not ecstatic, success.

The company sells a digital camera, a wireless keyboard and mouse set, as well as a few electronic toys such as a microscope.

Last year, Intel unveiled the Dot.Station, an Internet appliance for homes. The company had some success selling the product overseas, Doherty said. But U.S. consumer interest has been limited.

SagePort, which provides Internet service to senior citizens, is one of the few companies promoting the Dot.Station. Still, Intel's strong name recognition could give Dot.Station the marketing heft it needs to succeed.

"It's slowly making a push into the consumer space...and all these devices basically complement the PC," said Bryan Ma, an analyst with IDC.

A push into Web-surfing tablets presents a different quandary.

Several companies, including National Semiconductor, have promoted and even tried to sell Web tablets in the past few years. Gateway and America Online plan to release a tablet in the second quarter that contains a chip from Intel rival Transmeta.

While futuristic and interesting, Web tablets, which resemble Etch A Sketches, are expensive to manufacture and come with price tags almost as high as those for full-fledged PCs, which come with large hard drives and a complement of software applications.

IDC predicts that Web tablets will account for only about 1 million of the 89 million Internet appliances expected to ship in 2004, Ma said.

Meta Group says Intel's plans to unveil a digital music player and new handheld devices are part of a push to expand its presence in the consumer electronics market. see commentary

"It's going to be a tough sell, given the price points," Ma said. "There's a balance between a price point and...what this device is going to do for me" as a consumer.

Because they can
PC companies and Intel are moving into this market largely because they can. With video and audio now published in digital formats, the PC has emerged as a suitable medium for playing or storing movies and music. As broadband networks spread, PCs will also increasingly be used to distribute pay-per-view programming.

These companies are also worried about the health of the computer market and are looking for the next growth market.

Intel's "future growth can't be derived from PCs," said Dean McCarron, an analyst with Mercury Research. Some analysts viewed Intel's move into new markets as contributing to its problems last year. McCarron, by contrast, discounts that notion, pointing out that companies branch out all the time.

"Look at a company like General Electric that does weapons systems and home mortgages," he said.

Among the major PC makers, Gateway has so far embraced the trend to move beyond the PC the most heartily. The company came out with a Web-surfing appliance and MP3 player in November.

Later this year, Gateway plans to release a Web pad, telephones, and devices for streaming and distributing video. Televisions, stereo speakers and cameras are also possibilities.

Hewlett-Packard in mid-2001 will come out with Superdrive, a DVD and CD recorder/player that could serve as a vault for video and music.

News.com's Sam Ames contributed to this report.