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Apex girds for entertainment PC play

The company, which has quietly emerged as one of the big players in consumer electronics, hatches a plan to release an entertainment PC.

Apex Digital, the quiet giant in consumer electronics, will come out with its first PCs later this year as it continues to sneak into the American home.

The company, which specializes in $50 DVD players and other low-cost consumer electronics devices, is preparing a so-called entertainment PC for release later this year, Steve Brothers, president of Apex, said Wednesday.

News.context

What's new:
Apex, which specializes in $50 DVD players and other low-cost consumer electronics devices, is preparing an entertainment PC for release later this year

Bottom line:
While it's not one of the best-known brand names in the U.S. consumer electronics industry, Apex is rapidly emerging as one of the biggest players. Its move into entertainment PCs likely will be closely watched.

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Entertainment PCs are fully functioning home computers designed to work with televisions and fit in entertainment equipment racks. They are about the size and shape of videocassette recorders and are used to play and record DVDs, view photos, serve up digital music and record TV programs. Consumers operate them with remotes, rather than keyboards or mice.

While it's not one of the best-known brand names in the U.S. consumer electronics industry, Apex has rapidly emerged as one of the biggest players, so its move into entertainment PCs will likely be closely watched. Founded in 1997, Apex has become one of the largest sellers of home DVD players in the United States due to its sharp discounts, creative product integration, and close ties with retailers and contract manufacturers.

The Ontario, Calif.-based company's annual revenue passed the $1 billion mark in 2002, and it has set a goal of exceeding $1.5 billion in revenue this year. Apex, however, employs only about 80 people, according to sources close to the company. Brothers wouldn't confirm the exact number of employees but said it came to fewer than than 100.

"These guys came out of nowhere," said Bob O'Donnell, research director for device technology at IDC. "This is a classic case of leveraging the manufacturing infrastructure in China and Taiwan. They've brought a lot of technology down to consumer-level price points."

Before its release of the entertainment PC, Apex plans in May to debut ApeXtreme, a DVD player that runs computer games, Brothers said. ApeXtreme is based on similar PC components but won't perform as many functions, he said.

Discount kings
Apex largely grew through the popularity of its home DVD players. The company ranked second only to Sony in terms of unit shipments of DVD players in the United States in 2003, according to Stephen Baker, an analyst with NPD Intelect. Sony had 10.9 percent of the market that year, while Apex held a market share of 10.4 percent.

During the same year, Apex moved up to become the seventh-largest seller of televisions in the United States. Other products from the company include digital cameras and home theater systems. The company sells its products in Wal-Mart but also in electronics superstores.

"It is a lot like the eMachines story," Baker said. "They are very focused. They end up being a go-between between the retailer and manufacturer." Last week, Gateway acquired low-cost retail PC leader eMachines.

Prices have been a large factor in Apex's growth. Apex DVD players generally range in price from $49.95 to $150. The company's pricing policies have been one of the chief reasons that more established manufacturers have had to slash their prices.

"They are the 'apex' of the transformation of this market, to coin a phrase," Baker said. "They have forced everyone to rethink how they do things."

Brothers said that while Apex has offered prices lower than competitors, it's not the company's only lever. Apex also has integrated different functions more quickly than rivals. The company, for instance, came out with the first DVD player with an integrated MP3 player and the first DVD player that was compatible with Kodak's picture CD format.

"We work hard on the highest levels of compatibility," Brothers said. Asian manufacturers might assemble Apex's products, but the company "comes up with the product idea," he added.

"The ultimate product for us would be a universal optical disc player," he said. "If it's a 5-inch silver disc, it would play."

Prescott bound
Brothers did not provide the exact configuration of the company's coming PC, but indicated that it would likely include the "Prescott" processor from Intel. Intel developed a reference design for such computers, which it calls E PCs, and is licensing the specifications to equipment manufacturers. The Intel blueprint incorporates its Prescott chip and Microsoft's Windows XP Media Center operating system.

Gateway has its own computer on the market that performs similar functions; machines based on the Intel design are expected toward the middle of the year.

The entertainment PC from Apex will cost $799 at most, Brothers said, but the company also will release lower priced units. Intel has set a target price for its Prescott E PCs at $799 and lower.

Apex could cut the price on the machine in a couple of ways. The first method would involve using cheaper versions of Prescott. Intel has said it will work to come out with cheaper E PCs to drive volume sales.

Apex also could come out with a box based on chips and software from alternative manufacturers. The company adopted a chip from Advanced Micro Devices for ApeXtreme. In January, the specifications listed a processor from Via Technologies, but Apex's Web site now identifies the chip as an AMD Athlon XP 2000+.

The discounter also could team up with start-up Mediabolic, which sells interface software that performs the same basic entertainment functions as Windows XP Media Center. Currently, Windows is one of the most expensive components in a PC. Inserting Mediabolic on top of Linux would likely cut costs.

Hewlett-Packard, in fact, already uses Mediabolic's software in its networked DVD devices, said Jeremy Toeman, associate vice president for San Francisco's Mediabolic. Using these different technologies, however, would mean that Apex could not likely use Intel's reference design.