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Cheap computers presage wrenching changes

IDC expects 1998 will bring a plethora of ultra-cheap computer appliances that will spur Internet usage while upsetting the industry's balance of power.

In its latest report, International Data Corporation (IDC) has looked into the near-future of computing hardware and foreseen a plethora of ultra-cheap computer appliances that will spur Internet usage while upsetting the balance of power in the computer industry.

Next year is expected to bring the widespread rollout of information devices that fulfill the long-promised convergence of easy-to-use consumer appliances and PC technologies. Perhaps more important, sales of such devices as TV set-top computers, Web-enabled TVs, screen phones, and Personal Digital Assistants may also help fracture the alliance of Microsoft and Intel, whose operating system and processor technologies dominate the world of the desktop computer.

"If you think $999 PCs turned the market on end, see what happens at $199, with the arrival of a wide range of information appliances," said IDC's vice president of Internet research, Frank Gens. In 1998, the market "will see an explosion of new product introductions," he said.

"PC suppliers, chip suppliers (notably Intel), peripherals suppliers, and software suppliers must establish a place in the appliance space or risk marginalization. These suppliers must adapt business models to support much higher volume sales and lower unit costs." He added: "Windows will struggle to maintain its current position as the de facto standard client platform as more appliance-centric operating systems (including Java OS) compete in this space."

Priced between $200 to $500, information systems will be saleable to 60 percent to 80 percent of U.S. households, IDC predicts. But to get there, computer companies will have to radically adjust their business models.

One product already helping to force these changes in the computer industry is the digital set-top box--or the set-top computer, as some have elected to call these more powerful, next-generation devices.

The cable industry is spearheading an initiative that will result in digital set-top boxes which will use a number of different processors or operating systems, unlike desktop PCs. These machines will have computerlike functions, such as the ability to send and receive email, browse the Internet, and even make phone calls.

In the past, Intel had been loathe to enter the market for consumer devices because it put the company's historically high profit margins in peril. But IDC says neither Intel nor the computer manufacturers can ignore these burgeoning new markets.

These days Intel agrees with IDC wholeheartedly. The company hopes to play a major role in making the building blocks for set-top computers. Intel would make the core electronics of an enhanced TV-cable box that runs on a scaled-down Pentium II. As planned, it is likely to cost about $500.

Although this device will be less expensive than typical PCs, IDC's Gens says that the processor in the most inexpensive devices will have to be priced between $10 to $20 to be widely adopted in the information appliance market. As a result, IDC predicts Intel will announce a non-Pentium processor for the low end of this market.

As predictions go, Intel may have already fulfilled this one, having taken over development of Digital's powerful and inexpensive StrongARM processor. (See related story) Intel has yet to formally announce plans for the processor, however.

Microsoft, too, will be forced to change the way it does business to adapt to a market filled with low-cost devices. The company is already saying that Windows CE will be the platform for use on a wide range of information appliances. But industry experts say in a number of devices such as digital set-top boxes, CE will be too large and too immature a technology to find widespread use.

"Our 'out-on-a-limb' prediction for 1998 is that Microsoft will rethink its appliance strategy and launch a new non-Windows platform focused on this new class of devices," Gens said in a prepared statement.