Forget chips -- Intel prepares MP3 player

Summary:Intel becomes the latest computer company to venture into digital audio and other consumer electronics devices.

Intel will come out with a portable digital-audio player next month, as the lines separating PC manufacturers, component makers, Internet service providers, and consumer electronics companies continue to blur.

The Santa Clara, Calif.-based chip giant will unveil its digital-audio player, and likely other new products, at the Consumer Electronics Show next month in Las Vegas, according to sources close to the company. The player is part of Intel's connected products division, which markets digital cameras, wireless keyboards, toys, and other consumer products.

While the financial gains from Intel's chip business will no doubt dwarf revenue from the audio player, the move reflects a strategic opportunity that has opened with the rise of digital entertainment and the proliferation of PC technology.

With video and audio now published in digital formats, the PC has emerged as a suitable medium for playing or storing movies and MP3 music. As broadband networks spread, PCs will also increasingly become used as distribution platforms for pay-per-view programming. In addition, most of the major computer makers have strong, established brand names that will let them move into new markets with, theoretically, relative ease.

Among the major PC makers, Gateway has so far embraced the trend to move beyond the PC the most heartily. The company came out with a Web-surfing appliance and home MP3 player in November.

Next year, the company is looking at releasing Web-surfing pads, home telephone systems, and devices for streaming and distributing video, Kevin Hell, vice president of Gateway's connected home effort, said recently. TVs, stereo speakers, and cameras are also possibilities.

Hewlett-Packard in mid-2001 will come out with Superdrive, a DVD and CD recorder/player that could serve as a vault for video and music.

By promoting digital-audio players, Intel (intc) can further promote the PC as the nerve center of the digital home and extend its brand into another field. Just as important, Intel has an opportunity to undercut other makers of digital-audio players. The company is the world's largest manufacturer of flash memory, which stores data inside a digital-audio player. Intel also sells chips for establishing the Universal Serial Bus (USB) -- the port that allows consumers to plug a player into a PC with relative ease.

By effectively supplying these parts to itself or a chosen contract manufacturer, Intel could substantially reduce overhead.

"The bulk of the cost of manufacturing MP3 players is in flash and USB," said Richard Doherty, an analyst at the Seaford, N.Y.-based Envisioneering Group. "That's 95 percent of the cost right there."

Doherty added that Intel's brand name has so far shown some strength outside the core chip area. Like a number of PC manufacturers, Intel this year released a Web-surfing appliance, the Dot.Station. While the device hasn't taken the U.S. market by storm, Intel has seen some success in foreign markets.

"They've shipped more than Compaq has shipped Web Companions," Doherty said. There is no guarantee, however, that disgruntled teens will place their musical trust with one of the well-known names of the Fortune 500.

In addition, some efforts to move beyond the PC have met with uneven success. Both Compaq and Gateway once sold PC-TVs but canceled the projects after anemic sales. Compaq, among others, also sells portable MP3 players.

Intel declined to comment on the portable digital-audio player, citing a policy against commenting on unreleased products.

Topics: Intel, Hardware, PCs

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