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Emachines offers preview of MSN Internet appliance

The company gives a peek at its upcoming low-cost Internet appliance, a version of the MSN Web Companion--but whether consumers will want the stripped-down PCs remains unclear.

    Emachines gave a sneak peek today at its upcoming low-cost Internet appliance, a version of the MSN Web Companion--but whether consumers will want the stripped-down PCs remains unclear.

    The MSN Web Companion that Emachines detailed today will have no CD-ROM, floppy or hard disk drive. Like other Microsoft Network-based devices being produced by PC makers and consumer electronics companies, Emachines' unit will use Microsoft's Windows CE operating system to connect directly to the Internet through Microsoft's MSN service. The device will hit shelves and Web sites this fall.

    Unlike other proposed MSN-based devices, Emachines plans to eschew the all-in-one design for a cheaper stand-alone unit that can connect directly to a standard monitor. Details of the Internet appliance come just after Emachines warned it would post a wider-than-expected loss amid a glut of low-cost PCs in the marketplace.

    Emachines chief executive Stephen Dukker said the lower cost and use of a standard monitor will appeal to two large market segments that don't have computers: those who can't afford a PC and those who want Internet access without the complexity of a PC--largely senior citizens.

    The device itself is roughly the size of two TV dinners stuck together and contains a standard "x86" processor as well as flash memory that is used in place of a hard drive for storage. Dukker would not say how much the units cost to build but said they will cost "substantially less" than even the cheapest computers.

    "The fundamental hardware margin model for this product is higher than that in the PC space," Dukker said. He added that Emachines will also be able to make money by selling direct connections to Internet sites from the unit's custom keyboard.

    The cost to consumers will likely be zero for those who commit to Internet access from MSN, Dukker said. He said Emachines stands to get a portion of that revenue "in certain circumstances," but he would not elaborate.

    By contrast, Microsoft has subsidized the WebTV box so that hardware manufacturers, such as Sony, are guaranteed to have their manufacturing costs covered regardless of the unit's eventual selling price.

    Emachines said in April that it was working on an MSN-based Web appliance. The company has also said it is working on an America Online device, and Dukker said that unit is on track to ship later this year.

    Microsoft first discussed the MSN Web Companions last September and showed off prototypes at the Comdex show in November. In addition to Emachines, Microsoft said Turkish consumer electronics company Vestel, PC makers Compaq Computer and Acer, and consumer electronics giants Philips Electronics and Thomson Multimedia are all making Web Companion devices.

    Analyst Kieth Diefendorff said the market for Internet devices may someday be large, but the notion of replacing the PC with a network-based computer doesn't fly because the network connections are at least as problematic as the difficulties of using a PC. In addition, he said rapid developments in the chip industry allow cheap processors and lots of memory to handle computing at the desktop.

    "This is kind of a thin client model," said Diefendorff, who covers the PC processor market for MicroDesign Resources. "I don't think that's the right model of computing."

    International Data Corp. analyst Roger Kay also wondered whether those new to the Internet are truly seeking lower-cost devices. He added, however, that just because the machines are cheap, it doesn't mean Emachines can't make a profit if it can sell enough.

    "It's certainly not written in stone that just because it costs less to make, you make less money," Kay said.

    The problem, he said, is that the world where data can be sent to any kind of device, PC or Internet appliance, is still a couple of years away.

    "I think a device like this is probably going to look a lot better two years from now than they do today," Kay said.