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Research and Markets: Computer Company Strategy & Their New Developments in the Digital Consumer Electronics Market; Consumer electronics sales are projected to rise by 5% in 2004, versus 2% in 2003 (6/8/2004)

Research and Markets has announced the addition of Computer Company Strategy & Their New Developments in the Digital Consumer Electronics Market to their offering.

At first glance, the incursion of the computer industry onto the turf of mere gadget makers would seem to violate most of the strategic tenets expounded by business-school professors, management consultants and other marketing gurus.

Computer-industry executives insist their embrace of consumer electronics is a bold move aimed at hastening the convergence of media, especially now that devices and data both speak the same language, the zeroes and ones of digital code.

Besides, the PC makers note, they already have vast experience in markets that feature relentlessly declining prices and frequent product-upgrade cycles.

They're adept at sourcing and assembling components abroad for resale at home and boast well-developed distribution channels through which to pump wondrous new assortments of silicon-powered products another, darker truth prevails:

The PC business is mature and its biggest players are desperate for new sources of growth, even if that means taking on entrenched players in an equally cutthroat business. There is no strategic logic or technology logic. PC companies just have to go somewhere.

Much of the talk about growth opportunities in consumer electronics is aimed at masking the slowdown in sales of PCs and peripheral products. The computer industry does not see a lot of transforming technologies" that could bail it out.

The announcement that Dell and H-P have joined the Blu-ray group also underscores how aggressively computer makers are forging into consumer electronics - even in standard-setting.

Consider these statistics: US household penetration of PCs has reached nearly 80% and isn't likely to grow much more, even by the industry's own reckoning.

Gartner Group predicts global PC sales will rise 13.9% this year, to 187 million units. That follows increases of 11% last year and 2.7% in 2002, and a decrease of 4.6% in 2001. Factor in persistent price declines, and the four-year record suggests PCs hardly are a robust business.

Meanwhile, dollar sales of all consumer electronics are projected to rise by a scant 5% in 2004, versus 2% last year, according to the Consumer Electronics Association. And that's despite the relative infancy of newer products such as plasma TVs, MP3 players and digital cameras.

Gateway has gone furthest in introducing its own line of non-PC products, perhaps because of its persistent loss of PC market share and its mixed success to date with retail stores and online sales. The company, which lost $526 million, or $1.62 a share, last year on sales of $3.4 billion, has introduced more than 100 new products, including 11 plasma or liquid-crystal-display televisions, several digital cameras, camcorders, MP3 music players and DVD player-recorders.

Hewlett-Packard last August declared its heightened interest in consumer electronics with a rollout of 158 products grandly dubbed "Big Bang 2." The strategy is heavily tilted toward H-P's strength in imaging and printing, and is designed to drive further use of consumables such as paper and toner. In other words, the effort extends the H-P brand but fits snugly within the company's existing business model.

But its foray into consumer electronics has been more dramatic, relative to both the size of the company.

Notably, all four PC makers have relied on a retail presence to raise customer awareness of their innovations. Gateway opened its first store in 1996 and later expanded to more than 300 units before paring back to a current 190 locations then shuttering those after the eMachines acquisition, which should allow it to secure shelf space at electronic retailers.

Apple has a handful of stores, mostly in malls that cater to affluent shoppers that are Meccas for Mac-heads. The stores celebrate and promote the company's hip, sleek products. Dell has placed demonstration kiosks in selected malls for several years, and H-P has joined with Microsoft to create displays in certain electronics stores to spotlight its line of "Media Center PCs." Many PCs made by Dell, H-P, Gateway and others run on Intel Pentium 4 processors and Microsoft's Windows XP Media Center system. They enable live-TV viewing and include DVD players, TiVo-style personal video recorders and software for digital-music downloading and photo management.

The media PC-a middle ground between standard PCs and consumer electronics -- could be where the PC giants are pinning their hopes. The media-center PC is the key devices of the conflict between traditional CE companies like Sony and Philips and the traditional computer-box makers. Indeed, the Silicon Valley has prophesied about the coming convergence of PCs and TVs, not to mention other data-delivery devices.

But the evidence suggests that media heaven will have to wait. The day won't come when you don't need a PC. Apple CEO Steve Jobs also is on record stating his disbelief that the PC and TV eventually will meld into a single product. Nor have consumers shown much interest to date in "single-box, single-brand" solutions, which could pose an obstacle to broader acceptance of media PCs.

In their headlong rush to seize market share from traditional consumer-electronics firms, the PC makers face another, more immediate obstacle: A Windows-based machine must be booted up, more often than not, a time-devouring process. Too, PCs -- ours, anyway -- are prone to crash, rarely a problem with TVs and DVD players.

PC-component makers are apt to benefit under almost any scenario. Regardless of how content is delivered. That means semiconductor chips, storage technology and operating systems will be in growing demand, at least in the short term.

Apple's biggest advantage is its knack for making products that are easier to use than the competition's, a desirable skill in the mainstream consumer market. Apple seems to have hit upon an excellent strategy, virtually creating two new businesses in iPod and iTunes, though its ultimate success will depend on the company's ability to drive sales of Macintosh computers and its OSX operating system.

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