Rishi,
Another one. Even Intel feels the pressure to respond to the market need.
Steve
*****
intel: End of the road?
By Michael Kanellos
Staff Writer, CNET News.com
November 17, 1998, 10:45 a.m. PT
special report The brave new world of digital convergence is coming--the question
is who will make money in it.
One of the most obvious differences from the prevailing digital world of today centered on
personal computers will likely be the absence of Intel or Microsoft from a leading role--at
least initially. This should engender business and pricing strategies far different from
anything seen to date in the PC industry.
"[Windows-Intel] is not likely going to be as dominant in the appliance paradigm," said
Steven Milunovich, a vice president in Merrill Lynch's technology
research division. "Processor rivals now have a chance."
Instead, the old hardware guard may find itself chasing low-cost,
low-powered designs based on chips from companies such as
Advanced Risc Machines, Mips, Hitachi, and electronic goods
specialist Sony, as well as a host of unknown chip vendors.
On the software side, Sun Microsystems and Network Computer also stand to do well.
Microsoft could make its mark in this space as well.
The wild cards will be a host of start-up companies targeting convergence, such as TiVo.
For years, PC powers have tried to expand their presence in the home. The problem is that
price points have been typically high, as with PCs. Expensive PC-TV theater systems from
Gateway and Compaq floundered in the market. Compaq terminated its PC-TV line, while
Gateway has recently dropped the price on its existing line to make it more attractive.
In their stead, companies like emachines, backed by South Korean PC giant Trigem, have
emerged to offer $499 PC-like devices that connect to a TV and offer
and Internet access--and don't necessarily offer Windows or Intel
processors.
In this world, Intel and Microsoft, will run up against a new market
model where diversity of functions and price points work against quick
standardization, leading instead to a pack of leaders, Milunovich
believes.
Of the two, Microsoft will likely have an easier time fitting into the new
markets. Microsoft already has established partnerships for marketing
Windows CE as well as a beachhead with WebTV. The desire for PC compatibility will also
help CE's appeal.
By contrast, Intel has only begun its device push. "Intel has almost no share in the
appliance market. Intel is not happy about that," said Milunovich.
Intel's push into this market, based on the StrongArm processor, will give it an entry, but it
comes with a catch. Because the design gets licensed from Arm, Intel does not keep all
the profits from the chip.
Even the winners in this market, however, will not have an easy time with the price points.
Initially, the winners and losers in this market will largely be determined by ISPs and other
service providers because they will act as the consumers, said Ashok Kumar, computing
analyst with Piper Jaffray. These
companies will buy these devices en
masse and then recover the cost
from customers.
This buying scenario, however, puts
the vendors at a disadvantage. "The
number of service vendors are few.
They will exert a significant amount
of pressure on the hardware
vendors. The silicon opportunity is
maybe 50 or 60 bucks," he said.
"Gross margins will be less than 20
percent."
Nonetheless, chip vendors will try. "Anything other than [memory chips] is good for them,"
Kumar said.
Also, Japanese companies may stake a large claim in this market since they are already a
significant force in the consumer electronics world.
"The Japanese game [machine] manufacturers have brand recognition, they are very good
at mass marketing, and they have low-cost manufacturing and customer service," said Jim
Turley, embedded processor analyst at MicroDesign Resources.
The changes the convergence market will engender, especially for PC warhorses such as
Intel, Microsoft, and Compaq, come largely as a result of the cost realities of consumer
electronics.
"Smart" set-top boxes that include a TV cable connection, a game-playing platform, and
some form of Internet access will likely come in at a price point of $299 or less, many say.
The chips that power into them will sell for $30 to $60, well under the average price of about
$200 for today's PC processor. Features such as DVD drives or an ability to perform
computing tasks will raise prices, but likely not get them above $1,000.
With such a tight envelope, success will lie in efficiency, strategic control over intellectual
property, and volume sales.
On the system side, currently Japanese vendors look to be in the lead because their
game-playing devices are almost at the stage where they can serve as intelligent set-top
boxes.
The Sega Pathfinder will take the process one step further when it comes out in 1999 by
incorporating a Web browser and a modem. It also will contain Windows CE, which will
allow for PC compatibility. At that point, the only crucial feature missing will be cable
connectivity.
Although they can cost-effectively manufacture set-top boxes, American vendors such as
Scientific-Atlanta are at a disadvantage because they do not have the game platform. |
