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Intel pictures digital TV

The chip giant plans to attack digital television on a broad front, one of the next big markets for its products.

Intel (INTC) will attack digital television on a broad front, one of the next big markets for its products as the chip giant expands its technological horizons.

The company detailed its plans today to build the core components for TV set-top computers and personal computers with digital television capabilities.

Intel also indicated today that it has apparently settled a squabble with TV broadcasting industry as a result of technology that allows forthcoming Intel products to handle the broadcast industry's interlaced format. Earlier in the year, Intel, Compaq, and Microsoft had been advocating the PC's progressive format, which the broadcast industry rejected. Compaq has also indicated recently that it is willing to comply with the broadcasting formats. (See related article)

Intel demonstrated today prototypes of a variety of products, including browser software and circuit boards which plug into a PC and turn it into a veritable digital TV--in addition to the set-top computer. The company also hinted at possible deals with companies like NCI, an Oracle subsidiary that has developed software for set-top devices, and WebTV, a major supplier of such boxes.

The chipmaker is attempting to extend to the digital TV arena its enormous success in the PC industry, where it supplies the core hardware components to almost all computer manufacturers large and small worldwide.

"There could be as many 25 million [digital] set-top boxes in 1999. The way things are going, Intel could have most of that market," said Richard F. Doherty, director of The Envisioneering Group, a marketing research firm based in Seaford, New York.

Larry Gerbrandt, a senior analyst at Paul Kagan Associates in Carmel, California, agrees that the market potential is huge. "Intel has a major impact just because they're Intel, and they're working to make sure they have an impact," he said.

"It is staying at the locus of the convergence," he added, referring to the melding of computer and consumer electronics technologies. "[A total of] 230 million TVs eventually have to be replaced. This a business targeting 100 percent of the homes [in the United States] vs. 40 percent of the homes [with personal computers]. Which would you choose?"

A set-top box--or set-top computer, as Intel defines it--hooks up to a TV set and allows it take on computer features and applications such as email, basic word processing, data storage, and Web surfing. For users, this means an enhanced TV that allows them to hop, for instance, from a Microsoft Windows "channel" to an electronic program guide, then to email, the Internet, and back to television.

Intel showed a prototype set-top computer today with browser software from NCI. A sample interface consisted of an electronic channel guide taking up most of the screen, with an email option in a corner of the screen.

A small box in another corner of the screen was running a TV program and there was a "floating" pull-down menu for options such as switching to the Internet. In some devices, a Windows channel brings you to a Windows 95-like interface.

Doherty said a future version of the Pentium II processor would be cheap enough for a consumer device priced between $300 and $500, a range that Intel executives disclosed today.

Intel's most powerful processor architecture will also let set-top computers process all the essential multimedia data streams. This includes full-motion video based on the MPEG-2 standard, decryption, and advanced audio, according to Mike Aymar, vice president and general manager of the consumer products group at Intel. With older, less powerful processors, additional hardware was needed, and that added to the cost.

Importantly, Intel's set-top computers and circuit boards will be to handle a wide variety of broadcasting formats, so the hodgepodge of formats apparently will no longer be an obstacle to displaying digital TV on the PC or via a set-top computer.

Doherty noted that the Intel set-top computer is a way for people to get digital TV without spending thousands of dollars on a new, digital-ready set.

The profit margins for Intel on these set-top devices would be lower than those for PCs, which presents a challenge for Intel and the vendors that use its components. However, the volumes are expected to be high enough to justify the investment in the market, analysts said.

The lack of content is still a major sticking point and may be for some time as the digital TV transition takes place, but efforts are well under way. DirecTV, the largest satellite broadcaster in North America, has plans for high-definition digital broadcasts. Digital content is also planned by CNN and other broadcasters, according to Doherty. Intel also discussed projects with PBS and Nickelodeon.

There is a long list of potential customers for Intel ready-made products and components in this area, Doherty said. Compaq Computer, Gateway 2000, and Dell Computer could offer set-top machines as a new product line because two of these companies--Compaq and Gateway--already offer PC-TVs.

Because these PC-TVs cost well beyond $3,000, they have not been a hit with consumers. "It's going to take longer for PC-TV to move into the living room. The set-top box will move more quickly," Intel's Aymar said.

Sony is also a likely candidate since it could offer other set-top computer products when the Windows CE operating system becomes available for this market, Doherty said. The company already has a comfortable relationship with Intel in PCs, for which the chipmaker supplies components such as the main PC circuit board, he added. Other manufacturers offering products may include Sharp and Panasonic.