The Houston-based PC maker is working on a new class of products made for playing video and delivering it via the Internet, said Mike Winkler, executive vice president of Compaq's global business unit.
"As (carriers) move broadband into the home you will continue to see the PC evolve. You can now do video on demand or video storage applications," he said. "These will be an extension of the PC."
The new PCs and devices could also serve to deliver content from Disney. Last November, Disney and Compaq entered into a three-year, $100 million technology and marketing alliance.
In other device developments, Winkler said Compaq will work with Microsoft to popularize the "Stinger" phone, a combo phone-wireless handheld based on Windows CE. In March, HTC, a Taiwanese contract manufacturer for Compaq, said it would make Stinger phones.
Many major PC companies are reeling financially from the collapse of the consumer PC market in the United States. But Compaq, among others, believes the future for the home computer industry lies in consumer electronics.
The change has come alongside the advent of digital media files. With music, movies and pictures being published in digital formats, the PC is emerging as the default conduit for entertainment.
"The usage models are all on the uplift today. Digital still cameras are growing at a compound annual growth rate of 80 percent. That is phenomenal," said Anand Chandrasekher, vice president of microprocessor marketing at Intel. "You may use the PC to order a disc for your Discman, but there the connection stops. The connection of an MP3 player to a PC is 100 percent."
Compaq in many ways has been at the forefront of the charge. Last year, the company released a portable music player called iPaq Personal Audio Player. And at the Consumer Electronics Show in January, the company showed off the upcoming iPaq Music Center, a home MP3 jukebox with a CD player that hooks up to the Internet.
While digital music has driven computer and MP3 player sales, video has for years been the PC industry's siren song. In the 1980s, Intel tried and failed to popularize videoconferencing. A few years ago, Gateway and Compaq marketed entertainment systems that combined Pentium II PCs with 27-inch screens and larger PCs. Few consumers bought them.
The picture, though, is changing through the growth of cheaper recording technology and more powerful networks and PCs.
"We've all talked for years about convergence. Well, we're starting to see more and more of it," said Stephen Baker, an analyst at NPD Intelect. "The Internet has given everybody a natural jump into consumer electronics."
In mid-2001, Hewlett-Packard is expected to come out with a combo DVD and CD recorder/player that could serve as a vault for video and music, executives have said.
Gateway showed off a video-on-demand box developed in conjunction with Broadcom in November, but a company spokesman said Gateway has not yet made firm plans to release it.
Media companies are also testing the waters. AOL Time Warner is testing video on demand in Columbus, Ohio. Blockbuster and Enron, however, recently pulled the plug on a video-on-demand deal.
Disney would be a likely candidate to team with Compaq. Among other elements of the deal between the two companies last year, they agreed to distribute content from Walt Disney Interactive on Compaq PCs and devices.
Winkler said Compaq would in all likelihood promote video devices with a content provider. Although he would not comment on any deal with Disney, he volunteered that the entertainment conglomerate would be a logical partner.
A Disney spokeswoman said the company told analysts in February that the next iteration of its Movies.com site would provide video on demand, but declined to offer details on timing or trials.
Like HP's combo DVD and CD recorder/player, Compaq's video player could contain a number of features, including a recordable DVD/CD drive or TiVo-like features for digitally recording television shows onto an internal hard drive.
NPD's Baker said all the functions are strong possibilities because recordable DVDs, digital music and digital TV recording are three of the more prominent types of product featured at trade shows.
"It's going to be a fight between Compaq, HP and Sony" in the consumer market, he added.
Winkler did not elaborate on features but said the products are moving down the pipeline and should be out in the not-too-distant future.