MS, Intel focus on consumer devices

As the market for PCs matures, the two companies that have propelled the industry's exponential growth, Microsoft (MSFT) and Intel (INTC), are now leading manufacturers into a new era of inexpensive consumer electronics devices.

Previously reluctant to enter the world of consumer electronics, both companies are now marching full-force toward the introduction of lower-cost PC devices that would enable people to be continuously connected to video and data networks.

Microsoft will show a prototype design of a small "PC wallet" device in early January 1998 at the Consumer Electronics Show, according to industry sources. PC wallet describes computing devices that can fit in users' shirt pockets.

The new devices will operate on the already released Windows CE 2.0 operating system and allow users access to email and contact information, for instance. Some devices will also include the ability to act as one-way pagers, acting as a potential replacement for the separate pager now used by an estimated 80 million people in North America.

The personal information managers, or PIMs, will reportedly cost between $250 and $400, competing against 3Com's PalmPilot device.

Intel's foray into the market for consumer devices comprises the TV "set-top computer," which is essentially a TV-cable converter box that runs on a scaled-down Pentium II.

In addition to being able to one day playback high-definition television signals, the box will enable users to send and receive email, browse the Internet, and make phone calls through a device that sits atop--or inside--a television.

While cable companies will initially deploy these devices to homes, consumer electronics and computer companies are expected to eventually sell these devices in retail stores for between $200 and $500, a far cry from the $1,500 to $2,500 for the average computer today.

Intel, in particular, hasn't been eager to enter these markets since the company's historically high profit margins are in peril. But the company is finding that it can't ignore these burgeoning new computer markets either.

Though penetration into U.S. homes has just recently broken 40 percent mark for PCs, this pales in comparison to the market penetration of televisions, phones, and VCRs.

Some analysts estimate that there could be as many as 25 million digital set-top computers on the market by 1999, a large portion of which Intel could capture if it builds the right alliances with cable companies like TCI. TCI is currently evaluating proposals for new set-top boxes it wants to order, and Intel is apparently already high on its list of companies that will provide TCI with technology. (See related story)

For Microsoft, the plan is to make sure its Windows CE operating system software is in a wide range of inexpensive devices that hook up to its Windows NT network operating software. "Bill Gates [Microsoft's chairman and CEO] talks about having information at your fingertips," said Alan Reiter, president and editor of Wireless Internet and Mobile Computing, by way of example.

It may take three or more years before Gates's vision is feasible, "but he [Gates] is serious about instant information. For that you need a variety of devices," Reiter noted.

Microsoft is also interested in looking at these devices' suitability for transaction processing, such as buying stocks, something which "is aided and abetted by portable devices," Reiter said. With such capabilities, Microsoft also gains the opportunity to receive incremental royalties based on transactions made over its software.