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Industry Hopes "Seamless Computing" Reaches Consumers

Moore's Law is coming to consumer electronics. If the industry has its way, we'll all be transporting digital music, video, and photos to a home-entertainment center, and soon. Indeed, to even the casual observer, it seemed like just about every company exhibiting at the recent Consumer Electronics Show in Las Vegas had bought into Bill Gates' "seamless computing" home program.

As Gates put it in his keynote speech at the show, "We want to make it easy to have the same information on the device you have at work and the device you have at home."

Intel president and COO Paul Otellini is helping to lead the drive, telling the Industry Insiders seminar in Las Vegas that "the same dynamics that drove the PC revolution are moving to consumer electronics."

It's digital convergence in its broadest marketing perspective. PC vendors are moving rapidly into consumer electronic markets, while consumer-electronics manufacturers and marketers are ramping up their involvement in portable PCs and in emerging "smart" products for inside and outside the home.

In a report published after the CES, American Technology Research said that the accelerating growth of consumers' use of digital media will create enormous demand for ways to share, edit, and archive media. According to ATR, the consumer electronics and PC worlds will "rendezvous" to address this demand.

It's also about commoditization and competition. PC vendors are offering similar products and facing severe pricing pressures. Forrester Research expects PC prices to continue to plunge. Major brands like Dell, Hewlett-Packard, and Gateway, already working with thin margins, hope to kickstart device sales via new consumer-electronics products and retail outlets.

HP will introduce flatscreen TVs later this year, as well as its version of Apple's iPod. Dell is going with PDAs. Intel and Microsoft are well entrenched on several fronts. (Intel's new Pentium 4 microprocessor, code-named Prescott, is aimed at next-generation home-entertainment computer systems.) Gateway has become the largest seller of plasma-display TVs in the U.S. It also very recently acquired eMachines, hoping to capture a larger share of the low-end PC market.

"Computing power, residential broadband access, and home networking are the three catalysts that are driving this convergence," says Vamsi Sistia, director of broadband research at ABI, a market research firm. Of course, the CE community, led by Panasonic, Sony, Philips, and Sharp Electronics, is responding to the threat from PC vendors in kind. Sistia says they're "arming their traditional CE products with computing, broadband, and networking capabilities."

How big is our so-called connected society? According to research conducted in October for the Consumer Electronics Association (CEA), 61% of adults in the U.S. report having Internet access at home. On top of that, 71% of all households have computers, with 32% owning two or more PCs. Yet only 13% of the households surveyed had a home network, and 36% of these networks are wireless. And, 14% of U.S. households have Internet access from a portable device or cell phone.

None of this has been lost on semiconductor houses. Several, including Agere Systems, Analog Devices, Cirrus Logic, Intel, RF Micro Devices, Texas Instruments, and Transmeta, were out in force in Las Vegas, some with significant exhibit space.

Most of them have done well in CE. TI's stock more than doubled last year, as consumers snatched up new cell phones with cameras and MP3 players that use the company's chips.

And according to the CEA, women actually spent more on technology last year than men—about $55 billion of the $96 billion spent on consumer electronics. Women have complained for years about how they're treated at electronics stores. But that's changing, the CEA notes, as more stores target women buyers. Manufacturers are getting the point too, with new colors and materials and more focused merchandising.

The downside to all this activity is that unlike the PC market, high profit margins from high-end consumer electronic products might not be sustainable as more vendors enter the market. To avoid this, the PC people may have to bring something new to the game, like new products.

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