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Compaq edging out of PC-TVs

Having found relatively few takers for its PC Theatre product, Compaq has stopped distributing the system at retail stores and may soon quit the niche market.

LAS VEGAS--Having found relatively few takers for its PC-TV, Compaq (CPQ) has stopped distributing its PC Theatre system at retail stores and may soon end its dalliance with this pricey, first-generation "convergence" product.

As part of the retail phase-out, Compaq has outsourced sales of the $5,299 system to a company called International Marketing Group. That company is now selling the systems direct to interested customers.

Only a very limited number of PC-TVs are available in retail outlets such as CompUSA, signaling that Compaq might soon phase out its PC-TV altogether.

While declining to discuss the fate of the PC Theater, Patrick Griffin, manager of market development at Compaq's U.S. consumer group, says the company is now studying convergence products that which would be less pricey. "We?re trying to position for the era of digital TV. We are continuing to explore entertainment products and appliances with lower price points," he said, noting that Compaq is exploring the idea of digital set-top boxes and Internet access devices but has no specific product plans at this point.

"We are trying to find what the right product is," he added.

Speaking at Comdex in November, Compaq CEO Eckhard Pfeiffer said that the PC Theatre is an experiment and termed it "trial marketing," trying to put the best face on the computer's tepid sales turnover.

The type of product Compaq will ultimately target should be more apparent by the time digital broadcasts, which marry television programming with data services, roll around.

Technological convergence--the catch phrase used to describe the fusing of consumer electronics and computing technology in a single device--is rapidly shaping up as one of the major trends in the PC industry. But that trend appears to be pointing to devices that are going to be priced well under $1,000.

The cable industry is looking at computing devices called digital set-top boxes that will sell at prices between $200 and $500 and offer the ability to receive digital broadcasts and Internet-based services such as email. Companies are also targeting consumers with low-cost dial-up Internet access devices like Microsoft's WebTV.

By comparison, Compaq's PC Theatre pricing is outlandish. At over $5,000, it does not include features that justify the exorbitant price: a 200-MHz Pentium MMX processor, a DVD-ROM drive, wireless keyboard and mouse, a 3.8GB hard drive, and a 36-inch digitally enhanced monitor from RCA.

Compaq's difficulties with PC-TVs don't necessarily invalidate the PC-TV concept, though. Other vendors such as Gateway 2000 and Philips Electronics are doing well enough with the devices by addressing specific niche markets through targeted distribution plans.

Gateway 2000, which basically originated the product category with the Destination PC-TV, is selling systems that are priced from $2,499 for a 166-MHz MMX Pentium system and 31-inch monitor to $4,999 for a 300-MHz Pentium II system with DVD-ROM and 36-inch monitor.

Although Destination is still a limited volume product, the company has succeeded in targeting higher education and corporate users as well as "PC enthusiasts." Sales to institutions and corporations now constitute 50 percent of all system sales, according to Bill Graber, marketing manager for the Destination products.

Gateway is continuing to refine the product for consumer use as well. At the Consumer Electronics Show in Las Vegas, Gateway is showing a voice-activated home control system called "HAL 2000." Using technology from Home Automated Living, users can control lights, sprinklers, thermostat settings, or alarms through the Destination by speaking. Gateway is interested in bundling the HAL software as well as other required hardware in Destination systems, but hasn?t announced any new products yet.

Philips has a $5,000 PC-TV convergence product called the DVX8000. The unit is sold as a standalone component intended to be connected to a user's existing big-screen television in a high-end "home theater" environment where the unit can control other pieces of equipment either through a wireless keyboard or a remote control device.

Philips appears to be enjoying a measure of success by selling the system through audio and video specialty retailers instead of computer or electronics superstore retailers.