Wednesday April 14, 7:24 pm Eastern Time
PC makers face challenge from new players
By Dick Satran
SAN FRANCISCO, April 14 (Reuters) - The personal computer, now at the height of its market power and popularity, is about to face some heady new competition.
Starting this year, new Internet-connected machines will be hitting the market in a wave, marking the first serious challenge to the mighty desktop computer's dominance.
Even the laptop won't be safe as computing leaps onto so-called Internet appliances: handsets, sophisticated mobile phones and television screens, pushed by smaller, more powerful computer chips and the growth of the Internet.
''The development and adoption of Internet appliances will explode during the next 12 months,'' investment bank Hambrecht & Quist said in a new report released last Friday.
Few in the high-tech industry will dispute that such devices are about to make a big splash -- the only debate is whether the personal computer will remain useful as the mother ship for the new devices or simply get lost in space.
''The PC era is over,'' IBM Chief Executive Louis Gerstner recently declared in a letter to shareholders, in a clear sign that the world's biggest computer maker sees a serious challenge to the existing order.
But Hambrecht & Quist analyst Danny Rimer said, ''Contrary to popular belief, Internet appliances will not replace PCs, but in many cases will provide different services than PCs.''
Gerstner, too, says don't expect PCs ''to die off, any more than mainframes vanished when the IBM PC debuted in 1981.''
Still, mainframes never held the same status after the PC took over and much of computing shifted to stand-alone desktops. Now, the reverse may happen. International Data Corp., sees purpose-built appliances surpassing PCs as the main way to connect to the Internet and ballooning to a $90 billion market within three years.
The Internet's wide adoption is fueling momentum for almost any new developments in high-tech. ''The Internet is as important to our future as silicon was to our past,'' said Intel Corp. Executive Vice President Paul Otellini, whose company has made more money from silicon chips than anyone.
With businesses gearing up for $1 trillion in e-commerce, companies are increasingly aiming investments at the network, not the desktop. In homes, where e-mail and the Internet are the killer applications, consumers are also looking for more and better ways to connect -- slow-to-boot-up, complicated personal computers might not cut it.
''What will happen over the next few years is that we will Web-enable everything,'' IBM Internet division general manager Dr. Irving Wladawsky-Berger said in an interview.
Set-top boxes will link televisions to the Internet, PalmPilot-type handheld computers will be sold with wireless modems to receive e-mail and mobile telephones will have Internet browsers embedded.
Gameboys and handheld electronic toys are being launched as Internet-ready devices. Home-based wireless networks, with backing of companies like Intel, also are becoming a reality.
''Putting an Internet connection inside a personal electronic device will be as simple as making televisions 'cable ready,''' IBM's Wladawsky-Berger said.
As a result, for the personal computer industry, the number of possible competitors grows by the day. Japanese companies like Matsushita Corp. and Sony Corp., the leaders in consumer electronics, see the appliance market as way to get back onto the cutting edge of technology, after slipping in the PC era.
In the fiercely competitive communications market, telecom companies may start offering inexpensive computing devices to consumers as a way to sell them subscription services.
AT&T Corp. acquired a majority of cable modem company AtHome Corp., mostly for its PC-based service. But AtHome is also working on a related service to convert televisions for Internet service. Microsoft Corp. made a similar move by acquiring WebTV, a service that links televisions to the Internet. It is also pushing Windows CE, a pared-down operating system aimed at keeping its systems relevant when PC's are not, and a ''light'' browser for mobile Internet appliances.
But in a sense, the best placed to win in the communications era are those without any history in the PC business at all. Communication device makers, with less baggage to carry, could travel fastest in the post-PC era.
"Phones are getting more and more powerful, and they are connected direct to the network so they have a capability that's been lacking in laptops, said Dr. Irwin Jacobs, chairman of Qualcomm Inc., one of the leaders in sophisticated cell phone technology.
The opportunities for mobile phone makers to grow on the Internet inspired Qualcomm to end a long dispute with European phone makers, led by Sweden's Ericsson, and create a single technology for wireless phones.
That pact brightens the future for the telephone makers, and, with 400 million units already out in the field, their highly global base of users tops even the PC industry.
''PCs have kind of reached a plateau, in their level of sophistication,'' said Greg Blatnik of Zona Research, but mobile phones are just taking off. New models will have high-speed Internet connections that will be able to carry two-way color video, text and voice, from almost anywhere.
The only thing missing is a full-sized keyboard, though Qualcomm's Jacobs notes digital phone systems are already providing a base for voice recognition technology. ''So over time, people will replace desktops with more and more powerful phones.''
Silicon Valley entrepreneurs are not standing by watching, of course. Venture capitalists are pouring tens of millions of dollars into start-ups that are creating new products, and most major PC makers have communications devices under development.
One company, MediaQ, has launched a business in making chips for PC makers to build Internet appliances. Sunder Velamuri, MediaQ vice president of marketing, sees PC makers shifting gears and become big players. ''We think there is a huge market for them in the post-PC devices.''
In one of the most watched device market start-ups, the creators of the PalmPilot handheld computer bolted 3Com Corp., and began a start-up for handheld Internet devices.
The company will not disclose its plans, but says it will have a major product by year's end. Handspring business development director Ed Colligan says start-ups like his will play a major role in the development of the market.
''If you look at the history of computing, whenever there is a paradigm shift, the companies that led the previous wave don't make the transition very well,'' he said. ''Nobody owns the future here.''
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